Theories of Surplus Value, Marx 1861-3
With Anderson’s thesis (partly also contained in Adam Smith’s work): It is not […] the rent of the land that determines the price of its produce, but it is the price of that produce which determines the rent of the land…” the doctrine of the Physiocrats was overthrown. The price of the agricultural produce, and neither this produce itself nor the land, had thus become the source of rent. This finished the notion that rent was the offspring of the exceptional productivity of agriculture which again was supposed to be the offspring of the special fertility of the soil. For, if the same quantity of labour was exerted in a particularly productive element and hence was itself exceptionally productive, then the result could only be that this labour manifested itself in a relatively large quantity of products and that the price of the individual product was therefore relatively low; but it could never have the opposite result, namely, that the price of its product was higher than that of other products containing the same quantity of labour and that this price, as distinct from that of other commodities, thus yielded a rent, in addition to profit and wages. (In his treatment of rent Adam Smith to some extent returns to the physiocratic view, having previously refuted or at least rejected it by his original conception of rent as part of surplus-labour.)
Buchanan sums up this discarding of the physiocratic view in the following words:
“The notion of agriculture yielding a produce, and a rent in consequence, because nature concurs with human industry in the process of cultivation, is a mere fancy. It is not from the produce, but from the price at which the produce is sold, that the rent is derived; and this price is got not because nature assists in the production, but because it is the price which suits the consumption to the supply.” [David Buchanan in Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Vol. II, Edinburgh, 1814, p. 55, note; quoted from David Ricardo, On the Principles of Political Economy, and Taxation, third edition, London, 1821, p. 66, note.]
After the rejection of this notion of the Physiocrats—which, however, was fully justified in its deeper sense, because they regarded rent as the only surplus, and capitalists and labourers together merely as the paid employees of the landlord—only the following viewpoints were possible.
||523| [Firstly:] The view that rent arises from the monopoly price of agricultural products, the monopoly price being due to the landowners possessing the monopoly of the land. According to this concept, the price of the agricultural product is constantly above its value. There is a surcharge of price and the law of the value of commodities is breached by the monopoly of landed property.
Rent arises out of the monopoly price of agricultural products, because supply is constantly below the level of demand or demand is constantly above the level of supply. But why does supply not rise to the level of demand? Why does not an additional supply equalise this relationship and thus, according to this theory, abolish all rent? In order to explain this, Malthus on the one hand takes refuge in the fiction that agricultural products provide themselves with direct consumers (about which more later, in connection with his row with Ricardo); on the other hand, in the Andersonian theory, that agriculture becomes less productive because the additional supply costs more labour. Hence, in so far as this view is not based on mere fiction, it coincides with the Ricardian theory. Here too, price stands a b o v e value, surcharge.
[Secondly:] The Ricardian Theory: Absolute rent does not exist, only a differential rent. Here too, the price of the agricultural products that bear rent is above their individual value, and in so far as rent exists at all, it does so through the excess of the price of agricultural products over their value. Only here this excess of price over value does not contradict the general theory of value (although the fact remains) because within each sphere of production the value of the commodities belonging to it is not determined by the individual value of the commodity but by its value as modified by the general conditions of production of that sphere. Here, too, the price of the rent-bearing products is a monopoly price, a monopoly however as it occurs in all spheres of industry and only becomes permanent in this one, hence assuming the form of rent as distinct from excess profit. Here too, it is an excess of demand over supply or, what amounts to the same thing, that the additional demand cannot be satisfied by an additional supply at prices corresponding to those of the original supply, before its prices were forced up by the excess of demand over supply. Here too, rent comes into being (differential rent) because of excess of price over value, [brought about by] the rise of prices on the better land above the value of the product, and this leads to the additional supply.
[Thirdly:] Rent is merely interest on the capital sunk in the land. This view has the following in common with the Ricardian, namely, that it denies the existence of absolute rent. It must admit the existence of differential rent, when pieces of land in which equal amounts of capital have been invested, yield rents of varying size. Hence in fact, it amounts to the Ricardian view, that certain land yields no rent and that where actual rent is yielded, this is differential rent. But it is absolutely incapable of explaining the rent of land in which no capital has been invested, of waterfalls, mines etc. It was, in fact, nothing but an attempt from a capitalist point of view, to save rent despite Ricardo— under the name of interest.
Finally [fourthly]: Ricardo assumes that on the land which does not bear a rent, the price of the product equals its value because it equals the average price, i.e., capital outlay plus average profit. He thus wrongly assumes that the value of the commodity equals the average price of the commodity. If this wrong assumption is dropped, then absolute rent becomes possible because the value of agricultural products, like that of a whole large category of other commodities, stands above their average price, but owing to landed property, the value of the agricultural products, unlike that of these other commodities, is not levelled out at the average price. Hence this view assumes, like the monopoly theory, that property in land, as such, has something to do with rent; it assumes differential rent along with Ricardo, and finally it assumes that absolute rent by no means infringes the law of value.
