Re: oil crises

["Devine, James" <jdevine@xxxxxxx>]

>>> jdevine@xxxxxxx 03/08/04 23:56 PM >>>
Aldo Balardini asks me several questions:
>How do you define the price of oil? <

the same way most people do.

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Fabian:
Most people define the price of oil as the result of OPEC's cartel power.  In your first message you said oil crises happened independent of OPEC, from which I assume that oil pricing is also independent of OPEC.  If you agree with Bina then you are not defining the price of oil as most people do.  Explain please.


Me: I don't know who Fabian is, since I was talking to Aldo, but here goes. There is an oil cartel, but like any cartel, it is limited by supply & demand -- and their ability to unify to restrain output levels. Oil pricing is thus partly dependent on OPEC. It can take advantage of abundant demand -- but might fail to do so.

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>Cyrus Bina is the only one so far to have attempted to explain the 1970's oil crisis using the standard interpretation of Marx's theory of rent. <

I was thinking of his analysis (though I haven't read it in awhile), since Marx's rent theory suggests that the price of oil is determined partly by demand (unlike, say, in manufacturing).

>Do you agree with Bina that cost conditions in the US, the highest cost region in the international oil, determine the the "world" price of oil?  <

it depends on demand. If demand is sufficiently low, cost conditions in the US are irrelevant. If it's high, then we might see a higher-cost producer as determining.
Jim D.

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Fabian:
Correct me if I'm wrong - You're saying that the determination of the price of oil is procyclical; determined by OPEC during throughs and by US wells during booms.  If this is the case how can this be reconciled with the standard interpretation of Marx's theory of rent that the price of oil (or agriculture goods) is ALWAYS determined by the high cost producer (least productive land)? 
 
me again: as I see Marx's theory, the _identity_ of the high-cost producer changes with the amount of demand. With high demand, the highest-cost producer has higher costs than the one when demand is low. 

BTW, on the level of price determination, I don't see a big difference between Marx's rent theory and that of Ricardo or modern neoclassical economics. The big difference is that for Marx, rent was a form of surplus-value (produced by labor), so that increasing rent reduced other kinds of surplus-value (assuming that the value of labor power is constant).

Jim D.