From Theories, Volume 31, [XI-543] Average or cost prices and market prices:

In developing his theory of differential rent, in CHAPTER II, "On Rent", Ricardo puts
forward the following thesis:
* "The exchangeable value of all commodities, whether they be manufactured, or the
produce of the mines, or the produce of the land, is always regulated, not by the less quantity
of labour that will suffice for their production under circumstances highly favourable, and
exclusively enjoyed by those who have peculiar facilities of production; but by the greater
quantity of labour necessarily bestowed on their production by those who have no such
facilities; by those who continue to produce them under the most unfavourable circumstances;
meaning— by the most unfavourable circumstances, the most unfavourable under which the
quantity of produce required, renders it necessary to carry on the production"* (pp. 60-61).
The last sentence is not entirely correct. 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 he particular labour time that each
individual CAPITALIST or EMPLOYER within this sphere of production requires. The general
conditions of production and t h e 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 HAS
EXPENDED UPON IT, but the average quantity with which all the COTTON-
MANUFACTURERS PRODUCE ONE YARD OF COTTON for the market. Now the particular
conditions under which the individual CAPITALISTS produce, for example, in COTTON
MANUFACTURE, necessarily fall into 3 categories. Some produce under medium conditions,
i.e., the individual conditions of production 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 this general value, they sell them above their individual value. Finally, a third
category produces under conditions of production that are below the average.
Now the "QUANTITY OF PRODUCE REQUIRED" from this particular spere of
production is not a fixed magnitude. If the rise of the value of the commodities above the
average value exceeds CERTAIN LIMITS, the "QUANTITY OF PRODUCE REQUIRED" falls
or this QUANTITY is only REQUIRED AT A GIVEN PRICE OR AT LEAST WITHIN CERTAIN
LIMITS OF PRICE. 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 settle [the
average value]. If this group is numerically weak and that which works below the average
conditions is numerically strong and predominant, then the latter settles the GENERAL VALUE
OF THE PRODUCE OF THAT SPHERE, although this by no means implies and it is even very
unlikely, that the individual capitalist who is the most unfavourably placed in the last group, is
the determining factor (SEE Corbet).
Mais laissons ça à part? The general result is that: The general value of the products of
this group is the same for all, whatever may be its relation to the particular value of each
individual commodity. This common value is the market value of these commodities, the value
at which they appear on the market. Expressed in money, this market value is the market price,
just as in general, value expressed in money is price. The actual market price is now above,
now below this market value and coincides with it only by chance. Over a certain period,
however, the fluctuations equal each other out and it can be said that the average of the actual
market prices is the market price which represents the market value. Whether, at a
given moment, the actual market price corresponds to this market value
in magnitude, i.e., quantitatively or not, at any rate it shares the
qualitative characteristic with it, that all commodities of the same
sphere of production available on the market have the same price
(assuming of corse that they are of the same quality), that is, in
practice, they represent the general value of the commodities of this
sphere.
[XI-544] The above thesis put forward by Ricardo for the purpose of his theory of rent
has therefore been interpreted by his disciples to mean that two different market prices cannot
exist simultaneously on the same market or: products of the same kind found on the market
simultaneously have the same price or—since we can leave out of account here the accidental
features of this price—the same market value.
Thus competition, partly among the capitalists themselves, partly between them and the
buyers of the commodity and partly among the latter themselves, brings it about here that the
value of each individual commodity in a particular sphere of production is determined by the
total mass of social labour time required by the total mass of the commodities of this particular
sphere of social production and not by the individual values of the separate commodities or the
labour time the individual commodity has cost its particolar producer and seller.
It obviously follows from this, however, that, whatever the circumstances, the capitalists
belonging to the first group—whose conditions of production are more favourable than the
average— make an excess profit, in other words their profit is above the general rate of profit
of this sphere. Competition, therefore, does not bring about the market value or market price
by the equalisation of profits within a particular sphere of production. (For the purpose of this
investigation, this distinction is irrelevant since the differences in the conditions of production
— HENCE the DIFFERENT RATES OF PROFIT for the individual 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 representing individual unequal quantities of labour time. The commodity produced under
more favourable conditions, contains less labour time than that produced under less favourable
conditions, but it sells at the same price, and has the same value, as if it contained the same
labour time though this is not the case.
For the establishment of his theory of rent, Ricardo needs two propositions which express not
only different but contradictory effects of competition. According to the first, the products of the
same sphere sell at one and the same market value, competition therefore enforces different
rates of profit, deviations from the general rate of profit. According to the second, the rate of
profit must be the same for each capital investment, that is, competition brings about a general
rate of profit. The first law applies to the various independent capitals invested in the same
sphere of production. The second applies to capitals in so far as they are invested in different
spheres of production. By the first action, competition creates the market value, that is, the
same value for commodities of the same sphere of production, although this identical value
must result in different profits; it thus creates the same value despite of, or rather by means
of, different rates of profit. The second action (which, incidentally, is brought about in a different
way; namely, the competition between capitalists of different spheres throws the capital from
one sphere into another, while the other competition, in so far as it is not competition between
buyers, occurs between capitals of the same sphere) enables competition to create the cost
price, in other words the same rate of profit in the various spheres of production, although this
identical rate of profit is contrary to the inequality of values, and can hence only be enforced
by PRICES which are different from values.
Since Ricardo needs both these propositions— equal value or price with unequal rate
of profit, and equal rate of profit with unequal values, — for his theory of rent, it is most
remarkable that he does not sense this twofold determination and that even in the section where
he deals ex professo with market price, in CHAPTER IV "On Natural and Market Price", he
does not deal with market price or market value at all, although in the above-quoted passagea
he uses it as a basis to explain differential rent, the excess profit crystallised in the form of rent.
