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In industry if you have a method of production which Ss below the regulating one, worse than the regulating one, then it will gradually be phased out end uhen your turn comes at the head of the cue, so to speak, then you will Sump to the best ore thet's available then, and ehe one that ts best in your tine or a Tew’ years ago vill have woved down. Therefore, there 18 constant rec ycling. As nethods fage, they aove {ror Being the best and they becone increasingly obsolete until the polat here they are crapped and nev ones are added to the top. That recycling process is ‘methods, but you don't have to reproduce win the case of land, there 1s not that je of ané you Se the producer on the best kind of Lend has a kind of guaranteed surplus profie, extra profit, Shich doesn't asaappesr over tine per se (It aay, but it fs not sppearance) because hew producers can't reproduce that best iand or land bet: agriculture are co a certain extent capitals thonselves, Individual capitals. Chove-capleale, GLI not be just a mosentary phase in th tively durable feature, the omer of the source of production conditions beconds capable of taking that {ete and pocketing it as the form of the rental of th fertility of the land or better location of the land Capital using chen, higher then normal, then che ower of that land can ask a rent up to the total of the excess profits, Can ask, does not need to ask, and may not under certain conditions ask. I'want (0 emphasize this point. Marx notes Gmer of the Land vould like to take all the profit. So, if the omer of land 1s a capital- ite for fiation as any capitalist, but the capitalist has a Lint belov which the capitalise will generally not go, and thai [inte da strictly spesking the rate of interest. This 4s because if they're not covering re gonerelly be of provi. IP \ for capital of ite type, then 4¢ will pot eater. That is quite different fro \e doce enter 4t vont make the normal rate ~ that is another matter. Se differential rent 1s determined essentially by the fact that the Landlord will push 4¢ fo the Limit and the capitalist will resist; bur that Lite 4a the noreal profit ind therefore Tene vill be the excess profit. That does.not mean exactly; sopetines it GALL be greater than that and somecines it will be tendency of the rent. But for that co be the cent sectal and historical institutional framevork in which the landlord has the right capitalist off the land if che landlord so pleases, and talist has the right to move from the land 4f the capitalist so pleases. “Capite exist vis a vie the capitalist unl Ghless the landlord 1s intrinsically capitalist landlord, or a landlord vith equivalest Social pover. When Marx discusses Land, he discusses many diff ‘aed aany different forne of landlords. ‘There are forms of production , and both their ability and # different from capitalist landlords. discs ‘generally talks about landlords vho are eases! land de another asset [ike anything else; chat they can get avay with, Like any landlord,3/8/84 ~ Page 3 ind because one of the applications we will make of this 1s to something like the of] Sndueery Suppose for noment that you think of something Like the ofl industry tn which ations of productivity of wells. If the wells have wells that are wells thet are less, and for certain levels of denand there is Because they heve sore productive welle, will have lover cost and ther excess profite, It does not follow that these excess profits will be transforsed into feat for the oer of the well. That depends on the conditions ander which capital had catered that. Specifically, 4£ you look at the ofl industry, you will see that ia many fee o41 lands vere leased for purely nominal suns because the people who were leasing who vere their nominal ovmers, were the ruling class tn a pre sat J, and who for being supported by international capital in their on little niche would in return cede the rights to these Langs £0 che ofl companies or to the Statec behind the ofl companies, In that case the law of differential rent 1s the sane fas before but instead of that surplus profit appearing as reat it remains in the pocket Of the capitalist ax surplus profit. 50 4 {el rent 1s really excess profit de- termined by the differences in conditions of production in wining HE only Becomes Eransforsed tothe pocket of the landlord if the to take 4€ avay, which is a sore datermined condition than that SETS Satielintiar rene whother de Le in the pocket of the Landlord or the pocket ef the cap{taListitut-on the" books 1f-18 Iu In the pocket of the capitalist 4 will appear ol inloady fe ral = er Tree er polie™ Is oil-indwstsy. And yet if chat sane woney was put into /sppeare ax cost to the oil industry and then if their reat be only an average rate of return and there would be the ap} | yet the real regulation of price would not the least be altered by this avitching frox \ the account to another, Ia other words, once you knov that in agriculture the regulating / and, then you vill know thar in agriculture the average raze | ma in othe? sectors because it's ehe vorst land in use which gd that average rate will be higher provided that all of this | Surplus profit does sot go to the landlord and if it does the rate of profit will be = | | Souhiy the saze, That's a question of division betveen normal and surplus profie, but / | nota determination of the’ sotaitr the prise whch ville determing by Let of cet | witch ds in in another way, Marx says that different rent gets transformed into pockets of landlords only in certain eircmatances; otherwise 1¢ stays as surplUs profit. / ioe, second point ~ we sav from the discussion of different methods of production a av tines the rate of nC + V)-=P. (The exploitation ~ vi Fate of profit Le on capital advanced (C + V)). Will have the same value and the sane total Sibbabtion (ante srlce) ~ P/E and individual vaice (A/s) will be equal to the total price of production or total value over output, The total individual valve and the> Fotal co8t plas “anit value and {i@— » the lover the unitB was the only ‘unit price of prod increase the supply anymore. So the dncrease in densnd ia met by increased market price.3/8/86 ~ Page 6 Te vill rise to 7, 9 When dr finally reaches 12, then production can begin on land A. In fact, de probably vill go above 12 to 13 or sonething that will Justify the incresse in gupply, whieh will Bring the price back down to 12 as the people start to ut{lize land Ar “And nov it de the price of production of Land A uhich reg ane int continue to do so and use up land A until all of Land 4 seul re this ie aot a trivial process. Land of a particular type le rate quite a long tine to use up. Land does not cone in infinttesizal units. At any fat the worst Lend in use will be regulating, except for the transitions. When land B the only land, it was the woret land in use and it vas the regulating land. Te renaine feo until its output could not expand; not the amount of land - it ds the output ehat Counts: So, when it reaches the Limit of ts output, then you have to switch to a nev Yand because you can't reproduce the land, and cansot increase the output nov without Increasing the land, So you evitch to the next one. As I've said, this ts the process Of going from better to vorse Land, but for the reason T discussed wr ve can nov Gaagine 2 chird type of land being’ discovared vhich 1s better will thes increase the eupplys then Lend A will not be necessary. The ckvards on Land A so that Land B vould jae becone the worst land though one in Hine; C vould be the last one, At sry point, no matter how to arrive at it, the demand Mill settle sonevhere on the worst ied in-use, and the supply and denand changes vili be Sccomedsted by greater utilization of chat land until that land is fully used and you have co switch to something else, or until de's displaced by a better land. Notice sonething very interesting. The process, a5 T!ve described here, the essential process, except for the transitions, the earket price is regulated by the Soret Land in use, whatever it is. That weans that during all of this period, except for cereain periods of tiae in the transition, the bulk of the tine the comodity's price fb regulated by price of production. But you can do a Little trick and elinfnate the Fegulating conditions, the regulating period, by imagining thatevery type of land is Inflaitesinsl, Because then, a8 soon as you use the Land £0" ‘ups and then 4f you also assune that the next land 48 worse, You'll go to the next one and you get that cverything 1s really the transition only. The transitions alé ‘shrunk Fogether, Seciuse they are now next to each other. Each land 4s iefinitesinally available at’ the Rext gradation, and they're all worse; and if you go only from better to vorse, then you get the neo-classical supply curve for agriculture, whore fertility is assumed to be ESfinicely variable and dininishing returns, and you are moving along the curve temporally fackwarés or forvard ~ that ordering 4a given. Then you get the neo-classical curve. mat they have done is taken out of the process, in fact, the great determinant vbich 4s Utilisation of capacity of production oa Land. I don'e wean the capacity of the neans_of production, but the extent £0 which che land is used. And because you take out that 3 aroduction, Bur ARE Gens oeecchdeg becones a auention of soviag samedtately fon cn ereryehing becomes 2 Omg yee ee shot king eh ie Se reese oe Genand appaste to\deternine everything. Befe N-C Cea er er eatepe for tee traatclon, iat Me aT eho of hatte ngs anlar sciag aoe MP ven IE 2 iene oot devel of gant deersiice the deviation oF See eee eee