Ricardo opposes Smith's view, ““… that the great profits which are sometimes made by particular merchants in foreign trade, will elevate the general rate of profits in the country…” (l.c., Chapter VII “On Foreign Trade”, p. 132)” (p 375), and says,
““… They contend, that the equality of profits will be brought about by the general rise of profits; and I am of opinion, that the profits of the favoured trade will speedily subside to the general level” (l.c., pp. 132-33).” (p 375)
However, as Marx demonstrates later, in Chapter 16, this argument is wrong, wherever capital can become involved in these foreign ventures where the rate of profit is higher. Whenever capital leaves one sphere, to enter some other higher profit sphere, including overseas, the supply of commodities in the former falls, pushing up prices, and the rate of profit. But, even if Ricardo's argument were correct, he still cannot argue, given the assumption of an average rate of profit, that, in some trades, the rate of profit is in proportion to the capital advanced, whereas in others it is proportionate to the labour employed.
In Chapter XXVI, Ricardo makes a statement, which, as Marx says, is nonsense from start to finish. Ricardo says,
““I admit, that from the nature of rent, a given capital employed in agriculture, on any but the land last cultivated, puts in motion a greater quantity of labour than an equal capital employed in manufactures and trade” (l.c., p. 419).” (p 376)
But, for Ricardo, rent arises because the land last cultivated is less fertile, which means that the previously cultivated land makes surplus profits. These surplus profits arise because the higher fertility means that a given level of output is produced with a lower quantity of labour employed to produce it. If all of these previously cultivated lands employ proportionately more labour than industry, it must be the case that the last cultivated land employs proportionately even more labour! What Ricardo should have said was that, taking the output of agriculture, as a whole, it employs proportionately more labour than industry, which is only to say that the organic composition is lower in agriculture than industry. It is this which results in surplus profits overall, in agriculture, compared to industry, and which forms the basis of rent.
Because Ricardo confuses and conflates surplus value with profit, he overlooks the fact that, with a given mass of surplus value, there are several factors which determine the rate of profit. Its this which also leads Ricardo to his false theory of the law of the rate of profit to fall. As Marx demonstrates, the mass of surplus value may rise, because the mass of variable capital rises, or because the mass of variable-capital remains constant, whilst the rate of surplus value rises. In either case, this rise in the mass of surplus value is consistent with a fall in the rate of profit, if the organic composition of capital rises, and vice versa.
“Because he identifies surplus-value with profit, he quite consistently seeks to demonstrate that the rise and fall in the rate of profit is caused only by circumstances that make the rate of surplus-value rise or fall. Apart from the circumstances which, when the amount of surplus-value is given, influence the rate of profit, although not the amount of profit, he furthermore overlooks the fact that the rate of profit depends on the amount of surplus-value, and by no means on the rate of surplus-value. When the rate of surplus-value, i.e., of surplus-labour, is given, the amount of surplus-value depends on the organic composition of the capital, that is to say, on the number of workers which a capital of given value, for instance £100, employs. It depends on the rate of surplus-value if the organic composition of the capital is given.” (p 376)
This is the same point as that made by Marx at the start of Capital III, Chapter 15.
“Given the necessary means of production, i.e. , a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e., the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given.”
This also deals with the error that some have fallen into by extrapolating from a comment that Marx makes in relation to the impossibility of offsetting the fall in the mass of surplus value by the rise in the rate of surplus value. In other words, Marx says that 24 workers, producing just 1 hour of surplus value, produce more surplus value than 1 worker producing 23 hours of surplus value. That is true, although, as I've argued elsewhere, it depends upon all this being simple as opposed to complex labour. But, furthermore, it assumes that the consequence of the rise in productivity is that 23 workers are thrown out of work. If the consequence of progressive rises in productivity, and a rise in the mass of surplus value, is an expansion of capital, and Marx describes this process in numerous places, then it is not a question of 1 worker producing 23 hours of surplus value, rather than 24 workers each producing 1 hour of surplus value, but potentially of 24, or 30 workers each producing 23 hours of surplus value!
In other words, as Marx says here,
“It is thus determined by two factors: the number of workers simultaneously employed and the rate of surplus-labour. If the capital increases, then the amount of surplus-value also increases whatever its organic composition, provided it remains unchanged.” (p 376-7)
So, the mass of surplus value depends on the social working-day, i.e. the average working day multiplied by the mass of labour employed, and the rate of surplus value. If 1 million workers work a 10 hour day that is a social working day of 10 million hours, producing 10 million hours of new value. If the necessary working day is 5 hours, the necessary social working day is 5 million hours, which means that 5 million hours of surplus value are produced. If the capital, and population expands, so that 2 million workers are employed, assuming no change in the rate of surplus value, the surplus value would double, along with the total new value produced. However, if productivity rises, so that the necessary working day falls to 4 hours, the total surplus value would rise to 12 million hours. The rate of surplus value rises from 100% to 12:8 million hours, equals 150%. But, there is theoretically no reason why the necessary social working-day cannot continue to fall to near zero, whilst the social working-day grows ever larger, so that the rate of surplus value rises towards infinity. There is then no theoretical reason why the rate of surplus value cannot continue to expand at a faster rate than the rise in the organic composition of capital, so that the rate of profit continues to rise. Put another way, if 1 million workers work a 10 hour day, so that the total social working day is 10 million hours, five million hours may be required to reproduce labour-power, consisting say of half a million workers working a 10 hour day only producing wage goods. But, if the population rises to 2 million, so that the total social working-day rises to 20 million hours, a rise in productivity may mean that it still only requires the same half million workers working a 10 hour day to produce the required mass of wage goods. The total social working day would double, but the necessary social working-day would remain the same, resulting in the total social surplus working-day rising from 5 million hours to 15 million hours, a trebling of the rate and mass of surplus value.
And, in fact, what has been seen is something like that. Over the last 200 years, the working population across the globe has continued to rise significantly, as increasing masses of profit have been accumulated as capital. At the same time, this accumulation of capital has been accompanied by improving technology that raises productivity, and reduces the length of the necessary working day. It results in increased masses of surplus value that can be accumulated to expand capital even further. And, the shorter necessary working day, means that a given amount of profit now accumulates an even larger mass of labour, whilst the higher productivity, which reduces the value of means of production means that it also accumulates a greater mass of means of production. So, increasing levels of productivity, driving increasing accumulation of capital has not resulted in the kind of catastrophic falls in the rate and mass of profit that Smith, Ricardo and Malthus predicted, or in mass unemployment, as machines replaced labour, but has instead resulted in a much greater mass of capital, employing a much greater mass of labour, producing a much greater mass of profit. Contrary to the argument of some Marxists that have actually presented the kind of catastrophist theories of the falling rate of profit that Marx argues against, this development of an increased mass of capital, employed labour, and of profit is precisely what Marx himself predicted! It forms part of the historic mission of capital to develop the productive forces, and to develop the working-class, required for the formation of socialism.
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