3) Later Economists
Ricardo follows Smith in relation to the Trinity Formula. But, unlike Smith, Ricardo starts with a labour theory of value, in which the value of the commodity is determined by the labour-time required for production. So, the magnitude of value is determined before consideration of its division into different revenues.
Ricardo's error in omitting constant capital was noted by Ramsay.
“Ramsay makes the following remark against Ricardo:
'... He seems always to consider the whole produce as divided between wages and profits, forgetting the part necessary for replacing fixed capital.' (An Essay on the Distribution of Wealth, Edinburgh, 1836, p. 174.)
By fixed capital Ramsay means the same thing that I mean by constant capital:
'Fixed capital exists in a form in which, though assisting to raise the future commodity, it does not maintain labourers.' (Ibid., p. 59.)” (p 394)
Had Smith, or his followers, been correct, that national output equals national income, then the outcome would have been that the entire national output would have been consumed! Clearly, it is not all consumed, because a large portion of output is simply used to replace the machines and materials used up, i.e. to provide the constant capital to be used in the following period.
Smith never drew that conclusion, but some of his followers did.
“It is never the original thinkers that draw the absurd conclusions. They leave that to the Says and MacCullochs.” (p 394)
For Say, the difference between gross and net product is purely subjective. He says,
““thus the total value of all products, has been distributed in society as revenue.” (Say, Traitè d’Economie Politique, 1817, II, p. 64.) “The total value of every product is composed of the profits of the landowners, the capitalists, and those who ply industrial trades” [wages figure here as profits des industrieux!] “who have contributed towards its production. This makes the revenue of society equal to the gross value produced, not equal to the net products of the soil, as was believed by the sect of the economists” [the physiocrats]. (p. 63.)” (p 394)
Marx comments that this idea was also adopted by Proudhon.
Storch followed Smith, but recognised Say's error.
““If it is admitted that the revenue of a nation is equal to its gross product, i.e., that no capital” [it should say: no constant capital] “is to be deducted, then it must also be admitted that this nation may consume unproductively the entire value of its annual product without the least detriment to its future revenue.... The products which represent the” [constant] “capital of a nation are not consumable.” (Storch, Considérations sur la nature du revenu national, Paris, 1824, pp. 147, 150.)” (p 394-5)
Marx points out that Storch should then have realised that this conflicts with his acceptance of Smith's view of price, which omits constant capital.
Sismondi had nothing useful to say, Barton, Ramsay and Cherbuliez failed to advance because they did not distinguish between constant and variable capital, and John Stuart Mill just pompously reproduced Smith, Marx says. All of these and more are discussed at much greater length in Theories of Surplus Value.
“As a result, the Smithian confusion of thought persists to this hour and his dogma is one of the orthodox articles of faith of Political Economy.” (p 395)
Unfortunately, that confusion over the equality of national output with national income continues today.
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