Theories of Surplus Value, Part II, Chapter 10 - Part 8

Having assumed a general rate of profit, Ricardo investigates what effect rises or falls in wages will have in conditions where there are different proportions of fixed capital to labour.

“And here of course he finds that depending on the amount of fixed capital etc., a rise or fall of wages must have a very different effect on capitals, according to whether they contain a greater or lesser proportion of variable capital, i.e., capital which is laid out directly in wages.” (p 174 – 5)

This is also what Marx set out in Capital III, Chapter 12. But, there he found that a general rise in wages causes a fall in the average rate of profit. This results in a fall in the price of production of those commodities produced with a higher than average composition of capital, and a rise in the price of production of those commodities with the lower than average composition of capital.

“Thus in order to equalise again the profits in the different spheres of production, in other words, to re-establish the general rate of profit, the prices of the commodities—as distinct from their values—must be regulated in a different way.” (p 175)

But, Ricardo continues to believe that values and prices coincide, or that market prices revolve around exchange-values. And on that basis, of his findings in relation to wage changes in conditions of different proportions of fixed capital, is thereby led to the conclusion that it is 'relative values' that are affected by these different proportions, when wages change. In fact, it is not 'relative values' or exchange values that change, but the prices of production. He should have concluded that prices of production differ from exchange values.

“Instead,’ he concludes that they are identical and with this erroneous premise he goes on to the consideration of rent.” (p 175)

The variations that Ricardo discovers in the relative values flow directly from his assumption of an average rate of profit. If capitals of equal size obtain the same amount of profit, despite different organic compositions then the prices of those commodities must differ from their values, because each produce different amounts of surplus value. A capital of 1000 may be divided 800 constant and 200 variable, whilst another is comprised 200 constant and 800 variable. Assuming a rate of surplus value of 100 per cent, the surplus value of the first is 200 and of the latter 800. The total surplus value is then 1000, which on a total capital of 2000 is a rate of profit of 50 per cent. If both capitals obtain this average rate of profit, both will sell their output for £1500, but the value of the output of the first capital is only £1200, whereas the value of the output of the second capital is £1800.

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