Keynes recognises the existence of saving, and introduces the concept of the marginal propensity to consume, which, he says, is always less than 1, meaning that there is always an element of saving, but he restores equilibrium, by then equating this saving with investment. In other words National Income, Y, divides into spending and saving, whilst spending itself divides into consumption, C, plus investment, I. Thereby, supply creates its own demand, income equals expenditure, Y = C + I.
This, of course, still does not account for the value of constant capital consumed in production, which forms a revenue for no one. By an almost sleight of hand, it conflates that element with investment. That solution itself was not new, and was dealt with by Marx in Capital.
Indeed, some “Marxist” economists, in practice, accept this dogma, because they do not understand the concepts set out by Marx, in relation to the consumption of constant capital in production. They take the element of means of production consumed in production, indicated by what is called “intermediate production” in the national accounts, as representing this element of constant capital, or “c” in the value of output. But, it isn't. Marx shows in Capital II, that this intermediate production, i.e. the value of constant capital supplied by producers of means of production to the producers of final output, consumption goods, contains not one penny of value of constant capital. It contains only the value of new labour, i.e. revenue. Indeed, its for that reason that it can legitimately be included in the GDP figures, which are only a measure of added value, by labour.
The value of constant capital, in the value of total output, is, as Marx shows, equal to the value of constant capital consumed in the production of means of production, and this appears nowhere in the national accounts, and could not do, because it does not produce a revenue for anyone, and nor is it bought from revenue. If it appeared in the figure for the value of total output, then total output value would diverge from total revenues by this amount, undermining the basic tenet of orthodox economics that the value of output resolves entirely into revenues, and provides the basis for the concept of general equilibrium, that supply creates its own demand.
“Adam Smith, however, has promulgated this astounding dogma, which is believed to this day, not only in the previously mentioned form, according to which the entire value of the social product resolves itself into revenue, into wages plus surplus-value, or, as he expresses it, into wages plus profit (interest) plus ground-rent, but also in the still more popular form, according to which the consumers must “ultimately” pay to the producers the entire value of the product. This is to this day one of the best-established commonplaces, or rather eternal truths, of the so-called science of political economy.”
(Capital II, Chapter 20, p 438)
Adam Smith argued that the value of commodities resolves entirely into revenues, but then had to recognise that the value of, say, a loaf of bread does not resolve entirely into the wages of the bakery workers, the profits of the capitalist baker, or the rent of the baker's landlord, or the interest of the money-capitalist who loaned money-capital to the baker. It also consists of the flour and other materials used by the baker, along with the value of the wear and tear of the baker's ovens and other equipment. The value of the bread is comprised of the total of all these values, both the added value by labour (v + s), and the value of the constant capital, (c), contained in the flour, materials, and machinery etc. The baker cannot dispense all of the value of the bread as revenues, because if they did, they would have nothing left over to be able to again buy flour, or to replace their machines when they wear out.
Smith recognised this contradiction, but resolved it by saying that matters are different when the value of total output is concerned rather than of individual commodities. His argument amounts to saying that, the value of the flour bought by the baker then resolves entirely into revenues, as does the value of the machinery and so on. But, Marx points out that this is clearly not true, because the value of the flour does not just resolve into revenues either. It resolves into the value added, but also into the value of the grain processed by the miller, and the value of the machinery used by the miller to process the grain. Smith's solution, Marx says, simply sends us from pillar to post, in an unending search for some commodity that contains only labour and no constant capital. It doesn't exist. As Marx says, even Smith's example of the Scottish pebble collectors does not stand up, in that regard, because they used baskets in which to collect the pebbles.
“"In every society the price of every commodity finally resolves itself into some one or other, or all of those three parts [viz., wages, profits, rent] ... A fourth part, it may perhaps be thought, is necessary for replacing the stock of the farmer or for compensating the wear and tear of his labouring cattle, and other instruments of husbandry. But it must be considered that the price of any instrument of husbandry, such as a labouring horse, is itself made up of the same three parts: the rent of the land upon which he is reared, the labour of tending and rearing him, and the profits of the farmer, who advances both the rent of his land and the wages of his labour. Though the price of the corn, therefore, may pay the price as well as the maintenance of the horse, the whole price still resolves itself either immediately or ultimately into the same three parts of rent, labour [meaning wages] and profit." (Adam Smith.) — We shall show later on how Adam Smith himself feels the inconsistency and insufficiency of this subterfuge, for it is nothing but a subterfuge on his part to send us from Pontius to Pilate while nowhere does he indicate the real investment of capital, in which case the price of the product resolves itself ultimately into these three parts, without any further progressus.”
(Capital III, Chapter 49, Note 52, p 842)
In other words, if we follow the example of the bread backwards, we reach the farmer and their production of grain. But, the value of the grain does not consist just of the value added by labour. Even if we ignore the value of fertilisers, machinery and so on, the value of the grain includes the value of the seed required for its production. The farmer provided the seed from their previous year's output of grain. The value of this seed undoubtedly then forms a part of their current year's output of grain. But, it forms no revenue/income for anyone, because, in order to continue production on the same scale, the farmer must, replace the seed consumed, and so must take this quantity of grain out of their current year's output simply for that purpose. They do not sell this quantity of grain to the miller, and so obtain no income for it, and so also cannot consume any amount equal in value to it. Nor can this be resolved by the subterfuge that the farmer sells the seed to themselves, because, were that the case, it would equally be true that they must buy it from themselves to plant it, so that again it represents no revenue. The value of the seed does not produce a revenue for anyone, and its replacement is not bought out of revenue, but is bought out of capital.
Of course, in theory, the farmer could sell all of their grain, and obtain an income for it, and then use this income to consume, but if they do, they cease being a farmer, and certainly cease being a capitalist, because having done so, they now have no seed to plant the following year, and so cannot produce. They would have literally consumed their seed-corn. But, in terms of the economy overall, whatever any individual producer might do, it is based upon ongoing production.
The only variant that applies, here, as Marx sets out, is where there is a change in productivity. If productivity rises, so that this year, the farmer produces far more grain, having used a given amount of seed, land, labour and capital, the value of the seed itself will have fallen. So, the farmer can replace the given quantity of seed at less cost than would formerly have been the case. If previously, they used 10k of seeds, and produced 100k of grain, the seed constituted 10% of output. If now output rises to 200k of grain, they still only need to replace 10k as seeds, which now represents only 5% of output. So, the value of their advanced capital falls, and their rate of profit rises. This is why Marx bases his calculation of the rate of profit on current reproduction cost, rather than historic prices.
But, also, as Marx demonstrates, in Theories of Surplus Value, Chapter 22, the other effect is that capital is released equal to the fall in value of the seed – here the equivalent of 5k of seeds is released. An amount of value that the farmer would previously have had to set aside to reproduce seed, constant capital, is now released, and this creates an illusion that more profit itself has been created, whereas all that has happened is that capital is converted to revenue, the same as if the farmer had shut up shop, and was then able to sell all of their output. However, to put that latter case in perspective, if the individual farmer shuts up shop, and converts their capital to revenue, we might well expect that someone else takes over their farm, and in order to do so must convert their own revenue to capital. In other words, they must reduce their own consumption in order to convert the revenue they would have expended on it to capital, purchase of the farm.
No comments:
Post a Comment