[OPE-L:7497] Re: Re: Re: Re: determination of unique rate of profit?

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Wed Aug 07 2002 - 13:49:50 EDT

I am not making Fred's argument. I am making my argument. Since I 
sent this to you offlist last night, I shall just fwd it to the list, 
and include some reply to your latest post 7496.

Let's just focus on whether gold is the kind of commodity which 
should be included in a theory of competitive price formation. Is 
gold the kind of commodity which belongs in Marx's transformation 
tables or Sraffa's equations?

One question is whether the labor value of gold or its price of 
production would regulate the market price of gold in any sense. We 
know that Marx, following Ricardo, thought that there was no reason 
to assume that labor value would regulate price if the commodity was 
not *freely* reproducible. Neither Ricardo nor Marx thought for 
example that the labor value of an artistic masterpiece would 
regulate its market price.   Moreover,  for the price of production 
of gold to regulate its market price, capital has to be free to flow 
in and out of gold production.

But  first let's say that gold production secures less than the 
average profit rate. Will capital withdraw? Well quite possibly yes! 
Capital could in fact FULLY withdraw as society would be able to get 
by on extant gold (most of the extracted gold throughout history is 
with us in circulation or as hoards; very little has been lost on 
sunken ships!). In this case gold production would simply cease and 
thus could not even be represented as an industry or commodity in 
Marx's transformation table or Sraffa's linear equations!

Take now the case of an above average profit rate in gold--as Fred 
may put it, capital will flow into of this industry, causing an 
increase in the supply of this commodity, which in turn causes a 
decrease in its price and therefore an decrease in its rate of profit 
toward the average rate of profit.

  At least gold capitalists have to believe that capital could flood 
into their branch; otherwise they may not preemptively lower price. 
There is no guarantee however that the marginal mines that would have 
to be worked even exist or could yield gold at the average rate of 
profit. So gold opts out of the equalisation process. It is more 
likely that the the profit rate on new gold production will be 
brought down to the average, if not below that, by an attentuation 
of, say, general crisis conditions than an increased supply of gold.

  To be sure, gold is reproducible in some sense, but it's not freely 
reproducible, and the law of value only governs the price formation 
of that set of commodities.

  So the adjustment process cannot be counted on to proceed through 
increased production or the possibility thereof. It may be possible 
to increase production profitably; it may not be. One simply cannot 
say.  Gold simply does not belong in the process of competitive price 

There is simply no reason to believe that the price of gold would be 
governed over time and in any sense by its labor value or its labor 
cost of reproduction as with reproducible commodities(is the price of 
gold determined by the 4000 yr historic average cost to extract an 
ounce of gold, the labor time needed to extract an ounce now from the 
best, worst or average mine?) or its price of production (for 
example, let's say capital withdraws from less than average 
profitable gold production, then how could its price be determined as 
cost price + average rate of profit on new production?)

Marx never meant his price theory to apply to all commodities; even 
if gold had not been the money commodity, it would not belong to the 
set of commodities subject to Marxian laws of price formation.

>First, this commits the fallacy of confusing the actual with the 
>possible.  It's also true that not that much horse manure is 
>produced *for sale* (some is, for fertilizer), but that doesn't 
>imply it's not reproducible.  Moreover, gold is reproducible--just, 
>perhaps, at a high cost (more on that below).

There is no guarantee that the costs of new production would be low 
enough that the average profit could be made. Precious metals are 
simply not freely reproducible commodities.

>   But second, and more to the point, the quotes I adduced from K.III 
>Part 1 indicate that Marx *assumed* the money commodity at the level 
>of abstraction he pursues here, and he says nothing about problems 
>of reproducibility associated with that commodity.

Marx also did not include gold in his five industry scheme. You and 
Bortkiewicz are the ones proposing that he do so. I am saying that 
this would be inconsistent with his theory. Precious metals are not 
the kind of commodity the price of which is regulated by the law of 

>First, Marx does not mention these problems when he asserts that 
>money takes commodity form, so he evidently abstracts from them, as 
>suggested above.
>  Second, the above does not suggest gold is not 
>"reproducible"--e.g., the quantity supplied of gold could have been 
>constant over this period--rather it suggests that marginal cost of 
>production is significantly rising beyond a given margin of 


>  However this problem is not unique to gold as a money commodity.


>   It would also exist for gold, or silver, or any other
>precious metal used for intermediate or final consumption; other 
>minerals and metals (cobalt?); and some agricultural products.


>   So this would be a problem for Marx's analysis of capitalist 
>production *whether or not* he assumed a money commodity.

doesn't follow. Marx's analysis is not meant to apply to such commodities.

>   But again, he evidently assumed all such problems away--and if he 
>assumes them away for non-money commodities, he can just as well do 
>so for a money commodity.

No Marx assumes away such non freely reproducible commodities from 
that set which he thinks is subject to his value theoretic laws of 
competitive price formation. It does not seem consistent with Marx's 
theory to include gold inhis five industry example, and not only 
because gold was the money commodity. Gold is simply not a freely 
reproducible commodity.

>>The price of gold does not seem ever subject to have been subject 
>>at the farthest remove to a direct or indirect law of value, i.e., 
>>the law of price of production; gold simply has to be considered 
>>apart from the process of competitive price formation. The 
>>assumption of the gold standard by emergent powers,  the 
>>demonetization of silver,,and international crises, etc all have 
>>decisive effects on the price formation of gold.
>I don't see how *this* historically-based argument applies to the 
>purely theoretical point under discussion any more than does Fred's 
>historically based argument.  Marx evidently abstracts from such 
>considerations in his analysis of KIII Part 1.

You didn't respond to the rest of my post below.


>>  Marx's five industry example of competitive price formatation nor 
>>in Sraffian linear equations. We'll have to settle for the standard 
>>commodity as the only kind of "money" which belongs in the Sraffian 
>>There is a further problem with the above.
>>Gil grants that Marx posits the value of no other commodity as 
>>fixed, so why then does Marx stipulate a fixed value for the money 
>>commodity alone? There is no answer in the above.   In so doing, 
>>Marx has certainly not attempted a descriptively faithful 
>>representation of the bourgeois system. Even in Gil's  passages 
>>Marx only briefly and most superficially considers a changing value 
>>of money to underscore that doing so only needlessly complicates 
>>his point.
>>Moreover if one grants that Marx has stipulated a constant value of 
>>money and cost prices have to be in some price form (market, price 
>>of production, direct), then it follows that Marx begins his 
>>transformation analysis with a monetary expression of labor time 
>>already fixed. On what grounds would one justify changing it in the 
>>course of the transformation?

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