[OPE-L:7591] Re: From Michele Naples on Gold

From: Fred B. Moseley (fmoseley@mtholyoke.edu)
Date: Tue Sep 03 2002 - 18:34:32 EDT

On Thu, 29 Aug 2002, Rakesh Bhandari wrote:

> This post is from Michele Naples. rb

Michele, thanks very much for joining this interesting discussion on money
and the transformation problem, and thanks also for the contribution your
writing on gold money and absolute rent has already made to this

> _______________________
> 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.  

Marx stated many times that his prices of production were, in effect,
long-run center-of-gravity prices, and which he equated explicitly a
number of times to Smith's and Ricardo's "natural prices".  Prices of
production are assumed to all have the same general rate of
profit.  Prices of production are the center-of-gravity prices around
which actual market prices tend to fluctuate.  If prices of
production are disequilibrium prices, then what is the difference between
market prices and prices of production? I have documented these many
passages in a paper, which is attached to this message.  I would be happy
to discuss the textual evidence presented in this paper, if you wish.

This does not mean that Marx thought that capitalism would always tend
toward equilibrium or that capitalism was not crisis prone.  Rather, the
crisis tendency of capitalism was abstracted from in his theory of prices
of production, in order to explain prices with equal rates of profit on
the basis of his labor theory of value, and thus to overcome the notorious
"chief stumbling block" of Ricardo's labor theory of value.  

> 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.

I agree with you here.  Marx's profit rate depends on the economy-wide
composition of capital and rate of surplus-value.  This is a key
difference between Marx and Ricardo.

> 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.  

The key issue in the current discussion is only the composition of capital
in the gold industry, not the composition of capital in the coal industry
and other mineral and agricultural industries.  And, more precisely, the
composition of capital in the least productive gold mines.  And it seems
to me that the composition of capital in the least productive gold mines
is lower than the average composition of capital.  On this, please see me
OPEL 7589 earlier today (and copied to you).

> [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.]

Michele, are you suggesting that this is Marx's theory or that Marx's
theory should be changed in this way?  As I understand it, Marx's theory
assumes (in this case similar to Ricardo), that the values of mined
commodities are determined by the labor-time required in the least
productive mines, just like the values of agricultural commodities are
determined by the labor-time required on the least productive land.  If
the value of mined commodities were determined by the average labor-time
requirements, then the less productive mines would not earn the average
rate of profit plus rent, and this disadvantage could not be competed away
with additional capital investment because of the monopoly power of the
owners over the mines, in which case the owners of the least productive
mines would cease production.  The price of mined goods must be high
enough to generate the average profit plus rent on the least productive
mines.  The more productive mines would then earn differential rent in

> 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.

I agree with this for all other commodities besides gold, but it
is not true in the case of gold.  In order for rent to come from other
sectors, the "price" of gold would have to be greater than its
"value".  However, this is not possible in the case of gold, because gold
has no price!  On this point, I repeat below some portions of OPEL 7588
posted earlier today.

The "value product" of the gold industry is not a commodity with a price
(C'), which still has to be sold in order to be converted into money (C'-
M'), as in all other industries.  Instead, the value-product of the gold
industry is already a definite quantity of money.  The circulation of
capital in the gold industry is different from all other industries, and
is represented symbolically by:
	M - C ... P ... M'
with the usual C' missing after production.  

Therefore, the transformation of the price from value to price of
production is NOT POSSIBLE for gold, because gold has no price which could
be transformed.  After the transformation of the prices of all other
commodities from values to prices of production, the value product of the
gold industry continues to be the same quantity of money, which cannot be
transformed from value to price of production (i.e. cannot be changed into
a different quantity of money) in order to equalize the rate of profit in
the gold industry.  

For the same reason (because gold has no price which could be increased),
it is NOT POSSIBLE, to offset a higher than average composition of capital
in the gold industry by increasing the "price" of gold, not only above its
value, but also above its price of production, in order to yield not only
the average rate of profit, but also a rent.

But nonetheless the average profit plus rent has to be earned in order for
there to be gold production.  It seems to me that the only way to
accomplish this would be to have very low wages (much lower than
average) and a very high rate of surplus-value.  From this perspective,
apartheid in S. Africa may have been due in part to the necessity to
enforce very low wages, in order to offset a higher than average
composition of capital in the gold industry.  I say "may" because I still
think that the composition of capital in the least productive gold mines
was probably lower than the world-wide social average composition of
capital, so this case of higher than average composition this is

> 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.

The key point is that, if the gold industry does not participate in the
equalization of the profit rate with all other industries, then it cannot
be argued that the technical conditions of production and the wage rate
uniquely determine the rate of profit.  Again, I agree with you that
Marx's rate of profit depends on conditions in non-basic as well as basic

> Thanks for including me in the discussion.  I?ll be interested to hear others?
> thoughts.
> - Michele

Michele, thanks again for joining the discussion, and I look forward to
your further comments, as time permits. 


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