Theories of Surplus Value, Part II, Chapter 10 - Part 22

Ricardo also grasps for a similar explanation of how it is that gold, as the money commodity, can come to be a representative of value.

““May not gold be considered as a commodity produced with such proportions of the two kinds of capital as approach nearest to the average quantity employed in the production of most commodities? May not these proportions be so nearly equally distant from the two extremes, the one where little fixed capital is used, the other where little labour is employed, as to form a just mean between them?” (l.c., p. 44).” (p 199) 

But, as Marx says, the actual idea, contained here, applies more to those capitals of average composition, and average rate of turnover than to gold.

“This is far more applicable to those commodities into whose composition the various organic constituents enter in the average proportion, and whose period of circulation and reproduction is also of average length. For these, cost-price and value coincide, because for them, and only for them, average profit coincides with their actual surplus-value.” (p 199) 

Whatever the inadequacy of Ricardo's analysis of value, in Chapter I, he does arrive at a conclusion which represents a significant advance over Adam Smith, correcting a major error in his theory. It is inherent in a labour theory of value that values are determined by labour. Whilst Smith advances this argument at some points, because he does not distinguish between labour and labour-power, at other times, he advances a cost of production theory. Smith, therefore, arrives at a conclusion that rises in wages cause rises in values. Ricardo demolishes this notion, demonstrating that the amount of value is unchanged, but a rise in wages simply results in a redistribution of the new value created, by reducing profits.

He says,

““Before I quit this subject, it may be proper to observe, that Adam Smith, and all the writers who have followed him, have, without one exception that I know of, maintained that a rise in the price of labour would be uniformly followed by a rise in the price of all commodities” [l.c., p. 45].” (p 200)

And continues,

““I hope I have succeeded in showing that there are no grounds for such an opinion and that only those commodities would rise which had less fixed capital employed upon them than the medium in which price was estimated,” (here relative value is equivalent to the expression of the value in money), “and that all those which had more, would positively fall in price when wages rose. On the contrary, if wages fell, those commodities only would fall, which had a less proportion of fixed capital employed on them, than the medium in which price was estimated; all those which had more, would positively rise in price” (l.c., p. 45).” (p 200) 

But, Ricardo's explanation of rising money prices is wrong. If the value of gold rises, then the value of all commodities whose price is measured by gold falls, irrespective of whether the capital that produces those commodities has a higher proportion of fixed capital than gold production or not.

“But this is due to Ricardo’s false assumption that money, in so far as it serves as a medium of circulation, exchanges as a commodity for commodities. Commodities are assessed in gold before it circulates them.” (p 200)

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