XVI. Ricardo’s Theory of Profit

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[1. Individual Instances in Which Ricardo Distinguishes Between Surplus-Value and Profit][edit source]

It has already been shown in some detail, that the laws of surplus-value—or rather of the rate of surplus-value—(assuming the working-day as given) do not so directly and simply coincide with, nor are they applicable to, the laws of profit, as Ricardo supposes. It has been shown that he wrongly identifies surplus-value with profit and that these are only identical in so far as the total capital consists of variable capital or is laid out directly in wages; and that therefore what Ricardo deals with under the name of “profit” is in fact surplus-value. Only in this case can the total product simply be resolved into wages and surplus-value. Ricardo evidently shares Smith’s view, that the total value of the annual product resolves itself into revenues. Hence also his confusion of value with cost-price.

It is not necessary to repeat here that the rate of profit is not directly governed by the same laws as the rate of surplus-value.

Firstly: We have seen that the rate of profit can rise or fall as a result of a fall or rise in rent, independently of any change in the value of labour.

Secondly: The absolute amount of profit is equal to the absolute amount of surplus-value. The latter, however, is determined not only by the rate of surplus-value but just as much by the number of workers employed. The same amount of profit is therefore possible, with a falling rate of surplus-value and a rising number of workers and vice versa, etc.

Thirdly: With a given rate of surplus-value, the rate of profit depends on the organic composition of capital.

Fourthly: With a given surplus-value (the organic composition of capital per £ 100 is also assumed to be given) the rate of profit depends on the relative value of the different parts of the capital, which may be differently affected, partly by economy of power etc. in the use of the means of production, partly by variations in value which may affect one part of capital while they leave the rest untouched.

Finally, one has to take into account the differences in the composition of capital arising from the process of circulation.

||667| Some of the observations that occur in Ricardo’s writing should have led him to the distinction between surplus-value and profit. Because he fails to make this distinction, he appears in some passages to descend to the vulgar view—as has already been indicated in the analysis of Chapter I “On Value”—the view that profit is a mere addition over and above the value of the commodity; for instance when he speaks of the determination of profit on capital in which the fixed capital predominates, etc.[1] This was the source of much nonsense among his successors. This vulgar view is bound to arise, if the proposition (which in practice is correct) that on the average, capitals of equal size yield equal profits or that profit depends on the size of the capital employed, is not connected by a series of intermediary links with the general laws of value etc.: in short, if profit and surplus-value are treated as identical, which is only correct for the aggregate capital. Accordingly Ricardo has no means for determining a general rate of profit.

Ricardo realises that the rate of profit is not modified by those variations of the value of commodities which affect all parts of capital equally as, for example, variations in the value of money. He should therefore have concluded that it is affected by such variations in the value of commodities which do not affect all parts of capital equally; that therefore variations in the rate of profit may occur while the value of labour remains unchanged, and that even the rate of profit may move in the opposite direction to variations in the value of labour. Above all, however, he should have kept in mind that here the surplus-product, or what is for him the same thing, surplus-value, or again the same thing, surplus-labour, when he is considering it sub specie profit, is not calculated in proportion to the variable capital alone, but in proportion to the total capital advanced.

With reference to a change in the value of money, he says:

“The variation in the value of money, however great, makes no difference in the rate of profits; for suppose the goods of the manufacturer to rise from £ 1,000 to £ 2,000, or 100 per cent, if his capital, on which the variations of money have as much effect as on the value of produce, if his machinery, buildings, and stock in trade rise also 100 per cent, his rate of profits will be the same…

“If, with a capital of a given value, he can, by economy in labour, double the quantity of produce, and it fall to half its former price, it will bear the same proportion to the capital that produced it which it did before and consequently profits will still be at the same rate.

“If, at the same time that he doubles the quantity of produce by the employment of the same capital, the value of money is by any accident lowered one half, the produce will sell for twice the money value that it did before; but the capital employed to produce it will also be of twice its former money value; and therefore in this case too, the value of the produce will bear the same proportion to the value of the capital as it did before.” (David Ricardo, On the Principles of Political Economy, and Taxation, third edition, London, 1821, pp. 51–52.)

If Ricardo means surplus produce when he writes produce in the last passage then this is correct. For the rate of profit is equal to the surplus produce (value) divided by the capital employed. Thus if the surplus produce is 10 and the capital 100, the rate of profit is 10/100, which equals 1/10, which equals 10 per cent. If however he means the total product, then the way he puts it is not accurate. In that case by proportion of the value of the produce to the value of capital, he evidently means nothing but the excess of the value of the commodity over the value of the capital advanced. In any case, it is obvious that here he does not identify profit with surplus-value or the rate of profit with the rate of surplus-value, [the latter is] equal to the surplus-value divided by the value of labour or the variable capital. Ricardo says (Chapter XXXII):

“The raw produce of which commodities are made, is supposed to have fallen in price, and, therefore, commodities will fall on that account. True, they will fall, but their fall will not he attended with any diminution in the money income of the producer. If he sell his commodity for less money, it is only because one of the materials from which it is made has fallen in value. If the clothier sell his cloth for £ 900 instead of £ 1,000, his income will not be less, if the wool from which it is made, has declined £ 100 in value” (l.c., p. 518).

(The particular point with which Ricardo is actually dealing, the effect in a practical case, does not concern us here. But a sudden fall in the value of wool would of course affect (adversely) the money income of those clothiers who had on their hands a large stock of finished cloth manufactured at a time when wool was dearer and which has to be sold after the price ||668| of wool has dropped.)

If, as Ricardo assumes here, the clothiers set in motion the same amount of labour as before <they could set in motion a much greater amount of labour because a part of the capital which was previously expended only on raw material is now at their disposal and can be expended on raw material plus labour>, it is clear that their “money income” taken in absolute terms, “will not be less” but their rate of profit will be greater than previously; for—say it was 10 per cent, i.e., £ 100—the same amount as before would now have to be reckoned on £ 900 instead of £ 1,000. In the first case the rate of profit was 10 per cent. In the second it is 1/9 or 11 1/9 per cent. Since Ricardo moreover presupposes that the raw produce of which commodities are made has fallen generally, the general rate of profit would rise and not only the rate of profit in one branch of production. It is all the more strange that Ricardo does not realise this, because he understands it when the opposite takes place.

For in Chapter VI “On Profits” Ricardo deals with the case where, as a result of an increase in the price of necessaries owing to the cultivation of worse land and the consequent rise in differential rent, firstly wages rise and secondly all raw produce from the surface of the earth. (This assumption is by no means necessary; cotton may very well fall in price, so can silk and even wool and linen, although the price of corn may be rising.)

In the first place he says that the surplus-value (he calls it profit) of the farmer will fall because the value of the product of the ten men whom he employs, continues to be £ 720 and from this fund of £ 720 he has to hand over more in wages. And he continues:

“But the rate of profits will fall still more, because the capital of the farmer … consists in a great measure of raw produce, such as his corn and hay-ricks, his unthreshed wheat and barley, his horses and cows, which would all rise in price in consequence of the rise of produce. His absolute profits would fall from £ 480 to £ 445 15s.; but if from the cause which I have just stated, his capital should rise from £ 3,000 to £ 3,200, the rate of his profits would, when corn was at £ 5 2s. l0d., be under 14 per cent.

“If a manufacturer had also employed £ 3,000 in his business, he would be obliged in consequence of the rise of wages, to increase his capital, in order to be enabled to carry on the same business. If his commodities sold before for £ 720 they would continue to sell at the same price; but the wages of labour, which were before. £ 240, would rise when corn was at £ 5 2s. l0d., to £ 274 5s. In the first case he would have a balance of £ 480 as profit on £ 3,000, in the second he would have a profit only of £ 445 15s., on an increased capital, and therefore his profits would conform to the altered rate of those of the farmer” (l.c., pp. 116–17).

In this passage, therefore, Ricardo distinguishes between absolute profit (equal to surplus-value) and rate of profit and also shows that the rate of profit falls more as a result of the change in the value of the capital advanced, than the absolute profit (surplus-value) falls as a result of the rise in the value of labour. The rate of profit would have also fallen, if the value pf labour [had] remained the same, because the same absolute profit would have to be calculated on a greater capital. The reverse result, i.e., a rise in the rate of profit (as distinct from a rise in surplus-value or absolute profit), would take place in the first instance cited from him, where the value of the raw produce falls. It is evident, therefore, that rises and falls in the rate of profit may also be brought about by circumstances other than the rise and fall in the absolute profit and the rise and fall in its rate, reckoned on the capital laid out in wages. In connection with the last quoted passage Ricardo writes:

“Articles of jewellery, of iron, of plate, and of copper, would not rise, because none of the raw produce from the surface of the earth enters into their composition” (l. c., p. 117).

The prices of these commodities would not rise, but the rate of profit in these branches of production would rise above that in the others. For in the latter, a smaller surplus-value (because of the rise in wages) would correspond to a capital outlay that had grown in value for two reasons: firstly, because the outlay in wages had increased; secondly, because the outlay in raw materials had increased. In the second case [i.e. jewellery etc.] ||669| there is a smaller surplus-value on a capital outlay in which only the variable part has grown because of the rise in wages. In these passages, Ricardo himself throws overboard his whole theory of profit, which is based on the false identification of the rate of surplus-value with the rate of profit.

“In every case, agricultural, as well as manufacturing profits are lowered by a rise in the price of raw produce, if it be accompanied by a rise of wages” (l. c., pp. 113–14).

It follows from what Ricardo himself has said, that, even if [the rise in the price of raw produce] is not accompanied by a rise of wages, the rate of profit would be lowered by an increase of that part of the advanced capital which consists of raw produce.

“Suppose the price of silks, velvets, furniture, and any other commodities, not required by the labourer, to rise in consequence of more labour being expended on them, would not that affect profits? Certainly not: for nothing can affect profits but a rise in wages; silks and velvets are not consumed by the labourer, and therefore cannot raise wages” (l. c., p. 118).

The rate of profit in these particular spheres of production would certainly fall, although the value of labour—wages—remained the same. The raw material used by the silk manufacturers, piano manufacturers, furniture manufacturers, etc. would have become dearer, and therefore the proportion borne by the same surplus-value to the capital laid out would have fallen and hence the rate of profit. And the general rate of profit consists of the average of the particular rates of profit in all branches of business. Or, in order to make the same average profit as before, these manufacturers would raise the price of their commodities. Such a nominal rise in prices does not directly affect the rate of profit, but the distribution of profit. Ricardo returns once more to the case considered above, where the surplus-value (absolute profit) falls, because the price of the necessaries (and along with these, also rent) rises.

“I must again observe that the rate of profits would fall much more rapidly than I have estimated in my calculation: for the value of the produce being what I have stated it under the circumstances supposed, the value of the farmer’s stock would be greatly increased from its necessarily consisting of many of the commodities which had risen in value. Before corn could rise from £ 4 to £ 12, his capital would probably be doubled in exchangeable value, and be worth £ 6,000 instead of £ 3,000. If then his profit were £ 180, or 6 per cent on his original capital, profits would not at that time be really at a higher rate than 3 per cent; for £ 6,000 at 3 per cent gives £ 180; and on those terms only could a new farmer with £6,000 money in his pocket enter into the farming business.

