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

According to Ricardo, it comes down to the changes in wages, and the varying effects of those changes dependent upon the different proportions of labour to fixed capital, the durability of the fixed capital and rate of turnover. However, as Marx points out, a change in wages can have no affect on the value, or exchange value of the commodity. Its effect is only on the profit. If we take the two capitals discussed earlier of 1000, where one consists of 800 c and 200 v, whilst the other comprises 200 c and 800 v, then, if the rate of surplus value is 20 per cent, the first produces £40 of profit, and the latter £160 of profit. Total profit is £200 on a total capital of £2000, giving an average rate of profit of 10 per cent. If they sold at prices of production, they would both sell their output for £1100. Suppose their wages rose by 20 per cent. In his example, Marx assumes that the value of constant capital remains constant. In that case, the wage bill of the first capital rises by £40, so that if they still sell their output at £1100, their profit falls from £100 to £60. The profit of £60 on the capital laid out of £1040, giving a rate of profit of 5.77 per cent. For the second capital, their wage bill rises by £160, which means they then make a loss of £60.

“This, however, is only the case because the average profit has already modified the relation between the labour he has laid out and the surplus-value which he himself produces.” (p 179 – 80)

The correct calculation would have been, first to work out the total profit, and the average rate of profit. So, the total profit would have fallen by £100 as a result of the wage rise. The profit now of £100, on a total capital of £2100 gives the rate of profit of 4.76%. The first capital would sell its output at £1040 + 4.76%, whilst the second would sell its output at £1160 + 4.76%. Instead of analysing why the capitalist who lays out four times as much in wages as the other does not make four times as much profit, Ricardo focuses on the subsidiary issue of why, after the rate of profit is equalised, any change in the rate of profit, for example, due to a change in wages, affects the former capital more than the latter, in terms of their prices.

Ricardo says,

“Suppose two men employ one hundred men each for a year in the construction of two machines, and another man employs the same number of men in cultivating corn, each of the machines at the end of the year will be of the same value as the corn, for they will each be produced by the same quantity of labour. Suppose one of the owners of one of the machines to employ it, with the assistance of one hundred men, the following year in making cloth, and the owner of the other machine to employ his also, with the assistance likewise of one hundred men, in making cotton goods, while the farmer continues to employ one hundred men as before in the cultivation of corn. During the second year they will all have employed the same quantity of labour” (p 180)

But, Marx points out that although they will have paid out the same amount in wages, they will not at all have employed the same amount of labour. The capitalist who uses the machines produced in the first year, will thereby employ also this additional dead labour.

Ricardo goes on to recognise that the value of the cloth and cotton goods will be comprised of 200 hours of labour – 100 for the machines, and 100 in the production of these goods – but he says the actual value of these goods will be greater than this. If the corn has a value of £500 them the cloth and cotton goods should have a value of £1000, but it will, in fact, be more, “for the profit of the clothier’s and cotton manufacturer’s capital for the first year has been added to their capitals, while that of the farmer has been expended and enjoyed. On account then of the different degrees of durability of their capitals, or, which is the same thing, on account of the time which must elapse before one set of commodities can be brought to market, they will be valuable, not exactly in proportion to the quantity of labour bestowed on them,—they will not be as two to one, but something more, to compensate for the greater length of time which must elapse before the most valuable can be brought to market.” (p 180 – 1)

If wages are £50 per annum then each capital lays out £5000 per annum on wages. Ricardo assumes a rate of profit of 10 per cent. So, the value of the machines, he says, is £5500. The total capital employed, in the second year, for the cloth producer and cotton goods producer, is £5500 + £5000 = £10,500. So, Ricardo says, that means the profit for the second year, should be £1050 - £500, as in the first year, plus £550, as 10 per cent of £5500. He assumes they do not sell the machines, and that it does not transfer any value by wear and tear, and so assumes they sell the cloth and cotton goods at £5000 + of £1050 = £6050. But, that means that the prices here are prices of production – cost of production plus average profit – and these differ from the commodity values. Yet, Ricardo continues to argue that it is the values that differ and that this difference is a result of having varying amounts of fixed capital employed.

Marx points out that it is not at all the consequence of the employment of different amounts of fixed capital, but simply the consequence of each capital expecting to receive the same rate of profit. Had the cloth producer and the cotton goods producer employed an additional £5500 of labour, in the second year, rather than a machine, they would still have expected to obtain £1050 of profit on their advanced capital of £10,500.

Ricardo is wrong when he says,

““The cloth and cotton goods are of the same value, because they are the produce of equal quantities of labour, and equal quantities of fixed capital; but corn is not of the same value” “as these commodities, because it is produced, as far as regards fixed capital, under different circumstances” (l.c., p. 31).” (p 181)

What he should have said is that they have a different price of production, and that different price of production is a consequence of the same average rates of profit being applied to different amounts of capital.

“This exceedingly clumsy illustration of an exceedingly simple matter is so complicated in order to avoid saying simply: Since capitals of equal size, whatever the ratio of their organic components or their period of circulation, yield profits of equal size—which would be impossible if the commodities were sold at their values etc.—there exist cost-prices which differ from the values of commodities. And this is indeed implied in the concept of a general rate of profit.” (p 181)

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