Ricardo starts out from the determination of the relative va1ues(or exchangeable values) of commodities by “the quantity of labour”. (We can examine later the various senses in which Ricardo uses the term value. This is the basis of Bailey’s criticism and, at the same time, of Ricardo’s shortcomings.) The character of this “labour” is not further examined, If two commodities are equivalents—or bear a definite proportion to each other or, which is the same thing, if their magnitude differs according to the ||524| quantity of “labour” which they contain—then it is obvious that regarded as exchange-values, their substance must be the same. Their substance is labour. That is why they are “values”. Their magnitude varies, according to whether they contain more or less of this substance. But Ricardo does not examine the form—the peculiar characteristic of labour that creates exchange-value or manifests itself in exchange-values—the nature of this labour. Hence lie does not grasp the connection of this labour with money or that it must assume the form of money. Hence he completely fails to grasp the connection between the determination of the exchange-value of the commodity by labour-time and the fact that the development of commodities necessarily leads to the formation of money. Hence his erroneous theory of money. Right from the start he is only concerned with the magnitude of value, i.e., the fact that the magnitudes of the va1ues of the commodities are proportionate to the quantities of labour which are required for their production. Ricardo proceeds from here and he expressly names Adam Smith as his starting-point (Chapter I, Section I).
Ricardo’s method is as follows: He begins with the determination of the magnitude of the value of the commodity by labour-time and then examines whether the other economic relations and categories contradict this determination of value or to what extent they modify it. The historical justification of this method of procedure, its scientific necessity in the history of economics, are evident at first sight, but so is, at the same time, its scientific inadequacy. This inadequacy not only shows itself in the method of presentation (in a formal sense) but leads to erroneous results because it omits some essential links and directly seeks to prove the congruity of the economic categories with one another.
Historically, this method of investigation was justified and necessary. Political economy had achieved a certain comprehensiveness with Adam Smith; to a certain extent he had covered the whole of its territory, so that Say was able to summarise it all in one textbook, superficially but quite systematically. The only investigations that were made in the period between Smith and Ricardo were ones of detail, on productive and unproductive labour, finance, theory of population, landed property and taxes. Smith himself moves with great naïveté in a perpetual contradiction. On the one hand he traces the intrinsic connection existing between economic categories or the obscure structure of the bourgeois economic system. On the other, he simultaneously sets forth the connection as it appears in the phenomena of competition and thus as it presents itself to the unscientific observer just as to him who is actually involved and interested in the process of bourgeois production. One of these conceptions fathoms the inner connection, the physiology, so to speak, of the bourgeois system, whereas the other takes the external phenomena of life, as they seem and appear and merely describes, catalogues, recounts and arranges them under formal definitions. With Smith both these methods of approach not only merrily run alongside one another, but also intermingle and constantly contradict one another. With him this is justifiable (with the exception of a few special investigations, [such as] that into money) since his task was indeed a twofold one. On the one hand he attempted to penetrate the inner physiology of bourgeois society but on the other, he partly tried to describe its externally apparent forms of life for the first time, to show its relations as they appear outwardly and partly he had even to find a nomenclature and corresponding mental concepts for these phenomena, i.e., to reproduce them for the first time in the language and [in the] thought process. The one task interests him as much as the other and since both proceed independently of one another, this results in completely contradictory ways of presentation: the one expresses the intrinsic connections more or less correctly, the other, with the same justification—and without any connection to the first method of approach—expresses the apparent connections without any internal relation. Adam Smith’s successors, in so far as they do not represent the reaction against him of older and obsolete methods of approach, can pursue their particular investigations and observations undisturbedly and can always regard Adam Smith as their base, whether they follow the esoteric or the exoteric part of his work or whether, as is almost always the case, they jumble up the two. But at last Ricardo steps in and calls to science: Halt! The basis, the starting-point for the physiology of the bourgeois system—for the understanding of its internal organic coherence and life process—is the determination of value by labour-time. Ricardo starts with this and forces science to get out of the rut, to render an account of the extent to which the other categories—the relations of production and commerce—evolved and described by it, correspond to or contradict this basis, this starting-point; to elucidate how far a science which in fact only reflects and reproduces the manifest forms of the process, and therefore also how far these manifestations themselves, correspond to the basis on which the inner coherence, the actual physiology of bourgeois society rests or the basis which forms its starting-point; and in general, to examine how matters stand with the contradiction between the apparent and the actual movement of the system. This then is Ricardo’s ||525| great historical significance for science. This is why the inane Say, Ricardo having cut the ground from right under his feet, gave vent to his anger in the phrase that “under the pretext of expanding it” (science) “it had been pushed into a vacuum”. Closely bound up with this scientific merit is the fact that Ricardo exposes and describes the economic contradiction between the classes—as shown by the intrinsic relations—and that consequently political economy perceives, discovers the root of the historical struggle and development. Carey (the passage to be looked up later) therefore denounces him as the father of communism.