ie aicety teint shoe price of prouiceion vill Higa bf matt jes aie Orbe? te eet eel of oe ae GA. One of the things that we often forget 1s that che discussion in Marx does not make explicte this ides of expanding the output available for particular conditions DF production; but once ve come to Keynes that becomes central when we talk aboutjclty utilization. t's how auch employment can be afforded by a particular given 1 which 1s quite different from the sense of what 1s full eaploynent by ty of output. Neoclassical theory of the firm does the sane thing by the way, for the ease Te The actual cost curve looks like this... that means you are generally here... That's a very well know phenomenon, In neo-classical theory the cost fou are alvays. assuned to be on this section, because you tion. What they have done 1 to cut out the section in the middle and splice the tuo ends together, #0 to speak, in order to get the Fight com clusion of diminishing returns, diminishing costs, and #0 on. The theory becones inde~ terminate 1f it As posed the vay they pose 4t. SO they have to autgically alter the representation. Think of the context in Ricardo and also in Marx: Capitalism 4s growing. If you think dn a neoclassical sense where denand level 1s something abstracted fron the trend, then yes,the level could be high, could be lov and it could be dn between these two. It's quite possible the franevork. As soon and could stay there forever, because you are speaking in jou think in a franework of ‘accusulation, then in fact it ten't juse a question of of demand but that level is constantly shifting over tise, and 4s shitting # particular way. Of course you cen have a depression, and it could coue back down, but that is a question which 15 very easily dealt with quite separately from this. This is not meant to describe a crisis theory or whatever; we will cone to those in a very determinate vay. In the general proce ‘equivalent to accumulation beca Their capital value, They inve ‘uore capital 0 they can reinve capital. So to posit a kind of static snd they reinvest, #0 they can get nts out, ie the intrinsic drive of jeuation under ap is exactly to posit an anomalous situation. That = there may be a product, for tastance, for which the denend is linseed in sone not by price because thet is a separate setter. That simply says if you have rare wines you end up here and you may end up even on the cost, because the price of rare wine nay fluctua bie because there are par ticular kinds of Land available for it. The next one may not constitute a rare vine. Tr falls into things like art objects and things which are not reproducible, But generally any commodity which satisfies # general social denand vill participate te the rising Level of production generated bY accumulation; and that means that the probles cones back sooner or later. Te 4s not impossible, hovever, chat there may be cases vhere the next available conditions of production are such, at least for certain periods of tine, that the price Se, Sn effect, not determined by the existing conditions, but by the fact that the denand is higher than the existing conditions can # tions are so far off. That happene when agricultu: tation ~ that is a very comon thing. That's why where the supply cannot be expanded in any reasonably short period of time, because it takes & long tine, Like a forest. But capitaliom has a series of other techaniens to deal with that, one of which ie that substitutes epring up, ‘As the price of ofl 4s getting greater, people discover va ind bring ie back dovn, of substitute electricity for complication that does not change the nature of the analyeie. 0 variable ~ ‘20 on.” But that 4s The process that ve described ao far ie the ranking of different lands according to thefr fertilities or locations, not their historical order, and therefore the determination of differential rent on those Lands. Notice that the differential rent that arises ie specifically the result of competition and equalization of profit rates. It ie not the violation of competition; it is the consequence. It 12 only because of competition that3/8/84 ~ Page 8 the marginal capital on the marginal conditions of production has to earn survive, and therefore the capitals vho are better aituated vill earn exc ‘ay or May not appear in the pockets of landlords as differential rents nomal rate to profies which Differential rent If ts of « different Merarchy of capitals vbich has to do vith sore intensive production-on any given type of Land. For instances if you have waihes there are tee Vays you can sine. “You con'nove lacerally to never areas where the gold oF cil or whatever 16 avatlabie, of you can éig deeper. Going laterally you may go'ts a Worse location, #0 the cost vill be highers or digging deeper the {n'a sense, thc intensive nargin fs Kind of stacked beneath any ia Wil be higher. + though T don'e want ise for sone products or s0Re products you way nore fertilizer on 4 particular type of land to rai ‘output. "That seane you ‘your cores, but you get a higher output and that output can eattsfy demand provided you cam cover Jour coses and ‘ price of production. And £t may pay to do that rather than to move jatlable piece of Lend, vhich will have an even hégher cost. So whether you ingly more intensively utilizing the existing land or move to the next land de~ which one is cheaper. That means that the conditions of production which are che regulating ones nov becone even nore general. They are the “egulating conditions in the” e-that they are-the wovse aVallable conditions of prowécion = not necessarily the vorse available lend, The example I gave you was that land B vas the firet land in use, and as output t= densnd increased until the land was fully utilized and we moved to lend Ar Land Alhas a price of production of 12 and che output Keeps expanding unttl ve bit the Limit Of Land A, Nov the market price starts to rise ~ fron 12 to 13, to Id, t Thus, te Liser and sing particular techniques which you wouldn't normally use because the costs of dolag that mide that impossible. But gov that the cost 4s rising above 12, before we reach the land C, Se say pay by cultivation of erther Iand Aor Bor both to produce some Output — Shae way. “And-you use up those possibilities (which are bfoadened by the price of produc tion of those possibilities) until they are used up and then you may have to move back to the extensive sargin. The intensive and extensive margin compete vith each other, #0, speak, at any one mosent of tise and over thee. That's the example in the second tebley "preferential Rene Ite ™ = We begin again from the same place: Lend B is the only land in use; 20 quarters of output 4s produced. The individual price of production 4s 6. The regulating price of production is therefore 6. And the total regulating price {s 120. And there Sa no Tent Because land B is the only land in use, So it ice of 120, vhich 4s equal to ite price of production which 4s 1 ‘and fostead of ‘assuring that there's a land A, ve nov assume that there's a possibility of further nyest= jecond favestueat, which 4s al intensive method (for the sake of {livstration) ing deeper, oF using nore fertilizer or vhatever, 1e second dose of capital, gives you 8 quarters for an investnent And the individval unit price ‘of this second invesement (second bunch of production) 4 quarter (that's in colum So demand vill have to rise from 6 to 15 Like A), until t¢ pays you to make a second iavestm ‘and thet will be the intensive sargin. "And at that, you vill be able to , when the price 1s 15 and the total eales are 28 quart (at that price of 15), then land B will actually be earning differential rent, because the first investnent (which is productog 20 quarters) is nov selling ite product for 15, just ke the second iavestment 1s. But ite price of production £2 Only 6. So on every quarter, ‘each one of those 20 qua ence between its price of production ‘and the regulating price, or, alternately, the cotal3/8/84 ~ Page 9 regulating price is 300, the total price of production on the firet dose on land B 1s 120, ‘and therefore the first investment on land Bill earn a surplus profit of 180. The second Snvestnent vill earn no surplue profit because that's what brings it into op: + 50 land 8, which ig the only land in use, and could weil be the marginal land (in ‘be paying rent. Rent on the marginal land ts perfectly pos~ jae it could be differential rent of type II. It does not Targinal land {s necessarily zero rent, even at this Level lardo makes this point. And 4¢ 12 such ah iaporeant point, in other words of abstraction. In fa! but it's often not mentioned, Ricardo has been argiing about vhat he calls the no-rent land and the no-rent capitals ‘iso, and he says ~ In every country there is a portion of capital employed on land al~ ‘old land) for which no rent Ss paid, or 20 additional rent 1s, paid in consequence of the employment of additional capital. So souetines he speaks of Ro-rent land and sonetines of no-rent capital on land. Say criticizes Ricardo for saying Ricardo replies in the following way: "M. contradictory because no one would §: Mog satisfied hinself on this point, he concludes that he has overturned all the conelusdons which result fros that doctrine. He tufers, for exanpl That I'm not correct in saying that taxes on corn or other rav produce, by elevating their price, fall onthe consumer and do not fall on rent...But, before M. Lish the correctness of this inference, he must also show that there 18 n ‘employed on the land for which no rent is paid. GA. That's a good point that T dtdn'e think of, That's exactly an covering nev land. In other vor art doing production on some