Ricardo correctly notes that it is not only the amount of profit available for accumulation that is determinant, but also the value of the elements of constant and variable capital to be accumulated. He writes,
““With respect to the third objection against taxes on raw produce, namely, that the raising wages, and lowering profits, is a discouragement to accumulation, and acts in the same way as a natural poverty of soil; I have endeavoured to shew in another part of this work that savings may be as effectually made from expenditure as from production; from a reduction in the value of commodities, as from a rise in the rate of profits. By increasing my profits from £1,000 to £1,200, whilst prices continue the same, my power of increasing my capital by savings is increased, but it is not increased so much as it would be if my profits continued as before, whilst commodities were so lowered in price, that £800 would procure me as much as £ 1,000 purchased before” (l.c., pp. 183-84).” (p 539-40)
In other words, an additional 20% of profits enables an accumulation of 20%, if the value of the commodities that comprise capital remains the same. But, if the amount of profit remains the same, whilst the value of commodities comprising capital falls by 20%, that enables an accumulation of 25%. And, Marx points out,
“The total value of the product (or rather that part of the product which is divided between capitalist and worker) can decrease, without causing a fall in the net income, in terms of the mass of value it represents. (It may even rise proportionally.)” (p 540)
In other words, the value of linen produced by a textile capitalist may fall from, say, £1,000 to £700, with the amount going to profit and wages falling say from £500 to £400, each falling from £250 to £200. But, if the price of yarn and other components of constant capital falls from £500 to £300, where previously £250 of profit would accumulate 50% additional constant capital, now £200 of profit will accumulate 66.6% additional capital. The money price of the profit has fallen, but “the mass of value it represents” has increased. This is a further illustration of the error of the use of historic prices, as opposed to Marx's use of current reproduction costs, with money acting only as a unit of account, as a means of rational calculation, as he sets out in Capital II.
Ricardo, as Marx previously set out, was right in this respect, as against Adam Smith. Ricardo correctly focuses on the net income, or surplus value, as opposed to the total value of output. As I've pointed out previously, the Tories today also fall into the same error as Smith and Malthus in being more concerned with the total value of output, reflected in the number of people employed, rather than on the surplus value produced by those in employment, which is the real basis of growth. So, the result is that the Tories have built a low-wage, low-skill economy, which, because of high levels of employment, may produce higher levels of total output value, but, because of low levels of productivity, results in a lower rate of profit, and slower growth.
If 1 million are employed, on wages of £10 million, and produce £11 million of value, the surplus value is £1 million, but if only 0.8 million are employed, with wages still of £10 million, but they produce £12 million of value, that is a surplus value of £2 million, which facilitates a higher rate of growth. Marx quotes Ricardo's rebuttal of Malthus on this at some length.
““The whole argument however of Mr. Malthus, is built on an infirm basis: it supposes, because the gross income of the country is diminished, that, therefore, the net income must also be diminished, in the same proportion. It has been one of the objects of his work to shew, that with every fall in the real value of necessaries, the wages of labour would fall, and that the profits of stock would rise—in other words, that of any given annual value a less portion would be paid to the labouring class, and a larger portion to those whose funds employed this class. Suppose the value of the commodities produced in a particular manufacture to be £1,000, and to be divided between the master and his labourers, in the proportion of £800 to labourers, and £200 to the master; if the value of these commodities should fall to £900, and £100 be saved from the wages of labour, in consequence of the fall of necessaries, the net income of the masters would be in no degree impaired, and, therefore, he could with just as much facility pay the same amount of taxes, after, as before the reduction of price” (l.c., pp. 511-12).” (p 540)
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