Ricardo confuses and conflates the rate of surplus value with the rate of profit. As Marx says,
“Accumulation for its part is not directly determined by the rate of surplus-value, but by the ratio of surplus-value to the total capital outlay, that is, by the rate of profit, and even more by the total amount of profit.” (p 542)
The mass of profit depends both on the rate of profit, and the mass of capital. Consequently, a large capital, with a low rate of profit, may produce a larger mass of profit than a small capital with a high rate of profit. And, this is important, because of the point that at the heart of expanded reproduction remains simple reproduction, or in other words, not all profit can be accumulated. A small capitalist must always take a significant portion of profit to fund their own personal consumption, and an economy with lots of such small capitals, will thereby have a lot of small capitalists whose personal consumption must be funded from profits, thereby diminishing the potential for accumulation relative to an economy with a much smaller number of large capitalists. Similarly, a huge joint stock company only needs to pay out a small proportion of its profits as interest/dividends to bond/shareholders, leaving the rest for accumulation.
Similarly, movements in the mass of profit depends on the degree to which the mass of capital rises or falls, compared to the degree to which the rate of profit falls or rises. If the mass of capital doubles, and the rate of profit stays the same, the mass of profit will double. If the rate of profit halves, the mass of profit will remain constant, and so on. As Marx sets out in Capital III, a condition for his Law of the Tendency For The Rate of Profit to Fall, as opposed to the law of falling profits put forward by Smith, Malthus, Ricardo and others, is that the mass of profit rises. That is because, in Marx's theory, the mass of capital must rise faster than the fall in the rate of profit.
Moreover, although Marx does not deal with it here, the real determinant, in relation to accumulation, is not the rate of profit, but the annual rate of profit. What determines the pace of accumulation is not the capital that must be laid out, but the capital that must be advanced.
Suppose a capital is comprised:
c 1,000 + v 1,000 + s 1,000.
All of the profit is accumulated. The rate of profit is 50%, and the rate of accumulation is 50%. Now, suppose that this capital turns over twice during the year. In other words, only 500 is advanced for both constant and variable capital. The same £1,000 of profit is produced, in a year. In the first case, we have
c 1,000 + v 1,000 + s 1,000, which with accumulation becomes
c 1,500 + v 1,500 + s 1,500, whereas, in the second case we have
(c 500 + v 500 + s 500) x 2 becomes
(c 1000 + v 1,000 + s 1,000) x 2 = c 2,000 + v 2,000 + s 2,000.
In other words, where the capital turns over twice in the year, the total laid out capital is the same, and the total profit is the same, i.e. £1,000. However, because only £500 is advanced for both constant and variable-capital, the £1,000 of profit now means that this is doubled to £1,000 constant capital and £1,000 variable-capital, whereas for the capital that turns over once, and where all of the laid out capital must be advanced, the £1,000 of profit enables only an accumulation rate of 50%.
For the capital that turns over twice, the £1,000 of constant capital, and £1,000 of variable capital is now reproduced after six months, and can then simply be advanced once more so that for the year, £2,000 of constant and £2,000 of variable capital is laid out, producing £2,000 of profit. In fact, this capital has a further advantage in that, after six months, not only is the advanced capital reproduced, but half the profit of £1,000 is realised, which could then also be accumulated, whereas the first capital must wait until the end of the year to realise its £1,500 of profit.
So, for the second capital, the situation could be that it advances £1,000 c + £1,000 v. After six months this capital is reproduced, along with £1,000 of profit. It then accumulates this further profit, so that for the next six months, it has c £1,500 + v £1,500, and thereby produces a further £1,500 of surplus value. Its laid out capital for the year would then be:
c 2,500 + v 2,500 = £5,000, and it would produce a profit of £2,500.
But, Ricardo fails to account for any of this, because he confuses the rate of profit with the rate of surplus value. And, because of his false conception of a squeeze on profits, due to rising wages and rents, he arrives at his erroneous, catastrophist theory of a law of falling profits. So, he writes,
“The natural tendency of profits then is to fall; for, in the progress of society and wealth, the additional quantity of food required is obtained by the sacrifice of more and more labour. This tendency, this gravitation as it were of profits, is happily checked at repeated intervals by the improvements in machinery, connected with the production of necessaries, as well as by discoveries in the science of agriculture which enable us to relinquish a portion of labour before required, and therefore to lower the price of the prime necessary of the labourer.” (p 544)
But, as seen previously, this check on rising wages, is, for Ricardo, only a check on the prices of those wage goods that are the product of manufacture, as productivity rises. Ricardo notes that productivity rises faster in industry than agriculture, but as Marx says, fails to make the connection that this relative difference does not change the fact that agricultural productivity does thereby still rise. The fact that agricultural productivity may rise slower than industrial productivity, and that, therefore, the prices of industrial commodities may fall faster than the prices of agricultural commodities, does not change the fact that agricultural prices thereby do fall, in absolute terms, and so, thereby, contribute to the fall in the price of wage goods, and the value of labour-power.
Instead, Ricardo, basing himself on the fallacious Malthusian population theory, and his own faulty theory of rent and diminishing returns, believes that the rising population pushes up food and agricultural prices and rents, to a greater extent, in the long run, than the fall in wage goods caused by rising industrial productivity. Hence he arrives at a theory of a falling rate of profit, whereby profits are squeezed by these rising wages and rents, whilst the rising wages do not fully compensate workers for the rising cost of food. He arrives at a different, but equally catastrophist and equally wrong theory of crisis to that presented by Malthus. Marx explodes these fallacies further, in the next chapter, and in Capital III.
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