Average or Cost Prices and Market Prices

In developing his theory of differential rent, in CHAPTER II, " O n Rent", Ricardo puts forward the following thesis:

* "The exchangeable value of all commodities, whether they be manufactured, or the produce of the mines, or the produce of the land, is always regulated, not by the less quantity of labour that will suffice for their production under circumstances highly favourable, and exclusively enjoyed by those who have peculiar facilities of production; but by the greater quantity of labour necessarily bestowed on their production by those who have no such facilities; by those who continue to produce them under the most unfavourable circumstances; meaning— by the most unfavourable circumstances, the most unfavourable under which the quantity of produce required, renders it necessary to carry on the production"* (pp. 60-61).

The last sentence is not entirely correct. T h e "QUANTITY OF PRODUCE REQUIRED" [is] not a fixed magnitude. [It would be correct to say:] A CERTAIN QUANTITY OF PRODUCE REQUIRED WITHIN CERTAIN LIMITS OF PRICE. If the latter rises above these LIMITS then the "QUANTITY REQUIRED" falls with the demand.

T h e thesis set out above can be expressed in general terms as follows: T h e value of the commodity — which is the product of a particular sphere of production — is determined by the labour which is required in order to produce the whole amount, the total sum of the commodities appertaining to this sphere of production and not by the particular labour time that each individual CAPITALIST or EMPLOYER within this sphere of production requires. T h e general conditions of production and the general productivity of labour in this particular sphere of production, for example in COTTON MANUFACTURE, are the average conditions of production and the average productivity in this sphere, in COTTON MANUFACTURE. T h e quantity of labour by which, for example, [the value of] a yard of COTTON is determined is therefore not the quantity of labour it contains, the quantity the MANUFACTURER HAS EXPENDED UPON IT, but the average quantity with which all the COTTON-MANUFACTURERS PRODUCE ONE YARD OF COTTON for the market. Now the particular conditions under which the individual CAPITALISTS produce, for example, in COTTON MANUFACTURE, necessarily fall into 3 categories. Some produce under medium conditions, i.e., the individual conditions of production undei which they produce coincide with the general conditions of production in the sphere. T h e average conditions are their actual conditions. T h e productivity of their labour is at the average level. T h e individual value of their commodities coincides with the general value of these commodities. If, for example, they sell the yard of COTTON at 2s.—the average value — then they sell it at the value which the yards they produce represent in natura. Another category produces under better than average conditions. The individual value of their commodities is below their general value. If they sell their commodities at this general value, they sell them above their individual value. Finally, a third category produces under conditions of production that are below the average.

Now the "QUANTITY OF PRODUCE REQUIRED" from this particular sphere of production is not a fixed magnitude. If the rise of the value of the commodities above the average value exceeds CERTAIN LIMITS, the "QUANTITY OF PRODUCE REQUIRED" falls or this QUANTITY is only REQUIRED AT

A GIVEN PRICE OR AT LEAST WITHIN CERTAIN LIMITS OF PRICE. H e n c e i t is JUSt as possible that the last-mentioned category has to sell below the individual value of its commodities as the better placed category always sells its products above their individual value. Which of the categories has a decisive effect on the average value, will in particular depend on the numerical ratio or the proportional size of the categories.^[142] If numerically the middle category greatly outweighs the others, it will settle [the average value]. If this group is numerically weak and that which works below the average conditions is numerically strong and predominant, then the latter settles the GENERAL VALUE OF THE PRODUCE OF THAT SPHERE, although this by no means implies and it is even very unlikely, that the individual capitalist who is the most unfavourably placed in the last group, is the determining factor (SEE Corbet).^[143]

Mais laissons ça à part? The general result is that: The general value of the products of this group is the same for all, whatever may be its relation to the particular value of each individual commodity. This common value is the market value of these commodities, the value at which they appear on the market. Expressed in money, this market value is the market price, just as in general, value expressed in money is price. The actual market price is now above, now below this market value and coincides with it only by chance. Over a certain period, however, the fluctuations equal each other out and it can be said that the average of the actual market prices is the market price which represents the market value. Whether, at a given moment, the actual market price corresponds to this market value in magnitude, i.e., quantitatively or not, at any rate it shares the qualitative characteristic with it, that all commodities of the same sphere of production available on the market have the same price (assuming of course that they are of the same quality), that is, in practice, they represent the general value of the commodities of this sphere.

[XI-544] The above thesis put forward by Ricardo for the purpose of his theory of rent has therefore been interpreted by his disciples to mean that two different market prices cannot exist simultaneously on the same market or: products of the same kind found on the market simultaneously have the same price or — since we can leave out of account here the accidental features of this price—the same market value.

Thus competition, partly among the capitalists themselves, partly between them and the buyers of the commodity and partly among the latter themselves, brings it about here that the value of each individual commodity in a particular sphere of production is determined by the total mass of social labour time required by the total mass of the commodities of this particular sphere of social production and not by the individual values of the separate commodities or the labour time the individual commodity has cost its particular producer and seller.

It obviously follows from this, however, that, whatever the circumstances, the capitalists belonging to the first group — whose conditions of production are more favourable than the average— make an excess profit, in other words their profit is above the general rate of profit of this sphere. Competition, therefore, does not bring about the market value or market price by the equalisation of profits within a particular sphere of production. (For the purpose of this investigation, this distinction is irrelevant since the differences in the conditions of production — HENCE the DIFFERENT RATES OF PROFIT for the individual capitalists — in the same sphere, remain, whatever may be the relationship of MARKET PRICE to MARKET VALUE.) On the contrary, competition here equalises the different individual values to the same, equal, undifferentiated market value, by permitting differences between individual profits, profits of individual capitalists, and their deviations from the average rate of profit in the sphere. It even creates differences by establishing the same market value for commodities produced under unequal conditions of production, therefore with unequal productivity of labour, the commodities thus representing individual unequal quantities of labour time. The commodity produced under more favourable conditions, contains less labour time than that produced under less favourable conditions, but it sells at the same price, and has the same value, as if it contained the same labour time though this is not the case.

For the establishment of his theory of rent, Ricardo needs two propositions which express not only different but contradictory effects of competition. According to the first, the products of the same sphere sell at one and the same market value, competition therefore enforces different rates of profit, deviations from the general rate of profit. According to the second, the rate of profit must be the same for each capital investment, that is, competition brings about a general rate of profit. The first law applies to the various independent capitals invested in the same sphere of production. The second applies to capitals in so far as they are invested in different spheres of production. By the first action, competition creates the market value, that is, the same value for commodities of the same sphere of production, although this identical value must result in different profits; it thus creates the same value despite of, or rather by means of, different rates of profit. The second action (which, incidentally, is brought about in a different way; namely, the competition between capitalists of different spheres throws the capital from one sphere into another, while the other competition, in so far as it is not competition between buyers, occurs between capitals of the same sphere) enables competition to create the cost price, in other words the same rate of profit in the various spheres of production, although this identical rate of profit is contrary to the inequality of values, and can hence only be enforced by PRICES which are different from values.

Since Ricardo needs both these propositions— equal value or price with unequal rate of profit, and equal rate of profit with unequal values,— for his theory of rent, it is most remarkable that he does not sense this twofold determination and that even in the section where he deals ex professo with market price, in CHAPTER IV "On Natural and Market Price", he does not deal with market price or market value at all, although in the above-quoted passage⁽¹⁾ he uses it as a basis to explain differential rent, the excess profit crystallised in the form of rent. [XI-545] But he deals here merely with the reduction of the prices in the different spheres of production to cost prices or average prices, i.e., with the relationship between the market values of the different spheres of production and not with the establishment of the market value in each particular sphere, and unless this is established market values do not exist at all.

The market values of each particular sphere, therefore the market prices of each particular sphere (if the market price corresponds to the "NATURAL PRICE", in other words if it merely represents the value in the form of money) would yield very different rates of profit, for capitals of equal size in different spheres — quite apart from the differences arising from their different processes of circulation— employ very unequal proportions of constant and variable capital and therefore yield very unequal surplus values, hence [very unequal] profits. The levelling out of the various market values, so that the same rate of profit is produced in different spheres and capitals of equal size yield equal average profits, is therefore only possible by the transformation of market values into cost prices which are different from the actual values.

It is possible that the rate of surplus value is not equalised in the different spheres of production (for instance because of unequal length of labour time). This is not necessary because the surplus values themselves are equalised.

What competition within the same sphere of production brings about, is the determination of the value of the commodity in a given sphere by the average labour time required in it, i.e., the creation of the market value. What competition between the different spheres of production brings about, is the creation of the same general rate of profit in the different spheres through the levelling out of the different market values into market prices, which are cost prices that are different from the actual market values. Competition in this 2nd instance by no means tends to assimilate the prices of the commodities to their values, but on the contrary, to reduce their values to cost prices that differ from these values, to abolish the differences between their values and cost prices.

