Chapter 39 Chapter 10 The Relationship Between Marginal Cost and Value of Agricultural Products

Chapter 10 The Relationship Between Marginal Cost and Value of Agricultural Products Section 1 The role of the time factor in this matter can be clearly seen from the general agricultural products and from the rents arising in newly developed countries. We turn now from the general discussion to land, and first to the agricultural land of an old country. Suppose a war, which is not expected to last long, interrupts a part of Britain's food supply.The English must have increased the production of agriculture by means of that extra capital and labor which pay off so quickly.They may consider the results of artificial fertilizers, earth breakers, etc.; the more favorable these results, the less the next year's rise in the price of produce which they think is necessary to justify their additional investment in this direction.But the war has had little effect on those improved decisions that failed to pay off in wartime.In any investigation, therefore, of those causes which determine the short-term price of corn, the fertility of the land, from gradual improvement, must be regarded as a current fact, as if it were provided by nature.The income from these permanent improvements thus furnishes a surplus over and above the principal (or special) costs of increasing production.But this surplus is not a real surplus equal to ground rent itself, that is to say, it is not a surplus in excess of the total cost of the product; it is required to replace the general costs of the enterprise.

To put it more precisely: if the extra income from those improvements which the individual proprietors have made to the land, is reckoned to exclude any benefit which the general progress of society confers upon the land, and which does not depend upon For his labors and sacrifices, the whole extra income is as a rule required to compensate him for those labors and sacrifices.He may underestimate these additional earnings, but he may equally overestimate them, and if he is right, his interest will compel him to invest in them as soon as they show signs of being profitable.Absent any special reason to the contrary, we may assume that he did so.The net return on a capital invested in land, calculated on the average of good and bad returns, does not, in the long run, exceed the proper return required of such an investment, and if the expected return is lower than what is actually calculated, the improvement will some.

That is to say, that the net revenue from improvement is only to pay the price required for the labor and sacrifice of the improver, so long as the time required for any improvement to be brought into full effect is long.Therefore, the cost of improvement is directly included in the marginal production cost and directly participates in the determination of the long-term supply price.But in the short run, that is to say, in a short period relative to the time required for improvements of the kind in question to be brought into full effect, the net income generated by these improvements in the long run is sufficient to cover the cost of the improvements. The necessity of the normal profit of the commodity does not directly affect the supply price.Thus, as we are talking in the short run, these incomes can be regarded as quasi-rents which depend on the price of the product.

We may then conclude that (1) the agricultural output, and thus the position of the farming margin (that is, the margin at which both capital and labor are employed advantageously on good and bad land), is determined by the general conditions of supply and demand.They are determined on the one hand by demand, that is to say, by the number of people consuming agricultural products, their intensity of demand and their ability to pay; The number of people and their funding will be determined.Therefore, production cost, demand intensity, production margin and the price of agricultural products are mutually restricted, and it does not lead to circular theory to say that any one of them is partially determined by other species. (2) That part of the product which is ground-rent, which is of course also sold in the market, acts on prices in exactly the same way as any other part of the product.But the general state of supply and demand, or their relation to each other, is not affected by the division of the product into the rent part and that part necessary to make the expenditure of the farmer profitable.The amount of rent is not a determining factor; it is itself determined by the fertility of the land, the price of agricultural produce, and the margins of cultivation.It is the difference by which the total return of capital and labor invested in the land exceeds that which they would have received under conditions as unfavorable as the tillage margin. (3) If the cost of production of that part of the product which does not belong to the margin is calculated, of course rent must be calculated; and if this calculation is used to explain the reasons for determining the price of agricultural products, then the reasoning becomes circular.For what is wholly an effect is counted as a partial cause of those which caused it. (4) The cost of production of the marginal product can be determined without giving rise to circular reasoning, as is not the case with the production cost of the remainder of the product.The cost of production at the margin, where capital and labor are advantageously employed, under the general conditions of supply and demand, is that cost with which the prices of all agricultural products have a tendency to conform: it does not determine prices, but it concentrates those which do. reason.

Before the second quarter. It has once been thought that if all land had the same facilities, and were all occupied, the revenue which land afforded would be of the character of monopoly rent.Of course, the owners of the land, whether the land is of equal fertility or not, may unite in order to limit production.In this way the raised price for agricultural produce is a monopoly price; the income of the landowner is monopoly income, not ground rent.But under conditions of the free market, the revenue from land is rent, and it arises from the same causes and in the same way in countries where the quality of the land is exactly the same, or in countries where good and bad lands intersect. decided.

