““The whole expense of maintaining the fixed capital must evidently be excluded from the neat revenue of the society. Neither the materials necessary for supporting their useful machines and instruments of trade, their profitable buildings, etc., nor the produce of the labour necessary for fashioning those materials into the proper form, can ever make any part of it. The price of that labour may indeed make a part of it; as the workmen so employed may place the whole value of their wages in their stock reserved for immediate consumption. But in other sorts of labour, both the price and the produce go to this stock; the price to that of the workmen, the produce to that of other people, whose subsistence, conveniences, and amusements, are augmented by the labour of those workmen” ([Wealth of Nations, O.U.P. edition, p. 314], [Garnier] l.c., pp. 214–15).” (p 101-2)
But, yet again, Smith ducks the issue of how it can be that the commodities required to bring about this maintenance of the fixed capital etc. can be deducted from the net revenue, if indeed as he insists, the value of every commodity is itself resolvable into just wages, profit and rent.
But, there is a further error in Smith's argument here. If we take the makers of machinery, the labour of the worker divides into necessary and surplus labour, the same as for any other worker. In other words, the new value they create divides into wages and profit. These are revenues, and so this component of the value of the machine does indeed form revenue. But, a part of the value of the machine is itself comprised of the machines and materials used by the workers themselves for the purpose of production.
This portion of the value of the machine represents a revenue for no one. What is true here for the production of machines is also true for the production of all other types of constant capital. The coal used to power a steam engine, to pump water from a mine, for example, has a value, which comprises part of the value of the coal produced, but the value of the coal used in the steam engine provides no income for anyone.
If we take linen, its price may be say £6 per metre, made up of £4 for yarn, the wear and tear of machinery, and so on, £1 wages, and £1 profit. As a product, all of it is consumed, in one way or another, but not all of its price of £6 goes to consumption. The £1 of wages and £1 of profit, as revenues will go to consumption, but the other £4 will not. It will go necessarily just to replace the yarn, the wear and tear of machinery etc., so that production can continue.
Marx also gives another quote from Smith, showing just how confused he had become. Previously, Smith told us that the cost of maintaining the fixed and circulating capital had to be deducted from the gross revenue to arrive at the net revenue, available for consumption. But, now he discounts the fixed capital from the gross revenue too.
““The machines and instruments of trade, etc., which compose the fixed capital either of an individual or of a society, make no part either of the gross or of the neat revenue of either:” (p 102)
By moving from a labour theory of value, to a cost of production theory, Smith has inevitably got himself stuck into a vicious circle. If the value of commodities is determined by the prices of the factors involved in their production – wages, profit, rent – and as revenues, these are used for consumption, then the Total National Income must equal the value of Total National Output. But, then that would mean that all of the National Output is consumed, with no part of national output available to replace all of the materials and means of production used in its production.
Smith tries to reconcile this contradiction by dividing the national output value into gross revenue and net revenue, without explaining how this changes anything. It would require that the commodities that maintain the fixed and circulating constant capital were somehow produced without being the product of labour, which divides into wages and profit.
“Adam’s twistings and turnings, his contradictions and wanderings from the point, prove that, once he had made wages, profit and rent the constituent component parts of exchangeable value or of the total price of the product, he had got himself stuck in the mud and had to get stuck.” (p 103)
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