“For he says that in these kinds of labour, both the price of labour and the product “go to” the stock reserved for immediate consumption,
'the price' (i.e., the money received in wages) 'to that of the workmen, the produce to that of other people, whose subsistence, conveniences and amusements, are augmented by the labour of these workmen.'” (p 370)
Marx points out that workers cannot live on wages, but only on the commodities bought with those wages. Those commodities may or may not be those produced by the workers spending the wages. But, Marx seems to miss that Smith's formulation amounts to double counting. If both the wages and the value of the commodities produced by the workers receiving those wages are included, the same thing in different forms has been counted twice. The value of the output of the workers producing means of consumption will be higher than the value of their own wages, because that output has to be sufficient not only to meet their own consumption needs, but also the consumption needs of capitalists, and workers producing means of production. But, a portion of that value is equal to their own wages, and adding it to the value of their output amounts to counting it twice.
So, Smith understates the value of national output by omitting the value of constant capital, but overstates it by counting these wages twice.
Smith says,
“Whatever portion of those consumable goods is not employed in maintaining the former” [the fixed capital] “goes all to the latter” [the fund for immediate consumption], “and makes a part of the neat revenue of the society. The maintenance of those three parts of the circulating capital, therefore, withdraws no portion of the annual produce from the neat revenue of the society, besides what is necessary for maintaining the fixed capital.” Book II, Ch. 2, p. 192.)” (p 370)
Marx comments that this is sheer tautology. What does not go to replace means of production, automatically is available for consumption by workers or exploiters, again assuming simple reproduction.
Smith argues that the circulating capital of a firm differs from that of society as a whole. Remember that for Smith, circulating capital is actually capital in circulation. So, Smith argues that for the individual firm, the circulating capital comprises no part of his net revenue, which is only his profit. However, that is not the case for society, he says.
So, the stock of a merchant's shop is not there for his consumption, i.e. it is not equal to his income, used to buy consumption goods. His income/profit is only what he makes in selling those goods, i.e. the excess of their selling price over their cost.
But, for society, as a whole, he says, those goods do comprise their consumption, and are bought using their income, or net revenue – excess of income over cost. Smith, in a confused way, has hit upon a truth here. He has excluded the fixed capital from his calculation of the firm's profit. He has also excluded the circulating capital required for the maintenance and reproduction of that fixed capital. In so doing, he has essentially arrived at the truth that the constant capital is not the source of the firm's surplus value. But, also that the capital laid out as variable capital, in so far as it is simply reproduced, in the value of the end commodity, also cannot represent a surplus value. All of these components of the value of the commodity only reproduce the capital advanced.
“Hence that portion of his commodity-product which replaces his capital cannot resolve itself into constituents of value which form any revenue for him.” (p 371)
But, Smith fails then to resolve the question of where that surplus value does come from.
Both the circulating capital, for which read commodity-capital, and the fixed capital, of each firm, constitutes a fraction of society's total capital. However, the nature of the circulating/commodity-capital is different considered from the social as opposed to the individual viewpoint. The total commodity-capital of society is consumed by society, either productively or as consumption. It is thereby bought, and consequently has to be bought with some form of income/revenue.
So, from the social standpoint, that commodity-capital appears as the equivalent form of all incomes. However, from the individual standpoint, it is clear that this is not so. The income/profit of the shopkeeper is not enough to buy all of the stock upon which that profit is made. It could only be so if it had no cost, and the selling price comprised only the equivalent of his own labour.
But, as Marx points out, in making this analysis, Smith should not only have recognised this from the standpoint of the shopkeeper, but should,
“have selected the masses of goods stored away in the warehouses of the industrial capitalists.” (p 372)
Had Smith put all this together, Marx says, he would have arrived at the following conclusions.
“The annual product of society consists of two departments: one of them comprises the means of production, the other the articles of consumption. Each must be treated separately.” (p 372)
The value of the output of means of production comprises three parts. One part represents the value of means of production used to produce the means of production themselves. In other words, it is not new value produced, but only existing capital-value reappearing in a different form. As such, although it comprises a portion of the value of national output, it produces no revenue, and is not bought with revenue.
To the extent that means of production are produced by one capital, and bought by another, this is not an exchange of capital with revenue, but of capital with capital.
A second part is the value created by labour that transforms those means of production, which is divided into the portion equal to what is paid out as wages, by all capitalists involved in production of means of production, and another portion, which comprises the third part of the value of means of production, which is equal to all of the surplus value extracted by capital in that department.
The constant capital, or what Smith calls “fixed capital”, constitutes then neither a revenue for the individual capital, nor for the social capital. It exists only as capital. But, the other portion of the value of means of production do. In so far as the means of production are sold, this added value from labour, results in wages, profits, rent, interest etc. i.e. revenues for those involved in production. But, for those that buy these means of production, i.e. from the standpoint of social capital, they represent not revenue but capital.
The means of production produces revenue for the sellers equivalent to the added value by labour, but for the buyers i.e. the capitalists in Department II, the producers of means of consumption, they constitute only capital. In other words, as in Volume I, they merely transfer their value to the final product rather than being the source of any new value/revenue.
In its turn, the constant capital, which then forms a constituent part of the means of consumption, in whose production it has taken part, represents also the physical manifestation of the consumption fund of the workers and capitalists in Department I. It is the physical equivalent of the revenues they have received as wages, profits etc.
If we think of Robinson Crusoe, he spends a part of his week making fishing nets (means of production). He does not consume the fishing net. But, when he uses it to catch fish (means of consumption) a portion of the value of the net is transferred to the value of the fish. In other words, the time he spends making nets is a necessary part of the time it takes him to catch the fish. The time he spends producing nets, produces no fish (revenue) but he covers his 'wages'/consumption fund for this period of time, by selling to himself the nets in return for a portion of the fish he catches with those nets. But, in fact, in addition to this, Robinson also spends part of his time producing neither nets, nor catching fish. Part of his time must be spent producing and repairing the tools he requires to make the nets, to obtaining the material required for making the nets. In other words, this is time required for producing means of production used in the production of means of production, not consumption. In order to carry out this production, he must forgo some of the time he would have spent producing means of production, and the exchange he undertakes with himself here, is not an exchange of capital with revenue, but of capital with capital.
“If Adam Smith had continued his analysis to this point, but little would have been lacking for the solution of the whole problem. He almost hit the nail on the head, for he had already observed that certain value-parts of one kind (means of production) of the commodity-capitals constituting the total annual product of society indeed form revenue for the individual labourers and capitalists engaged in their production, but do not form a constituent part of the revenue of society; while a value-part of the other kind (articles of consumption), although representing capital-value for its individual owners, the capitalists engaged in this sphere of investment, is only a part of the social revenue.” (p 373)
Marx draws the following conclusions.
- The value of total national output is equal to the value of the aggregate output (commodity-capital) of all the individual firms. Therefore, c + v + s x n = C + V + S. However,
“...the form of appearance which these component parts assume in the aggregate social process of reproduction is different.” (p 373) - The working day is divided in two, one part being necessary labour-time, in which the worker replaces the value of their labour-power, i.e. the value of their consumption fund, and a second part, in which the worker performs surplus labour, thereby producing the value that forms the consumption fund for the capitalist. But, in addition to the production, which creates this new value, part of production also creates new constant capital.
The former creates revenue that is the equivalent of this new capital-value. The latter does not because it is merely the reappearance of existing capital-value in a new form. The former is an exchange of capital with revenue, the latter of capital with capital.
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