In Marx's reproduction schema, as he says, the total value of output is equal to three social working years. On that basis alone, its clear that the value of output cannot resolve entirely into revenues, as Smith claimed.
“The entire annual reproduction, the entire product of a year is the product of the useful labour of that year. But the value of this total product is greater than that portion of the value in which the annual labour, the labour-power expended during the current year, is incorporated. The value-product of this year, the value newly created during this period in the form of commodities, is smaller than the value of the product, the aggregate value of the mass of commodities fabricated during the entire year. The difference obtained by deducting from the total value of the annual product that value which was added to it by the labour of the current year, is not really reproduced value but only value re-appearing in a new form of existence. It is value transferred to the annual product from value existing prior to it, which may be of an earlier or later date, according to the durability of the components of the constant capital which have participated in that year’s social labour-process, a value which may originate from the value of means of production which came into the world the previous year or in a number of years even previous to that. It is by all means a value transferred from means of production of former years to the product of the current year.” (p 441)
In some accounts and calculations of the rate of profit, such as those provided by Michael Roberts that I have discussed in the past, this value of constant capital, transferred from previous years, becomes interpreted merely as the value of fixed capital. As I have shown previously, in relation to those calculations by Roberts, this becomes a totally bastardised rate of profit, with no basis in any of Marx's versions of it. Marx has essentially two versions of the rate of profit. The first is derived from s/(c+v), which, in terms of prices of production is equal to p/k, where p is profit and k is cost of production. It is the same as the profit margin. Cost of production is wages, plus materials, plus wear and tear of fixed capital. The second is the annual rate of industrial profit, which is s x n/C, where s is the surplus value produced in one turnover period, n is the number of turnovers per year, and C is the total capital advanced for one turnover period, i.e. the full value of fixed capital, rather than just wear and tear, plus materials and wages.
The first measure calculates the rate of profit against laid-out capital, the second against the advanced capital. Roberts, in his calculation of the rate of profit, by contrast, takes the profit for the year and measures it against the fixed capital. It misses out the advanced circulating constant capital, and variable-capital. Changes in productivity, and thereby, the rate of turnover, as Marx sets out, means that, as the rate of turnover rises, the capital advanced as fixed capital rises, but, as circulating capital advanced declines, relative to it, the total value of circulating capital laid-out rises both absolutely and relative to fixed capital. Not only is Roberts' rate of profit, thereby, not consistent with the Marxian definition, but it necessarily understates any rise in the rate of profit, and overstates any fall, arising from rising productivity.
In addition, because Roberts uses historic prices, as his basis for valuing fixed capital stock, in any period of rapid innovation, and productivity growth, which causes the quantity of consumed materials to rise sharply, but also brings a large moral depreciation of fixed capital, it necessarily overstates the current value of that fixed capital stock, and so significantly understates the consequent rise in the annual rate of profit.
“Value newly produced during the year is contained only in v and s. The sum of the value-product of this year is therefore equal to the sum of v + s, or 2,000 I(v + s) + 1,000 II(v + s) = 3,000. All remaining value-parts of the product of this year are merely value transferred from the value of earlier means of production consumed in the annual production. The current annual labour has not produced any value other than that of 3,000. That represents its entire annual value-product.” (p 442)
The statement that what is capital for one is revenue for another is true only in relation to the Department II production of consumption goods. It is not true in relation to Department I means of production, or, therefore, for social production as a whole.
The other false theory resulting from Smith's absurd dogma is that arrived at by Tooke that, because the value of output resolves entirely into revenues, the requirement for currency in circulation is also only that required for such revenues and the circulation of consumption goods. In other words, no additional currency is required for the circulation of commodities between producers. Marx demonstrates that this is also clearly not true. It is necessary to also have the currency required to circulate means of production. However, this is partly obscured and offset, because means of production are partially replaced in kind, and also because they are mutually replaced with exchanges being effected by the use of commercial credit.
“This erroneous conception of the ratio of the quantity of money required for the realisation of revenue to the quantity of money required to circulate the entire social product is the necessary result of the uncomprehended, thoughtlessly conceived manner in which the various elements of material and value of the total annual product are reproduced and annually replaced. It has therefore already been refuted.” (p 479)
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