Thursday, 22 March 2018

Theories of Surplus Value, Part II, Chapter 14 - Part 18

The situation that Smith describes, whereby the price is determined by the most fertile mine, is that presented in Table C, in Chapter 12

Table C.

Absolute Rent
Number of tons
Market- Value per ton
Individual Value per ton
Total value
Differential Rent





69. 231

For the reasons described earlier, Smith argues that the rent on coal mines is less than on agricultural land – about a third of the gross produce for agriculture, and a fifth for coal mines. But, it is less on metal mines than coal mines, he argues, because metal mines are less affected than coal by their location. Anyone familiar with economic geography will understand this principle. Coal is used in its raw state. Wherever it is used, it is what is mined that is used, and the further this bulk has to be transported the greater the cost. Those mines close to the market for the coal can thereby undercut coal from greater distances, and so are more profitable. But, iron ore is required for iron. If the iron is extracted from the ore close to the mine, only the iron itself has to be transported. That means that iron from a range of locations competes in the market, with the transport cost playing a lesser role. 

For precious metals, like gold or silver, that is even more the case. A ton of rock may produce only a few grams of gold, and it is only these few grams that needs to be transported, not the tons of rock. 

““The price of every metal, at every mine, therefore, being regulated in some measure by its price at the most fertile mine in the world that is actually wrought, it can, at the greater part of mines, do very little more than pay the expense of working, and can seldom afford a very high rent to the land-lord. Rent accordingly, seems at the greater part of mines to have but a small share in the price of the coarse, and a still smaller in that of the precious metals. Labour and profit make up the greater part of both” ([O.U.P., Vol. I. p. 192; Garnier,] l.c., pp. 353-54).” (p 363) 

For precious metals and minerals, it is only the most efficient mines that produce a rent, and it is then a differential rent

“The products of the less fertile precious metal and precious stone mines carry no rent, because it is always the most fertile mine which determines market-value and ever more fertile new mines are being opened up—the line is always in the ascending direction, Hence they are sold below their value, merely at their cost-price.” (p 364) 

(Remember that Marx means price of production here when he refers to “cost-price”)

So, Smith here, when it comes to rent of mines correctly identifies that the market value depends on the condition of demand and supply, as Marx had set out in Capital III. Smith is wrong to think that this always means that it is the most fertile mine that determines the market value. But, Smith also goes wrong in arguing that this does not apply to agriculture. Smith says, 

““It is otherwise in estates above ground. The value, both of their produce and of their rent, is in proportion to their absolute, and not to their relative fertility. The land which produces a certain quantity of food, clothes, and lodging, can always feed, clothe, and lodge a certain number of people; and whatever may be the proportion of the landlord” (the very question is whether he takes any share of the produce, and in what proportion) “it will always give him a proportionable command of the labour of those people, and of the commodities with which that labour can supply him” ([O.U.P., Vol. I, p. 198; Garnier,] l.c., pp. 363-64). 

“The value of the most barren lands is not diminished by the neighbourhood of the most fertile. On the contrary, it is generally increased by it. The great number of people maintained by the fertile lands afford a market to many parts of the produce of the barren, which they could never have found among those whom their own produce could maintain.”” (p 364)

Marx, in his analysis of rent has shown, by contrast that rent is always a consequence of relative rather than absolute fertility. Absolute rent arises due to a lower level of productivity, on average, in agriculture, relative to industry. Smith's argument, in the above quote, is only correct, Marx says, if the product of the barren lands does not compete with the product of the more fertile lands. 

“In this case Adam Smith is right and indeed, this is of importance to the way in which the total amount of rent from different kinds of natural products may increase in consequence of the fertility of the land which yields food.” (p 365) 

But, Smith has not given any explanation as to why absolute rent must always exist for land employed in food production. 

“He is correct when he observes that it does not necessarily exist for other lands, mines, for instance, because they are always available in such relatively unlimited quantities (in comparison with demand), that landed property cannot offer any resistance to capital [so that] even if it exists in a legal sense, it does not exist in the economic sense.” (p 365) 

In other words, the landlord may extract a rent as lease money, for use of the land, but it is economically a payment out of the fund for profit or wages, not from surplus profit. 

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