Saturday, 31 March 2018

Theories of Surplus Value, Part II, Chapter 15 - Part 3

Ricardo, however, proceeds as though the entire capital is laid out as variable-capital. This causes problems throughout Ricardo's work, because, for example, in looking at an accumulation of capital, he only considers what has to be advanced as wages

To this extent, therefore, he considers surplus-value and not profit, hence it is possible to speak of his theory of surplus-value. On the other hand, however, he thinks that he is dealing with profit as such, and in fact views which are based on the assumption of profit and not of surplus-value, constantly creep in. Where he correctly sets forth the laws of surplus-value, he distorts them by immediately expressing them as laws of profit. On the other hand, he seeks to present the laws of profit directly, without the intermediate links, as laws of surplus-value.” (p 373-4) 

So, in dealing with Ricardo's theory of surplus value, we are dealing with his theory of profit, because he confuses the two. Ricardo does refer to constant capital, or in his terms fixed capital, as was seen previously, in relation to how he tries to reconcile the difference between exchange-values and prices, but this is set in terms of an organic composition that relates fixed capital to labour, not constant capital to labour, and throws in questions of its rate of turnover. And, it is this confusion that prevents Ricardo from understanding the difference between values and prices of production. Ricardo is then left in a fundamental contradiction of wanting to argue that profit is proportionate to the variable capital (assuming a given rate of surplus value), whilst simultaneously arguing that there exists an average rate of profit, which can only be a rate of profit measured against the whole capital, and not just the variable capital.

So, in Chapter XXVI, Ricardo says, 

““trades where profits are in proportion to the capital, and not in proportion to the quantity of labour employed” ([David Ricardo, On the Principles of Political Economy, and Taxation, third edition,] p. 418).” (p 374) 

But, as Marx says, 

“What does his whole doctrine of average profit (on which his theory of rent depends) mean, but that profits are “in proportion to the capital, and not in proportion to the quantity of labour employed”?” (p 374) 

The rate of profit is the profit measured against the capital, not the labour employed. And Ricardo does recognise this, and argues that an average rate of profit arises precisely because capital moves into those spheres where that rate of profit is higher, and out of those spheres where that rate of profit is lower. As Marx showed in Capital III, Ricardo, as with other economists had no idea what the actual objective basis of this average rate of profit was. They could understand that it arises from this competition, but they had no basis for determining why this average was 20% rather than 2% or 200%. Only by starting with an understanding of the objective basis of surplus value, as the difference between the value of labour-power and the value created by labour, can this rate of profit be objectively determined. 

Smith sought to explain the source of surplus value, and its objective basis, but Ricardo simply takes the existence of surplus value for granted. There is no rational basis for Ricardo's statement about profits being in proportion to capital in some trades, because an average rate of profit dictates that profits must be proportional to capital in all spheres. If they were not, then, as Ricardo himself says, elsewhere, capital would simply move away from where the rate of profit was low, and towards where it was high. 

“With a given rate of surplus-value, the amount of surplus-value for a particular capital must always depend, not on the absolute size of the capital, but on the quantity of labour employed. On the other hand, if the average rate of profit is given, the amount of profit must always depend on the size of the capital employed and not on the quantity of labour employed.” (p 374-5) 

Ricardo refers to the carrying trade, and trades where expensive machinery is used, but, Marx says, these are also trades where a great deal of capital in total is used, and the two things go together. It is the fact that a large mass of capital, in total, in these trades, must be advanced that determines the large mass of profit. In other words, it is simply a reflection of the fact that, given an average rate of profit, large capitals will produce a greater mass of profit than small capitals. 

“This, however, by no means distinguishes the trades in which large capitals and much constant capital are employed (the two always go together) from those in which small capitals are employed, but is merely an application of the theory that equal capitals yield equal profits, a larger capital therefore yields more profit than a smaller capital. This has nothing to do with the “quantity of labour employed”. But whether the rate of profit in general is great or small, depends indeed on the total quantity of labour employed by the capital of the whole class of capitalists and on the proportion of unpaid labour; and, lastly, on the ratio of the capital spent on labour and the capital that is merely reproduced as a condition of production.” (p 375) 

In other words, the mass of surplus value produced depends on the mass of labour employed (v), and on the rate of surplus value s', or s/v, whilst the rate of profit then depends upon the mass of surplus value relative to the total capital c + v, or, in the case of the annual rate of profit, the surplus value relative to the advanced capital C. 

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