[b) Torrens’s Confusion in Defining the Value of Labour and the Sources of Profit]
Malthus seized on the contradiction to attack the whole Ricardian theory of value. Torrens starts from the contradiction, but, rather than resolving it, he merely accepts and acknowledges it. In the same way that Ricardo does not attempt to discover the source of surplus value, but simply assumes its existence, on the basis of a normal rate of profit, so Torrens simply accepts that capitals of the same size obtain the same rate of profit.
Like Ricardo, Torrens frames the question in terms of fixed capital and circulating capital, and he deals with the question of the advanced as opposed to laid-out capital, by determining the rate of profit on the basis of the value of the product, plus the residue of unconsumed capital. So, he writes,
“Supposing that capitals of different degrees of durability are employed: “If a woollen and a silk manufacturer were each to employ a capital of £2000 and if the former were to employ £1,500 in durable machines, and £500 in wages and materials; while the latter employed only £500 in durable machines, and £1,500 in wages and materials… Supposing that a tenth of these fixed capitals is annually consumed, and that the rate of profit is ten per cent, then, as the results of the woollen manufacturer’s capital of £2,000, must, to give him this profit, be £2,200, and as the value of his fixed capital has been reduced by the progress of production from £1,500 to £1,350, the goods produced must sell for £850. And, in like manner, as the fixed capital of the silk manufacturer is by the process of production reduced one-tenth, or from £500 to £450, the silks produced must, in order to yield him the customary rate of profit upon his whole capital of £2,000, sell for £1,750 … when capitals equal in amount, but of different degrees of durability, are employed, the articles produced, together with the residue of capital, in one occupation, will be equal in exchangeable value to the things produced, and the residue of capital, in another occupation” ([R. Torrens, An Essay on the Production of Wealth, London, 1821,] pp. 28-29).” (p 71-2)
So, Torrens example, here, is essentially correct. He illustrates that, in both cases, the price of production is based upon the cost of production plus the average profit on the total capital. The total capital, in both cases, is £2,000, and so the average profit is £200. But, in the case of the woollens producer, only £500 is laid out as circulating capital, constituting the cost of production, once £150 of wear and tear is taken into account. The cost of production is then £650, which gives, with £200 profit, a price of production of £850. By contrast, the cost of production for the silk producer is £1500 circulating capital plus £50 wear and tear, giving £1550, which, with £200 average profit, gives a price of production of £1750.
But, Torrens is unable to explain the real foundation here, because he deals in terms of fixed and circulating capital, rather than constant and variable-capital. So, he is unable to analyse the fact that for the woollens producer, relatively little labour is employed compared to the silk producer. As its labour that produces value and surplus value, if the rate of surplus value is the same for both, then the former must produce much less surplus value than the latter. As the value of a commodity comprises its cost of production plus the surplus value, the value of output of the woollens producer must be lower than that of the silk producer. But, here, both the woollens producer, and the silk producer obtain the same amount of profit, which means the former gets more profit than the surplus value they have produced, and vice versa for the silk producer. The fact that this contradicts the law of value does not lead Torrens to question this, because he simply accepts the idea that there is a normal rate of profit, which provides equal profits for equal capitals. But, nor does he explain where this normal rate of profit comes from.
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