RICARDO’S THEORY OF PROFIT
[1. Individual Instances in Which Ricardo Distinguishes Between Surplus-Value and Profit]
“It has already been shown in some detail, that the laws of surplus-value—or rather of the rate of surplus-value—(assuming the working-day as given) do not so directly and simply coincide with, nor are they applicable to, the laws of profit, as Ricardo supposes. It has been shown that he wrongly identifies surplus-value with profit and that these are only identical in so far as the total capital consists of variable capital or is laid out directly in wages; and that therefore what Ricardo deals with under the name of “profit” is in fact surplus-value. Only in this case can the total product simply be resolved into wages and surplus-value. Ricardo evidently shares Smith’s view, that the total value of the annual product resolves itself into revenues. Hence also his confusion of value with cost-price.” (p 426)
As said previously, by “cost-price”, Marx means here price of production.
Marx sets out a number of ways in which the rate of profit differs from the rate of surplus value. The rate of profit can rise or fall as a result of a rise or fall in rent. Marx doesn't mean a change in the rate of profit of enterprise here, i.e. the profit left over after the payment of rent and interest. He means the effect of changes in rent arising from variations in the organic composition of capital in agriculture as opposed to industry, which affects absolute rent.
The total amount of profit is equal to the total of surplus value. However, the total amount of surplus value depends not only on the rate of surplus value, but on the quantity of labour exploited. The same mass of surplus value can be produced by a smaller number of workers with a high rate of surplus value as by a larger number of workers with a lower rate of surplus value.
“The same amount of profit is therefore possible, with a falling rate of surplus-value and a rising number of workers and vice versa, etc.” (p 426)
If the rate of surplus value is given, the rate of profit depends on the organic composition of capital. It is to be noted that this applies to the rate of profit rather than the annual rate of profit, for reasons that Marx comes to momentarily.
With a given mass of surplus value, and composition of capital, the rate of profit will be affected by changes in the value of different components of the capital. This is the point that Marx makes in Chapter 6 of Capital III, dealing with variations in the prices of raw materials etc. And, to return to the point referred to previously, in relation to the rate of profit as opposed to the annual rate of profit, it will vary according to changes in the rate of turnover of the capital.
As a result of his own analysis, Ricardo should have been led to distinguish between surplus value and profit, and between the rate of surplus value and rate of profit. But he doesn't, and this leads to his failure to understand the difference between exchange value and price of production. With no objective basis to determine the quantity of surplus value, and thereby of profit, “he appears in some passages to descend to the vulgar view—as has already been indicated in the analysis of Chapter I “On Value”—the view that profit is a mere addition over and above the value of the commodity; for instance when he speaks of the determination of profit on capital in which the fixed capital predominates, etc.” (p 427)
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