Marx refers to a comment by Ricardo directed against Say, in relation to profits and interest. Ricardo says,
““M. Say allows, that the rate of interest depends on the rate of profits; but it does not therefore follow, that the rate of profits depends on the rate of interest. One is the cause, the other the effect, and it is impossible for any circumstances to make them change places” (l.c., p. 353, note).” (p 469)
But, as Marx says, causes which reduce profits can cause interest rates to rise, and vice versa. As Marx described in Capital III, interest rates hit their peak during a crisis, when profits collapse, and firms demand currency to pay bills and stay afloat. In the aftermath of a crisis profits may rise, but the demand for money-capital remains low. And, when the recovery begins, although the demand for money-capital rises, the increased mass of realised profits also thereby increases the supply of potential money-capital, thereby keeping interest rates low.
Ricardo challenges Say's determination of prices by supply and demand, as opposed to on the basis of their cost (price) of production.
““M. Say acknowledges that the cost of production is the foundation of price, and yet in various parts of his book he maintains that price is regulated by the proportion which demand bears to supply” (l. c., p. 411).” (p 469)
But, Marx says, Ricardo should then have seen that the price of production is not the same as the value of the commodity, i.e. the labour required for its production.
Ricardo quotes Smith in support of his argument.
“... ‘the prices of commodities, or the value of gold and silver as compared with commodities, depends upon the proportion between the quantity of labour which is necessary in order to bring a certain quantity of gold and silver to market, and that which is necessary to bring thither a certain quantity of any other sort of goods?’” (p 469)
That quantity, Ricardo continues, will not be affected whether wages or profits are high or low, but that is wrong, in the sense that Marx demonstrated in Capital III, in examining the role of a general rise in wages on the average rate of profit and its consequences for the prices of production of commodities. He showed there that a general rise in wages causes a fall in the average rate of profit. The consequence is that those commodities with a high organic composition of capital see their price of production fall, and vice versa, whilst commodities with an average composition see no change in their price of production.
Moreover, in the passage from Smith that Ricardo quotes in his support, what Smith means by prices is only the money equivalent of values. And values, be it of gold, silver or any other commodity are determined by the labour required for their production. Ricardo conflates value with cost (price) of production. But, it is not at all a contradiction to say that because value and price of production are two different things the value of commodities is determined by the labour required for their production, whilst the exchange value of commodities, the proportion they exchange for one another, or against a money commodity, is determined by their price of production.
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