Many trades would derive some advantage, more or less; from the same source. The brewer, the distiller, the clothier, the linen manufacturer, would be partly compensated for the diminution of their profits, by the rise in the value of their stock of raw and finished materials; but a manufacturer of hardware, of jewellery, and of many other commodities, as welt as those whose capitals uniformly consisted of money, would be subject to the whole fall in the rate of profits, without any compensation whatever” (l. c., pp. 123–24).

What is important here is only something of which Ricardo is not aware, namely, that he throws overboard his identification of profit with surplus-value and [admits] that the rate of profit can be affected by a variation in the value of the constant capital independently of the value of labour. Moreover, his illustration is only partially correct. The advantage which the farmer, clothier etc. would derive from the rise in price of the stock of commodities they have on hand and on the market, would of course cease as soon as they had sold these commodities. The increased value of their capital would similarly no longer represent a gain for them, when this capital was used up and had to be replaced. They would then all find themselves in the position of the new farmer cited by Ricardo himself, who would have to advance a capital of £ 6,000 in order to make a profit of 3 per cent. On the other hand, ||XIII-670| the jeweller, manufacturer of hardware, money-dealer etc.—although at first they would not [receive] any compensation for their losses—would realise a rate of profit of more than 3 per cent, for only the capital laid out in wages would have risen in value whereas their constant capital remained unchanged.

One further point of importance in connection with this compensation of the falling profit by the rise in value of the capital, mentioned by Ricardo, is that for the capitalist—and generally, as far as the division of the product of annual labour is concerned—it is a question not only of the distribution of the product among the various shareholders in the revenue, but also of the division of this product into capital and revenue.

[2.] Formation of the General Rate of Profit. (Average Profit or “Usual Profit”)[edit source]

[a) The Starting-Point of the Ricardian Theory of Profit Is the Antecedent Predetermined Average Rate of Profit][edit source]

Ricardo is by no means theoretically clear here.

“I have already remarked, that the market price of a commodity may exceed its natural or necessary price, as it may be produced in less abundance than the new demand for it requires. This, however, is but a temporary effect. The high profits on capital employed in producing that commodity, will naturally attract capital to that trade; and as soon as the requisite funds are supplied, and the quantity of the commodity is duly increased, its price will fall, and the profits of the trade will conform to the general level. A fall in the general rate of profits is by no means incompatible with a partial rise of profits in particular employments. It is through the inequality of profits, that capital is moved from one employment to another. Whilst then general profits are falling, and gradually settling at a lower level in consequence of the rise of wages, and the increasing difficulty of supplying the increasing population with necessaries, the profits of the farmer may, for an interval of some little duration, be above the former level. An extraordinary stimulus may be also given for a certain time, to a particular branch of foreign and colonial trade(l.c., pp. 118–19).

“It should be recollected that prices always vary in the market, and in the first instance, through the comparative stale of demand and supply. Although cloth could be furnished at 40s. per yard, and give the usual profits of stock, it may rise to 60 or 80s, from a general change of fashion… The makers of cloth will for a time have unusual profits, but capital will naturally flow to that manufacture, till the supply and demand are again at their fair level, when the price of cloth will again sink to 40s., its natural or necessary price. In the same manner, with every increased demand for corn, it may rise so high as to afford more than the general profits to the farmer. If there be plenty of fertile land, the price of corn will again fall to its former standard, after the requisite quantity of capital has been employed in producing it, and profits will be as before; but if there be not plenty of fertile land, if, to produce this additional quantity, more than the usual quantity of capital and labour be required, corn will not fall to its former level. Its natural price will be raised, and the farmer, instead of obtaining permanently larger profits, will find himself obliged to be satisfied with the diminished rate which is the inevitable consequence of the rise of wages, produced by the rise of necessaries” (l.c., pp. 119–20).

If the working-day is given (or if only such differences occur in the working-day in different trades as are compensated by the particular characteristics of the different kinds of labour) then the general rate of surplus-value, i.e., of surplus-labour, is given since wages are on the average the same, Ricardo is preoccupied with this idea, and he confuses the general rate of surplus-value with the general rate of profit. I have shown that with the same general rate of surplus-value, the rates of profit in different branches of production must be very different, if the commodities are to be sold at their respective values.

The general rate of profit is formed through the total surplus-value produced being calculated on the total capital of society (of the class of capitalists). Each capital, therefore, in each particular branch, represents a portion of a total capital of the same ||671| organic composition, both as regards constant and variable capital, and circulating and fixed capital. As such a portion, it draws its dividends from the surplus-value created by the aggregate capital, in accordance with its size. The surplus-value thus distributed, the amount of surplus-value which falls to the share of a block of capital of given size, for example £ 100, during a given period of time, for example one year, constitutes the average profit or the general rate of profit, and as such it enters into the costs of production of every sphere of production. If this share [per 100] is 15, then the usual profit equals 15 per cent and the cost-price is £115. It can be less if, for instance, only a part of the capital advanced enters as wear and tear into the process of the creation of value. But it is always equal to the capital consumed +15 [per cent] , the average profit on the capital advanced. If in one case £ 100 entered into the product and in another only £ 50, then in the first case the cost-price would be 100+15=115 and in the second case it would be 50+15=65; thus both capitals would have sold their commodities at the same cost-price, i.e., at a price which yielded the same rate of profit to both. It is evident, that the emergence, realisation, creation of the general rate of profit necessitates the transformation of values into cost-prices that are different from these values. Ricardo on the contrary assumes the identity of values and cost-prices, because he confuses the rate of profit with the rate of surplus-value. Hence he has not the faintest notion of the general change which takes place in the prices of commodities, in the course of the establishment of a general rate of profit, before there can be any talk of a general rate of profit. He accepts this rate of profit as something pre-existent which, therefore, even plays a part in his determination of value. (See Chapter I “On Value”.) Having postulated the general rate of profit, he only concerns himself with the exceptional modifications in prices which are necessary for the maintenance, for the continued existence of this general rate of profit. He does not realise at all that in order to create the general rate of profit values must first be transformed into cost-prices and that therefore, when he presupposes a general rate of profit, he is no longer dealing directly with the values of commodities.

Moreover, the passage under consideration, only [expresses] the Smithian concept and even this in a one-sided way, because Ricardo is preoccupied with his notion of a general rate of surplus-value. According to him, the rate of profit rises above the [average] level only in particular branches of production, because there the market-price rises above the natural price owing to the relation between supply and demand, under-production or over-production. Competition, influx of new capital into one branch of production or withdrawal of old capital from another, will then equalise market-price and natural price and reduce the profit of the particular branch to the general level. Here the real level of profit is assumed as constant and predetermined, and it is only a question of reducing the profit to this level in particular spheres of production in which it has risen above or fallen below it, as a result of the action of supply and demand. Ricardo, moreover, always assumes that the commodities whose prices yield more than the average profit stand above their value and that those which yield less than the average profit stand below their value. If competition makes their market-value conform to their value, then the level is established.

According to Ricardo, the level itself can only rise or fall if wages fall or rise (for a relatively long period), that is to say, if the rate of relative surplus-value falls or rises; and this occurs without any change in prices. (Yet Ricardo himself admits here that there can be very significant variations in prices in different spheres .of production, according to the ratio of circulating and fixed capital.)

But even when a general rate of profit is established and therefore cost-prices, the rate of profit in particular branches may rise, because the hours of work, in them are longer and consequently the rate of absolute surplus-value rises. That competition between the workers cannot level this out, is proved by the intervention of the state. The rate of profit will rise in these particular spheres without the market-price rising above the natural price. Competition between capitals, however, can and in the long run will prevent that this excess profit accrues entirely to the capitalists in these particular fields. They will have to reduce the prices of their commodities below their “natural prices”, or the other spheres will raise their prices a little (or if they do not actually raise them, because a fall in value of these commodities may supervene, then ||672| at any rate they will not lower them as much as the development of the productive power of labour in their own branches of production required). The general level will rise and the cost-prices will change.

Furthermore : if a new branch of production comes into being in which a disproportionate amount of living labour is employed in relation to accumulated labour, in which therefore the composition of capital is far below the average composition which determines the average profit, the relations of supply and demand in this new trade may make it possible to sell its output above its cost-price, at a price approximating more closely to its actual value. Competition can level this out, only through the raising of the general level [of profit] , because capital on the whole realises, sets in motion, a greater quantity of unpaid surplus-labour. The relations of supply and demand do not, in the first instance as Ricardo maintains, cause the commodity to be sold above its value, but merely cause it to be sold above its cost-price, at a price approximating to its value. The equalisation can therefore bring about not its reduction to the old level, but the establishment of a new level.

[b) Ricardo’s Mistakes Regarding the Influence of Colonial Trade, and Foreign Trade in General, on the Rate of Profit][edit source]

The same applies, for example, to colonial trade, where as a result of slavery and the bounty of nature, the value of labour is lower than in the old country, or perhaps because, in fact or in law, landed property has not developed there. If capitals from the mother country can be freely transferred to this new trade, then they will reduce the specific excess profit in this trade, but will raise the general level of profit (as Adam Smith observes quite correctly).

On this point, Ricardo always helps himself out with the phrase: But in the old trades the quantity of labour employed has nevertheless remained the same, and so have wages. The general rate of profit is, however, determined by the ratio of unpaid labour to paid labour and to the capital advanced not in this or that sphere of the economy, but in all spheres to which the capital may be freely transferred. The ratio may stay the same in nine-tenths; but if it alters in one-tenth, then the general rate of profit in the ten-tenths must change. Whenever there is an increase in the quantity of unpaid labour set in motion by a capital of a given size, the effect of competition can only be that capitals of equal size draw equal dividends, equal shares in this increased surplus-labour; but not that the dividend of each individual capital remains the same or is reduced to its former share in surplus-labour, despite the increase of surplus-labour in proportion to the total capital advanced. If Ricardo makes this assumption he has no grounds whatsoever for contesting Adam Smith’s view that the rate of profit is reduced merely by the growing competition between capitals due to their accumulation. For he himself assumes here that the rate of profit is reduced simply by competition, although the rate of surplus-value is increasing. This is indeed connected with his second false assumption, that (leaving out of account the lowering or raising of wages) the rate of profit can never rise or fall, except as a result of temporary deviations of the market-price from the natural price. And what is natural price? That price which is equal to the capital outlay plus the average profit. Thus one arrives again at the assumption that average profit can only fall or rise in the same way as the relative surplus-value.

Ricardo is therefore wrong when, contradicting Adam Smith,

“Any change from one foreign trade to another, or from home to foreign trade, cannot, in my opinion, affect the rate of profits” (l.c., p. 413).

He is equally wrong in supposing that the rate of profit does not affect cost-prices because it does not affect values. Ricardo is wrong in thinking that if, in consequence of particularly favourable circumstances, profits in a branch of foreign trade [rise above the general level,] the general level [of profits] must always be re-established by reducing [these profits] to the former level and not by raising the general level of profits.

“They contend, that the equality of profits will be brought about by the general rise of profits; and I am of opinion, that the profits of the favoured trade will speedily subside to the general level” (l.c., pp. 132–33).

Because of his completely wrong conception of the rate of profit, Ricardo misunderstands entirely the influence of foreign trade, when it does not directly lower the price of the labourers’ food. He does not see how enormously important it is for England, for example, to secure ||673| cheaper raw materials for industry, and that in this case, as I have shown previously, the rate of profit rises although prices fall, whereas in the reverse case, with rising prices, the rate of profit can fall, even if wages remain the same in both cases.

