Theories of Surplus Value, Part II, Chapter 12 - Part 5

Marx considers the situation whereby the demand rises, as a consequence of the fall in the market value of coal, resulting from the additional production of Mine IV. In other words, rather than there being a shift in the demand curve, to the right – causing demand to rise at each price point – there is a shift in the supply curve to the right, resulting from Mine IV's lower cost production. That reduces prices, and brings a consequent movement along the demand curve.

There are two types of rise in demand that Marx at the time he was writing could
 not distinguish between.  Demand may rise at all prices, represented by a shift
in the demand curve to the right.  For example, population may rise, or consumer
preferences may change.  Secondly, if prices fall demand can rise in response.  This is
a movement along the demand curve.

The point that Marx wants to make here, similar to a point made in Capital III, Chapter 10, is that Mine III and IV dominate production, and where demand does not outstrip supply, they determine market value. Consequently, the rise in demand here has to come from a response to lower prices, but the increase in demand, required to soak up the additional supply is considerable.

In I, a shift in demand sees demand rise at all prices.  In II, the conditions of supply change, which is what happens when Mine IV enters production.  It reduces market value.  The new conditions of Supply are shown vy S'-S'.  As a result of the reduction in price, there is a movement along the demand curve D-D, which indicates that at this lower price, more is demanded and supplied.

If, as a result of the introduction of Mine IV, the market value falls from £2 per ton to £1.846 per ton, this lower price would cause demand to rise. But, if Mine I and II remained in full production, supply would rise from 200 tons to 292.5 tons. Its unlikely that demand would rise by nearly 50%, in response to a fall in price of only 7%. The consequence would likely be that excess supply would push the market price down below the market value.

The consequence would be that Mine I would be unable to pay rent, and the rent on Mine II would be forced down. If the level of demand only justifies £50 of capital being invested in II, the rent would have to fall from £10 to £5. But, in conditions where the continued production resulted in this oversupply, market prices would fall to a level where no rent at all was payable by II, and even the profit would be affected.

“Then capital would be withdrawn in order to diminish supply, until the correct point of £50 had been reached and then the market-value would have been re-established at £ 1 11/13, at which II B would again yield the absolute rent, but only on half the capital previously invested in it. In this instance too, the whole process would emanate from IV and III, who dominate the market.” (p 260)

In order for the additional lower cost production of Mine IV to be absorbed, the market value would have to fall to such a level that Mine I was driven out of production. At this level not all the demand can be satisfied by III and IV, so that half of II's production is required. Mine II can continue production on that scale, because, although the market value has fallen below that required by Mine I, it is still well above the price of production for Mine II.

In the additional three tables, therefore, Marx sets out the situation where demand rises, not as a consequence of such a movement along the demand curve, in response to a change in price, but as a consequence of a shift in the demand curve to the right. The assumption is that demand increases such that all mines continue production, and the market value is such as enables Mine I, as set out in Table A, to yield a rent (C); to yield average profit, but no rent (D); and eliminates I's production (E). In E, however, the market value falls so as to absorb the 32.5 tons of II's production that was excess in Table B.

Table C

Class	Capital £	Absolute Rent £	Number of tons	Market- Value per ton £	Individual Value per ton £	Total value £	Rent £	Differential Rent £
I	100	0.769	60.00	1.846	2.000	110.769	0.769	-9.231
II	100	10.000	65.00	1.846	1.846	120.000		0
III	100	10.000	75.00	1.846	1.600	138.462		+18.462
IV	100	10.000	92.50	1.846	1.297	170.769		+50.769
Total	400	30.769	292.50			540.000		69. 231

Table D

Class	Capital £	Absolute Rent £	Market- Value per ton £	Cost-price (Price of Production) £	Number of tons	Total Value £	Differential Rent £
I	100	0	1.833	1.833	60.00	110.000	0(-)
II	100	9.167	1.833	[1.692]	65.00	119.167	-(latent)
III	100	10.000	1.833	[1.467]	75.00	137.500	+17.500
IV	100	10.000	1.833	[1.189]	92.50	169.583	+49.583
Total	400	29.167			292.50	536.250	67.083

Table E

Class	Capital £	Absolute Rent £	Market-Value per ton £	Cost-price (Price of Production) £	Number of tons	Total Value £	Differential Rent £
II	100	3.750	1.750	1.692	65.00	113.750	-(none)
III	100	10.000	1.750	[1.467]	75.00	131.250	+11.250
IV	100	10.000	1.750	[1.189]	92.50	161.875	+41.875
Total	300	23.750			232.50	406.875	53.125

If output is 292.5 tons, and the market value is £1.846 per ton, Mine I would pay an absolute rent of £10/13 = £0.769, but the differential rent would be negative. In other words, where every other mine pays an absolute rent of £10, and then a differential rent on top of it, that is equal to the surplus profit, Mine I pays an absolute Rent that is £9 3/13 (£9.231) below that amount of absolute rent.

Under these conditions, the owner of the land might turn it over to some other use from which at least the absolute rent could be derived. In that case, if demand did not expand adequately, following the fall in market value, to absorb the 32.5 tons of Mine II's production, market prices would fall, and Mine II would then be forced to withdraw some of their capital so that supply contracted sufficiently to be absorbed.

Back To Part 4

Forward To Part 6