Sunday, 30 October 2016

Capital III, Chapter 49 - Part 13

By contrast, the Gross Income is equal to the 1400 kg. of grain produced, which represented the new value. It forms the total revenue paid as wages to workers and profits to capitalists. The Net Income is equal to the 400 kg. of grain that constituted the surplus value. In other words, 1100 kg. of grain had been used for production, and so constituted the cost of production. The Net Income, therefore, was the surplus of production over this cost of production.

“The gross income is that portion of value and that portion of the gross product measured by it which remains after deducting that portion of value and that portion of the product of total production measured by it which replaces the constant capital advanced and consumed in production. The gross income, then, is equal to wages (or the portion of the product destined to again become the income of the labourer) + profit + rent. The net income, on the other hand, is the surplus-value, and thus the surplus-product, which remains after deducting wages, and which, in fact, thus represents the surplus-value realised by capital and to be divided with the landlord, and the surplus-product measured by it.” (p 840)

The value of each commodity, and, therefore, of the total commodity-product, divides into two parts. One part constitutes capital, whereas the other constitutes revenue. A part of the value, which represents the constant capital, must always be reproduced as capital. The other part, which is equal to the new value created, however, constitutes revenue, and is paid as wages, profits, interest and rent. This is true, despite the fact that from the perspective of the capitalist, a portion of this new value, equal to wages, always flows back to them, in the form of variable capital, equally destined to be laid out once more as productive-capital, as is the constant capital.

“Viewing the income of the whole society, national income consists of wages plus profit plus rent, thus, of the gross income. But even this is an abstraction to the extent that the entire society, on the basis of capitalist production, bases itself on the capitalist standpoint and thereby considers only the income resolved into profit and rent as net income. 

On the other hand, the fantasy of men like Say, to the effect that the entire yield, the entire gross output, resolves itself into the net income of the nation or cannot be distinguished from it, that this distinction therefore disappears from the national viewpoint, is but the inevitable and ultimate expression of the absurd dogma pervading political economy since Adam Smith, that in the final analysis the value of commodities resolves itself completely into income, into wages, profit and rent.” (p 840-1)

As described previously, this fallacy that national output can be equated with National Income, just as the value of each commodity can be divided into factor incomes – wages, profits, interest and rent – continues today.

An examination of an individual capital shows that this is impossible, because it is obvious that in addition to the incomes received as wages by the firm's workers, the profits by the entrepreneur, the interest by the shareholders, and the rent by the landlord, the firm must also lay out additional capital for the purchase of machines, materials etc. In other words, for constant capital, and this must also be recovered in the price of the commodity.

Yet, in fact, orthodox economics has difficulty even accepting this obvious fact. It attempts to avoid the problem by what is effectively a deception, which again stems back to Adam Smith as well as to Say.

In respect of the latter, Marx quotes Ricardo, to show how obviously ridiculous is the idea that the value of output can be reduced to factor incomes.

“Ricardo makes the following very apt comment on thoughtless Say: "Of net produce and gross produce, M. Say speaks as follows: ‘The whole value produced is the gross produce; this value, after deducting from it the cost of production, is the net produce.’ (Vol. II, p. 491.) There can, then, be no net produce, because the cost of production, according to M. Say, consists of rent, wages and profits. On page 508 he says: ‘The value of a product, the value of a productive service, the value of the cost of production, are all, then, similar values, whenever things are left to their natural course.’ Take a whole from a whole, and nothing remains." (Ricardo, Principles, Chapter XXII, p.512, Note.) — By the way we shall see later that Ricardo now refuted Smith’s false analysis of commodity-price, its reduction to the sum of the values of the revenues. He does not bother with it, and accepts its correctness so far in his analysis that he "abstracts" from the constant portion of the value of commodities. He also falls back into the same way of looking at things from time to time.” (Note 51, p 841)

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