 With Anderson s thesis (partly also contained in Adam Smith s work): It is not  the rent of the land that determines the price of its produce, but it is the price of that produce which determines the rent of the land the doctrine of the Physiocrats was overthrown. The price of the agricultural produce, and neither this produce itself nor the land, had thus become the source of rent. This finished the notion that rent was the offspring of the exceptional productivity of agriculture which again was supposed to be the offspring of the special fertility of the soil. For, if the same quantity of labour was exerted in a particularly productive element and hence was itself exceptionally productive, then the result could only be that this labour manifested itself in a relatively large quantity of products and that the price of the individual product was therefore relatively low; but it could never have the opposite result, namely, that the price of its product was higher than that of other products containing the same quantity of labour and that this price, as distinct from that of other commodities, thus yielded a rent, in addition to profit and wages. (In his treatment of rent Adam Smith to some extent returns to the physiocratic view, having previously refuted or at least rejected it by his original conception of rent as part of surplus-labour.) Buchanan sums up this discarding of the physiocratic view in the following words: After the rejection of this notion of the Physiocrats which, however, was fully justified in its deeper sense, because they regarded rent as the only surplus, and capitalists and labourers together merely as the paid employees of the landlord only the following viewpoints were possible. ||523| [Firstly:] The view that rent arises from the monopoly price of agricultural products, the monopoly price being due to the landowners possessing the monopoly of the land. According to this concept, the price of the agricultural product is constantly above its value. There is a surcharge of price and the law of the value of commodities is breached by the monopoly of landed property. Rent arises out of the monopoly price of agricultural products, because supply is constantly below the level of demand or demand is constantly above the level of supply. But why does supply not rise to the level of demand? Why does not an additional supply equalise this relationship and thus, according to this theory, abolish all rent? In order to explain this, Malthus on the one hand takes refuge in the fiction that agricultural products provide themselves with direct consumers (about which more later, in connection with his row with Ricardo); on the other hand, in the Andersonian theory, that agriculture becomes less productive because the additional supply costs more labour. Hence, in so far as this view is not based on mere fiction, it coincides with the Ricardian theory. Here too, price stands a b o v e value, surcharge. [Secondly:] The Ricardian Theory: Absolute rent does not exist, only a differential rent. Here too, the price of the agricultural products that bear rent is above their individual value, and in so far as rent exists at all, it does so through the excess of the price of agricultural products over their value. Only here this excess of price over value does not contradict the general theory of value (although the fact remains) because within each sphere of production the value of the commodities belonging to it is not determined by the individual value of the commodity but by its value as modified by the general conditions of production of that sphere. Here, too, the price of the rent-bearing products is a monopoly price, a monopoly however as it occurs in all spheres of industry and only becomes permanent in this one, hence assuming the form of rent as distinct from excess profit. Here too, it is an excess of demand over supply or, what amounts to the same thing, that the additional demand cannot be satisfied by an additional supply at prices corresponding to those of the original supply, before its prices were forced up by the excess of demand over supply. Here too, rent comes into being (differential rent) because of excess of price over value, [brought about by] the rise of prices on the better land above the value of the product, and this leads to the additional supply. [Thirdly:] Rent is merely interest on the capital sunk in the land. This view has the following in common with the Ricardian, namely, that it denies the existence of absolute rent. It must admit the existence of differential rent, when pieces of land in which equal amounts of capital have been invested, yield rents of varying size. Hence in fact, it amounts to the Ricardian view, that certain land yields no rent and that where actual rent is yielded, this is differential rent. But it is absolutely incapable of explaining the rent of land in which no capital has been invested, of waterfalls, mines etc. It was, in fact, nothing but an attempt from a capitalist point of view, to save rent despite Ricardo under the name of interest. Finally [fourthly]: Ricardo assumes that on the land which does not bear a rent, the price of the product equals its value because it equals the average price, i.e., capital outlay plus average profit. He thus wrongly assumes that the value of the commodity equals the average price of the commodity. If this wrong assumption is dropped, then absolute rent becomes possible because the value of agricultural products, like that of a whole large category of other commodities, stands above their average price, but owing to landed property, the value of the agricultural products, unlike that of these other commodities, is not levelled out at the average price. Hence this view assumes, like the monopoly theory, that property in land, as such, has something to do with rent; it assumes differential rent along with Ricardo, and finally it assumes that absolute rent by no means infringes the law of value. Ricardo starts out from the determination of the relative va1ues(or exchangeable values) of commodities by the quantity of labour . (We can examine later the various senses in which Ricardo uses the term value. This is the basis of Bailey s criticism and, at the same time, of Ricardo s shortcomings.) The character of this labour is not further examined, If two commodities are equivalents or bear a definite proportion to each other or, which is the same thing, if their magnitude differs according to the ||524| quantity of labour which they contain then it is obvious that regarded as exchange-values, their substance must be the same. Their substance is labour. That is why they are values . Their magnitude varies, according to whether they contain more or less of this substance. But Ricardo does not examine the form the peculiar characteristic of labour that creates exchange-value or manifests itself in exchange-values the nature of this labour. Hence lie does not grasp the connection of this labour with money or that it must assume the form of money. Hence he completely fails to grasp the connection between the determination of the exchange-value of the commodity by labour-time and the fact that the development of commodities necessarily leads to the formation of money. Hence his erroneous theory of money. Right from the start he is only concerned with the magnitude of value, i.e., the fact that the magnitudes of the va1ues of the commodities are proportionate to the quantities of labour which are required for their production. Ricardo proceeds from here and he expressly names Adam Smith as his starting-point (Chapter I, Section I). Ricardo s method is as follows: He begins with the determination of the magnitude of the value of the commodity by labour-time and then examines whether the other economic relations and categories contradict this determination of value or to what extent they modify it. The historical justification of this method of procedure, its scientific necessity in the history of economics, are evident at first sight, but so is, at the same time, its scientific inadequacy. This inadequacy not only shows itself in the method of presentation (in a formal sense) but leads to erroneous results because it omits some essential links and directly seeks to prove the congruity of the economic categories with one another. Historically, this method of investigation was justified and necessary. Political economy had achieved a certain comprehensiveness with Adam Smith; to a certain extent he had covered the whole of its territory, so that Say was able to summarise it all in one textbook, superficially but quite systematically. The only investigations that were made in the period between Smith and Ricardo were ones of detail, on productive and unproductive labour, finance, theory of population, landed property and taxes. Smith himself moves with great na vet in a perpetual contradiction. On the one hand he traces the intrinsic connection existing between economic categories or the obscure structure of the bourgeois economic system. On the other, he simultaneously sets forth the connection as it appears in the phenomena of competition and thus as it presents itself to the unscientific observer just as to him who is actually involved and interested in the process of bourgeois production. One of these conceptions fathoms the inner connection, the physiology, so to speak, of the bourgeois system, whereas the other takes the external phenomena of life, as they seem and appear and merely describes, catalogues, recounts and arranges them under formal definitions. With Smith both these methods of approach not only merrily run alongside one another, but also intermingle and constantly contradict one another. With him this is justifiable (with the exception of a few special investigations, [such as] that into money) since his task was indeed a twofold one. On the one hand he attempted to penetrate the inner physiology of bourgeois society but on the other, he partly tried to describe its externally apparent forms of life for the first time, to show its relations as they appear outwardly and partly he had even to find a nomenclature and corresponding mental concepts for these phenomena, i.e., to reproduce them for the first time in the language and [in the] thought process. The one task interests him as much as the other and since both proceed independently of one another, this results in completely contradictory ways of presentation: the one expresses the intrinsic connections more or less correctly, the other, with the same justification and without any connection to the first method of approach expresses the apparent connections without any internal relation. Adam Smith s successors, in so far as they do not represent the reaction against him of older and obsolete methods of approach, can pursue their particular investigations and observations undisturbedly and can always regard Adam Smith as their base, whether they follow the esoteric or the exoteric part of his work or whether, as is almost always the case, they jumble up the two. But at last Ricardo steps in and calls to science: Halt! The basis, the starting-point for the physiology of the bourgeois system for the understanding of its internal organic coherence and life process is the determination of value by labour-time. Ricardo starts with this and forces science to get out of the rut, to render an account of the extent to which the other categories the relations of production and commerce evolved and described by it, correspond to or contradict this basis, this starting-point; to elucidate how far a science which in fact only reflects and reproduces the manifest forms of the process, and therefore also how far these manifestations themselves, correspond to the basis on which the inner coherence, the actual physiology of bourgeois society rests or the basis which forms its starting-point; and in general, to examine how matters stand with the contradiction between the apparent and the actual movement of the system. This then is Ricardo s ||525| great historical significance for science. This is why the inane Say, Ricardo having cut the ground from right under his feet, gave vent to his anger in the phrase that under the pretext of expanding it (science) it had been pushed into a vacuum . Closely bound up with this scientific merit is the fact that Ricardo exposes and describes the economic contradiction between the classes as shown by the intrinsic relations and that consequently political economy perceives, discovers the root of the historical struggle and development. Carey (the passage to be looked up later) therefore denounces him as the father of communism. Thus it follows on the one hand that the Ricardian method of investigation is scientifically justified and has great historical value, on the other hand the scientific deficiencies of his procedure are clearly visible and will become more evident in what follows later. Hence also the very peculiar and necessarily faulty architectonics of his work. The whole work consists of 32 chapters (in the third edition). Of this, 14 chapters deal with taxes, thus dealing only with the application of the theoretical principles. The twentieth chapter, Value and Riches, Their Distinctive Properties is nothing but an examination of the difference between use-value and exchange-value, i.e., a supplement to the first chapter, On Value . The twenty-fourth chapter Doctrine of Adam Smith Concerning the Rent of Land , like the twenty-eighth chapter On the Comparative Value of Gold, Corn and Labour and the thirty-second chapter Mr. Malthus s Opinions on Rent are mere supplements to, and in part a vindication of, Ricardo s rent theory, thus forming mere appendices to chapters II and III which deal with rent. The thirtieth chapter On the Influence of Demand and Supply on Prices is simply an appendix to the fourth chapter On Natural and Market-Price. The nineteenth chapter, On Sudden Changes in the Channels of Trade , forms a second appendix to this chapter. The thirty-first chapter, On Machinery , is purely an appendix to the fifth and sixth chapters On Wages and On Profits . The seventh chapter, On Foreign Trade , and the twenty-fifth, On Colonial Trade like the chapters on taxes are mere applications of previously established principles. The twenty-first chapter Effects of Accumulation on Profits and Interest is an appendix to the chapters on rent, profits and wages. The twenty-sixth chapter On Gross and Net Revenue is an appendix to the chapters on wages, profits and rent. Finally, the twenty-seventh chapter On Currency and Banks stands quite apart from the rest of the work and merely consists of further explanations and in part modifications of views put forward in his earlier writings on money. The Ricardian theory is therefore contained exclusively in the first six chapters of the work. It is in respect of this part of the work that I use the term faulty architectonics. The other part (with the exception of the section on money) consists of applications, elucidations and addenda which, by their very nature, are jumbled together and make no claim to being systematically arranged. But the faulty architectonics of the theoretical part (the first six chapters) is not accidental, rather it is the result of Ricardo s method of investigation itself and of the definite task which he set himself in his work. It expresses the scientific deficiencies of this method of investigation itself. Chapter I is On Value . It is subdivided into seven sections. The first section actually examines whether wages contradict the determination of the values of commodities by the labour-time they contain. In the third section Ricardo demonstrates that the entry of what I call constant capital into the value of the commodity does not contradict the determination of value and that the values of commodities are equally unaffected by the rise or fall in wages. The fourth section examines to what extent the determination of exchangeable values by labour-time is altered by the application of machinery and other fixed and durable capital, in so far as it enters into the total capital in varying proportions in different spheres of production. The fifth section examines how far a rise or fall in wages modifies the determination of values by labour-time, if capitals of unequal durability and varying periods of turnover are employed in different spheres of production. Thus one can see that in this first chapter not only are commodities assumed to exist and when considering value as such, nothing further is required but also wages, capital, profit, the general rate of profit and even, as we shall see, the various forms of capital as they arise from the process of circulation, and also the difference between natural and market-price . This latter, moreover, plays a decisive role in the following chapters, Ch. II and Ch. III: On Rent and On the Rent of Mines . In accordance with his method of investigation, the second chapter, On Rent ||526| the third On the Rent of Mines is only a supplement to this again opens with the question: Does landed property, and rent, contradict the determination of the value of commodities by labour-time? This is how he opens the second chapter On Rent : In order to carry out this investigation, he introduces not only, en passant, the relationship of market-price and real price ( monetary expression of value) but postulates the whole of capitalist production and his entire conception of the relationship between wages and profit. The fourth chapter On Natural and Market-Price and the fifth On Wages and the sixth On Profits are thus not only taken for granted, but fully developed in the first two chapters On Value and On Rent and in Chapter III as an appendix to II. The later three chapters, in so far as they bring any new theoretical points, fill in gaps here and there, and provide closer definitions, which for the most part should by rights have found their place in [chapters] I