Value, Rent, Finance: A Triadic Approach

The paper introduces a novel interpretation of the relationship between value, rent, and finance, offering a fresh perspective on financialization. It challenges the common approach of analyzing value and finance in isolation, arguing that a comprehensive understanding requires incorporating rent as a crucial third element. This leads to a triadic model emphasizing the interconnectedness of these three concepts. A key claim is that fictitious capital actively pursues various forms of rent, thereby significantly influencing and deepening the relationship between value and finance. This framework is then applied to the case of water financialization, illustrating how this triadic relationship illuminates the mechanisms driving this complex process. The authors highlight the inadequacy of previous approaches that fail to adequately account for the booming profits in the financial sector, referencing the work of Christophers who notes the risk of overlooking the complexities of finance when analyzing value. This section lays the groundwork for a more nuanced analysis of financialization by integrating the concept of rent. The inherent interrelation between these factors is the central thesis, with the authors anticipating applying this to other sectors beyond finance and water.

This section critiques existing literature on value theory and its application to finance. It highlights that while many accounts of water financialization (citing Allen and Pryke, Loftus and March, Bayliss) acknowledge value creation and extraction, they lack a clear definition of value and often avoid engagement with established value theories. The authors take issue with Christophers' emphasis on risk commodification as the primary value-generating mechanism within finance, preferring instead a more comprehensive approach that incorporates rent. The section argues that a value-theoretic approach to finance needs to consider the role of rent. The authors explicitly state that they are charting a different path from Christophers and will integrate this third moment. While acknowledging the valuable contributions of Christophers’ work and the emerging dialogue between value theory and finance, the authors find it necessary to move beyond the limitations of considering only value and finance in isolation. They establish a theoretical foundation based on internal relations, a perspective that will provide the conceptual apparatus to analyze financialization as a system and not just a set of isolated phenomena. They further emphasize the difference between simply observing that fictitious capital seeks rent, versus arguing for a parasitic relationship between financial rent and industrial capital.

The core of this sub-section is the development of the value-rent-finance triad and its application. The authors build on the work of Diane Elson, particularly her concept of internal relations and how different aspects of value crystallize under specific historical and geographical circumstances. Elson's methodological approach is crucial in understanding how this triad functions and critiques simpler, more discrete interpretations of value and finance. The authors contrast this method with the work of Moishe Postone, emphasizing that overcoming value as a determinant mode of production is a primary goal of political practice. They utilize Elson's framework to understand ‘phenomenal forms’ of value, clarifying that their analysis does not treat the concept of financialization as a stand-alone, abstract concept but as a manifestation of underlying value dynamics. The section highlights the insufficiency of approaches that consider value and finance as separate variables and explains why a triadic approach, combining value, rent, and finance is necessary for more accurate understanding of financialization. The authors introduce this triadic analysis as a tool to interpret the diverse appearances of value under specific conditions, building on Elson's emphasis on understanding value's different aspects, which will then be further explored in the sections concerning rent and the specific case of water.

This section establishes rent as a crucial, often overlooked, component of financialization. It argues that financial accumulation is inextricably linked to value extraction in the labor process, but also to the extraction of rent. The authors emphasize the geographical dimension of the capital-labor dialectic, suggesting that incorporating the rent-land nexus deepens our understanding of Marxist political economy. Rent, the authors argue, is a significant phenomenal form of value, particularly relevant to the study of contemporary financialized capitalism. The section highlights that many commodities in contemporary capitalism, despite having a price, may lack inherent value, as observed by Harvey (1982). The authors emphasize that their understanding of rent and its pursuit by fictitious capital differs from the Veblenian perspective of a parasitic relationship with industrial capital. Instead, they focus on the internal connection between rent and the circulation of interest-bearing capital, demonstrating how this dynamic shapes social relations and influences private monopoly ownership—a critical element for understanding how value is extracted from material geographies. The section positions the analysis within the broader context of 'capitalization of everything' (Leyshon and Thrift, 2007), showing that the link between rent and finance has implications beyond specific sectors by highlighting that the revenue streams of financialization often stem from monopoly ownership in areas not subject to competitive profit rate equalization. The authors draw on Elson's (1979) concept of one-sided abstractions to characterize rent and finance, underscoring their historically and geographically contingent forms. The central challenge, then, is understanding why rent and finance take on particular forms within the overall process of asset capitalization (valorization).