“It is not, therefore, in consequence of the extension of the market that the rate of profit is raised” (l. c., p. 136).

The rate of profit does not depend on the price of the individual commodity but on the amount of surplus-labour which can be realised with a given capital. Elsewhere Ricardo also fails to recognise the importance of the market because he does not understand the nature of money.

* * *

||673| (In connection with the above it must be noted that Ricardo commits all these blunders, because he attempts to carry through his identification of the rate of surplus-value with the rate of profit by means of forced abstractions. The vulgar mob has therefore concluded that theoretical truths are abstractions which are at variance with reality, instead of seeing, on the contrary, that Ricardo does not carry true abstract thinking far enough and is therefore driven into false abstraction. |673||

[3.] Law of the Diminishing Rate of Profit[edit source]

[a) Wrong Presuppositions in the Ricardian Conception of the Diminishing Rate of Profit][edit source]

This is one of the most important points in the Ricardian system.

The rate of profit has a tendency to fall. Why? Adam Smith says: As a result of the growing accumulation and the growing competition between capitals which accompanies it. Ricardo retorts: Competition can level out profits in the different spheres of production (we have seen above that he is not consistent in this); but it cannot lower the general rate of profit. This would only be possible if, as a result of the accumulation of capital, the capital grew so much more rapidly than the population, that the demand for labour were constantly greater than its supply, and therefore wages—both nominal and real wages and in terms of use-value—were constantly rising in value and in use-value. This is not the case. Ricardo is not an optimist who believes such fairy-tales.

But because for Ricardo the rate of profit and the rate of surplus-value— that is, the relative surplus-value, since he assumes the length of the working-day to be constant—are identical terms, a permanent fall in profit or the tendency of profit to fall can only be explained as the result of the same causes that bring about a permanent fall or tendency to fall in the rate of surplus-value, i.e., in that part of the day during which the worker does not work for himself but for the capitalist. What are these causes? If the length of the working-day is assumed to remain constant, then the part of it during which the worker works for nothing for the capitalist can only fall, diminish, if the part during which he works for himself grows. And this is only possible (assuming that labour is paid at its value), if the value of the necessaries—the means of subsistence on which the worker spends his wages— increases. But as a result of the development of the productivity of labour, the value of industrial commodities is constantly decreasing. The diminishing rate of profit can therefore only be explained by the fact that the value of food, the principal component part of the means of subsistence, is constantly rising. This happens because agriculture is becoming less productive. This is the same presupposition which, according to Ricardo’s interpretation, explains the existence and growth of rent. The continuous fall in profits is thus bound up with the continuous rise in the rate of rent. I have already shown that Ricardo’s view of rent is wrong. This then cuts out one of the grounds for his explanation of the fall in the rate of profits. But secondly, it rests on the false assumption that the rate of surplus-value and the rate of profit are identical, that therefore a fall in the rate of profit is identical with a fall in the rate of surplus-value, which in fact could only be explained in Ricardo’s way. And this puts an end to his theory. The rate of profit falls, although the rate of surplus-value remains the same or rises, because the proportion of variable capital to constant capital decreases with the development of the productive power of labour. The rate of profit thus falls, not because labour becomes less productive, but because it becomes more productive. Not because the worker is less exploited, but because he is more exploited, whether the absolute surplus-time grows or, when the state prevents this, the relative surplus-time grows, for capitalist production is inseparable from falling relative value of labour.

Thus Ricardo’s theory rests on two false presuppositions:

1. The false supposition that the existence and growth of rent is determined by the diminishing productivity of agriculture;

2. The false assumption that the rate of profit is equal to the rate of relative surplus-value and can only rise or fall in inverse proportion to a fall or rise in wages. ||674| I shall now place together the statements in which Ricardo expounds the view that has just been described.

[b) Analysis of Ricardo’s Thesis that the Increasing Rent Gradually Absorbs the Profit][edit source]

First, however, some comments on the way in which, given his concept of rent, Ricardo thinks that rent gradually swallows up the rate of profit.

We shall use the tables on page 574, but with the necessary modifications.

In these tables it is assumed that the capital employed consists of £ 60c+£ 40v, the surplus-value is 50 per cent, the value of the product is therefore £ 120, whatever the productivity of labour. Of this £ 10 was profit and £ 10 absolute rent. Say, the £ 40 represents wages for 20 men (for a week’s labour for example or rather, because of the rate of profit, say, a year’s labour; but this does not matter here at all). According to Table A, where land I determines the market-value, the number of tons is 60, therefore 60 tons=£ 120, 1 ton=120/60=£ 2. The wages, £ 40, are thus equal to 20 tons or quarters of grain. This then is the necessary wage for the number of workers employed by the capital of £ 100. Now if it were necessary to descend to an inferior type of soil, where a capital of £ 110 (£ 60 constant capital and the 20 workers which this sets in motion, that is, £ 60 constant capital and £ 50 variable capital) was required, in order to produce 48 tons. In this case the surplus-value would be £ 10, and the price per ton would be £ 2 1/2. If we descended to an even worse type of land where £ 120 would be equal to 40 tons, the price per ton would be 120/40=£ 3. In this case there would be no surplus-value on the worse type of land. What the 20 men produce is always equal to the value of £ 60 (£ 3 equals a working-day of a given length). Thus if wages grow from £ 40 to £ 60, the surplus-value disappears altogether. It is assumed throughout that one quarter is the necessary wage for one man.

Assume that in both these cases a capital of only £ 100 is to be laid out. Or, which is the same thing, whatever capital may be laid out, what is the proportion for 100? For instead of calculating that, if the same number of workers and the same constant capital is employed as before, the capital outlay will amount to 110 or 120, we shall calculate on the basis of the same organic composition (not measured in value but in amount of labour employed and amount of constant capital) how much constant capital and wages a capital of £ 100 contains (in order to keep to the comparison of 100 with the other classes). The proportion 110:60=100:54 6/11 and 110:50=100:45 5/11. 20 men set in motion £60 constant capital; so how many [men] set in motion 54 6/11?

The situation is as follows : The value obtained from employing a number of workers (say 20) is £ 60, In this case 20 quarters or tons, equal to £ 40, will fall to the share of the workers employed, if the value of the ton or quarter is £ 2. If the value of a ton rises to £ 3, the surplus-value disappears. If it rises to 2 1/2, then that half of the surplus-value disappears, which constituted the absolute rent.

In the first case, where a capital of £ 120 (60c+60v) is laid out the product amounts to £ 120, that is 40 tons (40X3), In the second case, where a capital of £ 110 (60c and 50v is laid out the product amounts to £ 120, which is 48 tons (48X2 1/2).

In the first case, if the capital laid out were £ 100 (50c and 50v) the product would come to £ 100, i.e., 33 1/3 tons (3X33 1/3=100). Moreover, since only the land has deteriorated while the capital has undergone no change, the proportionate number [of workers] who set in motion the constant capital of £ 50 will be the same as that previously setting in motion the capital of £ 60. Thus if the latter was set in motion by 20 men (who received £ 40 while the value of 1 ton was £ 2) it will now be set in motion by 16 2/3 men, who receive £ 50 since the value of a ton has risen to £ 3. As before, 1 man receives 1 ton or 1 quarter equal to £ 3, for 16 2/3X3=50. If the value created by 16 2/3 men is £ 50, then that created by 20 men is £ 60. Thus the assumption that a day’s labour of 20 men is equal to £ 60 remains unchanged.

Now let us take the second case. With a capital outlay of £ 100, the product is £ 109 1/11, equal to 43 7/11 tons (2 1/2X43 7/11=109 1/11). The constant capital is £ 54 6/11 and the variable £ 45 5/11. How many men does the £ 45 5/11 represent? 18 2/11 men, ||675| for if the value of a day’s labour of 20 men equals £ 60, then that of 18 2/11 men equals £ 54 6/11 hence the value of the product is £ 109 1/11.

It can be seen that in both cases the same capital sets in motion fewer men who, however, cost more. They work for the same length of time, but the surplus-labour [time] decreases or disappears altogether, because they produce a smaller amount of product in the same time (and this product consists of their necessaries) , therefore they use more labour-time for the production of 1 ton or 1 quarter although they work the same length of time as before.

In his calculations, Ricardo always presupposes that the capital must set in motion more labour and that therefore a greater capital, i.e., £ 120 or £ 110, must be laid out instead of the previous £ 100. This is only correct if the same quantity is to be produced, i.e., 60 tons in the cases cited above, instead of 40 tons being produced in case I, with an outlay of £ 120, and 48 in case II with an outlay of £ 110. With an outlay of £ 100, therefore, 33 1/3 tons are produced in case I and 43 7/11 tons in case II. Ricardo thus departs from the correct view point, which is not that more workers must be employed in order to create the same product, but that a given number of workers create a smaller product, a greater share of which is in turn taken up by wages.

We shall now compile two tables, firstly Table A from page 574 and the new table which follows from the data given above.

[Class]Capital £[Number of] tonsTV [Total value]


MV [Market value]

per ton



[Individual value]

per ton



[Differential value]

per ton



[Cost price] per ton


AR [Absolute rent]


DR [Differential rent]


AR [Absolute rent]


I100601202201 5/61005
II1006513021 11/132/131 9/1310105
III1007515021 3/52/51 7/1510305
[Class]DR [Differential rent]


Rental £Rental tonsComposition of capitalRate of surplus-value per centNumber of workersWages £Wages tonsRate of profit per cent

If this table were constructed in the reverse direction, according to Ricardo’s descending line: that is beginning from III and if at the same time one assumed that the more fertile land which is cultivated first, pays no rent, then we would, in the first place, have a capital of £ 100 in III, [which] produces a value of £ 120, consisting of £ 60 constant capital and £ 60 newly-added labour. According to Ricardo, one would further have to assume, that the rate of profit stood at a higher level than entered in Table A, since, when the ton of coal (quarter of wheat) was £ 2, the 20 men received 20 tons, equal to £ 40; now that, as a result of the fall in the value, the ton is equal to £ 1 9/15, or £ 1 12s., the 20 men receive only £ 32 (equal to 20 tons). The capital advanced to employ the same number of workers would amount to £ 60c and £ 32v=£ 92 and the produced value would be £ 120, since the value of the work carried out by the 20 men equals £ 60 as before. Accordingly, a capital of £ 100 would produce a value of £ 130 10/23, for 92:120=100:130 10/23 (or 23:30=100:130 10/23). Moreover this capital of £ 100 would be composed as follows: £ 65 5/23c and £ 34 18/23v. Thus the capital would be £ 65 5/23c34 18/23v; the value of the product would amount to £ 130 10/23. The number of workers would be 21 17/23 and the rate of surplus-value 87 1/2 per cent. 1. So we would have:



Number of tonsTV

[Total value]


MV [Market value]

per ton


IV [Individual value]

per ton


DV [Differential value]

per ton


III10081 12/23130 20/231 3/51 3/50




Rate of Profit per centComposition of capitalRate of Surplus value per centNumber of workers
030 10/2330 10/2365 5/23c + 34 18/23v87 1/221 17/23

Expressed in tons, wages would be equal to 21 17/23 tons and profit to 19 1/46 tons. ||676| Continuing on the Ricardian assumption, let us now suppose that as a result of the increasing population, the market-price rises so high that class II must be cultivated, where the value per ton is £ 1 11/13.

