Ricardo says,
““If a country were not taxed, and money should fall in value, its abundance in every market” (here [he expresses] the absurd notion that a fall in the value of money ought to be accompanied by its abundance in every market)“would produce similar effects in each. If meat rose 20 per cent, bread, beer, shoes, labour, and every commodity, would also rise 20 per cent; it is necessary they should do so, to secure to each trade the same rate of profits.”” (p 386)
Marx notes that “ here [he expresses] the absurd notion that a fall in the value of money ought to be accompanied by its abundance in every market” Its absurd for the reason that Marx sets out in A Contribution to the Critique of Political Economy, that once excess currency is thrown into circulation, the authorities have no control over where that excess goes. As I have previously described, for example, QE has led to currency going into financial and property speculation, blowing up asset price bubbles, whilst that same speculation has drained money and money-capital from the real economy, creating disinflationary, and deflationary pressures on commodity prices. Similarly, if asset price bubbles burst, that ocean of liquidity that has previously been tied up in assets, can flood back into general circulation, leading to a reversal of that situation, and the creation of hyper-inflationary tendencies for commodity prices.
As Marx points out, increases and decreases in different denominations of currency have different consequences for different areas of commodity circulation. If you put large denomination notes into circulation, for example, whilst withholding small denomination coins, it will mean that currency circulation will actually have been curtailed for all those commodity transactions that rely on those small coins, and where large notes do not act as legal tender, and vice versa.
Ricardo continues,
“If meat rose 20 per cent, bread, beer, shoes, labour, and every commodity, would also rise 20 per cent; it is necessary they should do so, to secure to each trade the same rate of profits. But this is no longer true when any of these commodities is taxed; if, in that case, they should all rise in proportion to the fall in the value of money, profits would be rendered unequal; in the case of the commodities taxed, profits would be raised above the general level, and capital would be removed from one employment to another, till an equilibrium of profits was restored, which could only be, after the relative prices were altered” (l.c., pp. 236-37).” (p 386)
But, as Marx points out, here, what Ricardo is admitting is that capital is moved from those areas where the rate of profit has fallen below the average to where it has become above the average and, as a result of this movement of capital, the proportions of demand and supply are changed, so that market prices are changed, and profits equalised. In other words, it is then not the relative values (exchange-values) of these commodities that determine the prices, but the requirement to produce the average profit.
“And so this equilibrium of profits is after all brought about by the relative values, the “real values” of the commodities being altered, and so adjusted that they correspond, not to their real value, but to the average profit which they must yield.” (p 386)
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