Sismondi did not advance beyond Smith, whose labour theory of value, and division into revenues he took over.
“But he tried to link up this division of the newly-created product into surplus-value and wages with the theory of the social revenue, the home market and the realisation of the product in capitalist-society. These attempts are extremely important for an appraisal of Sismondi’s scientific significance, and for an understanding of the connection between his doctrine and that of the Russian Narodniks.” (p 141)
At the start of his work, Sismondi devotes three chapters to the analysis of revenue. In Chapter IV “How Revenue Originates From Capital”, he deals with the distinction between capital and revenue, and, from the start, examines this from the perspective of society. Repeating Smith's error that output equals revenue, he says,
“... what is produced by all must be consumed by all...” (p 141)
Sismondi recognises that the difference between capital and revenue is material for society, but Lenin says, he seems also to sense that this material difference for society is not as simple as it is for the individual entrepreneur.
““We are approaching,” he makes the reservation, “the most abstract and most difficult problem of political economy. The nature of capital and that of revenue are constantly interwoven in our minds: we see that what is revenue for one becomes capital for another, and the same object, in passing from hand to hand, successively acquires different names” (I, 84), i.e., is called “capital” at one moment and “revenue” at another.” (p 141)
It is ruinous to confuse them, says Sismondi, correctly, but, as he approaches the study, he notes that is “as important as it is difficult”, and never then actually resolves the problem he identified. That problem has been set out earlier. Lenin describes it as follows.
“... if the revenue of the individual entrepreneur is his profit, which he spends on various kinds of articles of consumption, and if the revenue of the individual worker is his wages, can these two forms of revenue be added together to form the “revenue of society”? What, then, about those capitalists and workers who produce machines, for example? Their product exists in a form that cannot be consumed (i.e., consumed personally). It cannot be added to articles of consumption. These products are meant to serve as capital. Hence, while being the revenue of their producers (that is, that part which is the source of profit and wages) they become the capital of their purchasers. How can we straighten out this confusion, which prevents us from defining the concept of social revenue?” (p 142)
In fact, as Marx describes in Theories of Surplus Value, there are several issues, here. Let us take an economy consisting of a farmer, miller and baker. The output of the baker constitutes final output, or the consumption fund. The farmer uses seed with a value of £1,000, labour adds £200 of new value, which is divided into £100 wages, and £100 profit. So, the value of their output is £1,200. However, their sales amount to only £200, because £1,000 of their output cannot be resolved into revenue, because it consists of the value of constant capital (seed). They cannot consume this £1,000, because it must go to replace their consumed seed, as Marx puts in in Capital III, Chapter 49, “on a like for like basis”, i.e. the physical seed must be replaced by an equal amount of seed. This £1,000 of value contained in their total output is not revenue, and is not equal to any new value created this year, but is capital, and its value is comprised of labour undertaken in previous year's, i.e. of congealed labour. If the farmer wants to stay in production, they cannot sell or consume this grain as revenue, but must set it aside as capital to replace on a like for like basis the capital (seed) consumed in production. It is consumed productively, i.e. as capital, not revenue, and it is bought out of capital not revenue.
The farmer sells £200 of grain to the miller, and this £200 is revenue, which they divide into £100 wages and £100 profit. For the miller, this £200 of revenue (for the farmer) appears as constant capital, and, in the same way that the farmer cannot consume the £1,000 value of seed, as revenue, so too the miller cannot consume the £200 value of grain as revenue, as it is realised in the value of their output of flour, because they must replace this consumed grain, on a like for like basis, if they are to continue as a miller. The miller adds £200 of new value to the grain, as they turn it into flour. It is only this £200 of new value that constitutes revenue for them, and it is divided into £100 of wages, and £100 of profit. The value of their output is then £400, and they sell this to the baker.
For the baker the £400 of flour appears as constant capital. But, its value comprises the £200 of revenue for the farmer, and the £200 of revenue for the miller. Despite its appearance as constant capital, it contains not one penny of value of constant capital. The baker turns the flour into bread, and adds £200 of new value by their labour, which divides again into £100 wages and £100 profit. But, again, it is only this £200 of value that constitutes revenue for them, it is only this £200 that they can spend on consumption, because out of the total output value of £600 for bread, they must set aside, £400 to replace “on a like for like basis” the flour they have consumed in production, just as the miller had to set aside £200 to replace grain, and the farmer had to set aside £1,000 to replace seed.
If we translate this into the language of GDP data, the £200 of grain sold to the miller is accounted for as “intermediate production”. Its value is reflected in the £200 of incomes that appear in National Income data, as £100 of wages, and £100 of profits. Similarly, this £200 value of grain is deducted from the value of the miller's output, so that all that is left is the value added by labour at this stage of production. This value of flour, as “intermediate production”, then appears as £200, and this is also reflected in the National Income data as £100 wages and £100 profits. Finally, this £400 value of flour is deducted from the value of output of the baker, so that all that appears is their value added of £200, and this is also reflected in the National Income figures as £100 wages and £100 profits.
The GDP figure for output is, then, shown as £200 grain, £200 flour, £200 bread = £600. In the National Income figures, we see Wages £300 (£100 farmer, £100 miller, £100 baker), profits £300 (£100 farmer, £100 miller, £100 baker), so that National Income = GDP = £600. The requirements of Smith's absurd dogma, and of Say's Law that supply creates its own demand, are satisfied, and general equilibrium is maintained. Except, of course, that the value of output is not £600, but £1,600, because what is missing in all of these figures is the £1,000 of value of seeds that went into the £1,200 of output value of the farmer, and which formed a revenue for no one, and was instead replaced on a like for like basis out of capital, not revenue. In other words, what is missing is the actual £1,000 of constant capital consumed in production.
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