In this case it is impossible to assume as Ricardo wants that the 21 17/23 workers produce always the same value, i.e., £ 65 5/23 (wages added to surplus-value). For the number of workers whom III can employ, and therefore exploit, decreases—according to his own assumption—hence also the total amount of surplus-value.

At the same time, the composition of the agricultural capital always remains the same. Whatever their wages may be, 20 workers are always required (with a given length of the working-day) in order to set in motion £ 60c.

Since these 20 workers receive 20 tons and the ton is equal to £ 1 11/13, 20 workers cost £ 20 (1+11/13) =£ 20+£ l6 12/13=£ 36 12/13.

The value which these 20 workers produce, whatever the productivity of their labour, equals [£] 60; thus the capital advanced amounts to £ 96 12/13, the value [of the product] is £ 120, and profit £ 23 1/13. The profit on a capital of £ 100 will therefore be [£] 23 17/21 and the composition: £ 61 19/21c+£ 382/21v. 20 40/63 workers [are] employed.

Since the total value is £ 123 17/21, and the individual value per ton in class III is £ 1 3/5, of how many tons does the product consist? 77 8/21 tons. The rate of surplus-value is 62 1/2 per cent.

But III sells the ton at £ 1 11/13, This results in a differential value of 4 12/13 s. or £ 16/65 per ton, and on 77 8/21 tons it amounts to 77 8/21 X 16/65 =£ 19 1/21.

Instead of selling its product at £ 123 17/21, III sells at £ 123 17/21+£ 19 1/21=£ 142 6/7. The £ 19 1/21 constitutes the rent.

Thus we would have the following for III :



[Number of] tons[ATV]

Actual total value



Total market value



[Market value per ton]


IV [Individual value]

per ton


III10077 8/21123 17/21142 6/71 11/131 3/5
DV [Differential value]

per ton




in tons

Rate of profit

per cent

Composition of capitalRate of surplus-value

per cent

Number of workers
[+£16/65=] +412/13s.19 1/2110 20/6323 17/2161 19/21c+38 2/21v62 1/220 40/63

The wages measured in tons are 20 40/63 tons. And the profit is 12 113/126 tons.

We now pass on to class II; there is no rent here. Market-value and individual value are equal. The number of tons produced by II is 67 4/63.

Thus we have the following for II:

[Class]Capital £[Number of] tonsTV [Total value] £MV [Market value per ton] £IV [Individual value per ton] £
II10067 4/63123 17/211 11/131 11/23
DV [Differential value per ton]Rent £Rate of profit per centComposition of capitalRate of surplus-value per centNumber of workers
0023 17/2161 19/21c + 38 2/21v62 1/220 40/63

Wages measured in tons are 20 40/63 and profit is 12 113/126tons. ||677| 2. For the second case, in which class II and rent comes into existence, we have the following:

[Class]Capital £[Number of] tons[ATV] Actual total value £[TMV] Total market value £MV [Market value per ton] £IV [Individual value per ton] £DV [Differential value per ton] £
III10077 8/21123 17/21142 6/71 11/131 3/5[+£16/65=] +4 12/13s.
II10067 4/63123 17/21123 17/211 11/131 11/130
Composition of capitalNumber of workersRate of surplus-value per centRate of profit per centWages in tonsProfit in tonsRent £Rent in tons
61 19/21c+ 38 2/21v20 40/6362 1/223 17/2120 40/6312 113/12619 1/2110 20/63
61 19/21c+ 38 2/21v20 40/6362 1/223 17/2120 40/6312 113/12600

Let us now pass on to the third case and, like Ricardo, let us assume that mine I, a poorer mine, must and can be worked, because the market-value has risen to £ 2. Since twenty workers are required for a constant capital of £ 60 and their wages are now £ 40, we have the same composition of capital as in Table A page 574, i.e., £ 60c+£ 40v, and as the value produced by the 20 workers is always equal to £ 60, the total value of the product produced by a capital of £ 100 is £ 120, whatever its productivity. The rate of profit in this case is 20 per cent and the surplus-value 50 per cent. Measured in tons, the profit is 10 tons. We must now see what changes occur in III and II as a result of this change in the market-value and the introduction of I, which determines the rate of profit.

Although III works the most fertile land he can with £ 100 only employ 20 workers, costing him £ 40, for a constant capital of £ 60 requires 20 workers. The number of workers employed with a capital of £ 100 therefore falls to 20. And the actual total value of the product is now £ 120. But how many tons have been produced by III when the individual value of one ton is equal to £ 19/15? 75 tons, since 120 divided by 24/1519/15)=75. The number of tons produced by III decreases because he can employ less labour with the same capital, not more (as Ricardo wrongly declares, because he always considers merely how much labour is required in order to create the same output; and not how much living labour can be employed with the new composition of capital though this is the only important point). But he sells these 75 tons at £ 150 (instead of at £ 120, which is their value) and so the rent rises to £ 30 in III.

So far as II is concerned, the value of the product here is also £ 120 etc. But, as the individual value per ton is £ 1 11/13, 65 tons are produced (for 120 divided by 24/13 (1 11/13)=65). In short, we arrive here at Table A from page 574. But since for our purpose we need new headings here, now that I is introduced and the market-value has risen to £ 2 we set out the table anew.

3. [Third Case:]

[Class]Capital £[Number of] tonsATV [Actual total value]



[Total market-value]


MV [Market-value]

per ton


IV [Individual value]

per ton


DV [Differential value]

per ton


III1007512015021 3/52/5=]8s.
II1006512013021 11/132/13=]31/13s.
Composition of capitalNumber of workersRate of surplus-value

per cent

Rate of profit

per cent


in tons


in tons




in tons

60 c + 40 v20502020103015
60 c + 40 v2050202010105
60 c + 40 v205020201000

||678| In short, this case III corresponds to Table A page 574 (apart from absolute rent which appears as a part of profit here) only the order is reversed.

Let us now go on to the newly assumed cases.

First of all the class which still yields a profit. Let it be called Ib. With a capital of £ 100 it only yields 43 7/11 tons.

The value of a ton has risen to £ 2 1/2. The composition of the capital is [£] 546/11c+[£] 45 5/11v. The value of the product is £ 109 1/11. £ 45 5/11 is enough to pay 18 2/11 men. And since the value of a day’s labour of 20 men is £ 60, that of 18 2/11 men is [£] 54 6/11. The value of the product is therefore [£] 109 1/11. The rate of profit is £ 9 1/11, that is, 3 7/11 tons. The rate of surplus-value is 20 per cent.

Since the organic composition of the capitals in III, II, I is the same as in Ib and they must pay the same wages, they too can employ only 18 2/11 men with £ 100, these men produce a total value of [£] 54 6/11, and therefore a surplus-value of 20 per cent and a rate of profit of 9 1/11 per cent as in Ib. The total value of the product here, as in Ib, is £ 109 1/11.

But since the individual value of a ton in III is £ 1 3/5, III produces (or its product is equal to) £ 109 1/11 divided by 1 3/5 or 24/15=68 2/11 tons. Moreover, the difference between the market-value of a ton and the individual value amounts to £ 2 1/2 -£ 1 3/5. That is £ 2 l0s.-£ 1 12s.=18s. And on 68 2/11 tons this amounts to 18(68+2/11)s.=1,227 3/11s.=£ 617 3/11s. Instead of selling at £ 109 1/11, III sells at £170 9 5/11s. And this excess equals the rent of III. This rent, expressed in tons, is 24 6/11 tons.

Since the individual value of a ton in II is £ 1 11/13, II produces [£] 109 1/11 divided by 1 11/13 and this is 59 1/11 tons. The difference between the market-value of one ton in II and its individual value is £ 2 1/2 -£ 1 11/13 which is £ 17/26. And on 59 1/11 tons, this amounts to £38 7/11. And this is the rent. The total market-value [of the product] amounts to £ 147 8/11. The rent expressed in tons is 15 5/11 tons.

Finally, since the individual value of a ton in I is £ 2, £ 109 1/11 is equal to 54 6/11 tons. The difference between the market-value and the individual-value is £ 2 1/2 -£ 2=10s. And on 54 6/11 tons, this amounts to (59+6/11) l0s.=590s .+60/11s. =£27+5 5/11s. The total market-value [of the product] is therefore £ 136 7 3/11s. And the value of the rent expressed in tons is 10 10/11 tons.

Bringing together all the data for case 4, one gets the following: ||679| 4. [Fourth Case:]

[Class]Capital £[Number of] tonsATV [Actual total value] £TMV [Total market-value] £MV [Market-value per ton] £IV [Individual value per ton] £DV [Differential value per ton] £
III10068 2/11109 1/11[£1705/11=] £170 91/11s.2 1/21 3/59/10]=18s.
II10059 1/11109 1/11[£147 8/11=] £147 146/11s.2 1/21 11/1317/26=] 131/13s.
I10054 6/11109 1/11[£136 4/11=] £136 73/11s.2 1/221/2=]10s.
Ib10043 7/11109 1/11[£109 1/11 [=£109 19/11s.2 1/22 1/20
Composition of capitalNumber of workers[Rate of] surplus-value per centRate of profit per centWages [in] tonsProfit [in] tonsRent £Rent [in] tons
54 6/11c+45 5/11v18 2/11209 1/1118 2/113 7/11[£61 4/11=] £61 7 3/11s.24 6/11
54 6/11c+45 5/11v18 2/11209 1/1118 2/113 7/11[£38 7/11=] £38 12 8/11s.15 5/11
54 6/11c+45 5/11v18 2/11209 1/1118 2/113 7/11[£27 3/11=] £27 5 5/11s.10 10/11
54 6/11c+45 5/11v18 2/11209 1/1118 2/113 7/1100

Finally let us look at the last case in which, according to Ricardo, the entire profit, disappears and there is no surplus-value.

In this case the value of the product rises to £ 3, so that if 20 men are employed, their wage is £ 60 which is equal to the value produced by them. The composition of the capital is £ 50c+£ 50v. Now 16 2/3 men are employed. If the value produced by 20 men is £ 60, then that produced by 16 2/3 men is £ 50. The wages, there-fore, swallow up the whole value. Now, as before, a man receives 1 ton. The value of the product is £ 100 and therefore the number of tons produced is 33 1/3 tons, of which one-half merely replaces the value of the constant capital and the other half the value of the variable capital.

Since in III, the individual value of the ton is £ 1 3/5 or £ 24/15, how many tons does III produce? 100 divided by 24/15, i.e., 62 1/2 tons, whose value is £ 100. The difference, however, between market-value and individual value is £ 3-£ 1 3/5=£ 1 6/15 or £ 1 2/5. On 62 1/2 tons this amounts to £ 87 1/2 . Hence the total market-value of the product is £ 187 1/2 . And the rent in tons is 29 1/6 tons.

In II the individual value of a ton is £ 1 11/13. Hence the differential value is £ 3-£ 1 11/13=£ 1 2/13. Since the individual value of a ton is here £ 1 11/13 or £ 24/13, the capital of £ 100 produces (100 divided by 24/13) 54 1/6 tons. On this number of tons, that difference amounts to £ 62 l0s. And the [total] market-value of the product is £ 162 l0s. Expressed in tons, the rent is 20 5/6 tons.

In I the individual value of a ton is £ 2. The differential value therefore equals £ 3-£ 2=£ 1. Since the individual value of a ton is £ 2 here, a capital of £ 100 produces 50 tons. This makes a difference of £ 50. The [total] market-value of the product is £ 150 and the rent in tons is 16 2/3 tons.

