In relation to minerals, Smith recognises that there are two factors at work – the fertility, i.e. the amount of output for any given amount of capital/labour, and the location. A mine in a favourable location may not be profitable, if its lack of fertility offsets the advantage of the location, and vice versa.
“This is in particular the case where there are neither good roads, nor shipping ([O.U.P., Vol. I, pp. 188-89; Garnier,] l.c., pp. 346-47).” (p 362)
Some mines lack of fertility means that their output only matches the sufficient price, i.e. enough to cover wages plus average profit. In that case, no rent is possible, which means that it is only the landowner that is likely to work the mine, or alternatively a capitalist who started operating the mine at a time when it was more profitable, and who accepts less than the average profit, rather than withdraw their existing capital.
“Here Adam Smith has correctly defined under what circumstances land which has been appropriated pays no rent, namely where landowner and entrepreneur are one person. He has already told us earlier that this is so in the colonies.
A farmer cannot cultivate the land there because he cannot pay any rent. But the owner can cultivate it with profit, although it does not pay him a rent. This is the case, for example, in the colonies in Western America, because new land can always be appropriated.” (p 362)
In other words, as Marx explains, its not the land itself that is an element of production that presents resistance, but the existence of landed property. Landed property may not exist, because, as in the colonies, vast tracts of land are available for labour or capital to take possession of, and cultivate, or it may effectively disappear economically, in those specific cases where the landowner and the capitalist are the same person.
“The position of coal mines, or mines in general, is different in the supposed circumstances. The market-value, as determined by the mines which supply their product at this value, yields a smaller rent, or no rent at all but just covers the cost-price in the case of mines that are less fertile or less favourably situated. These mines can only be worked by persons for whom the resistance of landed property and the consequent exclusion of others from the land, does not exist, because they are landowners and capitalists in one person; [this] only happens where in fact landed property disappears as an independent element opposed to capital. The position differs from that of the colonies in that: in the latter, the landowner cannot prohibit the exploitation of new land by anyone. In the former he can do so. He only gives himself the permission to exploit the mine. This does not enable him to draw a rent, but it does enable him to exclude others and to invest his capital in the mine, with profit.” (p 362)
Ricardo's position, as seen earlier, is to assume that production, as a rule, moves in the descending line, from the more fertile land to the less fertile land. That assumption also underlies marginalist theory. But, as Marx, following Anderson, showed, this assumption is wrong. Smith, in contrast to Ricardo, argues, as was seen in Chapter 13, that for mines, the movement is always in the ascendant, towards more fertile lands, and that the additional supply that results is always greater than the demand, causing the market price to fall.
“Here only one proposition needs to be stressed:
“The lowest price” (previously sufficient price) “at which coals can be sold for any considerable time, is, like that of all other commodities, the price which is barely sufficient to replace, together with its ordinary profits, the stock which must be employed in bringing them to market” ([O.U.P., Vol. I, p. 191; Garnier,] l.c., p. 350).
It is evident that the sufficient price has taken the place of the natural price, Ricardo regards them as identical, and rightly so.” (p 363)
As Marx sets out, in Chapter 13, Smith's assertion is wrong that this situation, where it is the most fertile land which determines the market value, and thereby the rent, is the rule. It depends upon the conditions of demand and supply, as described in the tables provided by Marx in Chapter 12.
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