Re: [OPE-L] Marx's Theory of Rent - Does the Tail Wag the Golden Dog?

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:
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
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

> Marx's Theory of Rent - Did he get it Wrong?
> Arthur Bough's blog
>  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.
 > 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?

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