It is only this latter process which Ricardo considers in CHAPTER IV and, oddly enough, he regards it as the reduction of the prices of commodities — through competition — to their values, the reduction of the MARKET PRICE (a price which is different from value) to the NATURAL PRICE (the value expressed in terms of money). This BLUNDER, however, arises from the error he committed already in CHAPTER I "On Value", where he identified COST PRICE and VALUE," this in turn was due to the fact that at a point where as yet he was only concerned with explaining "VALUE", where he, therefore, as yet, only had to deal with "commodity", he plunged in with the general rate of profit and all the conditions arising from the more developed capitalist relations of production.

Ricardo's whole procedure in CHAPTER IV is therefore quite superficial. He starts out from the "ACCIDENTAL AND TEMPORARY VARIATIONS OF [the] PRICE" (p. 80) of commodities resulting from the fluctuating relations between demand and supply.

depart from the particular employment in which the variation has taken place" * (p. 80).

H e r e the GENERAL LEVEL OF PROFIT prevailing between the different spheres of production, BETWEEN "THE PARTICULAR EMPLOYMENTS" is already presupposed. But he should have considered first, how the GENERAL LEVEL OF PRICE in the same EMPLOYMENT a n d the GENERAL LEVEL OF PROFIT between DIFFERENT EMPLOYMENTS is brought about. Ricardo would then have seen that the latter operation already presupposes movements of capital in all directions — or a distribution, determined by competition, OF THE WHOLE SOCIAL CAPITAL BETWEEN ITS DIFFERENT SPHERES OF EMPLOYMENT. Once it is assumed that the market values or average market prices in the different spheres are reduced to cost prices yielding the same average RATE OF PROFIT //this is however only the case in spheres where landed property does not interfere; where it INTERFERES, competition — within the same sphere — can convert the price to the value and the value to the market value, but it cannot reduce the market value to the cost price//, persistent deviations of the market price from the cost price, when it rises above or falls below it in particular spheres, will bring about new migrations a n d a new distribution of SOCIAL capital. T h e first migration occurs in order to establish cost prices which differ from values. T h e second migration occurs in order to equalise the actual market prices with the cost prices — as soon as they rise above or fall below the latter. T h e first is a transformation of the values into cost prices. T h e second is a rotation of the actual [XI-546] market prices of the m o m e n t in the various spheres around the cost price, which now appears as the NATURAL PRICE, although it is different from the value and only the result OF SOCIAL ACTION.

It is this latter, more superficial movement which Ricardo examines a n d at times unconsciously confuses with the other. Both are of course brought about by "THE SAME PRINCIPLE", namely, THE PRINCIPLE THAT while other hand, the VARIATIONS of the actual prices in particular spheres from the cost prices are levelled out. All this is [contained in] Adam Smithf's work]. Ricardo himself says:

* "No writer has more satisfactorily and ably shewn than Dr. Smith, the tendency of capital to move from employments in which the goods produced do not repay by their price the whole expenses, including the ordinary profits," * (that is to say, the cost prices) * "of producing and bringing them to market"* (p. 342, note).

The achievement of Ricardo, whose BLUNDER is on the whole caused by his lack of criticism of Adam Smith in this respect, consists in his more precise exposition of this MIGRATION OF CAPITAL FROM ONE SPHERE TO THE OTHER, or rather of the manner in which this occurs. H e was, however, only able to d o this because the credit system was more highly developed in his time than in the time of Adam Smith. Ricardo says:

* "It is perhaps very difficult to trace the steps by which this change is effected: it is probably effected, by a manufacturer not absolutely changing his employment, but only lessening the quantity of capital he has in that employment In all rich countries, there is a number of men forming what is called the monied class;" * (Here Roscher could have seen once again what the Englishman understands by the term "MONIED CLASS". The "MONIED CLASS" is here diametrically opposed to the "INDUSTRIOUS PART OF THE COMMUNITY.")^[3] * "these men are engaged in no trade, but live on the interest of their money, which is employed in discounting bills, or in loans to the more industrious part of the community. The bankers too employ a large capital on the same objects. The capital so employed forms a circulating capital of a large amount, and is employed, in larger or smaller proportions, by all the different trades of a country. There is perhaps no manufacturer, however rich, who limits his business to the extent that his own funds alone will allow: he has always some portion of this floating capital, increasing or diminishing according to the activity of the demand for his commodities. When the demand for silks increases, and that for cloth diminishes, the clothier does not remove with his capital to the silk trade, but he dismisses some of his workmen, he discontinues his demand for the loan from bankers and monied men; while the case of the silk manufacturer is the reverse: he borrows more, and thus capital is transferred from one employment to another, without the necessity of a manufacturer discontinuing his usual occupation. When we look to the markets of a large town, and observe how regularly they are supplied both with home and foreign commodities, in the quantity in which they are required, under all the circumstances of varying demand, arising from the caprice of taste, or a change in the amount of population, without often producing either the effects of a glut from a too abundant supply, or an enormously high price from the supply being unequal to the demand, we must confess that the principle which apportions capital to each trade in the precise amount that is required, is more active than is generally supposed"* (p. [p. 81-] 82).

capitalists in a given sphere but in proportion to their production requirements — whereas in competition the individual capitals appear to be independent of each other. Credit is both the result and the condition of capitalist production a n d this provides us with a convenient transition from the competition between capitals to capital as credit.

At the beginning of Chapter IV, Ricardo says that by NATURAL PRICE he understands the VALUE of the commodities, that is, the PRICE as determined by their relative labour time, a n d that by MARKET PRICE he understands the ACCIDENTAL AND TEMPORARY DEVIATIONS from this NATURAL PRICE=VALUE. [XI-547] Throughout the c h a p t e r — a n d he is quite explicit in this — he understands something quite different by NATURAL PRICE, namely, cost price which is different from VALUE. Thus, instead of showing how competition transforms VALUES INTO COST PRICES, i.e., creates PERMANENT DEVIATIONS FROM VALUES, he shows, following Adam Smith, how competition reduces the MARKET PRICES IN DIFFERENT TRADES to COST PRICES.

T h u s CHAPTER IV opens like this:

*"In making labour the foundation of the value of commodities, and the comparative quantity of labour which is necessary to their production, the rule which determines the respective quantities of goods which shall be given in exchange for each other, we must not be supposed to deny the accidental and temporary deviations of the actual or market price of commodities from this, their primary and natural price" * (p. 80).

Here therefore NATURAL PRICE— VALUE and MARKET PRICE is nothing but the DEVIATION of ACTUAL PRICE FROM VALUE. As against this:

* "Let us suppose that all commodities are at their natural price, and consequently that the profits of capital in all employments are exactly at the same rate, or differ only so much as, in the estimation of the parties, is equivalent to any real or fancied advantage which they possess or forego" * (p. 83).

Here, therefore, NATURAL PRICE= COST PRICE, that is, equals the price at which the relation between the profit and the ADVANCES embodied in the commodity is the same, although equal values of commodities produced by capitals in different TRADES contain very unequal surplus values, and thus unequal profits. If the price is to yield the same profit, it must therefore be different from the VALUE of the commodity. O n the other hand, capitals of equal size produce commodities of very unequal value, according to whether a larger or a smaller portion of the fixed capital enters into the commodity. But more about this when dealing with the circulation of capitals.

By equalisation through competition, Ricardo therefore understands only the rotation of the ACTUAL PRICES or ACTUAL MARKET PRICES a r o u n d t h e COST PRICES o r t h e NATURAL PRICE AS distinct FROM t h e VALUE,

the levelling o u t of t h e MARKET PRICES IN DIFFERENT TRADES TO GENERAL COST

PRICES, i.e., precisely to PRICES which are different f r o m t h e REAL

VALUES IN THE DIFFERENT TRADES:

* "It is then the desire, which every capitalist has, of diverting his funds from a less to a more profitable employment, that prevents the market price of commodities from continuing for any length of time either much above, or much below their natural price. It is this competition which so adjusts the changeable values" * //and also the DIFFERENT REAL VALUES// * "of commodities, that after paying the wages for the labour necessary to their production, and all other expenses required to put the capital employed in its original state of efficiency, the remaining value or overplus will in each trade be in proportion to the value of the capital employed" * (p. 84).

T h i s is EXACTLY t h e CASE. C o m p e t i t i o n ADJUSTS THE PRICES in t h e

DIFFERENT TRADES SO t h a t THE REMAINING VALUE OR OVERPLUS, t h e p r o f i t ,

c o r r e s p o n d s t o t h e VALUE OF THE CAPITAL EMPLOYED, but not to t h e REAL

VALUE of t h e c o m m o d i t y , not to t h e REAL OVERPLUS OF VALUE WHICH IT

CONTAINS AFTER THE DEDUCTION OF EXPENSES. T o BRING THIS ADJUSTMENT ABOUT

THE PRICE OF ONE COMMODITY MUST BE RAISED ABOVE. AND [ t h a t o f ] THE OTHER

[ m U S t ] BE DEPRESSED BELOW THEIR RESPECTIVE REAL VALUES. I t i s n o t t h e V a l u e of t h e c o m m o d i t i e s b u t their cost price, i.e., the EXPENSES they contain+THE GENERAL RATE OF PROFIT, around which competition forces the market prices i n t h e DIFFERENT TRADES to rotate.

