1) Ricardo's Description of Profit, Rate of Profit, Average Prices, etc
In SECTION III of the first chapter Ricardo explains that the statement: the value of the commodity is determined by labour time, includes not only the labour directly employed on the commodity in the final labour process but also the labour time contained in the raw material and the means of labour that are required for the production of the commodity. Thus it applies not only to the labour time contained in the newly added labour which has been bought, paid for by wages, but also to the labour time contained in that part of the commodity which is called constant capital. Even the very heading of this SECTION III of CHAPTER I shows the deficiency of his exposition. It runs like that:
* "Not only the labour applied immediately to commodities affect their value, but the labour also which is bestowed on the implements, tools, and buildings, with which such labour is assisted" * (p. 16).
Raw material has been omitted here, yet the labour bestowed on raw material is surely just as different from "LABOUR APPLIED IMMEDIATELY TO COMMODITIES" as the labour bestowed on means of labour, "IMPLEMENTS, TOOLS, AND BUILDINGS". But Ricardo is already thinking of the next SECTION. In SECTION III he assumes that equal component parts of value comprised in the means of labour employed enter into the production of the various commodities. In the next SECTION he examines the modifications arising from the varying proportions in which fixed capital enters [into the commodities]. Hence Ricardo does not arrive at the concept of constant capital, one part of which consists of fixed capital and the other of circulating capital — raw material and matières instrumentales—just as circulating capital not only includes variable capital but also raw material, etc., and all means of subsistence which enter into consumption in general (not only into the consumption of the workers).
The proportion in which constant capital enters into a commodity does not affect the values of the commodities, the relative quantities of labour contained in the commodities, but it does directly affect the different quantities of surplus value or surplus labour contained in commodities embodying equal amounts of labour time. Hence this varying proportion gives rise to average prices that differ from values.
With regard to SECTIONS IV and V of CHAPTER I we have to note, first of all, that Ricardo does not examine a highly important matter which affects the direct production of surplus value, namely, that in different spheres of production the same volume of capital contains different proportions of constant and variable capital. Instead, Ricardo concerns himself exclusively with the different forms of capital and the varying proportions in which the same capital assumes these various forms, in other words, [with] different forms arising out of the process of the circulation of capital, that is, fixed and circulating capital, capital which is fixed to a greater or lesser degree (i.e., fixed capital of varying durability) and unequal velocity of circulation or rates of turnover of capital. And the manner in which Ricardo carries out this investigation is the following: He presupposes a general rate of profit or an average profit of equal magnitude for different capital investments of equal magnitude, or for different spheres of production in which capitals of equal size are employed — or, which is the same thing, profit in proportion to the size of the capitals employed in the various spheres of production. Instead of postulating this general rate of profit, Ricardo should rather have examined in how far its existence is in fact consistent with the determination of value by labour time, and he would have found that instead of being consistent with it, prima facie, it contradicts it, and that its existence would therefore have to be explained through a number of intermediary stages, a procedure which is very different from merely including it under the law of value. He would then have gained an altogether different insight into the nature of profit and would not have identified it directly with surplus value.
Having made this presupposition Ricardo then asks himself how will the rise or fall of wages affect the "RELATIVE VALUES", when fixed and circulating capitals are employed in different proportions? Or rather, he imagines that this is how he handles the question. In fact he deals with it quite differently, namely, as follows: He asks himself what effect the rise or fall of wages will have on the respective profits on capitals with different periods of turnover and containing different proportions of the various forms of capital. And here of course he finds that depending on the amount of fixed capital, etc., a rise or fall of wages must have a very different effect on capitals, according to whether they contain a greater or lesser proportion of variable capital, i.e., capital which is laid out directly in wages. Thus in order to equalise again the profits in the different [XI-529] spheres of production, alias, to re-establish the general rate of profit, the prices of the commodities — as distinct from their values—must be regulated in a different way. Therefore, he further concludes, these differences affect the "RELATIVE VALUES" when wages rise or fall. He should have said on the contrary: Although these differences have nothing to do with the VALUES as such, they do, through their varying effects on profits in the different spheres, give rise to average prices or, as we shall call them, cost prices[139] which are different from the VALUES themselves and are not directly determined by the values of the commodities but by the capital advanced for their production + the average profit. Hence he should have said: These average cost prices are different from the values of the commodities. Instead, he concludes that they are identical and with this erroneous premiss he goes on to the consideration of rent.
Ricardo is also mistaken in thinking that it is through the three cases he examines that he first comes upon the "VARIATIONS" in the "RELATIVE VALUES" which occur independently of the labour time contained in the commodities, that is IN FACT the difference between the cost prices and the values of the commodities. He has already assumed this difference in postulating a general rate of profit, thus presupposing that despite the varying ratios of the organic component parts of capitals, these yield a profit proportional to their size, whereas the surplus value they yield is determined absolutely by the quantity of unpaid labour time they absorb, and with a given wage this is entirely dependent on the volume of that part of capital which is laid out in wages, and not on the absolute size of the capital.
What he does in fact examine is this: Supposing that cost prices differ from the values of commodities — and the assumption of a general rate of profit presupposes this difference — how in turn are these cost prices (which are now, for a change, called "RELATIVE VALUES") themselves reciprocally modified, proportionately modified by the rise or fall of wages, taking also into account the varying proportions of the organic component parts of capital? If Ricardo had gone into this more deeply, he would have found that — owing to the diversity in the organic component parts of capital which first manifests itself in the immediate production process as the difference between variable and constant capital and is later enlarged by differences arising from the circulation process — the mere existence of a general rate of profit necessitates cost prices that differ from values. He would have found that, even if wages are assumed to remain constant, the difference exists and therefore is quite independent of the rise or fall in wages, thus he would have arrived at a new definition. He would also have seen how incomparably more important and decisive the understanding of this difference is for the whole theory than his observations on the variation in cost prices of commodities brought about by the rise or fall of wages. The result with which he contents himself — and that he is content accords with the whole manner in which he carries out his investigation — is as follows: Once the VARIATIONS in the cost prices (or, as he says, "RELATIVE VALUES") of the commodities — in so far as they are due to CHANGES, rises or falls, in wages when capital of different organic composition is invested in different spheres — are admitted and taken into consideration the law remains valid; this does not contradict the law that "RELATIVE VALUES" of the commodities are determined by labour time; for all other VARIATIONS — VARIATIONS that are not merely transitory — in the cost prices of the commodities can only be explained by a change in the necessary labour time required for their respective production.
On the other hand, it must be regarded as a great merit that Ricardo associates the differences in fixed and circulating capital with the varying periods of turnover of capital and that he deduces all these differences from the varying periods of circulation, i.e., IN FACT from the circulation or reproduction period of capital
First of all, let us consider these differences themselves, as he presents them in SECTION IV (CHAPTER I) and then examine his views on how they act or bring about VARIATIONS in the "RELATIVE
VALUES".
* "In every state of society, the tools, implements, buildings, and machinery employed in different trades may be of various degrees of durability, and may require different portions of labour to produce them"* (I.e., p. 25).
So far as the "DIFFERENT PORTIONS OF LABOUR TO PRODUCE THEM" are concerned, this can imply — and here it seems to be Ricardo's sole point — that the less durable ones require more labour (recurring, directly applied labour), partly for their REPAIR and partly for their reproduction; or it can also mean that machinery, etc., of the same DEGREE OF DURABILITY may be more or less expensive, the product of more or less labour. This latter aspect, important for the proportion of variable to constant capital, is not relevant to Ricardo's consideration and therefore he does not take it up anywhere as a separate point.
[XI-530] 2. * "The proportions, too, in which the capital that is to support labour" * (the variable capital), * "and the capital that is invested in tools, machinery and buildings" * (fixed capital), * "may be variously combined" * (p. 25). Thus we have a * "difference in the degree of durability of fixed capital, and this variety in the proportions in which the two sorts of capital may be combined" * (p. 25).
It is at once evident why he is not interested in that part of constant capital which exists as raw material. The latter is itself part of circulating capital. A rise in wages does not cause increased expenditure on that part of capital which consists of machinery and does not need to be replaced but remains available; the rise, however, causes an increased outlay for that part which consists of raw material, since this has to be constantly replenished, hence also constantly reproduced.
