Last night I spoke with my Dutch ancestor again. Nick van Rowe told me about the Land Theory of Value, which began with the French, but was perfected by the Dutch. This is what he told me:

Science has proved that land existed prior to both labour and capital. The Universe existed billions of years before humans and their tools appeared. So if we seek the underlying source and origin of all value, we must look to land. The value of all commodities is determined by the socially necessary quantity of land needed to produce those commodities. And human labour is just one of those many commodities produced by land. So is horse labour. Human labour is just an intermediate good. Land produces wheat, wheat produces human labour, and human labour produces haircuts. So if we buy a haircut we are buying the services of the land that ultimately produced that haircut. And if one examines the underlying objective physical reality of what we call "capital", and look beneath the surface obfuscation of "finance capital" (for money itself is barren, and can produce nothing), we see that capital is machines. And machines are nothing but land transformed from one shape into another.

Land produces both labour and capital. There can be neither labour nor capital without the prior existence of land. Only someone ignorant of science, or deceived by ideological blindness, could fail to see that the bourgeois trinitarian doctrine of land, labour, and capital must be replaced by the rural monism of the Land Theory of Value. It is only deracinated city burgers, living in their high-rise superstructures, who forget that land underlies everything.

It all sounded very plausible to me. But I had some concerns, so I asked my ancestor how we could have a land theory of value, when land itself was so diverse?

Land is diverse, but the Land Theory of Value measures value in terms of a standard unit of land. If a half acre of fertile land produces the same amount of wheat as one acre of standard land, and as two acres of less fertile land, then they all represent the same amount of standard land.

That seemed like a good answer, but then I thought about land that wasn't very good at producing wheat at all, but was good at producing some other commodity. How could we explain the relative values of the two types of land, as well as the relative values of the two commodities?

You have to consider the marginal land, that is exactly on the margin between producing wheat and producing barley. If that marginal land could produce two tons of wheat or four tons of barley per acre, then the value of one ton of barley must be half the value of one ton of wheat. That way we can compare the value of land that only grows wheat to land that only grows barley. And the market prices will themselves tell us the relative values of all different sorts of land, so we can convert them all to standard land.

But I had read about the subjectivist theory of value. So I asked him whether a change in human preferences, so people wanted to eat more wheat and less barley, might shift the margin of cultivation, and so change the relative productivity of the marginal land, and so increase the relative value of wheat compared to barley? He snorted with derision.

Preferences! We cannot observe preferences. Land is real and objective. And the margin of cultivation between wheat and barley is real and objective, and we can observe it. We don't need no stinking preferences to determine value!

I mumbled something about crop rotation, where both wheat and barley could be joint products from the same acre of land. If a field grows wheat one year, barley the next, and beans in the third year, and then returns to wheat, does this mean that all three crops must have the same value? And what about dividing the value of the land between the value of the grain and and the value of the straw? Wouldn't the relative values of grain to straw depend on human preferences for bread vs thatched cottages?

No! Because you can grow both short-straw wheat and long-straw wheat, and one produces more grain and the other produces more straw, so that's enough equations to solve the production matrix for the unknown values. And it's the same with crop rotation. If there are three different crops, and three different ways of rotating them that are not linearly dependent, and all three rotations produce the same rate of profit, as they must, it is trivial matrix algebra to solve for the values of each crop.

My matrix algebra wasn't good enough to say whether he was right or wrong about that. So I changed the subject, and asked him where profit and interest came from.

It is important to distinguish land-in-use (the use value of land) from the land itself. When we rent a field for a year, we are buying the land-in-use. When we buy the field itself, in perpetuity, we are buying the land itself. The ratio of the annual use value of land to the value of the land itself determines the rate of profit across the whole economy. And the Dutch Capital Theorists went further, to explain that if it takes 10 acres of land to produce the wheat and barley needed to feed the human labour and horse labour to drain one acre of new land per year, then the rate of profit will be 10%.

He seemed to have an answer for everything. So I asked him about the Transformation Problem, that had so bedevilled the Labour Theory of Value. If one acre of land can produce so many tons of barley, which can produce either ale or whisky, wouldn't the value of the whisky be higher than the value of the ale, if the ale takes one year, and the whisky takes seven years to mature? Unless the rate of profit is zero? He laughed triumphantly.

Yes! Of course it will! But unlike those poor Marxists, we Dutch can actually solve this so-called problem! Did you forget what I just told you about how the rate of profit is determined? By the reciprocal of how many year's use-value of one acre of land are needed to reclaim one acre of land from the sea? If it takes 10 years use of one acre of land to create one additional acre of land, the profit rate is 1/10 years, or 10% per year. It's the production of land by means of land. That's what determines what those foolish Austrians call the price of "waiting". One year's use-value of one acre of land, compounding at 10% for seven years, means that the value of the whisky must be exactly twice the value of the barley that could have been consumed immediately! It follows directly from the land theory of value. There is no transformation problem.

I woke up. It all sounded very strange. But it did all seem to make sense.