“A distinction must he made here. When Adam Smith explains the fall in the rate of profit from an over-abundance of capital, an accumulation of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory over-abundance of capital, over-production and crises are something different. Permanent crises do not exist.” (Note *, p 497)
Various catastrophists, today, are also waiting for this same final crisis of capitalism that Marx never predicted. Ricardo, himself, set out why Smith's argument, both in relation to the cost of production theory, and the rate of profit, were wrong. Ricardo argued that the value of commodities continued to be determined by the labour required for their production, but he was, then, unable to resolve the contradiction of why the workers' wages were not equal to the new value they created. It was left to Marx to explain that, by setting out the difference between the value of labour-power (wages), as against the value created by labour, the difference being surplus-value.
But, Ricardo, also, set out that Smith's argument about capital expanding faster than labour supply was, also, wrong, in the long-term, because capital would always bring forth additional workers. As wages rose, workers would have more children. Marx in Theories of Surplus Value, Chapter 21, analysing the work of Hodgskin, shows that is, also, insufficient to prevent the rate of profit falling. Marx says,
“We have seen that over 20 years, capital increased sevenfold, whereas, even according to the “most extreme” assumption of Malthus, the population can only double itself every twenty-five years. But let us assume that it doubles itself in twenty years, and therefore the working population as well. Taking one year with another, the interest would have to be 30 per cent—three times greater than it is. If one assumes, however, that the rate of exploitation remained unchanged, in 20 years the doubled population would only be able to produce twice as much labour as it did previously (and [the new generation] would be unfit for work during a considerable part of these 20 years, scarcely during half this period would it be able to work, in spite of the employment of children); it would therefore produce only twice as much surplus labour, but not three times as much.”
As noted, here, and in the earlier quote from Capital III, Chapter 15, the solution cannot come from just a rise in population, but has to come from a rise in the rate of surplus value, alongside it. How is that rise in the rate of surplus-value accomplished? By technological innovation, to raise social productivity. Not only does it resolve the crisis of overproduction of capital relative to labour, but it even creates a relative surplus population. Ricardo, writing later than Smith saw this role of labour-saving machines, in creating that relative surplus population. He noted that, when there was an excess of workers, capital had no incentive to invest in innovation and machines. Marx notes that Ricardo had remarked that machinery can only be introduced when wages rise above a certain level, and that, for example, at one point, women were used to pull canal barges, because they were cheaper than using horses.
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