Adam Smith's “absurd dogma”, succinctly stated, is that the value of commodities, and so of national output, ultimately resolves entirely into revenues, i.e. into incomes as wages, profit, interest and rent, which is then used for consumption, creating the demand for what has been produced. It forms the basis of Say's Law that supply creates its own demand, because, on this basis, the value of total output equals the value of these revenues, the value of supply equals the value available as demand.
The reason it is absurd is because, even on the basis of Smith's own Labour Theory of Value, the value of any commodity, and so of society's total commodity product, does not resolve entirely into revenues, which are equal only to the new value created by labour during the year. The value of any commodity is equal not just to revenues, v + s, but also to the commodities that comprise the constant capital, consumed in its production, i.e. c, equal to the value of materials and wear and tear of fixed capital. Smith accepts this for any individual commodity, but says that when all these commodities are considered in aggregate, c, disappears, because the commodities that comprise it resolve, themselves, entirely into revenues.
"the fantasy of men like Say, to the effect that the entire yield, the entire gross output, resolves itself into the net income of the nation or cannot be distinguished from it, that this distinction therefore disappears from the national viewpoint, is but the inevitable and ultimate expression of the absurd dogma pervading political economy since Adam Smith, that in the final analysis the value of commodities resolves itself completely into income, into wages, profit and rent.”
(Capital III, Chapter 49)
Smith's own argument shows what is wrong with his position. Smith identifies capital as the constant capital provided by the capitalist, both fixed and circulating. In answering the question of why the price of labour (wages) is less than the value of the product of that labour, Smith argues that its because labour is plentiful and capital scarce so the price of labour is lower than its value and the price of capital higher than its value (i.e. it includes an amount of profit, equal to the surplus value created by labour but appropriated by capital rather than labour). But, in that argument, Smith immediately accepts that the price of the commodity already includes the existing value of the consumed constant capital provided by the capitalist – the price of capital should not, on this basis be just profit, but profit, plus the value of the constant capital. It would only be possible to conclude that the value of the commodity resolves entirely into revenues if in revenues is included this whole price of capital, and not just the profit. But, it is only profit that constitutes a revenue, and that is what Smith also argues. So, it is impossible for these revenues to then equal the value of commodities.
As Marx says, Smith, himself, is clearly not happy about this formulation, but could not get beyond it.
The reason Smith's absurd dogma is so powerful is that all orthodox economists after him, with the exception of Ramsay and Jones, accepted it. It formed the basis of Say's Law, as promoted by Mill, Say and Ricardo. It was accepted by the neoclassical school, the marginalists, the Austrians, as well as by the Keynesians. Many who claim to be Marxists can also be seen to fall into it. For example, Michael Roberts stated a while ago,
“Thus it is wages plus profits that determine demand (investment and consumption).”
This same formulation is also used by Roberts and others as the basis for their calculation of the rate of profit that excludes the raw materials element of c, in the calculation of s/c + v!
Its because its a dogma that has been so widely and fundamentally accepted as a truism that it is so little even questioned or considered. That of itself, given its “absurd” nature, and impossibility, makes it even more pernicious. In my posts, and books on Marx's Capital, and Theories of Surplus Value, I have described Smith's “absurd dogma” in the context in which Marx described and demolished it in those works. I have also referred to it in dealing with the errors of other writers who claim affinity to the Marxist tradition, but who have also fallen into its trap. In that respect, I feel a bit like Lenin, who had to perform a similar function in dealing with the writing of the Narodniks and Legal Marxists, who claimed affinity with Marx, but whose actual theories diverged from that of Marx.
In these posts, therefore, I seek to bring together all of Marx's writing on Smith's “absurd dogma”, so that there can be no doubt left on where Marx stood on this question. Marx wrote so much, in so many places against the “absurd dogma” that I am bound to miss some reference to it, but the volume of material itself is overwhelming in its conclusion.
No comments:
Post a Comment