“... and then, also because precisely in the form of wages, profit and rent there is contained an incredible blunder in analysis, which pervades all political economy since Adam Smith.” (p 836)
As stated elsewhere, this blunder continues into modern political economy, whereby the value of National Income (wages, profits, interest and rent) is equated with the value of national output.
In Capital II, the economy is divided into two great departments, I producing means of production, and II, producing articles of consumption. These can be considered as though they were two huge companies. The former produces all of the means of production required by itself to continue producing, as well as those required by the latter, so as to be able to produces articles for consumption.
As the former produces no articles of consumption, it can only obtain them from the latter, in exchange for the means of production it supplies. The latter, therefore, produces all of the articles of consumption required by society, in other words, required not only by its own workers and capitalists, but also the workers and capitalists of Department I. It exchanges these articles of consumption required by the capitalists and workers of Department I, for the means of production it requires.
Having now analysed the way that surplus value is divided into profit, interest and rent, however, this model equally accounts for the way these revenues are able to purchase these items of consumption, at the same time that Department I produces the means of production it requires itself, without this production ever forming part of the overall social exchange.
“One portion of the product, whatever its ability to serve as means of production, passes over into individual consumption. It is the product for which wages, profit and rent are expended. This product is the product of a definite department of the social capital. It is possible that this same capital may also produce products belonging to Class I. In so far as it does so, it is not the portion of this capital consumed in the products of Class II, products belonging actually to individual consumption, which supplies the productively consumed products belonging to Class I. This entire product II, which passes into individual consumption, and for which therefore the revenue is spent, is the existent form of the capital consumed in it plus the produced surplus. It is thus the product of a capital invested solely in the production of articles of consumption. And in the same way Department I of the annual product, which serves as means of reproduction — raw materials and instruments of labour — whatever capacity this product may otherwise possess naturaliter to serve as means of consumption, is the product of a capital invested solely in the production of means of production.” (p 836-7)
In other words, its quite clear that not only is the economy not divided into two huge companies, one producing means of production, the other items for consumption, but even individual companies may produce both means of production and items of consumption, as well as some commodities being capable of performing both functions.
This, in fact, is irrelevant, because what Marx is saying here is that all production in the economy falls into one of these two categories, irrespective of who produces it. Irrespective of whether an electric drill may be used as an article of consumption, for the purpose of DIY, or is used as a means of production by a joinery firm, or building company, the fact remains that every such drill, so produced, is used for one purpose or the other, and so forms part either of the economy's production of means of production (Department I), or its production of items of consumption (Department II).
“As already indicated, we leave out of consideration in both classes the fixed portion of constant capital, which continues to exist in kind and, so far as its value is concerned, independently of the annual product of both classes.” (p 837)
That is because, in considering the annual product, of an economy, (the new value produced, or national income [s + v]), as well as the value of the output of the economy for the year (c + v + s) the former excludes the value of all constant capital (although the annual product includes the value of constant capital in the form of intermediate production, this is only the value of the labour expended on that intermediate production, i.e. the value of the labour expended in the current year, in Department I) whilst the latter (the value of output) excludes the value of fixed capital. It is only the value of wear and tear on fixed capital that enters the value of this year's output, alongside the circulating constant capital.
Although elements of this wear and tear will only need to be replaced, in respect of their value, (that is the money value will be hoarded ready for the actual replacement of the fixed capital) whereas other elements will have to be replaced in kind (that is the actual fixed capital is physically replaced) on average the value of wear and tear will be more or less equal to the fixed capital that will also have to be physically replaced, and which, therefore, requires the expenditure of labour-time for its production.
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