To appreciate what Marx wants to achieve here, it is worth setting his argument in political economic context.
Adam Smith had argued (although not consistently) that, since the value of a product of labour is given by the quantity of labour it commanded in exchange, any rise in wages would increase the value of the commodity product produced. Ricardo, correctly, opposed this view:
There can be no rise in the value of labour [i.e., a rise in wages] without a fall of profits. […] Suppose […] that owing to a rise of wages, profits fall […]. [T]he manufactured goods in which more fixed capital was employed, would fall relatively to […] any other goods in which a less portion of fixed capital entered. The degree of alteration in the relative value of goods, on account of a rise or fall of labour, would depend on the proportion which the fixed capital bore to the whole capital employed. All commodities which are produced by very valuable machinery, or in very valuable buildings, or which require a great length of time before they can be brought to market, would fall in relative value, while all those which were chiefly produced by labour, or which would be speedily brought to market would rise in relative value.
Ricardo’s theoretical interest was to decouple the prices of commodities from fluctuations in wages: not all commodities would be equally affected were wages to rise, and, relative to each other, a rise in wages could provoke the prices of some commodities to fall with respect to others.
However, Ricardo’s demonstration of the point rested on the belief that – amongst other factors – a variation in the composition of capital would affect the value of the commodities produced by it (and hence that value itself had determinations other than the labour embodied in a commodity): ‘difference[s] in the degree of durability of fixed capital […] introduce another cause, besides the greater or less quantity of labour necessary to produce commodities, for the variations in their relative value […].’ This conclusion was necessarily the case for Ricardo, insofar as he lacked a theory of surplus-value, and hence could not see how the price of a type of commodity could contain a quantity of profit – surplus (unpaid) labour – different from that actually produced in its production; and it was on this point that Marx’s critique of Ricardo centred:
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.
More (pdf: 136KB): capital_v3_ch11
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