Saturday, 30 December 2017

Theories of Surplus Value, Part II, Chapter 12 - Part 1

[Chapter XII] Tables of Differential Rent and Comment

[1. Changes in the Amount and Rate of Rent]

If more productive quarries, or mines, are discovered, that means they will produce the same quantity of output with less expenditure of capital and labour. That is what happened, for example, with the Californian, Alaskan and Australian gold discoveries. Because less capital and labour is required, the unit value of output falls, but that does not mean that the total value of output falls. The value of a ton of coal may fall from £100 to £80, but, if previously output was 1,000 tons, and is now 1,500 tons, the total value of output rises from £100,000 to £120,000.

If the new production is large enough to meet all of the demand, then the old production would be forced out. Of course, in practice, the old production does not get forced out quickly. Large amounts of fixed capital tend, in such conditions, to be treated as sunk capital. Provided the income generated can cover current costs, for wages and overheads, so that an operating profit is made, production will often continue. Particularly, large companies will take a very long term view of such investment, and anticipate that future demand and market prices will be likely to rise, to compensate for current conditions.

This why primary product prices tend to follow the same pattern over the course of  the long wave, whereby there is a long period, of around 20-25 years, coinciding, more or less, with the Autumn and Winter phases of the cycle where existing mines etc. are exploited, and little investment in exploration and development occurs. As the new Spring phase begins, existing supply cannot meet rapidly rising demand, so prices and  profits rise sharply. Miners etc. will only commit the huge amounts of capital required for new developments when they are convinced that the higher demand, and prices, will last. That was seen with all primary products after 1999. When large-scale investment, then, does occur, it takes around 12-13 years to come on stream, during which time prices continue to rise, provoking additional investment that eventually becomes over-accumulation.

When all of this new production hits the market, the extent of overproduction becomes apparent, as happened with oil, copper, iron ore, agricultural products, like milk, and so on, around 2014. Then market prices crash until the glut is cleared, as the more expensive production gets taken out. The increase in productivity here arises not from a change in  the organic composition of capital, but from the greater fertility of the mine, quarry or land. If the method of production remains the same, less capital and labour is used, in the same proportion. In that case, the total amount of wages, profit and rent change in the same proportion.

Suppose Mine A produces 1000 tons of coal with £100 of capital. Demand rises from 1000 tons to 2000 tons. A more productive Mine, B, is developed, which can produce 1200 tons of coal with £100 of capital. This still does not meet the demand of 2000 tons. Therefore, additional capital of £66 would be required. However, provided the capital and labour are employed in the same proportion, the organic composition is not changed. The amount of constant and variable capital rises by 66.6%. The only difference is that, as the value of a ton of coal has fallen from £0.10 per ton, so the amount of value represented by wages, constant capital, profit and rent has fallen per ton also.

Had the increase in demand only been equal to the amount of additional production that the same capital could produce in a more productive mine, the total value of production would remain the same, but the value per ton would fall. In other words, if demand had risen to 1200 tons, this could now be produced with the same £100 of capital.

“But the total tonnage has the same value as before. As regards the individual ton, the size of the portions of value which resolve into profit and rent decreased together with the value it contained. But since the amount of capital has remained the same and with it the total value of its product and no organic change has taken place in its composition, the absolute amount of rent and profit has remained the same.” (p 252) 

The rate of rent does not change, because there is no change in the organic composition of capital. The amount of rent may change, only because either more or less capital is employed.

However, if there was a change in the organic composition, as labour productivity rose, and less was laid out in wages, in relation to constant capital, then the rate of rent would fall, because the difference between the value and the price of production of the commodity would have fallen.

“Accordingly, therefore, when the greater productivity of labour, or the lower value of a certain measure of commodities produced, arises only from a change in the productivity of the natural elements, from the difference between the natural degree of fertility of soils; mines, quarries etc., then the amount of rent may fall because, under the altered conditions, a lesser quantity of capital is employed; it may remain constant if there is an additional demand; it may grow, if the additional demand is greater than the difference in productivity between the previously employed and the newly employed natural agencies. The rate of rent, however, could only grow with a change in the organic composition of the capital employed.” (p 253) 

The amount of rent does not necessarily fall if the less fertile production is abandoned, because it may go along with a rise in demand that is satisfied from the more fertile production. The rate of rent never falls where less fertile production is abandoned, but whether the amount of rent rises, remains the same or falls depends on the quantity of capital employed.

“Ricardo distorts the correct idea, that in this case, depending on the state of demand, the amount of rent may fall, in other words depending upon whether the amount of capital employed decreases, remains the same or grows; he confuses it with the fundamentally wrong idea, that the rate of rent must fall, which is an impossibility on the assumption made, since it has been assumed that no change in the organic composition of capital has taken place, therefore no change affecting the relationship between value and cost-price, the only relationship that determines the rate of rent.” (p 253)

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