In Marx's analysis, as outlined, all of the output of Department II/GDP has now been accounted for. In the process, all revenues/National Income have now been accounted for in forming the demand for this output. So, it is clear that demand for the rest of total output cannot come from these revenues. But, total output amounts to 3 social working days/years/periods whereas the consumable product/GDP amounts to only 1 social working day/year/period. Smith's absurd dogma that the value of commodities/output resolves entirely into revenues is then clearly wrong, requires believing that 3 is equal to 1.
And, for that reason all of neoclassical theory, which takes that assumption as given, is also wrong. When the debates between Cambridge England and Cambridge Massachusetts took place, there was also a fundamental flaw in the position taken by Cambridge England. They focused on the question of whether the neoclassical model was internally consistent, and it was shown that the partial equilibrium model was not, leading to Cambridge Massachusetts falling back on the arguments of the General Equilibrium model, the cost of doing so, being that this model is even less connected to the real world than is the partial equilibrium model. But, in criticising the neoclassical theory for this lack of connection to the real world, Cambridge, England focused on questions of perfect markets, knowledge, initial endowments and so on. They failed to focus on the most glaring inadequacy of the neoclassical model, which is its basic assumption that the value of commodities resolves entirely into revenues, which Marx demonstrated is an impossibility.
You can have an internally consistent model, and the most beautiful mathematical elaboration of a world that does not contain black swans, but it does not change the fact that black swans exist, and so any model that does not account for their existence is wrong. A model that assumes that the value of commodities/output resolves entirely into revenues can be as consistent and mathematically beautiful as you like, it doesn't change the fact that the assumption is clearly false, and so any models based upon it are wrong.
Marx now turns to the question of this final part, the demand for the element of c in c + v + s, in total output.
“Thus, however, we have as residuum a third part of the total product whose constituent parts, when exchanged, can represent neither the exchange of revenue against revenue nor of capital against revenue and vice versa. This is the part of product B which represents B’s constant capital. This part is not included in B’s revenue and therefore cannot be replaced by or exchanged against product A, and therefore also cannot enter as a constituent part into A’s constant capital. This part is likewise consumed, industrially consumed, to the extent that it enters not only into B’s labour-process but also into the formation of value in B. This part, therefore, like all other parts of the total product, must be replaced in the proportion in which it forms a component part of the total product, and indeed it must be replaced in kind by new products of the same sort. On the other hand, it is not replaced by any new labour.” (p 244-5)
Again, Marx makes the point, here, that what must be replaced is not the value or historic price of these consumed means of production, but their physical use value “in the proportion in which it forms a component part of the total product, and indeed it must be replaced in kind by new products of the same sort.” (ibid) In relation to the current value of these commodities, and any changes in it, arising from changes in social productivity, that only determines whether it causes a release or tie-up of capital, a greater or smaller proportion of total social labour-time required for its replacement, and the consequent effects on raising or lowering the rate of profit.
Although these use values are physically reproduced by current labour, none of the value of these use values is attributable to revenues, just as previously, none of the value of GDP was attributable to constant capital, being entirely composed of revenues. The value of these use values is attributable entirely to constant capital, and none of it is attributable to or exchanges with revenues. It is the equivalent of the farmer's seed that he replaces from this year's grain, or the 8 machines of the machine maker, that he takes from current production to replace his own worn out machines. The value of the farmer's seed enters the value of his total output, just as does the value of the 8 machines for the machine maker, but they do not sell all of this output. They sell only a portion of it, i.e. that portion that is equal to their revenues, and so, in value terms, none of that sold output consists of any value of constant capital. That value of constant capital, which never constitutes a revenue is simply replaced, on a like for like basis, out of current production. It is purely an exchange of capital for capital.
“In its use-value, product A represents the whole part of the annual total product which enters annually into individual consumption. In its exchange-value, it represents the total quantity of labour newly added by the producers during the year.” (p 244)
But, this does not constitute the value of total output of the year, because, in addition to this new value, created in the year, there is the value of the existing constant capital, which gets preserved in the labour process, and is, thereby, transferred to the value of production. In other words, there is the 2 social working days/years/periods of value residing in materials and wear and tear to account for.
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