you nay hit (as bappens frequent) ing) a very productive area, like a vein of gold pocket of ofl, which means thi Second investnent is nov the more productive The order de not dnplied. Now, if that's a0, and {f the second one the demand at the existing price, thea the first oe vill be closed ‘on the 14 4m fact if the second does ‘who Will algo do it. Te de~ can easily set: down (because you have lover cos that then the price will start to fal pends on vhere the regulating price Vhere else and the second investment That's exactly analagout to the discovery of nev land which shife out of operation and pute iteelf into the ordering someplace. The ordering of investments ie not at all ehe sane thing as the fact that the marginel one in use vill still be the regulating one. That's true whether it's che last one to come into use or the first one. fone of the points that Marx makes is that Differential Rent IT differs from Differen- tial Rent I, in that da the case of Differential Rest II che conditions under which the landlord ean extract that extra profit are different in the following way: Tf you | Fehr aselctpated that! in the sense that your Lean already Charge of the lond is what takes that surplus profit avay in the form of a ren | ether words the landicré has an idea of the size of the surplus profit, either from past experience of, a8 utually the case, from an estimate, Now you find that you get an addi- Yonal rent (Differential Rent II) because you make an teprovenent on the land. In s0 \ doing, your first tnvesenent may make an additional rent and therefore your surplus profit Vill be dncreased, However, for the ters of the lease that you have, everything that you Get from the land 1s yours. So for as long as the lease 4s given, Stays in the pockets of the capitalise. It only then becones “up' for lease expires. ‘And Marx points oud a very interesting consequence of this. And that's also for Dif ferential Rent I in a certain sense, because fore long lease and it ‘may not be earning auch reat when you firet started, but then as the price of corn rises3/8/84 ~ Page 10 Land will be generating in your pocket. But the wrence there 4 that thi . With Differental Rent IT you can create the surplus profit by additional favestaent {nthe land itself. Either way, rent may stay in the pocket of the capitalist util the lease gets turned over. There- fore, when capital first started confronting pre-capitalist systens, and that's true often out), and knowing the consequences of reaain in the pockets of the capitalist. ‘which fe chat all future excess profite would On the other hand, as the relations of capitalist production generalize in soctety, ‘and aa they Seize the conditions of landholding, we begin to see the landlords stroggling for shorter and shorter leases. And from the point of view of the history of Leases, you see then going fron 109 years or in perpetuity, dovn to deterntnate periods vhich have to do with the period of turnover of capital and fixed capital on the land, on general in- Yestnest and so on. So the limit of the length of the lease ie that vhich allows the cap ital eine enough co start operating and turn over firstly, because then you're in continual operation, 80 to speak. And so leases change in charac~ ter as the landlords chenselves becose capitalise ealeuiators and they see what's been lose. One of the secrets, in fact, of the off comp: is precisely that through force, through trickery and all the other mechaniens of capitalist competition, they were able to get titles to the land for very long periods of tine, which meant that all of the profits from oil (Differential Rents I & TI) accrue to individual companies that happen fo haweitles to that land. Te wasn't until those conditions vere overthrown ~ until the ruling classes of those off producing regions got together and acted concertedly in a capitalist way, that they changed the rules ané took avay that Sutpl Fered te. There's a very interesting dissertation by a man named at Azerican University, in which he tried £0 args the of] 40d example of competition. That is, you can understand che movements in the price of ofl and ts essential patterns through cospetition; and the phenomena that people point to - a higher rate of profit and a high sarkup, are exactly vhat you vould expect when you allow for the theory of coupetition and particularly for the theory of differential rent. And then he does the estinates.... As you could dnagine, people from the Middle East tend to see the phenonena a Little wore concretely when it cones’ to the actual operation, and 0 it's not surprising that an Iranian vould be able to recognize in the theory of competition ‘the actual phenomena. (to market price) GA. They're both responding, /but they have different mechanisms. They have differ fent individual gains and losses. In other vords, if I'm on land B end land A cones into ‘use, 1 gain, but 1 gain passively. There's nothing T can do to make deuand rise or to ‘make land A'to be put into use, because sone other investnent 1s made (1t may be ay ovn favestaent, but the point 16 that it may be a completely separate decision, ou imediate control on this land). On the other hand, reinvestment on thts Land nent to this Land) can ve by making the first investment the margins) Second one 0 So there's a constant incentive for capitalists to taprove the Land; but that Incentive is choked off by the extent of the lease, because 1f you pase fan dmprovenent on to the landlord, then all the benefits of course goto the landlord. Eventually everybody recognizes hat when you lease something and you improve it, then you ‘And a0 the conditions of capitalist leasing Land on the one hand encouraged ransient {aprovenents; ‘and on the other hand it discouraged long term improvenents frou vhich the capitalists wouldn't get the benefits. Marx discusses the social relations 1a which these kinds of Amprovenents get discouraged, unless the capits = Once they buy ity ‘then they can internalize the rent, and then £¢ app: 's the point I'll come to next, which is the price of 1:3/8/84 ~ Page 11 GA. then you change methods of production, you can change the whole method of pro duction.” On lend, when you have intensive oF extensive margin, {t's not the sane thing as ‘dopting « new nethod of production, I'm not talking about that - I'm not saying that this type of land B wae formerly done by hand and nov it's done by bout 2 more Latensive development of the same general developeent 0 Clon, Not a evitch to a new sethod, but a deepening of the extating method. you vould call "capital deepening” in the original sense, vhich {= Just a nore intensive Application of labor, of fertilizer, or machinery or irrigation ~ specific things that have werdo with the natural properties and the use of 4 particular Level of the developaent of Sechods of production, but at different costs. When you have land it's not true that the Cutpur Just depende upon the sethod of production. Tt depends upon how intensively you Gellize the land itself. And dt ie that gifference which 1s the essence of the arguzent. Clearly, if the method of production changes, then you get a change in the rankings in fereiifeies, and that can change everything. But that change tay be completely general. You may adept an individual wethod...but that's aot particular to a type of land. That Can be general = used elsevhere too, the use of tractors, for example. Clearly, the ele- se land han very specific factors hich haveto do with the natural prop ‘of the resource, of thelr availability, the non-reproductble. fo do here is exanine the influence Sf non-reprolucible resources. That does not mean that they are forever non-reproducible, Dut they aise dn this category at thie tine because they are nor-reproducible. There cones s tine when things that were dn the past nos-reproducible by capital become reproduc:~ Sie by capleal. Either in che form of a new substitute ~ a so-called syathetic - oF production, Mach of the biological engineering now is transforming sonething from th Pitegory of agriculture and wining into the category of industry. When you get microbes that will produce insulin, vhere previously insulin had co be extracted from glanda of Carte, now they can have wicrobes produce 4t. They're Little factories. And the depend- nce on the natural condition 1# reduced tremendously and you see all the patterns of Snguserial production imposed. Litele microbes operating as little elevents in a gtant factory, producing perpetually as long as they can 1 GA. The oearest equivalent in industry would be moving toa second shift. With the second shift, you usually hevehigher costs; and it's really a wore intensive utiliza Eton of the existing plant, a= opposed to capacity utilization on one shift, which 18 question ef denand variations, When the denand variations are sufficient to justify a Second shift, paying aight pay and electricity a: The necel tion of capacity Aeale Biv thet the price is given. That, unfortunately, What determines price, If you look at the bus Of approsehing it, One thing 1s utilizing the first shift, then Jumping up to the cost OF the second shift and utilizing that. The theory of that has never been dealt with in ‘onteally) in Differential Rent 11 you have, in effect, a that's why it'e not an important question in dustry in che fs that once you cone to the second shife, then you can make five other plants of the type, whereas you can't do that for land. So, though it's the Gane af the covenent within the Land of type B, you can't add more land of type B. You Can't edd this land, And ao Marx doesn't place much eaphasis on that ~ you can reproduce then in industry. You can choose