or II. Thus the entire Ricardian contribution is contained in the first two chapters of his work. In these chapters, the developed relations of bourgeois production, and therefore also the developed categories of political economy, are confronted with their principle the determination of value and examined in order to determine the degree to which they directly correspond to this principle and the position regarding the apparent discrepancies which they introduce into the value relations of commodities. They contain the whole of his critique of hitherto existing political economy, the determined break with the contradiction that pervades Adam Smith s work with its esoteric and exoteric method of approach, and, at the same time, because of this critique, they produce some quite new and startling results. Hence the great theoretical satisfaction afforded by these first two chapters; for they provide with concise brevity a critique of the old, diffuse and meandering political economy, present the whole bourgeois system of economy as subject to one fundamental law, and extract the quintessence out of the divergency and diversity of the various phenomena. But this theoretical satisfaction afforded by these first two chapters because of their originality, unity of fundamental approach, simplicity, concentration, depth, novelty and comprehensiveness, is of necessity lost as the work proceeds. Here too, we are at times captivated by the originality of certain arguments. But as a whole, it gives rise to weariness and boredom. As the work proceeds, there is no further development. Where it does not consist of monotonous formal application of the same principles to various extraneous matters, or of polemical vindication of these principles, there is only repetition or amplification; at most one can occasionally find a striking chain of reasoning in the final sections. In the critique of Ricardo, we have to separate what he himself failed to separate. [Firstly] his theory of surplus-value, which of course exists in his work, although he does not define surplus-value as distinct from its particular forms, profit, rent, interest. Secondly, his theory of profit. We shall begin with the latter, although it does not belong into this section, but into the historical appendix to Section III. Before we go on, just a few comments on how Ricardo confuses the definitions of value . Bailey s polemic against him is based on this; it is however also important for us. First of all Ricardo speaks of value in exchange (l.c., p. 1) and, like Adam Smith, defines it as the power of purchasing other goods (l.c., p. 1). This is exchange-value as it appears at first. Then, however, he proceeds to the real determination of value: Which variation? Ricardo later also calls this relative value comparative value (p. 448 et seq.). We want to know in which commodity the variation has taken place. This means the variation of the value which was called relative value above. For instance, 1 pound of sugar equals 2 pounds of coffee. Later 1 pound of sugar equals 4 pounds of coffee. The variation which we want to know about is: whether the necessary labour-time has altered for sugar or for coffee, whether sugar costs twice as much labour-time as before or whether coffee costs half as much labour-time as before and which of these variations in the labour-time required for their respective production has called forth this variation in their exchange relation. This relative or comparative value of sugar and coffee the ratio in which they exchange is thus different from relative value in the first sense. In the first sense, the relative value of sugar is determined by the quantity of sugar which can be produced by a certain amount of labour-time ||527|. In the second case, the relative value of sugar [and coffee] expresses the ratio in which they are exchanged for one another and changes in this ratio can be the result of a change in the relative value in the first sense, in coffee or in sugar. The proportion in which they exchange for one another can remain the same, although their relative values in the first sense have altered, 1 lb. sugar can equal 2 lbs. coffee, as before, even though the labour-time for the production of sugar and of coffee has risen to double or has fallen to a half. Variations in their comparative value, that is, if the exchange-value of sugar is expressed in coffee, and vice versa, will only appear when the variations in their relative value in the first sense, i.e., the values determined by the quantity of labour, have altered to a different extent, when therefore comparative changes have occurred. Absolute changes, when they do not alter the original ratio, but are of equal magnitude and move in the same direction, will not call forth any variation in the comparative values nor in the money prices of these commodities, since, if the value of money should change, it would do so equally for both [commodities]. Hence, whether the values of two commodities are expressed in their own reciprocal use-values or in their money price representing both commodities in the form of the use-value of a third commodity these relative or comparative values or prices are the same, and the changes in them must be distinguished from changes in their relative values in the first sense of the term, i.e., in so far as they only express the change in the labour-time required for their own production, and thus realised in themselves. The latter relative value thus appears as absolute value compared with relative values in the second sense, i.e., in the sense of actually representing the exchange-value of one commodity in terms of the use-value of the other or in money. That is why the term absolute value occurs in Ricardo s work, to denote relative value in the first sense. If, in the above example, 1 lb. sugar costs the same amount of labour-time as before, then its relative value in the first sense has not altered. If, however, the labour cost of coffee has halved, then the value of sugar expressed in terms of coffee has altered, because the relative value of coffee, in the first sense, has altered. The relative values of sugar and coffee thus appear to be different from their absolute values and this difference becomes evident because the comparative value of sugar, for instance, has not altered in comparison with commodities whose absolute values have remained unchanged. At times Ricardo also calls this absolute value real value or simply value (for instance on p. 16). See the whole of Bailey s polemic against Ricardo in: A Critical Dissertation on the Nature, Measures and Causes of Value; chiefly in reference to the Writings of Mr. Ricardo and his Followers. By the Author of Essays on the Formation and Publication of Opinions, London, 1825. (See also his A Letter to a Political Economist; occasioned by an article in the Westminster Review etc., London, 1826.) [Bailey s polemic] partially revolves around these different instances of definitions of value, which are not explained by Ricardo but only occur de facto and are confused with one another, and Bailey sees in this only contradictions . Secondly, [Bailey s polemic is directed] against absolute value or real value as distinct from comparative value (or relative value in the second sense). In the first of the above-mentioned works, Bailey says: They regard value as something intrinsic and absolute (l.c., p. 8). The latter reproach arises from Ricardo s inadequate presentation, because he does not even examine the form of value the particular form which labour assumes as the substance of value. He only examines the magnitudes of value, the quantities of this abstract, general and, in this form social, labour which engender differences in the magnitudes of value of commodities. Otherwise Bailey would have recognised that the relativity of the concept of value is by no means negated by the fact that all commodities, in so far as they are exchange-values, are only relative expressions of social labour-time and their relativity consists by no means solely of the ratio in which they exchange for one another, but of the ratio of all of them to this social labour which is their substance. On the contrary, as we shall see, Ricardo is rather to be reproached for very often losing sight of this real or absolute value and only retaining relative and comparative values . ||528| Thus: In Section III of the First Chapter Ricardo explains that the statement: the value of the commodity is determined by labour-time includes not only the labour directly employed on the commodity in the final labour process but also the labour-time contained in the raw material and the instruments of labour that are required for the production of the commodity. Thus it applies not only to the labour-time contained in the newly-added labour which has been bought, paid for by wages, but also to the labour-time contained in that part of the commodity which I call constant capital. Even the very heading of this Section III of Chapter I shows the deficiency of his exposition. It runs like that: Raw material has been omitted here, yet the labour bestowed on raw material is surely just as different from labour applied immediately to commodities as the labour bestowed on implements, tools and buildings . But Ricardo is already thinking of the next section. In Section III he assumes that equal component parts of value comprised in the instruments of labour employed enter into the production of the various commodities. In the next section he examines the modifications arising from the varying proportions in which fixed capital enters [into the commodities]. Hence Ricardo does not arrive at the concept of constant capital, one part of which consists of fixed capital and the other of circulating capital raw material and auxiliary material just as circulating capital not only includes variable capital but also raw material etc., and all means of subsistence which enter into consumption in general, not only into the consumption of the workers. The proportion in which constant capital enters into a commodity does not affect the values of the commodities, the relative quantities of labour contained in the commodities, but it does directly affect the different quantities of surplus-value or surplus-labour contained in commodities embodying equal amounts of labour-time. Hence this varying proportion gives rise to average prices that differ from values. With regard to sections IV and V of Chapter I we have to note, first of all, that Ricardo does not examine a highly important matter which directly affects the production of surplus-value, namely, that in different spheres of production the same volume of capital contains different proportions of constant and variable capital. Instead, Ricardo concerns himself exclusively with the different forms of capital and the varying proportions in which the same capital assumes these various forms, in other words, [with] different forms arising out of the process of the circulation of capital, that is, fixed and circulating capital, capital which is fixed to a greater or lesser degree (i.e., fixed capital of varying durability) and unequal velocity of circulation or rates of turnover of capital. And the manner in which Ricardo carries out this investigation is the following: He presupposes a general rate of profit or an average profit of equal magnitude for different capital investments of equal magnitude, or for different spheres of production in which capitals of equal size are employed or, which is the same thing, profit in proportion to the size of the capital employed in the various spheres of production. Instead of postulating this general rate of profit, Ricardo should rather have examined in how far its existence is in fact consistent with the determination of value by labour-time, and he would have found that instead of being consistent with it, prima facie, it contradicts it, and that its existence would therefore have to be explained through a number of intermediary stages, a procedure which is very different from merely including it under the law of value. He would then have gained an altogether different insight into the nature of profit and would not have identified it directly with surplus-value. Having made this presupposition Ricardo then asks himself how will the rise or fall of wages affect the relative values , when fixed and circulating capital are employed in different proportions? Or rather, he imagines that this is how he handles the question. In fact he deals with it quite differently, namely, as follows: He asks himself what effect the rise or fall of wages will have on the respective profits on capitals with different periods of turnover and containing different proportions of the various forms of capital. And here of course he finds that depending on the amount of fixed capital etc., a rise or fall of wages must have a very different effect on capitals, according to whether they contain a greater or lesser proportion of variable capital, i.e., capital which is laid out directly in wages. Thus in order to equalise again the profits in the different spheres of production, ||529| in other words, to re-establish the general rate of profit, the prices of the commodities as distinct from their values must be regulated in a different way. Therefore, he further concludes, these differences affect the relative values when wages rise or fall. He should have said on the contrary: Although these differences have nothing to do with the values as such, they do, through their varying effects on profits in the different spheres, give rise to average prices or, as we shall call them cost-prices which are different from the values themselves and are not directly determined by the values of the commodities but by the capital advanced for their production plus the average profit. Hence he should have said: These average cost-prices are different from the values of the commodities. Instead, he concludes that they are identical and with this erroneous premise he goes on to the consideration of rent. Ricardo is also mistaken when he thinks that it is only [through] the three cases he examines that he discovers the variations in the relative values that occur independently of the labour-time contained in the commodities, that is in fact the difference between the cost-prices and the values of the commodities. He has already assumed this difference, in postulating a general rate of profit, thus presupposing that despite the varying ratios of the organic component parts of capitals, these yield a profit proportional to their size, whereas the surplus-value they yield is determined absolutely by the quantity of unpaid labour-time they absorb, and with a given wage this is entirely dependent on the volume of that part of capital which is laid out in wages, and not on the absolute size of the capital. What he does in fact examine is this: supposing that cost-prices differ from the values of commodities and the assumption of a general rate of profit presupposes this difference how in turn are these cost-prices (which are now, for a change, called relative values ) themselves reciprocally modified, proportionately modified by the rise or fall of wages, taking also into account the varying proportions of the organic component parts of capital? If Ricardo had gone into this more deeply, he would have found that owing to the diversity in the organic composition of capital which first manifests itself in the immediate production process as the difference between variable and constant capital and is later enlarged by differences arising from the circulation process the mere existence of a general rate of profit necessitates cost-prices that differ from values. He would have found that, even if wages are assumed to remain constant, the difference exists and therefore is quite independent of the rise or fall in wages, thus he would have arrived at a new definition. He would also have seen how incomparably more important and decisive the understanding of this difference is for the whole theory, than his observations on the variation in cost-prices of commodities brought about by the rise or fall of wages. The result with which he contents himself and that he is content accords with the whole manner in which he carries out his investigation is as follows: Once the variations in the cost-prices (or, as he says, relative values ) of the commodities in so far as they are due to changes, rises or falls, in wages when capital of different organic composition is invested in different spheres are admitted and taken into consideration the law remains valid; that the relative values of the commodities are determined by labour-time does not contradict the law; for all other changes changes that are not merely transitory in the cost-prices of the commodities can only be explained by a change in the necessary labour-time required for their respective production. On the other hand, it must be regarded as a great merit that Ricardo associates the differences in fixed and circulating capital with the varying periods of turnover of capital and that he deduces all these differences from the varying periods of circulation, i.e., in fact from the circulation or reproduction period of capital. First of all, let us consider these differences themselves, as he presents them in Section IV (Chapter I) and then examine his views on how they act or bring about variations in the relative values . So far as the different portions of labour to produce them are concerned, this can imply and here it seems to be Ricardo s sole point that the less durable ones require more labour (recurring, directly applied labour), partly for their repair and partly for their reproduction; or it can also mean that machinery etc. of the same degree of durability may be more or less expensive, the product of more or less labour. This latter aspect, important for the proportion of variable to constant capital, is not relevant to Ricardo s consideration and therefore he does not take it up anywhere as a separate point. It is at once evident why he is not interested in that part of constant capital which exists as raw material. The latter is itself part of circulating capital. A rise in wages does not cause increased expenditure on that part of capital which consists of machinery and does not need to be replaced but remains available; the rise, however, causes an increased outlay for that part which consists of raw material, since this has to be constantly replenished, hence also constantly reproduced. Thus the difference between fixed and circulating capital is here reduced to the difference in the time of reproduction (which coincides with the period of circulation). On what does this difference in the circulation periods of different circulating capitals depend? [On the fact] that in one case, the same capital remains for a longer time in the actual sphere of production, though the labour-process does not continue. This applies, for instance, to wine which lies in the cellar to attain maturity, or to certain chemical processes in tanning, dyeing etc. 4. Again two manufacturers may employ the same amount of fixed, and the same amount of circulating capital; but the durability of their fixed capitals (therefore also their period of reproduction) may he very unequal. One may have steam-engines of the value of 10,000 the other, ships of the same value (l.c., pp. 27-28). 