For the Ricardians, as for Say, all of these contradictions are assumed, and yet it is likewise assumed that production can continue smoothly without any friction, as though the contradictions do not exist.
“It is assumed however that this separation does not exist, but that there is barter. Consumption and production are separated; [there are] producers who do not consume and consumers who do not produce. It is assumed that consumption and production are identical. The capitalist directly produces exchange-value in order to increase his profit, and not for the sake of consumption. It is assumed that he produces directly for the sake of consumption and only for it. [If it is] assumed that the contradictions existing in bourgeois production—which, in fact, are reconciled by a process of adjustment which, at the same time, however, manifests itself as crises, violent fusion of disconnected factors operating independently of one another and yet correlated—if it is assumed that the contradictions existing in bourgeois production do not exist, then these contradictions obviously cannot come into play.” (p 120-1)
So, it is viewed as though production proceeds according to some overall social plan, whereby production is geared to orders, as with conditions of barter, whilst, at the same time, it is recognised that each individual capital produces up to the limits set only by its own size and with total disregard for the output of its competitors, or the capacity of the market to absorb it.
“If there were no foreign trade, then luxuries could be produced at home, whatever their cost. In that case, labour, with the exception of [the branches producing] necessaries, would, in actual fact, be very unproductive. Hence accumulation of capital [would proceed at a low rate]. Thus every country would be able to employ all the capital accumulated there, since according to the assumption very little capital would have been accumulated.” (p 121)
On the one hand, Ricardo, himself, says that all of the capital accumulated, no matter at what rate, can be employed profitably, because, basing himself on Say's Law, he denies the possibility of overproduction. On the other hand, Ricardo also argues that the very process of capital accumulation reduces the potential for its profitable investment, because his theory of the falling rate of profit is based on the necessity for food prices and rent to rise, as the working population expands, thus leading to higher wages and rents that squeeze profits.
Similarly, higher profits mean at least a relatively smaller proportion of the total social product consumed by workers, leaving a larger proportion of surplus product. The author of the “Inquiry” continues,
“... and if it be said that this, by diminishing consumption, increases glut, I can only answer, that glut […] is synonymous with high profits…” (op. cit., p. 59).” (p 121)
Marx responds,
“This is indeed the secret basis of glut.” (p 121)
In other words, Marx is saying here that it is a rising mass of profit, that causes capital, as a result of competition, to drive ever onwards to produce more, as each capital seeks to capture a larger share of the expanding market. It does so even though this expanding mass of profit might go along with a falling profit margin. But ever tighter profit margins means that the potential for overproduction becomes ever greater, because as soon as production exceeds demand by even a small amount, the price of each unit of production falls enough so that every unit of this huge mass of output is now sold at a loss. If 10,000 units of a commodity are sold at a price of £1 each, with a profit margin of 11.11 percent, the profit is £1,111. If production rises to 20,000 units, and each unit is sold at £0.99, with a profit margin of 10%, the profit still rises to £2,000. If demand falls, whether temporarily or permanently, so that the market price falls to £0.95, businesses will still make a profit of £0.05 per unit, or £1,000. If 1 million units are produced and sold at a price of £0.91, so that the profit margin falls to 1.11%, or £0.01 per unit, the profit rises to £10,000. The increase in the mass of profit derives from the large increase in the capital employed, and large volume of units sold. But, if output rises further, or there is now a fall in demand, this basis of the much larger volume of profit turns into its opposite. It becomes the basis of losses.
As Marx sets out above, just because the price of knives falls to a sixth of its previous level, as output expands significantly, that is no reason why I will buy six knives rather than the one I need to meet my requirements. If output now doubles to 2 million units, and the market price thereby falls to £0.80, because demand does not rise proportionate to it, at the price of production, a loss of £0.10 per unit is incurred, equal to a total loss of £200,000, which is a quantity of capital value, in the form of materials, fixed capital, and labour-power, which now cannot be reproduced. The same is true were output to remain at 1 million units, but a small change in demand results in the market price falling say to £0.88, so that a loss of £0.02 per unit is incurred, equivalent to a loss of £20,000.
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