IV - Wherein Lies the Error of Adam Smith’s and Sismondi’s Theories of National Revenue?
Lenin sets out the origin of Sismondi's error in relation to the equation of production with revenues, as his adoption of Smith's “absurd dogma” that the value of output resolves entirely into revenues. Again, Lenin's own formulation is not right. He says,
“... according to the theory which deduces value from labour, the value of a product consists of three components: the part which replaces the raw materials and instruments of labour (constant capital), the part which replaces wages, or the maintenance of the workers (variable capital), and “surplus-value” (Sismondi calls it mieux-value). Such is the analysis of the individual product in terms of value made by Adam Smith and repeated by Sismondi.” (p 151)
In fact, as Marx points out, this is one formulation used by Smith, but he also uses another. This other is the one he initially uses, and is also used by Marx. In this other formulation, the value of a commodity is determined by the labour-time required for its re/production, and this labour consists of two types – dead or congealed labour (constant capital) and living labour, i.e. the labour undertaken to process the constant capital. The reason this is important, in distinction to the formulation given by Lenin, is that this formulation, used by Lenin, is what leads Smith into his cost of production theory of value, as opposed to the labour theory of value he began with. The value of a commodity is not determined by its components – constant capital, variable-capital, surplus value – (cost of production), c + v + s, but by the labour-time required for its re/production. Only when this is determined can it then be resolved into these component parts.
So, for example, if the value of the constant capital rises, this is reflected in the value of the commodity, because it represents an increase in the labour-time required for its re/production. If, however, the value of the variable-capital rises, this does not involve an increase in the value of the commodity. There has been no change in the amount of labour required for its production. It is only the value of labour-power that has changed. Consequently, the value of the commodity does not change, but the proportions into which it is then resolved into these components does. A greater proportion of its value must now be resolved into variable-capital, which means a smaller proportion is resolved into surplus value.
This, however, is not the main issue, here, which is how the value of the commodity, which resolves into c + v + s, can be consumed only from its revenue components, i.e. v + s? Sismondi does not address this issue. Smith at least did attempt to answer what is an obvious flaw in his theory. Smith argues that whilst the value of any individual product resolves into c + v + s, this is not the case for the total social product. The basis of Smith's argument, here, has already been alluded to. It is that what is revenue for one is capital for another. In other words, the flour used by the baker is, for him/her, constant capital, but for the miller is revenue. This is the same error, however, that leads to the misconception that the “intermediate production” element of GDP is equal to the value of constant capital in GDP. It is not; it is only equal to the new value created by labour in Department I, i.e. Department I (v + s), which is exchanged with Department II for consumption goods. It constitutes only revenue, and no element of capital.
On the basis of this misconception, Smith says that the value of the national product resolves only into v + s, because the constant capital is itself the product of labour, and so resolves into v + s. But, as Lenin says, Marx shows this cannot be right. What Smith should say is that the value of the constant capital also resolves into c + v + s. If we take the flour sold to the baker, its value does not just resolve only into v + s, the new value created by labour, but also into the value of the grain bought by the miller from the farmer. If this grain has a value of £10, and the miller adds £10 of new value, they sell £20 of flour to the baker, but the miller cannot use all this £20 as revenue, for the simple reason that they must use £10 of it to replace the grain they have consumed in production, as constant capital.
Its true that this £10 of grain that constitutes constant capital for the miller is revenue for the farmer. The farmer can then spend this £10 to fund their consumption, for example, of bread. But, again, this £10 of revenue for the farmer constitutes only the new value created by their labour. No part of this £10 constitutes constant capital. However, when we now look at the product of the farmer, its obvious that this £10 of grain cannot constitute the whole of their production. The grain did not come from nowhere, nor just from the labour of the farmer. It required that seed be planted, and this seed does constitute constant capital. This value of seed does constitute part of the value of the farmer's output, simply no part of the value of the output sold to the miller! The part of the value of the farmer's output that resolves into the seed, is not sold, and forms a revenue for no one, because it has to be replaced, on a like for like basis, as capital, not revenue.
Suppose the farmer uses 100 kilos of grain, which has a value of £10. The farmer adds £10 of new value by their labour, and produces 200 kilos of output with a value of £20. If the newly created value divides into £5 wages, and £5 surplus value, the £20 value of the farmer's output resolves into £10 c + £5 v + £5 s. However, the farmer does not sell all their output to the miller. They sell only half the output, 100 kilos, with a value of £10. In terms of value, as Marx says, this 100 kilos of grain contains not one penny of constant capital. It is equal entirely to the value of v + s. The value of c in the total output of the farmer is contained in, and reproduced from, the other 100 kilos of grain, i.e. the 100 kilos not sold, but which is used, directly, to replace, on a like for like basis, the 100 kilos of seed consumed in the production of the 200 kilos of output.
This 100 kilos/£10 of value, does not represent “intermediate production”. No part of it is used in the production of final output for consumption/GDP. It forms a revenue for no one, and so, also has no equivalent in the figure for National Income. It simply reproduces the constant capital consumed in the production of means of production, and is, thereby, bought from capital not revenue, i.e. the constant capital consumed by Department I.
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