If production has to move to less fertile soil, so as to produce the additional supplies needed, so that the market value rises, this leads to rising differential rent, because the more fertile soils produce additional surplus profits. However, to the extent that these higher prices also cause wages to rise, and the cost of constant capital to rise, a given amount of capital, say £100, will also, thereby, set in motion less constant and less variable capital, even on the more fertile soil, so that output on these lands must then also correspondingly fall.
“Ricardo has no inkling of this. The rate of profit decreases, because the same capital, say £100, sets in motion less labour and pays more for this labour, thus yielding an ever smaller surplus. The actual product, however, like the surplus-value, depends on the number of workers employed by the capital, when the productivity is given. This is overlooked by Ricardo.” (p 458)
This is hidden so long as profit exists. If capitals continue to produce profits, if the cost of constant capital rises, or the cost of variable-capital rises, firms do not generally reduce the amount of constant capital and variable capital they reproduce, because to do so would be to reduce also the mass of surplus value/profit they produce even more. Moreover, technical requirements might make it impossible to do so. It is only when the profit disappears altogether, so that capital cannot be physically reproduced, at these higher costs, that the capital itself is reduced, and reproduction cannot continue on the same scale.
The rate of profit here falls for two reasons. Firstly, as the cost of the corn rises, this increases also the value of it as seed (constant capital). Even though this value is reproduced in the value of the end product, the ratio of surplus value to laid-out capital falls. So:-
£10 seed + £25 wages + £25 profit = £60, r` = 25/35 = 5/7 = 71.43%.
Assume the unit price of seed rises by 50%, but for now ignore the effect on wages.
£15 seed + £25 wages + £25 profit = £65, r` = 25/40 = 5/8 = 62.5%.
The rise in the price of seed has been passed on, in the value of the corn, but the rate of profit falls, because s remains constant, whilst c + v has risen from £35 to £40. (Note the total value of output does not rise by 50% from £60 to £90, because although the unit price of corn rises, the total output of corn falls, because of the same fall in productivity). In other words, if initially, £60 of output value represented 6,000 units of output, with a unit value of £0.01, the fall in productivity which causes the unit price to rise by 50% to £0.015, is the same fall in productivity, which results in a given amount of labour-time now producing much less output, so that output falls from 6,000 units to 4333 units. The rise in the price of the seed, as constant capital, is precisely a reflection of the fact that it now constitutes a larger proportion of output, and of current social labour-time.
But, the rate of profit falls for a second reason. If the price of corn rises by 50%, the value of labour-power rises. Wages rise, and surplus value falls, because the amount of new value produced remains the same – but is now embodied in a smaller quantity of output, causing unit values to rise. So:-
c £15 + v £37.50 + s £12.50 = £65, r` = 12.50/52.50 = 23.81%.
Again, the higher value of variable-capital here is a reflection that the fall in productivity, which is represented on the one hand, by the drop in the volume of output, and on the other by the rise in unit values, means that the variable-capital now constitutes a larger proportion of the total output, and of current social labour-time, so that the amount left over as surplus social labour-time/surplus value, is correspondingly reduced.
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