[OPE-L:7674] Re: Re: Re: Re: Gold & prices of production--Postscript

From: Fred B. Moseley (fmoseley@mtholyoke.edu)
Date: Tue Sep 17 2002 - 16:14:21 EDT

On Sun, 15 Sep 2002, Gil Skillman wrote:

> 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?

I answered in terms of the Sraffian treatment of rent, because my argument
on this point is in terms of Sraffian theory.  I am arguing that, in terms
of Sraffian theory (with a modified equation for the gold industry,
replacing the price of gold with 1, since gold has no price), the
technical conditions and the wage rate do not uniquely determine the rate
of profit.  Because the inclusion of absolute rent as a cost in the gold
industry adds another variable without adding another equation.  

Marxs treatment of absolute rent is entirely different.  Absolute rent is
not considered as a "cost of production", whose magnitude is determined
simultaneously with prices and the rate of profit.  Rather, absolute rent
is determined in Marxs theory as a residual, as the difference between the
surplus-value produced in the gold industry (in this case) and the average
profit.  The average profit is equal to the general rate of profit
(already determined prior to prices of production and rent) times the
total capital invested in the gold industry. 

In general, the question of whether the rate of profit is uniquely
determined by given physical quantities does not apply to Marxs theory,
since the initial givens in Marxs theory are not these physical quantities
of inputs and outputs, but are instead quantities of money-capital.  The
rate of profit in Marxs theory is not determined by these physical
quantities and the wage rate, but is instead determined by the total
surplus labor (which determines the total surplus-value, the numerator in
the rate of profit) in relation to the total capital invested in the
economy as a whole.  

> >   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.  

What happens if this restrictive condition is not satisfied, i.e. if the
only alternative technique available is both more land intensive and more
labor-and-capital intensive?  Wouldnt one of the price variables be
negative in this case?

> 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.

These equations are for the unlikely case of "intensive rent", which
assumes that all lands (or gold mines) are the same quality.  What about
the more general case of "extensive rent", with the more realistic
assumption of lands (or mines) of different qualities?  How does
Mainwaring determine absolute rent in this case?  

> >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." 

Patiently waiting,

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