Because Mill, like Ricardo and Smith, does not distinguish between labour and labour-power, it leads him into inescapable contradictions. It means that he ends up with different valuations for different kilos of corn simultaneously. A similar problem is encountered by proponents of historic pricing, as opposed to Marx's method of determining the value of commodities – including those that comprise the constant and variable-capital – on the basis of their current reproduction cost. For Mill, he simultaneously values a kilo of corn as being half a day, i.e. 120 kilos is the product of 60 days labour, and being two-thirds of a day, i.e. 60 kilos being the product of 40 days labour.
This is the inevitable consequence of failing to distinguish between labour and labour-power, because Mill is led to determine the value of labour in terms of the value of its product, but then, if that is the value of labour, it also determines what must be paid in wages. In that case, surplus value is impossible, because wages must equal the value of the product of labour, and profits can again only be explained in terms of some kind of profit on alienation.
“The 40 men work 40 working-days because they receive 40 quarters. A quarter is therefore the product of one working-day. The product of 40 working-days is consequently 40 quarters, and not a bushel more. Where, then, do the 20 quarters which make up the profit come from? The old delusion of profit upon alienation, of a merely nominal price increase on the product over and above its value, is behind all this. But here it is quite absurd and impossible, because the value is not represented in money but in a part of the product itself. Nothing is easier than to imagine that—if 40 quarters of grain are the product of 40 workers,- each one of whom receives one quarter per day or per year, they therefore receive the whole of their product as wages, and if one quarter of grain in terms of money is £3, 40 quarters are therefore £120—the capitalist sells these 40 quarters for £180 and makes £60, i.e., 50 per cent profit, equal to 20 quarters. But this notion is reduced to absurdity if out of 40 quarters—which have been produced in 40 working-days and for which he pays 40 quarters—the capitalist sells 60 quarters. He has in his possession only 40 quarters, but he sells 60 quarters, 20 quarters more than he has to sell.” (p 201)
Mill arrives at his solution by making a number of assumptions that guarantee his conclusion. Firstly, he assumes away the basis of the problem that confronts him, by assuming away constant capital. That is he assumes away the need of the producer of constant capital to consume constant capital themselves. In other words, as with the measurement of GDP, he assumes away Department I (c), including as constant capital only Department I (v + s) = Department II (c), i.e. the value added by labour in intermediate production. This error flows from Adam Smith's “absurd dogma”, and is perpetuated by economists down to today, including in their calculations of rates of profit for economies.
Mill, unlike Ricardo, is forced to recognise that the rate of profit must be calculated on the total capital advanced, constant and variable, and assumes this to be the case, even though he has, in fact, assumed away the constant capital. Mill assumes that a capitalist who only produces 40 kilos of grain can sell 60 kilos of grain (or its value), because he sells it to another capitalist, as means of production, and this other capitalist then makes a 50% profit on these 60 kilos.
“This latter absurdity resolves itself into the notion of profit upon alienation, which appears here so absurd only because the profit is supposed to stem not from the nominal value expressed in money, but from a part of the product which has been sold. Thus, Mr. Mill, in seeking to defend Ricardo, has abandoned his basic concepts and fallen far behind Ricardo, Adam Smith and the Physiocrats.” (p 201-2)
The proponents of historic pricing end up with similarly absurd results, whereby a kilo of corn as a commodity, as an output, has an exchange-value of say £1, determined by its current reproduction cost, but a kilo of corn, used as seed, i.e. constant capital, used in the current production of corn, simultaneously has a value of say, £2, which was the historic price that the farmer paid for it, at the time it was planted!
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