Theories of Surplus Value, Part II, Chapter 10 - Part 7

[4.] Ricardo’s Description of Profit, Rate of Profit, Average Prices etc.

[a) Ricardo’s Confusion of Constant Capital with Fixed Capital and of Variable Capital with Circulating Capital. Erroneous Formulation of the Question of Variations in “Relative Values” and Their Causative Factors]

“In Section III of the First Chapter Ricardo explains that the statement: the value of the commodity is determined by labour-time includes not only the labour directly employed on the commodity in the final labour process but also the labour-time contained in the raw material and the instruments of labour that are required for the production of the commodity. Thus it applies not only to the labour-time contained in the newly-added labour which has been bought, paid for by wages, but also to the labour-time contained in that part of the commodity which I call constant capital.” (p 173)

However, in his exposition, Ricardo does not actually refer to the raw materials, thereby making a distinction not between constant and variable capital, but between fixed capital and wages. In this section, he assumes that the proportions of fixed capital entering into the value of commodities is the same. But, in the next section examines the situation where different proportions of fixed capital are used. He wants to use this and the different rates of turnover of capital as his basis for arguing that values continue to constitute the 'natural price' around which market prices rotate, at the same time as recognizing the existence of an average rate of profit.

“The proportion in which constant capital enters into a commodity does not affect the values of the commodities, the relative quantities of labour contained in the commodities, but it does directly affect the different quantities of surplus-value or surplus-labour contained in commodities embodying equal amounts of labour-time. Hence this varying proportion gives rise to average prices that differ from values.” (p 173 – 4)

A commodity may have a value of 1000 comprised of 800 dead labour in the constant capital, and 200 of living labour. Or, this value may comprise 200 of dead labour and 800 of living labour. Both commodities contain the same amount of labour, despite the fact that it is composed differently in each case. But, if we assume a 100 per cent rate of surplus value, in the first case, surplus value represents 100, or 10 per cent of the total value, whereas in the second, it is four hundred, or 40 per cent of the total value. If we assume an average rate of profit, its then clear that these commodities could not sell at prices equal to their values.

Because Ricardo does not distinguish between constant and variable capital, he cannot develop the concept of the organic composition of capital. So, in Sections IV and V of Chapter I, Ricardo instead focuses on the forms of capital as fixed and circulating, and this distinction itself revolves for him around the question of durability. As Marx set out in Capital II, however, the real distinction between fixed and circulating capital is whether it is completely consumed, and its use value and value transferred and reproduced within the labour process, and turnover of the capital.

Ricardo focuses on the question of durability, because he wants to point out the role of different lengths of turnover. He assumes the existence of an average rate of profit, so that capital of the same size, in different spheres, produces the same amount of profit.

“Instead of postulating this general rate of profit, Ricardo should rather have examined in how far its existence is in fact consistent with the determination of value by labour-time, and he would have found that instead of being consistent with it, prima facie, it contradicts it, and that its existence would therefore have to be explained through a number of intermediary stages, a procedure which is very different from merely including it under the law of value. He would then have gained an altogether different insight into the nature of profit and would not have identified it directly with surplus-value.” (p 174)

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