Indeed, if there were more or less land of about the same fertility, more than enough to enable each man to acquire what he needs to prepare for a full investment, it would not furnish rent.But this only illustrates an old contradiction, that is, if water is inexhaustible, it has no market value. Although some weight of water has the function of sustaining life, everyone can reach it without any effort. The margin of satisfaction, at which any further supply is of no use to him.If each villager had a well, and he could draw as much water from his own well as he needed, and at the same time require no more labor than he used to draw water from a neighbor's well, then the water in the well would have no market value. .But if a drought has set in, so that the shallow wells run dry, and even the deep wells are in danger of running out of water, those who have wells can charge any water user a certain amount for a barrel.The denser the population, the greater the opportunities for charging (assuming no new wells are dug), and finally, everyone who has a well may consider the well to be a permanent source of income.

Likewise, in a newly developed country, the rare value of land gradually emerges.The earlier immigrant did not exercise an exclusive right; he could only do what everyone else could do as well.He passed through many hardships, and perhaps ran some risk, if not personally, that if the land turned out to be bad, he might be obliged to abandon his improvements.On the contrary, his venture may be successful, the crowds will follow, and the value of his land will soon furnish a surplus above the normal remuneration which he has expended on it, The fish the fisherman caught was the same as what the fish offered.But there is nothing left in it but the required reward for his adventure.He had been in a risky business, and it was common, and his energy and luck had paid him exceptionally well, and any other man might have met the same fate.

Thus the future income which he anticipates from the land enters into his calculations, and adds to the motives which determine his conduct while he is still in doubt as to how far his enterprise will go.If his improvements are made with his own hands, he regards the discounted value of that income as the profit on his capital and the reward of his own labour. What an immigrant takes possession of land often expects that, during the period of his possession, the produce it will furnish will not adequately reward his hardship, his labor, and his expenditure.He rests part of his reward on the value of the land itself, which he may soon be able to sell to a newcomer who has no chance of a life of reclamation.The new farmer, as the English farmer sometimes learns even after his losses, regards the wheat he produces almost as a by-product; Upcoming Farm Ownership.He believed that the value of the land would rise steadily, not so much from his own labors as from the increased comfort, increased resources, and developed markets of that ever-increasing social prosperity.

To put it another way, men are generally unwilling to endure the hardships and solitude of reclamation, unless they are sure of a reward (in terms of the necessaries of life) much higher than they could get in their own country.Miners cannot be attracted to work in a rich mine cut off from the other conveniences of civilization and the opportunities for social activity except by a high wage, and those who oversee their own investments in these mines expect high wages. profit.For the same reason, settlers need high total returns consisting of the proceeds from the sale of their produce and the acquisition of valuable property rights to reward their labor and hardship.When the land is used free, immigration proceeds to the point where the land can afford just this return, without leaving any surplus for the payment of ground rent.If a fee is charged, the resettlement proceeds only so far, at which point the proceeds, in addition to rewarding the hardships of the settler, will leave a surplus in the nature of ground-rent to compensate for this expense.

Section 3 Land is but a form of capital for the individual producer. Nevertheless, it must be remembered that land is only a special form of capital from the point of view of the individual producer.The nature of the question whether a particular plot of land is cultivated by a farmer as advantageously as he can, whether he should try to make the most of it, or another, and whether he should buy a new plow, Or the problem of trying to get more work out of the existing plows (sometimes using them when the soil is not very favorable), and feeding his horses more fodder, is of the same nature.He compares the following two situations.One is the pure product obtained by using more land.One is the case of other employment of this capital (which was necessary for the acquisition of this pure product).In the same way he compares the net product of employing his plow under unfavorable conditions with that of increasing the number of his plows, and thus employing them under more favorable conditions.He does not know whether that part of the product produced by the additional use of his existing plows, or by the use of a new plow, results, so to speak, from the marginal use of the plow.This use adds nothing to the net income provided by the plow (that is, leaves nothing but actual depletion costs).