“Mr. Ricardo’s system is one of discords …its whole tends to the production of hostility among classes and nations… His hook is the true manual of the demagogue, who seeks power by means of agrarianism, war, and plunder.” (H. C. Carey, The Past, the Present, and the Future, Philadelphia, 1848, pp. 74-75.)
Thus it follows on the one hand that the Ricardian method of investigation is scientifically justified and has great historical value, on the other hand the scientific deficiencies of his procedure are clearly visible and will become more evident in what follows later.
Hence also the very peculiar and necessarily faulty architectonics of his work. The whole work consists of 32 chapters (in the third edition). Of this, 14 chapters deal with taxes, thus dealing only with the application of the theoretical principles. The twentieth chapter, “Value and Riches, Their Distinctive Properties” is nothing but an examination of the difference between use-value and exchange-value, i.e., a supplement to the first chapter, “On Value”. The twenty-fourth chapter “Doctrine of Adam Smith Concerning the Rent of Land”, like the twenty-eighth chapter “On the Comparative Value of Gold, Corn and Labour…” and the thirty-second chapter “Mr. Malthus’s Opinions on Rent” are mere supplements to, and in part a vindication of, Ricardo’s rent theory, thus forming mere appendices to chapters II and III which deal with rent. The thirtieth chapter “On the Influence of Demand and Supply on Prices” is simply an appendix to the fourth chapter “On Natural and Market-Price.” The nineteenth chapter, “On Sudden Changes in the Channels of Trade”, forms a second appendix to this chapter. The thirty-first chapter, “On Machinery”, is purely an appendix to the fifth and sixth chapters “On Wages” and “On Profits”. The seventh chapter, “On Foreign Trade”, and the twenty-fifth, “On Colonial Trade”—like the chapters on taxes—are mere applications of previously established principles. The twenty-first chapter “Effects of Accumulation on Profits and Interest” is an appendix to the chapters on rent, profits and wages. The twenty-sixth chapter “On Gross and Net Revenue” is an appendix to the chapters on wages, profits and rent. Finally, the twenty-seventh chapter “On Currency and Banks” stands quite apart from the rest of the work and merely consists of further explanations and in part modifications of views put forward in his earlier writings on money.
The Ricardian theory is therefore contained exclusively in the first six chapters of the work. It is in respect of this part of the work that I use the term faulty architectonics. The other part (with the exception of the section on money) consists of applications, elucidations and addenda which, by their very nature, are jumbled together and make no claim to being systematically arranged. But the faulty architectonics of the theoretical part (the first six chapters) is not accidental, rather it is the result of Ricardo’s method of investigation itself and of the definite task which he set himself in his work. It expresses the scientific deficiencies of this method of investigation itself.
Chapter I is “On Value”. It is subdivided into seven sections. The first section actually examines whether wages contradict the determination of the values of commodities by the labour-time they contain. In the third section Ricardo demonstrates that the entry of what I call constant capital into the value of the commodity does not contradict the determination of value and that the values of commodities are equally unaffected by the rise or fall in wages. The fourth section examines to what extent the determination of exchangeable values by labour-time is altered by the application of machinery and other fixed and durable capital, in so far as it enters into the total capital in varying proportions in different spheres of production. The fifth section examines how far a rise or fall in wages modifies the determination of values by labour-time, if capitals of unequal durability and varying periods of turnover are employed in different spheres of production. Thus one can see that in this first chapter not only are commodities assumed to exist—and when considering value as such, nothing further is required—but also wages, capital, profit, the general rate of profit and even, as we shall see, the various forms of capital as they arise from the process of circulation, and also the difference between “natural and market-price”. This latter, moreover, plays a decisive role in the following chapters, Ch. II and Ch. III: “On Rent” and “On the Rent of Mines”. In accordance with his method of investigation, the second chapter, “On Rent” ||526| —the third “On the Rent of Mines” is only a supplement to this—again opens with the question: Does landed property, and rent, contradict the determination of the value of commodities by labour-time?
This is how he opens the second chapter “On Rent”:
“It remains however to be considered, whether the appropriation of land, and the consequent creation of rent, will occasion any variation in the relative value of commodities, independently of the quantity of labour necessary to production” (Principles of Political Economy, third edition, London, 1821, p. 53).
In order to carry out this investigation, he introduces not only, en passant, the relationship of “market-price” and “real price” ( monetary expression of value) but postulates the whole of capitalist production and his entire conception of the relationship between wages and profit. The fourth chapter “On Natural and Market-Price” and the fifth “On Wages” and the sixth “On Profits” are thus not only taken for granted, but fully developed in the first two chapters “On Value” and “On Rent” and in Chapter III as an appendix to II. The later three chapters, in so far as they bring any new theoretical points, fill in gaps here and there, and provide closer definitions, which for the most part should by rights have found their place in [chapters] I or II.