Ricardo continues:

* "In the 7th chapter of the Wealth of Nations, all that concerns this question is most ably treated" * (p. 84).

IN FACT it is his uncritical belief in the Smithian tradition, which here leads Ricardo astray.

A s usual, Ricardo closes t h e chapter b y saying that in the following investigations, h e wants to "LEAVE ENTIRELY OUT OF CONSIDERATION" ( p . 8 5 ) t h e ACCIDENTAL DEVIATIONS of MARKET PRICES f r o m t h e COST

PRICE; but h e overlooks t h e fact that h e has paid n o regard at all to

t h e CONSTANT DEVIATIONS of MARKET PRICES, in so far as they correspond to COST PRICES, f r o m t h e REAL VALUES of the c o m m o d i t i e s a n d that h e

has substituted COST PRICE for VALUE.

CHAPTER XXX " O n t h e Influence of D e m a n d a n d Supply o n Prices".

Here Ricardo d e f e n d s t h e proposition that t h e p e r m a n e n t price

is determined by the COST PRICE, and not by SUPPLY OR DEMAND; that, therefore, t h e p e r m a n e n t price is d e t e r m i n e d by the value of the c o m m o d i t i e s only in so far as this value determines t h e COST PRICE. Provided that t h e prices of the c o m m o d i t i e s are so adjusted that they all yield a profit of 10%, then every lasting CHANGE in these prices will b e d e t e r m i n e d by a CHANGE in their VALUES, in t h e labour time required for their production. As this VALUE continues to determine the GENERAL RATE OF PROFIT, so the CHANGES in it continue to determine the VARIATIONS in COST PRICES, although of course the difference between COST PRICES and VALUES is thereby not superseded. What is superseded is only that the difference between VALUE and ACTUAL PRICE should not [XI-548] be greater than the DIFFERENCE between COST PRICES and VALUES, a difference that is brought about by the general rate of profit With the CHANGES IN THE VALUES OF COMMODITIES, their COST PRICES also change. A "NEW NATURAL PRICE" (p. 460) is formed. If, for example, the worker can now produce 20 hats in the same period of time which it previously took him to produce 10 hats, and if wages accounted for V2 the EXPENSE of the hat, then the EXPENSES, the COSTS OF PRODUCTION, of the 20 hats, in so far as they consist of wages, have fallen by half. For the same wages are now paid for the production of 20 hats as previously for 10. T h u s each hat now contains only V2 the expenses incurred in wages. If the hat manufacturer were to sell the hats at the same price he would sell them above the cost price. If the profit had previously been 10% then it would now be 46^[2]/s%, assuming the outlay for the manufacture of a certain quantity of hats was originally 50 for raw material, etc., and 50 for labour. [The outlay] would now be 50 for raw material, etc. a n d 25 for wages. If the commodity is sold at the old price, then the profit= ^[7]/i ^[5] or 46^[2]/s%. As a result of the fall in VALUE, the new NATURAL PRICE will therefore fall to such an extent that the price only yields 10% profit. T h e fall in the value or in the labour time necessary for the production of the commodity reveals itself in the fact that less labour time is used for the same amount of commodity, hence also less paid labour time, less wages and, consequently, the costs, the wages paid (i.e., the amount of wages; this does not presuppose a fall in the rate of wages) proportionately decline for the production of each individual commodity.

This is the case if the CHANGE in value has taken place in the hat making itself. H a d it occurred in the production of the raw material or of the instrument of labour, then this would have been similarly expressed as a diminution OF EXPENSE OF WAGES FOR THE PRODUCTION OF A CERTAIN GIVEN QUANTITY OF PRODUCE in these spheres; but to the HAT MANUFACTURER it would denote that his constant capital had cost him less.

T h e COST PRICES or "NATURAL PRICES" (which have nothing to d o with "NATURE") can fall in two ways as a result of a CHANGE — here a

FALL — IN THE VALUES OF COMMODITIES: [Firstly] because the wages laid out in the production OF A GIVEN QUANTITY OF COMMODITIES fall, owing to a fall in the aggregate ABSOLUTE AMOUNT OF LABOUR, PAID LABOUR a n d UNPAID LABOUR, EXPENDED o n t h i s

QUANTITY.

Secondly. If, as a result of the increased or diminished productivity of labour (both can occur, the one when the proportion of variable capital to constant capital falls, the other when wages rise owing to the means of subsistence becoming dearer), the ratio of surplus value to the value of the commodity or to the value of the labour contained in it changes, then the rate of profit rises or falls, and the AMOUNT OF LABOUR is differently divided u p .

In the latter case, the prices of production or cost prices could change only in so far as they are affected by VARIATIONS IN THE VALUE OF LABOUR. In the first case, the VALUE OF LABOUR remains the same. In the second case, however, it is not the values of the commodities which alter, but only the division between [necessary] LABOUR and

SURPLUS LABOUR. A CHANGE in the productivity and therefore in the VALUE of the individual commodity would nevertheless take place in this case. T h e same CAPITAL will produce more commodities than previously in the one case and less in the other. T h e aggregate volume of the commodities in which it is materialised would have the same value, but the individual commodity would have a different value. Although the value of the wage does not determine the value of the commodities, the value of the commodities (which enter into the consumption of the worker) determines the value of the wage.

Once the cost prices of the commodities in the DIFFERENT TRADES are established, they rise or fall relatively to each other with any change in the VALUES of the commodities. If the productivity of labour rises, the labour time required for the production of a particular commodity decreases and therefore its value falls; whether this CHANGE in PRODUCTIVITY occurs in the labour used in the final process or in the constant capital, the COST PRICE of this commodity must also fall correspondingly. T h e ABSOLUTE AMOUNT of LABOUR employed on it has been reduced, hence also the AMOUNT of PAID LABOUR it contains and the AMOUNT of wages expended on it, even though the rate of wages has remained the same. If the commodity were sold at its former cost price, then it would yield a higher profit than the GENERAL RATE OF PROFIT, since formerly, this profit was=to 10% on the higher outlay. It would therefore be now more than 10% on the diminished outlay. If on the contrary the productivity of labour decreases, the REAL VALUES of the commodities rise. When the rate of profit is given — or, which is the same thing, the cost prices are given — the relative rise or fall of the cost prices is dependent on the rise or fall, the VARIATION, in the REAL VALUES of the commodities. As a result of this variation, NEW COST PRICES or, as Ricardo says, following Smith, "NEW NATURAL PRICES" take the place of the old.

In CHAPTER XXX, from which we have just been quoting, Ricardo expressly identifies NATURAL PRICE, i.e., cost price, with NATURAL VALUE, i.e., value as determined by labour time.

* "Their price" (of monopolised commodities) "has no necessary connexion with their natural value: but the prices of commodities, which are subject to competition, ... will ultimately depend ... on [the] ... cost of their production"* (p. 465).

Here therefore are COST PRICES or NATURAL PRICES directly [XI-549] identified with "NATURAL VALUE", i.e., with "VALUE". This confusion explains why later a whole lot of fellows post Ricardum, like Say himself, could accept "THE COST OF PRODUCTION" as the ultimate regulator of prices, without having the slightest inkling of the determination of value by labour time, indeed they directly deny the latter while maintaining the former.^[144]

This whole BLUNDER of Ricardo's and the consequent erroneous exposition of rent, etc., as well as the erroneous laws about the rate of profit, etc, spring from his failure to distinguish between surplus value and profit; and in general his treatment of definitions of form is crude and uncomprehending, just as that of the other economists. The following will show how he allowed himself to be ensnared by Smith.

It must first be noted that according to Adam Smith as well,

"there are always a few commodities of which the price resolves itself into two parts only, the wages of labour and the profits of stock" ([Garnier,] 1. I, ch. VI, v. I, p. 103) [Vol. I, p. 88].^[14]

This difference between Ricardo's and Smith's views can therefore be ignored here.

Adam Smith first explains that exchange value resolves itself into a certain quantity of labour and that after deducting raw materials, etc., the value contained in exchange value is resolved into that part of labour for which the labourer is paid and that part for which he is not paid, the latter part consists of profit and rent (the profit in turn may be resolved into profit and interest). Having shown this, he suddenly turns about and instead of resolving exchange value into wages, profit and rent, he declares these to be the elements forming exchange value, he makes them into independent exchange values that form the exchange value of the product; he constructs the exchange value of the commodity from the values of wages, profit and rent, which are determined independently and separately. Instead of having their source in value, they become the source of value.

