Sunday, 17 August 2014

Capital II, Chapter 19 - Part 1

Former Presentations of the Subject 

Quesnay's Tableau Economique, dealt with in detail in Theories of Surplus Value, provides the first outline of how the national product can be exchanged within the context of simple reproduction.

It is, in fact, a more adequate analysis than that of Adam Smith. For one thing, it grasps the difference that Smith, and other later economists, failed to deal with, between stock and flow, i.e. in this context capital and revenue.

So, as Marx says,

“The starting-point of the period of production is properly the preceding year’s harvest.” (p 362)

Correct because that previous year's production is the starting point for the new value added in the current year. It represents the stock of capital, constant capital, whose value is incorporated into the value of this year's annual output, but for whom no one, in the current year, receives an income.

On this basis, Marx sets out that Smith's “Trinity Formula” which argues that both exchange value and the value of national output, can be reduced to incomes received as wages, rents and profits, is false. This is significant because Keynes also makes this assumption, that national income equals national output, a fundamental part of his General Theory.

Indeed, some Marxist economists have phrased their analysis in similar terms, of national output divided into wages and property income.

In order to simplify the arguments that Marx analyses, in the following, let me try to explain why the Trinity Formula is wrong. It follows simply from the analysis that has been set out in Volume I. The Trinity Formula, and those variants of it, such as that of Keynes, or the division into wages and property income, only deal with the revenue components of the value of current production. They reduce the value of output, therefore, to just v + s, wages and surplus value, the latter divided into profits, rent, interest and taxes. But, from Volume I, we know that the value of a commodity, and therefore the value of a firm or an entire economy's production comprises C + V + S. By calculating the value of national output as just wages and surplus value, therefore, these theories omit the value of the constant capital that comprises a significant element of that value!

Let us return to the example of Robinson Crusoe, and now include the presence of Man Friday. Friday works all week for Robinson. He works ten hours a day, six days a week, resting on the Sabbath. During all these 60 hours, he produces goods which can be used for consumption by himself and Robinson, and also for means of production. Of the 60 hours, he spends 20 hours collecting seeds that will be used to replace harvested crops, making tools to replace those worn out, and repairing stock pens. He spends another 20 hours producing the food and other necessities he needs for his own subsistence. The final 20 hours are surplus labour-time, during which he produces those same things, but for Robinson's subsistence.

So, what we have is 20 hours received as wages by Friday, 20 hours received as surplus by Robinson, and a further 20 hours, which is received as an income by no one. It simply reproduces the stock of capital consumed. The total value of output is 60 hours, but the total incomes received amount to only 40 hours.

“A portion of the total product — being, like every other portion of it, a use-object, it is a new result of last year’s labour — is at the same time only the depository of old capital-value re-appearing in the same bodily form. It does not circulate but remains in the hands of its producers, the class of farmers, in order to resume there its service as capital. In this portion of the year’s product, the constant capital, Quesnay includes impertinent elements, but he strikes upon the main thing...” (p 363)

In fact, of course, as Marx goes on to discuss, the constant capital does circulate, but it circulates as capital not as revenue. Quesnay, from a standpoint based upon agriculture, saw this constant capital remaining in the hands of the farmer, i.e. a portion of last year's crop provides the seeds for this year's planting, but, for industrial capital, the means of production, that form the commodity-capital of one capitalist, form the productive-capital of another. There is an exchange of capital with capital.

But, taken from the perspective of the total social capital, Quesnay's principle still applies. Constant capital produced by the class of capitalists remains in the hands of the class of capitalists, and from that perspective does not circulate, i.e. it is never exchanged with revenue.

The Physiocratic system, Marx says, is the first systematic conception of capitalist production because it is written from the standpoint of the capitalist farmer and avoids all of the confusion that arises from systems, which begin from the standpoint of circulation or exchange, which was the case, for example, with the Mercantilists, and is so later with the Neoclassical School. The Physiocrats begin from the standpoint of the capitalist farmer, and for whom value stems directly from the act of production.

“Production creates not only articles of use but also their value; its compelling motive is the procurement of surplus-value, whose birth-place is the sphere of production, not of circulation.” (p 364)

It is the capitalist farmer who creates surplus value, as a consequence of setting the economic engine in motion, and thereby exploiting the agricultural labourers, who cultivate the soil. The other classes such as the landowners, and clergy, who obtain a share of that surplus value, in the form of rents and tithes, the money-capitalists who obtain interest, and the state that extracts taxes, are thereby separated off in the Physiocratic system. These other classes are parasitic upon the productive classes. It is the start of the ideological offensive of the bourgeoisie against the landowning class.

As discussed in Chapter 10, discussing the differences between Adam Smith and the Physiocrats, in relation to fixed and circulating capital, Smith regresses compared to them. Not only does he regress in terms of his analysis of fixed and circulating capital, but he also makes the same error as them in places in relation to the role of agriculture compared to other forms of capitalist production. So, for example, he argues that agricultural capital must create more value than elsewhere, because in addition to creating surplus value, it also creates sufficient value to pay rent.

Smith in his analysis and distinction between fixed and circulating capital is forced to acknowledge the existence of constant capital (that he basically refers to as fixed capital) but its significance is wholly lost because of his division of capital instead into fixed and circulating.

“The absurdity of the thing lies here in the fact that Smith does not, like Quesnay before him, see the re-appearance of the value of constant capital in a renewed form, and hence fails to see an important element of the process of reproduction, but merely offers one more illustration, and a wrong one at that, of his distinctions between circulating and fixed capital.” (p 366)

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