The general rate of profit, contrary to Ricardo, can rise or fall separate from any long-term trend, simply as a result of changes in the rate of profit in specific spheres, which thereby affect the general rate. Every new sphere of activity impacts the general rate, as a consequence of whether the rate of profit, in that sphere, is higher or lower than the average. In addition, different spheres of activity increase or decrease as a proportion of the total social capital, and consequently in their impact on the general rate of profit. Suppose there are only two spheres in which capital is employed:-
A c 1000 + v 1000 + s 500, s` = 50%, r` = 25%
B c 100 + v 500 + s 250, s` = 50%, r` = 42%
Total c 1100 + v 1500 + s 750, s` = 50%, r` = 29%.
The average rate remains close to the lower rate, here, because capital A accounts for the dominant portion of total capital. Suppose, however, that capital accumulates in B, and the rate of profit falls, but not to the level in A.
A c 1000 + v 1000 + s 500, s` = 50%, r` = 25%
B c 1000 + v 4000 + s 2000, s` = 50%, r` = 40%.
Total c 2000 + v 5000 + s 2500, s` = 50%, r` = 35.7%
Now the rate of profit in B has fallen, and the rate of profit in A has remained unchanged, but the general rate of profit now rises to 35.7%, because capital B has become the dominant portion of the total social capital.
Ricardo is also wrong in thinking that the rate of profit does not affect prices of production, because it does not affect values. It does affect the price of production, because it is the cost of production plus average profit.
“Because of his completely wrong conception of the rate of profit, Ricardo misunderstands entirely the influence of foreign trade, when it does not directly lower the price of the labourers’ food. He does not see how enormously important it is for England, for example, to secure cheaper raw materials for industry, and that in this case, as I have shown previously, the rate of profit rises although prices fall, whereas in the reverse case, with rising prices, the rate of profit can fall, even if wages remain the same in both cases.” (p 437)
For Ricardo, the rate of profit depends on the price of the individual commodity, i.e. it is the divergence of its market price from the natural price, which determines whether its rate of profit is higher or lower than the general rate of profit, and so he argues that it is not the extension of the market that causes the rate of profit to rise, as a result, for example, of higher profit activities being introduced to it. Marx responds.
“The rate of profit does not depend on the price of the individual commodity but on the amount of surplus-labour which can be realised with a given capital. Elsewhere Ricardo also fails to recognise the importance of the market because he does not understand the nature of money.” (p 437)
These errors on Ricardo's part, arise, Marx says, because he tries to carry through his identification of the rate of profit with the rate of surplus value “by means of forced abstractions.”
Marx alludes here to critics of Ricardo, such as Say, who attacked him for arriving, by such abstract thinking, at conclusions at variance with reality. In fact, Marx retorts, the real problem was that Ricardo “does not carry true abstract thinking far enough and is therefore driven into false abstraction.” (p 437)
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