Tuesday, 1 November 2016

Capital III, Chapter 49 - Part 15

Marx quotes Smith to demonstrate how erroneous is this conception upon which all modern orthodox economic theory is based.

“"In every society the price of every commodity finally resolves itself into some one or other, or all of those three parts [viz., wages, profits, rent] ... A fourth part, it may perhaps be thought, is necessary for replacing the stock of the farmer or for compensating the wear and tear of his labouring cattle, and other instruments of husbandry. But it must be considered that the price of any instrument of husbandry, such as a labouring horse, is itself made up of the same three parts: the rent of the land upon which he is reared, the labour of tending and rearing him, and the profits of the farmer, who advances both the rent of his land and the wages of his labour. Though the price of the corn, therefore, may pay the price as well as the maintenance of the horse, the whole price still resolves itself either immediately or ultimately into the same three parts of rent, labour [meaning wages] and profit." (Adam Smith.) — We shall show later on how Adam Smith himself feels the inconsistency and insufficiency of this subterfuge, for it is nothing but a subterfuge on his part to send us from Pontius to Pilate while nowhere does he indicate the real investment of capital, in which case the price of the product resolves itself ultimately into these three parts, without any further progressus.” (Note 52, p 842)

Another version of this fallacy was put forward by Tooke, and yet another version by Proudhon.

“The fundamentally erroneous dogma to the effect that the value of commodities in the last analysis may be resolved into wages + profit + rent also expresses itself in the proposition that the consumer must ultimately pay for the total value of the total product; or also that the money circulation between producers and consumers must ultimately be equal to the money circulation between the producers themselves (Tooke); all these propositions are as false as the axiom upon which they are based.” (p 842)

This is just another way of saying the same thing. If National Income equals National Expenditure, then its just as false to equate the value of National Output with National Expenditure as it is to equate it with National Income. The total of National Income as wages, profits, interest and rent is equal to National Expenditure during the same period. This is true even in respect of that portion of this expenditure which goes not to unproductive consumption, but to additional productive investment, i.e. accumulation.

But, its clear that just as the total of these incomes, which resolve into v + s, cannot possibly be equal to the value of total output, which resolves into c + v + s, so too the total of expenditure, which resolves into v + s, cannot be equal to c + v + s. However the matter is viewed, the national output must exceed the National Income or National Expenditure, by an amount equal to C, the constant capital consumed in the production of means of production, which must be reproduced from the national output, and which, therefore, cannot be consumed out of v + s, i.e. is not consumed unproductively, out of revenue, or as part of accumulation.

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