To crashlist subscribers:
My message on the subject of cost v. demand was stimulated by
recent messages on this list regarding the price of oil. One important
economic phenomenon in today's world is deflationary pressures. (I am not
trying to argue that inflationary and deflationary pressures cancel each
other out completely.) In particular, Japan has not recovered from the
collapse of "the bubble economy." Japan's government has thus far failed
in its attempts to create self-sustaining economic growth. I have seen
material in the London _Financial Times_ questioning whether the
government can continue to employ economic stimulus packages in the face
of the amount of debt it has taken on.
Petroleum, as a non-renewable resource, faces long-term increases
in production costs in that oil wells dry up. The tendency is to try to
exploit the "easy oil" first. By comparison, offshore oil is not so cheap
to produce. If the cost of producing oil continues to rise without prices
being high enough, then some oil production operations will become
unprofitable, meaning there will be less of them than if prices were
higher. Thus, production of oil will not be as great as would otherwise
be the case. I must admit that I don't understand how high-cost producers
can continue to exist in the face of competition from low-cost
producers. I suspect some customers are paying unnecessarily higher
prices out of ignorance of options, or non-economic loyalty. I know
that governments can step in to support higher cost producers.
By comparison, wood is a renewable resource: sustainable forestry
can keep on producing the same amount of wood products on the same land
for future generations. See: Michael Pilarski, ed., _Restoration
Forestry_ (1994). Costs may rise overall for people practicing
sustainable forest and supplies of wood products may decline, but the
reason would not be that it is more difficult for the forest to grow. If
global warming causes trees in a particular location to die out, then the
forestry there would not be sustainable.
--Milton Takei
On Thu, 9 Nov 2000, Julien Pierrehumbert wrote:
> Hi Milton,
>
> > Environmental problems can be said to increase costs--say because
> >pollution needs to be cleaned up, or resources become more difficult to
> >extract.
>
> Yes, but those costs are ultimately paid to labour or capital (not to nature) and re-
> enter the economic circuit. Thus, as long as no barriers to increased use of labour
> and capital are encountered (full employment, interest rates hikes by the central
> bank, etc.), production should not be affected and overproduction should continue.
> And if a barrier is encountered, the economic system can react in several ways.
> See lower.
>
> >The "first contradiction of capital" involves inadequate
> >demand (or excess capacity), which in Marxist terms is overproduction or
> >underconsumption.
>
> Yes, but don't forget that the true cause of this overproduction is increased
> productivity.
>
> > I've been thinking lately that the first and second contradictions
> >of capital have been countervailing each other: one tends to decrease
> >prices, while the other tends to increase them.
>
> I'm not sure this is a good way to think of the issue. Let's focus on something else
> than market prices...
> I'd rather say that the contradictions countervail each other because the first
> contradiction increases productivity while the second one decreases it. When it is
> expressed in those terms, it becomes obvious that the contradictions do not
> counterveil each other totally because for the first to counterveil the second,
> increased capital intensity is needed. And increased capital intensity without an
> increase in productivity means lower wages and/or lower profits.
> At this point of the analysis, it becomes clear that the effect of the second
> contradiction on overproduction depends on the outcome of class struggle. In other
> words, the second contradiction raises prices and counterveils the first only as
>long
> as profits are lowered in response to higher costs of exploitation of nature. If
>profits
> are maintained, overproduction will be perpetuated even if prices don't fall
> because wages will fall, production will diminish, and ultimately part of the market
> value of capital will be destroyed resulting in an even more acute deflationary
> crisis.
> If that analysis is worth anything, it means that any attempt to stabilize price in
>an
> environment of scarcier resources and/or stricter ecological regulations is actually
> an attempt to lower wages relative to profits (short-term) as well as an attempt to
> create or worsen a deflationary crisis (longer term). All hail inflation! Down with
> sadomonetarism!
>
> >The price of oil
> >reflects, in part, the fact that petroleum is a non-renewable
> >resource
>
> Can you tell us what makes you think that? It rather looks like the price reflects
>in
> part that it's scarce. Even if it was renewable, supply limitations would still
>drive
> prices up.
>
> Julien
>
>
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