This is a response to Gil's (7494). Gil summarized his post as follows: > I agree that the historical details about the gold industry are > interesting, but I just don't see how they are relevant to the purely > theoretical issues--in keeping with Marx's abstraction in K.III Ch. > 9--being pursued here. Let me capsulize the foregoing arguments another > way: do you agree that, were we to abstract from complications associated > with hoarding, price adjustment, non-capitalist production, and fiat money, > then in a fully capitalist economy with commodity money, one cannot *in > general* coherently assert that the determination of the profit rate is > analytically prior to the determination of prices of production? > > Gil I argue that none of these aspects mentioned by Gil are mere "historical details", but all rather have to do with the theoretical issues under discussion whether Marx assumed that the rate of profit is equalized in the gold industry, and, if so, how is the rate of profit equalized and how effectively? The complications associated with price adjustment and hoarding have to do with the unique way in which the adjustment to equal rates of profit could take place in the gold industry. These unique aspects of the money commodity are inherent in an economy with commodity money and in which the money commodity is produced by capitalist firms; they are not mere historical details. I will discuss these issues in the second section of my post below. I will first discuss the issue of non-capitalist production in the gold industry, which has to do with Marx's assumption in Part 2 of Volume 3 about the nature of the gold industry. I will not discuss in this post the issue of fiat money, although it is important, and has to do with whether or not Marx's logical method of the prior determination of the rate of profit applies in the modern-day monetary system of fiat money. 1. MARX'S ASSUMPTION ABOUT THE GOLD INDUSTRY IN PART 2 OF VOLUME 3 I agree that I would have thought that, at the high level of abstraction of Capital, Marx assumed that all commodities, including gold, are produced by capitalist firms. However, the historical fact remains that, until the end of the 19th century (i.e. while Marx was theorizing), gold was produced almost entirely by non-capitalist self-employed producers. Therefore, in actual fact, the gold industry did not participate in the equalization of the rate of profit during this period. Perhaps this crucial historical fact convinced Marx that his theory of prices of production and the equalization of the rate of profit should not include the gold industry, since the gold industry was not capitalist. In Chapter 10 of Volume 3, Marx explicitly stated that his theory of the equalization of the profit rate applied only to those industries which are capitalist: "It further implies that the various spheres of production have been subordinated to capitalists. This last is already contained in the assumption that we are dealing with the transformation of values into prices of production for all spheres of production that are exploited in the capitalist manner; and yet this equalization comes up against major obstacles if several substantial spheres of production are pursued non-capitalistically (e.g. agriculture by small peasant farmers), these spheres being interposed between the capitalist enterprises and linked with them." (C.III: 298) Marx did not say anything here about the gold industry and self-employed miners, but the same general rule would apply to the gold industry: non-capitalist industries do not participate in the equalization of the rate of profit. Indeed, Marx did not say ANYTHING explicitly, ANYWHERE, so far as I know, about whether his theory of prices of production and the equalization of profit rates assumed that the gold industry is capitalist or non-capitalist. If anyone knows of such references, please post them. Gold as the money commodity IS NOT MENTIONED ONCE in Part 2 of Volume 3. There is only the following passing comment (in Chapter 9) about the value of money: "We are not referring here, of course, to a mere change in the monetary expression of these values." (C.III: 266) The main point here seems to be that a change in the value of money changes nothing fundamental in this theory of prices of production and equalization profit rates, similar to the two passages from Part 1 of Volume 3 cited by Gil (p. 236 and 238), which state that a change in the value of money does not change the rate of profit in the economy. But this point is a separate issue from whether the gold industry is capitalist or non-capitalist. This point about changes in the value of money applies whether gold is produced by capitalist or self-employed producers. On this point, Marx cites a specific page in an 1841 book by Corbet. I will try to obtain a copy of this book and see what Corbet is talking about. It is indeed unfortunate that Marx was not explicit with respect to his assumption about whether the gold industry was capitalist or non-capitalist. But given his silence on this issue, and the possibility of different interpretations, I think this question has to remain open at the present time. 2. THE UNIQUE ADJUSTMENT PROCESS IN THE GOLD INDUSTRY Furthermore, even if we accept Gil's interpretation that Marx assumed that gold is produced by capitalist firms, it does not necessarily follow that the rate of profit is equalized in the gold industry. The unique characteristics of the money commodity may make the equalization of profit rates problematic. The production of the money commodity may be governed by other principles besides equal rates of profit. This possibility should at least be examined. Gil argues that "there is no special difficulty" in the equalization of profit rates in the gold industry, and that there is no basis for my argument that the adjustment to equal rates of profit in the gold industry by means of changes in the prices of the inputs will be weak and slow, at best. 2.a To begin with, Gil claims that Marx did not consider the adjustment process to equal rates of profit in Chapter 9 of Volume 3, and thus the adjustment process is not relevant to his theory of prices of production. However, Marx devoted the next whole chapter Chapter 10 to this subject of the equalization of profit rates. The title of Chapter 10 is "The Equalization of the General Rate of Profit through Competition " The adjustment process discussed in Chapter 10 is the usual one that we are familiar with for all non-monetary commodities: equalization of profit rates through the mobility of capital and changes in the prices of the commodities produced. Nothing is said about the equalization of the profit rate in the gold industry through changes in the prices of the inputs. 