5. It is hardly necessary to say, that commodities which have the same quantity of labour bestowed on[a] their production, will differ in exchangeable value, if they cannot be brought to market in the same time (l.c., p. 34). [Thus we have:] 1. A difference in the proportion of fixed to circulating capital. 2. A difference in the period of turnover of circulating capital as a result of a break in the labour-process while the production process continues. 3. A difference in the durability of fixed capital. 4. A difference in the relative period during which a commodity is altogether subjected to the labour-process (without any break in the labour-process or without any difference between production period and labour period) before it can enter the actual circulation process. The last case is described by Ricardo as follows: ||531| But how is a change in the relative values of these commodities brought about by this difference whether in the degree of durability of fixed capital, or in the period of turnover of circulating capital, or in the proportions in which the two sorts of capital may be combined or, finally, in the time required by different commodities upon which the same quantity of labour is bestowed [to come on to the market]. Ricardo says in the first place, that And how is this proved? Namely when capitals of equal size are employed in different industries, and one capital consists chiefly of fixed capital and contains only a small amount of capital employed in the support of labour (l.c., p. 27), whereas in the other capital the proportions are exactly the reverse. To begin with, it is nonsense to say that the commodities are affected. He means their values. But how far are the values affected by these circumstances? Not at all. In both cases it is the profit which is affected. The man who, for instance, lays out only 1/5 of his capital in variable capital provided wages and the rate of surplus-labour are constant can only produce [a surplus-value of] 4 on 100, if the rate of surplus-value is 20 per cent. On the other hand, another man, who lays out 4/5 in variable capital would produce a surplus-value of 16 [on 100]. For in the first example the capital laid out in wages is 100/5 = 20 and 1/5 of 20 or 20 per cent is 4. And in the second example, the capital laid out in wages equals 4/5 100 = 80. And 1/5 of 80 or 20 per cent = 16. In the first example the profit would be 4, in the second 16. The average profit for both would be (16+4)/2 or 20/2 = 10 per cent. This is actually the case to which Ricardo refers. Thus if they both sold at cost-prices and this Ricardo assumes then they would each sell their commodity at 110. Supposing wages rose, for example, by 20 per cent. Where previously a worker cost 1, he now costs 1 4s, or 24s. As before, the first [man] still has to lay out 80 in constant capital (since Ricardo leaves raw materials out of account here, we can do the same) and for the 20 workers whom he employs, he has to lay out 80s. that is 4 in addition to the 20. His capital therefore now amounts to 104 and, since the workers are producing a smaller surplus-value instead of a larger one, he is only left with 6 profit out of his 110. 6 on 104 is 5 10/13 per cent. The other man, however, who employs 80 workers, would have to pay out an additional 320s., i.e., 16. Thus he would have to lay out 116. If he were to sell at 110, he would consequently make a loss of 6 instead of a gain. This, however, is only the case because the average profit has already modified the relation between the labour he has laid out and the surplus-value which he himself produces. Instead therefore of investigating the important problem: what changes have to take place in order that the one who lays out 80 of his capital of 100 in wages does not make four times as much profit as the other who only lays out 20 of his 100 in wages, Ricardo examines the subsidiary question of how it is that after this great difference has been levelled out, i.e., with a given rate of profit, any alteration of the rate of profit, due to rising wages for instance, would affect the man who employs many workers with his 100 far more than the man who employs few workers with his 100, and hence provided the rate of profit is the same the commodity prices of the one must rise and of the other must fall, if the rate of profit or the cost-prices is to remain the same. Ricardo s first illustration has absolutely nothing to do with a rise in the value of labour although he originally stated that the whole of the variation in the relative values were to arise from this cause. This is the example: <in other words they will have laid out the same capital in wages, but they will by no means have employed the same quantity of labour> <That is, average prices or cost-prices different from the values of the commodities come into being as a result of the average profit the general rate of profit presupposed by Ricardo.> <Not on account of that, but on account of both those ragamuffins having the fixed idea that both of them must draw the same spoils from the support they have given to labour ; or that, whatever the respective values of their commodities, those commodities must be sold at average prices, giving each of them the same rate of profit.>[b] This exceedingly clumsy illustration of an exceedingly simple matter is so complicated in order to avoid saying simply: Since capitals of equal size, whatever the ratio of their organic components or their period of circulation, yield profits of equal size which would be impossible if the commodities were sold at their values etc. there exist cost-prices which differ from the values of commodities. And this is indeed implied in the concept of a general rate of profit. Let us examine this complicated example and reduce it to its genuine dimensions, which are hardly complicated . And for this purpose let us begin from the end and note at the outset, in order to reach a clearer understanding, that Ricardo presupposes that the farmer and the cotton manufacturer spend nothing on raw material, that, furthermore, the farmer does not lay out any capital for instruments of labour and, finally, that no part of the fixed capital laid out by the cotton-manufacturer enters into his product as wear and tear. Though all these assumptions are absurd, they do not in themselves affect the illustration. Having made these assumptions, and starting Ricardo s example from the end, it runs as follows: The farmer lays out 5,000 in wages; the cotton fellow lays out 5,000 in wages and 5,500 in machinery. The first therefore spends 5,000 and the second 10,500; the second ||533| thus spends as much again as the first. If therefore both are to make a profit of 10 per cent, the farmer must sell his commodity at 5,500 and the cotton fellow his at 6,050 (since it has been assumed that no part of the 5,500 expended in machinery forms part of the value of the product as wear and tear). One absolutely cannot conceive what Ricardo intended to elucidate in this example, apart from the fact that the cost-prices of commodities in so far as they are determined by the value of the outlay embodied in the commodities plus the same annual rate of profit differ from the values of the commodities and that this difference arises because the commodities are sold at prices that will yield the same rate of profit on the capital advanced; in short, that this difference between cost-prices and values is identical with a general rate of profit. Even the difference between fixed capital and circulating capital which he introduces here is, in this example, sheer humbug. Since if, for instance, the additional 5,500 which the cotton spinner employs, consisted of raw materials, while the farmer did not require any seeds etc., the result would be exactly the same. Neither does the example show, as Ricardo asserts, that For according to his assumption, the cotton-manufacturer employs a fixed capital of 5,500 and the farmer nil; the one employs fixed capital, the other does not. By no means do they, therefore, employ it in different quantities , any more than one could say that, if one person eats meat and the other eats no meat, they consume meat in different quantities . On the other hand it is correct (though very wrong to introduce the term surreptitiously with an or ) that they employ accumulated labour , i.e., materialised labour, in different quantities , namely, one to the amount of 10,500 and the other only 5,000. However, the fact that they employ different quantities of accumulated labour only means that they lay out different quantities of capital in their respective trades, that the amount of profit is proportionate to this difference in the size of the capitals they employ, because the same rate of profit is assumed, and that, finally, this difference in the amount of profit, proportionate to the size of the capitals, is expressed, represented, in the respective cost-prices of the commodities. But whence the clumsiness in Ricardo s illustration? This means that they do not employ the same quantity of labour immediate and accumulated labour taken together but they do employ the same quantity of variable capital, capital laid out in wages, the same quantity of living labour. And since money exchanges for accumulated labour, i.e., existing commodities, in the form of machines etc., only according to the law of commodities, since surplus-value comes into being only as the result of the appropriation without payment of a part of the living labour employed it is clear (since, according to the assumption, no part of the machinery enters into the commodity as wear and tear) that both can only make the same profit if profit and surplus-value are identical. The cotton-manufacturer would have to sell his commodity for 5,500, like the farmer, although he lays out more than twice as much capital. And even if the whole of his machinery passed into the commodity, he could only sell his commodity for 11,000; he would make a profit of less than 5 per cent, while the farmer makes 10. But with these unequal profits, the farmer and the manufacturer would have sold the commodities at their values, provided that the 10 per cent made by the farmer represented actual unpaid labour embodied in his commodity. If therefore, they sell their commodities at an equal profit, then this must be due to one of two things: either the manufacturer arbitrarily adds 5 per cent on to his commodities and then the commodities of the manufacturer and the farmer, taken together, are sold above their value; or the actual surplus-value which the farmer makes is, for instance, 15 per cent and both add the average of 10 per cent on to their commodity. In this case, although the cost price of the respective commodity is either above or below its value, both commodities taken together are sold at their value and the equalisation of the profits is itself determined by the total surplus values they contain. Here, in Ricardo s above proposition, when correctly modified, lies the truth, [namely] that capitals of equal size, containing [different] proportions of variable to constant capital, must result in commodities of unequal values and thus yield different profit; the levelling out of these profits must therefore result in cost-prices which differ from the values of the commodities. But the idea foreshadowed in this passage is never clearly stated by Ricardo, It only explains the meanderings and obvious fallaciousness of the illustration, which up to this point had nothing to do with the different quantities of fixed capital employed . Let us now go further back in the analysis. In the first year, the manufacturer builds a machine with a hundred men; the farmer, meanwhile, produces corn, also with a hundred men. In the second year the manufacturer uses the machine to manufacture cotton, for which he again employs a hundred men. The farmer, on the other hand, again employs a hundred men for the cultivation of corn. Suppose, says Ricardo, the value of corn is 500 per annum. Let us assume that the unpaid labour contained therein equals 25 per cent [of the labour paid for], i.e., [of] 400 = 100. Then at the end of the first year, the machine would also be worth 500, of which 400 would be paid labour and 100 the value of the unpaid labour. Let us ||534| assume that by the end of the second year, the whole of the machine has been used up, has passed into the value of the cotton. In fact Ricardo assumes this, in that, at the end of the second year, he compares not only the value of the cotton goods, but the value of the cotton goods and the machine with the value of the corn [l.c., p. 29]. Well then. At the end of the second year, the value of the cottons must be equal to 1,000, namely, 500 the value of the machine, and 500 the value of the newly-added labour. The value of the corn, on the other hand, is 500, namely, 400 the value of the wages and 100 unpaid labour. So far, there is nothing in this case which contradicts the law of value. The cotton-manufacturer makes a profit of 25 per cent just as the corn-manufacturer does. But the commodities of the former equal 1,000 and those of the latter equal 500, because the former commodity embodies the labour of 200 men and the latter the labour of only 100 in each year. Furthermore, the 100 profit (surplus-value) , which the cotton-manufacturer has made on the machine in the first year by absorbing 1/5 of the labour of the workers who constructed it, without paying for it are only realised for him in the second year, since it is only then that he realises in the value of the cotton, simultaneously the value of the machine. But now we come to the point. The cotton-manufacturer sells for more than 1,000, i.e., at a higher value than his commodity has, while the farmer sells his corn at 500, thus, according to our assumption, at its value. If, therefore, there were only these two people to exchange with one another, the manufacturer obtaining corn from the farmer and the farmer cotton from the manufacturer, then it would amount to the same as if the farmer sold his commodity below its value, making less than 25 per cent [profit] and the manufacturer sold his cotton above its value. Let us do without the two capitalists (the cloth-man and the cotton-man) whom Ricardo introduces here quite superfluously, and let us modify his example by only referring to the cotton-manufacturer. Ricardo s double calculation is of no value at all to the illustration at this point. Thus: (This latter bourgeois extenuating phrase is here quite meaningless from a theoretical standpoint. Moral considerations have nothing to do with the matter.) If the manufacturer sold the commodity at its value, then he would sell it at 1,000, twice the price of corn, because it embodies twice as much labour, 500 of accumulated labour in the machinery ( 100 of which he has not paid for) and 500 labour employed in the production of cotton, 100 of which again he has not paid for. But he calculates like this: the first year I laid out 400 and by exploiting the workers, I produced a machine with this, which is worth 500. I thus made a profit of 25 per cent. The second year I laid out 900, namely, 500 in the said machine and again 400 in labour. If I am again to make 25 per cent, I must sell the cotton at 1,125, i.e., 125 above its value. For this 125 does not represent any labour contained in the cotton, neither labour accumulated in the first year nor labour added in the second. The aggregate amount of labour contained in the cotton only amounts to 1,000. On the other hand, suppose the two exchange with one another, or that half the capitalists find themselves in the position of the cotton-manufacturer and the other half in the position of the farmer. How are the first half to be paid 125? From what fund? Obviously only from the second half. But then it is clear that this second half does not make a profit of 25 per cent, Thus the first half would cheat the second under the pretext of a general rate of profit, while, in fact, the rate of profit would be 25 per cent for the manufacturer and below 25 per cent for the farmer. It must, therefore, come about in a different way. In order to make the illustration clearer and more accurate, let us suppose the farmer uses 900 in the second year. Then, with a profit of 25 per cent, he has made 100 on the 400 laid out in the first year, and 225 in the second, altogether 325. As against this, the manufacturer makes 25 per cent on the 400 in the