to have two plants with one shift or one plant vith two depending on which 4s cheaper; but though it spears as movement from land A to Or sore intensive margin, it isn't really because you can reproduce it. the mechani ‘difference GA. Mo, de's a different type of acarcity. Here we're talking about using the resource Stnelf to produce something. In that sense, it is scarce, but it's not the same Gense as scarce commodity. A painting 4s not subject to this rule. A painting has one supply (although ee you knov that can also be changed, but in principle it' Limited until they catch you), and so that one or tvo copies of the painting are it~3/8/84 ~ Page 12 Therefore, the price of the painting vill rise according to of art objects has a different lav. Tt depends on vhs Society, ‘This applies to resources in the strict se process. And uhat you see here is that they pose no the determination of the price of production, because they have the specific effect of lecting the regulating price of production, Now that's not the sane thing as the neo- jcal theory of resource utilieatiorbut then none of this 1s che sane as the neoclas- theory of the equivalent. So the difference 1s no grester and no less. nelate the questions that the neoclassicals savers, though chey overlap, are distinct. collapsing = taking all the Land’ dn use and treating {t as {nfiaitesinal ~ chat tt" trick with no justification except 1 gives you the right ansver. vy the price the GAL edt, ginal condtes initially, because they had these huge excess profit Lnttial price and still have a much higher than average rate of profit. But vhen that excess profit vas taken av ch a vengeance the existing earginal con- ditions cone back into ditions in the mediate the historical period in fate in that sense. You can have & by something else, because you know that the demand 1s The case of the of1 industry 4s his dissertation argue 18 happenedis that the mar ‘been extending outw. wellabove their price of produc fact soue of the production couldn't be supported, rhe price. And he argues that the U.S. was the sarginal producer (isthe ‘And that the extension of the aargin has been teking place for quite sone time, but the price of that cane in the form a big rise then dt rises sharply; and then 4¢ falls again. That. those sovenents have to be understood ag. gravitetional around the watch in the meantine vas rising. It's at least an argument which 1s prina facte consist- tent with all the expirical evidence that we've seen so far....The point is thet dn the theory of differential rent you'd expect pretty much those pattems. Q. How does monopoly theory deal with differential rene? A. What vould a theory ‘of monopoly capital look Like? It would be that the marginal producrs are earning syste matically an above average rate of profit. It's ‘in any instance, Tt is that the regulating capital would have to earn an above fof profit in order for 1¢ to be a monopoly. And that po jnat happens 4 everybody: is, ‘a sonopoly?” Then you'd have’ c parelal con Cepts And I would argue thet it's not really a visble concept in a general sense, So if you talk about the expansion of monopoly capital, you notice they get very uneasy about ‘The best one could say 42 that since the expansion of wonopo- lative power, the proffe rates earned by the Te lating capitals would be arbitrary because they would depend upon sonopoly pover. so they Wouldn't necessarily be equal or uneq ey would be Just # measure of power. And that's sone sense in which Kalecki and Stein] use the markup as a indecof power. It's fot clear tome that that argunent follovs logically from the theory of how monopoly be Artoally 90 theories that say anything about decisions that they have the pover £0 wake profits above the ‘virtually nothing. Me vill see that in Steindl and jerage, and beyond that they Kalecks.3/8/84 ~ Page 13 Sone other points which are relevant to the discussion: Tt follovs from the determin~ ation of Differential Rent that first the ssrginal land can earn rent because Differential ‘doesn't imply no reat land, Secondly, 4 fol- sgulating prices (i.e. production, of the {adividual lands of individual caplet ai fference vill be pre= cisely the Fent. Marx argues that this is specifically a reflection not only of competi- tion but coupetition under private omership of land. There 1s no reason not to imagine @ different social rule, for instance, in which if you have five lands in stead of selling at the regulating price being the one at the margin, you could si ‘the. average conddtions of competition aad private property 4a, the marginal one, It's not a natural lav. And the next point de that ehis argument al bbe. Marx poses the question in the folloving vay. plain why rene arises on land, We have posited the po what the price of land vill jblished now thet we can ex- of no rent Lend, 50, how ually produce surplus Te's fictitious capital because {t's been treated Like cap- iy {8 Just money which ears you soney. And Marx calls ation ~ the substitution of an amount of capital behind say that you're @ cay the other hand, suppose you receive a revenue of $100 a year and that revenue can be changed in ite eitie, {.e, you can transfer that revenue to goneone else, ‘Then fron the point of view of the capitalist market, it 1 the equivalent of $1,000 in the bank and revenve, In the first case you 4 income coming from it; ané in the seconé case you get sone: revenue and you eres swalent sum which you're willing to sell it for. The second case 1s the capitalization of the revenve Sato an amount of capital, and in the example I've Just described ehe revenue tndicates the rent is something, and the inte re te this, then the price of land vill be the Fevenue from the land capitalized b. foto the price that you would pay for the right co that revenue. It's a fictitious capital because it's an anownt of money that pays for the right co the revenue. It doesn't imply that this amount of money actually generates the revenue, It only allovs you to intercept it. And this can take place in a variety of ways. It follovs therefore that the price of Land vill be higher or lover according to the anticipated rent. evaluation of the future - the evaluated or anticipated ren counting of future value. You can think of this as th fed vhich gives you the cane formula, or you could think of 4¢ as just the Tule of thumb. snues at present This kind of formula ‘about perfect competition, perfect knovledge and « This one just describes the general principle3/8/84 ~ Fi 4 GA. The price of the asset before you use it is an evaluation of what you're going to get. "So this 1s what the omner of the asset wants to charge of the basis of his or her evaluation of the future receipts that that asset vill generate. The necciassical theory tends to apply this to all capl Especially since Keynesian theo! and all assete (fctitfous capits only trouble ie chat with sachinery the pr: price of production. Then the so-called revenues are simply those which will make {¢ fo its price of production; whereas in the case of some things which are really earning sone kind of revense (certain or unce! water is constructed from the evenue. Tn the other ca ma the price of production. 0 the formal equality doesn’ are really deternined by the revenue thet you bond and the terest. That's not the only determinant, but they are. The price of machinery £8 detersined by its cost and the price of production, eal equiv ‘But it doesnt follow that the two arguments are the sane. The neocli n perfect. competition, perfect knowledge, infinitesiaal asseta; all of thet are necessary conditions for this. The argument he this vill be treated as a kind of asset in the financial earket, and that th financial warket will be determined in this ay principally.” That's not meant to be exhaustive. But the principal mechani the revenue divided by the rate of interest, which will give you a rough equivalence be~ tween that and putting eoney tn the bank. sell the land again and get it cen only earn the revenves for years before it's no longer any good, then clearly you vill pay a different price for it. The deterainanta vould be the Would be different. and that's what a discounting formula like this tries £0 capture, @tscounting will be done ‘To put {t another joan, vhtch somehow ‘2 plece of Land, and one could try fo work out the period of equivalence between revenues for a Linited period of tie and fa loan. (I've see Eral tendency vhich can be coneretized. not the only way. You reneuber that I sald that the 3 S ( to'lover productivity over tine, yy \ eosse_tande sha 4 \ Siete preceding,chat wan in-use, . %_) Ricardo hes this pletore tn vnich jou stave vith better Tend; and en demand rises, the Price rises until’ che next Land ie brought dn, eo the new price of production te higher 428) See'the sent and the vests So that histortealiy, © unstances, he general tendency Hine over tines “And paralles to that rise, fe that fy rises, iecause as each vorse land is brought in, ali the precediag land begins to earn Ti the Lest Land," se the rest piles tp. Ricardo tee arising price of soods over long periods and a riaiag total renvel in the countrys because of the extension of the margin.3/0/04 ~ Page 15 ‘As I pointed out, Marx argues, first of all, fertility and location are taportant, and that often what happens aa capital expands 15 that nev locations are discovered vhich re the equivalent to better Lande, So dt isn't truecthat you go from better land to worse to worse. It may go from better to worse, to better than either one of these, and then the* Lest one say stil2 be in, or Lt may be displaced and it may come back later. So the price fat a certain level