Ricardo says,
““From the account which has been given of the profits of stock, it will appear, that no accumulation of capital will permanently lower profits, unless there be some permanent cause for the rise of wages… If the necessaries of the workman could be constantly increased with the same facility, there could be no permanent alteration in the rate of profit or wages,” (this should read: in the rate of surplus-value and the value of labour) “to whatever amount capital might be accumulated. Adam Smith, however, uniformly ascribes the fall of profits to the accumulation of capital, and to the competition which will result from it, without ever adverting to the increasing difficulty of providing food for the additional number of labourers which the additional capital will employ” (l. c., pp. 338–39).” (p 467)
Marx comments,
“By profits Ricardo means here that part of surplus-value which the capitalist appropriates, but by no means the [entire] surplus-value; and wrong as it is to say that accumulation can cause the surplus-value to fall, so it is right that accumulation can cause a fall in profit.” (Note *, p 467)
Ricardo's argument here suffers from the fact that, from the beginning, he confuses and conflates surplus value with profit. For Ricardo, the rate of profit falls if wages rise, or if rent rises – we might add if interest or taxes rise. But, again, this confuses surplus value with profit, and the rate of surplus value with the rate of profit. If wages rise, and assuming a fixed working-day, then surplus value, and the rate of surplus value will fall. If rent, interest or taxes rise, that does not reduce surplus value, or the rate of surplus value. But, it is a deduction from profit. These do not reduce profit, or the rate of profit, but do reduce the amount of profit of enterprise, and rate of profit of enterprise.
“Thus Adam Smith says that the rate of profit falls with the accumulation of capital, because of the growing competition between the capitalists; Ricardo says that it does so because of the growing deterioration of agriculture (increased price of necessaries). We have refuted his view, which would only be correct if rate of surplus-value and rate of profit were identical, and therefore the rate of profit could not fall unless the rate of wages rose, provided the working-day remained unchanged. Adam Smith’s view rests on his compounding value out of wages, profits and rents (in accordance with his false view, which he himself refuted). According to him, the accumulation of capitals forces the reduction in arbitrary profits—for which there is no inherent measure—through the reduction in the prices of commodities; profits, according to this conception, being merely a nominal addition to the prices of commodities.” (p 467-8)
Ricardo is right, as against Smith, in arguing that, in the longer-term, the accumulation of capital cannot reduce the rate of surplus value, as a result of competition driving up wages and competing away the profit. Because capital introduces labour saving technologies, whenever the demand for labour-power rises so much as to cause wages to rise, and profits to be squeezed. But, he is wrong in arguing that the accumulation of capital does not result in a tendency for the rate of profit to fall. The accumulation of capital, particularly where driven by these periodic labour shortages, into more intensive accumulation, goes along with a rise in the productivity of labour. Even if it is just that the division of labour results in a given amount of labour processing larger and larger amounts of material, the consequence of this is to increase the proportion of dead labour as against living labour in the value of commodities.
In other words, the organic composition of capital rises, and the rate of profit falls. As new technologies are introduced, the productivity of labour rises even faster, and this process is intensified.
“... but Ricardo is quite wrong when he seeks to refute Adam Smith by asserting that over-production in one country is impossible. Ricardo denies the plethora of capital, which later became an established axiom in English political economy.” (p 468)
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