Theories of Surplus Value, Part I, Chapter 4 - Part 34

If we take all of the production and divide it into means of production and means of consumption, then out of the latter a part of their output goes to meet the consumption needs of workers and capitalists in this industry, and the remaining portion goes to meet the consumption needs of workers and capitalists in the producer goods industries. All of the output of the consumption goods industry, therefore, exchanges against revenue, even though part of the exchange replaces the constant capital. It does so, because it only exchanges with that part of the output of means of production that represents the new value added, and which thereby itself includes no value of constant capital.

The output of the producer goods industry exchanges partly against capital, and partly against revenue. That is, a portion of its output exchanges only against capital. It is used only to replace its own consumed constant capital. But, the other portion, which represents the value of newly added labour, exchanges with revenue. It exchanges, in the example above, for the 2 metres of linen. It is easily seen in the example that Marx gives in Capital II.

Department I

c 4000 + v 1000 + s 1000 = 6000

Department II

c 2000 + v 500 + s 500 = 3000

Here the value of consumption goods output is 3000. The workers and capitalists, in this sector, obtain revenue of 500 each, which is equal to the new value added by labour in this sector. This comprises 1000 of the 3000 of demand required for its output. The other 2000 of demand comes from the workers and capitalists of Department I, which is equal to their wages and profit, which again is equal to the new value produced by labour in that department. 

Of the remaining 4000 of value produced in Department I, it is used simply to replace its own consumed constant capital. It comprises a part of the value of output, but produces no income, either as wages or profits for anyone. This is the problem with the figures for the value of national output produced by countries in their national accounts. Following Adam Smith they resolve the value of output purely into incomes. If the above were a statement of national accounts, it would total up the incomes as £1,000 of wages, (Department I), plus £1,000 of profits (Department I), plus £500 wages (Department II) plus £500 profits (Department II), giving a total national income of £3,000. 

This £3,000 of national income would also be equal to national expenditure of £3,000 spent on the goods that comprise final output of consumer goods. It would then appear that everything is in harmony. But, that is far from the case. The current presentation of the national accounts only pulls off this trick, because it misses out a huge chunk of national output, which is consumed by no one! The value of final production here, is only the value of the new value created during the year. In other words, it is arrived at by adding up the value added at each stage of production, up to the final output. It appears, therefore, to include the value of the output of constant capital, consumed as intermediate goods, but it does not. It only ever includes the value of new value added by labour.

If we look at the actual situation above, the £2,000 value of intermediate goods used in the production of final output, is only equal to the new value added by labour, during this year in Department I. None of that £2,000 accounts for the value of constant capital used in its own production. The £2,000 of constant capital that appears in the value of Department II output, and so of total national output, therefore, is not attributable to constant capital at all, but only to the new value created by labour.

But, the real value of output, also includes the £4,000 of output that forms no part of the final output of consumer goods. It simply replaces the constant capital produced in previous years, and consumed in this year's production. The national accounts here would show National Income and Expenditure of £3,000, but a total value of output equal to £7,000. Its because national accounts data for output is so misleading that it is also wrong to make calculations of actual economic growth, and mass and rate of profit on the basis of such data.

Back To Part 33

Forward To Part 35