may rise, sey fa1] below the original level, may cone back to the orig~ {nal level level and then may rise again to the level it was before. So, given that, it depends on the mixture of the discoveries of nev Tesources and the creation of nev locations, snd creation of nev fertilities in ordering. For instance, a nev method of production may ake it possible for land B to be now 0 productive that land A ts no longer necessary. For dastence, when you discover fertilizer, you may expand production on land By Will be taken out, That's exactly equivalent to discovering new Land. If you d price will fall dova (maybe aot as far as before because you're paying for the fertilizer - Ehst's Differential Rent TI and a change {n methods of production), but it may still fall and the price therefore will be going up and then coming back down. The supply meanwhile SILL have expanded to the level of A; A'nay be taken out; and B viil expand instead. © to any case, hovever, gotal sent can rise, even though the price of the agricultural Ph produce can fuse, fall ov renain consianhs= depending on the coubinatTon of all of these. PeeSsst Ee pivalbic to hove a cottelation becvees cotal sente and a price which te Tiling, constant or falling, depending upon the micture of discoveries of ney Lands, nev ew locations and nev nethods of procuction, Therefore, there {a0 necenstty ‘goods. EVen in the absence of technology, fertility and SCIEHTa. goods to File Sf fall or be CoMgEREES It's interesting that Marx coses to this solution, not uerely because it's implicit ‘bot because of something very different. This 1s a letter from Marx to Engels in ‘That Ss very early in Marx's work, just 2 couple of years et the revolutions of 1848 and he's back, in 7 eudying Ricardo and factory in Manchester and supporting both of then, a visting to Engels who 15 working in hie father's Dear Engels, I an writing to you today 42 order to lay a little question of theory before you, of a political-econonic nature of course. Then he goes on to say “According to Ricardo's theot going to have to sum narize a bit here), a rise of rent ie parallel to the risiag price of produce on the land (a rising price of agricultural goods, because it's « dinisishing fertility which the price to rise end so this ie vhat causes the rent to rise). So Ricardo says that the Fise of rene therefore in his theory is prime facie proof of diminishing fereility, be- Cause that's the only way you can get a rise in rent. There are three points fo Ricardo: (i) thet a rleing reat proves that poorer and poorer lands are resorted to, (2) tt Gen tise only when the price of corm rises, at least according to the Laws of political economy, and (3) when the Fental of a vhole country the fact that a very large mass of relatively poor Len Now Marx says that the only problem he has with this, vhich is logteally correct, is that these three propositions are everywhere contradicted by history. And he goes on to bay that ven he Looks ‘continually; but rent when the price of corn drop point that he ts trying to Fess of fertility of agriculture in general. This would, on one hand, ake it possible fo explain the hetorieal facte, andon the other hand would put an end to the Malthus theory of the deterioration not only of the hands of people but also of the lands. of 7 hon cellar TOeg PA ie woe fed is inched th? Teab Thay = Trop: He Res” ofen elie Thag tic woe lcd is ebuad o3/8/86 - Page 16 Notice what has been done here: Ricardos theory 4s taken; it's confronted with the ‘and tt is found to be everyshere contradicted by the Facts, Instead of simply taking the difference between the theory and facts to be proo! theory 18 wro you ask. fenerge that you need to ‘2 convergence then it's because the theory 48 ‘but not simply in the vulgar sense that 1 emphasize that, because it's ‘4 contradiction between the jonething vastly nore theory and practice staply as an inconsistency. And 1¢ 1 Anteresting and exciting than an inconsistency; Le may be an opportunity to develop the ‘theory.ECONOMICS 205 ASUAR SHAT SPRING 1986 LECTURE #7 MaRcH 15, 1986ECONOMICS 205 ANFAR SHALE LECTURE #7 MARCH 15, 1984 Q. In otsferential rent I 6 I1, does the rent belong to tvo different landlords Tt doesn't matter, because the Tene which can be afforded for the se that the market price s detersined by the best methods on the no difference if the ble to extract up to f ouas the Lands the So in this instance Land ownership does not creat Rent ts determined by the La Landlord easenti share of che up to the aaximun. not true for absolute rent in the same fore: Qe Tf everything were sold at individual value, would there be no rent? A. I donte ‘think that's possible, because consider the problen = individual value is the sone thing far individual direct price. In other vords, for chet to happen, comodities would have to be sold at different prices, according to where they're produced. Then chere would be nno transfer of aurplur value. ‘There would be no rent if they vere sold limos -thetr individual price of production, because profit snd surplus not the seme either. joulé follow in fact 1f they were sold at an average comon price such th be no net transfer, The price of production 1s 6 for one and 12 for anoche Of production is 260, 30 qtrs, so the average price ts 8. TE they were sold at @ the next col- Q How vould thet be el, cert a jon of @ product is U f £t would give you ‘ctferential rent. would be a price of 8 zather than 12 which vould be othervise the regul there are many other porsible rules. The thing 1s thet, Tule the question becomes what ie the social logic behind such # rule. With thie ta mind we move to the question of absolute rent. Let we remind you that up fo this point we noted thet rent can appear on the worst land, but only if that rent fe really effferential rent Il. That is, it i between fon the Land and ip of whether the Savestment you he to settle the question of uheth roing to pay fenton the land or not. You remember that Ricard Of saying that the land ‘and his anewer is - you haven't established that racing thet, there Le differential rent IT, then marginal land would pay rent. Marx's response 1s that Ricardo is ‘ifferentiel rent I1 will #03 to the rent on che om! place. If differential ting here, because it is true chat 1 Tang, but hov did chey get che Koos how, under the private ovnership of Lend, Tree and hen pay Fone after the Fact on the Ee possTble for you to_acquire Land for cond Tavestment, but not on the Firsts —3/15/86 = Rage 2 contradiction, and {t poses for Ricardo and then for Marx the question of vhat absolute rent, rent which arises not from the lave of the ute of Land, of com petition per se, but specifically rent which arises For use without’ paying ter to worse, this ¢ this section in Mare Sense that ic's very fregnesi of very tedious examples that These are not the finished not trying to pore the problem and then I would oxgue some vi that's what vane to try to show yous process jery precise lave of reguieing price energ: He begins by saying that in the analysis of differential rent we assume that the land which pays rest, any land that pays tent, has a” individual price of production below th rice of production, because the land which Ie che regulating conditions. bays oo rent, It foTlous From that thet Che TOEUINTINE price Ts equal to the price of Production on land A where A is the worst Use. This Lo the assumption that we've Heit in Ricerdo and soon Rov, Assume Snstend Eat then the FagunerTag— Vand plus the rent By Price per. unit product. ent would vary according to the precisely the point. fie, the total apount p produces 10 quarters (land A), then this rent will be R tines Suces 20 4 for one acre, it will be R ties 20 ‘speak, to course the + For land B, which pro jo on, So the benefit, so to ity of their land, and of ing of land ~ the benefit per acre. But notice that the difference between these weit product, becaute’the Fant per wait prodact - let's call it the rent in B, vhich is ent per unit corn, let's say, on Land By vill de equal to the regulating price sinus the price of production on B, the individual price of production on ‘Ang you have tvo possibilities: The marginal land does not pay rent, so therefore the regulating price 6 equal to the price of production on land A (narginal land vhich fs A does not pay reat) fequal to the price on A minus the price on ion on B, which will be Ry = Fy 4 Re The snd B vill be differentia Fert, which {@ still derived by the difference between individual price of production on the merginal 1 the next fe rent. Tn effect, by payiag reat srginal land per unit product, you've ‘added a rent per unit product to all the other lands. "So the differences between ‘which is differential rent, w as before; but the level will have been shifted up per unit product. The rent per acre, however, does not work this way any nore, because nov this Tent per unie product 1s « different’ anount, depending on the fertility of land, S0 this rule, plies only for the rent per unit product, wt As the portion of tt e's equivalent jeneaber, Marx alvays relates it back to value, aurplue-velue and3/15/86 - Page 3 Q. T thought that the rent is derived fron « order to let someone take over the land and use i about the unte output of land, A. Sure, but Le ‘2 certain anount of soney for the lend. Given the fertility of marginal land, it works out to be a tex, so to speak, on the produce. It does not follow that it ie deterained as 2 tax per unit product, but we could certainly measure Lt that way. The reason for Measuring it thet vay is that suppose the merginal land produces 10 quarters and the 1 Tord says you've got to give me $100 for thie