reply to Anthony's query (from PEN-L)

Louis Proyect lnp3 at SPAMpanix.com
Thu Aug 24 16:57:14 MDT 2000


Anthony (via Lou),

I wrote a paper on this topic in grad school.  Marx is using an analysis
of rent originally developed by David Ricardo.  The account in DR's
PRINCIPLES OF POLITICAL ECONOMY AND TAXATION is decipherable but not
easy.  Look at one of the secondary sources on "neoricardian economics"
under differential rent.  There you will find two models.  The first,
based on the notion of an "extensive margin", is the most familiar -- it
was most in the minds of Ricardo's readers (including Marx) and is still
the one trotted out in the econ textbooks.  Its main idea is that the
price of "corn" (or whatever) is determined by its cost of production on
the *least* productive plot (marginal cost pricing); every owner of more
productive land gets a greater spread between selling price and cost,
and this is what determines the rent of those parcels of land.  What is
crucial for Marx is that, according to this model, the price of land
(rent) does not enter into the price of commodities using that land
(price is determined on no-rent land), and this means that rents do not
interfere with the labor theory of value.

But Marx was also aware of a second model of rent developed by Ricardo,
the so-called "intensive" margin.  In this second approach, there isn't
enough available land to use the least-cost (least capital- and
labor-using) technique, and so rents arise that equalize
rent+capital+labor costs between more and less land-intensive
techniques.  (The techniques that use more land and less L and K have a
bigger rent component of final cost; the ones that use less land and
more L and K have a smaller rent component.)

This second approach is a real problem for Marx, who recognizes that, in
this case, commodities will have a rent component in their cost of
production, and that the labor theory of value will therefore no longer
hold.  To his credit, the bearded one did not try to finesse the math.
(It can't be finessed, and it expresses in highly simplified form an
important truth about the relationship between capitalist production and
resource constraints, in my opinion.)  Instead, he made a historical
argument that the limitation on the available quantity of land that
underlies the model (unlike the "extensive margin" in which there is
always some lousy, no-rent land to be had) is a product of the ability
of the land-owning class to exercise a monopoly over landed property, so
that people can't access the no-rent land.  He felt that, in the course
of capitalist development, this monopoly would surely be eroded, so that
Ricardo's extensive margin would triumph over the intensive margin, and
the labor theory of value would be vindicated.

It's a complex theoretical and empirical subject, but I think Marx's
analysis is wrong: the extensive margin is a special case; the intensive
margin is more descriptive of the economics of real-world resource
constraints; and history has borne out the continuing relevance of
natural resource scarcity in commodity pricing.  (All of this is
separate from, but obviously related to, the continuing debate over
whether [a] such constraints are playing or will play an increasing
role, and [b] whether the degree of resource scarcity is adequately
reflected in market prices -- two issues that get confused in practice.)

Peter [Dorman]

Louis Proyect
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