Tuesday, 13 March 2018

Theories of Surplus Value, Part II, Chapter 14 - Part 9

Smith has thereby reversed his entire argument from one in which rent like wages and profit is a necessary cost of production, and component of the value of commodities, to one in which it is simply an excess over those other costs of production. Whether this surplus exists or not has been reduced by Smith to a question simply of demand. 

“For the price which is required for the supply of the commodity, the price which is required for it to come into existence at all, to appear as a commodity on the market, is of course its price of production or cost-price, That [is the condition] sine qua non of the existence of the commodity. On the other hand the demand for certain products of the land must always be such that their ordinary price pays a surplus over and above the price of production, that is, a rent. For others it may or may not be so.” (p 351) 

Smith then ends up with a variety of different prices. In addition to the natural price, he now has this ordinary price, and a sufficient price. The sufficient price is a price that is sufficient to bring a commodity to market, but not enough to generate a rent. If the ordinary price is below the sufficient price, then not only does it not produce rent, but it does not produce average profit either. 

“Thus the sufficient price is in fact the price of production or cost-price as abstracted by Ricardo from Adam Smith and as it indeed presents itself from the standpoint of capitalist production, in other words the price which, apart from the outlay of the capitalist, pays the ordinary profit; [it is] the average price brought about by the competition of capitalists in the different employments of capital. It is this abstraction based on competition which induces Adam Smith to confront his natural price with the sufficient price, although in his presentation of the natural price he on the contrary declares that in the long run only the ordinary price which pays rent, profit and wages, the component parts of the natural price, is sufficient. Since the capitalist controls the production of commodities, the sufficient price is [that] which is sufficient for capitalist production from the standpoint of capital and the price which is sufficient for capital does not include rent, but, on the contrary, excludes it.” (p 351) 

But, for some products of the land, Smith concludes, the sufficient price is not sufficient to bring them to market. Their ordinary price must be above that sufficient price, and produces a rent for the landowner. Smith does not concern himself with this obvious contradiction, but marches forward on the basis of it, as though it represents a new discovery, “which he has suddenly hit upon), that with the sufficient price, he has overthrown his whole doctrine of natural price.” (p 352) So, now Smith, in complete opposition to what he had set out in Chapters VI and VII, writes, 

““Rent, it is to be observed, therefore” (in this extraordinarily naive fashion Adam Smith progresses from an assertion to its very opposite), “enters into the composition of the price of commodities in a different way from wages and profit. High or low wages and profit are the causes of high or low price; high or low rent is the effect of it. It is because high or low wages and profit must be paid, in order to bring a particular commodity to market, that its price is high or low. But it is because its price is high or low, a great deal more, or very little more, or no more, than what is sufficient to pay those wages and profit, that it affords a high rent, or a low rent, or no rent at all” ([O.U.P., Vol. I, p. 165; Garnier,] l.c., pp. 303-04).” (p 352) 

Whether and how much rent is paid on this basis depends upon the extent the market price exceeds the sufficient price, i.e. the price required to cover wages and profit. 

“By its very nature, the sufficient price excludes rent. This is Ricardo’s theory. He accepts the concept of the sufficient price, the cost-price, from Adam Smith; but avoids Adam Smith’s inconsistency of differentiating it from the natural price, and sets it forth consistently.” (p 352) 

But, on this consistent basis, Ricardo must reject the idea of absolute rent. Smith observes the existence of absolute rent for some products of the land, but can only explain it on the basis of a series of inconsistent arguments. 

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