The fact that the rate of interest, rent or profit may move up or down does not invalidate this theory, any more than that the price of any commodity can move up or down, from its equilibrium price. It only signifies fluctuations in supply and demand. In this way, all explanation of prices, be it of commodities, or as revenues, is removed from the realm of production into the realm of distribution and competition.
“Thus land, capital and labour on the one hand—insofar as they are the sources of rent, interest and wages and these are the constituent elements of commodity prices—appear as the elements which create value, and on the other hand, insofar as they accrue to the owner of each of these means for the production of value, i.e., insofar as he derives the portion of the value created by them, they appear as sources of revenue, and rent, interest and wages appear as forms of distribution. (As we shall see later, it is the result of stupidity that the vulgarians, as opposed to critical economy, in fact regard forms of distribution simply as different aspects of forms of production whereas the critical economists separate them and fail to recognise their identity.)” (p 499)
Interest-bearing capital plays no part in production, and so contributes no additional value in production. Yet, the owner of interest-bearing capital does obtain a revenue – interest – and so the capital itself must be a source of value.
“In interest-bearing capital, capital appears to be the independent source of value or surplus-value it possesses as money or as commodities. And it is indeed this source in itself, in its material aspect. It must of course enter into the production process in order to realise this faculty; but so must land and labour.” (p 499)
But, for the owner of interest-bearing capital, it does not appear that this capital must enter into the production process, and this appearance is facilitated by the previous existence of this form of capital as usurer's capital. Indeed, under capitalism, the owner of interest-bearing capital obtains interest, whether they lend money to a spendthrift aristocrat, to an individual capitalist, or, as a payday lender, to a worker to sustain their consumption. Indeed, its that which leads Adam Smith, to view interest as a secondary revenue derivative from the revenues of rent and profit.
“One can therefore understand why the vulgar economists prefer [the formula]: land—rent; capital—interest; labour—wages, to that used by Smith and others for the elements of price (or rather for the parts into which it can be broken down) and where [the relation] capital—profit figures, just as on the whole the capital relation as such is expressed in this form by all the classical economists. The concept of profit still contains the inconvenient connection with the [production] process, and the real nature of surplus-value and of capitalist production, in contra-distinction to their appearance, is still more or less recognisable. This connection is severed when interest is presented as the intrinsic product of capital and the other part of surplus-value, industrial profit, consequently disappears entirely and is relegated to the category of wages.” (p 499-500)
Classical economics looks past the outward appearance of the different forms of revenue, and seeks to discover their inner unity. It identifies labour as the creator of value, and, thereby, identifies the source of rent, profit and interest as surplus value. Vulgar economy starts from the superficial appearance of the different revenues, and the apparent source of each revenue in the respective factors of production. It fails to address the question of how each of these factors of production actually produces new value, which is the basis of the revenue paid to its owner.
Classical economy,
“... therefore reduces rent to surplus profit, so that it ceases to be a specific, separate form and is divorced from its apparent source, the land. It likewise divests interest of its independent form and shows that it is a part of profit. In this way it reduces all types of revenue and all independent forms and titles under cover of which the non-workers receive a portion of the value of commodities, to the single form of profit.” (p 500)
It often finds itself in contradictions, because it skips intermediate stages of analysis, reducing all of these revenues to a single source. It sometimes associates surplus value with profit, and so on.
“This is however a necessary consequence of its analytical method, with which criticism and understanding must begin.” (p 500)
But, the greatest weakness is its failure to identify capitalism a merely an historical, rather than natural, form of social production.
“the analysis carried out by the classical economists themselves nevertheless paves the way for the refutation of this conception.” (p 501)
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