From: gerald_a_levy (gerald_a_levy@msn.com)
Date: Mon Sep 23 2002 - 09:34:06 EDT
Re Rakesh's [7704]: There are no # of issues here that need to be separated out: 1) is there any reason to believe that the composition of capital in branches of production where there is absolute rent will be lower than the average? 2) is there any reason to believe that the composition of capital in mining will be lower than the average composition of capital? 3) is there any reason to suppose that the composition of capital will be lower in the gold-mining branch of production than the average composition? On 2) and 1) -- the most general case -- I don't think there is any reason to suppose that the composition of capital in branches where there is absolute rent must be lower than the average composition of capital. Indeed, I can think of branches where one can observe absolute rent where the composition of capital, arguably, is *higher* than the average composition of capital. Consider the oil industry (Cyrus, are you reading this?) which is much more "capital- intensive" than is the case in many (if not most) industrial manufacturing branches. Consider the many sites where a oil drill is pumping without any workers required on-site. In addition to the low v required (after exploration), the constant capital costs can be often much higher than the average in industry (consider the costs associated with offshore drilling). As for mining in general, I think that if we went on to discuss individual branches we could see that there are some mining branches where the composition of capital is higher than the average (e.g. uranium mining?) and others where the composition of capital is lower. This would suggest that there is no necessary non-contingent reason to believe that the composition of capital in mining (or where there is absolute rent) must be lower than the average composition. Moving to a later issue in your post: > So you are certainly correct > that there is good reason to believe that the composition of capital > will tend to increase in mining, though the economic disincentives > for investment in long lived fixed capital remain. And the > composition will also be increasing elsewhere. So there does not > seem to be a good reason to expect that the composition of capital in > gold production and mining generally will close in on the already > greater and also upward moving average composition of total capital. There are (incentives and) disincentives for investment in "long lived" constant fixed capital in gold-mining production and _all other_ branches of production. There is moral depreciation, after all. Yes, gold-mining capitalists may find after they have invested heavily in c for individual mines that there is less gold in the ground than they originally expected. This may lead to the 'premature' closing of mines. Yet, industrial capitalists have similar risks. E.g. a change in the composition of demand can lead to a decision by industrial capitalists to close plants and thereby lose the remaining value of their constant fixed capital. It is true, of course, that gold-mining capitalists will expect a mine to "live" for a certain amount of years -- and their estimate will be proven ex post to either be correct or incorrect. Industrial capitalists make similar estimates when and where they construct a new manufacturing plant. Another issue: what happens when the gold-mining capitalists (or other capitalists) receive a rate of profit less than that average rate of profit? Well ... since we're talking in part about constant fixed capital ... what about "barriers to exit"? Take the case of the marginal gold mine. Let's say the average rate of profit in the economy is 10% and the individual rate of profit in the marginal gold mine is 8%. Does that mean that the owners of the gold mine will shut the mine down? Not necessarily. One has to remember (and certainly the gold-mining capitalists will remember) the amount of constant fixed capital that they have invested in the mine. It may be the case that they will lose less money if they continue to receive the 8% individual rate of profit than if they closed the mine and lost the value of the remaining constant fixed capital. Thus, the value tied-up in constant fixed capital may retard the "mobility of capital" that is assumed in the formation of prices of production. Note that this issue arises because a certain portion of capital *necessarily* takes the form of constant fixed capital. In solidarity, Jerry
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