Of course, the farmer uses other constant capital besides seeds. They use fertiliser, which they may also obtain from their own production, like seeds, or they may buy it from a supplier; they use machinery, which they buy from a machinery producer, and so on. But, the fertiliser producer does not produce it just by labour either. They too use constant capital in their production. The machinery producer, who produces machines used by the fertiliser producer and farmer, does not produce machines from labour alone. They also use constant capital, and some of it is in the form of machines, so that, in the same way that the farmer has to set aside some of their output not as revenue, but simply to replace capital (seeds), so the machinery producer sets aside some of their own output to replace the machines they wear out in their own production of machines. The same applies to all those producers who supply the machine maker, the fertiliser producer and so on.
Take a coal producer, for example, who produces coal to be used in the production of steel used to produce steam engines, produced by the machine maker, and used by the farmer, fertiliser producer and so on, as well as used to provide energy to those engines when produced. The coal producer themselves uses a steam engine, which requires coal to fuel it. So, a part of the coal produced by the coal producer is also not sold, does not produce a revenue for them, but is itself used to replace the coal used to fuel the steam engines required to produce the coal. The same is true of steel producers, and so on.
So, its quite clear that the value of total output, just as with the value of individual commodities cannot resolve entirely into revenues, i.e. into the new value added by labour, (v + s), but must also always resolve into c + v + s. If we take the farmer, the matter cannot be resolved by assuming that they buy seeds from a seed stockist, because, again, that is just another passing from Pontius to Pilate. The seed stockist does not magic seeds from thin air, or solely by the expenditure of labour. They must, themselves, buy the seeds from grain suppliers, i.e. farmers. So, essentially, the value that the farmer obtains by selling all of their output of grain, including that sold to seed stockists, is then reduced, by the amount they must expend to buy the seed back again! It cancels out, and this is the point that Marx also makes about the fact that it does not matter whether the producers of means of production replace their consumed means of production themselves, in kind, from their own production, as a farmer does in saving seed, a coal producer does by taking out some of their coal, or the machine maker does by replacing their own machines from their own output, or whether they replace their consumed means of production, on a like for like basis, by exchange with other producers of means of production.
As Marx puts it, if we take all producers of means of production, and consider them as one big single producer, that one producer would not sell all of its output to Department II, but would replace, in kind, its own means of production, directly out of its own production. It would form a revenue for no one. It would not be bought out of revenue, or consumed out of revenue, but would be bought out of capital. The net result is that Department I (producers of means of production) as a whole, replace their own means of production, in kind, and this portion of total output forms a revenue for no one. It does not appear as intermediate production, nor does it appear as revenues, because it is bought out of capital, not revenue.
The category “intermediate production”, which some economists categorise as constant capital, is, in fact, as Marx demonstrates in Capital Vol II, and in Theories of Surplus Value, only equal to the revenues produced in Department I. In terms of value, it contains not one penny of constant capital. Department I supplies Department II with means of production, but this amounts only to a fraction of Department I output. A large and growing portion of Department I output goes simply to replace, in kind, the means of production consumed in Department I itself, in the same way that the farmer replaces their seed from their own output, and, as productivity rises, a growing portion of the farmer's output goes to replacing an increasing quantity of seed, as more is planted, and less goes to revenues. This is the material basis of Marx's Law of The Tendency for the Rate of Profit to Fall, as c, the replaced raw materials, continually increases in volume relative to revenues, including profit.
The portion of Department I output sold to Department II, is then only equal to v + s, with c being used solely to replace its own consumed means of production. The form of the commodities sold to Department II, of course is that of constant capital (means of production), because that is what Department I produces. It is simply a manifestation of the fact that what appears as capital for one is revenue for another. The value of “intermediate production”, is then only equal to the value of Department I revenues (assuming simple reproduction, rather than expanded reproduction). The value of the intermediate production sold by Department I producers to Department II, legitimately shows up as revenues, as added value, because that is exactly what it is. It is value added by Department I labour to the value of the constant capital consumed in Department I itself. So, if Department I's production function is C4,000 + V1,000 + S1,000 = 6,000, it only sells 2,000 to Department II as intermediate production. It takes 4,000 of its own production out directly to reproduce its own consumption of means of production, and this then forms a revenue for no one.