[XI-545] But he deals here merely with the reduction of the prices in the different spheres of
production to cost prices or average prices, i.e., with the relationship between the market
values of the different spheres of production and not with the establishment of the market value
in each particular sphere, and unless this is established market values do not exist at all.
The market values of each particular sphere, therefore the market prices of each
particular sphere (if the market price corresponds to the "NATURAL PRICE", in other words if
it merely represents the value in the form of money) would yield very different rates of profit, for
capitals of equal size in different spheres — quite apart from the differences arising from their
different processes of circulation — employ very unequal proportions of constant and variable
capital and therefore yield very unequal surplus values, hence [very unequal] profits. The
levelling out of the various market values, so that the same rate of profit is produced in different
spheres and capitals of equal size yield equal average profits, is therefore only possible by the
transformation of market values into cost prices which are different from the actual values.
It is possible that the rate of surplus value is not equalised in the different spheres of
production (for instance because of unequal length of labour time). This is not necessary
because the surplus values themselves are equalised.
What competition within the same sphere of production brings about, is the
determination of the value of the commodity in a given sphere by the average labour time
required in it, i.e., the creation of the market value.
What competition between the different spheres of production brings about, is the
creation of the same general rate of profit in the different spheres through the levelling out of
the different market values into market prices, which are cost prices that are different from the
actual market values. Competition in this 2nd instance by no means tends to assimilate the
prices of the commodities to their values, but on the contrary, to reduce their values to cost
prices that differ from these values, to abolish the differences between their values and cost
prices.
…
Ricardo's whole procedure in CHAPTER IV is therefore quite superficial. He starts out
from the "ACCIDENTAL AND TEMPORARY VARIATIONS OF [the] PRICE" (p. 80) of
commodities resulting from the fluctuating relations between demand and supply.
* "With the rise or fall of price, profits are elevated above, or depressed below their
general level, and capital is either encouraged to enter into, or is warned to depart from the
particular employment in which the variation has taken place" * (p. 80).
Here the GENERAL LEVEL OF PROFIT prevailing between the different spheres of
production, BETWEEN "THE PARTICULAR EMPLOYMENTS" is already presupposed. But he
should have considered first, how the GENERAL LEVEL OF PRICE in the same
EMPLOYMENT 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 t h e
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 t h e value and
t h e value to t h e market value, but it cannot reduce the market value to t h e 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 t h e actual [XI-546] market prices of t h e moment in t h e 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
* "every man [is] free to employ his capital where he pleases ... [he] will naturally seek
for it that employment which is most advantageous; he will naturally be dissatisfied with a profit
of 10 per cent, if by removing his capital he can obtain a profit of 15 per cent. This restless
desire on the part of all the employers of stock, to quit a less profitable for a more advantageous
business, has a strong tendency to equalise the rate of profits of all, or to fix them in such
proportions, as may, in the estimation of the parties, compensate for any advantage which one
may have, or may appear to have over the other"* (p. 81).
This TENDENCY has the effect of distributing the total mass of social labour time among
the various spheres of production accordino to the social need. In this way, t he values in the
different spheres are at the same time 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 Smithf's work]. Ricardo himself says:
* "No writer has more satisfactorily and ably shewn than Dr. Smith, the tendency of
capital to move from employments in which the goods produced do not repay by their price the
whole expenses, including the ordinary profits," * (that is to say, the cost prices) * "of producing
and bringing them to market"* (p. 342, note).
The achievement of Ricardo, whose BLUNDER is on the whole caused by his lack of
criticism of Adam Smith in this respect, consists in his more precise exposition of this
MIGRATION OF CAPITAL FROM ONE SPHERE TO THE OTHER, or rather of the manner in
which this occurs. 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:
* "It is perhaps very difficult to trace the steps by which this change is effected: it is
probably effected, by a manufacturer not absolutely changing his employment, but only
lessening the quantity of capital he has in that employment In all rich countries, there is a
number of men forming what is called the monied class;" * (Here Roscher could have seen
once again what the Englishman understands by the term "MONIED CLASS". The "MONIED
CLASS" is here diametrically opposed to the "INDUSTRIOUS PART OF THE COMMUNITY.")3
* "these men are engaged in no trade, but live on the interest of their money, which is employed
in discounting bills, or in loans to the more industrious part of the community. The bankers too
employ a large capital on the same objects. The capital so employed forms a circulating capital
of a large amount, and is employed, in larger or smaller proportions, by all the different trades
of a country. There is perhaps no manufacturer, however rich, who limits his business to the
extent that his own funds alone will allow: he has always some portion of this floating capital,
increasing or diminishing according to the activity of the demand for his commodities. When the
demand for silks increases, and that for cloth diminishes, the clothier does not remove with his
capital to the silk trade, but he dismisses some of his workmen, he discontinues his demand
for the loan from bankers and monied men; while the case of the silk manufacturer is the
reverse: he borrows more, and thus capital is transferred from one employment to another,
without the necessity of a manufacturer discontinuing his usual occupation. When we look to
the markets of a large town, and observe how regularly they are supplied both with home and
foreign commodities, in the quantity in which they are required, under all the circumstances of
varying demand, arising from the caprice of taste, or a change in the amount of population,
without often producing either the effects of a glut from a too abundant supply, or an enormously
high price from the supply being unequal to the demand, we must confess that the principle
which apportions capital to each trade in the precise amount that is required, is more active
than is generally supposed"* (p. [p. 81-] 82).
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.(428-435)