Wednesday, 28 February 2018

Theories of Surplus Value, Part II, Chapter 13 - Part 23

Where Ricardo does consider movement in the other direction, towards more fertile soil, he assumes that this lower cost production forces out the least fertile land. But, again, this is not necessarily the case, as Marx sets out. If lower cost production results in a lower market value, and market prices, this will lead to a rise in demand. It may be the case, therefore, that the output from the least fertile land is still required to meet this additional demand. All that happens here then is that the output of the least fertile sells at this new market value, which is below its own individual value. In that case, this land could not sustain the full amount of absolute rent.

“The same happens in the descending line. Whether, and to what extent, the worse land yields rent, if the additional supply can only by provided at the old market-value, depends on how much this market-value stands above the cost-price of the product of the new, worse land. In both cases its rent is determined by the absolute fertility, not the relative fertility. It depends on the absolute fertility of the new land how far the market-value of the produce of better lands stands above its own real, individual value.” (p 338) 

Adam Smith is quite correct, Marx says, in distinguishing between land and mines, because Smith assumes that “there is never a transition to worse sorts—always to better ones—and that they always provide more than the necessary additional supply.” (p 338) A look at the history of coal mines in Britain shows this to be true, as the movement was always to new, larger, more profitable mines. But, this is not just a matter of finding these more fertile mines, it is also a question of technological improvements that make exploitation of new supplies more profitable. The same is true with other minerals, and oil and gas.

The development of new drilling technologies, platform technologies, and so on made the extraction of North Sea oil and gas possible, in the 1960's. In the case of North Sea gas that was markedly cheaper than the existing town gas. Similarly, the development of fracking technology has meant that large amounts of oil and gas can be produced from shale, at lower cost than for North Sea and other deep water production.

Ricardo is wrong then when he says,

““After Adam Smith has declared that there are some mines which can only be worked by the owners, as they will afford only sufficient to defray the expense of working, together with the ordinary profits of the capital employed, we should expect that he would admit that it was these particular mines which regulated the price of the produce from all mines. If the old mines are insufficient to supply the quantity of coal required, the price of coal will rise, and will continue rising till the owner of a new and inferior mine finds that he can obtain the usual profits of stock by working his mine… It appears, then, that it is always the least fertile mine which regulates the price of coal.” (p 338) 

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