As Marx says, in Capital III, Chapter 6, illustrating that it is both labour and fixed capital that falls, relative to the raw material component of the means of production,
“The value of raw material, therefore, forms an ever-growing component of the value of the commodity-product in proportion to the development of the productivity of labour, not only because it passes wholly into this latter value, but also because in every aliquot part of the aggregate product the portion representing depreciation of machinery and the portion formed by the newly added labour — both continually decrease. Owing to this falling tendency, the other portion of the value representing raw material increases proportionally, unless this increase is counterbalanced by a proportionate decrease in the value of the raw material arising from the growing productivity of the labour employed in its own production.”
It is Ricardo's failure to make these observations, analysed by Marx, which leads to the contradictions in his theory, and it is these contradictions that Malthus picks up, not to resolve them, but in order to undermine the entire Ricardian theory of value. In doing so, as set out earlier, Malthus does not advance, but moves backwards, even further than the Physiocrats, into conceptions of profit such as proposed by the Mercantilists, i.e. profit on alienation, or unequal exchange.
“We shall see the same method employed during the decline of the Ricardian school, i.e., by [James] Mill and McCulloch, who, in order to reason the contradictory phenomena out of existence, seek to bring them into direct conformity with the general law by gabble, by scholastic and absurd definitions and distinctions, with the result, by the way, that the foundation itself vanishes.” (p 29)
Malthus says,
““It is observed by Adam Smith that corn is an annual crop, butchers’ meat a crop which requires four or five years to grow; and consequently, if we compare two quantities of corn and beef which are of equal exchangeable value, it is certain that a difference of three or four additional years profit at fifteen per cent upon the capital employed in the production of the beef would, exclusively of any other considerations, make up in value for a much smaller quantity of labour, and thus we might have two commodities of the same exchangeable value, while the accumulated and immediate labour of the one was forty or fifty per cent less than that of the other. This is an event of daily occurrence in reference to a vast mass of the most important commodities in the country; and if profits were to fall from fifteen per cent to eight per cent, the value of beef compared with corn would fall above twenty per cent” (The Measure of Value, pp. 10-11).” (p 29-30)
There is a recognition here of the role of the rate of turnover of capital, and the annual rate of profit, on the price of production. The problem is that neither Smith nor Ricardo have a concept of price of production, as distinct from exchange value. The price of beef, therefore, is higher on this basis, because the value of beef is higher than corn, and the basis of this higher value is the inclusion of profit, as part of the value. For Malthus, this does not pose the same contradiction as for Smith and Ricardo, because, for Malthus, the profit is not the surplus value already contained in the value of the commodity, i.e. the surplus labour performed by the workers, but is simply an additional sum added to that value.
In this respect, Malthus is right. The reason that the price of beef is higher than corn (setting aside any other considerations) is that the rate of turnover of the capital employed in beef production is lower than in corn production. Unless the price of beef is higher than the price of corn, to take account of this, so that the beef capitalist only realised the surplus value they have produced, in that five years, then their annual rate of profit would be lower than that of the corn capitalist. Then capital would leave beef production and enter corn production. The supply of beef would fall, and beef prices rise, whilst the supply of corn would rise, and corn prices fall.
In other words, if both capitalists employ £1,000 of capital p.a., and produce £100 of surplus value, the position after five years would be that the corn capitalist advances £1,000 and produces £100 of profit, at the end of Year 1. At the start of each year, thereafter, this same £1,000 of capital that has now been turned over, is advanced. Their advanced capital, for the five years, is then £1,000 and the total surplus value is £500, giving a rate of profit of 50%. But, the beef capitalist does not turn over their capital until Year 5. They, therefore, advance capital over the five years equal to £5,000, and yet produce only the same £500 of surplus value, giving a rate of profit of only 10%. Capital would leave the latter due to this lower annual rate of profit, and accumulate in the former, bringing a change in prices as described above.
But, then it's clear that these equilibrium prices are not equal to exchange values. For the beef producer, it amounts to an addition of profit that is unrelated to any labour actually contained in the commodity itself. Its this contradiction that Malthus is able to seize upon as against Ricardo. If each commodity is comprised not only of the value of the labour it contains (actually value of labour-power/wages) but also of this additional profit, then this also applies to all of those commodities that also form the elements of capital. In other words, the machines, the buildings, the materials, are all commodities, and so the value of all these comprise not just the value of labour contained in them, but also the element of profit added to it. In turn, this must also form a part of the value of the end product.
Malthus, therefore, says,
““… labour is not the only element worked up in capital” (Definitions etc., ed. by John Cazenove, p. 29).
“… what are the costs of production? … the quantity of labour in kind required to be worked up in the commodity, and in the tools and materials consumed in its production with such an additional quantity as is equivalent to the ordinary profits upon the advances for the time that they have been advanced” (op. cit., pp. 74-75).
“On the same grounds Mr. Mill is quite incorrect, in calling capital hoarded labour. It may, perhaps, be called hoarded labour and profits; but certainly not hoarded labour alone, unless we determine to call profits labour” (op. cit., pp. 60-61).
“To say that the values of commodities are regulated or determined by the quantity of Labour and Capital necessary to produce them, is essentially false. To say that they are regulated by the quantity of Labour and Profits necessary to produce them, is essentially true” (op. cit., p. 129).” (p 30)
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