Another example is a firm or businessman who owns land and buildings, and regards both as having a similar relationship with his enterprise.Both land and buildings will at first provide him with sufficient assistance and convenience, then there will be diminishing returns as he tries to derive more and more of them, until at last he will doubt whether his workshop or goods Is the crowding of the library so inconvenient that only increased space is suitable for his purpose.And when he decides whether to expand the space by adding a piece of land or building an extra floor of his factory, he has to compare the net income from the investment of adding a piece of land and building an extra floor.The part of the production which he happens to squeeze out of the existing equipment (he does not know whether it is more worthwhile to increase those equipment than to increase the utilization of the existing equipment) does not add to the net income provided by those equipment.This argument does not address whether the device is man-made or partly a gift of nature.It applies equally to ground rent and quasi-rent. But from the social point of view there is such a difference.If a man owns a farm, the land available for other people's use is reduced, and his use of the farm does not increase the use of it by others, but replaces it.And if he invests in good land, or builds a house, he does not appreciably lessen the chances of others making the same investment.It can be seen that there are similarities and differences between land and man-made equipment.The difference arises from the fact that in an early developed country the total amount of land is approximately (in a sense, absolutely) permanent and fixed; whereas artificial equipment, whether improvements, buildings, or Inequalities, etc., can continually increase or decrease in accordance with the changes in the effective demand for the products produced by them.That's the different aspects of it.And on the contrary, it has the same aspect, because some of these devices cannot be produced quickly, in short, they are actually a fixed quantity.In the short run, the revenue from them bears the same relation to the values ​​of the products produced by them as real ground rent stands to these values. Section IV explains all agricultural products and special taxes imposed on single crops.The relationship between quasi-rent and single crops. Let us apply these considerations to the assumption of a permanent tax on "grain" (in the sense that the classical economists used it for simplicity to stand for all agricultural products).It is clear that the farmer seeks to make the consumer bear at least part of the tax.But any increase in the price charged to consumers is bound to reduce demand, which in turn has a counterproductive effect on farmers.In order to determine how much of the tax is passed on to the consumer, we must study the margin of favorable expenditure, whether it be the margin of a small expenditure applied to inferior land or land remote from a favorable market, or to superior land and near densely populated industry. Margins of substantial spending on land in the district. If only a small amount of corn had ever been produced near the margin, a slight fall in the net price to the farmer would not reduce the supply of corn sharply.Therefore, the price of corn paid by consumers does not rise sharply; and the tax paid by consumers is really limited.But the surplus of the value of the corn over the cost of production is bound to have a great fall.If the land cultivated by the peasant household is his own land, he will bear a larger part of the rent, and if it is rented land, he can demand a substantial reduction in the rent. If, on the other hand, a great deal of corn had been produced near the margin of cultivation, the taxation would tend to reduce production so much that the resulting rise in price would prevent this reduction, and the farmer would be nearly as intensified as before. , and the landlord loses very little in rent. Thus, on the one hand, a tax so imposed as to restrain the cultivation of the land, or the establishment of farm houses, tends to pass on to the consumers of the produce.On the other hand, the tax on that part of the (annual) value derived from the position, extent, and sun, heat, rain, and air of the land, can only be borne by the landowner, who, of course, is for a short time landlord.This (annual) value of the land is commonly called the "original value," or "intrinsic value" of the land.But most of it is the result of man, though not the result of its owner.A bushland, for example, may immediately be of high value from the growth of an adjacent industrial population; though its owner leaves it intact.It would perhaps be more correct, therefore, to call this part of the annual value of the land "public value," and that part of the value created by the labor and expenditure of the landholder "private value."But the old terms "primary value" and "intrinsic value" may still be retained for general use, with their partial inaccuracies pointed out.We may call the annual public value of land, under another term which has been better used before, "true rent." A tax upon the common value of land would not much lessen the temptation to cultivate it carefully, or to build farm houses.Such a tax, therefore, would not greatly reduce the supply of commodity grain, nor raise the price of agricultural produce; so it could not be passed on from the landowners. This assumes that the tax on real rent is regulated according to the general capacity of the land, and not according to the particular use it makes by the owner of the land.The pure product of the land is presumed to be that available to a cultivator of normal ability and enterprise, who uses the land as well as he can judge. If there is an advanced method of cultivation which exploits the potentialities of the soil so as to increase the return, leaving a considerable surplus beyond what is required for remuneration and normal profit, then this difference between the net return and the normal profit shall belong to the real rent. range.But if it were known, or even expected, that such a heavy special tax on real rent would be applied to this difference of income, this forethought might cause the landowner to forego improvements for fear of the heavy tax. The fifth section continues. We have occasionally mentioned competition between different branches of industry for the same raw materials or means of production.But now we must examine the competition of different agricultural branches for the same land.The case is simpler than that of urban lands, since agriculture, so far as the main crop is concerned, is a single enterprise, although the cultivation of fruit trees (including vines), flowers, and vegetables, etc., provides