* "The food and clothing consumed by the labourer, the buildings in which he works, the implements with which his labour is assisted, are all of a perishable nature. There is however a vast difference in the time for which these different capitals will endure... According as capital is rapidly perishable, and requires to be frequently reproduced, or is of slow consumption, it is classed under the heads of circulating, or of fixed capital" * (p. 26).
Thus the difference between FIXED and CIRCULATING CAPITAL is here reduced to the difference in the time of reproduction (which coincides with the period of circulation).
3. * "It is also to be observed that the circulating capital may circulate, or be returned to its employer, in very unequal times. The wheat bought by a farmer to sow"* (Here Mr. Rodbertus can see that in England seeds are "bought".) * "is comparatively a fixed capital to the wheat purchased by a baker to make into loaves. One leaves it in the ground, and can obtain no return for a year; the other can get it ground into flour, sell it as bread to his customers, and have his capital free to renew the same, or commence any other employment in a week" * (pp. 26-27).
On what does this difference in the circulation periods of different circulating capitals depend? [On the fact] that in one case, the same capital remains for a longer time in the actual sphere of production, though the labour process does not continue. This applies, for instance, to wine which lies in the cellar to attain maturity, or to certain chemical processes in tanning, dyeing, etc.
* "Two trades then may employ the same amount of capital ; but it may be very differently divided with respect to the portion which is fixed, and that which is circulating" (p. 27).
4. "Again two manufacturers may employ the same amount of fixed, and the same amount of circulating capital; but the durability of their fixed capitals"* (therefore also their period of reproduction) * "may be very unequal. One may have steam-engines of the value of £10,000, the other, ships of the same value" (pp. 27-28).
"Different degrees of durability of ... capitals, or, which is the same thing, ... of the time which must elapse before one set of commodities can be brought to market" (p. 30).
5. "It is hardly necessary to say, that commodities which have the same quantity of labour bestowed upon their production, will differ in exchangeable value, if they cannot be brought to market in the same time"* (p. 34).
[Thus we have:] 1. A difference in the proportion of fixed to circulating capital. 2. A difference in the period of turnover of circulating capital as a result of a break in the labour process while the production process continues. 3. A difference in the DURABILITY of FIXED CAPITAL. 4. A difference in the relative period during which a commodity is altogether subjected to the labour process (without any break in the period of labour and with no distinction between the period of production and the period of labour[104]) before it can enter the actual circulation process. The last CASE is described by Ricardo as follows:
* "Suppose I employ twenty men at an expense of £1,000 for a year in the production of a commodity, and at the end of the year I employ twenty men again for another year, at a further expense of £1,000 in finishing or perfecting the same commodity, and that I bring it to market at the end of two years, if profits be 10 per cent, my commodity must sell for £2,310; for I have employed £1,000 capital for one year, and £2,100 capital for one year more. Another man employs precisely the same quantity of labour, but he employs it all in the first year; he employs forty men at an expense of £2,000, and at the end of the first year he sells it with 10 per cent profit, or for £2,200. Here then are two commodities having precisely the same quantity of labour bestowed on them, one of which sells for £2,310 — the other for £2,200"* (p. 34).
[ X I - 5 3 1 ] B u t h o w is a DIFFERENCE in the RELATIVE VALUES OF THESE COMMODITIES b r o u g h t about by this DIFFERENCE — w h e t h e r in the DEGREE OF DURABILITY OF FIXED CAPITAL, OR THE TIME OF REVOLUTION OF CIRCULATING CAPITAL, OR
A VARIETY IN THE PROPORTIONS IN WHICH THE TWO SORTS OF CAPITAL MAY BE COMBINED
o r , finally, THE DIFFERENT TIME, IN WHICH COMMODITIES, UPON WHICH THE SAME
QUANTITY OF LABOUR is BESTOWED [ c o m e o n t o the market ] . R i c a r d o says
d'abord that
*"this difference ...* and * variety in the proportions", etc., "introduce another cause, besides the greater or less quantity of labour necessary to produce commodities, for the variations in their relative value—this cause is the rise or fall in the value of labour" * (pp. 25-26).
And how is this proved?
* "A rise in the wages of labour cannot fail to affect unequally, commodities produced under such different circumstances" * (p. 27).
Namely when capitals of equal size are employed IN DIFFERENT TRADES and one capital consists chiefly of fixed capital and contains only a small amount of capital "EMPLOYED IN THE SUPPORT OF LABOUR", whereas in the other capital the proportions are exactly the reverse. To begin with, it is nonsense to say that the "COMMODITIES" are affected. He means their VALUES. But how far are the values affected by these circumstances? NOT AT ALL. In both cases it is the profit which is affected. The man who, for instance, lays out only /[5] of his capital in variable capital — provided wages and the rate of surplus labour are constant — can only produce [a surplus value of] 4 on 100, if the rate of surplus value=20%. On the other hand, another man, who lays out 4/5 in variable capital, would produce a surplus value of 16. For in the first example the capital laid out in wages=[10]%=20 and 7B of 20 or 20%=4. And in the second example, the capital laid out in wages=[4]/[5]x 100=80. And '/s of 80 or [20]%= 16. In the first example the profit=4, in
the second =16. The average profit for both would be or
[2]°/2=10%. This is actually the CASE to which Ricardo refers. Thus if they both sold at cost prices — and this Ricardo assumes—then they would each sell their commodity at 110. Supposing wages rose, for example, by 20%. Where previously a worker cost £1, he now costs £1 4s. or 24s. As before, the first man still has to lay out £80 in constant capital (since Ricardo leaves raw materials out of account here, we can do the same) and for the 20 workers whom he employs, he has to lay out 80s., that is £4 in addition to the £20. His capital therefore now amounts to £104 and, since the workers are producing a smaller surplus value instead of a larger one, he is only left with £6 profit out of his £110. £6 on £104 is 5 [10]/i3%- The other man, however, who employs 80 workers, would have to pay out an additional 320s., i.e., £16. Thus he would have to lay out £116. If he were to sell at £110, he would consequently make a loss of £6 instead of a gain. This, however, is only the CASE because the average profit has already modified the relation between the labour he has laid out and the surplus value which he himself produces.
Instead therefore of investigating the important problem: what VARIATIONS have to take place in order that the one who lays out 80 of his capital of £100 in wages does not make 4 times as much profit as the other who only lays out 20 of his £100 in wages, Ricardo examines the subsidiary question of how it is that after this great difference has been levelled out, i.e., with a given rate of
p r o f i t , ANY ALTERATION OF THAT RATE OF PROFIT, d u e tO rising WAGES FOR INSTANCE, would affect the man who employs many workers with his £100 far more than the man who employs few workers with his £100, and hence — provided the rate of profit is the same — the commodity prices — or the cost prices—of the one must rise and of the other must fall, if the rate of profit is to remain the same. Ricardo's first illustration has absolutely nothing to do with "ANY RISE IN THE VALUE OF LABOUR" although he originally stated that the whole of the VARIATION IN "THE RELATIVE VALUES" were to arise from this CAUSE. This is the example:
other machine to employ his also, with the assistance likewise of one hundred men, in making cotton goods, while the farmer continues to employ one hundred men as before in the cultivation of corn. During the second year they will all have employed the same quantity of labour," *
//in other words they will have laid out the same capital in wages, but they will by no means have EMPLOYED THE SAME QUANTITY OF
LABOUR//
* "but the goods and machine together [XI-532] of the clothier, and also of the cotton-manufacturer, will be the result of the labour of two hundred men, employed for a year; or, rather, of the labour of one hundred men for two years; whereas the corn will be produced by the labour of one hundred men for one year, consequently if the corn be of the value of £500 the machine and cloth of the clothier together, ought to be of the value of £1,000 and the machine and cotton goods of the cotton-manufacturer, ought to be also of twice the value of the corn. But they will be of more than twice the value of the corn, for the profit on the clothier's and cotton-manufacturer's capital for the first year has been added to their capitals, while that of the farmer has been expended and enjoyed. On account then of the different degrees of durability of their capitals, or, which is the same thing, on account of the time which must elapse before one set of commodities can be brought to market, they will be valuable, not exactly in proportion to the quantity of labour bestowed on them,—they will not be as two to one, but something more, to compensate for the greater length of time which must elapse before the most valuable can be brought to market. Suppose that for the labour of each workman £50 per annum were paid, or that £5,000 capital were employed and profits were 10 per cent, the value of each of the machines as well as of the corn, at the end of the first year, would be £5,500. The second year the manufacturers and farmers will again employ £5,000 each in support of labour, and will therefore again sell their goods for £5,500, but the men using the machines, to be on a par with the farmer, must not only obtain £5,500 for the equal capitals of £5,000 employed on labour, but they must obtain a further sum of £550; for the profit on £5,500 which they have invested in machinery, and consequently" * (because actually, an equal annual rate of profit of 10 per cent is assumed as a necessity and a law) * "their goods must sell for £6,050."*
//That is, average prices or cost prices different from the values of the commodities come into being as a result of the average profit — the general rate of profit presupposed by Ricardo.// produce of equal quantities of labour, and equal quantities of fixed capital; but corn is not of the same value"* //should read COST PRICE// *"as these commodities, because it is produced, as far as regards fixed capital, under different circumstances" * (pp. 29-31).
