[OPE-L:7666] Re: Re: Re: Gold & prices of production--Postscript

From: Gil Skillman (gskillman@mail.wesleyan.edu)
Date: Sun Sep 15 2002 - 16:32:19 EDT

Hi, Fred.  Where I wrote

> > Now, following your representation, let's add a component of absolute rent
> > A. Now, since a unit of gold produced is still a unit of gold produced
> > whether or not rent exists, we have to ask where this rent comes from, and
> > thus where it shows up in the accounting equation.  There are only two
> > possible choices:  *either* the existence of rent reflects the exercise of
> > monopsony power of gold producers against suppliers of constant or 
> variable
> > capital inputs, reflected in artificial depression of the wage rate or
> > constant capital commodity prices and thus a reduction in constant or
> > variable capital outlays and thus an augmentation of r to incorporate A,
> > *or* the rent reflects a payment for an additional input--"land," say, or
> > more specifically, "land which contains gold mines."

you reply

>I think the usual Sraffian treatment (e.g. Sraffa, Kurz) is your second
>option - to assume that rent is a payment to the additional input of land.

That's right, but is it consistent with what *you* mean by absolute rent in 
the present context?  If not, then isn't the other option I mention the 
only possibility?

> > Before closing, let me fast-forward to your last question:
> >
> >  >It seems odd to add this demand equation to a Sraffian system of
> >  >simultaneous cost of production equations. I wonder why the Sraffians
> >  >themselves do not add such an equation, and instead assume that absolute
> >  >rent = 0. Gary, can you help us out here?
> >
> > Point taken: it *is* odd, sort of like mixing neoclassical and Sraffian
> > considerations in one model.  To me this is the most natural way to
> > proceed, but in fact, there *is* a distinctly Sraffian approach to 
> absolute
> > rent (and thus, Sraffians do not necessarily assume "that absolute rent =
> > 0") using a model of multiple techniques (see, e.g., Lynn Mainwaring,
> > _Value and Distribution in Capitalist Economies_, Ch. 12 Section 4).
> >
> > But as it turns out, treating absolute rent in strictly Sraffian terms 
> does
> > not at all alter my conclusion, since that approach involves replacing a
> > *single* price of production (or, in the present context, accounting)
> > equation with *two* equations (see equations 12.6 and 12.7 in Mainwaring),
> > so it remains the case that the addition of a variable, rent, is 
> matched by
> > the addition of an equation, leaving my conclusion regarding inconsistency
> > intact.
>I went to the library to look for this book.  It was listed in the
>computer as available, but I couldn't find it on the shelves.  A librarian
>told me that this 1984 book has never been checked out (a depressing
>thought), but apparently cannot be located.

(Perhaps someone used the express checkout system, if you catch my drift...)

>   So would you please tell me
>what Mainwaring's two equations are and a few sentences about their
>motivation?  Thanks.

Sure.  Imagine a prices of production system in which land (in Mainwaring's 
setting, agricultural land) is an additional, nonreproducible factor, and 
suppose that some existing fixed-coefficients technique of agricultural 
production (call it technique 0) is unable to satisfy market demand (taken 
as exogenous) using all available land, which is of constant productivity 
(so that a scenario of differential rent is ruled out).  Suppose further 
that there is some alternative fixed-coefficients technique (call it 
technique I) which uses land less intensively and some other factor or 
factors (constant capital inputs or labor) more intensively, such that 
market demand can be satisfied with the existing stock of land.  If this 
can be done without using all available land, then the level of absolute 
rent is zero.  But if absolute rent is positive, it must be that both 
techniques are operated simultaneously in a proportion just sufficient to 
satisfy market demand given that the entire available stock of land is used 
up.  Further, since all units of land are of equal quality by assumption, 
it must be that not only the rate of profit, but the rental rate is equated 
across these two sub-sectors.
Finally, since both techniques are used to produce an identical 
agricultural good, the good's price, Pk, must be equal for both techniques 
as well.

In light of the foregoing, the following two conditions must be satisfied 
simultaneously for the agricultural production sector:

(0)  Pk = (1+r)[(Sum over i:)PiEio] + wLio + aTo

(I)  Pk = (1+r)[(Sum over i:)PiEi1] +wLi1 + aT1,

where r is the rate of profit, Pi denotes the price of the ith constant 
capital good, Eij is the unit input requirement of constant capital input i 
in technique j, w is the wage rate (also equalized across sectors), Lij is 
the unit labor requirement in technique j, a is the rental rate on land, 
and Tj is the unit land input for technique j.

[I've taken some liberties with Mainwaring's notation in order to reproduce 
his equations legibly here.  Also note that, without loss of generality for 
the point at hand, Mainwaring assumes that the profit rate is calculated 
only on constant capital.]  Of course, were we applying this analysis to 
the case of gold production, then the Pk on the left-hand side of these 
equations would be replaced by 1.

>And of course I am looking forward to your own equation.

Which I'll supply, along with a discussion of its connection to the 
Sraffian approach indicated above, once I hear from you as to which of the 
two possible ways I should interpret your earlier statement that "the 
income of the gold industry must contain a component of rent." No use 
pursuing dead-end trails if we can avoid it.



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