[OPE-L:7586] Re: From Michele Naples on Gold

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Tue Sep 03 2002 - 00:17:56 EDT

Michele's message raises several difficult points, including a novel 
explanation for the magnitude of absolute rent appropriated by owners 
of scarce agro-mineral resources.

1. Explanation of magnitude of absolute rent

If I understand Michele, the magnitude of absolute rent need not be 
explained as the extra surplus value produced by capitals of low 
composition in the agro-mineral industries. Rather if I understand 
Michele, the land/mine owner appropriates all the surplus value 
yielded by agro mineral extraction while the agro mineral capitalists 
are able to achieve the industry wide profit rate through 
redistribution of surplus value to themselves as if they were 
commercial capitalists. This would render determinate the pricing of 
agro mineral goods, which would be equal to their value in addition 
to the uniform rate of profit on the capital invested by agro-mineral 
capitalists. This would however then mean that agro mineral goods 
have greater exchange value than their own value as a result of the 
monopoly power of the owners of scarce resources.

While Michele's new objective explanation for absolute rent implies 
again that the equation for the money commodity cannot be written (as 
Gil recommends) into a system of transformation equations, Michele 
argues that approach, as well as traditional equilibrium solutions to 
the transformation, do not allow conditions in the non basic sectors 
to affect the uniform profit rate, and thus cannot be said to 
vindicate Marx.

I do admit to not understanding this last claim. And I may have not 
understood Michele's explanation for the magnitude of absolute rent.

One additional point here is that Marx does abstract from absolute 
ground rent and absolute urban rent in particular in analyzing the 
formation of prices of production as we can see in KIII, part II.

But in considering the price formation of agro minerals Marx does 
enter absolute rent into the ground level in order to ensure that 
they do sell at value on the assumption that they are the products of 
capitals of lower than average composition.

That is, Marx only considers the impact of absolute rent on prices 
insofar as it is appropriated by owners of scarce resources which 
serve as means of production or raw materials. This means that Marx 
excludes the effects of absolute ground or urban rent on the price 
formation of the mass of commodities. Catephores suggests such 
exclusion of normal absolute ground and/or urban rent  may well be 
justified because of how small they are and the extent to which they 
are in fact payments for use of buildings which after all are a 
product of labor.

That is Marx seems to think rent affects the pricing of scarce 
agro-minerals in a way that absolute urban or ground rent does not 
affect pricing for industries engaged in the production of freely 
reproducible commodities.

I won't respond to Michele's criticism of my ideas as her criticism 
seems largely correct. I would just say that I am not convinced that 
even if the value of any unit of gold--whether produced in Babylonia 
or South Africa--is determined by the labor  costs at today's 
marginal mine, I still do not think there is a mechanism to ensure 
that the purchasing power of gold will be proportional to that value 
of gold or even its price of production.

I'll make other points later, but I thought I would invite Michele's 
restatement of her novel explanation for the magnitude of absolute 
rent. I fear that I have missed its nuance.

