III - Sismondi’s Conclusions From the Fallacious Theory of Two Parts of the Annual Product in Capitalist Society
“First of all, Sismondi draws from Adam Smith’s fallacious theory the conclusion that production must correspond to consumption, that production is determined by revenue.” (p 146)
The reason this is wrong has already been described, i.e. consumption is funded from revenues (v + s), whereas the value of output is c + v + s. The value of output must always exceed consumption (GDP) by the amount of c. Similarly, expenditure must exceed National Income, because not all expenditure is funded from revenues. Some expenditure (not including net investment, which is also funded from revenues) is paid for, not by revenue, but by capital. That expenditure is not consumption nor investment spending, but spending simply to replace, on a like for like basis, the consumed constant capital (raw material, wear and tear etc.).
As Marx points out, production must correspond to consumption, only if productive consumption is included. In other words, not just consumption from revenue, but also consumption from capital.
“Sismondi directly applies the ethics of the frugal peasant to capitalist society, and sincerely believes that in this way he has corrected Adam Smith’s doctrine.” (p 146)
For Sismondi, consumption determines production, and this flows from his acceptance of Smith's absurd dogma that national output resolves entirely into revenues, i.e. into v + s.
“Two more characteristic features of Sismondi’s doctrine are directly connected with this: firstly, disbelief in the development of capitalism, failure to understand that it causes an ever-increasing growth of the productive forces and denial that such growth is possible—in exactly the same way as the Russian romanticists “teach” that capitalism leads to a waste of labour, and so forth.” (p 146)
Because Sismondi, like Smith, resolves the value of output into revenues, v + s, rather than c + v + s, and, because he assumes that v is, therefore, fixed, constituting the necessary consumption of the workers, the problem of overproduction becomes one of simply the problem of the capitalist realising the surplus value contained in the surplus product. This is what Malthus picks up from Sismondi, and uses it to justify his argument that it requires the unproductive consumption of the landed aristocracy, and its lackeys in the state, to enable the capitalists to realise the surplus value as profits. Keynes basically uses the same argument a century later.
But, for Sismondi, as for the Narodniks, what it shows is that, for capitalism, this problem of realisation requires the existence of foreign markets. Later, some “Marxists” use this same argument to explain imperialist expansion, and the need for imperialist nations to carve up the world so as to exert monopoly control and access to these markets.
In Capital III, Marx, in his analysis of Ricardo's theory of rent, shows why he was wrong in assuming that additional capital is only invested as a consequence of an increase in agricultural prices/profits. The farmers, Marx says, assume that the market expands each year, because the population expands. As each farmer is in competition with every other, they need to ensure they obtain their share of this expanding market. If not, they will become less competitive, because of losing economies of scale etc. So, they must accumulate additional capital so as to increase their output. They must do so, even if the rate of profit they obtain, as a result of this expansion, is lower than it was before the expansion.
In doing so, they employ additional workers, who, with their wages, do indeed then form part of the increased demand for agricultural products. The additional workers come from the increased population. The farmer also needs additional tools, fertiliser etc., which they buy from suppliers. Those suppliers must increase their production so that more revenues are created, which forms increased demand for agricultural products. In this way, its quite correct that production has created its own market, supply has created demand, production has preceded and created consumption. And, its not just the farmer for whom this is the case. Its true for all producers. However, as Marx describes, here, the fact that this production creates the revenues that form the basis of consumption does not at all preclude the possibility of overproduction.
“Although considerable rise or fall in market-prices affects the volume of production, regardless of it there is in agriculture (just as in all other capitalistically operated lines of production) nevertheless a continuous relative over-production, in itself identical with accumulation, even at those average prices whose level has neither a retarding nor exceptionally stimulating effect on production. Under other modes of production this relative overproduction is effected directly by the population increase, and in colonies by steady immigration. The demand increases constantly, and, in anticipation of this new capital is continually invested in new land, although this varies with the circumstances for different agricultural products. It is the formation of new capitals which in itself brings this about. But so far as the individual capitalist is concerned, he measures the volume of his production by that of his available capital, to the extent that he can still control it himself. His aim is to capture as big a portion as possible of the market. Should there be any over-production, he will not take the blame upon himself, but places it upon his competitors. The individual capitalist may expand his production by appropriating a larger aliquot share of the existing market or by expanding the market itself.”
(Capital III, Chapter 39)
Production precedes consumption, and the increased production makes possible the increased demand, but the increased production only occurred on the basis of an assumption of increased demand. There is no reason why that increased demand has to materialise, or materialise to the extent of the increased supply, so that then there is overproduction of commodities. In periods of stagnation, the assumption of increased demand disappears. Producers focus on producing their existing levels of output more cheaply, via innovation, rather than on accumulating capital to greatly expand their output. As a result net output rises faster than gross output, reflected in a higher rate of profit.
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