It is on this basis that Adam Smith's absurd dogma rests, and upon which all modern orthodox economics rests, and which, thereby, equates GDP with total output, even though it only represents the value of the consumption fund. It completely misses out the much larger value of output, which consists of Department I production of means of production, which never enters the value of that consumption fund, but merely replaces “on a like for like basis”, the consumed means of production in Department I, i.e. the 4000 in Marx's reproduction schema, as against the 2000 exchanged with Department II. They never form a revenue for anyone, and so, just as the component of output appears nowhere in GDP, so there is no equivalent of it in revenues in the National Income data.
This issue should also not be confused with other suggestions of calculating national output such as Gross Output Value which simply double counts intermediate production. As already indicated, the value of constant capital at each of these previous stages itself comprises only the value of revenues from previous stages. Including that value of “constant capital” rather than just the value added, at each stage, rather than recognising the nature of the problem, as being that the constant capital value is itself nowhere accounted for, because it is replaced as an exchange of capital with capital, not with revenue.
In the case of the linen producer, in the previous example, which represents Department II, a part of the linen is consumed out of Department II, revenues. The rest goes to pay its suppliers of constant capital. But, these can only consume a part of this, because they must also use another part to cover their cost of constant capital.
“The account, however, can only be settled if it is only revenue, newly-added labour, not constant capital, that has to be replaced by the last part of the linen, the consumable product. For on the assumption we have made the linen enters only into consumption and does not in turn form the constant capital of another phase of production. constant capital.
This has already been shown to be the case for a part of the product of agriculture.” (p 144)
In other words, a portion of total output never takes the form of commodities – and that is not including all of the value of output from domestic labour etc. - but takes the form only of products, used to directly replace the same products, as means of production. Such is the case of seed, or livestock for the farmer, the coal of the coal producer, and so on.
“In general, it is only products that enter as raw materials into the final product of which it can be said that they are consumed as products.” (p 144)
The term product is used precisely by Marx, here, in the context in which he analyses it in Capital I, being a use value produced by labour, and which, therefore, has value, but which is not put on the market for sale, and so does not have this value compared to other saleable products, i.e. it does not become a commodity, or have its value expressed in the form of exchange-value, or price.
But, in addition to this component of total output that consists of products, reproduced in kind, there is a larger portion that does take the form of commodities, but which also does not enter, as constant capital, into the consumable product. In other words, it reproduces the consumed means of production of Department I, on the basis of mutual exchange. The coal producer provides coal to the steel producer, and the steel producer provides steel to the coal producer. They, thereby, mutually replace each other's constant capital, without any of the value entering into the value of the commodities they sell to Department II, whose value consists entirely of revenues.
“... the raw material of machinery— apart from such agricultural products as leather belting, rope, etc. —is wood, iron and coal, while on the other hand machinery in its turn enters as a means of production into the constant capital of the producers of wood, iron, coal, etc. In fact, therefore, both replace each other a part of their constant capital in kind, Here there is exchange of constant capital for constant capital.” (p 145)
And, Marx shows that this is not merely a question of accounting.
“The producer of iron debits the machinery manufacturer for the wear and tear of the machinery used up in producing the iron and the machinery manufacturer debits [the producer of iron] for the wear and tear of his machinery in constructing the machines.” (p 145)
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