Theories of Surplus Value, Part I, Chapter 4 - Part 90

There are a range of industries and commodities where the constant capital used in production is simply replaced directly from the output arising from that constant capital. Where vertical integration of industries occurs that is even more apparent. For example, it was once common for coal producers to be also iron and steel, as well as gas and coke producers. Not only could the coal used to power machines, in the mine, be replaced directly out of production, but the coal used in the steel, coke and gas part of the business was directly replaced out of output. Coal was heated in coke ovens and produced both coke and gas as a result. But, the coke was then also used to heat offices and workshops, which were part of the business, whilst the gas was used for lighting in the business.

In this way, large parts of the firm's constant capital were constantly being directly replaced out of its own output, and so never entered the sphere of circulation, never formed a revenue for anyone, and never formed either directly or indirectly a part of the use value or value of society's consumable product.

But, it is only that, in this case, of a vertically integrated business that this is manifest, whilst the same reality exists whether such integration exists or not. The fact that a lack of such integration obscures this reality, as a consequence of exchange between producers does not change the reality itself.

In just the same way that a food producer consumes all of their revenue, not all in food, but partly in linen, and the linen producer consumes all their revenue, not all in linen, but partly in food, the coal producer replaces their constant capital not all in coal, but partly in steel, gas, coke and so on, whilst the steel producer replaces their constant capital not wholly in steel, but partly in coal, coke, gas and so on.

“The product of a goes into b’s industrial consumption and the product of b into a’s industrial consumption; or in a roundabout way, a’s product into b’s industrial consumption, b’s product into that of c, and that of c into that of a. What therefore is consumed as constant capital in one of B’s spheres of production is newly produced in another; but what is consumed in the latter is produced in the former. What in one sphere passes from the form of machinery and coal into the form of iron, passes in the other from the form of iron and coal into machinery, and so on.” (p 250)

As Marx describes in Capital II, therefore, if all of the production of B, of means of production, is considered as though it were one single, integrated firm, its own constant capital would never form a part of the circulation of commodities, i.e. they would never be bought and sold, but would be continually replaced, directly out of its own production. This is the real underlying situation, in respect of this part of social production. It forms no part of consumption, and likewise no part of revenue. It creates no wages, profit, rent, interest, or tax.

“What has to be done is to replace B’s constant capital in its natural form. If we consider B’s total product, it represents the entire constant capital in all its natural forms. And where the product of one particular sphere of B cannot replace its own constant capital in kind, purchase and sale, a change of hands, puts everything here in its proper place again. 

Here, therefore, there is replacement of constant capital by constant capital; in so far as this does not occur directly and without exchange, here therefore there is exchange of capital for capital, that is, of products for products on the basis of their use-value; the products enter reciprocally into their respective production processes, so that each of them is industrially consumed by the producers of the other. 

This part of the capital consists neither of profit nor of wages. It contains no newly-added labour. It is not exchanged against revenue. It is neither directly nor indirectly paid for by consumers. It makes no difference whether this reciprocal replacement of capitals is carried through with the aid of merchants (that is, by merchant’s capitals) or not.” (p 250)

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