Monday, 12 March 2018

Theories of Surplus Value, Part II, Chapter 14 - Part 8

Smith then argues that the consequence of this is that the prices paid for labour, land or capital may rise or fall. If demand for a commodity exceeds the supply, at the natural price, for example, the market price will rise, and this rise in the market price will mean that an increased amount may be paid as wages, profit or rent. The same is true in reverse, if the supply of a commodity exceeds the demand at the natural price. But, here Smith makes a distinction in his treatment of rent as opposed to wages and profit. If demand for a commodity exceeds the supply, at the natural price, the market price will rise, and this may cause the rent to rise. If rents rise, then landowners will be encouraged to lease more land, so the supply of agricultural products will rise, and the market price will fall. If the demand for a commodity is less than the supply, at the natural price, its market price will fall, and rents fall, landowners will withdraw land. Smith writes, 

““The occasional and temporary fluctuations in the market price of any commodity fall chiefly upon those parts of its price which resolve themselves into wages and profit. That part which resolves itself into rent is less affected by them” ([O.U.P., Vol. I, p. 65; Garnier,] l.c., pp. 118-19).” (p 349) 

The market prices may remain above the natural price for long periods, Smith says, because of frictions and monopoly prices that make it difficult for new suppliers to enter production, whilst existing producers may be happy to enjoy their higher profits without rushing to increase supply. However, market prices are not likely to remain below the natural price for long, because suppliers who find their profits falling, or disappearing, will be quicker to remove supply. But, as Marx says, its then difficult to see how Smith can then justify his argument in Chapter XI that rent does not enter the price of commodities in the same way as wages and profit. 

“... since in chapters VI and VII he has turned rent into a component part of the natural price, in just the same way as profit and wages.” (p 349-50) 

In Chapter XI, Smith says that rent is the surplus over and above the price of the commodity after the cost of production and average profit have been met. So, here, Smith completely reverses his argument in Chapter VI and VII. There the rent was a component part of the natural price of the commodity, here it is a surplus in excess of that natural price. Smith attempts to get around this by talking about an “ordinary price” as opposed to the “natural price”. The “ordinary price”, according to Smith, is usually different from the “natural price”. But, Smith has already set out that such an “ordinary price” or market price can never be below the natural price for any length of time. 

“Neither does Adam Smith tell us whether the produce is sold below its value when it pays no rent, or whether it is sold above its value, when it pays rent.” (p 350) 

In Chapters VI and VII, Smith argues that the natural price of a commodity is comprised of the wages, profit and rent, and such a commodity is only brought to market if its market price is sufficient to cover these costs of production. But, now, Smith argues that some agricultural products may be brought to market so long as their “ordinary price” is sufficient to cover the wages and profit, even if it does not cover a rent. 

“Previously, the natural price of the commodity was 

“the whole value of the rent, labour, and profit, which must be paid in order to bring it thither” [to market] ([O.U.P., Vol. I, pp. 61-62, Garnier,] l.c., p. 112). 

Now we are told that: 

“Such parts only of the produce of land can commonly be brought to market, of which the ordinary price is sufficient to replace the stock which must be employed in bringing them thither, together with its ordinary profits” ([O.U.P., Vol. I, p. 164; Garnier,] l.c., pp. 302-03).(p 350) 

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