This exceedingly CLUMSY ILLUSTRATION of an exceedingly simple matter is so complicated in order to avoid saying simply: Since capitals of equal size, whatever the ratio of their organic components or their period of circulation, yield profits of equal size—which would be impossible if the commodities were sold at their values, etc.—there exist cost prices which differ from the values of commodities. And this is indeed implied in the concept of a general rate of profit.
Let us examine this complicated example and reduce it to its GENUINE DIMENSIONS, which are hardly "complicated". And for this purpose let us begin from the end and note at the outset, in order to reach SIMULTANEOUSLY A CLEARER UNDERSTANDING THAT Ricardo "PRESUPPOSES" that the FARMER and the COTTON fellow spend nothing on raw material, that, furthermore, the FARMER does not lay out any capital for instruments of labour and, finally, that no part of the fixed capital laid out by the COTTON fellow enters into his product as wear and tear. Though all these assumptions are absurd, they do not in themselves affect the illustration.
Having made these assumptions, and starting Ricardo's example from the end, it runs as follows: The FARMER lays out £5,000 in wages; the COTTON fellow lays out 5,000 in wages and 5,500 in machinery. The first therefore spends £5,000 and the 2nd 10,500; the 2nd [XI-533] thus spends as much again as the first. If therefore both are to make a profit of 10%, the FARMER must sell his commodity at 5,500 and the COTTON fellow his at £6,050. (Since it has been assumed that no PART of the 5,500 expended in machinery forms part of the value of the product as wear and tear.) One absolutely cannot conceive what Ricardo intended to elucidate in this example, apart from the fact that the cost prices of commodities — it so far as they are determined by the value of the outlay embodied in the commodities+the same annual per cent of profit— differ from the values of the commodities and that this difference arises because the commodities are sold at prices that will yield the same rate of profit on the capital advanced; in short, that this difference between COST PRICES and VALVES is identical with a general rate of profit. Even the difference between fixed capital and circulating capital which he introduces here is, in this example, sheer humbug. Since if, for instance, the additional £5,500, which the COTTON SPINNER employs, consisted of raw materials, while the farmer did not require any seeds, etc., the result would be exactly the same.
Neither does the example show, as Ricardo asserts, THAT
* "the goods they" (the cotton-manufacturer and the farmer) "produce differ in value on account of the different quantities of fixed capital, or accumulated labour, employed by each respectively"* (p. 31).
For according to his assumption, the COTTON-MANUFACTURER employs a FIXED CAPITAL of £5,500 and the FARMER nil; the one employs fixed capital, the other does not. By no means do they, therefore, employ it "IN DIFFERENT QUANTITIES", any more than one could say that, if one person eats meat and the other eats no meat, they consume meat "IN DIFFERENT QUANTITIES". O n the other hand it is correct (though very wrong to introduce the term surreptitiously with an "OR") that they employ "ACCUMULATED LABOUR", i.e., objectified labour, in "DIFFERENT QUANTITIES", namely, one to the amount of £10,500 and the other only 5,000. However, the fact that they employ "DIFFERENT QUANTITIES OF ACCUMULATED LABOUR" only means that they lay out "DIFFERENT QUANTITIES OF CAPITAL" in their RESPECTIVE TRADES, that the amount of profit is proportionate to this difference in the size of the capitals they employ, because the same rate of profit is assumed, a n d that, finally, this difference in the amount of profit, proportionate to the size of the capitals, is expressed, represented, in the respective COST PRICES of the commodities.
But whence the CLUMSINESS in Ricardo's illustration?
* "Here then are two capitalists employing precisely the same quantity of labour annually in the production of their commodities, and yet the goods they produce differ in value"* (pp. 30-31).
This means that they do not employ the SAME QUANTITY OF LABOUR IMMEDIATE AND ACCUMULATED LABOUR TAKEN TOGETHER b u t t h e y d o employ the same quantity of variable capital, capital laid out in wages, the same quantity of living labour. And since money exchanges for ACCUMULATED LABOUR, i.e., commodities existing in the form of machines, etc., only according to the law of commodities, since surplus value comes into being only as the result of the appropriation without payment of a part of the living labour employed — it is clear (since, according to the assumption, no part of the machinery enters into the commodity as wear and tear) that both can only make the same profit if profit and surplus value are identical. T h e COTTON-MANUFACTURER would have to sell his commodity for 5,500, like the FARMER, although he lays out more than twice as much capital. A n d even if the whole of his machinery passed into the commodity, he could only sell his commodity for £11,000; he would make a profit of less than 5%, while the FARMER makes 10.
27-176 But with these unequal profits, the FARMER and the MANUFACTURER would have sold the commodities at their values, provided that the 10% made by the FARMER represented actual unpaid labour embodied in his commodity. If, therefore, they sell their commodities at an equal profit, then this must be due to one of two things: either the MANUFACTURER arbitrarily adds 5% on to his commodities and then the commodities of the MANUFACTURER and the FARMER, taken together, are sold above their value; or the actual surplus value which the FARMER makes is about 15% and both add the average of 10% on to their commodity. In this case, although the COST PRICE of the respective commodity is either above or below its value, both commodities taken together are sold at their value and the equalisation of the profits is itself determined by the total surplus values they contain. Here, in Ricardo's above proposition, when correctly modified, lies the truth, that capitals of equal size, containing [different] proportions of variable to constant capital, must result in commodities of unequal values and thus yield different profit; the levelling out of these profits must therefore result in cost prices which differ from the values of the commodities.
* "Here then are capitalists employing precisely the same quantity of" (immediate, living) "labour annually on the production of their commodities, and yet the goods they produce differ in value" (i.e., have cost prices different from their values) "on account of the different quantities of ... accumulated labour employed by each respectively"* [p. 31].
But the idea foreshadowed in this passage is never clearly stated by Ricardo. It only explains the meanderings a n d obvious fallaciousness of the illustration, which u p to this point had nothing to d o with the "DIFFERENT QUANTITIES OF FIXED CAPITAL EMPLOYED".
Let us now go further back in the analysis. In the first year, the MANUFACTURER builds a machine with 100 men; the FARMER, meanwhile, produces corn, also with 100 men. In the second year, the MANUFACTURER uses the machine to manufacture COTTON, for which he again employs 100 MEN. T h e FARMER, on the other hand, again employs 100 men for the cultivation of corn. Suppose, says Ricardo, the value of corn is £500 per annum. Let us assume that the unpaid labour contained therein=25%, i.e., on 400 — 100. T h e n at the end of the first year, the machine would also be worth £500, of which £ 4 0 0 would be paid labour a n d £ 1 0 0 the value of the unpaid labour. Let us [XI-534] assume that by the end of the 2nd year, the whole of the machine has been used u p , has passed into the value of the COTTON. In fact Ricardo assumes this, in that, at the end of the 2nd year, he compares not only the VALUE OF THE COTTON GOODS, BUT THE "VALUE OF THE COTTON GOODS AND THE MACHINE" with
"THE VALUE OF THE CORN".