marginal land. That weal charging you $10 per quarter that you can produce on that land. That mea else now gets $10 per unie product alto, and to everybody {2 per unit product, because you raise and the cost raise {s the rent. From the whatever rent they charge per acre shove up in the unit cost of the product, and therefore ft translates into a higher unle price and the benefit 4s traneniteed to ali the others chrough the price. eybody No, we haven't said how it's determined; he Just wants to say that would hap- there. We haven't said how it can be determined. He said - let us inagine je to pay it, because he's leading up to the question that you cat the 10 you must have to pay something. We haven't established hov it's deternined, ave it. Then clearly differential rent {+ not altered, Sf ve sean by differential rent per unit product, Differential rent per acre hovever, ie al Cered because there are different amounts of the product fron different acres, Work through the example for instance in differential rent II, And let's assune the marginal Land now pays instead of 12, a price of 14, The rent per product {2 2, but the rent per unt land is $20 for land A. The rent per product for land B is also an adéitional 2, but the additional rent per the total acreage of Land ts now $40 for Land B And that's because the sechanism of transmission is the sarket price, The term differential rent in Marx does not apply to the money that the Landlord actually gets; it is to the difference between normal profit and che actual profit. For instance, if every landlord has already made a deal with their capitalist for a couple of years, and the price of corn then goes up on sarginal land, that extra profit will appear to the capitalist as excess profit, because the lease has been made for tvo years. When the lease is up, then the landlord can raise the rent. New York 1s theonly place I know where the rent can be raised before the profits, because of che confidence ehat you have no choice. His conclusion from this 1s that the lav of differential rent then, where differen elel rene is a component of the selling price on different Lande, ie independent of the Fesults of the following study. That's the reason for presenting differential rent first, Decause it's not altered by this, We now can concretize the problem further by shoving what happens to absolute rent. So the next 4 to pose is vhat determines absolute rent, In other words, mount R? He says = look at it fron two points of view From the point of view of the landlord, any R greater than zero - that's the landlord's point of view, because they're not going to give you land for free, and so certainly it's going to have to be greater than zero. But on the other hand, {f you don't lease the Tend, you don't get any rent at all. So you only haye # lover Linit; it has to be worth your trouble, 0° t0 speak, And, in effect, that says any rent above a virtually ineignif= be sufficient, ocher things being equal, to bring in land which js that {€ must be positive. wore precisely we need to know, so to speak, the upper Lait. fe to, before {t's not possible to drive it beyond that? The whole theory of rent con trol has aluays been bared on that.3/15/86 = Page & So then he goes and exanines » series of cases to see if there is any vay to solve this problem by making different possible assunptions. He says - keep in mind that you can get additional Lend without paying rent under certain circumstances; and he Lists some circumstances, Because he wants to sake sure that you understand that it's not a univ phenomenon, If, for instance, the capitalist holds two plots of Lend, one of which he's Cultivating and’one vhich he is not, then clearly he can tnculeivated without paying any absolute reat, because he's already paté the Landlord, So that's a circumstance in which the ownership of the Iané bi ‘co the user of the land Begs the question of what they peld for the La figured in advance. This, he says, 1s accident pened to be partially true, it Leaves still open the question of uhat if it's not crue. ‘An equivalent one is where a capitalist already pays rent for a vhole parcel of land but one is higher quality than another. From agricultural things it's not hard to see that you could buy land that is not always uniform, of course. So if you start off by ‘using the better portion of the land and then move on to the lover quali-y, you are in, effect moving onto the marginal land. But in this case you have already paid rent for the whole land and so there's no cost for that one, And the third cate {2 ££ the additional {avesteent on the serginal land is the regu: Lacing conditions, the last investment, not the firsty #0 the iavestnents on the marginal will earn differential rene II. Under these conditions, the ovaer of 4 being made, not on the marginal tov tthe marginal investment on that land, differential rent II, But Mare says this ie Ricardo's solution chat actually begs the question, because to auke the first investment you vould have to pay for the land or else land is being rented for free, And thet 1s, hnot an economic question in the sense thet one can solve it by saying {t"e positive or negative, but under vhat social conditions would capitaliste have access to lend for ‘That is, as we know historically, when land is stolen or taken by force, whfch ‘very inportant mechanion for getting je that begs the question of how. Or ie generally spesking. And Marx wants to forme He's already mentiones to fas something to be ovned, is a very historical phenonenon with very specific social con Gittons, And that's in the sections in prisitive accumulation ané sone of the sections Bue we're still problem - hoy can you do that? So he cones back to the central ut differentia. rent II, what happens about the ‘nvertnent on previous sd land that belongs to’soneone else? And the problem in that form 1s ~ you must pay the rent, otherwise they won't give ir to you; fand So therefore you aust have absolute reat. ‘And now he does something very subtle and actuslly very elegant, which Ls £0 show what determines this abselute rent, by asking the folloving question: | Suppose that pro duction on lend B, which is the better land, ts taking ‘We start with « portion of Vand being utilized, and as the denand for the product goes at the regulati tthe output ine you stilize nore and more of land B over tines The roughly around 6, the market price fluc cone to the Linite of lend B type quality, down to land A, worse quelity. The price goes fron 6 to 7 to 10 to 11 to 12, 12 tb the price of production on land A, the worst, Tang, AE Enis point, 12, the capitalists are willing to use land A. But Marx says the landlords are not willing to give up land A-at the price of 12, #0 the price aust be3/15/86 - Page 5 5 in this second set, Because the second {evestment A production is 15, so what will happen is land B gets used up and the price will rise from } “Sto 12, 13, 15." At thst price land A will now be competteive, or the second tavestnent § will nou be’ competitive with land A if the rent is 3. And so, in effect, you can't go S. above 15, because at that point you make a second investment here. Therefore che upper co" thy oduct, to the regulating price, will be the price and plus ict OF, There by the mode of ovnership itself, in order to have access to the lands Tf ehae Land {s privately he landlord in no way causes that land, Tf the But 4£ the om the prine Q. what do you think about people Iike Rey who arguesse+. Ae Wait, let me finish tthe absolute rent part and then renind we at the end. And fenind me also that I vant to talk about Anin ang the labor time in different parts of the world ~ 1 forgot to do" that earlier. [t's easier if I ean do it at che end. Qa ‘mem That! conditions under which ‘why? Because the quei those conditions? One perately. But tf you've er of that relation is 1 they ery and ‘and take more than they can, For every case that you opposite aort - they will try also to take mich more, forced to pay a portion of thelr profit over. So the que sunption thet the landlords try and get as much as they e “gut the question then becones what are tho they could ‘And. individual of the only within the mode of production of cep! tal, a cepitelist node of production, where Land itself {s sosething chet you vant to maxt 18 not « capita tthen Ehey may be forced to accept # smaller tha Clearly, Ivould Like to have as big a price and you'd Like to have as low a price. But3/15/84 ~ Page 7 the equivalency of that land with other revenues cones about because to buy the Land I'm getting « rent from something I'm not actually investing any further capital in. I'm not Going to ute the lend. Iwant co buy the land because of the rent that someone will give fe for using the Land. Or if Cepitaliet, I'll say "Okay, the vent will give se hornel profits from ay use plus an excess profit, So how much en I willing to pay for the excess profie?" The ansver is generally that if Thad that sun of ‘eed over a contractual period), then T could interest rate. If the interest rate 4s 102, then that's the enount Of noney that T would have to tie up ina bank, a opposed co being Lent to get an interest of $100, a revenve of $100 without my doing the work or anything Like chat. Ther will be the center of grav- Ley of the price, Now that formula, #0 £0 speak, 4s # rough one, because we have to adjust for tine periods and uggertainty and all that, but those are faniltar edjustnents. The principle Teiehe highersiste of {oterest, the lover the price of the land vill be, other things being equal, And equivelently, the higher the reat that you c ‘the Land, the higher the price will be. It"s the sane