And, the author of the pamphlet also addresses the point made earlier in relation to the contradiction in the Ricardian theory,
““Why set out by telling us that no accumulation of capital will lower profits, because nothing will lower profits but increased wages, when it appears that if population does not increase with capital, wages would increase from the disproportion between capital and labour; and if population does increase, wages would increase from the difficulty of producing food” (loc. cit., p. 23, note).” (p 240)
In other words, Ricardo objects to the Smithian notion that capital accumulation causes profits to fall, because, as capital accumulates faster than the supply of labour, competition causes wages to rise. Instead, Ricardo argues that the capital accumulation results in the growth of the workforce, but this causes the demand for food to rise, which causes higher food prices, so that, although wages rise, workers living standards fall.
The author of the pamphlet recognises the problem referred to earlier that, as capital accumulates, and productivity rises, the size of the surplus product rises, and, in order to realise it as profit, this surplus product must be sold back to the workers. They put forward two alternatives to that, both of which have their reflection in more modern economic theories. Instead of selling the surplus product back to the workers, they suggest that it could a) be used to accumulate additional fixed capital, or b) it could be exported, in exchange for imported luxury goods, so that the capitalists, thereby, consume this portion of the surplus product themselves, in alternative form, i.e. they do not consume the surplus product in the form of necessaries, for which their demand is sated, but, instead, in the form of a smaller quantity of luxury products.
Marx sets out the fallacy of these two solutions, as already described elsewhere in Capital. Firstly, as Marx says, in relation to the accumulation of fixed capital,
“It should be noted that the first method—which is only effective for a time and then neutralises its own effect (at least as regards the fixed capital consisting of machinery, etc., which itself is used in the production of necessaries)—implies the transformation of surplus product into capital...” (p 242)
In other words, although the surplus product can be used for the accumulation of fixed capital, either directly, or via the exchange of the surplus product for fixed capital, the only purpose, ultimately, for accumulating any additional capital is that the output resulting from it can be sold. For a time, a cotton grower might accumulate additional machines, and produce more cotton, if by the same token, they are able to sell more cotton to a spinner, who likewise overproduces yarn, so long as the weaver buys it, and so on. But, ultimately, if no one buys all of the additional cloth, clothing and so on, for final consumption, there is no point in producing additional means of production. Moreover, where the fixed capital takes the form of machines that raise productivity, this ultimately exacerbates the overproduction, because it entails higher levels of productivity, so that the surplus product increases even more.
“... whereas the second method implies consumption of an ever-increasing portion of the surplus product by the capitalists—increasing consumption on the part of the capitalists and not the reconversion of surplus product into capital.” (p 242)
This is also the point that Marx deals with in Capital III, Chapter 15. It misunderstands the nature of capitalist production, as based upon capital accumulation, as opposed to merely the personal enrichment and consumption of capitalists. As Marx points out in Capital II, at the heart of expanded reproduction resides simple reproduction, the requirement to devote a portion of the surplus product to the capitalist class themselves. As capitalism develops, and the size of the surplus product expands, the individual capitalists are torn between the personal desire to engage in the same kind of conspicuous consumption as previous ruling classes, and the fundamental drive of capital to accumulate.
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