Thus the entire Ricardian contribution is contained in the first two chapters of his work. In these chapters, the developed relations of bourgeois production, and therefore also the developed categories of political economy, are confronted with their principle—the determination of value—and examined in order to determine the degree to which they directly correspond to this principle and the position regarding the apparent discrepancies which they introduce into the value relations of commodities. They contain the whole of his critique of hitherto existing political economy, the determined break with the contradiction that pervades Adam Smith’s work with its esoteric and exoteric method of approach, and, at the same time, because of this critique, they produce some quite new and startling results. Hence the great theoretical satisfaction afforded by these first two chapters; for they provide with concise brevity a critique of the old, diffuse and meandering political economy, present the whole bourgeois system of economy as subject to one fundamental law, and extract the quintessence out of the divergency and diversity of the various phenomena. But this theoretical satisfaction afforded by these first two chapters because of their originality, unity of fundamental approach, simplicity, concentration, depth, novelty and comprehensiveness, is of necessity lost as the work proceeds. Here too, we are at times captivated by the originality of certain arguments. But as a whole, it gives rise to weariness and boredom. As the work proceeds, there is no further development. Where it does not consist of monotonous formal application of the same principles to various extraneous matters, or of polemical vindication of these principles, there is only repetition or amplification; at most one can occasionally find a striking chain of reasoning in the final sections.
In the critique of Ricardo, we have to separate what he himself failed to separate. [Firstly] his theory of surplus-value, which of course exists in his work, although he does not define surplus-value as distinct from its particular forms, profit, rent, interest. Secondly, his theory of profit. We shall begin with the latter, although it does not belong into this section, but into the historical appendix to Section III.
Before we go on, just a few comments on how Ricardo confuses the definitions of “value”. Bailey’s polemic against him is based on this; it is however also important for us.
First of all Ricardo speaks of “value in exchange” (l.c., p. 1) and, like Adam Smith, defines it as “the power of purchasing other goods” (l.c., p. 1). This is exchange-value as it appears at first. Then, however, he proceeds to the real determination of value:
“It is the comparative quantity of commodities which labour will produce, that determines their present or past relative value” (l.c., p. 9).
“Relative value” here means nothing other than the exchangeable value as determined by labour-time. But relative value can also have another meaning, namely, if I express the exchange-value of a commodity in terms of the use-value of another, for instance the ‘exchange-value of sugar in terms of the use-value of coffee.
“Two commodities vary in relative value, and we wish to know in which the variation has […] taken place” (l.c., p. 9).
Which variation? Ricardo later also calls this “relative value” “comparative value” (p. 448 et seq.). We want to know in which commodity “the variation” has taken place. This means the variation of the “value” which was called “relative value” above. For instance, 1 pound of sugar equals 2 pounds of coffee. Later 1 pound of sugar equals 4 pounds of coffee. The “variation” which we want to know about is: whether the “necessary labour-time” has altered for sugar or for coffee, whether sugar costs twice as much labour-time as before or whether coffee costs half as much labour-time as before and which of these “variations” in the labour-time required for their respective production has called forth this variation in their exchange relation. This “relative or comparative value” of sugar and coffee—the ratio in which they exchange—is thus different from relative value in the first sense. In the first sense, the relative value of sugar is determined by the quantity of sugar which can be produced by a certain amount of labour-time ||527|. In the second case, the relative value of sugar [and coffee] expresses the ratio in which they are exchanged for one another and changes in this ratio can be the result of a change in the “relative value” in the first sense, in coffee or in sugar. The proportion in which they exchange for one another can remain the same, although their “relative values” in the first sense have altered, 1 lb. sugar can equal 2 lbs. coffee, as before, even though the labour-time for the production of sugar and of coffee has risen to double or has fallen to a half. Variations in their comparative value, that is, if the exchange-value of sugar is expressed in coffee, and vice versa, will only appear when the variations in their relative value in the first sense, i.e., the values determined by the quantity of labour, have altered to a different extent, when therefore comparative changes have occurred. Absolute changes, when they do not alter the original ratio, but are of equal magnitude and move in the same direction, will not call forth any variation in the comparative values—nor in the money prices of these commodities, since, if the value of money should change, it would do so equally for both [commodities]. Hence, whether the values of two commodities are expressed in their own reciprocal use-values or in their money price—representing both commodities in the form of the use-value of a third commodity—these relative or comparative values or prices are the same, and the changes in them must be distinguished from changes in their relative values in the first sense of the term, i.e., in so far as they only express the change in the labour-time required for their own production, and thus realised in themselves. The latter relative value thus appears as “absolute value” compared with relative values in the second sense, i.e., in the sense of actually representing the exchange-value of one commodity in terms of the use-value of the other or in money. That is why the term “absolute value” occurs in Ricardo’s work, to denote “relative value” in the first sense.
