But, these arguments are based on several misunderstanding of what Marx actually says, both in Capital, and more specifically, in Theories of Surplus Value. And, what Marx actually says, also demonstrates what is wrong with Sismondi's argument, and its adoption by the Narodniks and other modern day catastrophists. Sismondi followed Adam Smith in his “absurd dogma” that reduced the value of commodities to revenues. That dogma was followed by all the economists that followed Smith, except Marx, and, to an extent, Ramsay and Richard Jones. It is the same absurdity that is taught to students of orthodox economics down to today, i.e. that the value of commodities, and so of national output, resolves into wages, profits, interest, rent and taxes, i.e. into factor incomes.
Its on this basis that Keynes formulates his theory, which starts from this false assumption that the value of national output is equal to the value of national income, and similarly that the value of national income equals the value of national expenditure. The assumption is wrong, because the value GDP is equal only to v + s, i.e. only to the new value created by labour during the year. However, the value of output is equal to c + v + s, and the value of c, here, represents an income for no one. This value of c (constant capital) is the value of materials consumed in production, as well as the wear and tear of fixed capital (which has to be distinguished from depreciation).
The value of all those things produced in previous years is simply transferred into the value of current production. It does not form a revenue for anyone, and its replacement, required so that production can continue on the same scale, is not bought from revenue either. Rather, this value, required for reproduction, is simply realised in the value of total output, and, thereby, provides the fund for its own reproduction out of capital. All of the commodities that comprise c, the raw and auxiliary materials, the wear and tear of fixed capital, are bought out of capital, not out of revenue. Indeed, the value of c transferred to the output value must tautologically be the same as the value of c reproduced out of the output or else it would not be “constant” capital. It would be capital that either adds to or detracts from the new value created, meaning that labour was no longer the only source of new value, and so surplus value. It would mean the end of the labour theory of value. As Marx sets out in Theories of Surplus Value, this was the error that Ramsay fell into as a result of using historic prices rather than values.
Ramsay takes the historic price paid for inputs as the basis for the calculation of profit and rate of profit, but as Marx shows, if the value of these inputs changes, this necessarily leads to false conclusions about both the mass of surplus value, rate of surplus value, and rate of profit. Ramsay confuses capital gains/losses with surplus value, and confuses releases of capital with profit, and vice versa. If the value of inputs fall, compared to historic price, this leads to a release of capital that creates the illusion of additional profit, but as Marx points out, the labour theory of value says that additional profit can only be created by additional surplus value. If, in fact, the amount of new value created, and the amount of surplus value created by labour remains the same, this would necessitate the conclusion that this additional value, and surplus value had been created, not by labour, but by the constant capital itself, thereby destroying the labour theory of value.
“In other words, therefore, the rate of profit depends on the excess of the value of the product over the sum of circulating and fixed capital; hence on the proportion which, firstly, the circulating capital, and, secondly, the fixed capital bear to the value of the whole produce. If we know where this surplus comes from, then the whole matter is very simple. But if we only know that the profit depends on the ratio of the surplus to these outlays, then we can acquire the most inaccurate notions about the origin of this surplus, for example we can, like Ramsay, imagine that it originates in part in fixed (constant) capital.”
(Theories of Surplus Value, Chapter 21)
The physical commodities, the materials and elements of constant capital, are simply a component of this year's current production, and, thereby, replaced out of it, but they form no part of GDP, no part of society's consumption fund, no part of society's revenues, no part of National Income. It is only out of revenues that consumption is funded, i.e. out of v + s, the new value created by labour during the year, equal to GDP. Out of that also arises that part which is set aside not for consumption, but for saving, for productive consumption via the accumulation of capital, or what Keynes calls net investment.
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