WELL then. At the end of the second year, the VALUE of the COTTON must b e = t o £1,000, namely, 500 the value of the machine, a n d 500 the value of the newly added labour. The VALUE of the CORN, on the other hand, is 500, namely, 400 the value of the wages and 100 unpaid labour. So far, there is nothing in this CASE which contradicts the law of values. T h e COTTON-MANUFACTURER makes a profit of 2 5 % just as the CORN-MANUFACTURER does. But the commodities of the former= 1,000 and those of the latter=500, a because the former commodity embodies the labour of 200 [men] and the latter the labour of only 100 in each year. Furthermore, the 100 profit (surplus value) which the COTTON-MANUFACTURER has made on the machine in the first year — by absorbing Vs of the labour time of the workers who constructed it, without paying for it — is only realised for him in the 2nd year, since it is only then that he realises in the value of the COTTON simultaneously the value of the machine. But now we come to the point. T h e COTTON-MANUFACTURER sells for more than £1,000, i.e., at a higher value than his commodity has, while the FARMER sells his CORN at 500, thus, according to our assumption, at its value. If, therefore, there were only these two people to exchange with one another, the MANUFACTURER obtaining CORN from the FARMER a n d the FARMER COTTON from the MANUFACTURER, then it would amount to the same as if the FARMER sold his commodity below its value, making less than 25%, and the MANUFACTURER sold his COTTON above its value. Let us do without the 2 capitalists (the CLOTH-MAN and the COTTON-MAN) whom Ricardo introduces here quite superfluously, and let us modify his example by only referring to the COTTON-MAN. T h e DOUBLE calculation is of no value at all to the illustration at this point. Thus:
*"But they" (the cottons) "will be of more than twice the value of the corn, for the profit ... on the cotton-manufacturer's capital for the first year has been added to his capital, while that of the farmer has been expended and enjoyed." *
(This latter bourgeois extenuating phrase is here quite meaningless from a theoretical standpoint. Moral considerations have nothing to do with the matter.)
If the MANUFACTURER sold the commodity at its value, then he would sell it at £1,000, twice the price of CORN, because it embodies twice as much labour, £500 of ACCUMULATED LABOUR in the machinery (£100 of which he has not paid for) and 500 labour employed in the production of COTTON, 100 of which again he has not paid for. But he calculates like this: the first year I laid out 400 and by exploiting the workers, I produced a machine with this, which is worth £500. I thus made a profit of 25%. The second year I laid out £900, namely, 500 in the said machine and again 400 in labour. If I am again [to make] 25% I must sell the COTTON at 1,125, i.e., £125 above its value. For this £125 does not represent any labour contained in the COTTON, neither labour accumulated in the first year nor labour added in the second. The aggregate amount of labour contained in the cotton only amounts to £1,000. O n the other hand, suppose the two exchange with one another, or that half the capitalists find themselves in the position of the COTTON-MANUFACTURER and the other half in the position of the FARMER. How are the first half to be paid £125? From what fund? Obviously only from the 2nd half. But then it is clear that this second half does not make a profit of 25%. Thus the first half would cheat the second under the pretext of a general rate of profit, while, IN FACT, the rate of profit would be 25% for the MANUFACTURER and below 25% for the FARMER. It must, therefore, come about in a different way.
In order to make the illustration clearer and more accurate, let us suppose the FARMER uses £900 in the 2nd year. Then, with a profit of 25%, he has made £100 on the 400 laid out in the first year, and 225 in the 2nd, altogether £325. As against this, the MANUFACTURER makes 25% on the £400 in the first year, but in the 2nd only 100 on 900, i.e., only 11 Vg% (since only the 400 laid out in wages yield surplus value, whereas the 500 in machinery yield none). Or let us suppose the FARMER lays out 400 again, then he has made 2 5 % in the first year as well as in the 2nd; which taken together is 2 5 % or £200 on an outlay of £800 in two years. As against this, the MANUFACTURER will have made 25[%] in the first year and 11 Vg[%] in the second; i.e., £200 on an outlay of 1,300 in 2 years which= 15 [5]/ ] 3[%]. If this were levelled out, the MANUFACTURER would receive 20[5]/26[%] and so would the FARMER.[140] In other words, this would be the average profit. This would result [in the second year] in [a price of] less than £500 for the FARMER'S commodity and more than £1,000 for the MANUFACTURER'S commodity.
[XI-535] At all events, the MANUFACTURER here lays out £400 in the first year and 900 in the 2nd, while the FARMER lays out only £400 on each occasion. If the MANUFACTURER instead of producing COTTONS had built a house (if h e were a builder) then at the e n d of the 1st year, the unfinished house would embody £500 and he would have to spend a further £400 on labour in order to complete it. T h e FARMER, however, whose capital turned over within the year, can recapitalise a part, say 50, of his £ 1 0 0 profit and spend it again on labour, which the MANUFACTURER, in the SUPPOSED CASE, cannot do. If the rate of profit is to be the same in both cases, then the commodity of one must be sold above its value and that of the other below its value. Since competition strives to level out values into cost prices, this is what happens.
But it is incorrect to say, as Ricardo does, that here a VARIATION IN
THE RELATIVE VALUES takes place "ON ACCOUNT OF THE DIFFERENT DEGREES OF
DURABILITY OF CAPITALS" or "ON ACCOUNT OF THE TIME WHICH MUST ELAPSE BEFORE
ONE SET OF COMMODITIES CAN BE BROUGHT TO MARKET". It is, rather, the adoption of a general rate of profit, which despite the different VALUES brought about by the circulation process, gives rise to equal cost prices which are different from values, for values are determined only by labour time.
Ricardo's illustration consists of two examples. T h e DURABILITY OF CAPITAL, or the character of capital as fixed capital, does not enter into the second example at all. It only deals with capitals of different size, but of which the same amount is laid out in wages, as variable capital, and where profits are to be equal, although the surplus values and values must be different.
Neither does DURABILITY enter into the first example. It is concerned with the longer labour process—the longer period during which the commodity has to remain within the sphere of production before it becomes a finished commodity and can enter into circulation. In this example of Ricardo the MANUFACTURER also employs more capital in the second year than the FARMER although he employs the same amount of variable capital in both years. T h e FARMER, however, could employ a greater variable capital in the 2nd year, because his commodity remains within the labour process for a shorter period and is converted more quickly into money. Besides, that part of profit which is consumed as revenue, is already available to the FARMER at the end of the first year, but to the MANUFACTURER only at the end of the 2nd. T h e latter must therefore spend an additional amount of capital for his keep which he advances to himself. Incidentally, whether in CASE II a compensation can take place and profits can be equalised depends here entirely on the degree to which the profits of the capitals which are turned over in one year are recapitalised, in other words, on the actual amount of profits produced. Where there is nothing, there is nothing to equalise. Here the capitals again produce values, hence surplus values, hence profits not in proportion to the size of the capital. If profits are to be proportionate to their size, then there must be COST PRICES different from the VALUES.
Ricardo gives a third illustration, which, however, is again exactly the same as the first example of the first illustration and contains nothing new at all.
* "Suppose I employ twenty men at an expense of £1,000 for a year in the production of a commodity, and at the end of the year I employ twenty men again for another year, at a further expense of £1,000 in finishing or perfecting the same commodity, and that I bring it to market at the end of two years, if profits be 10 per cent, my commodity, must sell for £2,310; for I have employed £1,000 capital for one year, and £2,100 capital for one year more. Another man employs precisely the same quantity of labour, but he employs it all in the first year; he employs forty men at an expense of £2,000, and at the end of the first year he sells it with 10 per cent profit, or for £2,200. Here then are two commodities having precisely the same quantity of labour bestowed on them, one of which sells for £2,310 — the other for £2,200. This case appears to differ from the last, but is, in fact, the same" * (pp. 34-35).
I t IS NOT ONLY THE SAME " I N F A C T " , BUT "IN APPEARANCE" TOO, e x c e p t t h a t in the one case the COMMODITY is called "machine" and here simply "COMMODITY". In the first example, the MANUFACTURER laid out 400 in the first year and 900 in the 2nd. This time he lays out 1,000 in the first and 2,100 in the second. The FARMER laid out 400 in the first and 400 in the 2nd. This time, the second man lays out 2,000 in the first year and nothing in the second. That is the whole difference. In both cases, however, fabula docet" applies to the fact that one of the men lays out in the second year the whole of the product of the first (including surplus value)+AN ADDITIONAL SUM.