This section delves into various theoretical perspectives on rent, specifically highlighting the distinctions between differential rent, absolute rent, and monopoly rent. While acknowledging ongoing debates surrounding the value constitution of these categories, the authors simplify the distinctions for analytical clarity. Differential rent, they suggest, is largely mediated by competition within a sector, unlike absolute rent, which is rooted in class power and barriers to competition (impeding profit rate equalization). Monopoly rent, the least controversial category, refers to the unique attributes of non-substitutable commodities. The authors cite relevant research across diverse sectors, showcasing the applicability of rent theory to a range of contemporary issues including mining, fisheries, land, water, woodlands, rural sociology, urban markets, housing, and global commodity chains (referencing various authors and publications). It addresses how Moreno (2014) and Andreucci et al. (2017) have integrated rent theory into urban political economy and political ecology respectively, with Moreno highlighting rent's dominance in urban financial systems, while Andreucci et al. link Harvey's 'accumulation by dispossession' directly to rent appropriation. The discussion then shifts to Harvey's work, noting his initial emphasis on the significance of monopoly rent before later downplaying its importance in favor of differential rent. This review sets the stage for a deeper investigation into the various forms of rent, particularly focusing on the implications of monopoly forms of ownership within the context of financialization.

This subsection explores the intricate relationship between rent and finance, particularly in the context of contemporary forms of ownership. The authors critique Harvey's shift away from absolute rent, emphasizing its continuing relevance in understanding how finance-driven private monopolies accumulate capital. They draw on Haila's (2015) concept of derivative rent, describing how the yield from land titles is securitized and traded, deepening the connections between rent and financial markets. This analysis extends beyond the housing market, illuminating how finance-led private monopolies extract rents in diverse sectors, even beyond those characterized by competitive equalisation of profit rates. The core argument is that fictitious capital actively pursues rent from various private monopolies, not just treating land and assets as financial assets. This critical insight enhances the understanding of value extraction under new forms of finance-led private monopoly ownership. The authors further elaborate on the significance of tracing the inner relationship between rent and the circulation of interest-bearing capital (referencing Harvey, 2013), emphasizing how this relation operates within fragmented spaces of absolute monopoly. This forms a basis for challenging the rise of finance and private ownership in land and infrastructure, acknowledging that class struggles and market volatility can impact the realization of expected rent revenues (referencing Kerr, 1996).

This section analyzes the formation of water prices, focusing on the extraction of monopoly rent. The authors argue that the unique, non-substitutable nature of water, coupled with regulatory mechanisms, leads to the creation of monopoly rents. Existing literature acknowledges the presence of these rents, as evidenced by the Cave report (2009) and subsequent efforts towards 'second-generation regulation' (Stern, 2010). These regulatory attempts are framed as efforts to counteract the formation of rents within vertically integrated monopolies, essentially aiming to force water, described as an 'uncooperative commodity' (Bakker, 2003), to behave according to competitive market principles. The analysis delves into specific regulatory mechanisms, including price cap regulation, which ostensibly mimics competition but in practice masks the capture of monopoly rents. This regulatory approach aims to control prices by measuring them against company performance and customer service standards, mimicking the competitive pressure to reduce prices if customers were to switch suppliers. However, the authors highlight that despite significant price increases since privatization (a 42% rise in real terms by 2009 according to the Cave report), the built-in efficiency savings have been insufficient to offset these increases. The Revenue Correction Mechanism (RCM), designed to protect companies from revenue losses due to reduced consumption with the introduction of water meters, is examined as another instance of regulator-facilitated rent extraction by private equity firms (Bayliss, 2017). The biophysical characteristics of water and the resulting lack of price competition allow for vertically-integrated monopolies to maintain control over the entire water supply chain, from abstraction to household taps, thus securing profitability even for the most expensive and highly indebted providers. The creation of property rights through water infrastructure divestiture mirrors the class barrier associated with landed property, further indicating the existence of absolute rents.

