[3. Ramsay on the Division of “Gross Profit” into “Net Profit” (Interest) and “Profit of Enterprise”. Apologetic Elements in His Views on the “Labour of superintendence”, “Insurance Covering the Risk Involved” and “Excess Profit”]
“Ramsay uses the term gross profit for what I call simply profit. He divides this gross profit into net profit (interest) and profit of enterprise (industrial profit)” (p 353)
Smith's explanation for the long term fall in the rate of profit was that capital accumulates faster than the labour supply. He argues that, because, initially, capital is scarce and labour abundant, the price of the former is high, and the latter low. As capital accumulates, faster, therefore, competition results in the price of the former falling and the latter rising, so that profits fall. Marx paraphrases Ramsay's refutation of this argument.
““Competition of the master-capitalists” can indeed even out profits which rise considerably above “the ordinary level” (this levelling is by no means a sufficient explanation for the formation of a general rate of profit) but it is wrong to say that this ordinary level itself is lowered.
“… could we suppose it possible that the Price of every commodity, both raw and fabricated, should fall in consequence of the competition among the producers, yet this could not in any way affect profit. Each master-capitalist would sell his produce for less money, but on the other hand, every article of his expenses, whether belonging to fixed capital or to circulating, would cost him a proportionally smaller sum” (op. cit., pp. 180-81).” (p 353)
Ramsay also refutes the argument of Malthus that profits are paid by consumers, in terms similar to those set out by Marx.
““The idea of profits being paid by the consumers, is, assuredly, very absurd. Who are the consumers? They must be either landlords, capitalists, masters, labourers, or else people who receive a salary…” (loc. cit., p. 183).
“The only competition which can affect the general rate of gross profits, is that between master-capitalists and labourers…” (op. cit., p. 206).” (p 353-4)
Ramsay is wrong here, and repeats the basic Ricardian theory of the falling rate of profit that it is a result of a falling rate of surplus value. Yet, Ramsay had himself noted that the rate of profit is also a function, not only of the rate of surplus value, but also the value of constant capital.
“Ramsay himself, however, does not advance any reasons why the general rate of profit has a tendency to fall. The only thing he says—and which is correct—is that the rate of interest can fall quite independently of the rate of gross profits in a given country,” (p 354)
The explanation given by Ramsay is that also given by Marx and Engels. That is a more mature society has a greater number of people who have accumulated wealth, but who no longer wish to employ it productively themselves. So, they throw this wealth into the money markets, content to live on the interest from it. In doing so, they increase the stock of money-capital available to be loaned, which acts to press down on the rate of interest.
“Thus it comes to pass, that in old and rich countries, the amount of national capital belonging to those who are unwilling to take the trouble of employing it themselves, bears a larger proportion to the whole productive stock of the society, than in newly settled and poorer districts. How […] numerous [is] the class of rentiers […] in England [… ] As the class of rentiers increases, so also does that of lenders of capital, for they are one and the same. Therefore, from this cause interest must have a tendency to fall in old countries…” (loc. cit., pp. 201-02).” (p 354)
Ramsay calls interest “net profit”. He sets out in more or less the same terms as Marx, the determination of the rate of interest.
““The rate of these” [profits] “must depend, partly upon the rate of gross profits […] partly on the proportion in which these are separated into profits of capital and those of enterprise. This proportion […] depends upon the competition between the lenders of capital and […] borrowers […], which competition is influenced, though by no means entirely regulated, by the rate of gross profit expected to be realised, And the […] competition is not exclusively regulated by this cause […] because on the one hand many borrow without any view to productive employment; and […] because the proportion of the whole national capital to be lent, varies with the riches of the country independently of any change in gross profits” (loc. cit., pp. 206-07). “The profits of enterprise depend upon the net profits of capital not the latter upon the former” (loc. cit., p. 214).” (p 354-5)
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