The CLUMSINESS of these examples shows that Ricardo is wrestling with a difficulty which he does not understand and succeeds even less in overcoming. The CLUMSINESS consists in this: The first example of the first illustration is meant to bring in the DURABILITY OF CAPITAL; it does NOTHING OF THE SORT; Ricardo himself has made this impossible because he does not let any part of fixed capital enter into the commodity as wear and tear, thus excluding the very factor through which the peculiar mode of circulation of fixed capital becomes evident. He merely demonstrates that as a consequence of the longer duration of the labour process, a greater capital is employed than where the labour process takes a shorter time. The 3rd example is supposed to illustrate something different, but in reality illustrates the same thing. The second example of the first [XI-536] illustration, however, is intended to show what differences arise as a result of different ratios of fixed capital. Instead it only shows the difference brought about by two capitals of unequal size, although the same amount of capital is laid out in wages. And, furthermore, the MANUFACTURER operates without cotton and yarn and the farmer without seeds or implements! The complete inconsistency, even absurdity, of this illustration necessarily arises from the underlying lack of clarity.
Finally he states the practical conclusions to be drawn from all these illustrations:
* "The difference in value arises in both cases from the profits being accumulated as capital, and is only a just compensation"* (as though it were a question of JUSTICE here) *"for the time that the profits were withheld"* (p. 35).
What does this mean, other than that in a definite period of circulation, for instance a year, a capital must yield 10% whatever its specific period of circulation may be and quite independently of the various surplus values which, according to the proportion of their organic component parts, capitals of equal size must produce IN DIFFERENT TRADES, irrespective of the circulation process.
Ricardo should have drawn the following conclusions: [Firstly:] Capitals of equal size produce commodities of unequal values and therefore yield unequal surplus values or profits, because value is determined by labour time, and the amount of labour time realised by a capital does not depend on its absolute size but on the size of the variable capital, the capital laid out in wages. Secondly: Even assuming that capitals of equal size produce equal values (although the inequality in the sphere of production usually coincides with that in the sphere of circulation), the period within which they can appropriate equal quantities of unpaid labour and convert these into money, still varies in accordance with their circulation period Thus arises a second difference in the values, surplus values and profits which capitals of equal size must yield IN DIFFERENT TRADES in a given period of time.
Hence, if profits as a PERCENTAGE of capital are to be equal over a period, say, of a year, so that capitals of equal size yield equal profits in the same period of time, then the prices of the commodities must be different from their values. The sum total of these cost prices of all the commodities taken together will be equal to their value. Similarly the total profit will be=to the total surplus value which all these capitals yield, for instance, during one year. If one did not take the definition of value as the basis, the average profit, and therefore also the cost prices, would be purely imaginary and untenable. The equalisation of the surplus values IN DIFFERENT TRADES does not affect the absolute size of this total surplus value; but merely alters its distribution in the DIFFERENT TRADES. The determination of this surplus value itself, however, only arises out of the determination of value by labour time. Without this, the average profit is the average of nothing, pure FANCY. And it could then equally well be 1,000% or 10%.
All Ricardo's illustrations only serve him as a means to smuggle in the presupposition of a general rate of profit. And this happens in the first chapter "On Value", while WAGES are supposed to be dealt with only in the 5th chapter and profits in the 6th. How from the mere determination of the "value" of the commodities their surplus value, the profit and even a general rate of profit are derived remains obscure with Ricardo. IN FACT the only thing which he proves in the above illustrations is that the prices of the commodities, in so far as they are determined by the general rate of profit, are entirely different from their values. And he arrives at this difference by postulating the rate of profit to be LAW. One can see that though Ricardo is accused of being too abstract, one would be justified in accusing him of the opposite: lack of the power of abstraction, inability, when dealing with the values of commodities, to forget profits, a FACT which confronts him as a result of competition.
Because Ricardo, instead of deriving the difference between cost prices and values from the determination of value itself, admits that "values" themselves (here it would have been appropriate to define the concept of "ABSOLUTE" OR "REAL VALUE" OR "VALUE" as such) are determined by influences that are independent of labour time and that the law of value is sporadically invalidated by these influences, this was used by his opponents, such as Malthus, in order to attack his whole [XI-537] theory of values. Malthus correctly remarks that the differences between the organic component parts of capital and the turnover periods of capitals in different TRADES develop simultaneously with the progress of production, so that one would arrive at Adam Smith's standpoint, that the determination of value by labour time was no longer applicable to "civilised" times. (See also Torrens.) On the other hand his disciples have resorted to the most pitiful scholastic inventions, to make these phenomena consistent with the fundamental principle (see [James] Mill and the miserable McCulloch).[3] Ricardo does not dwell on the conclusion which follows from his own illustrations, namely, that—quite apart from the rise or fall of wages — on the assumption of constant wages, the cost prices of commodities must differ from their values, if cost prices are determined by the same PERCENTAGE OF PROFIT. But he passes on, in this SECTION, to the influence which the rise or fall of wages exerts on cost prices to which the values have already been levelled out.
The matter is in itself extraordinarily simple. The FARMER lays out £5,000 at 10%; his commodity=£5,500. If the profit falls by 1% from 10 to 9, because wages have risen and the rise in wages has brought about this reduction, then he continues to sell at 5,500 (since it is assumed that he lays out the whole of his capital in wages). But of these 5,500 only 454 [14]/io9 belong to him and not 500. The capital of the MANUFACTURER consists of £5,500 for machinery and 5,000 for LABOUR. AS before, the latter 5,000 results in a product of 5,500, except that now the manufacturer does not lay out 5,000 but 5,045 /109 and on this he makes a profit of only 454[14]/io9, like the FARMER. On the other hand he can no longer reckon 10% or 550 on his fixed capital of 5,500 but only 9% or 495. He will therefore sell his commodity at £5,995 instead of at 6,050. Thus, as a result of the rise in wages, the money price of the FARMER'S commodity has remained the same, while that of the MANUFACTURER has fallen, the value of the FARMER'S commodity COMPARED with that of the MANUFACTURER has therefore risen. The whole point of the matter is that if the MANUFACTURER sold his commodity at the same value as before, he would make a higher profit than the average, because only the part of his capital that has been laid out in wages is directly affected by the rise in wages. This illustration in itself already assumes cost prices regulated by an average profit of 10% and differing from the values of the commodities. The question is, how are these cost prices affected by the rise or fall in profit, when the capitals employed contain different proportion of fixed and circulating capital? This illustration (Ricardo, pp. 31-32) has nothing to do with the essential question of the transformation of values into cost prices. But it is a nice point because Ricardo in fact demonstrates here that, if the composition of the capitals were the same, a rise in wages — contrary to the vulgar view — would only bring about a lowering of profits without affecting the values of the commodities; if the composition of the capitals is unequal, then it will only bring about a fall in the price of some commodities instead of — as vulgar opinion maintains — a rise in the price of all commodities. Here the fall in the prices of commodities results from a fall in the rate of profit or, which amounts to the same thing, a rise in wages. In the case of the MANUFACTURER a large part of the cost price of the commodity is determined by the average profit which he reckons on his fixed capital. If, therefore, this rate of profit falls or rises as a result of the rise or fall in wages, then the price of these commodities will fall or rise correspondingly — that is in accordance with THAT PART OF THE PRICE WHICH RESULTS FROM THE PROFIT CALCULATED UPON THE FIXED CAPITAL. The same applies to "CIRCULATING CAPITALS RETURNABLE AT DISTANT PERIODS, AND VICE VERSA" (McCulloch).a If the capitalists who employ less variable capital were to continue to chalk u p their fixed capital at the same rate of profit, and add it to the price of the commodity then their rate of profit would rise and it would rise in the proportion in which they employ more fixed capital than those whose capital consists to a greater extent of variable capital. This would be levelled out by competition.
"Ricardo," says Mac, "was the first who analysed the effects of FLUCTUATIONS in wages on the value of commodities, when the capitals employed in their production were not of the same degree of durability" (pp. 298-99). "Ricardo has not only shown that it is impossible for any RISE OF WAGES to raise the price of all commodities; but that in many cases a RISE OF WAGES necessarily leads to a FALL OF PRICES, and a FALL OF WAGES to a RISE OF PRICES" (McCulloch, The Principles of Political Economy, Edinburgh and London, 1825, p. 299).
Ricardo proves his point by firstly postulating cost prices regulated by a general rate of profit
Secondly: " THERE CAN BE NO RISE IN THE VALUE OF LABOUR WITHOUT A FALL OF PROFITS" (p. 31).