We now come to Ib, which until now has not carried a rent. Here the individual value is £ 2 1/2. Hence differential value equals 3–2 1/21/2 or l0s. And since the individual value of a ton is here equal to £ 2 1/2 or £ 5/2, £ 100 produces 40 tons. The differential value on these is £ 20, so that the total market-value [of the product] amounts to £ 120. And the rent expressed in tons is 6 2/3 tons.

Let us now construct case 5 in which, according to Ricardo, profit disappears. ||680| 5. [Fifth Case:]

[Class]Capital £[Number of] tonsATV [Actual total value] £TMV [Total market-value] £MV [Market-value per ton] £IV [Individual value per ton] £DV [Differential value per ton] £
III10062 1/2100187 1/231 3/51 2/5
II10054 1/6100162 1/231 11/131 2/13
Ib1004010012032 1/21/2
Ia10033 1/3100100330
Composition of capitalNumber of workersRate of surplus-value per centRate of profit per centWages in tonsRent £Rent in tons
50c + 50v16 2/30016 2/387 1/229 1/6
50c + 50v16 2/30016 2/362 1/220 5/6
50c + 50v16 2/30016 2/35016 2/3
50c + 50v16 2/30016 2/3206 2/3
50c + 50v16 2/30016 2/300

On the following page I shall now put all five cases in tabular form.|680||

||681–82| The Movement of the Rent According to Ricardo with Certain Correction

[Class]Capital £[Number of] tonsActual total value £Total market-value £Market value per ton £Individual value per ton £Differential value per ton £Composition of capitalNumber of workersRate of surplus-value per centProfit £Profit in tonsWages in tonsMoney rent £Rent in tons
A. Only the best class, III, is cultivated. Non-existence of rent. Only the most fertile land or mine is cultivated.
III10081 12/23130 10/23130 10/231 3/51 3/5065 5/23c + 34 18/23v21 17/2387 1/230 10/2319 1/4621 17/2300
B. Second class, II, is added. Rent comes into existence on land(mine) III
III10077 8/21123 17/21142 6/71 11/131 3/5[16/65=] 4 12/13s.61 19/21c + 38 2/21v20 40/6362 1/223 17/2112 113/12620 40/6319 1/2110 20/63
I10067 4/63123 17/21123 17/211 11/131 11/13061 19/21c + 38 2/21v20 40/6362 1/223 17/2112 113/12620 40/6300
Total200144 4/9247 13/21266 2/341 17/2347 13/2125 50/6341 17/6319 1/2110 20/63
C. Third class, I[2], is added. Rent comes into existence on land (mine) II
III1007512015021 3/52/5=]8s.60c + 40v20502010203015
II1006512013021 11/132/13=] 3 1/13s.60c + 40v2050201020105
I1006012012022060c + 40v205020102000
D. Fourth class, Ib, is added. Rent comes into existence on land (mine) I
III10068 2/11109 1/11[£170 5/11=] £170 9 1/11s.2 1/21 3/59/10=] 18s.54 6/11c + 45 5/11v18 2/11209 1/113 7/1118 2/11[£61 4/11=] £61 7 3/11s.24 6/11
II10059 1/11109 1/11[£147 5/11=] £147 146/11s.2 1/21 11/1317/26=] 13 1/13s.54 6/11c + 45 5/11v18 2/11209 1/113 7/1118 2/11[£38 7/11=] £38 128/11s.15 5/11
I10054 6/11109 1/11[£136 4/11=] £136 7 3/11s.2 1/221/2=] 10s.54 6/11c + 45 5/11v18 2/11209 1/113 7/1118 2/11[£27 3/11=] £27 5 5/11s.10 10/11
Ib10043 7/11109 1/11[£109 1/11=] £109 1 9/11s.2 1/22 1/2054 6/11c + 45 5/11v18 2/11209 1/113 7/1118 2/1100
Total400225 5/11[3]436 4/11[£563 7/11=] £563 12 8/11s.72 8/1136 4/1114 6/1172 8/11
E. Fifth class, Ib, is added. Surplus-value and profit disappear altogether.
III10062 1/2100187 1/231 3/51 2/550c+50v16 2/300016 2/387 1/229 1/6
II10054 1/6100162 1/231 11/131 2/1350c+50v16 2/300016 2/362 1/220 5/6
I1005010015032150c+50v16 2/300016 2/35016 2/3
Ib1004010012032 1/21/250c+50v16 2/300016 2/3206 2/3
Ia10033 1/310010033050c+50v16 2/300016 2/300
Total50024050072083 1/383 1/322073 1/3

[c) Transformation of a Part of Profit and a Part of Capital into Rent. The Magnitude of Rent Varies in Accordance with the Amount of Labour Employed in Agriculture][edit source]

||683| If in the first place we examine Table E on the previous page, we see that the position in the last class, Ia, is very clear. In this case wages swallow up the whole product and the whole value of the [newly-added] labour. Surplus-value is non-existent, hence there is neither profit nor rent. The value of the product is equal to the value of the capital advanced, so that the workers—who are here in possession of their own capital—can invariably reproduce their wages and the conditions of their labour, but no more. In this last class it cannot be said that the rent swallows up the profit. There is no rent and no profit because there is no surplus-value. Wages swallow up the surplus-value and therefore the profit.

In the four other classes the position is prima facie by no means clear. If there is no surplus-value, how can rent exist? Moreover, the productivity of labour on the types of land Ib, I, II and III has not altered at all. The non-existence of surplus-value must therefore be sheer illusion.

Furthermore, another phenomenon becomes apparent and this, prima facie, is equally inexplicable. The rent in tons for III amounts to 29 1/6 tons or quarters, whereas in Table A, where only land III was cultivated, where there was no rent and where, moreover, 21 17/23 men were employed whereas now only 16 2/3 men are employed, the profit (which absorbed the entire surplus-value) only amounted to 19 1/46 tons.

The same contradiction is apparent in II, where the rent in Table E amounts to 20 5/6 tons or quarters while in Table B the profit, which absorbed the entire surplus-value (20 40/63 men being employed instead of 16 2/3 men now), amounted to only 12 113/126 tons or quarters.

Similarly in I, where the rent in Table E is 16 2/3 tons or quarters, while in Table C the profit of I, which absorbs the entire surplus-value, is only 10 tons (20 men being employed, instead of the present 16 2/3).

Finally in Ib, where the rent in Table E is 6 2/3 tons or quarters, while the profit of Ib in Table D, where the profit absorbed the entire surplus-value, was only 3 7/11 tons or quarters (while 18 2/11 men were employed instead of the 16 2/3 now being employed).

It is, however, clear, that whereas the rise in market-value above the individual value of the products of III, II, I, Ib can alter the distribution of the product, shifting it from one class of shareholders to the other, it can by no means increase the product which represents the surplus-value over and above the wages. Since the productivity of the various types of land has remained the same, as has the productivity of capital, how can III to Ib become more productive in tons or quarters through the entry into the market of the less productive type of land or mine Ia?

The riddle is solved in the following manner:

If a day’s labour of 20 men produces £ 60, then that of 16 2/3 men produces £ 50. And since in land of class III, the labour-time contained in £ 1 3/5 or £ 8/5 is represented in 1 ton or 1 quarter, £ 50 will be represented in 3 11/4 tons or quarters. 16 2/3 tons or quarters have to be deducted from this for wages, thus leaving 14 7/12 as surplus-value.

Furthermore, because the market-value of a ton has risen from £ 1 3/5 or £ 8/5 to £ 3, 16 2/3 tons or quarters out of the product of 62 1/2 tons or quarters, will suffice to replace the value of the constant capital. On the other hand, so long as the ton or quarter produced on III itself determined the market-value, and the latter was therefore equal to its individual value, 31 1/4 tons or quarters were required in order to replace a constant capital of £ 50. Instead of the 31 1/4 tons or quarters—the part of the product which was necessary to replace the capital when the value of a ton was £ 1 3/5—only 16 2/3 are now required. Thus 31 1/4–16 2/3 tons or quarters, ||684| i.e., 14 7/12 tons or quarters, become available and fall to the share of rent.

If one now adds the surplus-value produced by 16 2/3 workers with a constant capital of £ 50 on III, which amounts to 14 7/12 tons or quarters, to 14 7/12 tons or quarters, the part of the product which instead of replacing the constant capital now takes on the form of surplus-produce, then the total surplus-produce amounts to 28 14/12 tons or quarters =29 2/12=29 1/6 quarters or tons. And this is exactly the ton or corn rent of III in Table E. The apparent contradiction in the amount of ton or corn rent in classes II, I, Ib in Table E is solved in exactly the same way.

Thus it becomes evident that the differential rent—which arises on the better types of land owing to the difference between market-value and individual value of the products raised on them— in its material form as rent in kind, surplus-product, rent in tons or corn in the above example, is made up of two elements and due to two transformations. (Firstly:) The surplus-product which represents the surplus-labour of the workers or the surplus-value, is changed from the form of profit to the form of rent, and therefore falls to the landlord instead of the capitalist. Secondly: a part of the product which previously—when the product of the better type of land or mine was being sold at its own value—was needed to replace the value of the constant capital, is now, when each portion of the product possesses a higher market-value, free and appears in the form of surplus-product, thus falling to the landlord instead of the capitalist.

The rent in kind in so far as it is differential rent comes into being as the result of two processes: the transformation of the surplus-produce into rent, and not into profit, and the transformation of a portion of the product which was previously allotted for the replacement of the value of the constant capital into surplus-product, and thus into rent. The latter circumstance, that a part of the product is converted into rent instead of capital, has been overlooked by Ricardo and all his followers. They only see the transformation of surplus-product into rent, but not the transformation of a part of the product which previously fell to the share of capital (not of profit) into surplus-product.

The nominal value of the surplus-product or differential rent thus constituted, is determined (according to the presupposition made) by the value of the product produced on the worst land or in the worst mine. But this market-value only instigates the different distribution of this product, it does not bring it about.

These same two elements [are present] in all excess profit, for instance, if as a result of new machinery etc., a cheaply produced product is sold at a higher market-value than its own value. A part of the surplus-labour of the workers appears as surplus-product (excess profit) instead of as profit. And a part of the product which—if the product were sold at its own lower value—would have to replace the value of the capitalist’s constant capital, now becomes free, has not got to replace anything, becomes surplus-product and therefore swells the profit. |684||

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||688| {Incidentally, when speaking of the law of the falling rate of profit in the course of the development of capitalist production, we mean by profit, the total sum of surplus-value which is seized in the first place by industrial capitalist, [irrespective of] how he may have to share this later with the money-lending capitalist (in the form of interest) and the landlord (in the form of rent). Thus here the rate of profit is equal to surplus-value divided by the capital outlay. The rate of profit in this sense may fall, although, for instance, the industrial profit rises proportionately to interest or vice versa, or although rent rises proportionately to industrial profit or vice versa. If P is the profit, P’ the industrial profit, I interest and R rent, then P=P’+I+R. And it is clear, that whatever the absolute magnitude of P—P’, I, R can increase or decrease as compared with one another, independently of the magnitude of P or the rise and fall of P. The reciprocal rise of P’, I and R only represents an altered distribution of P among different persons. A further examination of the circumstances on which this distribution of P depends but which does not coincide with a rise or fall of P itself, does not belong here, but into a consideration of the competition between capitals. That, however, R can rise to a level higher even than that of P, if it were only divided into P’ and I, is therefore—as has already been explained—due to an illusion which arises from the fact that a part of the product whose value is rising, becomes free and is converted into rent instead of being reconverted into constant capital.} |688||

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||684| It was assumed throughout this discussion, that the product whose price (according to market-value) had risen did not enter in kind into the composition of the constant capital, but only into wages, only into the variable capital. If the former were the case, Ricardo says that this would cause the rate of profit to fall even more and the rent to rise. This has to be examined.

