In response to my argument that the reason why the Opec cartel could collapse was because the labour cost of expanding production in the Gulf was substantially below the elevated market price. If this had not been the case, cheating would not have been possible. Gil replies that: <<<< If by "labour cost of expanding production" Paul means "marginal cost of production as represented by socially necessary labor time", I see the preceding statements as twice insupportable. First, the "because" clause begs a central question. Recall from my previous post the point that Roemer has demonstrated that rent and uneven exchange can be coherently explained without reference to labour values. Second, "market price exceeding labour cost" is neither necessary nor sufficient to support the implication of monopoly power (and by extension, the "possibility of cheating"). Concerning sufficiency: we know from Sraffian arguments (*without* having to buy into Sraffian economics as a paradigm, note) that market prices consistent with competitive ( and thus not collusive) behavior can yet exceed labor value (on this point also see the discussion of ground rent and interest below). Concerning necessity: Suppose the Sraffian price in an industry is less than the corresponding labor value. There is no contradiction in suggesting that firms in that industry might collude to raise that price to a level equalling labor value. The profit rate in that industry will then be higher than in other industries, but that's what monopoly power is all about. No contradiction, so no necessity. >>>> 1. I do not doubt that it may be possible to re-write Ricardo's theory of rent in terms of the phenomenal forms of value - prices - but has anything new been added to the theory in so doing. Does the non value based theory predict different results from classical political economy? In this actual example, do you doubt that the amount of labour required to expand Gulf oil production was substantially less than the amount of labour commanded by the oil commodity that it produced? If your example was supposed to show the falsity of the labour theory of value this would have to be the case. 2. Deviations of prices from values on the basis of Sraffian transformatio are at the limit of what is statistically measurable, so much so that there existence as phenomena is questionable. The fundamental hypothesis of transformation theory in all its variants - that the rate of profit should be statistically independent of the organic composition - has yet to be demonstrated. For the British economy we have presented results ( Bergamo Centenary Conference on Capital III, 1995) which indicate that it is false. Does Gil have any empirical evidence to suggest that oil in 1974 was actually selling below its value, as his argument would imply? I went on to say: "Thus the short term nature of the super rents is what would be expected from the law of value." Gil responds: <<<<< This does not follow. Counterexamples: first, a positive interest rate implies that the price of the money commodity in loan capital transactions exceeds its value. >>>>> I do not accept this. Price and interest are dimensionally incomparable. Price has dimension $ or Pounds etc, interest has dimension seconds^-1. An interest rate is not therefore a price of the money commodity. He continues: <<<< Positive ground rent implies that the market price of unimproved land exceeds its value, which is zero. But positive interest rates and positive ground rents have been around a long, long time, suggesting there is absolutely nothing intrinsically "short run" about rents to relatively scarce and differentially owned tradeables (like land, like oil supplied by a cartel, like usury and merchant's capital). >>>> It is unclear whether Gil is discussing absolute or differential ground rent here. Let us assume that he is refering to differential. Ricardian political economy did not attempt to explain rent as a price of a 'land commodity', it explained it as a second order effect arising from deviations in labour productivity on different plots of ground. Thus the fact that the land is unimproved is of no relevance to rent. Applied to oil, it would imply that a rent by Opec would only be sustainable so long as the marginal oilfields were ones with a much lower labour productivity. This was not the case so the price fell. There is no implication in the Ricardian theory that rents must be short term, he was well aware that the British landowning class had been living off them for centuries. What he was concerned to do was to explain that their rise during the first decade of the 19th century was due to the declining labour productivity in agriculture. His aphorism that 'rents are high because corn is dear' rather than 'corn is dear because rents are high', remains valid, and applicable to oil revenues. If Gil believes that the DeBeers cartel for diamonds has no foundation in the labour costs of producing diamonds, he is at liberty to open a diamond factory and try to under-cut them. Gil objects that the law of value has only been established empirically, and that we do not know all the causal mechanisms by which it operates. In large measure this is because it has only become a topic of serious research in the last decade, until which point, too many marxian economists had engaged in scholastic model building detached from reality. The question of how closely the correlation between values and prices holds in less developed economies is interesting, and there is some evidence from Valle to suggest that in the Mexican economy the correlation is lower - largely due to the wide variations in labour productivity between peasant and capitalist farming. These are serious scientific research topics, unlike the abstract sort of model building that some people have imported from bourgeois economics.
