“The value of the entire portion of the product which is consumed as revenue in the form of wages, profit and rent (it is entirely immaterial whether the consumption is individual or productive), indeed, completely resolves itself under analysis into the sum of values consisting of wages plus profit plus rent, that is, into the total value of the three revenues, although the value of this portion of the product, just like that which does not enter into revenue, contains a value portion = C, equal to the value of the constant capital contained in these portions, and thus prima facie cannot be limited by the value of the revenue.” (p 841)
In other words, the existence of intermediate production causes further confusion. As far as the national output and national income data is concerned, the issue seems to be resolved, because the value of the final output is seen to be made up both of the value added, plus the value of intermediate production. This is the point made earlier, that final production is made up of a number of stages of intermediate production, where, at each stage, additional labour adds value to the intermediate production of that stage. For example, the grain produced by the farmer is intermediate production from the perspective of the miller, who adds value by processing the grain into flour. However, from the perspective of the baker, the flour produced by the miller is only intermediate production, to which the baker adds value in producing bread.
The delusion is thereby created that by taking into consideration all of this intermediate production, which provides constant capital, consumed in the production of the annual product, that the matter of the reproduction of constant capital has thereby been accounted for. But, of course, it hasn't. All that has been accounted for is the value of the constant capital in the annual product, not in the Gross Output. In other words, all that has been accounted for is the new value produced in the form of constant capital, i.e. I (v + s).
“The phrase: that which appears as revenue for one constitutes capital for another, relieves one of the necessity for any further reflection. But how, then, the old capital can be replaced when the value of the entire product is consumable in the form of revenue; and how the value of the product of each individual capital can be equal to the value sum of the three revenues plus C, constant capital, whereas the sum of the values of the products of all capitals is equal to the value sum of the three revenues plus 0 — this appears, of course, as an insoluble riddle and must be solved by declaring that the analysis is completely incapable of unravelling the simple elements of price, and must be content to go around in a vicious circle making a spurious advance ad infinitum. Thus, that which appears as constant capital may be resolved into wages, profit and rent, but the commodity-values in which wages, profit and rent appear, are determined in their turn by wages, profit and rent, and so forth ad infinitum.” (p 842)
So, Smith and others after him, attempted to resolve this contradiction by the subterfuge that the constant capital itself was divisible into these factor incomes. This is essentially the position outlined above, in respect of the intermediate production. But, as Marx says above, this is clearly not possible because this merely leads to a vicious circle that goes on to infinity.
I can argue that the constant capital of the baker comprises the flour of the miller, and thereby refer to the miller's income, and when its pointed out that the miller also had constant capital, in the form of the grain, I can point out that this was the product of the farmer, and constituted his income. But, the grain was not solely the product of the farmer's labour. It also comprised constant capital in the shape of seed, fertiliser, machinery and so on.
I might then argue that all of this constant capital employed by the farmer formed income for other capitals, producing seed, fertiliser, and equipment, but this process can be continued forever, without any possibility of finding some production, which was undertaken solely by labour, and without any constant capital!
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