Marx then gives an example, which I don't think is logically consistent. We have seen previously that revenue is equal to the new value created by labour. Its equivalent resides in a mass of products contained in the consumption fund, and available for consumption. But, the producers of these commodities do not consume their revenue all in their own product. There is an exchange of revenue with revenue so that a portion of A's product is consumed by B, and likewise a portion of B's product is consumed by A.
The example that Marx gives here is of a butcher and baker. Suppose both create new value equal to £50. The butcher may consume £30 of meat in kind, and exchange the other £20 of meat with the baker. In turn, the baker consumes £30 of their own product, selling £20 to the butcher, in exchange for meat.
If both keep accounts with each other, these transactions require no intervention of money, and would cancel each other out. However, Marx says, suppose they do not cancel out, so that instead the baker may buy £40 of meat, whilst selling only £30 of bread to the butcher. In that case, the baker would owe £10 to the butcher, which they pay in cash. The butcher uses the £10 as revenue to buy clothes from the tailor. The tailor then buys bread etc. from the baker, with this £10. Now, Marx says, this £10 flows back to the baker, not as revenue, but as capital.
But, Marx's example here seems confused and logically inconsistent. He begins by setting out this exchange of revenue with revenue as described above, but then says,
“It is however possible that the meat bought by the baker from the butcher replaces not the latter’s capital but his revenue—that part of the meat sold by him which not only represents his profit but the part of his profit which he wants to consume himself, as revenue. The bread that the butcher buys from the baker is also an expenditure of his revenue.” (p 326)
On this basis of what he had said, both were exchanging revenue with revenue, rather than revenue with capital. Moreover, at the end of the example, it is not the butcher's capital that is being replaced but the baker's.
“In this way the money flows back to the baker, no longer however as a replacement of revenue, but as a replacement of capital.” (p 326)
But, on the basis of the information provided, this does not necessarily follow, only that with the addition of the tailor, the revenues are consumed differently. In other words, the butcher, instead of consuming £40 of bread etc. consumes £30 of bread and £10 of clothes, whilst the baker consumes £40 of meat and £10 of bread, whilst the tailor now consumes £10 of bread.
The only way in which Marx's conclusion would follow would be this. The butcher consumes £30 of bread, £20 of meat and £10 of clothes. The baker consumes £30 of meat and £20 of bread, but buys an additional £10, of meat, which they use as capital for pie filling etc. The butcher then buys £10 of clothes, and the tailor buys £10 of bread, pies and so on.
The £10, which the baker gave to the butcher for meat, as raw material, thereby flows back, via the tailor not as revenue, but to replace this capital. The butcher then produces £50 of new value, as before, all of which is consumed as revenue. The tailor produces at least £10 of new value, consumed as revenue. The baker also creates £50 of new value, consumed as revenue, but the total value of their production rises to £60, because it now includes £10 of constant capital, in the shape of meat bought from the butcher, for pie filling. In other words, there is an exchange here between the revenue of the butcher, and the capital of the baker.
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