From: Jerry Levy (Gerald_A_Levy@MSN.COM)
Date: Tue Feb 07 2006 - 10:19:12 EST
Sine no one else on the list has discussed the blog entry by Arthur Bough on Marx's theory of rent which I sent to you on February 3, I will briefly comment and in so doing re-cast an issue in terms of gold-mining and the informal sector. The problem that Bough poses is whether the cost of production on the least fertile land determines the price of the agricultural commodity. The argument is that unless agricultural producers received at least the average rate of profit then they would dis-invest their capital and shift it to other agricultural or non-agricultural branches where a higher rate of profit was experienced. The theory that Bough challenges projects that the commodity price in agriculture and related sectors (such as mining) will be determined by the conditions of production of the least efficient producer. Bough asks: "But is this true?". I think he raises an excellent question for discussion! Consider the case of gold-mining: *Who exactly are the least efficient gold-mining producers in the world economy?* There are a number of contenders, including producers in the *Philippines, Mongolia, Brazil, and Peru*. More specifically, the least efficient producers in those countries tend to be *informal sector* producers rather than capitalist enterprises, which are typically more efficient. [As the following article makes clear, informal sector gold mining in many countries often goes hand-in-hand with child labor: <http://www.ilo.org/public/english/bureau/inf/magazine/54/mines.htm> There are other articles available online which highlight the environmental consequences of this mining, e.g. in Brazil.] *Is it the case that impoverished self-employed landless miners determine the price of gold on world markets?* _Of course not!_ What is missing from the theory is the extent to which *speculation* can determine whether producers remain in operation and how that speculation affects the market, including prices. Not just today, but historically, there have been poor self-employed gold and silver miners -- "prospectors." The gold and silver rushes in 19th Century US and Canada, including Alaska, were to a very large degree *speculative-driven*. [NB: Marx was quite aware of this.] As is the case with speculation in general, some won and some lost -- more lost than won. But, there were many, many miners who spent their entire adult lives searching in vain for gold, silver, oil .... *In practice*, if there is a limit to the extent to which the least efficient mines will be worked, it is not given by the average rate of profit -- it is given by the *minimal subsistence requirements* of the miners. The hope -- really, the fantasy -- of "striking it rich" keeps people mining long beyond mere market considerations. [Digression: in the case of other agricultural producers, there are cultural reasons why impoverished landowning peasants continue to work the land even where they are receiving less than the average wage -- let alone the average rate of profit. One could project that over the long-term (or less -- depending on the extent to which they are impoverished) -- they would cease agricultural production and join the ranks of the proletariat. But, there is often a considerable lag -- perhaps lasting more than one generation -- because of the attachment that people have to place, community, culture, family .... As I indicated, a lot depends on the _extent_ of their poverty.] Admittedly, this is not a typical branch of production -- but it is real enough. In branches of production where a rare commodity is being sold, the market price depends not only on the conditions of production and the ownership of land but also on speculation. The informal sector tail does _not_ wag the golden dog! What do others on the list think about this? In solidarity, Jerry <http://www.workersliberty.org> > Marx's Theory of Rent - Did he get it Wrong? > Arthur Bough's blog <snip> > Both Ricardo and Marx argue that it is the least > fertile land in use, which determines prices because unless capital can > make average profit on this land, capital will have no reason to operate > on it. If supply is to meet the shortfall against demand then prices must > rise to a level whereby the least fertile land can be brought into > operation, and return average profit. Therefore, the cost of production of > the least fertile land plus average profit will set the market price. <snip> > The Problem > I have no argument with Marx's theory in this respect, but what I do > question is the assumption that it is the cost of production on the least > fertile land which sets the price, and that in this agriculture is > different from the production of all other commodities where exchange > value is determined by the average not the least efficient producer. The > argument is that unless capital employed in production on the worst soil > can make average profit then it will not be employed. But is this true? <snip>
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