If Smith were correct, and assuming that revenues are used as revenues, i.e. to fund consumption, then all output should be consumed. Its clear that cannot be the case, because a portion of output – in fact a growing portion – is never destined for consumption, but must be used simply to replace the materials used in production, to repair and replace the fixed capital used in production and so on.
If the value of a commodity resolves itself into wages, profit and rent, as Smith claims, then it must be the case that this is so for the total national output, which is nothing more than the sum total of the values of all the commodities produced. In that case, the recipients of the total of wages, profits and rent must thereby have sufficient income to buy and consume all of this output. But, Smith runs away from the necessary conclusion from his argument.
““But though the whole value of the annual produce of the land and labour of every country is thus divided among, and constitutes a revenue to, ‘its different inhabitants; yet, as in the rent of a private estate, we distinguish between the gross rent and the neat rent, so may we likewise in the revenue of all the inhabitants of a great country” ([ibid., p. 313], [Garnier] l.c., p. 213).” (p 100)
This is the opposite of what Smith said previously. Smith then mixes up a number of things. He says,
““The gross rent of a private estate comprehends whatever is paid by the farmer; the neat rent, what remains free to the landlord, after deducting the expense of management, of repairs, and all other necessary charges; or what, without hurting his estate, he can afford to place in his stock reserved for immediate consumption, or to spend upon his table,” etc. … “His real wealth is in proportion, not to his gross, but to his neat rent” [ibid., pp. 313–14].” (p 100)
The value of the commodity includes the rent paid by the farmer to the landlord, just as much as it includes his profit, and the wages paid to the workers. It is equal to the new value created by labour, which does resolve into revenue.
“The question is however whether the commodity contains yet another constituent part of its value.” (p 101)
Smith, in the above quote, admits that it does. Marx makes the point that the wealth of an individual farmer – as a farmer – depends on their profit. But, of course, they could consume far more than the value, if their profit enables, if they ceased being a farmer, and sold off their capital. If the rate of profit is 10%, and they have £1,000 of profit to spend on consumption, they could instead sell their £10,000 of commodities that comprise their capital, and spend that on consumption.
Once it had all gone, of course, it could not be replaced. It would no longer exist as a source of revenue. Moreover, looked at from the perspective of society, nothing changes. The farmer, if they sold their farm, would do so to another farmer, and so this capital would continue to operate as capital, but in different hands. In just the same way that what was previously in the hands of the buyer, and available to finance consumption, is now in the hands of the farmer, and able to perform exactly the same function.
So Smith now argues,
““The gross revenue of all the inhabitants of a great country comprehends the whole annual produce of their land and labour”” (p 101)
Previously, Smith had argued that this value resolved simply into wages, profit and rent. But, now he includes, in this gross output, the constant capital, and its only after accounting for its replacement that a net revenue is arrived at that can be consumed.
“... “the neat revenue, what remains free to them, after deducting the expense of maintaining, first, their fixed, and, secondly, their circulating capital”; (so he now deducts instruments of labour and raw materials); “or what, without encroaching upon their capital, they can place in their stock reserved for immediate consumption.” (So now we learn that the price or exchangeable value of the total stock of commodities, just as in the case of the individual capitalist, so also for the whole country, is resolvable into a fourth part which does not form a revenue for anyone and cannot be resolved into wages, profit or rent.)” (p 101)
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