If, in the above example, 1 lb. sugar costs the same amount of labour-time as before, then its “relative value” in the first sense has not altered. If, however, the labour cost of coffee has halved, then the value of sugar expressed in terms of coffee has altered, because the “relative value” of coffee, in the first sense, has altered. The relative values of sugar and coffee thus appear to be different from their “absolute values” and this difference becomes evident because the comparative value of sugar, for instance, has not altered in comparison with commodities whose absolute values have remained unchanged.
“The inquiry to which I wish to draw the reader’s attention, relates to the effect of the variations in the relative value of commodities, and not in their absolute value” (l.c., p. 15).
At times Ricardo also calls this “absolute”’ value “real value”’ or simply value (for instance on p. 16).
See the whole of Bailey’s polemic against Ricardo in:
A Critical Dissertation on the Nature, Measures and Causes of Value; chiefly in reference to the Writings of Mr. Ricardo and his Followers. By the Author of Essays on the Formation and Publication of Opinions, London, 1825. (See also his A Letter to a Political Economist; occasioned by an article in the Westminster Review etc., London, 1826.) [Bailey’s polemic] partially revolves around these different instances of definitions of value, which are not explained by Ricardo but only occur de facto and are confused with one another, and Bailey sees in this only “contradictions”. Secondly, [Bailey’s polemic is directed] against “absolute value” or “real value” as distinct from comparative value (or relative value in the second sense).
In the first of the above-mentioned works, Bailey says:
“Instead of regarding value as a relation between two objects, they”( Ricardo and his followers) “consider it as a positive result produced by a definite quantity of labour.” (Samuel Bailey, A Critical Dissertation on the Nature, Measures and Causes of Value, London, 1825, p. 30.)
They regard “value as something intrinsic and absolute” (l.c., p. 8).
The latter reproach arises from Ricardo’s inadequate presentation, because he does not even examine the form of value—the particular form which labour assumes as the substance of value. He only examines the magnitudes of value, the quantities of this abstract, general and, in this form social, labour which engender differences in the magnitudes of value of commodities. Otherwise Bailey would have recognised that the relativity of the concept of value is by no means negated by the fact that all commodities, in so far as they are exchange-values, are only relative expressions of social labour-time and their relativity consists by no means solely of the ratio in which they exchange for one another, but of the ratio of all of them to this social labour which is their substance.
On the contrary, as we shall see, Ricardo is rather to be reproached for very often losing sight of this “real” or “absolute value” and only retaining “relative” and “comparative values”.
||528| Thus:
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 instruments 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 I call 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.” (David Ricardo, On the Principles of Political Economy, and Taxation, third edition, London, 1821, 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 “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 instruments 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 auxiliary material—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 directly affects the 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 capital 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 capital 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 spheres of production, ||529| in other words, 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 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 plus 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 premise he goes on to the consideration of rent.
Ricardo is also mistaken when he thinks that it is only [through] the three cases he examines that he discovers the “variations” in the “relative values” that 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 composition 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; that “the relative values” of the commodities are determined by labour-time does not contradict the law; for all other changes— changes 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”.
1. “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” (l.c., 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.
||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”. 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” (l.c., 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” (l.c., 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* 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” (l.c., 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.” (l.c., 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 he very unequal. One may have steam-engines of the value of £10,000 the other, ships of the same value” (l.c., 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” (l.c., p. 30).
5.“It is hardly necessary to say, that commodities which have the same quantity of labour bestowed on[a] their production, will differ in exchangeable value, if they cannot be brought to market in the same time” (l.c., 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 labour-process or without any difference between production period and labour period) 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; be 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 some quantity of labour bestowed on them, one of which sells for £2,310—the other for £2,200” (l.c., p. 34).
||531| But how is a change in the relative values of these commodities brought about by this difference—whether in the degree of durability of fixed capital, or in the period of turnover of circulating capital, or in the proportions in which the two sorts of capital may be combined or, finally, in the time required by different commodities upon which the same quantity of labour is bestowed [to come on to the market]. Ricardo says in the first place, 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” (l.c., 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” (l.c., p. 27).
