““A dwelling-house, as such, contributes nothing to the revenue of its inhabitant; and though it is, no doubt, extremely useful to him, it is as his clothes and household furniture are useful to him, which, however, make a part of his expense, and not of his revenue.”” (p 260)
But, Smith wants to include any buildings used productively such as factories, shops and offices not only as fixed capital for the capitalist who uses them productively to create a profit, but also for the owner of the building who rents it to the capitalist. Smith's justification is that it produces a revenue for both.
Smith similarly divides the purchase of imports into those consumed by 'idle people' such as foreign wines and luxury goods, and those bought by the industrious who buy additional materials and tools so as to employ more people and produce a profit.
The first form of expenditure increases consumption, but without increasing production to meet that consumption.
“On the other hand “employed in the second way, it promotes industry; and though it increases the consumption of the society, it provides a permanent fund for supporting that consumption; the people who consume reproducing, with a profit, the whole value of their annual consumption” ( [ibid., p. 324], [Garnier], l.c., t, II, p. 232).” (p 261)
Whilst all of that part of production which constitutes revenue goes to support inhabitants whether they are engaged in productive labour or not, the larger the proportion which goes to support productive labour, Smith says, the greater the future expansion of production.
““Both productive and unproductive labourers, and those who do not labour at all, are all equally maintained by the annual produce of the land and labour of the country. This produce … must have certain limits. According, therefore, as a smaller or greater proportion of it is in any one year employed in maintaining unproductive hands, the more in the one case, and the less in the other, will remain for the productive, and the next year’s produce will be greater or smaller accordingly…” (p 261)
Smith's confusion over the value of commodities is repeated once more, here. On the one hand, he recognises that, of the total product, a portion must be used to replace the constant capital consumed in that production, but he is trapped by his view that the value of the commodity resolves itself entirely into revenue. So, he writes,
““Though the whole annual produce of the land and labour of every country is … ultimately destined for supplying the consumption of its inhabitants, and for procuring a revenue to them; yet when it first comes either from the ground, or from the hands of the productive labourers, it naturally divides itself into two parts. One of them, and frequently the largest, is, in the first place, destined for replacing a capital, or for renewing the provisions, materials, and finished work, which had been withdrawn from a capital; the other for constituting a revenue either to the owner of this capital, as the profit of his stock, or to some other person, as the rent of his land…
“That part of the annual produce of the land and labour of any country which replaces a capital, never is immediately employed to maintain any but productive hands. It pays the wages of productive labour only. That which is immediately destined for constituting a revenue… may maintain indifferently either productive or unproductive hands. …” (p 261)
So, Smith divides the value of the commodity here into a portion that reproduces the capital consumed in production and the surplus value, which forms a revenue as profit, interest, rent and taxes. Of the former, the capital is resolved just into variable capital, which pays wages, because, for Smith, the constant capital itself ultimately resolves into wages.
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