" Wages, profit, and rent, are the three original sources of all revenue as well as of all exchangeable value" ([Garnier,] t. I, 1. I, ch. VI, p. 105) [Vol. I, p. 89].

Having revealed the intrinsic connection, he suddenly again comes under the sway of the mere appearance of the thing, the connection as it appears in competition, and in competition everything always appears in inverted form, always standing on its head.

Now it is from this latter inverted starting-point that Smith develops the distinction between the "natural price of the commodities" and their "market price". Ricardo accepts this from him, but forgets that Adam Smith's "natural price" is, according to Smith's premisses, nothing other than the cost price resulting from competition and that for Smith himself, this cost price is only identical with the "VALVE" of the commodity, in so far as he forgets his more profound conception and sticks to the false concept derived from the external appearance, namely that the exchange VALUE of COMMODITIES is formed by putting together the independently determined VALUES OF WAGES, PROFIT and RENT. While Ricardo contests this concept throughout, he accepts Smith's confusion or identification of exchange value with COST PRICE or NATURAL PRICE, which is based on that very concept. In the case of Adam Smith this confusion is legitimate, because his whole examination of natural price starts out from his second, false conception of VALUE. But in Ricardo's case, it is wholly unjustifiable, because he nowhere accepts this wrong conception of Adam Smith's, but contests it ex professo as an inconsistency. Adam Smith, however, succeeded in ensnaring him again with his natural price.

Having compounded the value of the commodity from the separate and independently determined values of wages, profit and rent, Adam Smith now asks himself how these primary values are determined. And here he starts out from the phenomenon as it appears in competition.

[In] CHAPTER VII, BOOK I, "Of the Natural and Market Price of Commodities" [he says:]

"There is in every society or neighbourhood an ordinary or average rate of wages — profit — rent" ([Garnier,] I.e., t. I, p. 110) [Vol. I, p. 93]. These "average rates may be called the natural rates of wages, profit, and rent, at the time and place in which they commonly prevail" ([Gamier,] pp. 110, 111) [Vol. I, p. 93]. "When the price of any commodity is neither more nor less than what is sufficient to pay the rent, [...] the wages [...] and the profits [...] according to their natural rates, the commodity is then sold for [...] its NATURAL PRICE"a ([Garnier,] p. Ill ) [Vol. I, pp. 93-94],

This natural price is then the cost price of the commodity and the cost price coincides with the value of the commodity, since it is presupposed that the value of the latter is compounded of the values of wages, profit and rent.

"The commodity is [XI-550] then sold precisely for what it is worth" (the commodity is then sold at its value) "or b for what it really costs the person who brings it to market" (at its value or at the c o s t p r i c e for the person who brings it to market) "for though in common language what is called the prime cost of any commodity does not comprehend the profit of the person who is to sell it again, yet if he sells it at a price which does not allow him the ordinary rate of profit in his neighbourhood, he is evidently a loser by the trade; since by employing his stock in some other way he might have made that profit" ([Garnier,] p. Ill ) [Vol. I, p. 94].

Here we have the whole genesis of natural price and, besides, set out in quite appropriate language and logic, since the value of the commodity is composed of the prices of wages, profit and rent, while the true value of profit and rent is, in turn, constituted by their natural level; thus it is clear that the value of the commodity is identical with its cost price and the latter with the natural price of the commodity. The level of profit, i.e., the rate of profit, as of wages, is presupposed. They are indeed given for formation of the cost price. They are antecedent to the cost price. To the individual capitalist therefore they also appear as given. The hows, whys and wherefores do not concern him. Adam Smith here adopts the standpoint of the individual capitalist, the agent of capitalist production, who fixes the cost price of his commodity. So much for wages, etc., so much for the general rate of profit. Ergo: This is how this capitalist sees the operation by which the cost price of the commodity is fixed or, as it further seems to him, the value of the commodity, for he also knows that the market price is now above, now below this cost price, which therefore appears to him as the ideal price of the commodity, its absolute price as distinct from its price fluctuations, in short as its value, in so far as he has any time at all to reflect on matters of this sort. And since Smith transports himself right into the midst of competition, he immediately reasons and argues with the peculiar logic of the capitalist caught up in this sphere. He interjects: In common language, costs do not include the profit made by the seller (which necessarily forms a surplus above his EXPENSES). Why then do you include profit in the cost price? Adam Smith answers like the profound capitalist to whom this question is put:

Profit in general must enter into cost price, because I would be cheated if only a profit of 9 instead of 10% were to enter into cost

^[145] price.

The naïve way in which Adam Smith on the one hand expresses the thoughts of the agent of capitalist production and presents things boldly and comprehensively, as they appear to and are thought of by the latter, as they influence him in practice, and as, indeed, they appear on the surface, while, on the other hand, he sporadically reveals their more profound relationships, gives his book its great charm.

One can see here too why Adam Smith — despite his considerable scruples on this point — resolves the entire value of the commodity only into rent, profit and wages and omits constant capital, although of course he admits its existence for each "individual" capitalist. For otherwise he would have to say: The value of a commodity consists of wages, profit, rent and that part of the value of the commodity which does not consist of wages, profit, rent. It would therefore be necessary to determine value independently of wages, profit and rent.

If, besides the outlay on average wages, etc., the price of the commodity also covers the average profit and — if rent enters into the commodity — the average rent, then the commodity is sold at its natural or cost price, and this cost price is equal to its value, for its value is nothing but the sum of the natural values of wages, profit and rent.

[XI-551] Having taken his stand in competition and assumed the rate of profit, etc., as given, Adam Smith for the rest interprets correctly natural price or cost price, namely, the cost price as distinct from the market price.

"The natural price [of the commodity], or the whole value of the rent, profit, and wages, which must be paid in order to bring it" (the commodity) "to market" ([Garnier,] I.e., p. 112) [Vol. I, p. 95].

This cost price of the commodity is different from the actual price or market price of the commodity. ([Garnier,] p. 112) [Vol. I, p. 95]. The latter is dependent on demand and supply.

The production costs of the commodity or the cost price of the commodity is precisely "the whole value of the rent, wages, and profit, which must be paid in order to bring it" to market [Gamier, I.e., t. I, p. 113] [Vol. I, p. 95]. If demand corresponds to supply, then the market price is equal to the natural price.

"When the quantity brought to market is just sufficient to supply the effectual demand and no more, the market price naturally comes to be exactly ... the same with the natural price" ([Gamier,] I.e., t. I, p. 114) [Vol. I, p. 96]. "The natural price, therefore, is, as it were, the central point, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it" ([Garnier,] I.e., t. I, p. 116) [Vol. I, p. 98].

Hence Adam Smith concludes that in general, the

"whole quantity of industry annually employed in order to bring any commodity to market" will correspond to the needs of society or the "effectual demand" ([Garnier,] p. 117) [Vol. I, p. 98].

What Ricardo conceives as the distribution of total capital among the DIFFERENT TRADES appears here in the as yet more naïve form of the industry needed in order to produce "a particular commodity". The levelling out of prices among the sellers of the same commodity to the market price and the levelling out of the market prices of the various commodities to the cost price are here as yet jumbled up in complete confusion.

At this point Smith, only quite incidentally, touches upon the

INFLUENCE o f t h e VARIATION IN THE REAL VALUES OF COMMODITIES O n t h e natural prices or cost prices. Namely in agriculture

"the same quantity of industry will in different years produce very different quantities of commodities; while in others it will produce always the same, or very nearly the same. The same number of labourers in husbandry will, in different years, produce very different quantities of corn, wine, oil, hops, etc. But the same number of spinners and weavers will every year produce the same or very nearly the same quantity of linen and woollen cloth. ... In the other" (the non-AGRICULTURAL) "species of industry, the produce of equal quantities of labour being always the same, or very nearly the same" (i.e., so long as the conditions of production remain the same), "it can be more exactly suited to the effectual demand" ([Garnier,] pp. 117-18) [Vol. I, pp. 98, 99].

Adam Smith sees here that a mere CHANGE in the PRODUCTIVITY of "equal quantities of labour", therefore, in the actual values of commodities, alters COST PRICES. But he makes this again more shallow by reducing it to the relation between SUPPLY AND DEMAND. According to his own arguments, the proposition as he presents it, is wrong. For, while in agriculture, as a result of varying seasons, etc., "equal quantities of labour" yield different quantities of products, he himself has demonstrated that as a result of machinery, division of labour, etc., "equal quantities of labour" yield very different amounts of product in manufacture, etc. It is therefore not this difference which distinguishes agriculture from the other branches of industry; but the fact that in one case the "degree of productive power" applied is "determined be-

29* forehand", while in the other, it depends on accidents of nature. But the result remains the same: the value of the commodities or the QUANTITY OF LABOUR which, depending on its productivity, HAS TO BE

EXPENDED ON A GIVEN COMMODITY, affeCtS COSt p r i c e s . In the following passage Adam Smith has also [shown] how the MIGRATION OF CAPITALS f rom one TRADE to another establishes cost prices in the various TRADES. But he is not so clear on this as Ricardo. For if the [XI-552] price of the commodity falls below its NATURAL PRICE, then, according to his argument, this is due to one of the elements of this price falling below the NATURAL TAX or rate. Thus it is not due to the withdrawal of capitals alone or to the migration of capitals, but to the migration of LABOUR, CAPITAL OR LAND from one branch to another. In this respect his view is more consistent than Ricardo's, but it is wrong.

