Marx points to Ricardo's reproach of Smith, for introducing another measure of value, which Marx deals with, also, in Theories of Surplus Value, Part 1. As Ricardo says, Smith also introduced the idea of measuring value in terms of corn rather than labour-time, and this flows from Smith's confusion of labour with labour-power, which leads him to attempt to equate the value of commodities with wages. That led him into a necessary dead-end, so that he restricted his application of his Labour Theory of Value to the period prior to the accumulation of land and capital, and so the payment of rents and profit.
Ricardo correctly identifies that the existence of rent and profit, and so the fact that the value of commodities is not equal to wages, does not at all invalidate the theory. Their existence only affects the way the new value created is resolved into revenues.
“In support of this thesis, he gives his famous theory of ground rent, analyses capital, and ultimately finds nothing in it but accumulated labour. Then he develops a whole theory of wages and profits, and proves that wages and profits rise and fall in inverse ratio to each other, without affecting the relative value of the product. He does not neglect the influence that the accumulation of capital and its different aspects (fixed capital and circulating capital), as also the rate of wages, can have on the proportional value of products. In fact, they are the chief problems with which Ricardo is concerned.” (p 45-6)
Marx quotes Ricardo's explanation of exchange-value, and rejection of the idea it is determined by supply and demand. Lauderdale had argued that the value of a commodity can change for eight different reasons, four relating to the commodity itself, and four relating to other commodities or money, as the general commodity. He argues that the value of a commodity can increase if its supply falls, or the demand rises, and vice versa. As this applies also to the commodities or money, for which it is exchanged, all of these causes affect its exchange-value.
As described earlier, whilst a change in demand and supply can temporarily affect the market price of a commodity, it cannot change its value. If the market price rises, because demand rises, or supply falls, then, without a change in value, producers will obtain bigger rates of profit, and be induced to increase supply, so that the price falls back again. Only if this increased supply results in a change in the cost of production would that affect the value of the commodity. Similarly, its only if the reduction in supply is a consequence of an increase in the cost of production that the change in the market price would be permanent reflecting the actual change in value.
Marx quotes Ricardo's refutation of Lauderdale's argument.
“Commodities which are monopolized, either by an individual, or by a company, vary according to the law which Lord Lauderdale has laid down: they fall in proportion as the sellers augment their quantity, and rise in proportion to the eagerness of the buyers to purchase them; their price has no necessary connexion with their natural value; but the prices of commodities, which are subject to competition, and whose quantity may be increased in any moderate degree, will ultimately depend, not on the state of demand and supply, but on the increased or diminished cost of their production.” (p 47)
Marx contrasts Ricardo's analysis of value, based on the real world, with Proudhon's synthetic value, based on his antinomy of use-value and exchange-value. For Ricardo, it was a description of existing society, but, for Proudhon, it was the basis of his prescriptions for creating a new society based on “equality”.
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