Sunday, 6 November 2016

Profit, Rent, Interest and Asset Prices - Part 15 of 19

However, we still have to answer the question posed previously of how then we are to now determine the level of rent, if it can no longer be objectively determined on the basis of the difference between market value and price of production, and how then a price of land is to be determined. Moreover, unless some basis for determining the amount of rent, and a price of land can be determined, there is no way of determining the yield provided by the ownership land, or therefore, of comparing that yield with the yield on other financial assets.

Market prices, as Marx explains, be it wages, as the market price of labour-power, or the price of any other commodity, are the consequence of the interaction of demand and supply. Where Marx's analysis is head and shoulders above the analysis of orthodox bourgeois economics is that he is able to explain what the objective determinants of this demand and supply are. Where orthodox economics starts from demand and supply, and thereby arrives at an equilibrium price, Marx begins with the equilibrium price, objectively determined, on the basis of the price of production. Demand, is then only a demand for the particular commodity at that particular objectively determined price, and supply then expands or contracts to meet that level of demand, although this has further ramifications for the price of production, as the cost of production varies, resulting from economies of scale at higher levels of output, and vice versa.

As Marx put it,

“To this confusion — determining prices through demand and supply, and, at the same time, determining supply and demand through prices — must be added that demand determines supply, just as supply determines demand, and production determines the market, as well as the market determines production.”

(Chapter 10)

But, market prices are always a market price arising from this interaction of demand and supply for some particular use value, whether that use value itself has a value or not. As Marx sets out in Theories of Surplus Value, in his critique of Ricardo's theory of rent, and his rejection of the existence of Absolute Rent, Ricardo was correct to say that, in the US, and other colonies, where landed property did not exist, and where farmers could obtain land wherever they wanted it, there could be no Absolute Rent, even though the organic composition of capital in agriculture there was much lower than in industry, and surplus profits could be made. If a use value, which has no value, such as air, is not monopolised then not only does it have no value, but nor can it have a market price. The reason that use values such as capital and land, which have no value, have a market price is down solely to the fact that their ownership is monopolised, and the owners of these use values will only sell them, if they are paid.

As seen in relation to capital, that does not mean that this market price is then arbitrary. It does mean that this market price is not determined by a price of production, or equilibrium price, but is a result of an interaction of demand and supply, the range of potential prices being set within a given range, itself determined by objective factors. In both cases of capital and land, that means that the owner of capital or land will not sell its use value for nothing, whilst at the other end of the range the buyer of the use value of capital or land will not pay such a price for it that their rate of profit would be wiped out.

If we consider land in this way, first from the perspective of agricultural land, although the same applies to land used for mining, what the capitalist farmer buys, when they rent land, is the use value of land, as a necessary element of the productive process. The capitalist farmer will demand land provided agricultural market prices are at a sufficient level so as to enable them to produce at least the average rate of profit on the capital they advance, after they have paid any required amount of rent. The determinant of these agricultural market prices, in turn, is the level of demand and supply for agricultural products.

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