[a) Confusion of surplus-value with Profit]
The underlying weakness of Ricardo's theory is the failure to properly differentiate categories. So, Ricardo, like Smith, does not distinguish between constant and variable-capital; he only distinguishes between fixed and circulating capital, so that wages and materials are lumped together in the latter category, and set in opposition to fixed capital. This same obsession with fixed capital, the increase of which is made synonymous with capital accumulation, can be seen with many modern economists, including many who class themselves as Marxists.
This latter phenomenon is ironic, because Marx himself, who saw capital as a social relation, between capital and wage-labour, describes the expansion of capital as an expansion of this social relation, as an increase in the working-class. Moreover, for Marx, what lies behind the increase in the organic composition of capital that goes along with this expansion of capital, is not the increase in fixed capital, (which like labour increases absolutely in size, but falls relative to the total output) but the increase in the quantity, and thereby value of materials, as a proportion of total output value, which arises as a result of the increase in social productivity that the new fixed capital brings about.
In part, because Ricardo fails to distinguish between constant and variable-capital, he fails to distinguish between surplus value and profit. Unlike Smith, he fails to analyse the source of surplus value, assuming the existence of profit, and average rate of profit. He thereby also fails to distinguish between the rate of surplus value and rate of profit. But, it's here that his theory reaches its limits. It becomes apparent, because prices do not coincide with exchange-values, and the consequences of changes in wages appear to have contradictory effects on prices for capitals of different compositions, or rates of turnover.
But, because Ricardo only distinguishes between fixed capital and circulating capital, the way that this becomes apparent is in relation to the variations between those industries that have high proportions of fixed capital, which only gets turned over slowly, as opposed to those industries that utilise a smaller proportion of fixed capital, and whose capital gets turned over more quickly.
These weaknesses are inherited by Ricardo's disciples, and they are left trying to reconcile the contradictions that flow from them.
“It does not occur to them that, even if one considers not capitals in different spheres of production but each capital separately, insofar as it does not consist exclusively of variable capital, i.e., of capital laid out in wages only, rate of profit and rate of surplus-value are different things, that therefore profit must be a more developed, specifically modified form of surplus-value. They perceive the difference only insofar as it concerns equal profits—average rate of profit—for capitals in different spheres of production and differently composed of fixed and circulating ingredients. In this connection Mill only repeats in a vulgarised form what Ricardo says in Chapter I, “On Value” [Principles of Political Economy].” (p 85)
It is this issue of turnover time that poses a problem that Mill seeks to address. The problem that Mill faces is, in fact, insoluble, because it involves a contradiction between exchange-value and price of production. Mill notes that the prices of some commodities are higher than their exchange-values, where the rate of turnover of the capital is slow. For some commodities, like wine, the reason the turnover is slow is because the wine spends a long time in the process of fermentation etc.
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