As I have set out elsewhere, in relation to the long wave, and as Marx himself described in Theories of Surplus Value, Part II, Chapter IX, in relation to the longer term movements of primary product prices, at certain points in the long wave cycle, i.e. in its Spring phase, the existing productive capacity for these raw materials is not capable of increasing supply fast enough to meet demand, which results in much higher prices for these primary products. Once producers feel that this new level of demand and prices is established, they begin to explore new sources of supply, where new land can be brought into cultivation, new mines and quarries opened and so on. As Marx describes in Theories of Surplus Value, Part II, Chapter IX, these new lands, and mines are often more naturally fertile than their predecessors, contrary to Ricardo's assumption of diminishing returns, but they do not benefit from the accumulated capital investment in those old facilities, or from the associated capital invested in infrastructure. Not, only must large amounts of fixed capital, therefore, be invested in establishing these new production facilities, and the associated infrastructure before their greater fertility manifests itself, in its effect on the market value of the respective commodities, but there is considerable time involved even in reaching the stage where any production at all is possible. It takes more than seven years, for example, to open up a new copper mine, before any production is possible.
That was seen after 1999, when the new long wave Spring phase commenced, as the prices of all primary products soared, leading to the investment of large amounts of capital in new productive facilities across the globe, with primary product prices continuing to climb until 2014, when the new supply started to come on to the market, at which point, a sharp decline in primary product prices occurred.
Marx quotes Ricardo again from Chapter XV. Ricardo refers back to where he had previously explained variations in prices and values as arising from different proportions of fixed and circulating capital, and different rates of capital turnover. Both might have a capital of £10,000 but divided £8,000 fixed, and £2,000 circulating for one, and £2,000 fixed and £8,000 circulating for the other. One might sell their output for £10,000, and the other for £4,000, whilst both obtain a profit of 20%, or £2,000 on their £10,000 of capital. If a 10% tax is imposed on the £2,000 of profit, therefore, Ricardo says that the price of the output of one will rise to £4,200, whereas the other will rise to £10,200.
“Before the tax, the goods sold by one of these manufacturers were 2½ times more valuable than the goods of the other; after the tax they will be 2.42 times more valuable: the one kind will have risen two per cent; the other five per cent: consequently a tax upon income, whilst money continued unaltered in value, would alter the relative prices and value of commodities” (l.c., pp. 234-35).” (p 386)
Marx responds,
“The error lies in this final “and”—”prices and value”. This change of prices would only show—just as in the case of capital containing different proportions of fixed and circulating capital—that the establishment of the general rate of profit requires that the prices or cost-prices which are determined and regulated by that general rate of profit [are] very different from the values of the commodities. And this most important aspect of the question does not exist for Ricardo at all.” (p 386)
As set out previously, Ricardo does not understand the difference between value and exchange-value, and price of production. The value of a commodity is unaffected by whether the organic composition of the capital that produces it is above, below or the same as the average. And, the value of the commodity is the basis of its exchange-value, i.e. the proportion in which it exchanges for other commodities. Moreover, its value is unaffected by whether the capital that produces it turns over at a faster, slower or the same as the average rate of turnover of the total social capital. But, the price of production is affected by both the organic composition of the capital, and by its rate of turnover, because both of these affect whether the profit for the particular capital is greater than or less than the surplus value produced by that capital.
A capital with a higher than average organic composition of capital will obtain a profit higher than the surplus value it produces, and so its output will sell at prices higher than the exchange value, and vice versa. A capital that turns over at a slower rate than that of the total social capital will also obtain more profit than the surplus value it produces – because only thereby does it obtain the average annual rate of profit – and so will sell its output at prices higher than their exchange-value, and vice versa.
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