[OPE-L:5261] Re: rent and expectations of value and profit

From: Steve Keen (s.keen@uws.edu.au)
Date: Sun Mar 25 2001 - 07:33:12 EST

Hi Jerry,

I don't have much to add here, except to note that what Marx was 
contemplating when considering Ricardo was not rental of an existing mine, 
but the price a capitalist might pay to purchase a body of undeveloped ore. 
Rent would apply when the mine was actually producing, and a charge was 
being placed on the income flow. That is an interesting subject, but Marx 
and Ricardo were considering the purchase price of an undeveloped ore body.

In this case, Marx raises an important issue which, I argue, is only 
understandable from the use-value/exchange-value/dialectic front. If you 
work from an LTV "labor is the source of all value" front, then no value 
can be placed upon an undeveloped ore body save the labor needed to 
discover its existence and estimate its size. If that did determine the 
price of the ore body, then it would sell very cheaply indeed. However, 
that's not the reality, as Marx clearly knew.

However, if you approach it from the point of view that use-value is 
quantitative in the M--C--M+ circuit, and acknowledge that an undeveloped 
ore body is not a strict commodity (since no labor has gone into its 
production beyond the exploration labor), then you get the possibility Marx 
entertains: that the exchange-value of the ore body is set by its perceived 
quantitative use-value.

I agree that this quantity is set normally by extrapolating current trends 
into the future--a common human means of coping with uncertainty about the 
future which Keynes wrote of very eloquently.

The same sort of logic is used by Marx to discuss the price paid for 
credit. Here his answer is implicit:

"What, now, does the industrial capitalist pay, and what is, therefore, the 
price of the loaned capital?... What the buyer of an ordinary commodity, 
buys is its use-value; what he pays for is its value. What the borrower of 
money buys is likewise its use-value as capital; but what does he pay for? 
Surely not its price, or value, as in the case of ordinary commodities." 
(Marx 1894,  p. 352.)

The implicit answer is that the borrower pays the use-value of the loan, 
which is:

"Its use-value, however, lies in producing profit" (Ibid., p. 355. See also 
Marx 1861, Part III., pp. 457-58).

As you comment in closing, this type of analysis entertains the conclusion 
that prices for many vital entities in capitalism--from workers wages to 
machinery to credit money--could deviate substantially from their 
labor-values. This leads to a theory of cyclical behaviour which I also see 
as a strength of Marx's analysis, when compared to the static focus of 
neoclassical and other classical schools.