Physically, the “intermediate production” sold to Department II looks like constant capital, because it does, indeed, form a part of the constant capital of Department II, and reproduces the means of production it consumes. But, in reality, in terms of value, it contains not one iota of constant capital, and is comprised entirely of revenues, of new value added by Department I labour. Department I workers and capitalists exchange this output with Department II, because Department I workers and capitalists require consumption goods, which they consume with their revenues obtained in exchange for the supply of means of production.
As Marx sets out, therefore, GDP, is not a measure of total output value, but only of society's consumption fund.
“The consumers of the shirts pay these £100, i.e., the value of all the means of production contained in the shirts, and of the wages plus surplus-value of the flax-grower, spinner, weaver, bleacher, shirt manufacturer, and all carriers. This is absolutely correct. Indeed, every child can see that. But then it says: that’s how matters stand with regard to the value of all other commodities. It should say: That’s how matters stand with regard to the value of all articles of consumption, with regard to the value of that portion of the social product which passes into the consumption-fund, i.e., with regard to that portion of the value of the social product which can be expended as revenue.”
(Capital II, Chapter 20, p 439)
It is equal to National Income only insofar as this income is used to buy consumption goods; it is equal to National Expenditure, only insofar as National Expenditure is considered as expenditure from revenues. But, a large and growing portion of total output and of total expenditure neither resolves into revenues, nor is bought out of revenues, but is merely a transfer of the value of constant capital consumed in the production of means of production, and bought not out of revenues but out of capital. Assuming, as Marx does, that the basis of valuation and calculation is the current value of commodities, and not their historic prices, the value contributed to total output by this constant capital, and the value taken out of production to replace it is the same.
“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...
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.”
(Capital III, Chapter 49)
Indeed, this is the definition of it being constant capital, i.e. it produces no more and no less value than it itself possesses. As Marx sets out in Theories of Surplus Value, Chapter 22, the use of historic prices in this regard leads to confusion, because the rise in productivity, means that the value of the constant capital falls, relative to its historic price. If output is sold at prices reflecting that historic price, i.e. before the fall in the value of the constant capital occurs, then a smaller portion of the value of output will be required to physically replace the constant capital. The profit will, therefore, appear to be larger, because a portion of capital is released to be converted to revenue. The illusion is created that the profit has increased, even though the surplus value has not, which led Ramsay to the false conclusion that constant capital could also produce surplus value/profit, which, were it true, would undermine the labour theory of value itself. This is also the inevitable consequence of the use of historic prices rather than current reproduction costs as the basis for the calculation of the rate of profit. It confuses capital gains with profits, and vice versa.
As Marx points out, for any, new money-capital employed, be it new money-capital invested by existing producers, out of their profits, or new money-capital employed by new producers, this illusion of additional profit, does not exist. It simply appears to them that they have to advance less capital to engage in production. What does continue for them, however, is the fact that the rate of profit has risen, as a result of this very fact, that the value of constant capital has fallen. The most obvious manifestation of this is with falls in the value of fixed capital, as Marx also sets out in Theories of Surplus Value, Chapter 23. But as a result of capital accumulation, and rising social productivity that goes along with this capital accumulation, this part of total output, i.e. the part that is simply reproduced as constant capital continually expands relative to the consumption, to revenues.
Keynes elides this fact, by conflating net investment (capital accumulation) with this simple replacement of the value of constant capital. Capital accumulation undoubtedly arises out of revenues, in other words, a portion of current income is saved – the biggest component of this saving is realised profit itself – rather than being consumed. Again, Keynes elides the fact that this is “forced saving” by workers, whose own consumption is reduced by an amount equal to the surplus value appropriated from their labour, by capital. Correspondingly, a portion of social output is currently devoted to increased production of means of production, which enables this capital accumulation to physically occur. But, this relates only to the additional capital accumulated, it does not relate to the capital reproduced, which is replaced not out of surplus value, or savings, but out of the value of current output itself, just as it contributes to the value of that current output. The capital accumulated out of surplus value, this year, is not reproduced out of next year's surplus value, but out of next year's output value itself, to which that capital contributed an equal amount. Otherwise, for capital accumulation to occur at all, the amount of surplus value would have to continually increase, by an increasing amount.
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