Namely when capitals of equal size are employed in different industries, and one capital consists chiefly of fixed capital and contains only a small amount of capital “employed in the support of labour” (l.c., p. 27), 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 1/5 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 is 20 per cent. On the other hand, another man, who lays out 4/5 in variable capital would produce a surplus-value of 16 [on 100]. For in the first example the capital laid out in wages is 100/5 = 20 and 1/5 of 20 or 20 per cent is 4. And in the second example, the capital laid out in wages equals 4/5 × 100 = 80. And 1/5 of 80 or 20 per cent = 16. In the first example the profit would be 4, in the second 16. The average profit for both would be (16+4)/2 or 20/2 = 10 per cent. 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 per cent. 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 10/13 per cent. 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 changes have to take place in order that the one who lays out £80 of his capital of 100 in wages does not make four 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 profit, any alteration of the rate of profit, due 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 of the one must rise and of the other must fall, if the rate of profit—or the cost-prices—is to remain the same.
Ricardo’s first illustration has absolutely nothing to do with “ a 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:
“Suppose two men employ one hundred men each for a year in the construction of two machines, and another man employs the same number of men in cultivating corn, each of the machines at the end of the year will be of the same value as the corn, for they will each be produced by the same quantity of labour. Suppose one of the owners of one of the machines to employ it, with the assistance of one hundred men, the following year in making cloth, and the owner of the 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 ||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 he of the value of £ 500 the machine and cloth of the clothier together, ought to he 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 of 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 he 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 wilt 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”[l.c., pp. 29-30].
<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.>
“Here then are capitalists employing precisely the same quantity of labour annually on the production of their commodities, and yet the goods they produce differ in value on account of the different quantities of fixed capital, or accumulated labour, employed by each respectively” (l.c., pp. 30-31).
<Not on account of that, but on account of both those ragamuffins having the fixed idea that both of them must draw the same spoils from “the support they have given to labour”; or that, whatever the respective values of their commodities, those commodities must be sold at average prices, giving each of them the same rate of profit.>[b]
“The cloth and cotton goods are of the same value, because they are the 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” (l.c., p. 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 a clearer understanding, that Ricardo “presupposes” that the farmer and the cotton manufacturer 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-manufacturer 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 second £10,500; the second ||533| thus spends as much again as the first. If therefore both are to make a profit of 10 per cent, 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—in so far as they are determined by the value of the outlay embodied in the commodities plus the same annual rate 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 values 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” (l.c., 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”. On the other hand it is correct (though very wrong to introduce the term surreptitiously with an “or”) that they employ “accumulated labour”, i.e., materialised 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, and 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 capitalists employing precisely the same quantity of labour annually on the production of their commodities, and yet the goods they produce differ in value” (l.c., pp. 30-31).
This means that they do not employ the same quantity of labour—immediate and accumulated labour taken together—but they do 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., existing commodities, 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. The cotton-manufacturer would have to sell his commodity for £5,500, like the farmer, although he lays out more than twice as much capital. And 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 per cent, while the farmer makes 10. But with these unequal profits, the farmer and the manufacturer would have sold the commodities at their values, provided that the 10 per cent 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 per cent 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, for instance, 15 per cent and both add the average of 10 per cent 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, [namely] 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 the 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” [l.c., pp. 30-31.]
But the idea foreshadowed in this passage is never clearly stated by Ricardo, It only explains the meanderings and obvious fallaciousness of the illustration, which up to this point had nothing to do 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 a hundred men; the farmer, meanwhile, produces corn, also with a hundred men. In the second year the manufacturer uses the machine to manufacture cotton, for which he again employs a hundred men. The farmer, on the other hand, again employs a hundred 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 equals 25 per cent [of the labour paid for], i.e., [of] 400 = 100. Then at the end of the first year, the machine would also be worth £500, of which £400 would be paid labour and £100 the value of the unpaid labour. Let us ||534| assume that by the end of the second year, the whole of the machine has been used up, has passed into the value of the cotton. In fact Ricardo assumes this, in that, at the end of the second 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 ”[l.c., p. 29].
Well then. At the end of the second year, the value of the cottons must be equal to £1,000, namely, £500 the value of the machine, and £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 value. The cotton-manufacturer makes a profit of 25 per cent just as the corn-manufacturer does. But the commodities of the former equal £1,000 and those of the latter equal £500, 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 1/5 of the labour of the workers who constructed it, without paying for it—are only realised for him in the second 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. The 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 and 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 per cent [profit] and the manufacturer sold his cotton above its value. Let us do without the two 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-manufacturer. Ricardo’s 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 their capitals, while that of the farmer has been expended and enjoyed” [l.c., p. 30].
(This latter bourgeois extenuating phrase is here quite meaningless from a theoretical standpoint. Moral considerations have nothing to do with the matter.)
“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 he 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” (l.c., p. 30).