Yours, Rakesh

>This post is from Michele Naples. rb
>It?s been interesting to read the discussion about gold, Marx?s view that it
>exchanges at value and the implications for the transformation 
>problem.  I have
>to say at the outset, however, that I view any effort to fit Marx into a
>long-run equilibrium box as the imposition of the Walrasian method on an
>exploitation theory of the profit rate, which is not 
>methodologically sound.  If
>capitalism is crisis-prone, it must be overdetermined, not determinate.  There
>are supposed to be too many variables and too few unknowns.  This does not
>violate the labor theory of value, it means capitalism is incapable 
>of long-run
>equilibrium.  To me this is an appealing conclusion.  I frankly 
>don?t understand
>why anyone would rather conclude that it?s necessary to choose between surplus
>value or values as aggregating to profits or prices, since the resultant
>Ricardian profit rate (dependent only on production conditions in 
>basics) still
>violates Marx?s theory that economy-wide conditions were determinate.  Marx
>explicitly challenged Ricardo?s view on this in his Theories of Surplus Value.
>People may find these solutions interesting, but they are not Marx.
>That said, on gold, Fred rightly points out that Marx hung his view that gold
>exchanges at value on its lower-than-average composition of capital, and that
>it?s not clear why mining or agriculture today should necessarily have
>below-average compositions. Coal mining, for instance, has a huge 
>composition of
>capital relative to the economy average, at least in price terms.  Doesn?t the
>marginal mine still earn a rent?  Given Marx?s emphasis on private property in
>the means as the basis for capturing surplus value, I would think 
>the answer is
>yes.  [BTW, Fred, I?d think the value of a mined good is not 
>determined by labor
>productivity in the marginal mine, but on the average technique 
>employed.  It?s
>the socially necessary labor.  So it seems to me that if the 
>lowest-rent mine is
>not best-practice or average-practice, it would create less than one unit of
>snal (labor-value units) per hour.]
>Rakesh is right to emphasize that the quantity of gold in existence swamps
>current production, and that this makes gold quite different from other
>commodities.  Gold, like the housing stock, is an asset, a stock far exceeding
>current flows.  But Marx was clear that today?s flow, and the associated value
>of producing gold today, determine the value of any of the gold stock.
>Rakesh also talked about the demand for gold as hedge against inflation?that?s
>not appropriate here, since it?s a short-term problem generated by monetary
>crisis, not a value question.  It has to do with the fact that gold is the
>ultimate means of payment and store of value, it does not cause its 
>value to be
>higher or lower.  Marx argued in the Grundrisse, I think, that in times of
>crisis when the price of gold rises, the reality is that the value 
>of goods are
>falling, since there is widespread overproduction, beyond what was socially
>necessary.  There is no change in the value of gold despite the rush to gold.
>Rakesh has suggested that gold?s value be seen as resulting from a monopoly
>(over the means of production by gold-mine owners) and therefore absolute rent
>can be interpreted as a monopoly rent. I?m concerned that this takes us down a
>slippery slope towards neoclassical modeling, diminishing returns, etc.
>What strikes me is that is that farm and mine products are what we 
>now commonly
>call raw materials or primary products.  They are not produced with other
>inputs, they are extracted from the earth.  Just as joint products are not the
>same as capital goods that have not been fully depreciated (the Ricardian
>treatment of fixed capital), farm and mine product are not the same 
>as produced
>means of production, they are extracted.  So then logically they 
>should be dealt
>with differently from produced intermediate goods.  I don?t think we need to
>make the case in terms of the organic composition of capital in those sectors,
>as Marx did. The point is the crucial, irreplaceable role that the land
>component plays in their availability, and the power this gives 
>those mine- and
>landowners to charge rent. From this perspective, even if coal mining has an
>above-average organic composition of capital, and therefore coal operators
>should earn surplus value above what is produced in coal, in addition those
>operators should keep the surplus value their land-holding permits them to lay
>claim to.  Then the value of coal and surplus value created in 
>coal-mining would
>set the rent on coal mines, and the organic composition of capital 
>in coal would
>determine how much additional surplus value would be allocated to 
>coal operators
>from other sectors.  From this perspective all of the profit over 
>and above rent
>that coal operators get is surplus value created in other sectors.
>Thing is, I don?t see that this insight does anything to substantially modify
>the standard equilibrium solution to the transformation problem.  The value of
>the m gold and other mine or farm products is known before the profit rate is
>known, and their surplus values do not get redistributed through the pricing
>mechanism.  Nevertheless the n-m other sectors earn only the uniform 
>profit rate
>based on the redistributing surplus value, determined by the surplus value in
>the b-m basic sectors that is allocated subject to profit-rate equalization,
>assuming that no mine or farm product isn?t basic, although a few 
>may be.  [Even
>diamonds have industrial uses, but perhaps asparagus and endive are only
>luxuries.] This is still a profit rate that does not depend on production
>conditions in non-basics, and as such it is a Ricardian but not 
>Marxian solution
>to the transformation problem.
>Thanks for including me in the discussion.  I?ll be interested to hear others?
>- Michele

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