principle as bond pri of any piece of paper vhose title allows you And Marx calls thet fictitious capital, because That tee title toa share of surplus-velue, but it is nor itself # source of surplus~ Values It's only # title, in fact, tos prospective share, because speculation, for tn- And thie ie another digression, bst 1 Ramies that we're presenting 15 conditions of competition. Ther Like land,as tt cen other thin can kite the price in the folloving way: Suppose that you think that this lané is going to have # higher rental in the foture, you can bid tp the price of the land and buy it, You ing thet Titk; of course; you can be wrong. ‘And generally speaking as many people are wrong as they are right on these, if not nore people are wrong than they are right. If, however, this feeds back into a climte where the price of Lend rising now sakes people think that the land i¢ going to be worth even tore in the future because of sone estination of the future revenues rising again, you can Set off a whole cycle of land being bought and ite price being Jacked up, and therefore Other people coming in. It does not follov that chet can continue forever, because every tise you faise the price of land you are implicitly making conparison vith its future rev- Cnues. And if the future revenuer are not rising, then what you're in effect doing is Tatsiog the price well above that supportable by future revenues; and you get the collapse, typical claesic collapse of speculation. It's aot oaly in land; it also takes place tn tock prices, because you buy stock for two reasons - its appreciation and its revenve. Sometines the very fact that St'e going to appreciate rapidly overrides completely its Fevenues, But uitinately he Level that it appreciates is tied to its revenue. When it Overshoots, it collapses. I mentioned I think last time in the section on money in 206 the Kuwaiti ca: jlone made $22 million im fictitious capital. But the trouble ie € . Decaute the market collapsed; and now people are Yooking to Kill then Literally, ‘because the ehings they got for that fictitious capital, Which vas immediately transformed for thes {nto access to goods and comodities, vas not hhotettelizing; they dicn't pey for it in the end, So the credit system allove this wonder- Ful process of anticipation of future revenves and of getting current revenve on the an- ticipation of future revenue, But co do chat {¢ requires « stability of the vhole process otherwise it collapses on itself, And there ie a difference, therefore, between really Cepitelising future revenues, which is what you do with the price of Land, and overshoot ing Ghat potencisl en then coning dove and collapsing, which ie the speculative eyele. Ts order to understand something 1ike the speculative cycle, one has to understand the core Of ft, which is precisely the question we dealt with here. There is an objective basis to these’ speculations.3/15/84 - Page @3/15/86 - Page 9 eo the value on the mar ed the theory of this principle. fe tranefornation pro Bat here he picks by the way = they we than, oF greater than the Yeon pages 758 to 7 lows from thie. It's very ‘any of these. poset: regulating price in agriculture 6 equal to the marginal value or even to the avei would allov you to say that profits Value produced in the ind Mare begins at this poine Kerence between surplus-vi 2 mediately tie the fon to value and transfer of surplus-valve ané so on. But if you pay attention he states several ¢ thing for the earlier debats fand soze of the phenoaena’th ‘These are the most fragmentary parts of the section on absolute rent, but they're ‘determination of ab ‘And they 49 not they do not imply that peice will equal value in che presence of al people have noted, there is absolutely no sechanism that could give you that result, nei- Ther in Marx nor in aay other conception, So there's been a tendency to say that absolute |e oakes no sense, becaus the rule that price of prod! make it exactly come out, Eives you sone kind of central tendency between the othe: Tevnot dn any sense the lav. If you read most of the Li and again efther peo nd this is e: Geld te and they ery and Justify it, Robin Murray, for instance, in his survey on rent theory, which 8 0m yo ays that thie ds the argument in Marx, end the tries to justify it by landed property prevents the entry and exit of capit Buc in doing that, he" 1y the vhole theory of rent and everything, because 1 fot true, The barrier that [property poses io not the entry and exit of capital, Dut the cost of doing so in the form of absolute rent. Differenti that sane barrier at eis not that capitals doa't enter; it to pay for it = rent does not pose just that they have I vaguely renember that argunent because I read Rey a long tine ag Tot better since I firee read it. Te vas never clear fo me what prevents people who already use land fron using it more efficiently. One of3/15/86 = Page 10 the ehings you know about is Lt doesn't require eobility at all. Tt requires more taren- nd one thing, ion to do ko survive under capitalism is to learn hov fo saying under tho ‘ext investment fe under optinal not theres And mndlord simply add te on? Well, there there. Tt is true that there the Land, that peasants sake @ normal appropriation of the sur ‘The term "vent does not, adlord, but the maximum be gotten from marginal land. It becomes abso Tanélord can appropriate it up to thet amount. Differential rent {8 01 the lacdiord, but the maximum anount of excess profit that the capitalist will receive snd therefore the maximum that the landlord can take avay. ‘depends on che ree 'S between capitalists and Iandlorés. This is the only way that one can proceed, by jefore you proceed to exanine the conditions under payment made to ‘of Iabor power oF the price of product, 1 are equal to the value of Labor pover price {2 equal to price of production; nor does it follow that the actual rev- enue received by the landlor: Many different fores of revenue can fic deterninente require us to ‘raved elseubere that you can talk about comodtey-producing pe price of the product ond hence the conditions under vhich they woulé éo that, but th Lute rent-occurs because the organic composition in tay that, He says that the oraal case he's exax- jer taken notes to yourself, you know you write out your assunpti but you don't repeat then ali the tine. You keep working with whatever "But for people vorking through that, not paying attention “Pr have epectfic references to that quote ~ "Now I'll treat the normal yund there. And he continues to work fate, the debate vhich Oly price in esther sense. to be above value in the old sen: arbitrarily eve to the pover of the Lan by the € pureing lute rent, but the yy8, "Brivace ownsrship of land 1s _ deterninant is the infrasarginal condition fon the reletion between absolute rent and vage ferring to.” I'd have to see that; I don't renenber it. sure where you're eed here, what he3/15/86 = Poge 11 nt per uate Now if wages are bets paid at whatever they're determined by, it’s conceivable that the landlord can get revenue the capitalist to pay lover wages, But then it becones entirely unclear the landlord can ake could nake workers of ie firee ~ they about specific conditions in ist. Mate alao talks about a = ovsing the means of 1 tine not hiring other ‘made up £ron vages because ‘There are # couple of pointe T wan address which need to be wrapped py and waz to do with the question of what I call the systeries of value. You'll reneuber wt the vhole chapter and the whole section on differential rent in the totel capital advanced determines the total value hey will be treated in the market according to the Fegulating conditions Value, because the price of production 1 Tues Te price of production jee, And these are very precise tr by absolute rent into the regulating determinate transformations. Under these conditions, there is no groblea understanding that @ producer can have different individual values end yet be treated according to # social value, regulating ‘worked by the hours any way on the con produces the sane But the fruit of that ‘depending Gitione under vhich it orks, Im other vo! fanount of value regardless of the conditions under which it works. or working on two ¢ifferent ‘The point of hat een very confused, which is the idea chat because a for because workers on lest productive land get tranted in the market Ef they vere the regulating type, 1t doesn't follow that chefs tine (s actually Gigferene, oF their velue is different their efforts 4s different. And that explains the aver and pachine Loom weaver, in which he 5 ten hours the average hee bes hour doesn’t ‘not until Volume IIT ehae Te does net imply thet the total product, If they were nat different, the so first place ~ it can't be determined.yy 3/5/84 Page 12 wer point of view tn ivich they ‘of the product then Se will be fern "ar if" mean? i very clear ~ the value won't be spend that much anount of tine, But it of In other words, we have jue and social value, thie value. me fee on individual conditions of production. ly necessary in individsal Labor thee ‘Aad then there Xefy denand at some reg ‘repancy between supply. IF that price is not equal ¢o the actual, then you either realize more valve than you produce or less, depending on which vay the equality "Those present no difficulties analytically. One must Less in value, produces less value than an hour of labor in the UsS, because of the lover ‘That {8 confusing Anéividuel value and social value, efficiency with the prom ‘that. becomes nterace tn 5 and the traction, That feular skill type is the type when they are socially foducts of thelr Labor con ‘Ro matter who produced the Then an hour