"Whatever part of it" (the natural price) "was paid below the natural rate, the persons whose interest it affected would immediately feel the loss, and would immediately withdraw either so much land, or so much labour, or so much stock, from being employed about it, that the quantity brought to market would soon be no more than sufficient to supply the effectual demand. Its market price, therefore, would soon rise to the natural price. This at least would be the case where there was perfect liberty" ([Garnier,] I.e., p. 125) [Vol. I, pp. 104-05].

This represents an essential difference between Smith's and Ricardo's conceptions of the levelling out to the natural price. Smith's [conception] is based on his false assumption, that the 3 elements independently determine the value of the commodity, while Ricardo's is based on the correct assumption that it is the average rate of profit (at a given level of wages), which alone determines the cost prices.

"The natural price itself varies with the natural rate of each of its component parts, of wages, profit, and rent" ([Garnier,] I.e., p. 127) [Vol. I, p. 106].

In CHAPTERS VIII, IX, X and XI of BOOK I, Adam Smith then seeks to determine the natural rate of these "component parts", wages, rent and profit, and the VARIATIONS in this rate.

CHAPTER VIII: "Of the Wages of Labour". At the start of the CHAPTER on wages, Smith — forsaking the illusory standpoint of competition — in the first place shows the true nature of surplus value and [regards] profit and rent as mere forms of surplus value.

The basis from which he determines the natural rate of wages is the value of labour capacity itself, the necessary wage.

"A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more; otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation" ([Garnier,] I.e., p. 136) [Vol. I, pp. 113-14].

This, however, becomes meaningless again because he never asks himself how the value of the necessary means of subsistence, i.e., of the commodity in general is determined. And here, since he has moved away from his main conception, Adam Smith would have to say: The price of wages is determined by the price of the means of subsistence and the price of the means of subsistence is determined by the price of wages. Having once assumed that the value of wages is fixed, he gives an exact description of its fluctuations, as they appear in competition, and the circumstances that cause these fluctuations. This belongs to the exoteric part [of his work] and does not concern us here. (In particular [he deals with] the accumulation of capital, but he does not tell us what determines it, since this accumulation can only be rapid either if the rate of wages is relatively low and the productivity of labour high (in this case a rise in wages is always the result of a permanently low level of wages during the preceding period) or if the rate of accumulation is low but the productivity of labour is high. From his standpoint, he would have to deduce the rate of wages in the first case from the rate of profit (I.E., from the rate of wages), and in the second case from the GROSS AMOUNT OF PROFIT, but this would in turn necessitate his investigating the value of the commodity.)

He tries to derive the value of the commodity from the value of labour which is one of its CONSTITUTIONAL ELEMENTS. And on the other hand he explains the level of wages by saying that

"the wages of labour do not ... fluctuate with the price of provisions" ([Garnier,] p. 149) [Vol. I, p. 123] and that "the wages of labour vary more from place to place than the price of provisions" ([Garnier,] I.e., p. 150) [Vol. I, p. 123].

In fact the chapter contains nothing relevant to the question except the definition of the minimum wage, alias the value of labour capacity. Here Adam Smith instinctively resumes the thread of his more profound argument, only to lose it again, so that even the above-cited definition [signifies] nothing. For how [does he propose to] determine the value of the necessary means of subsistence — and therefore of commodities in general? Partly by the NATURAL PRICE OF LABOUR. And how is this to be determined? By the VALUE OF NECESSARIES, OR COMMODITIES IN GENERAL. A vicious circle. As to the rest, the CHAPTER contains not a word on the issue, the NATURAL PRICE OF LABOUR, [XI-553] but only investigations into the rise of WAGES above the LEVEL of the NATURAL rate, demonstrating that the rise of wages is proportionate to the rapidity with which capital accumu-lates, that is, to the progressive accumulation of capital. Then he examines the various conditions of society in which this takes place, and finally he gives a slap in the face to the determination of the value of the commodity by wages and of wages by the value of the NECESSARIES, by showing that this does [not] appear to be the case in England. In between comes a piece of Malthusian population theory — because wages are determined by the means of subsistence necessary, not only for maintaining the life [of the worker], but also for the reproduction of the population.

Namely after attempting to prove that wages rose during the 18th century, especially in England, Adam Smith raises the question whether this is to be regarded "as an advantage or as an inconveniency to the society" ([Garnier,] I.e., p. 159) [Vol. I, p. 130]. In this connection he returns temporarily to his more profound approach, according to which profit and rent are merely parts of the product of the worker. The workmen, he says:

"firstly, make up the far greater part of society. But what improves the circumstances of the greater part can never be regarded as any inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged" ([Garnier,] pp. 159-60) [Vol. I, pp. 130-31].^[3]

In this connection he touches upon the theory of population:

"Poverty, though it no doubt discourages, does not always prevent marriage. It seems even to be favourable to generation. ... Barrenness, so frequent among women of fashion, is very rare among those of inferior station. ... But poverty, though it does not prevent the generation, is extremely unfavourable to the rearing of children. The tender plant is produced, but in so cold a soil and so severe a climate, soon withers and dies. ... Every species of animals naturally multiplies in proportion to the means of their subsistence, and no species can ever multiply beyond it. But in civilised society it is only among the inferior ranks of people that the scantiness of subsistence can set limits to the further multiplication of the human species. ... The demand for men, like that for any other commodity, necessarily regulates the production of men; quickens it when it goes on too slowly, and stops it when it advances too fast..." ([Garnier,] I.e., pp. 160-63 passim) [Vol. I, pp. 131-33].

The connection between the wages minimum and the varying conditions of society is as follows:

"The wages paid to journeymen and servants of every kind must be such as may enable them, one with another, to continue the race of journeymen and servants, according as the increasing, diminishing, or stationary demand of the society may happen to require" ([Garnier,] I.e., p. 164) [Vol. I, p. 134]. (Of the society! That is to say — of capital.)

He then shows that the slave is "dearer" than the free labourer, because the latter himself looks after his "wear and tear" whereas that of the former is [controlled] "by a negligent master or careless overseer" ([Garnier,] p. 164 et seq.) [Vol. I, p. 134 et seq.]. The "fund" for replacing the "wear and tear" is frugally used by the free labourer whereas for the slave it is wastefully and disorderly administered.

"The fund destined for replacing or repairing, if I may say so, the wear and tear of the slave, a result of his long service,^[3] is commonly managed by a negligent master or careless overseer. That destined for performing the same office with regard to the free man, is managed by the free man himself. The disorders which generally prevail in the economy of the rich, naturally introduce themselves into the management of the former; the strict frugality and parsimonious attention of the poor as naturally establish themselves in that of the latter" ([Garnier,] p. 164) [Vol. I, p. 134].

It is characteristic in the determination of the minimum wage or the natural price of labour, that it is lower for the free wage labourer than for the slave. This occurs also to Adam Smith:

"The work done by freemen comes cheaper in the end than that performed by slaves" ([Garnier,] p. 165) [Vol. I, p. 134], "The liberal reward of labour, therefore, as it is the effect of increasing national wealth, so it is the cause of increasing population. To complain of it is [XI-554] to lament over the necessary effect and cause of the greatest public prosperity" ([Garnier,] p. 165) [Vol. I, p. 135].

Adam Smith continues to plead for a high wage.

It not only "encourages the propagation", but also "increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encourage-ment it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition ... animates him to exert that strength to the utmost. Where wages are high, accordingly, we shall always find the workmen more active, diligent, and expeditious, than where they are low" ([Garnier,] I.e., p. 166) [Vol. I, p. 135].

But high wages spur the workmen on to over-exertion and to PRECOCIOUS destruction of their labour capacity.

"Workmen [...] when they are liberally paid by the piece, are very apt to overwork themselves, and to ruin their health and constitution in a few years" ([Garnier,] pp. 166-67) [Vol. 1, p. 136]. "If masters would always listen to the dictates of reason and humanity, they have frequently occasion rather to moderate, than to animate the application of many of their workmen" ([Garnier,] p. 168) [Vol. I, p. 137]. He goes on to argue against the view that "a little more plenty than ordinary may render some workmen idle" ([Garnier,] p. 169) [Vol. I, p. 137].

