Net income and natural prices
Ricardo returned to the clear-cut, pre-Smithian conceptualization of wages and systematically used the expression “net revenue” (or “net income”) to denote the sum of profits and rents - although he noted, and indeed emphasized, that the workers generally participate in the sharing out of the surplus (1951-73, I: 348 n.).
However, in most of his analysis Ricardo nevertheless identified the net income with profits and rents only, treating the entire wages as advanced capital. The net produce he identified with the gross produce minus replacement of the advanced wage goods and means of production. However, in his analysis of income distribution he frequently treated the produced means of production as if they could be reduced to indirect wages in a finite number of steps.Ricardo fully endorsed Smith’s distinction between natural and market prices and expressed his general agreement with the analysis provided by the Scotsman. However, he gave more emphasis to the decisions of profit-seeking capitalists in general and to those of “monied men”, that is, financial capitalists, in particular. The “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 equalize the rate of profits for all” (Ricardo 1951-73, I: 88). This adjustment process does not require capitalists to change their business, because bankers and “monied men” with large amounts of “floating capital” are always ready to finance investments in different lines of production. For Ricardo, then, it is first and foremost the capitalists who bring about the adaptation of the quantities supplied to those effectually demanded, together with the related tendency towards a uniform rate of profits and the gravitation of market prices towards natural prices (1951-73, I: 91).
Most of the passages in Smith’s writings from which Ricardo saw “reason to differ” concern issues that are directly related to, or followed from, Smith’s “original error respecting value” (Ricardo 1951-73, VII: 100), that is, his “adding-up” theory of value. In chapter 1 of his Principles Ricardo showed that the transition from the “early and rude” to the “advanced” state of society does not per se imply that the labour theory of value must be dispensed with: it is not necessarily invalidated by private land ownership and by the fact that commodities are produced capitalistically. It is only because commodities are produced with different proportions of labour and means of production, or different proportions of direct and indirect labour, that relative prices deviate from the relative quantities of direct and indirect labour embodied in them.