T h u s already in CHAPTER I on value, those laws are presupposed, which in CHAPTERS V and VI " O n Wages" and " O n Profits" should be deduced from the CHAPTER " O n Value". Incidentally, [XI-538] Ricardo concludes quite wrongly, that because "THERE CAN BE NO RISE IN THE VALUE OF LABOUR WITHOUT A FALL OF PROFITS" , THERE CAN BE NO RISE OF PROFITS WITHOUT A FALL IN THE VALUE OF LABOUR. The first law refers to surplus value. But since profit=the proportion of surplus value to the total capital advanced, profit can rise though the VALUE OF LABOUR remains the same, if the value of constant capital falls. Altogether Ricardo mixes u p surplus value and profit. Hence he arrives at erroneous laws on profit and the rate of profit.
T h e general fabula docet of the last illustration is as follows:
profit), * "would depend on the proportion which the fixed capital bore to the whole capital employed. All commodities which are produced by very valuable machinery, or in very valuable buildings, or which require a great length of time before they can be brought to market, would fall in relative value, while all those which were chiefly produced by labour, or which would be speedily brought to market would rise in relative value" * (p. 32).
Again Ricardo comes to the one point with which he is really concerned in his investigation. These VARIATIONS IN the COST PRICES OF
COMMODITIES RESULTING FROM A RISE OR FALL IN WAGES are insignificant compared with those variations in the same COST PRICES which are brought about by VARIATIONS IN THE VALUES OF COMMODITIES // Ricardo is FAR
FROM EXPRESSING THIS TRUTH IN THESE ADEQUATE TERMS//, in the QUANTITY OF
LABOUR EMPLOYED IN THEIR PRODUCTION. One can therefore, by and large, "abstract" from this and, accordingly, the law of VALUES remains virtually correct. (He should have added that the COST PRICES themselves remain unintelligible without VALUES, AS DETERMINED BY THE TIME OF LABOUR.) This is the true course of his investigation. In fact it is clear that despite the transformation of the values of commodities into cost prices, the latter having been assumed, a CHANGE in cost prices //and these cost prices must not be confused with market prices: they are the average market prices of the commodities in the DIFFERENT TRADES. Market price itself already includes an average in so far as commodities of the same sphere are determined by the prices of those commodities which are produced under the mean, AVERAGE conditions of production of this sphere. By no means under the worst conditions, as Ricardo assumes with rent, because the average demand is related to a certain price, even with corn. A certain amount of the supply is therefore not sold above this price. Otherwise the demand would fall. Those whose conditions of production are not average but BELOW[3] average, must therefore often sell their commodity not only below its value but below its cost price//, in so far as it does not arise from a permanent fall or rise, A PERMANENT ALTERATION, IN THE RATE OF PROFIT which can only establish itself in the course of many years — can only and solely be caused by a CHANGE in the VALUES of commodities, in the labour time necessary for their production.
* "The reader, however, should remark, that this cause of the variations of commodities" (this should read variations of COST PRICES or, as he calls them, RELATIVE VALUES OF COMMODITIES) "is comparatively slight in its effects. ... Not so with the other great cause of the variation in the value of commodities, namely, the increase or diminution in the quantity of labour necessary to produce them... An alteration in the permanent rate of profits, to any great amount, is the effect of causes which do not operate but in the course of years; whereas alterations in the quantity of labour necessary to produce commodities, are of daily occurrence. Every improvement in machinery, in tools, in buildings, in raising the raw material, saves labour, and enables us to produce the commodity to which the improvement is applied with more facility, and consequently its value alters. In estimating, then, the causes of the variations in the value of commodities, although it would be wrong wholly to omit the consideration of the effect produced by a rise or fall of labour, it would be equally incorrect to attach much importance to it" * (pp. 32-33).
H e therefore takes no further account of this. T h e whole of this Section IV of CHAPTER I " O n Value" is so extraordinarily confused, that, although Ricardo announces at the start that he intends to consider the influence of the VARIATIONS in the VALUES of commodities brought about by the rise or fall in wages which results from differences in the composition of capital, he actually does this only occasionally. IN FACT, he fills the major part of SECTION IV with illustrations which prove that, quite independently of the rise or fall of wages — he himself assumes that wages remain constant— the postulation [XI-539] of a general rate of profit must result in COST PRICES which differ from the VALUES of the commodities and, moreover, that this does not even depend on the DIFFERENCE [in the proportion] OF FIXED and CIRCULATING CAPITAL. H e forgets this again at the end of the section.
H e announces the subject of his inquiry in SECTION IV with the words:
* "This difference in the degree of durability of fixed capital, and this variety in the proportions in which the two sorts of capital may be combined, introduce another cause, besides the greater or less quantity of labour necessary to produce commodities, for the variations in their relative value—this cause is the rise or fall in the value of labour"* (pp. 25-26).
IN FACT, he shows by his illustrations, d'abord, that it is only the general rate of profit which enables the DIFFERENT COMBINATIONS of SORTS OF CAPITAL (namely variable and constant, etc.) to differentiate the PRICES of COMMODITIES from their VALUES, that therefore the CAUSE OF THOSE VARIATIONS is the general rate of profit and not THE VALUE OF LABOUR, which is assumed to be constant. Then — o n l y in the second place — he assumes COST PRICES already differentiated from VALUES as a result of the general rate of profit and he examines how VARIATIONS IN THE VALUE OF LABOUR affect these. Number 1, the main point, he does not investigate; he loses sight of it altogether and closes the SECTION as he began it:
* "it being shown in this section that without any variation in the quantity of labour, the rise of its value merely will occasion a fall in the exchangeable value of those goods, in the production of which fixed capital is employed; the larger the amount of fixed capital, the greater will be the fall" * (p. 35).
And in the following SECTION V (CHAPTER I) he continues on the same LINES, in other words, he only investigates how the COST PRICES of commodities can be altered by A VARIATION IN THE VALUE OF LABOUR, OR WAGES, not when the proportion OF FIXED and CIRCULATING CAPITALS is different in TWO EQUAL CAPITALS IN TWO DIFFERENT OCCUPATIONS, but when
THERE IS " UNEQUAL DURABILITY OF FIXED CAPITAL" O r " UNEQUAL RAPIDITY IN THE RETURN OF THE CAPITALS TO THEIR OWNERS " . The correct surmise implied in SECTION IV, regarding the difference between COST PRICES and VALUES brought about by the general rate of profit, is here no longer noticeable. Only a secondary question is examined here, namely, the VARIATION in the COST PRICES themselves. This SECTION, therefore, is in fact of hardly any theoretical interest, apart from the occasional mention of differences in the form of capitals arising from the circulation process.
*"In proportion as fixed capital is less durable, it approaches to the nature of circulating capital. It will be consumed and its value reproduced in a shorter time, in order to preserve the capital of the manufacturer" * (p. 36).
T h u s the LESSER DURABILITY and the difference between FIXED and CIRCULATING capital in general, are reduced to the difference in the period of reproduction. This is certainly a determination of decisive importance. But by no means the only one. Fixed capital enters wholly into the labour process and only in SUCCESSIVE stages and by instalments into the valorisation process. This is another major distinction in their form of circulation. Furthermore: fixed capital enters—necessarily enters — only as exchange value into the process of circulation, while its use value is consumed in the labour process and never goes outside it. This is another important distinction in the form of circulation. Both distinctions in the form of circulation also concern the period of circulation; but they are not identical with the DEGREES [of durability of capitals] and the DIFFERENCES [in the period of circulation].
Less durable capital constantly requires a greater quantity of labour, //but he is so occupied with his GENERAL RATE OF PROFIT, that he does not see that thereby A relatively * great deal of surplus labour would be continually transferred to the commodity//
"in the other very little would be so transferred"
//hence very little surplus labour, hence much less value, if the commodities exchanged according to their values//.
"Every rise of wages, therefore, or, which is the same thing, [XI-540] every fall of profits, would lower the relative value of those commodities which were produced with a capital of a durable nature, and would proportionally elevate those which were produced with capital more perishable. A fall of wages would have precisely the contrary effect" * (pp. 37-38).
In other words: T h e MANUFACTURER who employs FIXED CAPITAL OF LESS DURABILITY employs relatively less fixed capital and more capital expended in wages, than the one who EMPLOYS CAPITAL OF GREATER DURABILITY. This case is therefore identical with the previous one, illustrating how a VARIATION in WAGES affects capitals, one of which consists, of relatively, proportionately, more fixed capital than the other. THERE IS NOTHING NEW [here].
What Ricardo further says about MACHINERY on pp. 38-40 should be held over until we come to CHAPTER XXXI " O n Machinery". [3]
It is curious how Ricardo, at the end, almost expresses the correct idea in a passing phrase only to let it go again and after touching upon it, returns again to his dominating idea of the effect of an ALTERATION IN THE VALUE OF LABOUR on COST PRICES and finally concludes the investigation with this secondary consideration. The passage containing the allusion is the following:
* "It will be seen, then, that in the early stages of society, before much machinery or durable capital is used, the commodities produced by equal capitals will be nearly of equal value, and will rise or fall only relatively to each other on account of more or less labour being required for their production;" *
//the final clause is badly worded; it refers moreover not to VALUE but to COMMODITIES, and is meaningless, unless it refers to their PRICES; for to say that VALUES FALL in proportion to labour time means that VALUES FALL OR RISE AS THEY RISE OR FALL//
* "but after the introduction of these expensive and durable instruments, the commodities produced by the employment of equal capitals will be of very unequal value; and although they will still be liable to rise or fall relatively to each other, as more or less labour becomes necessary to their production, they will be subject to another, though a minor variation, also, from the rise or fall of wages and profits. Since goods which sell for £5,000 may be the produce of a capital equal in amount to that from which are produced other goods which sell for £10,000, the profits on their manufacture will be the same; but those profits would be unequal, if the prices of the goods did not vary with a rise or fall in the rate of profits"* (pp. 40-41).
In fact Ricardo says: Capitals of equal size produce commodities of equal values, if the .ratio of their organic component parts is the same; if equally large portions of them are expended on wages and on the conditions of labour. T h e same quantities of labour, therefore equal values //apart from the difference which might arise through the circulation process// are then embodied in their commodities. O n the other hand, capitals of equal size produce commodities OF VERY UNEQUAL VALUE, when their organic composition is different, namely, when the proportion between the part existing as fixed capital and the part laid out in wages differs considerably. Firstly, only a part of the fixed capital enters into the commodity as a component part of value, consequently the magnitude of their values will greatly vary according to whether much or little fixed capital is employed in the production of the commodity. Secondly, the part laid out in wages — calculated as a percentage on capital of equal size — is much smaller, therefore also the total labour embodied in the commodity, and consequently the surplus labour //given a working day of equal length// which constitutes the surplus value. If, therefore, these capitals of equal size — whose commodities are of unequal values a n d these unequal values contain unequal surplus values, and therefore unequal profits—if these capitals because of their equal size are to yield equal profits, then the PRICES OF THE GOODS (AS DETERMINED BY THE GENERAL RATE OF PROFIT ON A GIVEN OUTLAY) must be very different from the VALUES OF THE GOODS. Hence it follows, not that the VALUES have altered their nature, but that the PRICES are different from the VALUES. It is all the more surprising that Ricardo did not arrive at this conclusion, for he sees that even if one presupposes COST PRICES determined by the GENERAL RATE OF PROFIT, a change in the RATE OF PROFIT (or RATE OF WAGES) must change these cost prices, so that the RATE OF PROFIT [XI-541] in the different TRADES may remain the same. How much more therefore must the ESTABLISHMENT OF A GENERAL RATE OF PROFIT change UNEQUAL VALUES since this GENERAL RATE OF PROFIT is in fact nothing other than the levelling out of the DIFFERENT RATES OF SURPLUS VALUE in different commodities produced by EQUAL CAPITALS.
Having thus, if not set forth and comprehended, at any rate virtually demonstrated, the difference between COST and VALUE, COST PRICES and VALUES of commodities, Ricardo ends with the following sentence:
value of a thing should be the same;—it is, if he means by cost 'cost of production' including profits"* (p. 46, note). (That is, outlay+PROFlT as determined by the GENERAL RATE OF PROFIT.)
With this erroneous confusion of COST PRICES and VALUES, which he has himself refuted, h e then proceeds to consider rent.
With regard to the influence of the VARIATIONS IN THE VALUE OF LABOUR UPON THE COST PRICE OF GOLD, Ricardo says the following in SECTION VI,
CHAPTER I:
* "May not gold be considered as a commodity produced with such proportions of the two kinds of capital as approach nearest to the average quantity employed in the production of most commodities? May not these proportions be so nearly equally distant from the two extremes, the one where little fixed capital is used, the other where little labour is employed, as to form a just mean between them?" * (I.e., p. 44).
This is far more applicable to those commodities into whose composition the various organic constituents enter in the AVERAGE proportion, and whose period of circulation and reproduction is also of AVERAGE length. For these, COST PRICE and VALUE coincide, because for them, and only for them, average profit coincides with their actual surplus value.
As inadequate as SECTIONS IV and V of CHAPTER I appear in their consideration of the INFLUENCE of the VARIATIONS IN THE VALUE OF LABOUR ON "RELATIVE VALUES", theoretically a secondary matter compared with the transformation of VALUES INTO COST PRICES through the AVERAGE RATE OF PROFIT, SO important is the conclusion which Ricardo draws from this, thereby demolishing one of the major errors that had persisted since Adam Smith, namely, that the raising of wages, instead of reducing profits, RAISES THE PRICES OF COMMODITIES. This is indeed already implied in the very concept of VALUES and is in no way altered by the transformation of values into COST PRICES, since this, in any case, only affects the distribution of the surplus value made by the total capital among the various TRADES or DIFFERENT CAPITALS
IN DIFFERENT SPHERES OF PRODUCTION. But it was important that Ricardo stressed this point and even proved the opposite to be the case. H e is therefore justified in saying in SECTION VI, CHAPTER I:
* "Before I quit this subject, it may be proper to observe, that Adam Smith, and all the writers who have followed him, have, without one exception that I know of, maintained that a rise in the price of labour would be uniformly followed by a rise in the price of all commodities."*
//This corresponds to Adam Smith's 2nd explanation of VALUE, according to which it is equal to the QUANTITY OF LABOUR A COMMODITY *"I hope I have succeeded in showing, that there are no grounds for such an opinion, and that only those commodities would rise which had less fixed capital employed upon them than the medium in which price was estimated," * (here RELATIVE VALUE is=to the EXPRESSION of the VALUE IN MONEY), * "and that all those which had more, would precisely fall in price when wages rose. On the contrary, if wages fell, those commodities only would fall, which had a less proportion of fixed capital employed on them, than the medium in which price was estimated; all those which had more, would positively rise in price" * (p. 45).
With regard to money prices this seems wrong. When gold rises or falls IN VALUE, FROM WHATEVER CAUSES, then [7] it does so to the same extent for all commodities which are assessed in it. Since it thus represents a relatively unchangeable medium despite its changea-bility, it is not at all clear how any RELATIVE COMBINATION of fixed capital and circulating capital in gold, compared with commodities, can bring about a difference. But this is due to Ricardo's false assumption that money, in so far as it serves as a medium of circulation, exchanges as a commodity for commodities. Commodities are assessed in money before it circulates them. Supposing WHEAT were the MEDIUM instead of gold. If, for example, consequent upon a rise in wages, WHEAT as a commodity into which enters more than the AVERAGE variable instead of constant capital, were to rise relatively in its price of production, then all commodities would be assessed in wheat of higher "relative value". The commodities into which more fixed capital entered, would be expressed in less wheat than before, not because their specific price had fallen compared with wheat but because their price had fallen in general. A commodity which contained just as much labour — as against ACCUMULATED LABOUR — as wheat, would show its rise [in price] by being expressed in more wheat [XI-542] than a commodity whose price had fallen as compared with wheat. If the same causes which raised the price of wheat, raised, for example, the price of clothes, then although the clothes would not be expressed in more wheat than previously, those [commodities], whose price had fallen compared with wheat, for instance COTTON, would be expressed in less. Wheat would be the medium in which the difference in the price of COTTON and clothes would be expressed.
But what Ricardo means is something different. He means that: because of a rise in wages, wheat would rise as against COTTON but not as against clothes. Thus clothes would exchange for wheat at the old price, whereas COTTONS would exchange against wheat at the higher price. In itself, the assumption that VARIATIONS in the price of wages in England, for instance, would alter the cost price of gold in California where wages have not risen, is utterly absurd.
The levelling out of values by labour time and even less the levelling out of cost prices by a general rate of profit does not take place in this direct form between different countries. But take even wheat, a home product. Say that the qr of wheat has risen from 40s. to 50s., i.e., by 25%. If the dress has also risen by 25%, then it is worth 1 qr of wheat as before. If the COTTON has fallen by 25%, then the same amount of COTTON which was previously worth 1 qr is now only worth 6 BUSHELS of wheat.[141] And this expression in wheat represents exactly the ratio of the prices of COTTON and clothes, because they are being measured in the same medium, in 1 qr of wheat.
