Wednesday, 27 August 2014

Capital II, Chapter 19 - Part 4

2) Adam Smith Resolves Exchange Value into v + s 

Smith resolves exchange value and the value of national output into three parts – The Trinity Formula. That is wages, profits and rent. This is also the assumption of orthodox economics, be it the Neoclassical or Keynesian. In fact, Keynes' General Theory is based on the assumption of such an equality i.e. that the value of national output is equal to National Income. Marx sets out to demonstrate that this assumption is most obviously false.

Smith's assumption comes down to saying that exchange value/national output comprises v + s, wages plus surplus value. The fact that Smith refers also to rent does not change this. If a rent is obtained, this only means that workers have created enough surplus value that one could be paid.

Marx quotes Smith himself to demonstrate this. For example, talking about manufacture, Smith says,

“The whole annual produce of the land and labour of every country ...naturally divides itself into two parts. One of them, and frequently the largest, is in the first place, destined for replacing a capital, or for renewing the provisions, materials, and finished work, which had been withdrawn from a capital; the other for constituting a revenue either to the owner of this capital, as the profit of his stock; or to some other person, as the rent of his land. (p. 222.)” (p 375)

In other words, v + s, wages and profits. Then in relation to agriculture, besides,

“the reproduction of a value equal to their own consumption, or to the [variable] capital which employs them, together with its owners’ profits ...” — furthermore, “over and above the capital of the farmer and all its profits regularly occasion the reproduction of the rent of the landlord.” (Book II, Ch. 5, p. 243.)” (p 375)

But, Marx points out, 

“The fact that the rent passes into the hands of the landlord is wholly immaterial for the question under consideration. Before it can pass into his hands, it must be in those of the farmer, i.e., of the industrial capitalist. It must form a component part of the value of the product before it becomes a revenue for anyone. Rent as well as profit are therefore, according to Adam Smith himself, but component parts of surplus-value and these the productive labourer reproduces continually together with his own wages, i.e., with the value of the variable capital. Hence rent and profit are parts of the surplus-value s, and thus, with Adam Smith, the price of all commodities resolves itself into v + s.” (p 375-6) 

Smith conflates the idea of wages, profits and rent being component parts of revenue, which, as seen, could be reduced to just v + s, with them being the original source of revenue. But, Marx points out that although its true that the revenues of all sorts of people, not engaged in production, from a prostitute to a King, comes from a payment by a productive worker or a capitalist, those who receive them do so by virtue of the function they perform,

“and they may, therefore, regard these functions as the original sources of their revenue.” (p 376)

3) The Constant Part of Capital 

There is clearly an important distinction between the source of revenue and its destination. For example, profit may be paid to a capitalist, and all sorts of justifications as to why they should receive it can be formulated. That may be that they have taken a risk, that they have abstained from consumption etc. But, none of these have anything to do with the source of the profit they receive.

A capitalist may take a risk, for example, producing some commodity that nobody wants. Rather than this risk creating a profit, they will make a loss, and the resources used for its production will be wasted. A capitalist may abstain from consumption, and hide their pot of gold in the ground until later. But, when they dig it up, it will have increased in value by not one jot!

So, when Smith says,

“In the price of corn, for example, one part pays the rent of the landlord.” (p 377)

this is not an explanation of the value of the corn, based upon the revenues that are paid to the revenue recipients (the basis of the cost of production argument) but quite the reverse shows that the value of the corn can be divided up so as to provide a revenue to various recipients.

In other words, it is the value of the commodity, which determines how much can be distributed as revenue not how much is distributed as revenue that determines value. Suppose a firm produces without any constant capital. The value of its output is equivalent to 10,000 hours of social labour. If to produce it, it employs 10 workers, who are paid in arrears, the fact that the value of their labour-power amounts to 15,000 hours of social labour does not mean they can be paid it!

The most the firm can pay, from its revenue, is the equivalent of 10,000 hours. If the workers had been paid in advance, the full 15,000 hours, then the capitalist would have made a loss equal to 5,000 hours, which they would have to make up from their capital. The 10,000 hours of value created by the workers is all new, positive value. It is value that did not previously exist. The problem is that this new value, created by the workers, is less than the value of their labour-power consumed in producing it!

In other words,

“This entire price, i.e., the determination of its magnitude, is absolutely independent of its distribution among three kinds of people.” (p 377)

No comments: