Tuesday, 19 August 2014

Capital II, Chapter 19 - Part 2

2) Adam Smith

Marx quotes Smith,

“Adam Smith says in Book I, Ch. 6, page 42: 

'In every society the price of every commodity finally resolves itself into some one or other, or all of those three parts (wages, profit, rent); and in every improved society, all the three enter more or less, as component parts, into the price of the far greater part of commodities.'

Or, as he continues, page 43: 

'Wages, profit, and rent, are the three original sources of all revenue as well as of all exchangeable value.'” (p 366)

This is part of the contradiction in Smith's theory, highlighted by Marx. On the one hand, Smith, at times, argues a cost of production theory of value, whereby the value of commodities is essentially just a summation of these three component parts, at others he argues a labour theory of value. But both of them are confused.

He attempts to square the circle that he cannot avoid recognising the existence of constant capital, as a component of the value of commodities, by arguing that the constant capital itself is resolvable into these three component revenue elements, but Marx points out that clearly it isn't. The constant capital itself is resolvable not only into the new value created by labour, but also the constant capital that goes into its own production. Only if it was possible to carry this process back to some terminal point where production was ONLY comprised of labour and involved no constant capital could this argument be valid. But, there is no such point. Even primary production like agriculture or mining involves the use of constant capital, in the form of tools, machines and auxiliary materials, e.g. coal to power steam engines in a coal mine.

Marx points out that even Smith's example of Scottish pebble collectors does not count, because they used baskets and other equipment to collect, hold and carry the pebbles.

But, Smith also needs to try to deal with the question of the constant capital in the terms in which he has divided the value into revenue streams.

“This is accomplished by drawing a distinction between gross and net revenue:

'The gross revenue of all the inhabitants of a great country comprehends the whole annual produce of their land and labour; the neat revenue, what remains free to them after deducting the expense of maintaining; first, their fixed; and secondly, their circulating capital; or what, without encroaching upon their capital, they can place in their stock reserved for immediate consumption, or spend upon their subsistence, conveniences, and amusements. Their real wealth too is in proportion, not to their gross, but to their neat revenue.' (Ibid., p. 190.)” (p 367) 

This takes us back to the Robinson Crusoe example, I gave previously. What Smith means by the “neat” or net revenue is what is left over after the existing constant capital has been maintained, i.e. the necessary repairs to the fixed capital, and the reproduction of the circulating, constant capital. The rest of the firm or nation's output/income is then available for consumption, divided into wages and surplus value, provided we assume simple reproduction, i.e. no investment.

So, Smith accepts here that this portion is itself resolved neither into wages, profit or rents. Marx comments,

“Adam Smith flees from his own theory by means of a play upon words, the distinction between 'gross and neat revenue.' The individual capitalist as well as the entire capitalist class, or the so-called nation, receive in place of the capital consumed in production a commodity-product whose value — it can be represented by the proportional parts of this product — replaces on the one hand the expended capital-value and thus forms an income, or still more literally, revenue (revenue, pp. Of revenir— to come back), but, nota bene, a revenue upon capital, or income upon capital; on the other hand components of value which are 'parcelled out among the different inhabitants of the country, either as the wages of their labour, the profits of their stock, or the rent of their land', a thing commonly called income. Hence the value of the entire product constitutes somebody’s income — either of the individual capitalist or of the whole country, but it is on the one hand an income upon capital, and on the other a 'revenue' different from the latter. Consequently, the thing which is eliminated in the analysis of the value of the commodity into its component parts is brought back through a side door — the ambiguity of the word 'revenue.' But only such value constituents of the product can be 'taken in' as already exist in it. If the capital is to come in as revenue, capital must first have been expended.” (p 367-8)

Marx picks up some of the other odd formulations by Smith. For example, Smith writes,

“The lowest ordinary rate of profit must always be something more than what is sufficient to compensate the occasional losses to which every employment of stock is exposed. It is this surplus only which is neat or clear profit.” (p 368)

But, as Marx says, what capitalist would consider income that only covered necessary expenses as profit? As seen previously, fixed capital passes on its value gradually in wear and tear, to the end product, and part of this is also the average costs of maintaining and repairing it during its lifetime. The fact that these latter costs may be subject to variation, which requires capital to establish some form of insurance fund, to cover such eventualities, does not change that, it simply means that these insurance costs have to be born out of capital. So, a portion of the surplus value created by the workers, is used to cover the establishment of such insurance funds.