first year, but in the second only 100 on 900, i.e., only 11 1/9 per cent (since only the 400 laid out in labour yield surplus-value, whereas the 500 in machinery yield none). Or let us suppose the farmer lays out 400 again, then he has made 25 per cent in the first year as well as in the second; which taken together is 25 per cent or 200 on an outlay of 800 in two years. As against this, the manufacturer will have made 25 per cent in the first year and 11 1/9 in the second; i.e., 200 on an outlay of 1,300 in two years which amounts to 15 5/13 per cent. If this were levelled out, the manufacturer would receive 20 5/26 per cent and so would the farmer. In other words, this would be the average profit. This would result in [a price of] less than 500 for the farmer s commodity and more than 1,000 for the manufacturer s commodity. ||535| At all events, the manufacturer here lays out 400 in the first year and 900 in the second, while the farmer lays out only 400 on each occasion. If the manufacturer instead of producing cotton had built a house (if he were a builder) then at the end of the first year, the unfinished house would embody 500 and he would have to spend a further 400 on labour in order to complete it. The farmer, however, whose capital turned over within the year, can recapitalise a part, say 50, of his 100 profit and spend it again on labour, which the manufacturer, in the supposed case, cannot do. If the rate of profit is to be the same in both cases, then the commodity of one must be sold above its value and that of the other below its value. Since competition strives to level out values into cost-prices, this is what happens. But it is incorrect to say, as Ricardo does, that here a variation in the relative values takes place on account of the different degrees of durability of capitals (p. 30) or on account of the time which must elapse before one set of commodities can be brought to market (p. 30). It is, rather, the adoption of a general rate of profit, which despite the different values brought about by the circulation process, gives rise to equal cost-prices which are different from values, for values are determined only by labour-time. Ricardo s illustration consists of two examples. The durability of capital, or the character of capital as fixed capital, does not enter into the second example at all. It only deals with capitals of different size, but of which the same amount is laid out in wages, as variable capital, and where profits are to be equal, although the surplus-values and values must be different. Neither does durability enter into the first example. It is concerned with the longer labour-process the longer period during which the commodity has to remain within the sphere of production, before it becomes a finished commodity and can enter into circulation. In this example of Ricardo the manufacturer also employs more capital in the second year than the farmer although he employs the same amount of variable capital in both years. The farmer, however, could employ a greater variable capital in the second year, because his commodity remains within the labour-process for a shorter period and is converted more quickly into money. Besides, that part of profit which is consumed as revenue, is already available to the farmer at the end of the first year, but to the manufacturer only at the end of the second. The latter must therefore spend an additional amount of capital for his keep which he advances to himself. Incidentally, whether in the second case a compensation can take place and profits can be equalised depends here entirely on the degree to which the profits of the capitals which are turned over in one year are recapitalised, in other words, on the actual amount of profits produced. Where there is nothing, there is nothing to equalise. Here the capitals again produce values, hence surplus-values, hence profits not in proportion to the size of the capital; If profits are to be proportionate to their size, then there must be cost-prices different from the values. Ricardo gives a third illustration, which, however, is again exactly the same as the first example of the first illustration and contains nothing new at all. It is not only the same in fact , but in appearance too, except that in the one case the commodity is called machine and here simply commodity . In the first example, the manufacturer laid out 400 in the first year and 900 in the second. This time he lays out 1,000 in the first and 2,100 in the second. The farmer laid out 400 in the first and 400 in the second. This time, the second man lays out 2,000 in the first year and nothing in the second. That is the whole difference. In both cases, however, the fable turns on the fact that one of the men lays out in the second year the whole of the product of the first (including surplus-value) plus an additional sum. The clumsiness of these examples shows that Ricardo is wrestling with a difficulty which he does not understand and succeeds even less in overcoming. The clumsiness consists in this: The first example of the first illustration is meant to bring in the durability of capital; it does nothing of the sort; Ricardo himself has made this impossible because he does not let any part of fixed capital enter into the commodity as wear and tear, thus excluding the very factor through which the peculiar mode of circulation of fixed capital becomes evident. He merely demonstrates that as a consequence of the longer duration of the labour-process, a greater capital is employed than where the labour-process takes a shorter time. The third example is supposed to illustrate something different, but in reality illustrates the same thing. The second example of the first ||536| illustration, however, is intended to show what differences arise as a result of different ratios of fixed capital. Instead it only shows the difference brought about by two capitals of unequal size, although the same amount of capital is laid out in wages. And, furthermore, the manufacturer operates without cotton and yarn and the farmer without seeds or implements! The complete inconsistency, even absurdity, of this illustration necessarily arises from this underlying lack of clarity. Finally he states the practical conclusions to be drawn from all these illustrations: What does this mean, other than that in a definite period of circulation, for instance a year, a capital must yield 10 per cent whatever its specific period of circulation may be and quite independently of the various surplus-values which according to the proportion of their organic component parts capitals of equal size must produce in different branches of production, irrespective of the circulation process. Ricardo should have drawn the following conclusions: [Firstly:] Capitals of equal size produce commodities of unequal values and therefore yield unequal surplus-values or profits, because value is determined by labour-time, and the amount of labour-time realised by a capital does not depend on its absolute size but on the size of the variable capital, the capital laid out in wages. Secondly: Even assuming that capitals of equal size produce equal values (although the inequality in the sphere of production usually coincides with that in the sphere of circulation), the period within which they appropriate equal quantities of unpaid labour and convert these into money, still varies in accordance with their turnover period. Thus arises a second difference in the values, surplus-values and profits which capitals of equal size must yield in different branches of production in a given period of time. Hence, if profits as a percentage of capital are to be equal over a period, say of a year, so that capitals of equal size yield equal profits in the same period of time, then the prices of the commodities must be different from their values. The sum total of these cost-prices of all the commodities taken together will be equal to their value. Similarly the total profit will be equal to the total surplus-value which all these capitals yield, for instance, during one year. If one did not take the definition of value as the basis, the average profit, and therefore also the cost-prices, would be purely imaginary and untenable. The equalisation of the surplus-values in different spheres of production does not affect the absolute size of this total surplus-value; but merely alters its distribution among the different spheres of production. The determination of this surplus-value itself, however, only arises out of the determination of value by labour-time. Without this, the average profit is the average of nothing, pure fancy. And it could then equally well be 1,000 per cent or 10 per cent. All Ricardo s illustrations only serve him as a means to smuggle in the presupposition of a general rate of profit. And this happens in the first chapter On Value , while wages are supposed to be dealt with only in the fifth chapter and profits in the sixth. How from the mere determination of the value of the commodities their surplus-value, the profit and even a general rate of profit are derived remains obscure with Ricardo. In fact the only thing which he proves in the above illustrations is that the prices of the commodities, in so far as they are determined by the general rate of profit, are entirely different from their values. And he arrives at this difference by postulating the rate of profit to be law. One can see that though Ricardo is accused of being too abstract, one would be justified in accusing him of the opposite: lack of the power of abstraction, inability, when dealing with the values of commodities, to forget profits, a factor which confronts him as a result of competition. Because Ricardo, instead of deriving the difference between cost-prices and values from the determination of value itself, admits that values themselves (here it would have been appropriate to define the concept of absolute or real value or value as such) are determined by influences that are independent of labour-time and that the law of value is sporadically invalidated by these influences, this was used by his opponents, such as Malthus, in order to attack his whole ||537| theory of value. Malthus correctly remarks that the differences between the organic component parts of capital and the turnover periods of capitals in different branches of production develop simultaneously with the progress of production, so that one would arrive at Adam Smith s standpoint, that the determination of value by labour-time was no longer applicable to civilised times. (See also Torrens.) On the other hand his disciples have resorted to the most pitiful scholastic inventions, to make these phenomena consistent with the fundamental principle (see [James] Mill and the miserable McCulloch). Ricardo does not dwell on the conclusion which follows from his own illustrations, namely, that quite apart from the rise or fall of wages on the assumption of constant wages, the cost-prices of commodities must differ from their values, if cost-prices are determined by the same percentage of profit. But he passes on, in this section, to the influence which the rise or fall of wages exerts on cost-prices to which the values have already been levelled out. The matter is in itself extraordinarily simple. The farmer lays out 5,000 at 10 per cent; his commodity equals 5,500. If the profit falls by 1 per cent from 10 to 9, because wages have risen and the rise in wages has brought about this reduction, then he continues to sell at 5,500 (since it is assumed that he lays out the whole of his capital in wages). But of these 5,500 only 454 14/109 belong to him and not 500. The capital of the manufacturer consists of 5,500 for machinery and 5,000 for labour. As before, the latter 5,000 results in a product of 5,500, except that now the manufacturer does not lay out 5,000 but 5,045 95/109 and on this he makes a profit of only 454 14/109, like the farmer. On the other hand he can no longer reckon 10 per cent or 550 on his fixed capital of 5,500 but only 9 per cent or 495. He will therefore sell his commodity at 5,995 instead of at 6,050. Thus, as a result of the rise in wages, the money price of the farmer s commodity has remained the same, while that of the manufacturer has fallen, the value of the farmer s commodity compared with that of the manufacturer has therefore risen. The whole point of the matter is that if the manufacturer sold his commodity at the same value as before, he would make a higher profit than the average, because only the part of his capital that has been laid out in wages is directly affected by the rise in wages. This illustration in itself already assumes cost-prices regulated by an average profit of 10 per cent and differing from the values of the commodities. The question is, how are these cost-prices affected by the rise or fall in profit, when the capitals employed contain different proportion of fixed and circulating capital. This illustration (Ricardo, l.c., pp. 31-32) has nothing to do with the essential question of the transformation of values into cost-prices. But it is a nice point because Ricardo in fact demonstrates here that, if the composition of the capitals were the same, a rise in wages contrary to the vulgar view would only bring about a lowering of profits without affecting the values of the commodities; if the composition of the capitals is unequal, then it will only bring about a fall in the price of some commodities instead of as vulgar opinion maintains a rise in the price of all commodities. Here the fall in the prices of commodities results from a fall in the rate of profit or, which amounts to the same thing, a rise in wages. In the case of the manufacturer a large part of the cost-price of the commodity is determined by the average profit which he reckons on his fixed capital. If therefore this rate of profit falls or rises as a result of the rise or fall in wages, then the price of these commodities will fall or rise correspondingly that is in accordance with that part of the price which results from the profit calculated upon the fixed capital. The same applies to circulating capitals returnable at distant periods, and vice versa. (J.R. McCulloch [The Principles of Political Economy, Edinburgh, 1825, p. 300].) If the capitalists who employ less variable capital were to continue to chalk up their fixed capital at the same rate of profit, and add it to the price of the commodity then their rate of profit would rise and it would rise in the proportion in which they employ more fixed capital than those whose capital consists to a greater extent of variable capital. This would be levelled out by competition. Ricardo proves his point by firstly postulating cost-prices regulated by a general rate of profit. Secondly: There can be no rise in the value of labour without a fall of profits . (David Ricardo, On the Principles of Political Economy, and Taxation, third edition, London, 1821, p. 31.) Thus already in Chapter I On Value , those laws are presupposed, which in chapters V and VI On Wages and On Profits should be deduced from the Chapter On Value . Incidentally, ||538| Ricardo concludes quite wrongly, that because there can be no rise in the value of labour without a fall of profits , there can be no rise of profits without a fall in the value of labour. The first law refers to surplus-value. But since profit equals the proportion of surplus-value to the total capital advanced, profit can rise though the value of labour remains the same, if the value of constant capital falls. Altogether Ricardo mixes up surplus-value and profit. Hence he arrives at erroneous laws on profit and the rate of profit. The general conclusion of the last illustration is as follows: Again Ricardo comes to the one point with which he is really concerned in his investigation. These variations in the cost-prices of commodities resulting from a rise or fall in wages are insignificant compared with those variations in the same cost-prices which are brought about by changes in the values of commodities, that is changes in the quantity of labour employed in their production (Ricardo is far from expressing this truth in these adequate terms). One can therefore, by and large, abstract from this and, accordingly, the law of value remains virtually correct. (He should have added that the cost-prices remain unintelligible without values determined by labour-time.) This is the true course of his investigation. In fact it is clear that despite the transformation of the values of commodities into cost-prices, the latter having been assumed, a change in cost-prices in so far as it does not arise from a permanent fall or rise, a permanent alteration, in the rate of profit which can only establish itself in the course of many years can only and solely be caused by a change in the values of commodities, in the labour-time necessary for their production. {And these cost-prices must not be confused with market-prices: they are the average market-prices of the commodities in the different branches of production. Market-price itself already includes an average in so far as commodities of the same sphere are determined by the prices of those commodities which are produced under the mean, average conditions of production of this sphere. By no means under the worst conditions, as Ricardo assumes with rent, because the average demand is related to a certain price, even with corn. A certain amount of the supply is therefore not sold above this price. Otherwise the demand would fall. Those whose conditions of production are not average but below average, must therefore often sell their commodity not only below its value but below its cost price.