This section shifts the focus to the financialization of water revenue streams and infrastructure, emphasizing the role of absolute rent. While acknowledging that some price increases post-privatization can be attributed to monopoly rents, this alone cannot fully account for the substantial rise in company profits following financialization. The authors propose that absolute rent offers a more comprehensive explanation for these increases. They build upon Allen and Pryke's (2013) argument that financialization involves not only mobilizing distant funds but also securitizing revenue streams to channel funds to investors and refinance debt. The concept of ‘added value’ and ‘value extracted’ from unit water prices is discussed, with the authors suggesting a link to the ‘under-remuneration’ of labor beyond the workplace. High water prices, they argue, support the asset value, resulting in surplus value for finance capital. This is explored further by showing that locking in future water prices also functions as a rent extraction mechanism, creating stable revenue streams for interest-bearing capital (fictitious capital) to exploit. The section uses the £4.2 billion Thames Tideway Tunnel (Super Sewer) and the Carlsbad Desalination plant as examples of infrastructure projects geared towards bondholders, which financialization transforms from fixed assets into liquid assets (Loftus and March, 2017; Pryke and Allen, 2017). The authors connect this to the concept of ‘real subsumption of labor to finance’ (Bryan et al., 2015), where households are subjected to capital's calculative imperatives. Securitization is presented as a claim against future household water bills, further intensifying this cycle of rent extraction. The acquisition of Thames Water by the Macquarie Group in 2006 exemplifies the establishment of a debt-based institutional barrier around revenue streams, channeling revenues into interest payments (Mazzucato, 2018). The high internal rate of return (IRR) on investments further incentivizes this financialization process (Pryke and Allen, 2017).

The conclusion begins by summarizing the key findings of the water financialization case study. The authors acknowledge the existing literature on the topic (Bayliss, Loftus and March, O’Neil, Pryke and Allen) but criticize its vagueness regarding the value-financialization relationship. They point out that these studies often replicate the problem identified by Christophers (2018), failing to adequately explain the substantial profits generated in this sector. The authors contrast this with their own approach, which uses the value-rent-finance triad to explain the relationship between value and financialization in the water sector. Their analysis distinguishes between two analytically distinct but interconnected moments: the formation of water prices (linked to monopoly rent), and the financialization of water revenue streams and infrastructure (linked to absolute rent). This allows them to move beyond descriptions of financial processes having ‘little connection to the operational side of the business’. By unpacking the feedback loop between price formation and financialization, the authors reveal underlying monopoly power and rent extraction, exposing how these processes mask the actual redistribution of value favoring investors over customers and households (Allen and Pryke, 2013). The analysis emphasizes that the existing regulatory framework in England and Wales inadvertently facilitates the extraction of monopoly and absolute rents, using the example of a ‘value model’ approach that focuses on interest, dividends, and multiple fees to extract surplus value.

The concluding section underscores the broader implications of the value-rent-finance triad, emphasizing its potential applications beyond the water sector. The authors argue that this framework is not just relevant to the analysis of specific cases but offers a more generalizable analytic for studying financialization across diverse geographies and resource sectors. The triadic model is presented as a significant contribution to the ongoing debates surrounding financialization, explicitly contrasting it with approaches that treat financialization as an abstract force or that struggle to explain complex real-world financial operations (referencing Christophers 2015a and Michell and Toporowski, 2013). The authors emphasize the importance of their approach in understanding the penetration of rent extraction mechanisms into new areas of social reproduction and daily life, thus clarifying their view of financialization. They contrast this with Postone’s (2017) observation that the crisis of value production is masked by the financialized attempt to transform various aspects of life into price and profit. The paper advocates for a more concrete analysis of financialization, avoiding the trap of turning financialization itself into an explanatory factor, instead focusing on the interconnectedness of value, rent and finance to provide a more complete picture of value appropriation. The rise of global rentiers, similar to Massey and Catalano’s (1978) 'motley group of urban rentiers', is highlighted as a crucial aspect requiring further investigation into global value extraction circuits, as this motley group represents the outcome of various processes of enclosure and the transformation of public infrastructures into financial assets.

The conclusion concludes by invoking Mazzucato's (2017) critique of marginalist economics and the renewed interest in value theory. It emphasizes the significance of the paper's contribution to these debates, suggesting that the focus on value extraction through rent provides a critical lens for understanding the disproportionate profits of the financial sector compared to the 'real economy'. The authors argue that their triadic model helps expose this imbalance by focusing on the internally related moments comprising financialization. They maintain that the novelty of contemporary financialization lies in its ability to penetrate new spheres of social reproduction through rent extraction mechanisms, facilitated by financial products that enable hands-off ownership of land, resources, and infrastructure. The emphasis on the connection between value and rent highlights the forms of struggle that are often obscured by a one-sided focus on finance itself. The paper aims to be a methodological contribution that offers a new lens for future research, bridging the gap between detailed descriptions of finance and broader, more generalizable theoretical frameworks for analyzing financialization. The authors' hope is that this framework could be used to further investigate and challenge various manifestations of financialization, from land grabs to the transformation of public services into financial assets.