2.b Next lets examine more closely the supposed adjustment process to equal rates of profit in the gold industry. The main inputs to gold production are gold, labor, and machinery and equipment. If the rate of profit is to be equalized in the gold industry, then it must be through changes in the prices of gold, labor, and/or machinery and equipment. However, we have already seen that gold as the money commodity has no price (since price is an exchange-ratio with money, and the gold is not exchanged with itself). Therefore, since gold has no price, its price as an input to gold production cannot change in order to equalize rates of profit in the gold industry. Secondly, with respect to labor. Assume for example that an insufficient supply of gold reduces the prices of all other commodities, including the prices of wage goods. In theory, this reduction in the prices of wage goods is followed by a reduction in money wages, and thus an increase in the rate of profit in the gold industry (toward the average rate of profit). However, in reality, during the gold standard period, was there really such a decline in the prices of wage goods, leading to a reduction of money wages? The main gold producer during the gold standard was S. Africa. Did an insufficient supply of gold really result in a reduction in the prices of the wage goods consumed by S. African miners? If so, did this really lead to a reduction in the money wages paid to miners? Obviously, we need to study the S. African gold industry (and the rest of the gold industry) to answer these questions. But my guess is that these effects of an insufficient supply of gold were very minor at best. That leaves only machinery and equipment as a means through which a change in the prices of inputs could lead to an increase in the rate of profit in the gold industry. A reduction in the price of machinery and equipment could indeed increase the rate of profit in the gold industry. However, the depreciation cost of machinery and equipment is usually only a small percentage of the total input costs, usually something like 10%. I dont know what the depreciation costs were, for example, in the S. African gold mining companies, but we could probably find that out. If we assume 20% of total costs, then the price of machinery and equipment would have to decline 5 times as much as an increase in the price of output (the usual adjustment to equal rates of profit in other industries, which is not possible in the gold industry) in order to have the same effect on the rate of profit. Therefore, it seems that the adjustment process to equal rates of profit in the gold industry through changes in the prices of inputs is much weaker and slower than the adjustment process in other industries through changes in the prices of outputs. At the same time, a decrease (or increase) in the price of all commodities would have an immediate and full effect on the purchasing power of gold (e.g. a 20% reduction in the prices of all commodities leads to a 20% increase in the purchasing power of gold. It seems possible that gold producers would respond to such an increase in the purchasing power of gold by increasing gold production, or at least by not reducing gold production further, even though the rate of profit is still below the average, such that the rate of profit in the gold industry never reaches the average rate of profit. In other words, the supply of gold during the gold standard period might have been governed more by the purchasing power of gold than by the average rate of profit in the gold industry. Again, further study of the gold industry should shed some light on this question. This conclusion is reinforced by the fact that a large part of the adjustment of the supply of gold to demand during the gold standard period was though increases or decreases of hoards. In this case, the supply of gold is governed entirely by the purchasing power of gold, and not at all by the rate of profit in the gold industry, since gold is not being produced. Rakesh has also emphasized the obstacles to industry into the gold industry during the gold standard period, both because the natural resources of gold were so scarce and because the ownership of these resources was so highly concentrated. This is an additional reason why the adjustment process of the average rate of profit did not work very well, if at all, during this period. This obstacle applies to the case in which the initial rate of profit in the gold industry is higher than the average rate of profit. Therefore, we should not just blithely assume in our theories that the rate of profit is equalized in the gold industry. Because, if we do, then our theories may have little to do with the real gold industry and the real capitalist economy. The unique aspects of the equalization of the profit rate in the gold industry make this process at best much slower and much weaker than in other industries, and may not have work at all. Comradely, Fred
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