the opportunity for the exercise of various specialized capacities. Chance.Therefore, the classical economists assume that all agricultural products of various kinds can be regarded as equal to a certain amount of grain, and assume that all the land will be used for agriculture except a limited and almost fixed part of the total land as a building foundation. There is a reason for this.But when we focus our attention on any kind of agricultural product, such as hops, it seems that we are proposing a new principle, but we are not.Let's examine it. Hops are planted in rotation with other crops, and farmers are often hesitant about whether to use a piece of their land to grow hops or to grow another crop.The various crops then compete with each other for the land; if any one crop shows any sign of providing greater benefits than the others, the farmer will devote more of his land and funds to that crop.This movement may be hindered by habit, lack of confidence, stubbornness, or the limited knowledge of the farmer, but it is still largely true that each farmer (again repeating the principle of substitution of his dominant role) will invest capital in various aspects of his business until, in his opinion, a profitable margin appears to be reached; up to his expenses." Thus, in equilibrium, oats and hops, or another crop, will furnish equal net returns to that capital and labor of which the farmer happens to be induced to employ, otherwise he must have miscalculated; maximum reward.He can still increase his income by redistributing his crops, by increasing or decreasing his cultivation of oats or some other crop. This brings us to consideration of the taxation associated with the competition of the various crops for the same land.Let us suppose that hops are taxed wherever they are grown, and that it is not just a local tax.A farmer can avoid part of the tax by reducing the degree of intensive management of his hop field, and avoid another part of the tax by planting another crop on the land he had planned to grow hops.If he thinks it will be more profitable to grow another crop without tax than to grow hops with tax, he will adopt the second plan.In this case, when he decides to limit the extent of the production of hops, he has in mind the surplus which he can obtain from the land where, say, oats are cultivated.But even in this case there is no simple numerical relationship between the surplus or rent provided by the oat-grown land and the marginal costs which the price of hops has to replace.A farmer whose land has produced good hops in the past, and which was then just suitable for the cultivation of hops, will not hesitate to think that it is best used for the cultivation of hops, although for reasons of taxation, he may decide to control somewhat in this respect. expenditure. At the same time, the general tendency to restrict the supply of hops tends to raise its price.If the demand for hops was inelastic, and if hops of a suitable quality could not easily be imported from regions where there was no such special tax, the price would rise almost to the full amount of the tax.In this case the general propensity to restrict the supply of hops was tempered, and nearly as much hops were grown as before the tax had not been levied.Here, as in the case of the tax on printed matter, the result of the local tax is diametrically opposed to that of the general tax.Because unless this kind of local tax spreads to most of the areas where high-quality hops can be grown in the country, its result will inevitably drive the hops to tax-free areas, tax revenue will be reduced, and local farmers will suffer great losses. The price paid to buy hops will also be slightly higher. The sixth section continues. In the short run, the arguments of the previous section apply to the earning power of farm buildings and to other quasi-rents.When existing farm buildings or other equipment, which could be used in the production of a commodity, are diverted to the production of another commodity because the demand for that commodity would enable them to earn a higher income in its production, The supply of the first commodity will be reduced for a short time, and its price will be higher than if the equipment could not be used for another use to generate a higher income.For example, if production equipment can be used in more than one branch of agriculture, the marginal cost of each branch is affected by the degree to which the equipment is diverted to other branches.In spite of diminishing returns, the intensity of utilization of the other factors of production in the first sector will increase; and the value of its output will rise, since prices will be in equilibrium only at higher values.The increased profitability of equipment due to external demand would seem to be the cause of this increase in value, since it would raise the marginal cost of production equipment in that branch by relative scarcity.From this assertion a seemingly simple transition may appear to be made to the assertion that the increased profitability of the equipment is included among those costs which determine value.But this transition is unreasonable.For there will be no direct or quantitative relationship between the increase in the price of the first commodity and the income which can be derived from the diversion of the equipment to the second branch of industry. In the same way, if a tax is imposed on the factories used in one industry, some of them will be diverted to other industries, and the marginal cost of those industries, and hence the value of their product, will fall.At the same time, the net rental prices of various factories have also temporarily dropped. But these falls will vary in magnitude, so that there will be no quantitative relationship between the fall in the price of the product and the fall in ground rent (or, more precisely, quasi-rent). These principles do not apply to mines in the short or long run.Royalties are not a rent, though they are often called rent.For except in mines or quarries, etc., which are practically inexhaustible, the excess of their revenues over their immediate expenditures must be at least partly regarded as selling stores (which are indeed stored by nature, and which are now considered as private property); the marginal supply price of ore therefore includes, in addition to the marginal costs of mining, royalties.Of course, mine owners want to get their royalties on time.Partly for this reason, however, his contracts with the lessee often contain the payment of ground rent as well as royalties.But the royalties charged on a ton of coal, when properly adjusted, show that the value of the mines, which are regarded as the source of future wealth, has been diminished by the withdrawal of that ton of coal from natural reserves. caused by.