The value of national output, like the value of the commodity resolves into c + v + s – constant capital, variable-capital, and surplus value. It comprises two components – capital and revenue. In this context, capital means the value (current reproduction cost) of the means of production consumed in production, which must be replaced, on a like for like basis, out of current production, and revenue is comprised of the new value created by labour in production, which is then resolved into wages, profits, rent, interest and taxes.
“Thus, the value of the annual commodity-product, just like the value of the commodity-product produced by some particular investment of capital, and like the value of any individual commodity, resolves itself into two component parts: A, which replaces the value of the advanced constant capital, and B, which is represented in the form of revenue — wages, profit and rent. The latter component part of value, B, is counterposed to the former A, in so far as A, under otherwise equal circumstances: 1) never assumes the form of revenue and 2) always flows back in the form of capital, and indeed constant capital. The other component, B, however, carries within itself, in turn, an antithesis. Profit and rent have this in common with wages: all three are forms of revenue. Nevertheless they differ essentially in that profit and rent represent surplus-value, i.e., unpaid labour, whereas wages represent paid labour. The portion of the value of the product which represents wages expended thus replaces wages, and, under the conditions assumed by us, where reproduction takes place on the same scale and under the same conditions, is again reconverted into wages, flows back first as variable capital, as a component of the capital that must be advanced anew for reproduction.”
(Capital III, Chapter 49)
The capital component comprises the value of constant capital consumed in current production, including the value of the wear and tear of fixed capital. The revenue component comprises v + s, which is equal to the new value created by labour in production. A portion of this new value, v, has to be handed back to workers to cover the value of their labour-power, i.e. to enable them to consume all of the wage goods required for their reproduction. The remaining portion of this newly created value, s, is initially appropriated as profits by the industrial capitalist, before being divided into rent, interest, taxes and profit of enterprise. The total of this v + s, for the economy, is equal to National Income, or society's consumption fund, which, as Marx sets out in Capital II, Capital III, and Theories of Surplus Value, is quite clearly different from National Output, contrary to what Adam Smith had argued, and which orthodox economics has continued to believe ever since.
The value of the national output is equal to the labour-time required for its reproduction. In other words, the value of the consumed constant capital, and wear and tear of fixed capital, is equal to the labour-time required for its reproduction, its current reproduction cost. The new value created in the labour process, which transforms this constant capital into final output, is equal to the actual labour-time expended in current production. The value of the labour-power, or alternatively of the variable-capital, which must be reproduced out of this new value, is itself equal to the labour-time required for its reproduction. In other words, if wage goods become cheaper, due to a rise in social productivity, this does not change the amount of new value created by labour (v + s), but it does reduce the value of v, so that s, must then rise.
The constant capital comprises a certain quantity of means of production. For example, in linen production, a certain quantity of flax is spun into yarn, and the yarn then woven into cloth. For production to continue on the same scale, this quantity of flax must again be bought, and processed into yarn, and then into linen. If the level of technology is given, to process the flax into yarn, and then into cloth, requires a given quantity of labour. The relation between the physical quantity of flax, and the physical quantity of labour required to process it is called the technical composition of capital. It is important, as Marx sets out in Capital I, because it is this technical composition of capital that is the basis of the organic composition of capital. It is important, because the technical composition of capital determines how much labour is employed, and, assuming the rate of surplus value remains constant, the amount of labour employed determines how much surplus value is produced. It is the basis for determining the extent of the self-expansion of capital, but also because it determines the mass of labour employed, also thereby determines how much the capital relation itself can be expanded, via the process of accumulation, and the employment of additional labour.
As Marx sets out in Capital III, Chapter 49, if social productivity remains constant, then social reproduction requires that the physical mass of means of production are reproduced "on a like for like basis", and given this mass of means of production, with a given technical composition of capital, that requires the reproduction of the given mass of labour to process it, which requires also that the wage goods required to reproduce that labour-power are reproduced. The reproduction of the physical commodities that comprise the constant capital and the variable-capital is done out of the physical mass of current production, with the remainder comprising the surplus product. If social productivity remains constant, then the labour-time required for the production of these components also remains constant, so that their value also remains constant, and the proportional relations between those values.
“... if we leave aside that portion of constant capital which did not pass over into the product, and which therefore continues to exist, although with reduced value, as before the annual production of commodities; in other words, temporarily leaving out of consideration the employed, but not consumed, fixed capital, then the constant portion of advanced capital is seen to have been wholly transferred to the new product in the form of raw and auxiliary materials, whereas a part of the means of labour has been wholly consumed and another part only partially, and thus only a part of its value has been consumed in production. This entire portion of constant capital consumed in production must be replaced in kind. Assuming all other circumstances, particularly the productive power of labour, to remain unchanged, this portion requires the same amount of labour for its replacement as before, i.e., it must be replaced by an equivalent value. If not, then reproduction itself cannot take place on the former scale.”
And later in the chapter,
“In so far as reproduction obtains on the same scale, every consumed element of constant capital must be replaced in kind by a new specimen of the same kind, if not in quantity and form, then at least in effectiveness. If the productiveness of labour remains the same, then this replacement in kind implies replacing the same value which the constant capital had in its old form. But should the productiveness of labour increase, so that the same material elements may be reproduced with less labour, then a smaller portion of the value of the product can completely replace the constant part in kind. The excess may then be employed to form new additional capital or a larger portion of the product may be given the form of articles of consumption, or the surplus-labour may be reduced. On the other hand, should the productiveness of labour decrease, then a larger portion of the product must be used for the replacement of the former capital, and the surplus-product decreases.”
This is the basis for either the tie-up of capital, where social productivity falls, and more current labour-time/production must be consumed to physically replace the consumed capital (revenue has to be used to reproduce capital), or conversely a release of capital, where social productivity rises, and a portion of current production/labour-time that previously would have been required for the physical reproduction of capital, is now released and can be used as revenue.
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