Then he examines whether it is true that the workmen are more idle in years of plenty than in years of scarcity and what is the general relation between wages and the price of the means of subsistence. Here again comes the inconsistency.

"The money price of labour is necessarily regulated by two circumstances; the demand for labour, and the price of the necessaries and conveniencies of life. ...the money price of labour is determined by what is requisite for purchasing this quantity" (of the necessaries and conveniencies of life) ([Garnier,] I.e., p. 175) [Vol. I, p. 144].

[He then examines] why — because of the demand for labour— wages can rise in years of plenty and fall in years of scarcity

([Garnier,] p. 176 et seq.) [Vol. I, p. 144 et seq.].

The causes in good and bad years counterbalance one another.

"The scarcity of a dear year, by diminishing the demand for labour, tends to lower its price, as the high price of provisions tends to raise it. The plenty of a cheap year, on the contrary, by increasing the demand, tends to raise the price of labour, as the cheapness of provisions tends to lower it. In the ordinary variations of the price of provisions, those two opposite causes seem to counterbalance one another; which is probably in part the reason why the wages of labour are everywhere so much more steady and permanent than the price of provisions" ([Garnier,] p. 177) [Vol. I, p. 145].

As against the concept of wages as the source of the value of commodities, he finally, after all this zigzagging, again advances his original, more profound view, that the value of commodities is determined by the quantity of labour; and if in good years, or with the growth of capital, the worker receives more commodities, then he also produces far more commodities, that is to say the individual commodity contains a smaller quantity of labour. He can therefore receive a greater quantity of commodities of less value and thus — this is the implied conclusion — profit can grow, despite rising absolute wages.

"The increase in the wages of labour necessarily increases the price of many commodities, by increasing that part of it which resolves itself into wages, and so far tends to diminish their consumption both at home and abroad. The same cause, however, which raises the wages of labour, the increase of stock, tends to increase its productive powers, and to make a smaller quantity of labour produce a greater quantity of work." [This is due to] the division of labour, the use of machinery, inventions, etc. ... "There are many commodities, therefore, which, in consequence of these improvements, come to be produced by so much less labour than before, that the increase of its price is more than compensated by the diminution of its quantity" ([Garnier,] pp. 177-78) [Vol. I, pp. 145, 146].

The labour is better paid, but less labour is contained in the individual commodity, hence a smaller amount has to be paid out. He thus allows his false theory, according to which the value of the commodity is determined by the wage as a constituent element of the value, to be annulled, or rather paralysed, counterbalanced by his correct theory, according to which the value of the commodity is determined by the quantity of labour it contains.

[XI-555] Chapter IX: "Of the Profits of Stock".

Here accordingly the natural rate of the second element that determines and constitutes the NATURAL PRICE or value of the commodities is to be ascertained. What Adam Smith says about the cause of the fall in the rate of profit ([Garnier,] pp. 179, 189, 190, 193, 196, 197, etc.) [Vol. I, pp. 146, 147, 155, 156, 158, 160, 161] will be considered at a later stage.^[3]

Adam Smith is confronted here by considerable difficulties. He says that even the determination of "average rate" of wages amounts merely to ascertaining the "usual rate of wages" ([Garnier,] p. 179) [Vol. I, p. 147], the actually given rate of wages.

"But even this can seldom be done with regard to the profits of stock" ([Garnier,] p. 179) [Vol. I, p. 147]. Apart from the good or bad fortune of the entrepreneur, this profit "is affected ... by every variation of price in the commodities" ([Gamier,] p. 180) [Vol. I, p. 147],

although it is precisely through the NATURAL rate OF PROFIT, as one of the constituent elements of "value", that we are supposed to determine the natural price of these commodities. This is already difficult FOR A SINGLE CAPITALIST IN A SINGLE TRADE.

"To ascertain what is the average profit of all the different trades carried on in a great kingdom, must be much more difficult" ([Garnier,] p. 180) [Vol. I, pp. 147-48].

But one may form some notion of the "average profits of stock" "from the interest of money. It may be laid down as a maxim, that wherever a great deal can be made by the use of money, a great deal will commonly be given for the use of it; and that wherever little can be made by it, less will commonly be given for it" ([Garnier,] pp. 180-81) [Vol. I, p. 148].

Adam Smith does not say the rate of interest determines the rate of profit. He expressly states the reverse. But there are records of the rate of interest for different epochs, etc.; such records do not exist for the rate of profit. The rates of interest are therefore indices from which the approximate level of the rate of profit can be judged. But the task set was not to compare the levels of given different rates of profit, but to determine the NATURAL level of the rate of profit. Adam Smith seeks refuge in a subsidiary investigation into the level of the rate of interest in different periods, which in no way touches upon the problem he has set himself. He makes a cursory examination of various periods in England and then compares these with Scotland, France and Holland and finds that — with the exception of the American colonies— " high wages of labour and high profits of stock are naturally things, which scarce ever go together, except in the peculiar circumstances of new colonies" ([Garnier,] p. 187) [Vol. I, pp. 153-54].

Here Adam Smith tries, like Ricardo — but TO A CERTAIN POINT with more success — to give some approximate explanation of high profits:

"A new colony must always for some time be more under-stocked in proportion to the extent of its territory, and more under-peopled in proportion to the extent of its stock, than the greater part of other countries. They have more land than they have stock to cultivate. What they have, therefore, is applied to the cultivation only of what is most fertile and most favourably situated, the land near the sea shore and along the banks of navigable rivers. Such land too is frequently purchased at a price below the value even of its natural produce." (IN FACT, therefore, it costs nothing.) "Stock employed in the purchase and improvement of such lands must yield a very large profit, and consequently afford to pay a very large interest. Its rapid accumulation in so profitable an employment enables the planter to increase the number of his hands faster than he can find them in a new settlement. Those whom he can find, therefore, are very liberally rewarded. As the colony increases, the profits of stock gradually diminish. When the most fertile and best situated lands have been all occupied, less profit can be made by the cultivation of what is inferior both in soil and situation, and less interest can be afforded for the stock which is so employed. In the greater part of our colonies, accordingly, [...] the ... rate of interest has been considerably reduced during the course of the present century" ([Garnier,] pp. 187-89) [Vol. I, p. 154].

This is one of the foundations of the Ricardian explanation of why profits fall, although it is presented in a different way. On the whole, Smith explains everything here by the competition between capitals; as capitals grow, profit falls and as they diminish, profit grows,^[3] and accordingly wages rise or fall conversely.

[XI-556] "The diminution of the capital stock of the society, or of the funds destined for the maintenance of industry, however, as it lowers the wages of labour, so it raises the profits of stock, and consequently the rate of interest.^[13] By the wages of labour being lowered, the owners of what stock remains in the society can bring their goods at less expense to market than before, and less stock being employed in supplying the market than before, they can sell them dearer" ([Garnier,] pp. 191-92) [Vol. I, pp. 156-57],

Then he talks about the highest possible and the lowest possible rates [of profit].

The "highest rate" is that which, "in the price of the greater part of commodities, eats up the whole of what should go to the rent of the land, and leaves only what is sufficient to pay the labour of preparing and bringing them to market, according to the lowest rate at which labour can anywhere be paid, the bare subsistence of the labourer" ([Garnier,] pp. 197-98) [Vol. I, p. 161].

"The lowest ordinary rate of profit must always be something more than what is sufficient to compensate the occasional losses to which every employment of stock is exposed. It is this surplus only which is neat or clear profit" ([Garnier,] p. 196) [Vol. I, p. 160].

A d a m S m i t h himself IN FACT c h a r a c t e r i s e s w h a t h e says about t h e

NATURAL rate OF PROFIT :

"Double interest is in Great Britain reckoned, what the merchants call a good, moderate, reasonable profit; terms which I apprehend mean no more than a common and usual profit" ([Garnier,] p. 198) [Vol. I, p. 162].

A n d i n d e e d , Smith calls this " c o m m o n a n d u s u a l p r o f i t " neither m o d e r a t e n o r g o o d , b u t his t e r m for it is " t h e NATURAL rate OF

PROFIT". H o w e v e r , h e d o e s n o t tell u s at all w h a t it is o r h o w it is d e t e r m i n e d a l t h o u g h w e a r e s u p p o s e d t o d e t e r m i n e t h e "NATURAL

PRICE" of the COMMODITY b y m e a n s of this "NATURAL r a t e OF PROFIT".

"In countries which are fast advancing to riches, the low rate of profit may, in the price of many commodities, compensate the high wages of labour, and enable those countries to sell as cheap as their less thriving neighbours, among whom the wages of labour may be lower" ([Garnier,] p. 199) [Vol. I, p. 162].

L o w profits a n d h i g h w a g e s a r e n o t reciprocally o p p o s e d h e r e ,

b u t t h e s a m e c a u s e — the QUICK GROWTH OR ACCUMULATION OF CAPITAL— p r o d u c e s b o t h . B o t h e n t e r i n t o t h e p r i c e ; they constitute it. If t h e r e f o r e o n e is h i g h while t h e o t h e r is low, t h e p r i c e r e m a i n s t h e s a m e , etc.