of Leber 4s ey are ti cirele, 0 re idoes aot apply to two isolated production apheres which don't interact, fecononiee and such, because then you can't make that comparison. The rule, ton, may be different, 8 to do with Hobin Murray, who tries to Justify whet Marx called The second point ine the ideal form,” He tries to Justify £1 the case that he will ex by arguing that because of £0 flow from one sector to a1 Sfon that ve should keep clear. transformation problen by saying - let's begin by prices proportional to valu note that thie cannot eatiefy the condition of equal profit rates. Therefore he examines how they must differ from values in order to have equal profit ‘Aad he notes that ‘the eobility of capital. It dove jues and therefore when you Nor does it follow that 4f the quest Le Marx: bor we ‘The task in Marx at all times is fo determine the actual regulation of the ‘and hence regulating price = to deternine it, but to determine it not j price3/15/86 - Page 13 calculation, but to from that, to unders Lengthy proces: you can see fletittous capital right awe The Last point, #6 I mentioned before, is tions that we've been talking about now to imply ‘unless you can say that different regions of the > they ble production anyuhere else. If you could parti= Eion the worlé into industries, then Eneanvel's argument would be true, But che partition of the world is not identical to the partition of commodities; in fact, substantial ferent from it. Asin, on the other hand virtver of Anis 18 Of the difficulty contradict himself been necessary to develop these things in order to see what the sophistication of the theory of prices of production 4s in Marx. It ie not simply the transformation problem, that is the most abstract early beginnieg point, Now ve have competition between indus finite conclusions, And if we start to sumariee those Conclusions we see certain patterns, vant to remind you of what those general ps ns are before ve begin to look Took at two pleces of data fore we go on, The traditions! stract notion of prices of prom fe of what seems to be con- ‘copttal Robson, Ie vas son, Tishes thet it doesn't appear in Marx; that doe: way of the others. But {f you look at this Iiteratur Tonopoly capital,” you find a very striking ching ‘eonopoly capttel fe = competitive c fre very important to pay couple of people ~ Steind! that in the competition should go up all over the place, because the iden of heoclassical theory, fron the theory of perfect competition, fi it gete disguised as 1¢ goes from Marshall to Schumpeter, ogy of capitelism, and 1t gets picked up by Sweezy, vho w at Harvard. And it becones a part of the folklore of Ma period where firme were price takers. It is folklore, be Of capitalion, everything you see ie exactly firms aggressive, killing each other, wiping out everything they can, expanding, overshooting, trying to fight their way ino che mar~ et. The competition that Marx talks about is a very nasty process. There is no price nat do you mean by what the opposite of ‘symptomatic ailences, Sweezy. Sveez) you know, red flags maybe price taker cones from ball in fact; but ho builds it into the mythol hunpeter's student before theory that there uas 6 LE you look at the Matoryi 4 3/15/84 ~ Page 16 that pores a very interesting probles: If we don't know what competition vas Like, how can ve say that it is no longer there? If ve say that it was bourgeois con- petition, and ve know thai ood, that also ef: DULL out the rug from under 1 fe theory of perfect competition you have ery to another, or s0 close to equal that their differ- of profits theory again. Uhder # joes that there will de’ equal rats ‘any other, It therefore oll: egion 18 just a collection of i cher, ie will be by region. Tl for monopoly ig based on the idea of @ rejection of sore principle. font {irms and they say rates of profit are not eq They look at ‘Mandel uses ~ proof that there fusion {a based on the prenise: orthodox econonies. That doesn't eatablish it's wrong. Ie only establishes its foundation, But ve now have tn hand another founiation. So the question arises - is it true that the evidence that they Dring forvare ie evidence of monopoly? And ve aced co be able to ansver how we Cen tell if there 1s monopoly, 1f you can see whether this evidence is in fact proof of monopoly. Notice the Because of the concent snd quoted from Su fates, highest in th Clear statement of what was before and what oligopoly theories that under competition, price is eq Includes the rate of interest, therefore there's eq than marginal cost, ind therefore there you count interest plus proi be unequal rates, So orthodox econonics agein Zeiis us thee ueequel tates of profit will be due to unequal markups over marginal cost. ‘And the gross profit margin is the measure, index of ponopaly, be unequal ra! profit. TE However we" gente composition, Ty in order to ha withia an industry & fact that they sell lover costs vil mat and equipment me nd #0 on, So you get a Very sult of competition, the ne: fgunent in Marx that industries with higher or- wer profit margins, precise Nie derived that before.” We also derived that have higher warkups. 11 have higher tgher init; both of those are the re~ ry consequence of cospetition.3/15/84 = Page 15 We've also seen the third result, which {s that in agriculture or any place vhere we're talking about naturel resources, ‘non-reproducible resources, the regulating cond! Eton vill not be among the better ones = Lt will be anong the vorst. Not the worst meth- investment. It follows from that that there vill mn in the rest of the producers which may of may not competition, when you have land, it is perfectly pos= antially higher than e profits and thee Still be a result of competition. I mentioned to you before that it's been argued thet the oi industry is such an example, or that @ substantial portion of ite profits conform in fact to this rule, and here was a dissertation attempting to show that. Sweery, on the other hand oly, aa he 1ooks at this and ‘gues that # higher profit margin is an index of sonop- higher profir margin is due to the fact that there is Looking across and he would you think of it io terms of monopoly, then the price of the comodity is determined by Cost plus ehe aarkup, markup on cost actually. “thup tf the ratio of profits to Bue if ehae profit and ve will cone back to those nto a series of phenomena. But those phenonens theory of tompetitfon in Mark, So, what set of ‘would distinguish between oligopoly theories, which the theory of competition in Marx? The anawer 1s per= ing capital's rates of profit, That 1s the only condi- ween the two. And Lt ds exactly that Bot in the conservative Literature, {¢ 1 ‘exactly where you see equalization sistent differe tion that we Which de noe ned; and when you look at that, you # of profit. ‘To show you that, I would Like you to begin just very briefly and look ae this p here and cone back, But I'd Like you to think sbout the qu that follows from oligopoly theory { that oligopoly prices w! rise faster than competitive prices, because oligopoly sectors have nore sonopoly pow and they have the ability to raise prices in the face of denand and to keep ches up when demand drops. If you're fantliar with Sveezy end all that, you know that, And ehis is fa chare to show that chat ie true, Ie* ner, who was wy teacher at Colusble. ly sectors, which are steply high cepit Fatios, and a such gore va ict, it's not hard to show that there's. no OF every period in which the rate of the o! period whe arovth. Of the competitive sector, there! T hadn't tolé you what these evo Lines vere, chen the logical interpretions of Lines was that the smoother Line ie the center of gravity of the other Line. The nore than thet, And I ‘ioned to you before thet their argument for the stability of the price cones from this3/15/84 ~ Page 16 concentration of capital, meaning not monopoly pover, but the size, the cost of entry and ‘was produced. Nov I'd 1ike you ‘briefly how that data works. I've tool Af you know what the hell you ike jargon, ie can becone an which he grouped int ieie in each industry, What f the top n firms, whatever 1 fudging fer, if the top four firms don't give you # high enough 1 pick the top eight, because in neoclassical theory there ‘infinite nuaber of so four, eight or ten, Lt depends on vhs He picked the top nd if that ratio was between a certain 0- he grouped industries ee} ‘the remaining £n- feries. And he ended up vith 10 groups of industr the average prof it rate of these 10 groups of industries across the concent: Vertical axis; the horizontal axis is thet, Now, if T hadn regress Hletgne and-ant of «33. fan fof 10.” And he doesn't cell you the Se I went back the originel sample ‘efficient which fs even weaker. Bain’ original dat he corrected that many years later. Feaule that's chted most often, regardless. in didn't stop there. Looking at this result, the result vas weak, he admit~ nthe Fight direction; it gives us sone hope, but it's "put look = if you look at a concentration ratio ‘what about the lov concentration really bad to be {2 mediun level a? According £0 Eoncentrations Tf you're very competitive, you'll have high rates of profite: if you're ue very concentrated you" low rates of profit, Lf ehis data is to bi ire im the aiddie you have This 1s the kind of thing , LE you don't know bow it's fet a feel for the shape of Gt; because then « regression will give you a result. If you'd run a Line through here, # Straight Tine gives you a cerrible result, but actually a U shaped curve gives you a very jeve is contrary to the theory, so he never even thought of je facts which come without the theory built {nto ther. We