The nature of constant and variable capital and the relation between them is not understood. That means the nature of surplus value is not understood. At the level of the commodity, the dilemma is repeated. If the value of a commodity is c + v +s, how can the workers, capitalists and landlords, involved in its production, provide sufficient demand for it from their incomes, which amount only to v + s?
For Proudhon, this resolved itself into the question of how the workmen could ever buy back the commodities they produced, from their wages, forgetting that, in addition to the demand resulting from these wages, there is also the demand resulting from profits, interest and rent.
Forcade's answer to Proudhon's objection was that the additional demand arises from the continual expansion of capital.
Marx responds,
“Here we have the optimism of bourgeois thoughtlessness in the form of sagacity that most corresponds to it. M. Forcade first believes that the labourer could not live did he not receive a higher value than that which he produces, whereas conversely the capitalist mode of production could not exist were he really to receive all the value which he produces. Secondly, he correctly generalises the difficulty, which Proudhon expressed only from a narrow viewpoint. The price of commodities contains not only an excess over wages, but also over profit, namely, the constant portion of value. According to Proudhon’s reasoning, then, the capitalist too could not buy back the commodities with his profit. And how does Forcade solve this riddle? By means of a meaningless phrase: the growth of capital. Thus the continual growth of capital is also supposed to be substantiated, among other things, in that the analysis of commodity-prices, which is impossible for the political economist as regards a capital of 100, becomes superfluous in the case of a capital of 10,000. What would be said of a chemist, who, on being asked, How is it that the product of the soil contains more carbon than the soil? would answer: It comes from the continual increase in agricultural production. The well-meaning desire to discover in the bourgeois world the best of all possible worlds replaces in vulgar economy all need for love of truth and inclination for scientific investigation.” (Note 53, p 843-4)
The second reason bourgeois economists are led into this confusion is that they do not understand the process by which, in the labour process, concrete labour itself preserves the value of the constant capital consumed in that process.
The third reason is that,
“The pattern of the process of reproduction is not understood — how it appears not from the standpoint of individual capital, but rather from that of the total capital; the difficulty is not understood how it is that the product in which wages and surplus-value, in short, the entire value produced by all the labour newly added during the year, is realised, replaces the constant part of its value and yet at the same time resolves itself into value limited solely by the revenues; and furthermore how it is that the constant capital consumed in production can be replaced in substance and value by new capital, although the total sum of newly added labour is realised only in wages and surplus-value, and is fully represented in the sum of the values of both.” (p 844)
In other words, the value of the constant capital is transferred to the total output. But, not all of that total output is sold as part of final consumption. A portion equal to the value of the constant capital must always be excluded from national expenditure, because it goes to replacing, in kind, the value of the circulating constant capital (plus wear and tear) consumed in production. The only portion that can appear as national expenditure is the national output less the value of this constant capital, i.e. equal only to the new value created by labour during that year – labour expended in Department I, which appears as the constant capital (intermediate goods) consumed by Department II, and the labour expended in Department II.
It is this new value created by labour, during the year, which divides into v + s, which in turn divides into wages, profits, interest and rent (National Income), which, therefore, also equals National Expenditure.
The fourth reason bourgeois economists are led into this confusion is that surplus value is not only divided into these different forms of revenue, but also into the surplus value of Department I and II, so that it appears that the value of constant capital is taken into account in the sales of means of production from Department I to Department II – and indeed between different firms in Department I.
This gives rise to the fallacy that what is capital for one firm is revenue for another. It creates the myth that the value of output is equal to the value of income, because the value of intermediate production is included in the value of final output.
“One may therefore imagine along with Adam Smith that constant capital is but an apparent element of commodity-value, which disappears in the total pattern. Thus, a further exchange takes place of variable capital for revenue. The labourer buys with his wages that portion of commodities which form his revenue. In this way he simultaneously replaces for the capitalist the money-form of variable capital. Finally: one portion of products which form constant capital is replaced in kind or through exchange by the producers of constant capital themselves; a process with which the consumers have nothing to do. When this is overlooked the impression is created that the revenue of consumers replaces the entire product, i.e., including the constant portion of value.” (p 844-5)
But, of course, as Marx demonstrated earlier, this is an illusion, because at each of these intermediate stages, it is not just labour involved in the creation of value, but also constant capital.
Fifthly, bourgeois economics is confused, because values are transformed into prices of production, so these underlying relations disappear from view. In addition, the surplus value, even in the form of profit, as part of this price of production, is divided into profit of enterprise, interest and rent, according to the laws previously outlined. These separate revenues appear as the revenues of specific economic agents, under the guise of being the equivalent value added by these agents.
“This is the quid pro quo which we shall consider in the next chapter, and which is inevitably linked with the illusion that value arises out of its own component parts. And namely, the various component values of the commodity acquire independent forms as revenues, and as such revenues they are related back to the particular material elements of production as their sources of origin instead of to the value of the commodity as their source. They are actually related back to those sources — however, not as components of value, but rather as revenues, as components of value falling to the share of these particular categories of agents in production: the labourer, the capitalist and the landlord.” p 845-6)
In other words, reality is stood on its head. The value of a commodity determines the limit of its division into wages, profit, interest and rent (and indeed the value of labour-power itself determines the limit of wages). Yet, it appears that it is the value of wages, profit, interest and rent, which cumulatively determine the value of the commodity.
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