A d a m S m i t h h e r e r e g a r d s profit purely as a SURCHARGE, f o r at t h e e n d of the c h a p t e r h e says:

"In reality high profits tend much more to raise the price of work than high wages" ([Garnier,] p. 199) [Vol. I, p. 162]. If, for example, the wages of all the working people in linen manufacture were to rise by twopence a day, this would only raise the price of the "piece of linen" by the number of twopences equal to the number of people employed, "multiplied by the number of days during which they had been so employed. That part of the price of the commodity which resolved itself into wages would, through all the different stages of the manufacture, rise only in arithmetical proportion to this rise of wages. But if the profits of all the different employers of those working people should be raised 5 per cent, that part of the price of the commodity which resolved itself into profit, would, through all the different stages of the manufacture, rise in geometrical proportion to this rise of the rate of profit.^[3]... In raising the price of commodities the rise of wages operates in the same manner as simple interest does in the accumulation of debt. The rise of profit operates like compound interest" ([Gamier,] pp. 199-201) [Vol. I, pp. 162-64].

A t t h e e n d of this CHAPTER A d a m S m i t h also tells u s the source of t h e w h o l e n o t i o n , that t h e p r i c e of the c o m m o d i t y , o r its value, is made u p out of the values of wages and profits — namely, the amis du commerce* the faithful practitioners of competition:

"Our merchants and master-manufacturers- complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent [XI-557] with regard to the pernicious effects of their own gains. They complain only of those of other people" ([Garnier,] p. 201) [Vol. I, p. 164].

CHAPTER X [is entitled] "Of Wages and Profit in the Different Employments of Labour and Stock". This is only concerned with detail and therefore belongs into the CHAPTER on competition. In its way, it is very good. It is completely exoteric.

(Productive and unproductive labour:

"The lottery of the law [...] is very far from being a perfectly fair lottery; and that, as well as many other liberal and honourable professions, are, in point of pecuniary gain, evidently under-recompensed" ([Garnier,] t. I, 1. I, ch. X, pp. 216-17) [Vol. I, p. 175].

Similarly he says of soldiers:

"Their pay is less than that of common labourers, and in actual service their fatigues are much greater" ([Garnier,] t. I, 1. I, ch. X, p. 223) [Vol. I, p. 180].

And of sailors in the navy:

"Though their skill and dexterity are much superior to that of almost any artificers, and though their whole life is one continual scene of hardship and danger ... their wages are not greater than those of common labourers at the port which regulates the rate of seamen's wages" ([Garnier,] t. I, 1. I, ch. X, p. 224) [Vol. I, p. 181].

Ironically:

"It would be indecent, no doubt, to compare either a curate or a chaplain with a journeyman in any common trade. The pay of a curate or chaplain, however, may very properly be considered as of the same nature with the wages of a journeyman" ([Garnier,] t. I, 1. I, ch. X, p. 271) [Vol. I, p. 217].

H e expressly says of "men of letters" that they are UNDERPAID because of their too great numbers and he recalls that before the invention of printing, "a scholar and a beggar" ([Garnier,] t. I, 1. I, ch. X, [p]p. 275[-277]) [Vol. I, p p . 220-21] were synonymous, and seems to apply this, IN A CERTAIN SENSE, to men of letters.)

T h e chapter is full of acute observations and important comments.

"The extent of the market, by giving employment to greater stocks, diminishes apparent profit; but by requiring supplies from a greater distance, it increases prime cost. This diminution of the one and increase of the other seem, in most cases, nearly to counterbalance one another" (in the case of such articles as bread, meat, etc.) ([Gamier,] I.e., p. 232) [Vol. I, p. 187].

"In small towns and country villages, on account of the narrowness of the market, trade cannot always be extended as stock extends. In such places, therefore, though the rate of a particular person's profits may be very high, the sum or amount of them can never be very great, nor consequently that of his annual accumulation. In great towns, on the contrary, trade can be extended as stock increases, and the credit of a frugal and thriving man increases much faster than his stock. His trade is extended in proportion to the amount of both" ([Garnier,] I.e., p. 233) [Vol. I, pp. 187-88].

Regarding the false statistical presentation of wages, for instance in the 16th, 17th, etc., centuries, Adam Smith quite rightly observes that the wages here were only, for example, the wages of COTTIERS,^[31] who, when not occupied around their COTTAGES or working for their masters (who gave them a house, "a small garden for pot-herbs, as much grass as will feed a cow, and, perhaps, an acre or two of bad arable land", and, when they employed them, a very poor wage)

"are said to have been willing to give their spare time for a very small recompense to anybody, and to have wrought for less wages than other labourers" ([Gamier,] p. 241) [Vol. I, p. 192]. "The daily or weekly recompense, however, seems to have been considered as the whole of it, by many writers who have collected the prices of labour and provisions in ancient times, and who have taken pleasure in representing both as wonderfully low" ([Garnier,] p. 242) [Vol. I, pp. 193-94].

He makes the altogether true observation that:

"this equality in the whole of the advantages and disadvantages of the different employments of labour and stock, can take place only in such as are the sole or principal employments of those who occupy them" ([Garnier,] p. 240) [Vol. I, p. 192].

This point, incidentally, has already been quite well set forth by Steuart, particularly in relation to AGRICULTURAL WAGES — as soon as TIME becomes PRECIOUS.^[146]

[XI-558] With regard to the accumulation of capital in the towns during the Middle Ages, Adam Smith very correctly notes in this chapter that it was principally due to the exploitation of the COUNTRY (by trade as well as by manufacture). (There were in addition the usurers and even haute finance; in short, the money merchants.)

dealings of the different classes within the town with one another, none of them were losers by these regulations. But in their dealings with the country they were all great gainers; and in these latter dealings consists the whole trade which supports and enriches every town. Every town draws its whole subsistence, and all the materials of its industry, from the country. It pays for these chiefly in two ways: first, by sending back to the country a part of those materials wrought up and manufactured; in which case their price is augmented by the wages of the workmen, and the profits of their masters or immediate employers; secondly, by sending to it a part both of the rude and manufactured produce, either of other countries, or of distant parts of the same country, imported into the town; in which case too the original price of those goods is augmented by the wages of the carriers or sailors, and by the profits of the merchants who employ them. In what is gained upon the first of those two branches of commerce, consists the advantage which the town makes by its manufactures; in what is gained upon the second, the advantage of its inland and foreign trade. The wages of the workmen, and the profits of their different employers, make up the whole of what is gained upon both. Whatever regulations, therefore, tend to increase those wages and profits beyond what they otherwise would be, tend to enable the town to purchase, with a smaller quantity of its labour, the produce of a greater quantity of the labour of the country."

//Here, therefore,—[Garnier,] t. I, 1. I, ch. X, p[p. 258-]259 [Vol. I, pp. 206-07]—Adam Smith returns to the correct determination of value, the determination of value by the quantity of labour. This should be quoted as an example when dealing with his theory of surplus value. If the prices of the commodities which are exchanged between town and country are such that they represent equal quantities of labour, then they are equal to their values. Profit and wages on both sides of the exchange cannot, therefore, determine these values, but the division of these values determines profit and wages. That is why Adam Smith finds that the town, which exchanges a smaller quantity of labour against a greater quantity of labour from the countryside, draws excess profit and excess wages compared with the country. This would not be the case if it did not sell its commodities to the country for more than their value. In that case "profits and wages" would not increase "beyond what they otherwise would be". If, therefore, profits and wages are at their natural level, then they do not determine the value of the commodity, but are determined by it. Profit and wages can then only arise from a division of the given value of the commodity which is posited in advance of them; but this value cannot be posited by, cannot result from, profits and wages which are themselves posited in advance of the value.// to them; and a less to those of the country. The price which the town really pays for the provisions and materials annually imported into it, is the quantity of manufactures and other goods annually exported from it. The dearer the latter are sold, the cheaper the former are bought. The industry of the town becomes more, and that of the country less advantageous" ([Garnier,] pp. 258-60) [Vol. I, p. 207].

Thus, according to Smith's presentation of the matter, if the commodities of the town and those of the country were sold in proportion to the quantity of labour which they each contain, then they would be sold at their values, and consequently the profit and wages on both sides of the exchange could not determine these values, but would be determined by them. The levelling out of profits — which vary because of the varying organic composition of capitals — does not concern us here, since it does not lead to differences between profits, but equalises them.

[XI-559] "The inhabitants of a town, being collected into one place, can easily combine together. The most insignificant trades carried on in towns have accordingly, in some place or other, been incorporated" ([Garnier,] p. 261) [Vol. I, p. 208]. "The inhabitants of the country, dispersed in distant places, cannot easily combine together. They have not only never been incorporated, but the corporation spirit never has prevailed among them. No apprenticeship has ever been thought necessary to qualify for husbandry, the great trade of the country" ([Garnier,] p. 262) [Vol. I, p. 209].

