[OPE-L:7680] Absolute rents in Sraffaland and Marxland

From: Gil Skillman (gskillman@mail.wesleyan.edu)
Date: Tue Sep 17 2002 - 21:55:06 EDT

[Was:  some other heading with a lot of "Re's" in it]

Hi, Fred.  In response to this exchange,

> > >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?

you write

>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.

But I dispute this characterization:  in the Sraffian framework, to the 
contrary, the inclusion of absolute rent is accommodated *precisely* by 
"adding another equation."  So the question is whether a similar addition 
must happen given the Marxian interpretation of absolute rent, which is the 
point you discuss next:

>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.

As I stated in my previous post, so far as I can see absolute rent can only 
arise in one of two possible ways in the accounting equation for 
gold:  either rent is a payment for scarce land, or it arises from the 
exercise of monopsony power on the part of gold-producing capitalists, 
resulting in the artificial depression of constant and variable capital 
magnitudes below what would otherwise obtain.  I do not see that you have 
introduced a third possibility, so is it legitimate to conclude, in light 
of the above, that you're electing the latter alternative?  If not, how 
exactly does the absolute rent arise, and why doesn't competition equate 
the rate of return in the gold industry with the rate of return in other 
sectors, in this case?

>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.

But isn't it *necessarily* the case that these "quantities of 
money-capital" are themselves determined in part by the physical quantities 
of inputs required to produce the output?  If not, then how else might they 
*possibly* be determined?

>   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.

This statement presumes that the translation from "surplus labor" into 
"surplus-value" can coherently be made without any reference, under any 
conditions, to physical input requirements and the wage rate.  That remains 
to be seen. For now, I'll just ask-- isn't it true that the quantity of 
surplus labor is only *one* determinant of total surplus value, not the 
sole determinant?

> > >   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?

Answer, any alternative technique that is both more land intensive *and* 
more labor-and-capital intensive would *necessarily* have higher average 
costs of production, and thus could not possibly satisfy the conditions 
that the product price, profit rate, and rental rate must be equated across 
the two subsectors (as indicated in the equations below).  So this is not 
an economically coherent possibility.

> > 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?

By your own representation in 7636, Fred, this scenario is not at issue, 
because it necessarily involves an instance of *differential* rent, and 
what we're talking about here is *absolute* rent.  In Mainwaring's lingo, 
"intensive rent" and "extensive rent" are respectively synonyms for 
"absolute" and "differential rent.  I reproduce your own comment on this 
distinction 7636:

 >I think you are misunderstanding what I mean by scarce, and are also
confusing differential rent and absolute rent. By scarce, I do not mean
diminishing marginal returns, which has to do with differential rent, not
absolute rent. Differential rent is historically contingent in the sense
that only one kind of land or mine could be cultivated, or all the lands
or mines could be of equal fertility. In these cases, differential rent
would disappear.<

I'd say that in the present case, *you're* the one confusing absolute and 
differential rent, since you're now introducing the "historically 
contingent" possibility of mines of different qualities.  But we don't need 
to introduce this to discuss absolute rent, so I'd prefer to stick to the 
case of mines of equal quality.  To put the same point another way, if we 
introduce mines of unequal quality,  we'd *necessarily* have to introduce 
differential rents, which is what you said in 7636 that we *weren't* 
discussing.  But for what it's worth, in the Sraffian framework an 
additional equation would have to be added for each additional level of 
differential rent, so my original inconsistency conclusion continues to hold.

> > >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."

...and on which point I still need to hear from you.  What exactly is it 
that makes it possible for producers of gold to receive a "residual" above 
the average rate of profit?  Again, I can see only two 
possibilities:  either they own the land the mines are in, and thus "pay 
themselves" a rent for this land, in the same sense that Marx says that 
self-financing industrial capitalists pay themselves the market interest 
rate; or they enjoy monopsony power that allows them to artificially 
depress the magnitudes of constant and variable capital below what would 
otherwise obtain.  Which is it?  Or, if you think there's a third outcome, 
where does it come from, and why doesn't competition across sectors 
eliminate the rent received by capitalist gold producers?

Also patiently waiting,


>Patiently waiting,

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