From: Fred B. Moseley (fmoseley@mtholyoke.edu)
Date: Tue Sep 03 2002 - 08:35:15 EDT
On Sun, 25 Aug 2002, Rakesh Bhandari wrote: > Fred writes in 7541: > > > > >3. Marx explained the existence of absolute rent in the following way: > > > >The prices of agricultural (and mineral) commodities are not equal to the > >PRICES OF PRODUCTION of these commodities, but are instead equal to the > >VALUES of these commodities, i.e. are proportional to the labor-time > >requirements to produce these commodities; and more specifically, are > >proportional to the labor-times required on the least fertile land. > > There would be reason to believe that the purchasing power of gold > would be determined by its value if through variation in output > capitalists could regulate supply so as to ensure gold in fact > exchanges at its value. > > But there is no such mechanism to control the supply of gold which is > hardly affected by the output decisions of capitalists. Rakesh, I think we need to distinguish here between the "purchasing power" of gold and the "value product" of the gold industry. The "purchasing power" (which you emphasize) is the exchange-ratios of gold with all other commodities, i.e. the inverse of the average price level of all other commodities. The "value product" of the gold industry, on the other hand, is a definite quantity of money. It is not a commodity with a price (C'), which still has to be sold in order to be converted into money (C'- M'), as in all other industries. The circulation of capital in the gold industry is different from all other industries, and is represented symbolically by : M - C ... P ... M' with the usual C' missing after production. Because gold has no price, the transformation of the price from value to price of production is NOT POSSIBLE for gold. After the transformation of the prices of all other commodities from values to prices of production, the value product of the gold industry continues to be the same quantity of money, which cannot be transformed from value to price of production (i.e. cannot be changed into a different quantity of money) in order to equalize the rate of profit in the gold industry. The value product of the gold industry is proportional to the labor-time required to produce it (i.e. is equal to its value). If one hour of labor produces m oz. of gold, then L hours of labor produces mL oz. of gold. This quantity of gold cannot be transformed into a different quantity of money that would be equal to the "price of production" of gold. The price of production of gold does not exist. The value product of the gold industry always remains equal to the quantity of gold produced. Since the transformation of value into price of production does not apply to gold, neither does the transformation of surplus-value into profit. The profit appropriated in the gold industry is always equal to the surplus-value produced in the gold industry, which also is a definite quantity of gold produced. Therefore, there is no sharing of surplus-value back and forth between the gold industry and other industries. This impossibility of transforming surplus- value into profit for the gold industry implies that there is no sharing of surplus-value between the gold industry and other industries, because the only way such sharing of surplus-value couldl take place is the the transformation of values into prices of production. This impossibility of sharing surplus-value with other industries in turn implies that the amount of surplus-value and the rate of profit in the gold industry are determined independently of all other industries. This is the most fundamental reason why Gil's "accounting equation" for the gold industry is not an accurate expression of Marx's theory, because it assumes that the gold industry participates in the sharing of surplus-value and the equalization of profit rates like all other industries. But this is not true. The purchasing power of gold, i.e. the inverse of the average price of other commodities, is a different matter. Under the abstract assumption of Volume 1, in which the prices of all commodities are assumed to be equal to their values, i.e. proportional to the labor time required to produce them, the prices of all commodities, and hence the purchasing power of gold, are determined by the relative values of gold and other commodities, i.e. by the relative labor-times required to produce gold and other commodities, as Marx discussed at length in Part 1 of Volume 1. Now the question is: what happens to the purchasing power of gold as a result of the equalization of the profit rate in the gold industry? Marx never discussed this question, so far as I know. But I think we can deduce the answer that is provided by Marx's theory. The purchasing power of gold depends on the prices of other commodities and will change if and only if the prices of other commodities change as a result of the equalization of the rate of profit in the gold industry. What happens to the prices of other commodities, and hence to the purchasing power of gold, as a result of the equalization of the profit rate in the gold industry depends on the composition of capital in the least productive gold mines. Assume for example to begin with that the composition of capital in the least productive gold mines is less than the social average composition of capital - which I have argued is the most likely case. In this case, the rate of profit in the gold industry will be above the average rate of profit in other industries, yielding a surplus profit for the gold capitalists as absolute rent. This surplus profit will not be competed away, because the monopoly ownership of the gold mines by the gold capitalists does not allow the entry of competing capitalists. Thus the prices of other commodities do not change, and hence the purchasing power of gold does not change and continues in this case to be determined solely by its value, as before. Assume next the unlikely case that the composition of capital in the least productive gold mines is greater than the social average. In this case, the rate of profit in the gold industry would be below the average rate of profit in other industries, and there would be no absolute rent. Therefore, gold capitalists may withdraw capital from the gold industry and reduce production. However, as you have pointed out, the effect of such a reduction on current production is very small, because of the large existing stock of gold still in circulation. But assume at least a small excess demand for gold, resulting from the reduction of current production. Excess demand for gold cannot cause an increase the price of gold (as it does for other commodities) because gold has no price. Instead excess demand for gold (or insufficient supply) would reduce the price of all other commodities (as I have discussed in previous posts). In this way, the purchasing power of gold would increase, and no longer be determined solely by its value, as before. Also, the rate of profit in the gold industry might increase a little, because of cheaper inputs, but (as I have discussed), this increase in the rate of profit is likely to be very small. Again, I consider this case very unlikely, for reasons I will discuss in a following post. But even if it were to occur, and even if the purchasing power of gold were to change in this way, the value product of the gold industry (the quantity of gold currently produced) would still be determined solely by the labor-time required to produce it. And the profit appropriated in the gold industry would still be equal to the surplus-value produced in the gold industry, i.e. there would still be no sharing of surplus-value between the gold industry and other industries, which means that the amount and the rate of profit in the gold industry would still be determined within the gold industry itself and independently of all other industries. Such a change in the purchasing power of money also would not affect the general rate of profit for all other commodities, because the prices of all other commodities would have changed proportionally. Therefore, the general rate of profit on all other commodities would still be determined independently of the gold industry. Comradely, Fred
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