The worker, with their wages, buys commodities with a value of ten hours. But, these commodities are not themselves composed simply of living labour. Part of their value is composed of labour used to produce them, but another part is composed of the materials used in production, the value of wear and tear of machinery and so on.
Suppose, Marx says, that two-thirds of the value of these commodities derives from the constant capital consumed in their production, and a third from the living labour used to produce them. Then the value of these commodities is made up of 6.66 hours constant capital, and 3.33 hours of living labour. For simplification, assume the workers only produce and buy one commodity, say linen.
Twelve metres of linen, we assume, has a value of £36, of which £24 is the value of constant capital (2/3) and £12 (1/3) equal to the new value added. Of this £12 of new value £10 is paid as wages, and £2 as profit. The money value of one hour's labour is assumed then as £1.
But, if the workers and capitalists combined here use their £12 of wages and profit to buy the linen they have produced, they can only buy four metres of the twelve metres produced (one metre of linen costs £3). The other eight metres of production, with a value of £24, cannot be bought with the total revenues, because its value is equal to the value of the constant capital used in the production, which created no revenue for anyone.
Although the £12 expended as revenue by workers and capitalists is the equivalent of the new value created solely by labour, in terms of the linen bought with this £12, it divides into £4 that reproduces the value of living labour contained in it, and £8 that reproduces the value of constant capital contained in it, which also represents four hours of living labour, and eight hours of materialised labour, in the shape of materials and wear and tear.
If we assume that all commodities have this same composition of two-thirds constant capital and one-third value of living labour, then it will always be the case that the revenue expended by workers and capitalists (assuming they spend all their revenue on consumption) will only be able to buy a third of the total output. But, even if not all commodities have this composition, if we take all commodities in the aggregate, an average composition will be determinable, so that these revenues will only be able to buy the corresponding proportion of the total output. For example, if the average composition of the total national output comprises three-quarters constant capital, and one quarter living labour, the total revenues could only buy a quarter of the total national output.
But, another question then arises, If the £12 of revenues only buys four metres of linen, this four metres of linen comprises four hours of living labour, and eight hours of labour materialised in materials etc. But, twelve hours of living labour was expended, so who buys the product of the additional eight hours of living labour?
In Capital III, Marx looked at this issue, and the confusion that Proudhon got into, in trying to resolve it. There, Marx also lambasted the solution to it, put forward by Forcade, who tried to spirit the problem away by referring to the continual expansion of capital.
“First we note that the 8 yards represent nothing but the constant capital advanced. It has however been given a changed form of use-value. It exists as a new product, no longer as yarn, loom, etc., but as linen. These 8 yards of linen, just like the 4 others which have been bought by wages and profit, contain—considered as value—one-third labour added in the weaving process, and two-thirds pre-existing labour materialised in the constant capital. In the case of the 4 yards previously discussed one-third of the newly-added labour covered the weaving labour contained in these 4 yards, that is, covered itself; two-thirds of the weaving labour on the other hand covered the constant capital the 4 yards contained. But now we have it the other way round: in the 8 yards of linen, two-thirds of the constant capital covers the constant capital they contain, and one-third of the constant capital covers the newly-added labour.” (p 112)
From a practical point of view, twelve metres of linen have been produced, and the workers and capitalists have bought between them, four metres, using their wages and profits. But, the other eight metres of linen are also in the possession of the capitalist. One solution then seems to be that the capitalist could simply increase their own consumption, consuming ten metres, rather than the two they could buy with their profit. They could, but then they would cease being a capitalist, because the reality is that they need to sell this eight metres, so as to obtain the £24 of value they need to once more buy materials, replace machines and so on, so as to produce the next twelve metres of linen.
“When he has transformed into money, sold, converted into the form of exchange-value, the 8 yards of linen—that is to say, the part of the value of his product which is equal to the constant capital he advanced—he buys again with it commodities of the same kind (with regard to their use-value) as those which originally composed his constant capital. He buys yarn and looms and so on. He divides the 24 shillings between raw materials and means of production, in the proportions in which these are required for the manufacture of new linen.” (p 113)
The consequence here must be then that in selling this additional eight metres of linen, the capitalist himself creates a demand for the commodities that comprise his constant capital, because his output simultaneously creates a requirement for inputs from his suppliers, just as their output is simultaneously his input.
“The elements are produced in one sphere of production at the same time as they are being worked up in the others. But in all these simultaneous processes of production, although each of them represents a higher stage of the product, constant capital is simultaneously being used up in varying proportions.
The value of the finished product, the linen, therefore resolves itself into two parts, of which one repurchases the simultaneously produced elements of constant capital, while the other is expended on articles of consumption.” (p 113-4)
But, his demand for these inputs cannot be the answer to the riddle of who these additional eight metres of linen are sold to. On the assumption made earlier, that two-thirds of the value of commodities is comprised of the value of constant capital, and a third of living labour, the £24 that the linen producer spends with the supplier of yarn, and so on, divides into £16 for their own constant capital and £8 for living labour. Accordingly, the revenues in the form of wages and profits, available to the suppliers of this constant capital, could only buy a third of the £24 ( eight metres) of linen waiting to be sold.
Nothing is added to the question if intermediaries are introduced. It is just the same whether the end consumer of the linen buys it from the first seller (the producer) or whether they buy it from a merchant, who has bought it from a string of other merchants, stretching back to the producer. So, its assumed that the linen is for consumption (not to be used itself in production) and that it is bought direct from the producer.
The workers and capitalists had spent their combined £12 of revenue to buy the first four metres of linen. To buy the other eight metres, therefore, requires additional revenues of £24, and on the assumption of a twelve hour day, that would require the combined revenues from two other enterprises, where all of the revenue went to buy linen. Marx assumes the existence of two additional such businesses, for example, a shoemaker, and a butcher. The revenues of the workers and capitalists in these two businesses are, therefore, equal to £24, and able to buy the remaining eight metres of linen. But, this only ends up compounding the problem.
If we take these two additional businesses, then a total of living labour expended of twenty-four hours = £24, but we have assumed that the capital in each business is comprised of two-thirds constant capital, and one-third living labour. On that basis, the £24 of living labour implies that these businesses use £48 of constant capital, and the total value of their output is then equal to £72.
Given that all of the £24 of revenue received by workers and capitalists in these two businesses went to buy linen, they now require revenue from six other businesses to buy the £72 of commodities they have to sell. The attempt to resolve the problem of how to sell the eight metres of linen, by drawing in demand from additional businesses has only compounded the problem, and as Marx shows at length, it only continues to compound the problem if yet more additional businesses are introduced.
If six additional businesses are introduced D1 to D6 , which then have £72 of revenue to expend, so as to buy the commodities produced by the shoemaker and butcher, these six additional businesses will employ £144 of constant capital, and their output will have a value of £216, which would require the revenues from an additional eighteen businesses to buy and so on.
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