} He therefore takes no further account of this. The whole of this Section IV of Chapter I On Value is so extraordinarily confused, that, although Ricardo announces at the start that he intends to consider the variations in the va1ues of commodities brought about by the rise or fall in wages in conjunction with different composition of capital, he actually does this only occasionally. In fact, he fills the major part of Section IV with illustrations which prove that, quite independently of the rise or fall of wages he himself assumes that wages remain constant the postulation ||539| of a general rate of profit must result in cost-prices which differ from the values of the commodities and, moreover, that this does not even depend on the difference [in the proportion] of fixed and circulating capital. He forgets this again at the end of the section. He announces the subject of his inquiry in Section IV with the words: In fact, he shows by his illustrations, in the first place, that it is only the general rate of profit which enables the different combinations of types of capital (namely, variable and constant etc.) to differentiate the prices of commodities from their values, that therefore the cause of those variations is the general rate of profit and not the value of labour, which is assumed to be constant. Then only in the second place he assumes cost-prices already differentiated from values as a result of the general rate of profit and he examines how variations in the value of labour affect these. Number 1, the main point, he does not investigate; he loses sight of it altogether and he closes the section as he began it: And in the following Section V (Chapter I) he continues on the same lines, in other words, he only investigates how the cost-prices of commodities can be altered by a variation in the value of labour, or wages, not when the proportion of fixed and circulating capitals is different in two capitals of equal size employed in two different spheres of production, but when there is unequal durability of the capital [c] or unequal rapidity with which it is returned to its employer [d] [l.c., p. 36]. The correct surmise implied in Section IV, regarding the difference between cost-prices and values brought about by the general rate of profit is here no longer noticeable. Only a secondary question is examined here, namely, the variation in the cost-prices themselves. This section, therefore, is in fact of hardly any theoretical interest, apart from the occasional mention of differences in the form of capital arising from the circulation process. Thus the lesser durability and the difference between fixed and circulating capital in general, are reduced to the difference in the period of reproduction. This is certainly a factor of decisive importance. But by no means the only one. Fixed capital enters wholly into the labour-process and only in successive stages and by instalments into the process of creating value. This is another major distinction in their form of circulation. Furthermore: fixed capital enters necessarily enters only as exchange-value into the process of circulation, while its use-value is consumed in the labour-process and never goes outside it. This is another important distinction in the form of circulation. Both distinctions in the form of circulation also concern the period of circulation; but they are not identical with the degrees [of durability of fixed capital] and the differences [in the period of circulation]. Less durable capital constantly requires a greater quantity of labour, <but he is so occupied with his general rate of profit, that he does not see that thereby a relatively great deal of surplus-labour would be continually transferred to the commodity> <Hence very little surplus-labour, hence much less [surplus]-value, if the commodities exchanged according to their values.> In other words: The manufacturer who employs fixed capital of less durability employs relatively less fixed capital and more capital expended in wages, than the one who employs capital of greater durability. This case is therefore identical with the previous one, illustrating how a variation in wages affects capitals, one of which consists of relatively, proportionately, more fixed capital than the other, There is nothing new [here]. What Ricardo further says about machinery on pp. 38-40 should be held over until we come to Chapter XXXI On Machinery . It is curious how Ricardo, at the end, almost expresses the correct idea in a passing phrase only to let it go again and after touching upon it in the passages we are about to quote, returns again to his dominating idea of the effect of a change in the value of labour on cost-prices and finally concludes the investigation with this secondary consideration. The passage containing the allusion is the following: <The final clause is badly worded; it refers moreover not to value but to commodities, and is meaningless, unless it refers to their prices; for to say that values fall in proportion to labour-time means that values fall or rise as they fall or rise.> In fact Ricardo says: Capitals of equal size produce commodities of equal values, if the ratio of their organic component parts is the same; if equally large portions of them are expended on wages and on means of production. The same quantities of labour, therefore equal values (apart from the difference which might arise through the circulation process) are then embodied in their commodities. On the other hand, capitals of equal size produce commodities of very unequal value, when their organic composition is different, namely, when the proportion between the part existing as fixed capital and the part laid out in wages differs considerably. Firstly, only a part of the fixed capital enters into the commodity as a component part of value, consequently the magnitude of their values will greatly vary according to whether much or little fixed capital is employed in the production of the commodity. Secondly, the part laid out in wages calculated as a percentage on capital of equal size is much smaller, therefore also the total [newly added] labour embodied in the commodity, and consequently the surplus-labour (given a working-day of equal length) which constitutes the surplus-value. If, therefore, these capitals of equal size whose commodities are of unequal values and these unequal values contain unequal surplus-values, and therefore unequal profits if these capitals because of their equal size are to yield equal profits, then the prices of commodities (as determined by the general rate of profit on a given outlay) must be very different from the values of the commodities. Hence it follows, not that the values have altered their nature, but that the prices are different from the values. It is all the more surprising that Ricardo did not arrive at this conclusion, for he sees that even if one presupposes cost-prices determined by the general rate of profit, a change in the rate of profit (or rate of wages) must change these cost-prices, so that the rate of profit ||541| in the different spheres of production may remain the same. How much more therefore must the establishment of a general rate of profit change unequal values since this general rate of profit is in fact nothing other than the levelling out of the different rates of surplus-value in different commodities produced by equal capitals. Having thus, if not set forth and comprehended, at any rate virtually demonstrated, the difference between cost and value, cost-prices and values of commodities, Ricardo ends with the following sentence: With this erroneous confusion of cost-prices and values, which he has himself refuted, he then proceeds to consider rent. With regard to the influence of the variations in the value of labour upon the cost-price of gold, Ricardo says the following in Section VI, Chapter I: This is far more applicable to those commodities into whose composition the various organic constituents enter in the average proportion, and whose period of circulation and reproduction is also of average length. For these, cost-price and value coincide, because for them, and only for them, average profit coincides with their actual surplus-value. As inadequate as sections IV and V of Chapter I appear in their consideration of the influence of the variations in the value of labour on relative values , theoretically a secondary matter compared with the transformation of values into cost-prices through the average rate of profits, so important is the conclusion which Ricardo draws from this, thereby demolishing one of the major errors that had persisted since Adam Smith, namely, that the raising of wages, instead of reducing profits, raises the prices of commodities. This is indeed already implied in the very concept of values and is in no way altered by the transformation of values into cost-prices, since this, in any case, only affects the distribution of the surplus-value made by the total capital among the various branches of production or different capitals in different spheres of production. But it was important that Ricardo stressed this point and even proved the opposite to be the case. He is therefore justified in saying in Section VI, Chapter I: <This corresponds to Adam Smith s second explanation of value, according to which it is equal to the quantity of labour a commodity can purchase.> With regard to money prices this seems wrong. When gold rises or falls in value, from whatever causes, then it does so to the same extent for all commodities which are reckoned in gold. Since it thus represents a relatively unchangeable medium despite its changeability, it is not at all clear how any relative combination of fixed capital and circulating capital in gold, compared with commodities, can bring about a difference. But this is due to Ricardo s false assumption that money, in so far as it serves as a medium of circulation, exchanges as a commodity for commodities. Commodities are assessed in gold before it circulates them. Supposing wheat were the medium instead of gold. If, for example, consequent upon a rise in wages, wheat as a commodity into which enters more than the average variable instead of constant capital, were to rise relatively in its price of production, then all commodities would be assessed in wheat of higher relative value . The commodities into which more fixed capital entered, would be expressed in less wheat than before, not because their specific price had fallen compared with wheat but because their price had fallen in general. A commodity which contained just as much [living] labour as against accumulated labour as wheat, would show its rise [in price] by being expressed in more wheat ||542| than a commodity whose price had fallen as compared with wheat. If the same causes which raised the price of wheat, raised, for example, the price of clothes, then although the clothes would not be expressed in more wheat than previously, those [commodities], whose price had fallen compared with wheat, for instance cotton, would be expressed in less. Wheat would be the medium in which the difference in the price of cotton and clothes would be expressed. But what Ricardo means is something different. He means that: because of a rise in wages, wheat has risen as against cotton but not as against clothes. Thus clothes would exchange for wheat at the old price, whereas cottons would exchange against wheat at the higher price. In itself, the assumption that variations in the price of wages in England, for instance, would alter the cost-price of gold in California where wages have not risen, is utterly absurd. The levelling out of values by labour-time and even less the levelling out of cost-prices by a general rate of profit does not take place in this direct form between different countries. But take even wheat, a home product. Say that the quarter of wheat has risen from 40s. to 50s., i.e., by 25 per cent. If the dress has also risen by 25 per cent, then it is worth 1 quarter of wheat as before. If the cotton has fallen by 25 per cent, then the same amount of cotton which was previously worth 1 quarter is now only worth 6 bushels of wheat. And this expression in wheat represents exactly the ratio of the prices of cotton and clothes, because they are being measured in the same medium, in 1 quarter wheat. Moreover, this notion is absurd in another way too. The price of the commodity which serves as a measure of value and hence as money, does not exist at all, because otherwise, apart from the commodity which serves as money I would need a second commodity to serve as money a double measure of values. The relative value of money is expressed in the innumerable prices of all commodities; for in each of these prices in which the exchange-value of the commodity is expressed in money, the exchange-value of money is expressed in the use-value of the commodity. There can therefore be no talk of a rise or fall in the price of money. I can say: the price of money in terms of wheat or of clothes has remained the same; its price in terms of cotton has risen, or, which is the same, that the money price of cotton has fallen. But I cannot say that the price of money has risen or fallen. But Ricardo actually maintains that, for instance, the price of money in terms of cotton has risen or the price of cotton in terms of money has fallen, because the relative value of money has risen as against that of cotton while it has retained the same value as against clothes or wheat, Thus the two are measured with an unequal measure. This Section VI On an Invariable Measure of Value [l.c., p. 41] deals with the measure of value but contains nothing important. The connection between value, its immanent measure i.e., labour-time and the necessity for an external measure of the values of commodities is not understood or even raised as a problem. The very opening of this section shows the superficial manner in which it is handled. Even if there were such a commodity, the influence of the rise or fall in wages, the different combinations of fixed and circulating capital, the different degrees of durability of the fixed capital employed and the [different] length of time before the commodity can be brought to market, etc., would prevent it from being: That is to say, if the [prices of this latter group of] things varied, we could say (provided the value of money did not rise or fall) that the variations were caused by the rise or fall in their values , in the labour-time necessary for their production. With regard to the other things, we could not know whether the variations in their money prices were due to other reasons, etc. Later we shall have to come back to this matter which is quite unsatisfactory. (During a subsequent revision of the theory of money.) Chapter I, Section VII. Apart from the important doctrine on relative wages, profits and rents, to which we shall return later, this section contains nothing but the theory that a fall or rise in the value of money accompanied by a corresponding rise or fall in wages etc. does not alter the relations but only their monetary expression. If the same commodity is expressed in double the number of pounds sterling, so also is that part of it which resolves into profit, wages or rent. But the ratio of these three to one another and the real values they represent, remain the same. The same applies when the profit is expressed by double the number of pounds, 100 is then however represented by 200 so that the relation between profit and capital, the rate of profit, remains unaltered. The changes in the monetary expression affect profit and capital simultaneously, ditto profit, wages and rent. This applies to rent as well in so far as it is not calculated on the acre but on the capital advanced in agriculture etc. In short, in this case the variation is not in the commodities etc. ||543| In developing his theory of differential rent, in Chapter II, On Rent , Ricardo puts forward the following thesis: The last sentence is not entirely correct. The quantity of produce required [is] not a fixed magnitude. [It would be correct to say:] A certain quantity of produce required within certain limits of price. If the latter rises above these limits then the quantity required falls with the demand. The thesis set out above can be expressed in general terms as follows: The value of the commodity which is the product of a particular sphere of production is determined by the labour which is required in order to produce the whole amount, the total sum of the commodities appertaining to this sphere of production and not by the particular labour-time that each individual capitalist or employer within this sphere of production requires. The general conditions of production and the general productivity of labour in this particular sphere of production, for example in cotton manufacture, are the average conditions of production and the average productivity in this sphere, in cotton-manufacture, The quantity of labour by which, for example, [the value of] a yard of cotton is determined is therefore not the quantity of labour it contains, the quantity the manufacturer expended upon it, but the average quantity with which all the cotton-manufacturers produce one yard of cotton for the market. Now the particular conditions under which the individual capitalists produce, for example, in cotton manufacture, necessarily fall into three categories. Some produce under medium conditions, i.e., the individual conditions of production under which they produce coincide with the general conditions of production in the sphere. The average conditions are their actual conditions. The productivity of their labour is at the average level. The individual value of their commodities coincides with the general value of these commodities. If, for example, they sell the yard of cotton at 2s. the average value then they sell it at the value which the yards they produce represent in natura. Another category produces under better than average conditions. The individual value of their commodities is below their general value. If they sell their commodities at the general value, they sell them above their individual value. Finally, a third category produces