So, Department II output of 3000, equal to GDP, National Income and National Expenditure, appears to comprise c + v + s, but, in reality, comprises only v + s, i.e. 2000 of v + s (Department I), and 1000 v + s (Department II).
“And it is this circumstance which induced Adam Smith to maintain that the value of the annual product resolves itself into v + s. This is true 1) only for that part of the annual product which consists of articles of consumption; and 2) it is not true in the sense that this total value is produced in II and that the value of its product is equal to the value of the variable capital advanced in II plus the surplus-value produced in II. It is true only in the sense that II(c + v + s) is equal to II(v + s) + I(v + s), or because IIc is equal to I(v + s).”
(Capital II, Chapter 20, p 430)
The total value of output is 9000, but GDP/National Income is only 3000, equal to the consumption fund. The other 6000 is the value of constant capital, created in previous year's, preserved by this year's concrete labour, and transferred into the value of this year's output, and replaced out of it, on a like for like basis.
“The value of the social revenue (v + s) amounts therefore to only one-third of the value of the aggregate product, and the totality of consumers, labourers as well as capitalists, can draw commodities, products out of the total social product and incorporate them in their consumption-fund only to the amount of this one-third. On the other hand 6,000, or two-thirds, of the value of the product, are the value of the constant capital which must be replaced in kind. Means of production to this amount must therefore again be incorporated in the production-fund.” (p 438)
It is clear, then, that the value of output cannot equal the value of GDP, which represents only the consumption fund, not, also, the production fund. GDP equals National Income and Expenditure only on this basis. It excludes the value of consumed constant capital, which, in fact constitutes an ever growing portion of the value of total output, and so of demand and supply.
“Adam Smith, however, has promulgated this astounding dogma, which is believed to this day, not only in the previously mentioned form, according to which the entire value of the social product resolves itself into revenue, into wages plus surplus-value, or, as he expresses it, into wages plus profit (interest) plus ground-rent, but also in the still more popular form, according to which the consumers must “ultimately” pay to the producers the entire value of the product. This is to this day one of the best-established commonplaces, or rather eternal truths, of the so-called science of political economy.” (p 438)
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