However, this led Ricardo into his own false explanation of the falling rate of profit. He argued that as capital could continue to expand, as a result of this rising productivity, created by machines, so the demand for agricultural/primary products would expand, i.e. demand for food and raw materials. Based on Malthus' own erroneous, catastrophist theory of population, Ricardo concluded that this agricultural/primary production could not keep pace with the demand, and would suffer from diminishing returns. The cost of materials would rise, and wages would rise, squeezing profits, and leading to Ricardo's own theory of collapse. Again, Marx explained in Theories of Surplus Value, Chapter 21, and in Capital III, Chapter 15, why this was also wrong.
“ According to Herr Dühring, the value which a thing has in practice therefore consists of two parts, first, the labour contained in it, and, secondly, the tax surcharge imposed “sword in hand”. In other words, the value in force today is a monopoly price.” (p 242)
As I noted some time ago, this same fallacy can be seen, today, as an explanation of inflation. For example, Michael Roberts tried to explain the inflation arising, after 2022, first by claiming that it was the result of supply constraints, following lockdowns, causing an imbalance of aggregate demand and supply. In which case, why was that not followed by a corresponding “deflation” of falling prices back to equilibrium levels, when those constraints ended and aggregate supply was brought into line with aggregate demand? Prices are still more than 20% higher, today, than in 2022, and the latest data show that they are rising at a faster pace once more.
Then, he tried to argue that the inflation was the result of higher costs of production due to the increase in energy costs resulting from the NATO/EU/G7 boycotts on Russian oil and gas. In which case, why were global prices, in aggregate, rising way before that, why haven't they fallen as global energy prices have again fallen, and how could a rise in energy prices, which accounts for only a small part of total production costs outweigh a general fall in unit costs that results from rising social productivity?
Finally, he argued that rising prices were the result of monopolies using their position to obtain monopoly profits, and so push up their prices. But, as Marx explains, whilst monopoly power can result in those monopolies obtaining surplus profit, i.e. a rate of profit above the average, the corollary of that is not higher aggregate prices, but lower than average profits for other capitals. In other words, there is a given amount of surplus value in aggregate to be shared out amongst capitals, and if some capitals – for whatever reason – are able to get a disproportionate share of it, by charging prices above their price of production, that does not create additional surplus value (which would itself mean abandoning The Labour Theory of Value), but simply reduces the amount of surplus value available to other capitals to share out, so that they must sell at prices below their prices of production.
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