[8. Smith’s Error in Resolving the Total Value of the Social Product into Revenue. Contradictions in His Views on Gross and Net Revenue]
Marx then turns to the other major weakness in Smith's theory, which necessarily flows from this cost of production theory of value. It is the idea that the value of commodities, and of national output, can be resolved into revenues. That is, if the value of a commodity is comprised of the price of wages, profits and rents, and these constitute all of the revenues received in the economy, then these revenues must likewise be equal to, and so able to purchase the full value of output produced by the economy.
But, as Marx demonstrated in Capital II, and III, this is impossible. The revenues – wages, profit and rent (and interest and taxes) – are components only of the new value created by labour, which is divided into v + s. But, the actual value of output is equal to c + v + s, because in addition to the new value created by labour, a portion of the value of output is derived from the constant capital, i.e. the value of the materials, wear and tear of fixed capital, etc. whose value was produced not in this year, but in previous years, and which, therefore, created no revenue for anyone.
In fact, Smith's own treatment of the issue leaves him again saying contradictory things. Marx quotes Smith,
““These three parts” (wages, profit and rent) “seem either immediately or ultimately to make up the whole price of corn.”” (p 98)
Smith uses corn, Marx says, because not all commodities involve rent as part of their price. Marx then quotes Smith's answer to the question what about the constant capital? Smith's answer is that the constant capital itself, comprising of commodities, resolves also into these three parts. This error is continued into present day economics, where it is considered to be accounted for by intermediate production.
““But it must be considered, that the price of an 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 this land, and the wages of this labour.”” (p 98)
This simply sends us from pillar to post, as Marx points out, because none of these commodities that comprise the constant capital resolves only into wages, profit or rent either. Each of them also contains constant capital, as well as the new value created by labour.
“But was it not equally obviously necessary to consider that just as the farmer included the price of the horse and the plough in the price of the corn, the horse breeder or the plough maker from whom the farmer bought the horse and the plough, would include in the price of the horse and the plough the price of the instruments of production (in the case of the former, perhaps another horse) and of raw materials such as feeding stuffs and iron, whereas the fund from which the horse breeder and plough maker paid wages and profit (and rent) consisted only in the new labour which they added in their sphere of production to the amount of value present in their constant capital?” (p 98-9)
Moreover, the choice of corn is an unfortunate one for Smith's argument, because a part of the cost of production is that for the seed, which is taken from the previous harvest, and forms a part of the constant capital for the year. But, this seed, therefore, is bought from no one. It constitutes neither wages, profit nor rent. Yet, it has a value, it required the expenditure of labour-time for its own production, and that value is transformed into the product in whose production it forms a part.
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