## Friday, 7 November 2014

### 7) Variable Capital and Surplus-Value in Both Departments

Department I: c 4000 + v 1000 + s 1000 = 6000

Department II: c 2000 + v 500 + s 500 = 3000

The total value of all consumption goods (Department II), produced during the year, is equal to the total value of variable capital and surplus value, in both Departments. In other words it is equal to National Income. That has to be true because the total value of consumption goods is equal to c+v+s. But, the value of c is equal to the value of v+s in Department 1. The value of c within Department 1 only circulates within it.

“On the assumption of simple reproduction the total value of the annually produced articles of consumption is therefore equal to the annual value-product, i.e., equal to the total value produced during the year by social labour, and this must be so, because in simple reproduction this entire value is consumed.” (p 429)

In other words, the total value of consumption goods is equal to the net new value created during the year, i.e. v+s. Under simple reproduction, both v+s go to consumption, and all the consumption goods are consumed.

In Volume I, in considering the working day, the value of constant capital was set aside. It is only the labour added that creates new value. So, the working day can be divided, in looking at the creation of this new value, into necessary and surplus labour. The same is true of the social working day, i.e. the total labour-time of society. Here, the total social labour-time amounted to a value of £3000 in total - £2000 in Department 1, £1,000 in Department 2. This broke down into £1000 (v) necessary labour-time and £1000 (s) surplus labour-time in Department 1, and £500 (v) and £500 (s) in Department 2. Once again, this simply shows that the value produced during the social working day is equal to the value of consumption goods produced.

“But we know that although these two magnitudes of value are equal the total value of commodities II, the articles of consumption, is not produced in this department of social production. They are equal because the constant capital-value re-appearing in II is equal to the value newly produced by I (value of variable capital plus surplus-value); therefore I(v + s) can buy the part of the product of II which represents the constant capital-value for its producers (in Department II). This shows, then, why the value of the product of capitalists II, from the point of view of society, may be resolved into v + s although for these capitalists it is divided into c + v + s. This is so only because IIc is here equal to I(v + s), and because these two components of the social product interchange their bodily forms by exchange, so that after this transformation II exists once more in means of production and I(v + s) in articles of consumption.” (p 429-30)

This is what confused Adam Smith and leads other economists to equate National Income with National Output.

“This is true 1) only for that part of the annual product which consists of articles of consumption; and 2) it is not true in the sense that this total value is produced in II and that the value of its product is equal to the value of the variable capital advanced in II plus the surplus-value produced in II. It is true only in the sense that II(c + v + s) is equal to II(v + s) + I(v + s), or because IIc is equal to I(v + s).” (p 430)

The social working day of 3000 breaks down into 1500 necessary and 1500 surplus value.

“Nevertheless, from the point of view of society, one part of the social working-day is spent exclusively on the production of new constant capital, namely of products exclusively intended to function as means of production in the labour-process and hence as constant capital in the accompanying process of self-expansion of value.” (p 430)