Wednesday, 26 November 2014

Capital II, Chapter 20 - Part 28

The various calculations of the rate of profit, on these figures, of National Income, are then no such thing. National Income is only a measure of the new value created by workers that year. Breaking it down into wages on one side and profits, rent and interest on the other (or property income as some would have it) does not give a measure of the rate of profit, as defined by Marx, i.e. s/c+v, but only a measure of s/v, or the rate of surplus value.

Given the significant changes in the value of c, that Marx describes, arising from the constant revolutionising of the means of production, such measures are next to useless for gauging changes in the rate of profit itself.

Adam Smith, however, has promulgated this astounding dogma, which is believed to this day, not only in the previously mentioned form, according to which the entire value of the social product resolves itself into revenue, into wages plus surplus-value, or, as he expresses it, into wages plus profit (interest) plus ground-rent, but also in the still more popular form, according to which the consumers must “ultimately” pay to the producers the entire value of the product. This is to this day one of the best-established commonplaces, or rather eternal truths, of the so-called science of political economy.” (p 438)

Marx describes the argument by looking at the production of shirts with a value of £100. The costs of these shirts also include the wages and profits paid to all those who provide the materials going into their production, the flax growers, spinners, weavers, bleachers, the transport companies and so on. 

“The consumers of the shirts pay these £100, i.e., the value of all the means of production contained in the shirts, and of the wages plus surplus-value of the flax-grower, spinner, weaver, bleacher, shirt manufacturer, and all carriers. This is absolutely correct. Indeed, every child can see that. But then it says: that’s how matters stand with regard to the value of all other commodities. It should say: That’s how matters stand with regard to the value of all articles of consumption, with regard to the value of that portion of the social product which passes into the consumption-fund, i.e., with regard to that portion of the value of the social product which can be expended as revenue.” (p 439)

But, of course, the total value of the economy's output is far greater than that which comprises the consumption fund, i.e. which constitutes revenue. A large proportion of the output goes into the production of producer goods, and not just those used up in producing consumer goods, but also those used up in producing producer goods themselves. In other words, all of v+s is used up and appears to buy all of the social output, only because what v+s buys is limited to that portion of total output that comprises the consumption fund. That portion of total output that comprises the capital fund simply replaces its own value.

Reminding ourselves of our model set out previously, it is:

Department 1 c 4000 + v 1000 + s 1000 = 6000

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

The constant capital is replaced in two ways. Firstly, Department 2 capitalists replace the constant capital consumed in the production of consumer goods, via an exchange with Department 1. Department 2 buys constant capital from Department 1. With the money it hands over, Department 1 capitalists are able to pay wages and realise surplus value. Department 1 workers and capitalists use those wages and surplus value to buy consumer goods. Alternatively, Department 1 workers may buy consumer goods with wages advanced to them, and Department 1 capitalists may buy consumer goods with their own money hoard. Then Department 2 capitalists have the necessary money to buy constant capital to replace that used up.

The £2,000 value of Department 2 output, that is equal to the constant capital used up, cannot be used by Department 2 capitalists, as revenue, because it must be used to replace the constant capital. The £2,000 of value, represented by the constant capital produced by Department 1, and equal to Department 1 wages and surplus value, cannot be consumed by those workers and capitalists, because they are not consumer goods.

“We have here, then, a sum of values to the amount of 4,000, one half of which, before and after the exchange, replaces only constant capital, while the other half forms only revenue.” (p 440)

The constant capital of Department 1 is by contrast replaced in kind. That can take two forms. Firstly, one Department 1 firm can sell means of production to another, e.g. a coal company selling coal to a steel producer. There are many variations on this. The value of the coal supplied could be met by an exchange of steel in return, but probably not. Rather the steel producer will supply steel to a range of other producers of means of production, some of whom will in turn supply constant capital to the coal producers. But, the coal producers will also supply coal to themselves, the steel producers will do the same, farmers will supply themselves with seeds, livestock and so on.

All of those exchanges, within Department 1, form a part of the total national output, and yet do not form a part of national income, because they never form a part of revenue. They are only mutual exchanges, within Department 1, that replace its constant capital.

“The phrase that the value of the entire annual product must ultimately be paid by the consumer would be correct only if consumer were taken to comprise two vastly different kinds: individual consumers and productive consumers. However that one portion of the product must be consumed productively means nothing but that it must function as capital and not be consumed as revenue.” (p 440) 

If the total value of output of £9,000 is divided not into c+v+s, nor into v+s but solely into capital £6,000 and revenue £3,000, then the variable capital disappears. Now wages, appear simply as part of the same revenue out of which the profits are paid. In that case, that revenue appears not as the product of labour but as the product of the (constant) capital employed.

“This conclusion is actually drawn by Ramsay. According to him, capital, socially considered, consists only of fixed capital, but by fixed capital be means the constant capital, that quantity of values which consists of means of production, whether these means of production are instruments or materials of labour, such as raw materials, semi-finished products, auxiliary materials, etc.” (p 440)

In this scheme, labour does not even form a necessary element of wealth creation, and only exists because the poverty of the mass of the people prevents them owning and employing their own capital.

“Here we see once more the calamity Adam Smith brings on by submerging the distinction between constant and variable capital in that between fixed capital and circulating capital. Ramsay’s constant capital consists of instruments of labour, his circulating capital of means of subsistence. Both of them are commodities of a given value. The one can no more create surplus-value than the other.” (p 441)

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