“The annual value-product contained in the annual product consists therefore of but two elements: namely, the equivalent of the annual wages received by the working-class, and the surplus-value annually provided for the capitalist class. Now, the annual wages are the revenue of the working-class, and the annual quantity of surplus-value the revenue of the capitalist class; hence both of them represent the relative shares in the annual fund for consumption (this view is correct when describing simple reproduction) and are realised in it. There is, then, no room left anywhere for the constant capital-value, for the reproduction of the capital functioning in the form of means of production. And Adam Smith states explicitly in the introduction to his work that all portions of the value of commodities which serve as revenue coincide with the annual product of labour intended for the social fund for consumption:” (p 380)
In other words, the value created by labour, during the year, divides into these two components, of v and s, and this is value added to the value of materials processed by these workers, materials already in existence, and whose value is already in existence, prior to any new labour being undertaken. It is value created by labour in previous years, in the creation of these materials (Marx describes as raw material anything that is processed in some latter stage of production).
“Now Adam Smith’s first mistake consists in equating the value of the annual product to the newly produced annual value. The latter is only the product of labour of the past year, the former includes besides all elements of value consumed in the making of the annual product, but which were produced in the preceding and partly even earlier years: means of production whose value merely re-appears — which, as far as their value is concerned, have been neither produced nor reproduced by the labour expended in the past year. By this confusion Adam Smith spirits away the constant portion of the value of the annual product.” (p 381)
Smith's confusion results from his failure to distinguish between concrete labour, which produces use-values, and abstract labour, which produces value. This same confusion is what leads to the use value of constant capital (intermediate production) being confused with the value of constant capital. In other words, use values that comprise elements of constant capital for Department II, undoubtedly comprise the intermediate production, but none of the value of these use values is itself comprised of constant capital. It is comprised entirely of the value of Department I (v + s), i.e. revenues. It is the basis of Smith's confusion arising from the observation that what is revenue for one is capital for another. An observation, as Marx points out applies only to Department II, not to Department I.
“The total quantity of the commodities fabricated annually, in other words, the total annual product is the product of the useful labour active during the past year; it is only due to the fact that socially employed labour was spent in a ramified system of useful kinds of labour that all these commodities exist; it is due to this fact alone that the value of the means of production consumed in the production of commodities and reappearing in a new bodily form is preserved in their total value. The total annual product, then, is the result of the useful labour expended during the year; but only a part of the value of the annual product has been created during the year; this portion is the annual value-product, in which the quantity of labour set in motion during the year is represented.” (p 381)
In short, the concrete labour preserves the value of the constant capital/materials produced last year, but consumed in production this year. It does not create or reproduce that value, and nor could it. As Marx explains, it does not matter how much current labour is expended, when it comes to the preservation of that value. If 100 kilos of cotton has a value of £100 then this value is preserved whether it takes 10 hours of current labour to process it into yarn, or 20 hours. The amount of current labour only determines the amount of new value added to it.
“Hence, if Adam Smith says in the passage just cited:
“The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, etc.,”
he takes the one-sided standpoint of solely useful labour, which has indeed given all these means of subsistence their consumable form. But he forgets that this was impossible without the assistance of instruments and subjects of labour supplied by former years, and that, therefore, the “annual labour,” while it created value, did not create all the value of the products fabricated by it; that the value newly produced is smaller than the value of the product.” (p 381-2)
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