Lenin quotes Sismondi's statement,
““Messrs. Say and Ricardo,” he says in his preface to the second edition of Nouveaux Principes, “came to believe . . . that consumption had no other limits than those of production, whereas actually it is limited by revenue. . . . They should have warned producers that they must count only on consumers who have a revenue” (I, XIII).” (p 156)
But, as Marx sets out in Capital III, Chapter 15, and on numerous occasions in Theories of Surplus Value, this proposition is absolutely true. The fact of the theoretical production of value and surplus value is not at all the same as its realisation, which requires not only demand, but the only effective demand that commodity production and exchange knows, which is demand backed by money, i.e. the ability to pay. Indeed, as Marx puts it,
"The conditions of direct exploitation, and those of realising it, are not identical. They diverge not only in place and time, but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society. But this last-named is not determined either by the absolute productive power, or by the absolute consumer power, but by the consumer power based on antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum varying within more or less narrow limits. It is furthermore restricted by the tendency to accumulate, the drive to expand capital and produce surplus-value on an extended scale."
(Capital III, Chapter 15)
Again, Lenin completely fails to distinguish between supply, and the theoretical production of value and surplus value, and demand for the actual use values that are the embodiment of that value and surplus value. That is also the fallacy of Say's Law, which Lenin essentially reiterates.
Lenin sets out an example from Sismondi. In it, a money capitalist lends F100,000 to an entrepreneur. The entrepreneur uses it as circulating capital, producing F15,000 profit, F6,000 going to pay interest, leaving F9,000 as industrial profit. The firm employs 100 workers paid wages of F30,000. Sismondi assumes an accumulation of capital so that F400,000 are employed, F200,000 as fixed capital and F200,000 as circulating capital. He assumes the rate of interest falls from 6% to 4%. Total profit is F48,000 divided F32,000 industrial profit and F16,000 interest. The number of workers doubles, but, as a result of the introduction of machinery their wages drop down from F300 to F200, giving total wages of F40,000.
The example can be used to illustrate a number of points. Firstly, Sismondi says that one of the first effects of machinery is to reduce workers' wages. This is true, and capital only invests in such machines because wages are at a level where they squeeze profits, leading to a crisis of overproduction of capital. Marx notes, Ricardo's comment that its only when wages rise above a certain level that capital replaces labour with machines. In other words, the situation described by Smith must arise, and then capital responds by introducing machines. A relative surplus population is created, and the high wages resulting from the previous demand for labour-power is reversed. Wages fall, profits rise.
In the example Sismondi provides, the number of workers employed doubles rather than falling. Previously, material accounted for F70,000, and now accounts for F160,000, or 2.9 times, indicating a rise in productivity. If we take the total value of production, it has grown fourfold from F100,000 to F400,000, but Sismondi says, consumption has not grown fourfold. He totals it up,
““revenue,” or “consumption,” in the first case amounted to 45,000 francs (30,000 wages + 6,000 interest + 9,000 profit); it is now 88,000 francs (40,000 wages + 16,000 interest + 32,000 profit). “Production has increased fourfold,” says Sismondi, “but consumption has not even doubled. The consumption of the workers who made the machines should not be counted. It is covered by the 200,000 francs which have been used for this purpose; it is already included in the accounts of another manufactory, where the facts will be the same” (I, 405-06).” (p 158)
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