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 per cent. 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 per cent, 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. On 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 second half. But then it is clear that this second half does not make a profit of 25 per cent, 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 per cent for the manufacturer and below 25 per cent 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 second year. Then, with a profit of 25 per cent, he has made £100 on the £400 laid out in the first year, and £225 in the second, altogether £325. As against this, the manufacturer makes 25 per cent on the £400 in the first year, but in the second only £100 on £900, i.e., only 11 1/9 per cent (since only the £400 laid out in labour yield surplus-value, whereas the £500 in machinery yield none). Or let us suppose the farmer lays out £400 again, then he has made 25 per cent in the first year as well as in the second; which taken together is 25 per cent or £200 on an outlay of £800 in two years. As against this, the manufacturer will have made 25 per cent in the first year and 11 1/9 in the second; i.e., £200 on an outlay of £ 1,300 in two years which amounts to 15 5/13 per cent. If this were levelled out, the manufacturer would receive 20 5/26 per cent and so would the farmer. In other words, this would be the average profit. This would result in [a price of] less than £500 for the farmer’s commodity and more than £1,000 for the manufacturer’s commodity.
||535| At all events, the manufacturer here lays out £400 in the first year and £900 in the second, while the farmer lays out only £400 on each occasion. If the manufacturer instead of producing cotton had built a house (if he were a builder) then at the end of the first year, the unfinished house would embody £500 and he would have to spend a further £400 on labour in order to complete it. The farmer, however, whose capital turned over within the year, can recapitalise a part, say 50, of his £100 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” (p. 30) or “on account of the time which must elapse before one set of commodities can be brought to market” (p. 30). 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. The 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. The farmer, however, could employ a greater variable capital in the second 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 second. The latter must therefore spend an additional amount of capital for his keep which he advances to himself. Incidentally, whether in the second case 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” (l.c., pp. 34-35).
It is not only the same “in fact”, but “in appearance” too, except that 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 second. 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 second. 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, the fable turns on the fact that one of the men lays out in the second year the whole of the product of the first (including surplus-value) plus 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 third example is supposed to illustrate something different, but in reality illustrates the same thing. The second example of the first ||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 this 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” (l.c., p. 35).
What does this mean, other than that in a definite period of circulation, for instance a year, a capital must yield 10 per cent 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 branches of production, 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 appropriate equal quantities of unpaid labour and convert these into money, still varies in accordance with their turnover period. Thus arises a second difference in the values, surplus-values and profits which capitals of equal size must yield in different branches of production 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 equal 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 spheres of production does not affect the absolute size of this total surplus-value; but merely alters its distribution among the different spheres of production. 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 per cent or 10 per cent.
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 fifth chapter and profits in the sixth. 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 factor 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 ||537| theory of value. Malthus correctly remarks that the differences between the organic component parts of capital and the turnover periods of capitals in different branches of production 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).
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 per cent; his commodity equals £5,500. If the profit falls by 1 per cent 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 14/109 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 95/109 and on this he makes a profit of only £454 14/109, like the farmer. On the other hand he can no longer reckon 10 per cent or £550 on his fixed capital of £5,500 but only 9 per cent 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 per cent 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, l.c., 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. (J.R. McCulloch [The Principles of Political Economy, Edinburgh, 1825, p. 300].) If the capitalists who employ less variable capital were to continue to chalk up 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 endeavoured to analyse and discover the effects of fluctuations in the rate of wages on the value of commodities, when the capitals employed in their production were not of the same degree of durability.” “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” (l.c., pp. 298-99).
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”. (David Ricardo, On the Principles of Political Economy, and Taxation, third edition, London, 1821, p. 31.)
Thus already in Chapter I “On Value”, those laws are presupposed, which in chapters V and VI “On Wages” and “On Profits” should be deduced from the Chapter “On Value”. Incidentally, ||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 equals 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 up surplus-value and profit. Hence he arrives at erroneous laws on profit and the rate of profit.
The general conclusion of the last illustration is as follows:
“The degree of alteration in the relative value of goods, on account of a rise or fall of labour” (or, which amounts to the same thing, rise or fall in the rate of 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” (l.c., 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 changes in the values of commodities, that is changes in the quantity of labour employed in their production (Ricardo is far from expressing this truth in these adequate terms). One can therefore, by and large, “abstract” from this and, accordingly, the law of value remains virtually correct. (He should have added that the cost-prices remain unintelligible without values determined by labour-time.) 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—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. {And these cost-prices must not be confused with market-prices: they are the average market-prices of the commodities in the different branches of production. 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 average, must therefore often sell their commodity not only below its value but below its cost price.}
“The reader, however, should remark, that this cause of the variation of commodities” (this should read variations of cost-prices or, as he calls them, relative va1ues 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…“ (l.c., pp. 32-33).
He therefore takes no further account of this.
The whole of this Section IV of Chapter I “On Value” is so extraordinarily confused, that, although Ricardo announces at the start that he intends to consider the variations in the va1ues of commodities brought about by the rise or fall in wages in conjunction with different 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 ||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. He forgets this again at the end of the section.
He 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 proportion 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” (l.c., pp. 25-26).