We have assumed until now, that the value of the product has to replace the value of the constant capital, i.e., the £ 50 in the case cited above. Thus if 1 ton or quarter costs £3, it is obvious that not so many tons or quarters are required for the replacement of this value than would be needed if the ton or quarter cost only £ 1 9/15. But supposing that the coal or the corn or whatever other product of the earth, the product produced by agricultural capital, itself enters in kind into the formation of the constant capital. Let us assume for instance that it makes up half of the constant capital. In this case it is clear that whatever the price of the coal or the corn ||685| a constant capital of definite size, in other words, one which is set in motion by a definite number of workers, always requires a definite portion of the total product in kind for its replacement—since the composition of agricultural capital has, according to the assumption, remained unchanged in its proportionate amounts of accumulated and living labour.

If for example, half the constant capital consists of coal or corn and half of other commodities, then the constant capital of £ 50 will consist of £ 25 of other commodities and £ 25 (or 15 5/8 quarters or tons) [coal or corn] , when the value of a ton is £ 8/5 or £ 1 3/5. And however the market-value of a ton or a quarter may change, 16 2/3 men require a constant capital of £ 25 plus 15 5/8 quarters or tons, for the nature of the constant capital remains the same, and so does the proportionate number of workers required to set it in motion.

Now if, as in Table E, the value of a ton or quarter rises to £ 3, then the constant capital required for the 16 2/3 men would be £ 25+£ 3 (15+5/8)=£ 25+£ 45+£ 15/8=£71 7/8. And since the 16 2/3 men cost £ 50, they would require a total capital outlay of £ 71 7/8+£ 50=£ 121 7/8.

The correlation of values within the agricultural capital would have changed while organic composition remained the same.

It would be £71 7/8c+£ 50v (for 16 2/3 workers). For [£] 100 the composition would be £ 58 38/39c+£ 41 1/39v. Slightly more than 13 2/3 workers (that is, leaving out of account the fraction 1/117) Since 16 2/3 workers set in motion 15 5/8 tons or quarters constant capital, 13 79/117 workers set in motion 12 32/39 tons or quarters, equal to £ 38 6/13. The remainder of the constant capital, equal to £ 20 20/39, would consist of other commodities. Whatever the circumstances, 12 32/39 tons or quarters would always have to be deducted from the product in order to replace that part of constant capital into which they enter in kind. Since the value produced by 20 workers equals £ 60, that produced by 13 79/117 equals £ 41 1/39. Wages in Table E, however, also amount to £ 41 1/39. Therefore no surplus-value.

The total number of tons would be [51 11/13, of which] 12 32/39 tons are needed to replace [part of the constant capital in kind]; a further 13 79/117 are for the workers; 6 98/117 tons, at £ 3 a ton, are used to replace the remainder of the constant capital. That is altogether 33 1/3 tons. This would leave 17 37/39 tons for the rent.

To shorten the matter, let us take the most extreme case, the one most favourable to Ricardo, i.e., that the constant capital, just as the variable, consists purely of agricultural produce whose value rises to £ 3 per quarter or ton, when class la governs the market.

The technological composition of the capital remains the same; that is, the ratio between living labour or number of workers (since the normal working-day has been assumed to be constant) represented by the variable capital and the quantity of the instruments of labour required, which now, according to our assumption, consist of tons of coal or quarters of corn, remains constant for a given number of workers.

Since with the original composition of the capital, of £ 60c+£ 40v, and the price per ton of £ 2, £ 40v represented 20 workers or 20 quarters, or tons, £ 60c represented 30 tons; and since these 20 workers produced 75 tons on III, 13 1/3 workers (and £ 40v is equal to 13 1/3tons or workers if the ton costs £ 3) produce 50 tons and set in motion a constant capital of 60/3 ||686| equal to 20 tons or quarters.

Moreover, since 20 workers produce a value of £ 60, 13 1/3[workers] produce £ 40.

Since the capitalist must pay £ 60 for the 20 tons and £ 40 for the 13 1/3workers, but the latter only produce a value of £ 40, the value of the product is £ 100; the outlay is £ 100. Surplus-value and profit are nil.

But because the productivity of III has remained the same, as has already been said, 13 1/3men produce 50 tons or quarters. The outlay in kind of tons, or quarters, however, only amounts to 20 tons for constant capital and 13 1/3tons for wages, i.e., 33 1/3 tons. The 50 tons thus leave a surplus-product of 16 2/3 and this forms the rent.

But what do the 16 2/3 represent?

Since the value of the product is [£] 100 and the product itself equals 50 tons, the value of the ton produced here would in fact be £ 2, which is 100/50. And so long as the product in kind is greater than what is required for the replacement of the capital in kind, the individual value of a ton must remain smaller than its market-value according to this criterion.

The farmer must pay £60 in order to replace the 20 tons [constant capital], and he reckons the 20 tons at £ 3, since this is the market-value per ton and a ton is sold at this price. Similarly he must pay £ 40 for the 13 1/3 workers, or for the tons or quarters which he pays to the workers. Thus the workers only receive 13 1/3tons in the transaction.

In actual fact, however, so far as class III is concerned, the 20 tons cost £ 40 and the 13 1/3cost only £ 26 2/3, But the 13 1/3workers produce a value of £ 40, and therefore a surplus-value of £ 131/3. At £ 2 per ton, this amounts to 64/6 or 62/3 tons.

And since the 20 tons [constant capital] cost only £ 40 on III, this leaves an excess of £ 20 equal to 10 tons.

The 16 2/3 tons rent are thus equal to 6 2/3 tons surplus-value which is converted into rent and 10 tons capital which is converted into rent. But because the market-value per ton has risen to £ 3, the 20 tons cost the farmer £60 and the 13 1/3cost him £ 40, while the 16 2/3 tons, that is the excess of the market-value over the [individual] value of his product, appear as rent, and [cost] £ 50.

How many tons are produced by 13 1/3men in class II? 20 men produce 65 here, 13 1/3[men] therefore 43 1/3 tons. The value of the product is £ 100, as above. Of the 43 1/3 tons, however, 33 1/3 are required for the replacement of the capital. This leaves 43 1/3-33 1/3=l0 tons as surplus-product or rent.

But this rent of 10 tons can be explained as follows: the value of the product of II is £ 100, the product amounts to 43 1/3 [tons], thus the value of a ton is 100/43 1/3 =£ 2 4/13. The 13 1/3workers therefore cost £ 30 10/13, and this leaves a surplus-value of £ 9 3/13. Moreover, the 20 tons constant capital cost [£] 46 2/13 and of the [£] 60 that are paid for this, there remain [£] 1311/13. Together with the surplus-value this comes to £ 23 1/13, which is correct to the last farthing.

Only in class Ia, where in fact 33 1/3 tons or quarters, that is the total product, is required in kind to replace constant capital and wages, there is neither surplus-value, nor surplus-product, nor profit, nor rent. So long as this is not the case, so long as the product is greater than is necessary to replace the capital in kind, there will be conversion of profit (surplus-value) and capital into rent. Conversion of capital into rent takes place when a part of the product is freed, which, with a lower value, would have had to replace the capital, or [when] a part of the product which would have been converted into capital and surplus-value falls to rent.

At the same time it is evident that if constant capital becomes dearer as a result of dearer agricultural produce, the rent is very much reduced, for example, the rent of III and II [is reduced] from 50 tons, equal to £ 150 with a market-value of £ 3, to 26 2/3 tons, i.e., almost to half. Such a reduction is inevitable ||687| since the number of workers employed with the same capital of £ 100 is reduced for two reasons, firstly, because wages rise, i.e., the value of the variable capital rises, secondly, because the value of the means of production, the constant capital, rises. In itself, the rise in wages necessitates that out of the £ 100 less can be laid out in labour, hence relatively less (if the value of the commodities that enter into the constant capital remains the same) can be laid out in constant capital; thus £ 100 represents less accumulated and less living labour. In addition, however, the rise in the value, of the commodities which enter into the constant capital, reduces the amount of accumulated labour and for this reason of living labour, which can be employed for the same sum of money, as the technological ratio between accumulated and living labour remains the same. But since, with the same productivity of the land and a given technological composition of the capital, the total product depends on the quantity of labour employed, as the latter decreases, so the rent must also decrease.

This only becomes evident when profit disappears. So long as there is a profit, the rent can increase despite the absolute decrease in the product in all classes, as shown in the table on page 681. It is after all obvious that as soon as rent alone exists, the decrease in the product, hence in the surplus-product, must hit rent itself. This would occur more rapidly at the outset, if the value of the constant capital increased with that of variable capital.

But this apart, the table on page 681 shows that with declining fertility in agriculture, the growth of differential rent is always accompanied, even on the better classes of land, by a diminishing volume of total product in proportion to a capital outlay of a definite size, say £ 100. Ricardo has no inkling of this. The rate of profit decreases, because the same capital, say £ 100, sets in motion less labour and pays more for this labour, thus yielding an ever smaller surplus. The actual product, however, like the surplus-value, depends on the number of workers employed by the capital, when the productivity is given. This is overlooked by Ricardo. He also ignores the manner in which the rent is formed: not only by transforming surplus-value into rent, but also capital into surplus-value. Of course this is only an apparent transformation of capital into surplus-value. Each particle of surplus-produce would represent surplus-value or surplus-labour, if the market-value were determined by the value of the product of III etc. Ricardo, moreover, only considers that in order to produce the same volume of product, more labour has to be employed, but disregards the fact that with the same capital, an ever diminishing quantity of living labour is employed, of which an ever greater part is necessary labour and an ever smaller part surplus-labour, and this is the decisive factor for the determination of both the rate of profit and the quantity of product produced.

All this considered, it must be said that even if rent is taken to be purely differential rent, Ricardo has not made the slightest advance over his predecessors. His important achievement in this field is, as De Quincey pointed out, the scientific formulation of the question. In solving it Ricardo accepts the traditional views.

Namely :

“The innovation that Ricardo introduced into the theory of rent, is that he resolves it into the question whether it really invalidates the law of value.”[4] (Thomas de Quincey, The Logic of Political Economy, Edinburgh and London, 1844, p. 158.)

On page 163 of the same work, De Quincey says further:

“Rent is […] that portion of the produce from the soil (or from any agency of production) which is paid to the landlord for the use of its differential powers, as measured by comparison with those of similar agencies operating on the same market.”

Furthermore on page 176:

The objections against Ricardo are that the owners of No, l will not give it away for nothing. But in the period (this mythical period), when only No, 1 is being cultivated “no separate class of occupants and tenants distinct from the class of owners ||688| can have been formed”.

So according to De Quincey this law of landownership [is valid] so long as there is no landownership in the modern sense of the word.

Now to the relevant quotations from Ricardo.