Moreover, this notion is absurd in another way too. The price of the commodity which serves as a measure of value and hence as money, does not exist at all, because otherwise, apart from the commodity which serves as money I would need a second commodity to serve as money — a DOUBLE MEASURE OF VALUES. The relative value of money is expressed in the innumerable prices of all commodities; for in each of these prices in which the exchange value of the commodity is expressed in money, the exchange value of money is expressed in the use value of the commodity. There can therefore be no talk of a rise or fall in the price of money. I can say: the price of money in terms of wheat or of clothes has remained the same; its price in terms of COTTON has risen, or, which is the same, that the money price of COTTON has fallen. But I cannot say that the price of money has risen or fallen. But Ricardo actually maintains that, for instance, the price of money in terms of COTTON has risen or the price of COTTON in terms of money has fallen, because the relative value of money has risen as against that of COTTON while it has retained the same value as against clothes or wheat. Thus the two are measured with an unequal measure.
This Section VI "On an Invariable Measure of Value" deals with the "measure of value" but contains nothing important. The connection between value, its immanent measure — i.e., labour time — and the necessity for an external measure of the values of commodities is not understood or even raised as a problem.
The very opening of this section shows the superficial manner in which it is handled.
which is not itself exposed to the same variations ... that is, there is none which is not subject to require more or less labour for its production"* (p. 42).
Even if there were such a commodity, the influence of the RISE OR
FALL OF WAGES, t h e DIFFERENT COMBINATIONS OF FIXED AND CIRCULATING CAPITAL, the different degrees of DURABILITY of the FIXED CAPITAL employed and
THE [different] LENGTH OF TIME BEFORE the commodity CAN BE BROUGHT TO MARKET, etc., would prevent it from being:
* "a perfect measure of value, by which we could accurately ascertain the variations in all other things" (p. 43). "It would be a perfect measure of value for all things produced under the same circumstances precisely as itself, but for no others" * (I.e.).
That is to say, if these "OTHER THINGS" varied, we could say (provided the value of money did not rise or fall) that the VARIATION was caused by the rise or fall in their values, in the labour time necessary for their production. With regard to the other THINGS, we could not know whether the "VARIATIONS" in their money prices were d u e to other reasons, etc. Later we shall have to come back to this matter which is quite unsatisfactory. (During a subsequent revision of the theory of money.) [3]
CHAPTER I, SECTION VII. Apart from the important doctrine on "RELATIVE'' WAGES, PROFITS and RENTS, to which we shall return later,b
this SECTION contains nothing but the theory that a fall or rise in the value of money accompanied by a corresponding rise or fall in wages, etc., does not alter the relations but only their MONETARY EXPRESSION. If the same commodity is expressed in double the number of pounds sterling, so also is that part of it which resolves into profit, WAGES or RENT. But the ratio of these three to one another and the REAL VALUES they represent, remain the same. Ditto when the profit is expressed by double the number of pounds, £100 is then however represented by £200 so that the relation between profit and capital, the rate of profit, remains unaltered. T h e changes in the monetary expression affect profit a n d capital simultaneously, ditto profit, WAGES and RENT. This applies to rent as well in so far as it is not calculated on the ACRE but on the capital advanced in agriculture, etc. In short, in this case the VARIATION is not in the COMMODITIES, etc.
* "A rise of wages from this cause will, indeed, be invariably accompanied by a rise in the price of commodities; but in such cases, it will be found that labour and all commodities have not varied in regard to each other, and that the variation has been confined to money" * (p. 47).
Endnotes
[139] The term "cost price" (Kostenpreis or Kostpreis) is used by Marx in three different ways, in the sense of 1) the cost of production for the capitalist (c + v); 2) the "immanent cost of production" of the commodity (c + v + s), which is identical with the value of the commodity, and 3) the price of production (c + u+average profit). In this passage as elsewhere in notebooks X-XIII of the manuscript (see this volume and present edition, Vol. 32), the term "cost price" is used in the sense of the price of production or average price. Marx writes in particular: "... the price which is required for the supply of the commodity, the price which is required for it to come into existence at all, to appear as a commodity on the market, is of course its price of production or cost price" (see this volume, p. 559). In notebooks XIV-XV of the manuscript (see present edition, vols 32 and 33). Marx uses "Kostenpreis" to mean the price of production or, alternatively, the production costs for the capitalist. The threefold use of the term stems from the fact that in political economy the term "Kosten" had three meanings, as was noted by Marx on pp. XIV — 788-790 and XV — 928 of the manuscript of 1861-63 (see present edition, Vol. 32). In addition to the three meanings occurring in the works of classical bourgeois political economists, the term "cost price" has a fourth, vulgar meaning, in which it was used by J. B. Say, who defined the cost price as that which is paid for the productive services of labour, capital and land. Marx rejected this vulgar interpretation (see this volume, pp. 361-62 and pp. XIII— 693-694 of the manuscript, present edition, Vol. 32).—402
[104] On the difference between period of production and labour time in agriculture, see the manuscript of 1857-58 (present edition, Vol. 29, pp. 58-60). See also Capital, Vol. II, Ch. XIII (present edition, Vol. 36).—262, 405
[4] Marx gave an in-depth analysis of the problem of productive and unproductive labour on pp. XXI — 1317-1331 of the manuscript of 1861-63 (present edition, Vol. 34).—7
[2] The entries below were made by Marx on the inside covers of notebooks VIII-XII of the manuscript of 1861-63. The table of contents of Notebook \ II is published in Volume 30, p. 347, and its text in Volume 30 and in this volume. The tables of contents had been corrected several times. Marx's original plan was to analyse Adam Smith's doctrine in notebooks VII and VIII and then to pass on to Necker and Ricardo. But later he rejected this scheme. He also proposed to examine Ricardo's views in Notebook X, first after the analysis of Linguet and then of Bray. In the contents of Notebook XI, point "g) Rodbertus" was originally followed by point "h) Ricardo". Later Marx inserted several other points preceding that on Ricardo, probably after the notebooks had been filled in. In Notebook XII, next to the line "5) Theories of Surplus Value", Marx wrote in pencil without the mark of insertion, "(CIRCULATING AND FIXED CAPITAL p. 643) in Ricardo". The last two points in the contents of this notebook were later crossed out in pencil and replaced with "Theories of COST PRICE". The inside cover of Notebook IX has a note "Mercantilists (408)" made in pencil later. Written on the inside cover of Notebook XI are a number of quotations (see this volume, pp. 579-80). Alongside the contents, the inside cover of Notebook XII contains Marx's notes and quotations (see this volume, p. 580).—6
[140] The average profit amounts to 205/26% when the capitals laid out by the farmer and the manufacturer are the same. But if we take into consideration the difference in the size of the capitals laid out (£800 by the farmer and £1,300 by the manufacturer, £2,100 in all), then, since the aggregate profit of both 400x100 equals £400, the average profit is = 19791%.—412 2,100
[7] Marx is referring to the vicious circle in Adam Smith's doctrine of the "natural price of wages", which he had discussed in the manuscript of 1861-63 (see present edition, Vol. 30, p. 401).—8
[141] The British quarter (a grain measure equalling 290.8 litres) contains 8 bushels.—426
[5] Marx is referring to the section of the manuscript of 1861-63 in Notebook VII entitled in the contents "Inquiry into how it is possible for the annual profit and wages..." (see present edition, Vol. 30, pp. 347, 411 et seq.).—7, 149
[10] Marx examines the Mercantilists' views in Notebook VI of the manuscript of
[3] This is in fact not the conclusion but only the continuation of the section on Smith. The conclusion of this section can be found in Notebook IX.—6
[14] Here Marx quotes from Recherches sur la nature et les causes de la richesse des nations, Paris, 1802, Garnier's translation of Adam Smith's work. Marx made excerpts from it in Paris in the spring of 1844. In the present volume all quotations from Garnier's translation are given according to the English edition (A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, by J. R. MacCulloch. In four volumes. Edinburgh, London, 1828), with the pages indicated in brackets, and Marx's wording respected. Marx widely used the 1828 edition when working on the manuscript of 1861-63.—18, 152, 162, 198, 239, 439