I The value of imported foreign goods
The value of the foreign goods imported into a country is determined by the value of the domestic goods exchanged for them, and will be equal to the value of these domestic goods, plus profit. If the prevailing rate of profit is 20%, then, a merchant who sells £1,000 of domestic produce will be able to procure foreign goods which she will be able to sell for £1,200. Should she be able to sell these goods ‘for more than £1,200, the profits of this individual merchant would exceed the general rate of profits, and capital would naturally flow into this advantageous trade, till the fall of the price of wine had brought every thing to the former level.’ Given this, how many goods are procured for a given price is immaterial: ‘we should have no greater value, if by the discovery of new markets, we obtained double the quantity of foreign goods in exchange for a given quantity of ours.’ (Ricardo thus emphasises the difference between the value of a given mass of goods, and the size of the mass—in Marx’s terms, between wealth and value.)
II The rate of profit in foreign trade and the rate of profit in general
Ricardo opposes himself to the notion that the high rates of profit enjoyed by the foreign trade merchants will act to raise the general profit rate. The argument, which he imputes to Adam Smith, says that if the rate of profit on foreign trade is higher than on domestic manufacture, then capital will move out of the production of the latter in favour of the former, such that the supply of manufactured goods will fall and their price will rise, raising profits. He believes that profit rates will indeed equalise, but he does not believe that in the circumstances described the high profit in foreign trade will raise the profit rate in other activities; rather, the prevailing rate of profit elsewhere will force the high rate of profit in foreign trade down to the prevailing average.
Ricardo argues that capital will not be withdrawn from domestic manufacture in the absence of a fall in demand, and if it is withdrawn in these circumstances, the price of these goods will not rise.
If the quantity of domestically produced goods exchanged for foreign goods does not change, then the demand for domestic goods will remain the same too, and the amount of capital dedicated to their production will remain the same as well. If the price of foreign commodities should fall (and the quantity imported remain the same), then this may bring about a rise in the demand for domestic manufactures, for the domestic consumer will have more disposable revenue. But in these circumstances there will also be more capital available for the production of domestic manufactures, for less capital will be dedicated to the production of the domestic goods for which the foreign goods will be exchanged, and neither domestic profits nor the prices of domestic goods will rise.
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