under conditions of production that are below the average. Now the quantity of produce required from this particular sphere of production is not a fixed magnitude. If the rise of the value of the commodities above the average value exceeds certain limits, the quantity of produce required falls, that is, this quantity is only required at a given price or at least within certain limits of price. Hence it is just as possible that the last-mentioned category has to sell below the individual value of its commodities as the better placed category always sells its products above their individual value, Which of the categories has a decisive effect on the average value, will in particular depend on the numerical ratio or the proportional size of the categories. If numerically the middle category greatly outweighs the others it will determine [the average value]. If this group is numerically weak and that which works below the average conditions is numerically strong and predominant, then the latter determines the general value of the produce of this sphere, although this by no means implies and it is even very unlikely, that the individual capitalist who is the most unfavourably placed in the last group, is the determining factor. (See Corbet.) But let us leave this aside. The general result is that: the general value of the products of this group is the same for all, whatever may be its relation to the particular value of each individual commodity. This common value is the market-value of these commodities, the value at which they appear on the market. Expressed in money, this market-value is the market-price, just as in general, value expressed in money is price. The actual market-price is now above, now below this market-value and coincides with it only by chance. Over a certain period, however, the fluctuations equal each other out and it can be said that the average of the actual market-prices is the market-price which represents the market-value. Whether, at a given moment, the actual market-price corresponds to this market-value in magnitude, i.e., quantitatively or not, at any rate it shares the qualitative characteristic with it, that all commodities of the same sphere of production available on the market have the same price (assuming of course that they are of the same quality), that is, in practice , they represent the general value of the commodities of this sphere. ||544| The above thesis put forward by Ricardo for the purpose of his theory of rent has therefore been interpreted by his disciples to mean that two different market-prices cannot exist simultaneously on the same market or: products of the same kind found on the market simultaneously, have the same price or since we can leave out of account here the accidental features of this price the same market-value. Thus competition, partly among the capitalists themselves, partly between them and the buyers of the commodity and partly among the latter themselves, brings it about here that the value of each individual commodity in a particular sphere of production is determined by the total mass of social labour-time required by the total mass of the commodities of this particular sphere of social production and not by the individual values of the separate commodities or the labour-time the individual commodity has cost its particular producer and seller. It obviously follows from this, however, that, whatever the circumstances, the capitalists belonging to the first group whose conditions of production are more favourable than the average make an excess profit, in other words their profit is above the general rate of profit of this sphere. Competition, therefore , does bring about the market-value or market-price by the equalisation of profits within a particular sphere of production. (For the purpose of this investigation, the distinction [between market-value and market-price] is irrelevant since the differences in the conditions of production hence the different rates of profit for the individual capitalist in the same sphere, remain, whatever may be the relationship of market-price to market-value.) On the contrary, competition here equalises the different individual values to the same, equal, undifferentiated market-value, by permitting differences between individual profits, profits of individual capitalists, and their deviations from the average rate of profit in the sphere. It even creates differences by establishing the same market-value for commodities produced under unequal conditions of production, therefore with unequal productivity of labour, the commodities thus represent individual unequal quantities of labour-time. The commodity produced under more favourable conditions, contains less labour-time than that produced under less favourable conditions, but it sells at the same price, and has the same value, as if it contained the same labour-time though this is not the case. For the establishment of his theory of rent, Ricardo needs two propositions which express not only different but contradictory effects of competition. According to the first, the products of the same sphere sell at one and the same market-value, competition therefore enforces different rates of profit, i.e., deviations from the general rate of profit. According to the second, the rate of profit must be the same for each capital investment, that is competition brings about a general rate of profit. The first law applies to the various independent capitals invested in the same sphere of production. The second applies to capitals in so far as they are invested in different spheres of production. By the first action, competition creates the market-value, that is, the same value for commodities of the same sphere of production, although this identical value must result in different profits, it thus creates the same value despite of, or rather by means of, different rates of profit. The second action (which, incidentally, is brought about in a different way; namely, the competition between capitalists of different spheres throws the capital from one sphere into another, while the other competition, in so far as it is not competition between buyers, occurs between capitals of the same sphere) enables competition to create the cost-price, in other words the same rate of profit in the various spheres of production, although this identical rate of profit is contrary to the inequality of values, and can hence only be enforced by prices which are different from values. Since Ricardo needs both these propositions equal value or price with unequal rate of profit, and equal rate of profit with unequal values, for his theory of rent, it is most remarkable that he does not sense this twofold determination and that even in the Section where he deals ex professo with market-price, in Chapter IV On Natural Price and Market-Price , he does not deal with market-price or market-value at all, although in the above-quoted passage he uses it as a basis to explain differential rent, the excess profit crystallised in the form of rent. ||545| But he deals here merely with the reduction of the prices in the different spheres of production to cost-prices or average prices, i.e., with the relationship between the market-values of the different spheres of production and not with the establishment of the market-value in each particular sphere, and unless this is established market-values do not exist at all. The market-values of each particular sphere, therefore the market-prices of each particular sphere (if the market-price corresponds to the natural price , in other words if it merely represents the value in the form of money) would yield very different rates of profit, for of equal size in different spheres quite apart from the differences arising from their different processes of circulation employ very unequal proportions of constant and variable capita and therefore yield very unequal surplus values, hence very unequal profits. The levelling out of the various market-values, so that the same rate of profit is produced in the different spheres of production, and capitals of equal size yield equal average profits, is therefore only possible by the transformation of market-values into cost-prices which are different from the actual values.* What competition within the same sphere of production brings about, is the determination of the value of the commodity in a given sphere by the average labour-time required in it, i.e., the creation of the market-value. What competition between the different spheres of production brings about is the creation of the same general rate of profit in the different spheres through the levelling out of the different market-values into market prices, which are cost-prices that are different from the actual market-values. Competition in this second instance by no means tends to assimilate the prices of the commodities to their values, but on the contrary, to reduce their values to cost-prices that differ from these values, to abolish the differences between their values and cost-prices. It is only this latter process which Ricardo considers in Chapter IV and, oddly enough, he regards it as the reduction of the prices of commodities through competition to their values, the reduction of the market-price (a price which is different from value) to the natural price (the value expressed in terms of money). This blunder, however, arises from the error he committed already in Chapter I On Value , where he identified cost-price and value, this in turn was due to the fact that at a point where as yet he was only concerned with explaining value , where he, therefore, as yet, only had to deal with commodity , he plunged in with the general rate of profit and all the conditions arising from the more developed capitalist relations of production. Ricardo s whole procedure in Chapter IV is therefore quite superficial. He starts out from the accidental and temporary variations of [the] price (l.c., p. 80) of commodities resulting from the fluctuating relations between demand and supply. Here the general level of profit prevailing between the particular spheres of production, between the particular employments is already presupposed. But he should have considered first, how the general level of price in the same employment and the general level of profit between different employments is brought about. Ricardo would then have seen that the latter operation already presupposes movements of capital in all directions or a distribution, determined by competition, of the whole social capital between its different spheres of employment. Once it is assumed that the market-values or average market-prices in the different spheres are reduced to cost-prices yielding the same average rate of profit (this is however only the case in spheres where landed property does not interfere; where it interferes, competition within the same sphere can convert the price to the value and the value to the market-price, but it cannot reduce the market-price to the cost-price), persistent deviations of the market-price from the cost-price, when it rises above or falls below it in particular spheres, will bring about new migrations and a new distribution of social capital. The first migration occurs in order to establish cost-prices which differ from values. The second migration occurs in order to equalise the actual market-prices with the cost-prices as soon as they rise above or fall below the latter. The first is a transformation of the values into cost-prices. The second is a rotation of the actual ||546| market-prices of the moment in the various spheres, around the cost-price, which now appears as the natural price, although it is different from the value and only the result of social action. It is this latter, more superficial movement which Ricardo examines and at times unconsciously confuses with the other. Both are of course brought about by the same principle , namely, the principle that while This tendency has the effect of distributing the total mass of social labour-time among the various spheres of production according to the social need. In this way, the values in the different spheres of production are transformed into cost-prices, and on the other hand, the variations of the actual prices in particular spheres from the cost-prices are levelled out. All this is contained in Adam Smith s work. Ricardo himself says: The achievement of Ricardo, whose blunder is on the whole caused by his lack of criticism of Adam Smith in this respect, consists in his more precise exposition of this migration of capital from one sphere to the other, or rather of the manner in which this occurs. He was, however, only able to do this because the credit system was more highly developed in his time than in the time of Adam Smith, Ricardo says: Credit therefore is the means by which the capital of the whole capitalist class is placed at the disposal of each sphere of production, not in proportion to the capital belonging to the capitalists in a given sphere but in proportion to their production requirements whereas in competition the individual capitals appear to be independent of each other. Credit is both the result and the condition of capitalist production and this provides us with a convenient transition from the competition between capitals to capital as credit. At the beginning of Chapter IV, Ricardo says that by natural price he understands the value of the commodities, that is, the price as determined by their relative labour-time, and that by market-price he understands the accidental and temporary deviations from this natural price or value ||547|. Throughout the further course of the chapter and he is quite explicit in this he understands something quite different by natural price, namely, cost-price which is different from value. Thus, instead of showing how competition transforms values into cost-prices, i.e., creates permanent deviations from values, he shows, following Adam Smith, how competition reduces the market-prices in different trades to cost-prices. Thus Chapter IV opens like this: Here therefore natural price equals value and market-price is nothing but the deviation of actual price from value. As against this: Here therefore, natural price equals cost-price, that is, the price at which the relation between the profit and the advances embodied in the commodity is the same, although equal values of commodities produced by capitals in different spheres of production, contain very unequal surplus-values, and thus unequal profits. If the price is to yield the same profit, it must therefore be different from the value of the commodity. On the other hand, capitals of equal size produce commodities of very unequal value, according to whether a larger or a smaller portion of the fixed capital enters into the commodity. But more about this when dealing with the circulation of capitals. By equalisation through competition, Ricardo therefore understands only the rotation of the actual prices or actual market-prices around the cost-prices or the natural price as distinct from the value, the levelling out of the market-price in different branches of production to general cost-prices, i.e., precisely to prices which are different from the real values in different trades.: This is exactly the case. Competition adjusts the prices in the different trades so that the remaining value or overplus , the profit, corresponds to the value of the capital employed, but not to the real value of the commodity, not to the real overplus which it contains after the deduction of expenses. To bring this adjustment about the price of one commodity must be raised above, and that of the other must be depressed below their respective real values, It is not the value of the commodities but their cost-price, i.e., the expenses they contain plus the general rate of profit, around which competition forces the market-prices in the different trades to rotate. Ricardo continues: In fact it is his uncritical belief in the Smithian tradition, which here leads Ricardo astray. As usual, Ricardo closes the chapter by saying that in the following investigations, he wants to leave  entirely out of  consideration (l.c., p. 85) the accidental deviations of market-prices from the cost-price; but he overlooks the fact that he has paid no regard at all to the constant deviations of market-prices, in so far as they correspond to cost-prices, from the real values of the commodities and that he has substituted cost-price for value. Chapter XXX On the Influence of Demand and Supply on Prices . Here Ricardo defends the proposition that the permanent price is determined by the cost-price, and not by supply or demand: that, therefore, the permanent price is determined by the value of the commodities only in so far as this value determines the cost-price. Provided that the prices of the commodities are so adjusted that they all yield a profit of 10 per cent, then every lasting change in these prices will be determined by a change in their values, in the labour-time required for their production. As this value continues to determine the general rate of profit, so the changes in it continue to determine the variations in cost-prices, although of course the difference between cost-prices and values is thereby not superseded. What is superseded is only that the difference between value and actual price should not ||548| be greater than the difference between cost-prices and values, a difference that is brought about by the general rate of profit. With the changes in the values of commodities, their cost-prices also change. A new natural price (p. 460) is formed. If, for example, the worker can now produce twenty hats in the same period of time which it previously took him to produce ten hats, and if wages accounted for half the cost of the hat, then the expenses, the costs of production, of the twenty hats, in so far as they consist of wages, have fallen by half. For the same wages are now paid