Theories of Surplus Value, Part II, Chapter 10 - Part 14

Ricardo's examples do not demonstrate what he thinks he is proving. His first example sets out to show the effect of different degrees of durability of fixed capital on values. But, it cannot do this because he does not allow any of the value of fixed capital to enter the value of the end commodity as wear and tear. All the example shows is that where the length of turnover of capital is greater, more capital must be advanced than where the capital turns over faster. The annual rate of profit is thereby higher on the latter than the former, and so, given that the average rate of profit is calculated on the advanced capital, not the laid out capital, in order for both capitals to obtain the same average profit, the price of production for the former must be higher than for the latter.

Ricardo thinks his third example shows something different, but it is an identical example to the first. In his second example, Ricardo thinks he is showing the effect of different proportions of fixed capital to wages, but all he had shown is a comparison of the rate of profit on two capitals of different sizes. In other words, he confuses the rate of surplus value with the rate of profit. The rate of surplus value on two capitals, employing the same amount of labour power, may be identical, and so will both produce the same mass of surplus value. However, if one of these capitals also employs an amount of constant capital, and the other does not, the first will have a lower rate of profit, because the rate of profit is calculated on the total capital advanced not just the variable capital. Moreover, it makes no difference in this regard, whether that constant capital is fixed or circulating. But, in fact, the example shows the inadequate nature of the analysis which also flows from the inadequacy of Adam Smith's analysis, which omits the value of raw materials from the calculation of the commodity value.

[b) Ricardo’s Confusion of Cost-Prices with Value and the Contradictions in His Theory of Value Arising Therefrom. His Lack of Understanding of the Process of Equalisation of the Rate of Profit and of the Transformation of Values into Cost-Prices]

In drawing practical conclusions from his analysis, Ricardo slips into further errors flowing from his lack of understanding of the processes he is describing. He also falls into an uncharacteristic moral argument to explain different valuations that in part flows from the lack of any objective basis for the determination of his average rate of profit. So, he writes,

““The difference in value arises in both cases from the profits being accumulated as capital, and is only a just compensation” (as though it were a question of justice here) “for the time that the profits were withheld” (l.c., p. 35).” (p 189)

All this really says is that capitals of equal size will obtain the same average profit. But, capitals of equal size but different composition will produce different amounts of surplus value, so their price of production must differ from their value accordingly. Secondly, capitals of the same size and composition, but different rates of turnover will produce different annual rates of profit, and consequently, to obtain the same average annual rate of profit, the capital that turns over more slowly will require higher prices of production, and the capital that turns over faster, lower prices of production.

The further consequence of this is that the latter will have a lower profit margin, p/k, or rate of profit, s/c + v, and the former a higher profit margin. This is the fundamental driver of The Law of the Tendency for the Rate of Profit to Fall.

“Capitals of equal size produce commodities of unequal values and therefore yield unequal surplus-values or profits, because value is determined by labour-time, and the amount of labour-time realised by a capital does not depend on its absolute size but on the size of the variable capital, the capital laid out in wages.” (p 190)

This is actually badly worded by Marx. The capital that comprises £800 of materials and £100 of wages, with a 100 per cent rate of surplus value, will realise £1000 of value. And capital that comprises £200 of materials and £200 of wages will only realise the value of £600. What Marx really means is that the amount of surplus value, or surplus labour time realised depends on the size of the variable capital, if the rate of surplus value is constant.

“Even assuming that capitals of equal size produce equal values (although the inequality in the sphere of production usually coincides with that in the sphere of circulation), the period within which they appropriate equal quantities of unpaid labour and convert these into money, still varies in accordance with their turnover period. Thus arises a second difference in the values, surplus-values and profits which capitals of equal size must yield in different branches of production in a given period of time.” (p 190)

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