Capital I, Chapter 24 - Part 2

2) ERRONEOUS CONCEPTION, BY POLITICAL ECONOMY, OF REPRODUCTION ON A PROGRESSIVELY INCREASING SCALE

Cromwell and the Puritans stood for
the bourgeois ideology expressed in
the "Protestant Ethic" of hard work
and saving, as opposed to the Catholic
 attitudes of the Monarchy.  Those ideas were
essential for the process of Primitive Capital
Accumulation.

Only the commodities the capitalist buys for the purposes of capitalist production constitute productive consumption. The food he buys to eat, the Rolls Royce to drive, are not productive consumption. They do not lead to the expansion of capital. The same is true of the labour-power he buys with this Surplus Value. If he uses some of the surplus value to employ a chef to work in a restaurant, that is productive. If he employs the same chef simply to prepare his own meals, that is not. If he employs a driver to work as a taxi driver, that is productive. If he employs the same driver, purely as a chauffeur, that is not.



As Marx says, the bourgeois economists got this wrong. They had some incentive to understand the difference between productive and unproductive consumption, because the development of capitalism depended upon the accumulation of capital. Hence the ideological significance of the “Protestant Ethic”.

“On the other hand the economists had to contend against the popular prejudice, that confuses capitalist production with hoarding, and fancies that accumulated wealth is either wealth that is rescued from being destroyed in its existing form, i.e., from being consumed, or wealth that is withdrawn from circulation. Exclusion of money from circulation would also exclude absolutely its self-expansion as capital, while accumulation of a hoard in the shape of commodities would be sheer tomfoolery. The accumulation of commodities in great masses is the result either of over-production or of a stoppage of circulation. It is true that the popular mind is impressed by the sight, on the one hand, of the mass of goods that are stored up for gradual consumption by the rich, and on the other hand, by the formation of reserve stocks; the latter, a phenomenon that is common to all modes of production, and on which we shall dwell for a moment, when we come to analyse circulation.” (p 552)

Many economists repeat the mistake
that Marx identified in Adam Smith's
"Trinity Formula".  They reduce the value of
national output to wages and property
income, thereby missing out the value
of constant capital transferred into final output.

So, they grasped the importance of consuming commodities productively. But, they then made a mistake that some modern economists, including some on the Left, also make of believing that the value of all current production is reducible to the value created by living labour. This is a mistake made by Adam Smith, and manifest in his Trinity Formula, to be discussed in Volume III. It is also a mistake made by Keynes, who, following on from Smith reduces the value of national output to the incomes currently received in the form of rent, wages, profit, and interest. This reduces the value of current production only to wages and property income. It misses out the value of constant capital transferred into that output.

“Adam Smith has made it the fashion, to represent accumulation as nothing more than consumption of surplus products by productive labourers, which amounts to saying, that the capitalising of surplus-value consists in merely turning surplus-value into labour-power.” (p 552-3)

Marx then quotes from Ricardo, who following on from Smith, argues that the Surplus Value is used to employ additional productive labourers. Marx explains what is wrong with this.

“According to this, all surplus-value that is changed into capital becomes variable capital. So far from this being the case, the surplus-value, like the original capital, divides itself into constant capital and variable capital, into means of production and labour-power. Labour-power is the form under which variable capital exists during the process of production. In this process the labour-power is itself consumed by the capitalist while the means of production are consumed by the labour-power in the exercise of its function, labour. At the same time, the money paid for the purchase of the labour-power, is converted into necessaries, that are consumed, not by “productive labour,” but by the “productive labourer.” Adam Smith, by a fundamentally perverted analysis, arrives at the absurd conclusion, that even though each individual capital is divided into a constant and a variable part, the capital of society resolves itself only into variable capital, i.e., is laid out exclusively in payment of wages. For instance, suppose a cloth manufacturer converts £2,000 into capital. One portion he lays out in buying weavers, the other in woollen yarn, machinery, &c. But the people, from whom he buys the yarn and the machinery, pay for labour with a part of the purchase money, and so on until the whole £2,000 are spent in the payment of wages, i.e., until the entire product represented by the £2,000 has been consumed by productive labourers. It is evident that the whole gist of this argument lies in the words “and so on,” which send us from pillar to post. In truth, Adam Smith breaks his investigation off, just where its difficulties begin.” (p 553)

In short, as Marx points out, the total value of national output cannot be divided into Rent, Wages, Interest and Profit, or into wages and property income, for the simple reason that these latter resolve themselves only into the new value created by living labour i.e. into V+S (S itself as we will see in Volume III dividing into Rent, Profit, Interest and Taxes). But, Marx correctly argues the value of national output is not just V+S, but C+V+S, as it is at the level of the firm! The value of C is not newly created, but existing value transferred into the value of current output.

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