for the production of twenty hats as previously for ten. Thus each hat now contains only half the expenditure for wages. If the hat manufacturer were to sell the hats at the same price he would sell them above the cost-price. If the profit had previously been 10 per cent then it would now be 46 2/3 per cent, assuming the outlay for the manufacture of a certain quantity of hats was originally 50 for raw material, etc. and 50 for labour. [The outlay] would now be 50 for raw material etc. and 25 for wages. If the commodity is sold at the old price then the profit is 35/75 or 46 2/3 per cent. As a result of the fall in value, the new natural price will therefore fall to such an extent that the price only yields 10 per cent profit. The fall in the value or in the labour-time necessary for the production of the commodity reveals itself in the fact that less labour-time is used for the same amount of commodity, hence also less paid labour-time, less wages and, consequently, the costs, the wages paid (i.e., the amount of wages; this does not presuppose a fall in the rate of wages) proportionately decline for the production of each individual commodity. This is the case if the change in value has taken place in the hat making itself. Had it occurred in the production of the raw material or of the tools, then this would have been similarly expressed as a diminution of outlay in wages for the production of a certain given quantity of product in these spheres; but to the hat manufacturer it would denote that his constant capital had cost him less. The cost-prices or natural prices (which have nothing to do with nature ) can fall in two ways as a result of a change here a fall in the value of the commodities: [Firstly] because the wages laid out in the production of a given quantity of commodities fall, owing to a fall in the aggregate absolute amount of labour, paid labour and unpaid labour, expended on this quantity of commodities. Secondly: If, as a result of the increased or diminished productivity of labour (both can occur, the one when the proportion of variable capital to constant capital falls, the other when wages rise owing to the means of subsistence becoming dearer), the ratio of surplus-value to the value of the commodity or to the value of the labour contained in it, changes, then the rate of profit rises or falls, and the amount of labour is differently divided up. In the latter case, the prices of production or cost-prices could change only in so far as they are affected by variations in the value of labour. In the first case, the value of labour remains the same. In the second case, however, it is not the values of the commodities which alter, but only the division between [necessary] labour and surplus-labour. A change in the productivity and therefore in the value of the individual commodity would nevertheless take place in this case. The same capital will produce more commodities than previously in the one case and less in the other. The aggregate volume of the commodities in which it is materialised would have the same value, but the individual commodity would have a different value. Although the value of the wage does not determine the value of the commodities, the value of the commodities (which enter into the consumption of the worker) determines the value of the wage. Once the cost-prices of the commodities in the various branches of production are established, they rise or fall relatively to each other with any change in the values of the commodities. If the productivity of labour rises, the labour-time required for the production of a particular commodity decreases and therefore its value falls; whether this change in productivity occurs in the labour used in the final process or in the constant capital, the cost-price of this commodity must also fall correspondingly. The absolute amount of labour employed on it has been reduced, hence also the amount of paid labour it contains and the amount of wages expended on it, even though the rate of wages has remained the same. If the commodity were sold at its former cost-price, then it would yield a higher profit than the general rate of profit, since formerly, this profit was equal to 10 per cent on the higher outlay. It would therefore be now more than 10 per cent on the diminished outlay. If on the contrary the productivity of labour decreases, the real values of the commodities rise. When the rate of profit is given or, which is the same thing, the cost-prices are given the relative rise or fall of the cost-prices is dependent on the rise or fall, the variation, in the real values of the commodities, As a result of this variation, new cost-prices or, as Ricardo says, following Smith, new natural prices take the place of the old. In Chapter XXX, from which we have just been quoting, Ricardo expressly identifies natural price, that is, cost-price, with natural value, i.e., value as determined by labour-time. Here therefore are cost-prices or natural prices directly ||549| identified with natural value , that is, with value . This confusion explains how later a whole lot of fellows post Ricardum, like Say himself, could accept the cost of production as the ultimate regulator of prices, without having the slightest inkling of the determination of value by labour-time, indeed they directly deny the latter while maintaining the former. This whole blunder of Ricardo s and the consequent erroneous exposition of rent etc., as well as the erroneous laws about the rate of profit etc. spring from his failure to distinguish between surplus-value and profit; and in general his treatment of definitions is crude and uncomprehending, just as that of the other economists. The following will show how he allowed himself to be ensnared by Smith. |549|| ||XII-636| Just to add a further comment to what has already been said: Ricardo knows no other difference between value and natural price than that the latter is the monetary expression of value, and that it can therefore change because of a change in value of the precious metals, without value itself changing. This change, however, only affects the evaluation or the expression of value in money. Thus, he says, for instance: ||XI-549| It must first be noted that according to Adam Smith as well, This difference between Ricardo s and Smith s views can therefore be ignored here. Adam Smith first explains that exchange-value resolves itself into a certain quantity of labour and that after deducting raw materials etc., the value contained in exchange-value is resolved into that part of labour for which the labourer is paid and that part for which he is not paid, the latter part consists of profit and rent (the profit in turn may be resolved into profit and interest). Having shown this, he suddenly turns about and instead of resolving exchange-value into wages, profit and rent, he declares these to be the elements forming exchange-value, he makes them into independent exchange-values that form the exchange-value of the product; he constructs the exchange-value of the commodity from the values of wages, profit and rent, which are determined independently and separately. Instead of having their source in value, they become the source of value. Having revealed the intrinsic connection, he is suddenly obsessed again with the aspect of the phenomenon, with the connection, as it appears in competition, and in competition everything always appears in inverted[f] form, always standing on its head. Now it is from this latter inverted starting-point that Smith develops the distinction between the natural price of the commodities and their market-price . Ricardo accepts this from him, but forgets that Adam Smith s natural price is, according to Smith s premises, nothing other than the cost-price resulting from competition and that for Smith himself, this cost-price is only identical with the value of the commodity, in so far as he forgets his more profound conception and sticks to the false concept derived from the external appearance, namely that the exchange-value of commodities is formed by putting together the independently determined values of wages, profit and rent. While Ricardo contests this concept throughout, he accepts Smith s confusion or identification of exchange-value with cost-price or natural price, which is based on that very concept. In the case of Adam Smith this confusion is legitimate, because his whole examination of natural price starts out from his second, false conception of value. But in Ricardo s case, it is wholly unjustifiable, because he nowhere accepts this wrong conception of Adam Smith s, but contests it ex professo as an inconsistency. Adam Smith, however, succeeded in ensnaring him again with his natural price . Having compounded the value of the commodity from the separate and independently determined values of wages, profit and rent, Adam Smith now asks himself how these primary va1ues are determined. And here he starts out from the phenomena as they appear in competition. [In] Chapter VII, Book I Of the Natural and Market Price of Commodities [he says:] This natural price is then the cost-price of the commodity and the cost-price coincides with the value of the commodity, since it is presupposed that the value of the commodity is compounded of the values of wages, profit and rent. Here we have the whole genesis of natural price and, besides, set out in quite appropriate language and logic, since the value of the commodity is composed of the prices of wages, profit and rent, while the true value of the latter is, in turn, constituted by their natural rates; thus it is clear that the value of the commodity is identical with its cost-price and the latter with the natural price of the commodity. The rate of profit, as of wages, is presupposed. They are indeed given for the formation of the cost-price. They are antecedent to the cost-price. To the individual capitalist therefore they also appear as given. The hows, whys and wherefores do not concern him. Adam Smith here adopts the standpoint of the individual capitalist, the agent of capitalist production, who fixes the cost-price of his commodity. So much for wages etc., so much for the general rate of profit. Ergo: This is how this capitalist sees the operation by which the cost-price of the commodity is fixed or, as it further seems to him, the value of the commodity, for he also knows that the market-price is now above, now below, this cost-price, which therefore appears to him as the ideal price of the commodity, its absolute price as distinct from its price fluctuations, in short as its value, in so far as he has any time at all to reflect on matters of this sort. And since Smith transports himself right into the midst of competition, he immediately reasons and argues with the peculiar logic of the capitalist caught up in this sphere. He interjects: In common language, costs do not include the profit made by the seller (which necessarily forms a surplus above his expenses). Why then do you include profit in the cost-price? Adam Smith answers like the profound capitalist to whom this question is put: Profit in general must enter into cost-price, because I would be cheated if only a profit of 9 instead of 10 per cent were to enter into cost-price. The na ve way in which Adam Smith on the one hand expresses the thoughts of the agent of capitalist production and presents things boldly and comprehensively, as they appear to and are thought of by the latter, as they influence him in practice, and as, indeed, they appear on the surface, while, on the other hand, he sporadically reveals their more profound relationships, gives his book its great charm. One can see here too why Adam Smith despite his considerable scruples on this point resolves the entire value of the commodity into rent, profit and wages and omits constant capital, although of course he admits its existence for each individual capitalist. For otherwise he would have to say: The value of a commodity consists of wages, profit, rent and that part of the value of the commodity which does not consist of wages, profit, rent. It would therefore be necessary to determine value independently of wages, profit and rent. If, besides the outlay on average wages etc., the price of the commodity also covers the average profit and if rent enters into the commodity the average rent, then the commodity is sold at its natural or cost-price, and this cost-price is equal to its value, for its value is nothing but the sum of the natural values of wages, profit and rent. ||551| Having taken his stand in competition and assumed the rate of profit etc. as given, Adam Smith for the rest interprets correctly natural price or cost-price, namely, the cost-price as distinct from the market-price. This cost-price of the commodity is different from the actual price or market-price of the commodity. ([O.U.P., Vol. I, p. 62; Garnier,] l.c., p. 112.) The latter is dependent on demand and supply. The [sum of the] costs of production or the cost-price of the commodity is precisely the whole value of the rent, labour, and profit, which must be paid in order to bring it to market ([O.U.P., Vol. I, p. 62; Garnier,] p. 113). If demand corresponds to supply, then the market-price is equal to the natural price. Hence Adam Smith concludes that in general, the What Ricardo conceives as the distribution of total capital among the various branches of production appears here in the as yet more naive form of the [quantity of] industry needed in order to produce a particular commodity . The levelling out of prices among the sellers of the same commodity to the market-price and the levelling out of the market-prices of the various commodities to the cost-price are here as yet jumbled up in complete confusion. At this point Smith, only quite incidentally, touches upon the influence of the variation in the real values of commodities on the natural prices or cost-prices. Namely in agriculture Adam Smith sees here that a mere change in the productivity of equal quantities of labour , therefore, in the actual values of commodities, alters cost-prices. But he makes this again more shallow by reducing it to the relation between supply and demand. According to his own arguments, the proposition as he presents it, is wrong. For, while in agriculture, as a result of varying seasons etc., equal quantities of labour yield different quantities of products, he himself has demonstrated that as a result of machinery, division of labour etc. equal quantities of labour yield very different amounts of product in manufacture etc. It is therefore not this difference which distinguishes agriculture from the other branches of industry; but the fact that in industry the degree of productive power applied is determined beforehand, while in the former, it depends on accidents of nature. But the result remains the same: the value of the commodities or the quantity of labour which, depending on its productivity, has to be expended on a given commodity, affects cost-prices. In the following passage Adam Smith has also [shown] how the migration of capitals from one sphere of production to another establishes cost-prices in the various branches of production. But he is not so clear on this as Ricardo, For if the ||552| price of the commodity falls below its natural price then, according to his argument, this is due to one of the elements of this price falling below the natural rate. Thus it is not due to the withdrawal of capitals alone or to the migration of capitals, but to the migration of labour, capital or land from one branch to another, In this respect his view is more consistent than Ricardo s, but it is wrong. This represents an essential difference between Smith s and Ricardo s conceptions of the levelling out to the natural price. Smith s [conception] is based on his false assumption, that the three elements independently determine the value of the commodity, while Ricardo s is based on the correct assumption that it is the average rate of profit (at a given level of wages), which alone determines the cost-prices. In chapters VIII, IX, X and XI of Book I, Adam Smith then seeks to determine the natural rate of these component parts , wages, rent and profit, and the fluctuations in these rates. Chapter VIII: Of the Wages of Labour At the start of the chapter on wages, Smith forsaking the illusory standpoint of competition in the first place shows the true nature of surplus-value and [regards] profit and rent as mere forms of surplus-value. The basis from which he determines the natural rate of wages is the value of labour-power itself, the necessary wage. This, however, becomes meaningless again because he never asks himself how the value of the necessary means of subsistence, i.e., of the commodity in general is determined. And here, since he has moved away from his main conception, Adam Smith would have to say: The price of wages is determined by the price of the means of subsistence and the price of the means of subsistence is determined by the price of wages. Having once assumed that the value of wages is fixed, he gives an exact description of its fluctuations, as they appear in competition, and the circumstances that cause these fluctuations. This belongs to the exoteric part [of his work] and does not concern us here. <In particular [he deals with] the accumulation of capital, but he does not tell us what determines it, since this accumulation can only be rapid either if the rate of wages is relatively low and the productivity of labour high (in this case a rise in wages is always the result of a permanently low level of wages during the preceding period) or if the rate of accumulation is low but the productivity of labour is high. From his standpoint, he would have to deduce the rate of wages in the first case from the rate of profit (i.e., from the rate of wages), and in the second case from the gross amount of profit, but this would in turn necessitate his investigating the value of