The value of a commodity is determined by the value of the consumed constant capital (including wear and tear of fixed capital), and the labour-time required to process it. That may be, say, 10 hours (c) plus 20 hours of current labour, giving a value of 30 hours. Assuming no change in the value of labour-power, and no change in productivity, in this sphere, a rate of surplus value of 100%, gives 10 hours v and 10 hours s. However, as Marx sets out in Capital III, Chapter 6, and in Theories of Surplus Value, if between the time of sale of the commodity, and the purchase of the replacement means of production, the value of c rises to 12 hours, then, 12 hours of the value of the commodity, must now resolve into this replacement cost. The amount of surplus value produced, remains as 10 hours, but, now, 2 hours of it is tied up, simply to be able to reproduce the constant capital, so that profit appears as only 8 hours. The opposite occurs, if the value of constant capital falls. And, as Marx demonstrates, the same thing applies if the value of labour-power falls.
Smith's natural price for the factors of production is the price the owner of that factor requires to sell it, determined by the interaction of supply and demand. The demand for capital, was greater than its supply, raising its price, whereas the supply of labour was greater than demand reducing its price. But, Smith saw the supply of capital rising, relative to demand, whereas the supply of labour would fall relative to demand, as the supply of capital rose. This was the basis of Smith's explanation for the long-run, progressive fall in the rate of profit, leading to crises. In Theories of Surplus Value, Chapter 17, and in Capital III, Chapter 15, Marx explains why this can explain periodic crises, but does not explain the long-run, tendency of the rate of profit to fall. These are two related, but distinct phenomena.
Ricardo rejected Smith's argument for abandoning the LTV, but did so without resolving the underlying contradiction between the value of wages, as a price for labour, as against the value created by that labour, which Smith had grappled with. Ricardo's account of Smith's error, in abandoning the LTV, was correct, but, without resolving the distinction between labour and labour-power, both were stuck in a dead-end. In fact, as Marx describes, both Smith and Ricardo had the solution for that staring them in the face, because both recognised that the value of labour-power, like any other use-value/product/commodity is determined by the labour required to reproduce it. Had they simply recognised this distinction between labour-power and labour the contradiction they faced would have disappeared.
Ricardo also rejected Smith's explanation for the long-run tendency for the rate of profit to fall. He argued, correctly, that capital would continue to be able to recruit the additional workers required. However, basing himself on the theories of Malthus, and the concept of diminishing returns, in agriculture, he saw this increased workforce, and demand for agricultural products, resulting in higher prices, passed on into higher wages, and so causing a squeeze on profits.
Again, in Theories of Surplus Value, Chapter 17, and in Capital III, Chapter 15, Marx explains that, whilst this too can result in periodic crises of overproduction of capital, squeezed profits and short-run fall in the rate of profit, as with Smith's account, it cannot explain the long-term tendency for the rate of profit to fall. In fact, both Smith's and Ricardo's accounts involve a squeeze on profits, causing the fall in the rate of profit, certainly seen as a precursor to crises of overproduction of capital, or symptom of it, whereas, on the contrary, the conditions leading to the long-term tendency for the rate of profit to fall (higher social productivity, rising proportion of value accounted for by raw materials), results in a much greater mass of profit, being produced as the rate and mass of surplus value rises from that higher productivity.
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