[d) Historical Illustration of the Rise in the Rate of Profit with a Simultaneous Rise in the Prices of Agricultural Products. The Possibility of an Increasing Productivity of Labour in Agriculture][edit source]

(First the following note on differential rent: In reality, the ascending and descending lines alternate, run across one another and intertwine.

But it cannot by any means be said that if for individual short periods (such as 1797–1813) the descending line clearly predominates, that because of this, the rate of profit must fall (in so far, that is, as the latter is determined by the rate of surplus-value). Rather I believe that during that period, the rate of profit in England rose by way of exception, despite the greatly increased prices of wheat and agricultural produce generally. I do not know of any English statistician who does not share this view on the rise in the rate of profit during that period. Individual economists, such as Chalmers, Blake, etc. have advanced special theories based on this fact. Moreover I must add that it is foolish to attempt to explain the rise in the price of wheat during that period by the depreciation of money. No one who has studied the history of the prices of commodities during that period, can agree with this. Besides, the rise in prices begins much earlier and reaches a high level before any kind of depreciation of money occurs. As soon as it appears it must simply be allowed for. If one asks why the rate of profit rose despite the rising corn prices, this is to be explained from the following circumstances: Prolongation of the working-day, the direct consequence of the newly introduced machinery; depreciation of the manufactured goods and colonial commodities which enter into the consumption of the workers; reduction of wages (although the nominal wage rose) below their traditional average level <this fact is acknowledged for that period; J. P. Stirling in The Philosophy of Trade etc., Edinburgh, 1846, who, on the whole, accepts Ricardo’s theory of rent, seeks, however, to prove that the immediate consequence of a permanent (that is, not accidental, dependent on the seasons) rise in the price of corn, is always reduction in the average wage>; finally, the rise in the rate of profit was due to rising nominal prices of commodities, because loans and government expenditure increased the demand for capital even more rapidly than its supply, and this enabled the manufacturers to retrieve part of the product paid to the landowning rentiers and other persons who have a fixed income in the form of rent etc. This transaction is of no concern to us here, where we are considering the basic relationships, and therefore are concerned only with three classes: landlords, capitalists and workmen. On the other hand it plays a significant part in practice, under appropriate circumstances as Blake has shown.) |688||

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||689| {Mr. Hallett from Brighton exhibited “pedigree nursery wheat” at the 1862 exhibition. “Mr. Hallett insists that ears of corn, like racehorses, must he carefully reared, instead of, as is done ordinarily, grown in higgledy-piggledy fashion, with no regard to the theory of natural selection. In illustration of what good education may do, even with wheat, some remarkable examples are given. In 1857, Mr. Hallett, planted [the grains of] an ear of the first quality of the red wheat, exactly 4 3/8 inches long, and containing 47 grains. From the product of the small crops ensuing, he again selected, in 1858, the finest ear, 6 1/2 inches long, and with 79 grains; and this was repeated, in 1859, again with the best offspring, this time 7 3/4 inches long, and containing 91 grains. The next year, 1860, was a had season for agricultural education, and the wheat refused to grow any bigger and better; but the year after, 1861, the best ear came to be 8 3/4 inches long, with no less than 123 grains on the single stalk. Thus the wheat had increased, in five years, to very nearly double its size, and to a threefold amount of productiveness in number of grains. These results were obtained by what Mr. Hallett calls the ‘natural system’ of cultivating wheat; that is, the planting of single grains at such a distance—about 9 inches from each other—every way—as to afford each sufficient space for full development…” He asserts that the corn produce of England may be doubled by adopting ‘pedigree wheat’ and the ‘natural system’ of cultivation. He states that from single grains, planted at the proper time, one only on each square foot of ground, he obtained plants consisting of 23 ears on the average, with about 36 grains in each ear. The produce of an acre at this rate was, accurately counted, 1,001,880 ears of wheat; while, when sown in the ordinary fashion, with an expenditure of more than 20 times the amount of seed, the crop amounted to only 934,120 ears of corn, or 67,760 ears less…”[5]}

[e) Ricardo’s Explanation for the Fall in the Rate of Profit and Its Connection with His Theory of Rent][edit source]

[Ricardo establishes the fall in the rate of profit as follows:]

“With the progress of society the natural price of labour has always a tendency to rise, because one of the principal commodities by which its natural price is regulated, has a tendency to become dearer, from the greater difficulty of producing it. As, however, the improvements in agriculture, the discovery of new markets, whence provisions may be imported, may for a time counteract the tendency to a rise in the price of necessaries, and may even occasion their natural price to fall, so will the same causes produce the correspondent effects on the natural price of labour.

“The natural price of all commodities, excepting raw produce and labour, has a tendency to fall, in the progress of wealth and population; for though, on one hand, they are enhanced in real value, from the rise in the natural price of the raw material of which they are made, this is more than counterbalanced by the improvements in machinery, by the better division and distribution of labour, and by the increasing skill, both in science and art, of the producers.” ([David Ricardo, On the Principles of Political Economy, and Taxation, third edition, London, 1821,] pp. 86–87.)

“As population increases, these necessaries will be constantly rising in price, because more labour will be necessary to produce them… Instead, therefore, of the money wages of labour falling, they would rise; but they would not rise sufficiently to enable the labourer to purchase as many comforts and necessaries as he did before the rise in price of those commodities…

“Notwithstanding, then, that the labourer would be really worse paid, yet this increase in his wages would necessarily diminish the profits of the manufacturer; for his goods would sell at no higher price and yet the expense of producing them would be increased…

“It appears, then, that the same cause which raises rent […] the increasing difficulty of providing an additional quantity of food with the same proportional quantity of labour, will also raise wages; and therefore if money be of an unvarying value, both rent and wages will have a tendency to rise with the progress of wealth and population.

“But there is this essential difference between the rise of rent and the rise of wages. The rise in the money value of rent is accompanied ||690| by an increased share of the produce; not only is the landlord’s money rent greater, but his corn rent also… The fate of the labourer will be less happy; he will receive more money wages, it is true, but his corn wages will be reduced; and not only his command of corn, but his general condition will be deteriorated, by his finding it more difficult to maintain the market rate of wages above their natural rate” (l. c., pp. 96–98).

Supposing[6] corn and manufactured goods always to sell at the same price, profits would be high or low in proportion as wages were low or high. But suppose corn to rise in price because more labour is necessary to produce it; that cause will not raise the price of manufactured goods in the production of which no additional quantity of labour is required… if, as is absolutely certain, wages should rise with the rise of corn, then their profits[7] would necessarily fall” (l.c., p. 108).

But it may be asked, “…whether the farmer at least would not have the same rate of profits, although he should pay an additional sum for wages? Certainly not: for he will not only have to pay, in common with the manufacturer, an increase of wages to each labourer he employs, but he will be obliged either to pay rent, or to employ an additional number of labourers to obtain the same produce; and the rise in the price of raw produce[8] will be proportioned only to that rent, or that additional number, and will not compensate him for the rise of wages” (l. c., p. 108).

“We have shewn that in early stages of society, both the landlord’s and the labourer’s share of the value of the produce of the earth, would be but small; and that it would increase in proportion to the progress of wealth, and the difficulty of procuring food” (l.c., p. 109).

These “early stages of society” are a peculiar bourgeois fantasy. In these early stages, the labourer is either slave or self-supporting peasant, etc. In the first case he belongs to the landlord, together with the land; in the second case he is his own landlord. In neither case does any capitalist stand between the landlord and the labourer. The subjugation of agriculture to capitalist production, and hence the transformation of slaves or peasants into wage-labourers and the intervention of the capitalist between landlord and labourer—which is only the final result of capitalist production—is regarded by Ricardo as a phenomenon belonging to the “early stages of society”.

“The natural tendency of profits then is to fall; for, in the progress of society and wealth, the additional quantity of food required is obtained by the sacrifice of more and more labour. This tendency, this gravitation as it were of profits, is happily checked at repeated intervals by the improvements in machinery, connected with the production of necessaries, as well as by discoveries in the science of agriculture which enable us to relinquish a portion of labour before required, and therefore to lower the price of the prime necessary of the labourer” (l.c., pp. 120–21).

In the following sentence, Ricardo says in plain terms that by rate of profit he understands the rate of surplus-value:

“Although a greater value is produced, a greater proportion of what remains of that value, after paying rent, is consumed by the producers, and it is this, and this alone, which regulates profits” (l.c., p. 127).

In other words, apart from rent, the rate of profit is equal to the excess of the value of the commodity over the value of the labour which is paid during its production, or that part of its value which is consumed by the producers. [In this context] Ricardo calls only the workers producers. He assumes that the produced value is produced by them. He thus defines surplus-value here, as that part of the value created by the workers which the capitalist retains.[9] But if Ricardo identifies rate of surplus-value with rate of profit—and at the same time assumes, as he does, that the working-day is of given length—then the tendency of the rate of profit to fall can only be explained by the same factors which make the rate of surplus-value fall. But, with a given working-day, the rate of surplus-value can only fall if the rate of wages is rising permanently. This is only possible if the value of necessaries is rising permanently. And this only if agriculture is constantly deteriorating, in other words, if Ricardo’s theory of rent is accepted. Since Ricardo identifies rate of surplus-value with rate of profit, ||691| and since the rate of surplus-value can only be reckoned in relation to variable capital, capital laid out in wages, Ricardo, like Adam Smith, assumes that the value of the whole product—after deduction of rent—is divided between workmen and capitalists, into wages and profit. This means that he makes the false presupposition that the whole of the capital advanced consists only of variable capital. Thus, for example, after the passage quoted above, he goes on:

“When poor lands are taken into cultivation, or when more capital and labour are expended on the old land, with a less return of produce, the effect must be permanent. A greater proportion of that part of the produce which remains to be divided, after paying rent, between the owners of stock and the labourers, will be apportioned to the latter” (l.c., pp. 127–28).

The passage continues:

“Each man may, and probably will, have a less absolute quantity; but as more labourers are employed in proportion to the whole produce retained by the farmer, the value of a greater proportion of the whole produce will be absorbed by wages, and consequently the value of a smaller proportion will be devoted to profits” (l.c., p. 128).

And shortly before:

“The remaining quantity of the produce of the land, after the landlord and labourer are paid, necessarily belongs to the farmer, and constitutes the profits of his stock” (l.c., p. 110).

At the end of the section (Chapter VI) “On Profits”, Ricardo says that his thesis on the fall of profits remains true, even if— which is wrong—it were assumed, that the prices of commodities rose with a rise in the money wages of the labourers.

“In the Chapter on Wages, we have endeavoured to shew that the money price of commodities would not be raised by a rise of wages... But if it were otherwise, if the prices of commodities were permanently raised by high wages, the proposition would not be less true, which asserts that high wages invariably affect the employers of labour, by depriving them of a portion of their real profits. Supposing the hatter, the hosier, and the shoemaker each paid £ 10 more wages in the manufacture of a particular quantity of their commodities, and that the price of hats, stockings, and shoes, rose by a sum sufficient to repay the manufacturer the £ 10; their situation would be no better than if no suck rise took place. If the hosier sold his stockings for £ 110 instead of £ 100, his profits would be precisely the same money amount as before; but as he would obtain in exchange for this equal sum, one-tenth less of hats, shoes and every other commodity, and as he could with his former amount of savings” (that is with the same capital) “employ fewer labourers at the increased wages, and purchase fewer raw materials at the increased prices, he would be in no better situation than if his money profits had been really diminished in amount, and every thing had remained at its former price” (l.c., p. 129).