In fact, he shows by his illustrations, in the first place, that it is only the general rate of profit which enables the different combinations of types 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—only 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 he 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 he the fall” (l.c., 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 capitals of equal size employed in two different spheres of production, but when there is “unequal durability of the capital”[c] or “unequal rapidity with which it is returned to its employer”[d] [l.c., p. 36]. 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 capital 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” (l.c., p. 36).
Thus 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 factor 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 process of creating value. 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 fixed capital] and the differences [in the period of circulation].
Less durable capital constantly requires a greater quantity of labour,
“to keep it in its original state of efficiency; but the labour so bestowed may be considered as really expended on the commodity manufactured, which must bear a value in proportion to such labour”. (l.c., pp. 36-37.)”…if the wear and tear of the machine were great, if the quantity of labour requisite to keep it in an efficient state were that of fifty men annually, I should require an additional price for my goods, equal to that which would be obtained by any other manufacturer who employed fifty men in the production of other goods, and who used no machinery at all. But a rise in the wages of labour would not equally affect commodities produced with machinery quickly consumed, and commodities produced with machinery slowly consumed, In the production of the one, a great deal of labour would be continually transferred to the commodity produced…” [l.c., p. 37].
<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” [l.c., p. 37].
<Hence very little surplus-labour, hence much less [surplus]-value, if the commodities exchanged according to their values.>
“Every rise of wages, therefore, or, which is the same thing, ||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” (l.c., pp. 37-38).
In other words: The 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 “On Machinery”.
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 in the passages we are about to quote, returns again to his dominating idea of the effect of a change 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 he 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” [l.c., p. 40].
<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 fall or rise.>
“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 he liable to rise or fall relatively to each other, as more or less labour becomes necessary to their production, they will he 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” (l.c., 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 means of production. The same quantities of labour, therefore equal values (apart from the difference which might arise through the circulation process) are then embodied in their commodities. On 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 [newly added] 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 and 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 commodities (as determined by the general rate of profit on a given outlay) must be very different from the values of the commodities. 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 ||541| in the different spheres of production 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:
“Mr. Malthus appears to think that it is a part of my doctrine, that the cost and value of a thing should be the same;—it is, it he means by cost, ‘cost of production’ including profits” (l.c., p. 46, note). (That is, outlay plus profit as determined by the general rate of profit.)
With this erroneous confusion of cost-prices and values, which he has himself refuted, he 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?” (l.c., 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 profits, 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 branches of production 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. He 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” [l.c., p. 45].
<This corresponds to Adam Smith’s second explanation of value, according to which it is equal to the quantity of labour a commodity can purchase.>
“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 equivalent to the expression of the value in money), “and that all those which had more, would positively 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” (l.c., p. 45).
With regard to money prices this seems wrong. When gold rises or falls in value, from whatever causes, then it does so to the same extent for all commodities which are reckoned in gold. Since it thus represents a relatively unchangeable medium despite its changeability, 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 gold 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 [living] labour—as against accumulated labour—as wheat, would show its rise [in price] by being expressed in more wheat ||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 has risen 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 quarter of wheat has risen from 40s. to 50s., i.e., by 25 per cent. If the dress has also risen by 25 per cent, then it is worth 1 quarter of wheat as before. If the cotton has fallen by 25 per cent, then the same amount of cotton which was previously worth 1 quarter is now only worth 6 bushels of wheat. 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 quarter 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” [l.c., p. 41] 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.
“When commodities varied in relative value, it would be desirable to have the means of ascertaining which of them fell and which rose in real value, and this could be effected only by comparing them one after another with some invariable standard measure […], which should itself be subject to none of the fluctuations to which other commodities are exposed.” (l.c., pp. 41-42). But “…there is no commodity 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” (l.c., p. 42).
Even if there were such a commodity, the influence of the rise or fall in wages, the 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… “It would be a perfect measure of value for all things produced under the same circumstances precisely as itself, but for no others” (l.c., p. 43).
That is to say, if the [prices of this latter group of] “things” varied, we could say (provided the value of money did not rise or fall) that the variations were 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 due 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.)
Chapter I, Section VII. Apart from the important doctrine on “relative” wages, profits and rents, to which we shall return later, 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. The same applies 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. The changes in the monetary expression affect profit and 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” (l.c., p. 47).
||543| In developing his theory of differential rent, in Chapter II, “On 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 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” (l.c., pp. 60-61).
The last sentence is not entirely correct. The “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.
The thesis set out above can be expressed in general terms as follows: The 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. The 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, The 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 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 three categories. Some produce under medium conditions, i.e., the individual conditions of production under which they produce coincide with the general conditions of production in the sphere. The average conditions are their actual conditions. The productivity of their labour is at the average level. The 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 the 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, that is, this quantity is only required at a given price—or at least within certain limits of price. Hence it 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. If numerically the middle category greatly outweighs the others it will determine [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 determines the general value of the produce of