Ricardo reminds us that we have seen that ‘[t]he profits of stock in different employments hav[e] been shown to bear a proportion to each other, and to have a tendency to vary all in the same degree and in the same direction.’ In this chapter, therefore, ‘it remains for us to consider what is the cause of the permanent variations in the rate of profit, and the consequent permanent alterations in the rate of interest.’
The price of corn is determined by the amount of labour necessary to produce it on the land that pays no rent. The price of the product that is produced on this land, likewise the price of manufactured goods, is ‘resolved’ into two components, the profits of stock and the wages of labour. If prices are constant, and productivity constant, then the only factor that can impact profits is wages: if they rise, profits fall, and vice versa.
But now, imagine that there is a fall in the productivity of corn-producing labour. Corn will rise in price. The price of manufactured goods would not change, but if wages, tending towards subsistence, rise in function of the rise in corn, then manufacturing profits will fall. Corn-producing profits will also fall, since the corn producer will also be hiring the new, higher-cost labour. The farmer on the previous highest-cost land, land on which now rent is paid, will dispose of labour of unchanged productivity, but part of the product will now pass to the landowner in the form of rent; the farmer on the new, less productive land, will employ more labour to produce a higher value product – in both cases, profits will conform to those of the manufacturer.
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