Whereas elsewhere in his argument Ricardo always only stressed that in order to produce the same quantity of product on worse land, more labourers have to be paid, here at last he stresses what is decisive for the rate of profit, namely, that with the same amount of capital fewer labourers are employed at increased wages. Apart from this, he is not quite right in what he says. It makes no difference to the capitalist, if the price of hats etc. rises by 10 per cent, but the landlord would have to give up more of his rent. His rent may have risen for example, from £ 10 to £ 20. But he gets proportionately fewer hats etc. for his £ 20 than for the £ 10. Ricardo says quite rightly :

“In an improving state of society, the net produce of land is always diminishing in proportion to its gross produce” (l. c., p. 198).

By this he means that the rent diminishes in an improving state of society. The real reason is that in an improving state of society, the variable capital decreases in proportion to the constant capital. |691|| ||692| That with the progress of production, the constant capital grows in proportion to the variable, Ricardo himself admits, but only in the form that the fixed capital grows in proportion to the circulating.

“In rich and powerful countries, where large capitals are invested in machinery, more distress will be experienced from a revulsion in trade, than in poorer countries where there is proportionally a muck smaller amount of fixed, and a muck larger amount of circulating capital, and where consequently more work is done by the labour of men. It is not so difficult to withdraw a circulating as a fixed capital, from any employment in which it may be engaged. It is often impossible to divert the machinery which may have been erected for one manufacture, to the purposes of another; but the clothing, the food, and the lodging of the labourer in one employment may be devoted to the support of the labourer in another;”

(here, therefore, circulating capital comprises only variable capital, capital laid out in wages)

“or the same labourer may receive the same food, clothing and lodging, whilst his employment is changed. This, however, is an evil to which a rich nation must submit; and it would not be more reasonable to complain of it, than it would be in a rich merchant to lament that his ship was exposed to the dangers of the sea, whilst his poor neighbour’s cottage was safe from all such hazard” (l. c., p. 311).

Ricardo himself mentions one reason for the rise in rent, which is quite independent of the rise in the price of agricultural produce :

“Whatever capital becomes fixed on the land, must necessarily be the landlord’s, and not the tenant’s, at the expiration of the lease. Whatever compensation the landlord may receive for this capital, on re-letting his land, will appear in the form of rent; but no rent will be paid, if, with a given capital, more corn can be obtained from abroad, than can be grown on this land at home” (l.c., p. 315, note).

On the same subject Ricardo says:

“In a former part of this work, I have noticed the difference between rent, properly so called, and the remuneration paid to the landlord under that name, for the advantages which the expenditure of his capital has procured to his tenant; but I did not perhaps sufficiently distinguish the difference which would arise from the different modes in which this capital might be applied. As a part of this capital, when once expended in the improvement of a farm, is inseparably amalgamated with the land, and tends to increase its productive powers, the remuneration paid to the landlord for its use is strictly of the nature of rent, and is subject to all the laws of rent. Whether the improvement be made at the expense of the landlord or the tenant, it will not be undertaken in the first instance, unless there is a strong probability that the return will at least be equal to the profit that can be made by the disposition of any other equal capital; but when once made, the return obtained will ever after be wholly of the nature of rent, and will he subject to all the variations of rent. Some of these expenses, however, only give advantages to the land for a limited period, and do not add permanently to its productive powers: being bestowed on buildings, and other perishable improvements, they require to be constantly renewed, and therefore do not obtain for the landlord any permanent addition to his real rent” (l.c., p. 306, note).

Ricardo says:

“In all countries, and all times, profits depend on the quantity of labour requisite to provide necessaries for the labourers, on that land or with that capital which yields no rent” (l.c., p. 128).

According to this, the profit of the farmer on that land—the worst land, which according to Ricardo pays no rent—regulates the general rate of profit. The reasoning is this: the product of the worst land is sold at its value and pays no rent. We see here exactly, therefore, how much surplus-value remains for the capitalist after deduction of the value of that part of the product which is merely an equivalent for the worker. And this surplus-value is the profit. This is based on the assumption that cost-price and value are identical, that this product, because it is sold at its cost-price, is sold at its value.

This is incorrect, historically and theoretically. I have shown that, where there is capitalist production and where landed property exists, the land or mine of the worst type cannot pay a rent, because the corn is sold below its [individual] value if it is sold at the market-value, which is not regulated by it. For the market-value only covers its cost-price. But what regulates this cost-price? The rate of profit of the non-agricultural capital, into whose determination the price of corn naturally enters as well, however far removed the latter may be from being its sole determinant. Ricardo’s assertion would only be correct if values and cost-prices were ||693| identical. Historically too, as the capitalist mode of production appears later in agriculture than in industry, agricultural profit is determined by industrial profit, and not the other way about. The only correct point is that on the land which pays a profit but no rent, which sells its product at the cost-price, the average rate of profits becomes apparent, is tangibly presented, but this does not mean at all that the average profit is thereby regulated; that would be a very different matter.

The rate of profit can fall, without any rise in the rate of interest and rate of rent.

“From the account which has been given of the profits of stock, it will appear, that no accumulation of capital will permanently lower profits,[10] unless there be some permanent cause for the rise of wages… If the necessaries of the workman could be constantly increased with the same facility, there could be no permanent alteration in the rate of profit or wages,” (this should read: in the rate of surplus-value and the value of labour) “to whatever amount capital might be accumulated. Adam Smith, however, uniformly ascribes the fall of profits to the accumulation of capital, and to the competition which will result from it, without ever adverting to the increasing difficulty of providing food for the additional number of labourers which the additional capital will employ” (l. c., pp. 338–39).

The whole thing would only be right if profit were equal to surplus-value.

Thus Adam Smith says that the rate of profit falls with the accumulation of capital, because of the growing competition between the capitalists; Ricardo says that it does so because of the growing deterioration of agriculture (increased price of necessaries). We have refuted his view, which would only be correct if rate of surplus-value and rate of profit were identical, and therefore the rate of profit could not fall unless the rate of wages rose, provided the working-day remained unchanged. Adam Smith’s view rests on his compounding value out of wages, profits and rents (in accordance with his false view, which he himself refuted). According to him, the accumulation of capitals forces the reduction in arbitrary profits—for which there is no inherent measure—through the reduction in the prices of commodities; profits, according to this conception, being merely a nominal addition to the prices of commodities.

Ricardo is of course theoretically right when he maintains, in opposition to Adam Smith, that the accumulation of capitals does not alter the determination of the value of commodities; but Ricardo is quite wrong when he seeks to refute Adam Smith by asserting that over-production in one country is impossible. Ricardo denies the plethora of capital, which later became an established axiom in English political economy.

Firstly he overlooks that in reality, where not only the capitalist confronts the workman, but capitalist, workman, landlord, moneyed interest, [people receiving] fixed incomes from the state etc., confront one another, the fall in the prices of commodities which hits both the industrial capitalist and the workman, benefits the other classes.

Secondly he overlooks that the output level is by no means arbitrarily chosen, but the more capitalist production develops, the more it is forced to produce on a scale which has nothing to do with the immediate demand but depends on a constant expansion of the world market. He has recourse to Say’s trite assumption, that the capitalist produces not for the sake of profit, surplus-value, but produces use-value directly for consumption— for his own consumption. He overlooks the fact that the commodity has to be converted into money. The demand of the workers does not suffice, since profit arises precisely from the fact that the demand of the workers is smaller than the value of their product, and that it [profit] is all the greater the smaller, relatively, is this demand. The demand of the capitalists among themselves is equally insufficient. Over-production does not call forth a constant fall in profit, but periodic over-production recurs constantly. It is followed by periods of under-production etc. Over-production arises precisely from the fact that the mass of the people can never consume more than the average quantity of necessaries, that their consumption therefore does not grow correspondingly with the productivity of labour. But the whole of this section belongs to the competition of capitals. All that Ricardo says on this isn’t worth a rap. (This is contained in Chapter XXI, “Effects of Accumulation on Profits and Interest”.)

“There is only one case, and that will be temporary, in which the accumulation of capital with a low price of food may be attended with a fall of profits; and that is, when the funds for the maintenance of labour increase much more rapidly than population;—wages will then be high, and profits low” (l. c., p. 343).

[In the same chapter] Ricardo directs against Say the following ironical remarks on the relation between profits and interest:

“M. Say allows, that the rate of interest depends on the rate of profits; but it does not therefore follow, that the rate of profits depends on the rate of interest. One is the cause, the other the effect, and it is impossible for any circumstances to make them change places” (l.c., p. 353, note).

However, the same causes which bring down profits can make interest rise, and vice versa. [In the Chapter “On Colonial Trade” Ricardo writes:]

“M. Say acknowledges that the cost of production is the foundation of price, and yet in various parts of his book he maintains that price is regulated by the proportion which demand bears to supply” (l. c., p. 411).

Ricardo should have seen from this that ||694| the cost of production is something very different from the quantity of labour employed for the production of a commodity. Instead he continues:

“The real and ultimate regulator of the relative value of any two commodities, is the cost of their production” (l. c., p. 411).

“And does not Adam Smith agree in this opinion” (that prices are regulated neither by wages nor profits) “when he says, that ‘the prices of commodities, or the value of gold and silver as compared with commodities, depends upon the proportion between the quantity of labour which is necessary in order to bring a certain quantity of gold and silver to market, and that which is necessary to bring thither a certain quantity of any other sort of goods?’ That quantity will not be affected, whether profits be high or low, or wages low or high. How then can prices be raised by high profits?” (l. c., pp. 413–14).

In the passage quoted, Adam Smith means by prices nothing other than the monetary expression of the values of commodities. That these and the gold and silver against which they exchange, are determined by the relative quantities of labour required for producing those two sorts of commodities <commodities on the one side, gold and silver on the other>, in no way contradicts the fact that the actual prices of commodities, i.e., their cost-prices “… can […] be raised by high profits” [l.c., p. 414]. Although not all prices simultaneously, as Smith thinks. But as a result of high profits, some commodities will rise higher above their value, than if the average profits were low, while another group of commodities will sink to a smaller extent below their value.

  1. See this volumne, pp. 181–82—Ed.
  2. In the manuscript: “III”—obviously a slip of the pen—Ed
  3. In the manuscript: “4/11”—obviously a slip of the pen—Ed
  4. Marx gives here, in his own words, a brief summary of the idea developed by De Quincey.—Ed.
  5. The source of this quotation has not been established.—Ed
  6. In the manuscript: “Suppose”.—Ed.
  7. i.e., the profits of manufacturers.—Ed.
  8. In the manuscript: “of the raw produce”.—Ed.
  9. ||691| Regarding the origin of surplus-value [Ricardo says]:

    “In the form of money … capital is productive of no profit; in the form of materials, machinery, and food, for which it might be exchanged, it would be productive of revenue… “ (l.c., p. 267). “The capital of the stockholder ||692| can never be made productive—it is, in fact, no capital. If he were to sell his stock, and employ the capital he obtained for it, productively, he could only do so by detaching the capital of the buyer of his stock from a productive employment” (l.c., p. 289, note). |692||

  10. By profits Ricardo means here that part of surplus-value which the capitalist appropriates, but by no means the [entire] surplus-value; and wrong as it is to say that accumulation can cause the surplus-value to fall, so it is right that accumulation can cause a fall in profit.