Theories of Surplus Value, Part II, Chapter 10 - Part 35

In Chapter IX, Smith moves on to examine the natural rate of profit, or price of capital. Smith also relates his theory of the falling rate of profit, but Marx says he will deal with that later, which he does in setting out what is wrong with all of the theories of a falling rate of profit.

Smith has even more problem trying to analyse a natural rate of profit than he did in analysing a natural rate of wages. In relation to wages, he ends up talking only about “the most usual wages”,

““But even this can seldom be done with regard to the profits of stock” ([O.U.P., Vol. I, p. 98; Garnier,] l.c., p. 179). Apart from the good or bad fortune of the entrepreneur, this profit “is affected by every variation of price in the commodities” ([O.U.P., Vol. I, p. 98; Garnier,] l.c., p. 180)” (p 227) 

Yet, Smith wants to determine the value of commodities on the basis of the natural rate of wages and profits. Its difficult to know what a natural profit might be for a capital in a given trade.

““To ascertain what is the average profit of all the different trades carried on in a great kingdom, must be much more difficult” ([O.U.P., Vol. I, p. 98; Garnier,] l.c., p. 180).” (p 227) 

An approximation can be made, Smith argues by examining the rate of interest, because if profits are high, capitalists will pay high rates of interest to obtain money-capital. This is not Smith arguing that the rate of interest determines the rate of profit, but the opposite. There are no records of the rate of profit, Marx says, but there are records of the rate of interest. If Smith were correct, and, in Capital III, Marx shows why he is not, then those records of the rate of interest would act as an index of the rate of profit.

Smith then goes off into an investigation of these variations in the rate of interest over time, but his task was neither to investigate these variations in the rate of interest nor such variations as a proxy for variations in the rate of profit. It was to set out what determines a natural rate of profit.

Rather than providing a basis for such a natural rate, Smith provides a series of comparisons of different countries. He concludes that rarely do high wages coincide with high profits except in new countries. The basis there being the scarcity of labour.

““A new colony must always, for some time, be more understocked in proportion to the extent of its territory, and more under-peopled in proportion to the extent of its stock, than the greater part of other countries. They have more land than they have stock to cultivate. What they have, therefore, is applied to the cultivation only of what is most fertile and most favourably situated, the land near the sea shore and along the banks of navigable rivers. Such land, too, is frequently purchased at a price below the value even of its natural produce.” (In fact, therefore, it costs nothing.) “Stock employed in the purchase and improvement of such lands must yield a very large profit, and, consequently, afford to pay a very large interest. Its rapid accumulation in so profitable an employment enables the planter to increase the number of his hands faster than he can find them in a new settlement. Those whom he can find, therefore, are very liberally rewarded.” (p 228)

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