Marx quotes Say's expression of Say's Law, which follows Smith's “absurd dogma” that the total value of a commodity – and the total commodity product – is comprised of the revenues of profit, rent and wages. Say writes,
“If the only revenues in a nation were the excess of the values produced over the values consumed, this would lead to a truly absurd result: that a nation which had consumed in the year values as great as it had produced would have no […] revenue.”” (p 150)
But, Marx points out it would have had a revenue in the year that was past, but none in the next year, because, in doing so, it would have consumed the value of its capital stock, as with a farmer who consumes their seed corn. Again, this speaks against the proponents of the TSSI, who treat capitalist production as a series of discrete production cycles, rather than as a continuous, and simultaneous process, whereby the consumed material balances must be continually replenished “on a like for like basis”. This was also the error made by Ramsay, in using historic prices, as described by Marx in Theories of Surplus Value, Chapter 22.
If production is considered as a series of discrete production cycles, then its true that a farmer, whose seed has a value of £100 at the start of a year, but whose value rises to £200 at the end of the year, could sell the portion of their output destined to replace the seed, and, thereby, obtain this £100 capital gain. It was this that led Ramsay to confuse this capital gain with profit. This same delusion characterises the world of fictitious capital, and the idea that wealth can somehow be created out of thin air, via such capital gains arising from rising asset prices. In an online discussion with a proponent of the TSSI, and the use of historic prices as the basis of calculating the rate of profit, some time ago, they similarly argued that the owner of bonds is more concerned with the total return than with just the yield – the yield, here, being the equivalent of the rate of profit on industrial-capital. So, for example, if you own a £1,000 bond, paying £100 in coupon, you will look at the £9,000 capital gain, if the price of the bond rises to £10,000, rather than the fact that the £100 coupon now represents just a 1% yield, rather than a 10% yield.
This is absolutely true, but, as Marx points out, in response to Ramsay, if we assume the farmer is a capitalist, who intends to continue producing, the £100 capital gain they obtain, as a result of the current value of seed having risen, above its historic price, is then an illusion. The farmer, to continue producing, on the same scale, has to replace the seed, not at its historic price of £100, but at it current value of £200. It would do no good to simply reproduce the £100, because that would buy only half the required seed, the scale of production would be halved, including the amount of labour employed, and so the amount of surplus value produced would be halved too.
The £100 capital gain is merely on paper – the same illusion exists for all those who think they have somehow become better off because the price of their house has risen – and disappears as soon as the farmer must now allocate £200, not £100, to the replacement of seed. And, if, previously, they made £10 profit, which represented 10% of the value of seed, now it represents only 5%, meaning that, far from being beneficial, the rise in value of constant capital has reduced their rate of profit. In the same way, its quite true that someone who bought a £1,000 bond, whose price rises to £10,000 will be more concerned with the £9,000 capital gain than the fact that this represents a fall in the yield on the bond, but if we assume that the buyer seeks to keep their money invested, they will have to buy a replacement for it, and they will now have to pay £10,000 not £1,000 for such a bond, and, now, the yield on that bond will have fallen to 1% from 10%!
For a pension fund that must continually buy additional bonds and other financial assets, so as to generate a revenue stream, to cover future liabilities, that is particularly concerning, because the rise in asset prices means that they can buy fewer and fewer of them, and the revenues they obtain are reduced both as a result of this smaller capital base, and as a result of the fact that, as the price of the bonds rises, the yields on them fall inversely.
It is this kind of thinking that revenue instead of being produced by new value creation, can instead be obtained by the realisation of capital gains that has been the product of developing asset price bubbles, and indeed has been the cause of them being further inflated by central banks, to the point at which they burst. The conversion of capital into revenue, by realising paper capital gains on financial and property assets, what financial advisors call “taking profits”, is no different to the destruction of capital, such as asset stripping, or a farmer who consumed their seed corn, rather than planting it. It undermines the potential for future value production, and, if taken beyond a certain level, results in expanded negative reproduction.
“It is not true that the annual product of labour, of which the product of the annual labour forms only one part, consists of revenue. On the other hand, it is correct that this is the case with the part of the product which each year enters into individual consumption. The revenue, which consists only of added labour, is able to pay for this product, which consists partly of added and partly of pre-existing labour; that is to say, the labour added in these products can pay not only for itself but also for the pre-existing labour, because another part of the product—which also consists of labour added and pre-existing labour—replaces only pre-existing labour, only constant capital.” (p 150)
In other words, the annual product of labour, meaning all of the use values produced by labour, during the year, consists of both the value of existing constant capital, which is preserved and transferred to the value of total output, as well as revenue, i.e. the new value crated by labour during the year – the product of annual labour. In Marx's reproduction schema, the annual product of labour is 9,000, consisting of 6,000 constant capital and 3,000 newly added value. It is only this 3,000 that represents the product of the annual labour.
Of the total annual product of labour only 3,000 represents the consumable product/GDP. The other 6,000 represents the non-consumable product, which is reproduced out of current production. The reason that the whole of the 3,000 of consumable product can be consumed, including the 2,000 of it that represents the constant capital consumed in its production, is that, in addition to the 1,000 of revenues, in Department II, a part of the annual product of labour consists of the 2,000 of revenues produced in Department I, but which cannot consume Department I products.
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