Re: oil crises

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

> Jim,
> My complete name is Aldo Fabian Balardini.  
> I go by Fabian, I never use Aldo unless I fill out paperwork 
> where they request my first name like the name you see in my 
> e-mail address.  Sorry for the confusion. 

Ciao, Fabian!

I wrote: 
>  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.
 
 Fabian:
> so you're theory of oil price is basically the dominant 
> cartel theory used by neoclassicals unless it is different in 
> some other way?  Which way? 

It may be the same as the neoclassical theory, but I don't see that as automatically wrong with that. The problem with neoclassicals are many, such as missing the role of class and social relations of production (the holistic dimension) and the dynamic nature of a capitalist economy. But that doesn't mean that they're automatically wrong on purely microeconomic issues. 

It's important to remember that just as with Marxists, there are differences amongst the neoclassicals. Some Chicago-type economists deny that OPEC played any role in the 1970s-era oil-price surges. Others see OPEC as playing a bigger role. Some Marxians agree with the former neoclassical view, others agree with the latter. It's not as if Marxists have gotten together to have a World Congress to democratically decide on the "correct" position on this issue (or to decide once and for all about the meaning of Marx's unfinished theories). 

I wrote:
> 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. 

Fabian:
> The high cost producer in the oil industry since the 1970's 
> has remained the US no matter what happens to demand.  So 
> according to Marxian theory, the US should determine the 
> price of oil throughout this period.  Agree?

if the US has always been the high-cost producer, then we have to face Doug's question: since the 1970s, why did the price of oil fluctuate so much relative to the cost of production in the US?  

I wrote: 
> 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).

 Fabian:
> When it comes to price determination of agricultural goods 
> (Marx uses coal in his tables in TSV) the dominant 
> interpretation says that there is no difference between 
> Ricardo, Marx and even Smith.  However, a closer reading of 
> Marx in TSV points to a different theory of price 
> determination as Marx criticizes Ricardo for insisting 
> INCORRECTLY that price of coal is ALWAYS determined by the 
> least productive mine.  

This, if I remember correctly, is saying that absolute rent plays a role. I think this debate between Marx and Ricardo is more a disagreement about the nature of costs than anything else. 

> The other difference is on the definition of absolute rent.  
> The standard reading of Marx, including Bina's, says that 
> absolute rent is a function of value transfers among 
> different sectors according to their organic composition of 
> capital.  The outcome of this interpretation is the inability 
> to explain rent in oil since it is a sector with high organic 
> composition.  The implication of this is that some of the 
> least productive wells in the US can be rented for free.

this fits with what I said above, i.e., that the difference between Marx and Ricardo (and neoclassicals) is that the former saw rent as involving a redistribution of surplus-value from the industrial sector (some of which is in the oil sector). Beyond that, I don't want to get into a discussion of the theory of absolute rent. Suffice it to say that other Marxists reject that theory and see absolute rent as a monopoly rent rather than a matter of differentials of the organic composition between sectors.  Among other things, I think that arguments about who's truest to Marx are pointless. 

FWIW, the oil wells near here in Los Angeles are currently in the process of being shut down. That seems like close to being "rented for free."
 
> There is a major difference between Ricardo and Marx (as 
> interpreted by the traditional theory) on the price of oil 
> being determined by the marginal producer.  In neoclassical 
> theory, OPEC is the marginal producer, in Ricardian/Marxian 
> theories the marginal producer should always be the highest 
> cost producer (US) since the oil produced by US wells are 
> necessary to satisfy demand. 

I don't think anyone sees OPEC as the "marginal producer" in the sense of having the highest costs. It may be the one with the most market power, but that's a different matter. 

I don't understand why the US is _always_ the highest-cost producer.

> Neoclassicals argue that 
> somehow OPEC can calculate the difference between world 
> demand and the competitive fringe supply and provide the 
> letover supply needed to meet current demand, all this has to 
> do with the assumptions of market power underlying their 
> cartel models.  

Some NCs argue that; others disagree. In any event, it sure seems that at some points in the history of the last 35 years, there have been concerted efforts by OPEC to restrict output. Some of these -- but not all -- have been successful. Some of these -- but not all -- have led to higher oil prices. 

>BTW, the cartel theory of OPEC has no 
> empirical support as shown in Alhajji and Huetner.

there are also other studies of this issue. I'll leave that to someone who's an expert on this subject (something I've never pretended to be).

Jim Devine