The same applies to the machinery producer, and this is where Marx's illustration, in Volume I, comes in, where he divides up the value of output into separate physical components, representing c, v and s. The machine maker must reproduce the machines they use themselves to produce machines, in just the same way that the flax grower must reproduce seed they use to produce flax. Both reproduce the constant capital out of their own production, and its physical component is thereby withdrawn from that output, and never enters circulation, so that it consequently never forms any part of revenue.
Suppose the output of the machine maker is equal to 10 machines in a year. In order to produce these machines, they require 2 machines of their own, which are fully used up during the year. Suppose further that each of these machines requires 10 hours of labour-time, equal to £10, to produce.
The value of the consumed machines is then £20. Assume that the raw materials required to produce the 10 machines comes to £40, and that the new labour added amounts to a further £40. So, out of the 10 machines produced, the machine maker directly withdraws 2, which reproduce the wear and tear of their constant capital. They then exchange 4 machines with the producers of wood, steel, leather and so on, which reproduces their circulating constant capital, and they exchange the remaining 4 machines with the producers of consumption goods, which are the physical equivalent drawn from society's consumption fund, of the wages and profit into which the new value is divided. It is only this £40 of new value that constitutes revenue, and it is only the physical machine output, 4 machines that is thrown into circulation, in exchange for consumption goods.
The other 6 machines only reproduce the constant capital, 2 directly to reproduce the wear and tear of the machine maker, and 4 to reproduce the raw materials consumed. This is like the situation Marx outlines in Capital I, where he divides up the physical product in this way, so that, for example, it is as though 2 machines contain no labour, or raw materials, and only wear and tear, 4 machines contain no wear and tear or new labour, and only raw material, and 4 machines contain no wear and tear or raw material, but only new labour.
“... since the labour contained in the raw material and in the machinery used up is not reckoned in the group of machines that represents labour added; and the part which replaces the new labour and machinery is not reckoned in the second group, which replaces the raw material; and consequently in the third part—considered as value—neither labour added nor raw material is contained, but this group of machines represents only the wear and tear of the machinery.” (p 146)
Put another way, of the 10 machines the machine maker produces, only 8 are sold, because 2 he uses himself to directly replace the machines he has worn out. In other words, the total value of his output is £100, equal to 10 machines, but he only sells 8 machines, bringing in £80. However, of the £80, £40 must go out again immediately to cover the cost of the raw materials he must reproduce, so that only £40, equal to 4 machines is available to purchase means of consumption, and which constitutes revenue, and this is equal to the new value added by the machine maker's labour.
Its true, as seen earlier, that of the £40 spent with the wood producer, iron maker and so on, for raw materials, a portion of this will be equal to the new value added by labour in these spheres, and this will then constitute revenue. But, only a portion. The rest of the £40 of value of raw materials will constitute the constant capital of these producers likewise.
If, as with the spinner and flax grower, the machine maker also produced his own wood, iron and leather, the portion of the value of these products, which is attributable to the wear and tear of machinery would then just as readily be seen as being directly reproduced out of his own output.
In other words, if he used up 4 machines during the year producing wood, iron and leather, he would simply replace these out of the 10 machines he produces, just as he directly replaces the 2 machines used up in his machine production.
Rather than selling 8 machines, therefore, he would only sell 4, replacing 6 directly out of his production to replace his own constant capital. But, similarly, as now also a wood, iron and leather producer, he would again reproduce at least some of his other constant capital used in this production, out of his own output. In addition to the machines he now devotes simply to replace those he has used up, he must replace the trees cut down, and so on.
As Marx describes in Capital II, if all of Department I is considered as such a single enterprise, it becomes clear that although there are numerous exchanges of machines for wood, iron leather and so on, taken as a whole, the constant capital consumed in Department I, is replaced on a like for like basis, out of the production of Department I itself, and so never enters into circulation with Department II, i.e. it never is exchanged for consumption goods, and never, therefore, forms revenue for anyone.