Smith excludes the actual constant capital, but includes the wages of the workers involved in its production. In so doing, he makes an important distinction. If we look at workers producing means of production, a part of the value of their output is equal to the value of their wages – the variable capital. These wages are merely a money form of the means of subsistence required by those workers. But, these workers have produced nothing that can be consumed by these or other workers, as means of subsistence.

Instead it exists as an amount of value embodied in means of production.

“Hence these products are not an element of that part of the annual product which is intended to form a social consumption-fund, in which alone a 'neat revenue' can be realised. Adam Smith forgets to add here that the same thing that applies to wages is also true of that constituent of the value of the means of production which, being surplus-value, forms the revenues (first and foremost) of the industrial capitalist under the categories of profit and rent. These value-components likewise exist in means of production, articles which cannot be consumed.” (p 369)

Only when these means of production are sold can they produce the funds which can then be transformed into means of consumption, i.e. create their own portion of the total consumption fund. But, for this fund to be able to actually purchase means of consumption, that implies that those workers, themselves employed in producing means of consumption, produce a surplus product that not only covers the consumption needs of capitalists, but also of those workers producing means of production. To put this again in terms of Robinson Crusoe, it is as though Robinson was fully employed producing means of production, but Friday had to produce sufficient means of consumption not just for his own subsistence, but also to meet those of Robinson.

“But so much the more should Adam Smith have seen that that part of the value of the annually begotten means of production which is equal to the value of the means of production functioning within this sphere of production — the means of production with which means of production are made — hence a portion of value equal to the value of the constant capital employed here, cannot possibly be a value constituent forming revenue, not only on account of the bodily form in which it exists, but also on account of its functioning as capital.” (p 370)

In other words, this is a capital-value that forms part of the value of the total national output, but it is not one that produces revenue. It is one that simply maintains capital-value. It is not an exchange of capital with revenue but of capital with capital. I have drawn out the consequences of that elsewhere – Labour-Power v Horse-Power, in a way that Marx does not follow through to here, or in the Grundrisse, where these ideas are first discussed.

In summary, the logical conclusion is that an exchange of capital with capital, as with an exchange of revenue with revenue, is not productive of surplus value. If the exchange of capitals described here were productive of surplus value, then a revenue would indeed arise from it. But, it doesn't. As I set out elsewhere - Capital Consumes Itself – the conclusion must be that surplus value is produced in Department II, producing means of consumption, not in Department I, producing means of production.

Capital in Department I shares in the surplus value produced by Department II, but only in the same way that Merchant Capital or Money Capital does, i.e. as capital sui generis.

The simplest means of understanding this is perhaps to imagine a world where only capitalists exist. All production is undertaken by robots. In such a world, there could be almost limitless production, and therefore unlimited surplus production. The robots simply produce what is required for their own maintenance and replacement, as well as to replace the other elements of constant capital. Everything else is a surplus product to be used by the capitalists. But, in such a world, there would be no surplus value! Each capitalist would buy commodities from other capitalists, at their value. But, that value would only be the value of the constant capital used in the production, and transferred to the final product. Indeed, over time this would become a figure itself tending towards zero, because less and less of the constant capital would itself comprise the product of labour.

No capitalist could sell their output above this value, and thereby extract a surplus value, for the reasons Marx set out in Volume I, i.e. if capitalists simply add an amount on top of value as profit, they all equally swindle each other, so that the net effect is as if they had simply sold at value. Indeed, in such a world, rather like with peasant or slave production, no capitalist would pay more than they have to lay out themselves to produce the particular product. A slave owner will not pay 100 hours of value for 100 kilos of potatoes (even if a peasant has spent that long producing them) if he only has to lay out 80 hours of value himself for his slaves to work 100 hours to produce the same potatoes!

The only way a surplus value could be created in such a world would be if some class of people could be found i.e. workers, who would be prepared to pay above that value. In other words, if these workers were prepared to give 100 hours of their own labour-time in exchange for just 80 hours of value. This is why, as Marx sets out in the Grundrisse, exchange value itself can only take on its mature form, when wage labour predominates.  As Engels describes, its only because workers exist as a class of non-property owners, unable to obtain a profit from the sale of their own commodity, that the realisation of surplus value is possible.

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