the commodity.) He tries to derive the value of the commodity from the value of labour which is one of its constituent parts. And on the other hand he explains the level of wages by saying that In fact the chapter contains nothing relevant to the question except the definition of the minimum wage, alias the value of labour-power. Here Adam Smith instinctively resumes the thread of his more profound argument, only to lose it again, so that even the above-cited definition [signifies] nothing. For how [does he propose to] determine the value of the necessary means of subsistence and therefore of commodities in general? Partly by the natural price of labour. And how is this to be determined? By the value of necessaries, or commodities in general. A vicious circle. As to the rest, the chapter contains not a word on the issue, the natural price of labour, ||553| but only investigations into the rise of wages above the level of the natural rate, demonstrating that the rise of wages is proportionate to the rapidity with which capital accumulates, that is, to the progressive accumulation of capital. Then he examines the various conditions of society in which this takes place, and finally he gives a slap in the face to the determination of the value of the commodity by wages and of wages by the value of the necessary means of subsistence, by showing that this does not appear to be the case in England. In between comes a piece of Malthusian population theory because wages are determined by the means of subsistence necessary, not only to maintain the life of the worker, but [should be sufficient] for the reproduction of the population. Namely after attempting to prove that wages rose during the eighteenth century, especially in England, Adam Smith raises the question whether this is to be regarded as an advantage, or as an inconveniency, to the society ([O.U.P., Vol. I, p. 87; Garnier,] l.c., p. 159). In this connection he returns temporarily to his more profound approach, according to which profit and rent are merely parts of the product of the worker. The workmen, he says: In this connection he touches upon the theory of population: The connection between the wages minimum and the varying conditions of society is as follows: He then shows that the slave is dearer than the free labourer, because the latter himself looks after his wear and tear whereas that of the former is [controlled] by a negligent master or careless overseer ([O.U.P., Vol. I, p. 90; Garnier,] l.c., p. 164). The fund for replacing the wear and tear is frugally used by the free labourer whereas for the slave it is wastefully and disorderly administered. It is characteristic in the determination of the minimum wage or the natural price of labour, that it is lower for the free wage-labourer than for the slave. This occurs also to Adam Smith: Adam Smith continues to plead for a high wage. It not only encourages the propagation , but also increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition animates him to exert that strength to the utmost. Where wages are high, accordingly, we shall always find the workmen more active, diligent, and expeditious than where they are low ([O.U.P., Vol. I, pp. 90-91; Garnier,] l.c., p. 166). But high wages spur the workmen on to over-exertion and to premature destruction of their labour-power. He goes on to argue against the view that a little more plenty than ordinary may render some workmen idle ( [O.U.P., Vol. I, p. 92; Garnier,] l.c., p. 169). Then he examines whether it is true that the workmen are more idle in years of plenty than in years of scarcity and what is the general relation between wages and the price of the means of subsistence. Here again comes the inconsistency. [He then examines] why because of the demand for labour wages can rise in years of plenty and fall in years of scarcity. ([O.U.P., Vol. I, p. 96 et seq.; Garnier,] l.c., p. 176 et seq.) The causes [of the rise and fall] in good and had years counterbalance one another. As against the concept of wages as the source of the value of commodities, he finally, after all this zigzagging, again advances his original, more profound view, that the value of commodities is determined by the quantity of labour; and if in good years, or with the growth of capital, the worker receives more commodities, then he also produces far more commodities, that is to say the individual commodity contains a smaller quantity of labour. He can therefore receive a greater quantity of commodities of less value and thus this is the implied conclusion profit can grow, despite rising absolute wages. The labour is better paid, but less labour is contained in the individual commodity, hence a smaller amount has to be paid out. He thus allows his false theory, according to which the value of the commodity is determined by the wage as a constituent element of the value, to be annulled, or rather paralysed, counterbalanced by his correct theory, according to which the value [of the commodity] is determined by the quantity of labour it contains. ||555| Chapter IX: Of the Profits of Stock . Here accordingly the natural rate of the second element that determines and constitutes the natural price or value of the commodities is to be ascertained. What Adam Smith says about the cause of the fall in the rate of profit ([Garnier,] l.c., pp. 179, 189, 190, 193, 196, 197, etc.) shall be considered at a later stage. Adam Smith is confronted here by considerable difficulties. He says that even the determination of average wages amounts merely to ascertaining the most usual wages ([O.U.P., Vol. I, p.98; Garnier], l.c., p. 179), the actual given rate of wages. although it is precisely through the natural rate of profit, as one of the component elements of value , that we are supposed to determine the natural price of these commodities. This [the determination of the natural rate of profit] is already difficult for a single capitalist in a single trade. But one may form some notion of the average profits of stock from the interest of money . Adam Smith does not say the rate of interest determines profits. He expressly states the reverse. But there are records of the rate of interest for different epochs etc.; such records do not exist for the rate of profit. The rates of interest are therefore indices from which the approximate level of the rate of profit can be judged. But the task set was not to compare the levels of actual rates of profit, but to determine the natural level of the rate of profit. Adam Smith seeks refuge in a subsidiary investigation into the level of the rate of interest in different periods, which in no way touches upon the problem he has set himself, He makes a cursory examination of various periods in England and then compares these with Scotland, France and Holland and finds that with the exception of the American colonies Here Adam Smith tries, like Ricardo but to a certain extent with more success to give some approximate explanation of high profits: This is one of the foundations of the Ricardian explanation of why profits fall, although it is presented in a different way. On the whole, Smith explains everything here by the competition between capitals; as capitals grow, profit falls and as they diminish, profit grows, and accordingly wages rise or fall conversely. ||556| The diminution of the capital stock of the society, or of the funds destined for the maintenance of industry, however, as it lowers the wages of labour, so it raises the profits of stock, and consequently the interest of money. By the wages of labour being lowered, the owners of what stock remains in the society can bring their goods at less expense to market than before, and less stock being employed in supplying the market than before, they can sell them dearer ([O.U.P., Vol. I, p. 104; Garnier,] l.c., pp. 191-92). Then he talks about the highest possible and the lowest possible rates [of profit]. The highest rate is that which, in the price of the greater part of commodities, eats up the whole of what should go to the rent of the land, and leaves only what is sufficient to pay the labour of preparing and bringing them to market, according to the lowest rate at which labour can anywhere be paid, the bare subsistence of the labourer ([O.U.P., Vol. I, p. 108; Garnier,] l.c., pp. 197-98). Adam Smith himself in fact characterises what he says about the natural rate of profit : And indeed, Smith calls this common and usual profit neither moderate nor good, but his term for it is the natural rate of profit . However, he does not tell us at all what it is or how it is determined although we are supposed to determine the natural price of the commodity by means of this natural rate of profit . Low profits and high wages are not reciprocally opposed here, but the same cause the quick growth or accumulation of capital produces both. Both enter into the price; they constitute it. If therefore one is high while the other is low, the price remains the same, and so on. Adam Smith here regards profit purely as a surcharge, for at the end of the chapter he says: At the end of this chapter Adam Smith also tells us the source of the whole notion, that the price of the commodity, or its value, is made up out of the values of wages and profits namely, the amis du commerce,[h] the faithful practitioners of competition: Chapter X [is entitled] Of Wages and Profit in the Different Employments of Labour and Stock. This is only concerned with detail and therefore belongs into the chapter on competition. In its way, it is very good. It is completely exoteric. {Productive and unproductive labour: Similarly he says of soldiers: And of sailors in the navy: Ironically: He expressly says of men of letters that they are underpaid because of their too great numbers and he recalls that before the invention of printing, a scholar and a beggar ([O.U.P., Vol. I, p. 151; Garnier,] l.c., pp. 276-77) were synonymous and seems to apply this, in a certain sense, to men of letters.} The chapter is full of acute observations and important comments . Regarding the false statistical presentation of wages, for instance in the sixteenth and seventeenth etc. centuries, Adam Smith quite rightly observes that the wages here were only, for example, the wages of cotters, who, when not occupied around their cottages or working for their masters (who gave them a house, a small garden for pot-herbs, as much grass as will feed a cow, and, perhaps, an acre or two of bad arable land , and, when he employed them, a very poor wage) He makes the altogether true observation that: This point, incidentally, has already been quite well set forth by Steuart, particularly in relation to agricultural wages as soon as time becomes precious. ||558| With regard to the accumulation of capital in the towns during the Middle Ages, Adam Smith very correctly notes in this chapter, that it was principally due to the exploitation of the country (by trade as well as by manufacture). (There were in addition the usurers and even haute finance; in short, the money merchants.) {Here, therefore, l.c., t, 1, l. 1, ch. X, p.259 Adam Smith returns to the correct determination of value, the determination of value by the quantity of labour. This should be quoted as an example when dealing with his theory of surplus-value. If the prices of the commodities which are exchanged between town and country are such that they represent equal quantities of labour, then they are equal to their values. Profit and wages on both sides of the exchange cannot, therefore, determine these values, but the division of these values determines profit and wages. That is why Adam Smith finds that the town, which exchanges a smaller quantity of labour against a greater quantity of labour from the countryside, draws excess profit and excess wages compared with the country. This would not be the case if it did not sell its commodities to the country for more than their value. In that case wages and profits would not increase beyond what they otherwise would be . If, therefore, wages and profits are at their natural level, then they do not determine the value of the commodity, but are determined by it. Profit and wages can then only arise from the division of the given value, which is their precondition, this value however cannot be the result of preconceived profits and wages.} Thus, according to Smith s presentation of the matter, if the commodities of the town and those of the country were sold in proportion to the quantity of labour which they each contain, then they would be sold at their values, and consequently the profit and wages on both sides of the exchange could not determine these values, but would be determined by them. The levelling out of profits which vary because of the varying organic composition of capitals does not concern us here, since it does not lead to differences between profits; but equalises them. ||559| The inhabitants of a town, being collected into one place, can, easily combine together. The most insignificant trades carried on in towns have, accordingly, in some place or other, been incorporated ([O.U.P., Vol. I, p. 142; Garnier] l.c., p. 261). The inhabitants of the country, dispersed in distant places, cannot easily combine together. They have not only never been incorporated, but the incorporation spirit never has prevailed among them. No apprenticeship has ever been thought necessary to qualify for husbandry, the great trade of the country ([O.U.P., Vol. I, p. 143; Garnier,] l.c., p. 262). In this connection Smith comes to speak of the disadvantages of the division of labour . The farmer practises a trade requiring more intelligence than the manufacturing worker, who is subject to the division of Labour. The division of labour develops the social productive power of labour or the productive power of social labour, but at the expense of the general productive ability of the worker. This increase in social productive power confronts the worker therefore as an increased productive power, not of his labour, but of capital, the force that dominates his labour. If the town labourer is more developed than the country labourer, this is only due to the circumstance that his mode of work causes him to live in society, whereas that of the agricultural labourer makes him live directly with nature. This is an act, no longer of the town bourgeoisie, but of the bourgeoisie already legislating on a national scale as the corps de nation or as the Third Estate of the State Assembly or the Lower House. The specific acts of the town bourgeoisie directed against the country are the excise and duties levied at the gates, and, in general, the indirect taxes, which have their origin in the towns (see H llmann), while the direct taxes are of country origin. It might appear that the excise, for example, is a tax which the town imposed indirectly upon itself. The countryman must advance it, but reimburses himself in the price of the product. But this was not the case in the Middle Ages. The demand for his products in so far as he converted these into commodities and money at all [was, in so far as it came] from the town, mostly compulsorily restricted to the area under the jurisdiction of the town, so that he did not have the power to raise the price of his product by the full amount of the town tax. In Chapter XI of Book I, Smith then seeks to determine the natural rate of rent, the third element which constitutes the value of the commodity. We shall postpone consideration of this and first return again to Ricardo. This much is clear from the foregoing: When Adam Smith identifies the natural price or cost-price of the commodity with its value, he does so after first abandoning his correct conception of value, and substituting for it the view which is evoked by and arises from the phenomena of competition. In competition, the cost-price and not the value appears as the regulator of the market-price so to speak, as the immanent price, the value of the commodity. But in competition this cost-price appears to be represented by the given average rate of wages, profit and rent. Hence Adam Smith tries to establish these separately and independently of the value of the commodity rather as elements of the natural price, Ricardo, whose main concern has been the refutation of this Smithian ||560| aberration, accepts the result that necessarily follows from it namely the identity of values and cost-prices although with Ricardo this result is logically impossible. * Here Herr Rodbertus can see that in England seeds are bought . [a] In the manuscript: upon . Ed. [b] Marx wrote this paragraph in English. Ed. [c] In the manuscript: of fixed capital . Ed. [d] In the manuscript: unequal rapidity in the return of the capitals to their owners . Ed. * it is possible that the rate of surplus-value is not equalised in the different spheres of production (for instance because of unequal length of working time). This is not necessary because the surplus-values themselves are equalised. * Here Roscher could have seen once again what the Englishman understands by the term monied class . The monied class is here diametrically opposed to the industrious part of the community . [e] Marx quotes here from Recherches sur la nature et les causes de la richesse des nations. Paris, 1802, Garnier s translation of Adam Smith s work. All passages taken by Marx from the French translation are marked Garnier in this edition and are printed in English according to A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Oxford University Press, London, 1928 (referred to hereafter as O.U.P.). The French text, as that of all other quotations taken by Marx from French and German sources, can be found in the Appendices. Ed. [f] In the German original: verkehrt which may mean: upside down, reversed, or: wrong. Ed. [g] In Garnier s translation: naturellement . Ed [h] Friends of commerce (an expression used by Fourier). Ed.
Economic Manuscripts: Theories of Surplus-Value, Chapter 10