Wednesday, 21 February 2018

Theories of Surplus Value, Part II, Chapter 13 - Part 16

In relation to differential rent, Ricardo's comment about high value is only correct, Marx says, in so far as high value here represents the excess of the market value over the price of production, with this excess being all the greater in relation to the more fertile lands or mines, where the individual price of production is lower.

As discussed previously, Ricardo confuses and equates the exchange value of a commodity with its price of production. It is around the price of production that the market price rotates, but Ricardo continues to believe that this basis is the exchange-value or natural price. This is illustrated, Marx says, by this statement by Ricardo,

““The metal produced from the poorest mine that is worked, must at least have an exchangeable value, not only sufficient to procure all the clothes, food, and other necessaries consumed by those employed in working it, and bringing the produce to market, but also to afford the common and ordinary profits to him who advances the stock necessary to carry on the undertaking. The return for capital from the poorest mine paying no rent, would regulate the rent of all the other more productive mines. This mine is supposed to yield the usual profits of stock. All that the other mines produce more than this, will necessarily be paid to the owners for rent” (l.c., pp. 76-77).” (p 329) 

But, this also exposes the error of Ricardo's rejection of absolute rent. In the quote, Ricardo identifies rent as the difference between the actual market price of a commodity, and its price of production. In other words, it requires that the market price be high enough to result in a surplus profit, above the average profit. But, in that case, if all the land in production were of the same quality, so there was no differential rent, it would not prevent the possibility of such surplus profits across the industry, and, therefore, of absolute rent.

“Hence, if the value of the agricultural produce is higher than its cost-price, it can pay rent quite irrespectively of differences in land, the poorest land and the poorest mine can pay the same absolute rent as the richest. If its value were no higher than its cost-price, rent could only arise from the excess of the market-value over the real value of the produce derived from relatively more fertile soils, etc.” (p 329) 

In other words, if the exchange value of the output of the industry was only equal to the price of production for the output of the industry – because different mines or soils have different levels of fertility – there would be no economic basis for absolute rent, and there could only be differential rent, paid by those that enjoyed surplus profits, as a result of higher fertility, which reduces the individual value of their output. This is also the point that Marx draws out in his development of the term differential value. In the same way that a surplus profit arises from use of more fertile land/mines, so, if at the industry level, if the market value only equals the price of production, this is only possible if the surplus profits of some producers is cancelled by the lower than average profits of others.

That would mean that for these producers, their lower than average profits should equate to a negative differential rent, which would be absurd. Instead, it takes the form of reductions in the absolute rent, and thereby in the total rent on those lands. Marx quotes Ricardo,

““If equal quantities of labour, with equal quantities of fixed capital, could at all times obtain, from that mine which paid no rent, equal quantities of gold… The quantity” (of gold) “indeed would enlarge with the demand, but its value would be invariable” (l.c., p. 79).” (p 330) 

But, this disproves Ricardo's contention that additional capital is only advanced where prices have risen to induce it. Marx dealt with that fallacy in Capital III. As Marx pointed out there, as population rises each year, so the demand for commodities rises with it, and this rise in demand is the spur that each capital requires to accumulate additional capital, whether it be an accumulation of fixed or circulating capital, depending on the conditions.

Even if every capital, by accumulating capital, and increasing output leads to a situation where market values may fall, and the rate of profit be reduced, each firm will still do it, because otherwise they will lose market share, and their share of this expanded mass of profits, to their competitors.

“What applies to gold and mines, applies to corn and land. Hence if the same types of land continued to be exploited and continued to yield the same product for the same outlay in labour, then the value of the pound of gold or the quarter of wheat would remain the same, although its quantity would increase with the demand. Thus its rent (the amount, not the rate of rent) [would] also grow without any change in the price of produce. More capital would be employed, although productivity would remain constant. This is one of the major causes of the rise in the absolute amount of rent, quite apart from any rise in the price of produce, and, therefore, without any proportional change in the rents paid by produce of different soils and mines.” (p 330)

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