Ricardo, therefore, believes that, although the rate of profit more or less constantly falls, because of this squeeze from rising wages and rents, the total mass of profit rises, because increased masses of capital are employed. However, unlike Marx, he believes that this can only continue for so long, because ultimately the fall in the rate of profit is so much that it affects the rise in the mass of capital.
“Thus supposing that: with repeated accumulations of £100,000, the rate of profit should fall from 20 to 19, to 18, to 17 per cent, a constantly diminishing rate, we should expect that the whole amount of profits received by those successive owners of capital would be always progressive; that it would be greater when the capital was £200,000, than when £100,000, still greater when £300,000; and so on, increasing, though at a diminishing rate, with every increase of capital. This progression however is only true for a certain time: thus 19 per cent on £200,000 is more than 20 on £100,000; again 18 per cent on £300,000 is more than 19 per cent on £200,000; but after capital has accumulated to a large amount, and profits have fallen, the further accumulation diminishes the aggregate of profits. Thus suppose the accumulation ‘should be £1,000,000, and the profits 7 per cent the whole amount of profits will be £70,000; now if an addition of £100,000 capital be made to the million, and profits should fall to 6 per cent, £66,000 or a diminution of £4,000 will be received by the owners of stock, although the whole amount of stock will be increased from £1,000,000 to £1,100,000.” (p 545)
As Marx sets out in Capital III, such a condition can indeed arise. It is what constitutes one example of a crisis of overproduction. In other words, capital accumulates to a degree where the social working day cannot be expanded further (the individual working-day cannot be expanded, no additional workers can be added to the workforce), so absolute surplus value cannot be expanded, labour supplies are used up, so wages rise and the rate of surplus value falls, in some conditions, the prices of raw materials may rise sharply and can't be reproduced, and so on. The sharp fall in the rate of profit is then brought about by the fact that what has been produced cannot be sold at prices that reproduce the capital. The market is glutted, prices drop and profits crash. But, this is not an indication of what Ricardo and some modern catastrophists present as an indication of a long run law of a falling rate of profit. Quite the contrary, the crisis here is a consequence of exuberant growth, of overproduction which results in a short-term squeeze on profits, and the rate of surplus value. As Marx says, in his note in respect of Smith, and such conditions, there are no permanent crises.
It is those conditions which provide the incentive for capital to revolutionise production, to engage in intensive accumulation, which acts to replace labour, and thereby raise the rate of surplus value. It is those conditions which come out of the crisis of overproduction, which thereby create the necessary conditions for Marx’s law of the tendency for the rate of profit to fall, not vice versa. As Marx says, in Capital III, Chapter 15,
“Growth of capital, hence accumulation of capital, does not imply a fall in the rate of profit, unless it is accompanied by the aforementioned changes in the proportion of the organic constituents of capital. Now it so happens that in spite of the constant daily revolutions in the mode of production, now this and now that larger or smaller portion of the total capital continues to accumulate for certain periods on the basis of a given average proportion of those constituents, so that there is no organic change with its growth, and consequently no cause for a fall in the rate of profit. This constant expansion of capital, hence also an expansion of production, on the basis of the old method of production which goes quietly on while new methods are already being introduced at its side, is another reason, why the rate of profit does not decline as much as the total capital of society grows.”
So, when Ricardo says,
“When the accumulation of capital, however, becomes very great, notwithstanding this increased value, it will be so distributed that a less value than before will be appropriated to profits, while that which is devoted to rent and wages will be increased” (l.c., pp. 124-26).” (p 545),
he sees this as part of this long term trend of falling profits, which were it true would, as he says, ultimately lead also to a fall in the mass of profit, which would then spell the demise of the system. Fortunately, because were the system to collapse, rather than be transcended by socialism, it would spell disaster for society, and particularly for workers, as Marx shows, Ricardo's view is completely wrong. This catastrophist vision of Ricardo is shown in his further comments indicating that even as wages rise, and profits fall, the workers living standards must also decline.
““Although a greater value is produced, a greater proportion of what remains of that value, after paying rent, is consumed by the producers, and it is this, and this alone, which regulates profits. Whilst the land yields abundantly, wages may temporarily rise, and the producers may consume more than their accustomed proportion; but the stimulus which will thus be given to population, will speedily reduce the labourers to their usual consumption. But when poor lands are taken into cultivation, or when more capital and labour are expended on the old land, with a less return of produce, the effect must be permanent” (l.c., p. 127).” (p 545)
There is only one case, Ricardo argues where a low price of food might be accompanied by high wages and low profits. That is essentially where food supplies are in such abundance that the demands from workers can be easily met. In that case, workers might, where accumulation is very rapid, and the competition for workers pushes up wages, spend their wages on other commodities, also then creating a demand for capital and labour in those industries. But, Ricardo believes such a situation could only be temporary, because he thinks that these high wages would prompt a rise in population, which would both reduce wages and raise the demand for food, so that the excess food supply was used up.
“Thus Ricardo on accumulation and the law of the falling rate of profit.” (p 546)
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