In this connection Smith comes to speak of the disadvantages of the "division of labour". The farmer practises a trade requiring more intelligence than the manufacturing worker, who is subject to the division of labour.

"The direction of operations, besides, which must be varied with every change of the weather, as well as with many other accidents, requires much more judgment and discretion than that of those which are always the same or very nearly the same" ([Garnier,] p. 263) [Vol. I, p. 210].

The division of labour develops the social productive power of labour or the productive power of social labour, but at the expense of the general productive ability of the worker. This increase in social productive power confronts the worker therefore as an increased productive power, not of his labour, but of capital, the force that dominates his labour. If the town labourer is more developed than the country labourer, this is only due to the circumstance that his mode of work causes him to live in society, whereas that of the agricultural labourer makes him live directly with nature.

them" (the towns) "against the competition of foreigners" ([Garnier,] I.e.) [Vol. I, p. 212].

This is an act, no longer of the town bourgeoisie, but of the bourgeoisie already legislating on a national scale as the corps de

nation or as the Third Estate of the State Assembly or the Lower House. The specific acts of the town bourgeoisie — directed against the country — are the excise and duties levied at the gates, and, in general, the indirect taxes, which have their origin in the towns (see Hüllmann^[3]), while the direct taxes are of country origin. It might appear that the excise, for example, is a tax which the town imposes indirectly upon itself. The countryman must advance it, but reimburses himself in the price of the product. But this was not the case in the Middle Ages. The demand for his products— in so far as he converted these into commodities and money at all—[was, in so far as it came] from the town, mostly compulsorily restricted to the area under the jurisdiction of the town, so that he did not have the power to raise the price of his product by the full amount of the town tax.

"In Great Britain the superiority of the industry of the towns over that of the country, seems to have been greater formerly than in the present times. The wages of country labour approach nearer to those of manufacturing labour, and the profits of stock employed in agriculture to those of trading and manufacturing stock, than they are said to have done in the last century" (the 17th), "or in the beginning of the present" (the 18th). "This change may be regarded as the necessary, though very late consequence of the extraordinary encouragement given to the industry of the towns. The stock accumulated in them comes in time to be so great, that it can no longer be employed with the ancient profit in that species of industry which is peculiar to them. That industry has its limits like every other; and the increase of stock, by increasing the competition, necessarily reduces the profit. The lowering of profit in the town forces out stock to the country, where, by creating a new demand for country labour, it necessarily raises its wages. /( then spreads itself, if I may say so, over the face of the land, and by being employed in agriculture is in part restored to the country, at the expense of which, in a great measure, it had originally been accumulated in the town" ([Garnier,] pp. 266-67) [Vol. I, pp. 213-14].

In CHAPTER XI of BOOK I, Smith then seeks to determine the NATURAL rate OF RENT, the 3rd element which constitutes the value of the commodity. We shall postpone consideration of this and first return again to Ricardo.b

This much is clear from the foregoing: When Adam Smith identifies the NATURAL PRICE or COST PRICE of the commodity with its VALUE, he does so after first abandoning his correct conception of VALUE, and substituting for it the view which is evoked by and arises from the phenomena of competition. In competition, the COST PRICE and not the VALUE appears as the regulator of the MARKET PRICES—so to speak, as the immanent price, the value of the commodity. But in competition this cost price appears to be represented by the given average rate of wages, profit and rent. Hence Adam Smith tries to establish these separately and independently of the value of the commodity — rather as elements of the NATURAL PRICE. Ricardo, whose main concern has been the refutation of this Smithian [XI-560] ABERRATION, accepts the result that necessarily follows from it — namely the identity OF VALUES AND COST PRICES—although with Ricardo this result is logically impossible.

---

Endnotes

[142] By the "numerical ratio or the proportional size of the categories" Marx understands here the mass of products which each of these categories of manufacturers brings on to the market.—429

[143] "(See Corbet)" was pencilled in by Marx. Here he is referring to Thomas Corbet's book An Inquiry into the Causes and Modes of the Wealth of Individuals.. published in London in 1841, where Corbet states that in industry prices are regulated by the commodities produced under the most favourable conditions, and, in his opinion, these commodities constitute the bulk of all commodities of any given type (see pp. 42-44 of Corbet's book).—429

a But let us leave this aside.— Ed.

(1) See this volume, p. 428.— Ed.

* "With the rise or fall of price, profits are elevated above, or depressed below their general level, and capital is either encouraged to enter into, or is warned to a See this volume, 423-24.— Ed.

* "every man [is] free to employ his capital where he pleases ... [he] will naturally seek for it that employment which is most advantageous; he will naturally be dissatisfied with a profit of 10 per cent, if by removing his capital he can obtain a profit of 15 per cent. This restless desire on the part of all the employers of stock, to quit a less profitable for a more advantageous business, has a strong tendency to equalise the rate of profits of all, or to fix them in such proportions, as may, in the estimation of the parties, compensate for any advantage which one may have, or may appear to have over the other"* (p. 81). This TENDENCY has the effect of distributing the total mass of social labour time among the various spheres of production according to the social need. In this way, the values in the different spheres are at the same time transformed into cost prices, and on the

Credit therefore is the means by which the capital of the whole capitalist class is placed at the disposal of each sphere of production, not in proportion to the capital belonging to the a Cf. this volume, p. 352.— Ed.

[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

[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

[144] See J. B. Say, Traité d'économie politique..., 2nd ed., Vol. 2, Paris, 1814, p. 26, and pp. XIII — 693-694 of the manuscript of 1861-63 (present edition, Vol. 32).—439

[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

a Marx quotes Smith in German. The English term "natural price" is followed by its German equivalent.— Ed. b In the manuscript, this French word is followed by the German word in parenthesis.— Ed. 29-176

[145] Smith assumes here that 10 per cent is the average rate of profit.—442

a Here Marx quotes Smith in German.— Ed.

a The words "a result of his long service" are inserted by Gamier in the French translation.— Ed.

a See present edition, Vol. 32; pp. XIII — 673, 693 of Marx's manuscript.— Ed.

[13] By its substance the text in double oblique lines belongs not to p. VII — 300 but to p. VII — 299 of the manuscript of 1861-63 (see present edition, Vol. 30, pp. 450-51).—13

a In the manuscript: "as capitals grow, profit grows and as they diminish, profit falls".— Ed. b Smith has "the interest of money".— Ed.

a Smith has "rise of profit".— Ed.

"In the same society or neighbourhood, the average and ordinary rates of profit in the different employments of stock should be more nearly upon a level than the pecuniary wages of the different sorts of labour" ([Garnier,] I.e., p. 228) [Vol. I, p. 184]. 3 Friends of commerce (an expression used by Fourier).— Ed.

[31] The cottagers, cottiers—a category of the rural population consisting of poor or landless peasants. In Ireland, the cottiers rented small plots of land and cottages from the landlords or real estate agents on extremely onerous terms. Their position resembled that of farmhands.—77, 453

[146] The reference is to James Steuart's book An Inquiry into the Principles of Political Oeconomy..., Vol. I, Dublin, 1770. It describes the process of transition from the predominantly natural economy of the English countryside to capitalist commodity production, which was accompanied by the transformation of agriculture into a branch of capitalist enterprise, the intensification of labour in agriculture and the expropriation of the rural population. The phrase "time becomes precious" can be found on p. 171 of Steuart's book. Marx also quotes it, alongside other passages, in his manuscript of 1857-58 (see present edition, Vol. 29, p. 234).—453

"In consequence of such regulations" [i.e., regulations made by the guilds], "indeed, each class" (within the town corporate) "was obliged to buy the goods they had occasion for from every other within the town, somewhat dearer than they otherwise might have done. But in recompense, they were enabled to sell their own just as much dearer; so that so far it was as broad as long, as they say; and in the

"They give the traders and artificers in the town an advantage over the landlords, farmers, and labourers in the country, and break down that natural equality which would otherwise take place in the commerce which is carried on between them. The whole annual produce of the labour of the society is annually divided between those two different sets of people. By means of those" (town) "regulations a greater share of it is given to the inhabitants of the town than would otherwise fall

"The superiority which the industry of the towns has everywhere in Europe over that of the country, is not altogether owing to corporations and corporation laws. It is supported by many other regulations. The high duties upon foreign manufactures and upon all goods imported by alien merchants, all tend to the same purpose" ([Garnier,] p. 265) [Vol. I, p. 212]. These "regulations secure

a K. D. Hüllmann, Staedtewesen des Mittelalters, Part Two: Grundverfassung. Bonn, 1827, p. 101 et seq.— Ed. b See this volume, p. 551 et seq.— Ed.

[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

[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