At 07:10 AM 3/25/01 -0500, you wrote:
>Steve K raises some new issues in [5240]:
> > On this issue, I'm extrapolating from my
> > interpretation of Marx: there is
> > no textual support for this proposition. But there > is the quite explicit
> > consideration of the related issue of how the
> > exchange-value of an
> > undeveloped mine is set (discussed further
> > below). That discussion brings
> > in the role which expectations of future profit
> > play  in setting the price a
> > capitalist is willing to pay to secure ownership,
> > which is a *subjective*
> > estimation of a future quantity.
>On the issue of the undeveloped mine, we have
>to look at *rent*.  And, it is true, that there
>can be, more concretely, a *speculative element*
>in the determination of the exchange-value (NB:
>not value) of this mine.  The speculation would
>take the form of assuming a rate of return on
>investment (RRI) that is comparable to the
>past earnings of similar-grade mines. This
>calculation, which you call subjective, is
>usually based on the assumption that past trends
>in this market will continue into the future. Yet,
>as is the case with all speculative activities,
>although the anticipated RRI is greater, the
>level of risk and uncertainty is also greater.
>How this added risk is accessed -- both
>by the seller and buyer of the mine --
>is important then for the determination of its
>exchange value. Of course, objective facts
>can intervene -- like an economic crisis -- and
>render the risk calculations of the old or new
>owner of the mine meaningless.
>In any event, this issue is far more concrete than
>the one we have been discussing. It deals, most
>fundamentally, with the *division of surplus value
>among capitalists and landowners* rather than the
>creation of surplus value.
> > This same issue
> > arises in the case of
> > machinery, which means that the price capitalists > are willing to pay for
> > machines will rise above value when expectations > of future profit are
> > high,
> > and fall below it when expectations are dashed.
>It is true that there is a level of risk when purchasing
>constant fixed capital and that capitalists can not
>know with certainty the "lifetime" and total value
>that will be transferred by that machinery. This is
>due, most fundamentally, to moral depreciation.
>Yet, other issues might affect the value transfer as
>well. I discussed a couple (capacity utilization
>and waste of constant circulating capital) in
>recent threads (see [5186] and [5248]). Another
>issue, where there emerges possible loss of
>value, is as follows: even after capitalists are
>assumed to buy the means of production at value,
>the transfer of that value requires that these
>elements of production must be set in motion
>within that process. If they are simply in crates
>on the loading dock they are not also transferring
>value. Any delay in "start-up time" can,
>assuming a fixed working "life" for the constant
>fixed capital, thus result in a premature loss
>of value. Also, especially for means of production
>that represent "first generation" innovations, there
>is a "learning by doing" curve that is experienced.
>Thus, in the beginning if the learning process is
>protracted and the new means of production are
>not integrated into the production process
>efficiently, then some proportion of value may be
>lost. On the other hand, these technological
>advances make *possible* (NB: possible not a
>necessary consequence) a "technological
>rent" by the innovating firm (s). In value terms,
>one should see this technological rent as
>representing a redistribution of surplus value
>among capitalists -- in this sense there is a
>similar mechanism to what was discussed above
>re the undeveloped mine but in this case the
>means of production represent value rather than
>exchange-value and potential use-value alone.
>As for the question of expected profitability, I think
>that Marx was well aware of this problem. Indeed,
>his rejection of Say's Law requires a recognition
>of the issue. More fundamentally, a recognition
>of the temporal sequence in a circuit of capitalist
>production and circulation requires a recognition
>of this problem. I.e. prior to production, i.e. ex
>ante, capitalists go into the market with M and
>purchase c and v. Yet, they do not and *can not*
>know with certainty what the result of their decision
>will be in terms of profitability ex post. This is
>because they do not and can not know with
>certainty whether the output will be sold and, if
>so, what the prices will be. Thus, even if there
>is "pre-commensurization" of value prior to sale,
>value itself is only fully constituted following sale.
>Obviously they must  come to *expect* a RRI for them to purchase the c and
>v. But, their expectations may be proven ex post to either be
>the case ... or not.  In the latter case, the value that was *presumed* to
>exist can be "lost" if no buyer
>for the output is found.
>In terms of how this plays out in the business
>cycle, that is an interesting issue. (I seem to
>have accidentally edited this section of your
>post where you were referring to the Minsky
>financial instability thesis). Marx, as we know,
>made the simplifying assumption at various
>stages of his analysis that commodities in general,
>on average, exchange at their values. Yet, I think
>it could be said that this is the case only if,
>among other things, we abstract from the different
>phases of the cycle. Thus, it is entirely possible
>that some commodities could systematically
>exchange at market prices above their value
>during the expansion when aggregate demand
>and rates of return on investment are increasing
>and then exchange at market prices below value
>during the contractionary phase of the cycle.
>This possibility, from my perspective, in no way
>contradicts Marx's perspective on value.
>Indeed, one might see it as an extension and
>expression of that perspective.
> > This is something which is fundamental to modern > Post Keynesian
> > thought--the role of capitalist expectations in
> > setting asset (and
> > machinery) prices, the role of uncertainty in
> > investment decisions, etc.
> > But they have no theory of value from which to
> > derive these
> > observations--they simply take it as a given. Yet > a theory of value
> > explains it resides in Marx.
>I agree with this even though we differ in terms
>of our perspectives on Marx's theory of value.

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