Sunday 31 August 2014

Capital II, Chapter 19 - Part 5

Smith then is forced to recognise that these revenues are not the end of the matter, because in addition to the wages, profits and rent there is also the value of the constant capital. He then sets up a counter argument to try to escape this problem.

“A fourth part, it may perhaps be thought, is necessary for replacing the stock of the farmer, or for compensating the wear and tear of his labouring cattle, and other instruments of husbandry. But it must be considered that the price of any instrument of husbandry, such as a labouring horse, is itself made up of the same three parts: the rent of the land upon which he is reared, the labour of tending and rearing him, and the profits of the farmer who advances both the rent of this land, and the wages of this labour. Though the price of the corn, therefore, may pay the price as well as the maintenance of the horse, the whole price still resolves itself either immediately or ultimately into the same three parts of rent, labour” (he means wages), “and profit.” (Book I, Ch. 6, p. 42.)” (p 377-8)

In other words, he simply relies on repeating the assertion that everything resolves itself into v + s.

But, Marx points out,

“He forgets, however, to add: and, moreover, into the prices of the means of production consumed in their own creation. He refers us from one branch of production to another, and from that to a third. The contention that the entire price of commodities resolves itself “immediately” or “ultimately” into v + s would not be a hollow subterfuge only if he were able to demonstrate that the commodities whose price resolves itself immediately into c (price of consumed means of production) + v + s, are ultimately compensated by commodities which completely replace those “consumed means of production,” and which are themselves produced by the mere outlay of variable capital, i.e., by a mere investment of capital in labour-power.” (p 378)

But, of course, he can't. All production resolves itself into c + v + s. Unfortunately, some socialist economists, anxious to make the point that all production ultimately comes down to the value created by workers, have also fallen into this error.

The variable capital set in motion by the capitalist results in the production of new value by the workers, i.e. positive value equal to the average social labour expended by the workers. At the same time, those workers preserve the value of any constant capital that is transferred to the end product.

NB. It is only the value of constant capital actually transferred that is preserved. If material or machines are destroyed, depreciated or otherwise wasted, and thereby prevented from entering the final product, then obviously its value is not transferred either.

But, this is all those workers can do. This new value they create is divided into v + s. Assuming the value of the labour-power is less than the new value created by those workers, the surplus will then be appropriated by capital, and some of it may be shared as rent with the landlord, some as interest with the money capitalist and so on.

“And what is true of the industrial labour of one day is true of the labour set in motion by the entire capitalist class during one year. Hence the aggregate mass of the annual value produced by society can resolve itself only into v + s, into an equivalent by which the labourers replace the capital-value expended for the purchase of their own labour-power, and into an additional value which they must deliver over and above this to their employers. But these two elements of commodity-value form at the same time sources of revenue for the various classes engaged in reproduction: the first is the source of wages, the revenue of the labourers; the second that of surplus-value, a portion of which is retained by the industrial capitalist in the form of profit, while another is given up by him as rent, the revenue of the landlord. Where, then, should another portion of value come from, when the annual value-product contains no other elements than v + s?” (p 378-9)

Marx explains.

Adam Smith determines the value of a commodity by the amount of labour a worker adds to the materials he works with. But, this value added is entirely independent of whether those materials had any value to begin with. This new value, embodied in a new commodity, is in part an equivalent to the wages paid to the worker, but also in part, a surplus value, paid as profits etc. Whether or not this surplus is shared with others does not change the fact of it being a surplus, or the amount of that surplus.

What is true for any individual commodity, or business, is true for the whole economy.

“It “fixes” (Adam Smith’s expression) in the annual product of a total value determined by the quantity of the annual labour expended, and this total value resolves itself into one portion determined by that part of the annual labour wherewith the working-class creates an equivalent of its annual wages, in fact, these wages themselves; and into another portion determined by the additional annual labour by which the labourer creates surplus-value for the capitalist class. The annual value-product contained in the annual product consists therefore of but two elements: namely, the equivalent of the annual wages received by the working-class, and the surplus-value annually provided for the capitalist class. Now, the annual wages are the revenue of the working-class, and the annual quantity of surplus-value the revenue of the capitalist class; hence both of them represent the relative shares in the annual fund for consumption (this view is correct when describing simple reproduction) and are realised in it.” (p 380) 

But, of course, as all the previous analysis has shown, the value of a commodity, and therefore of national output, cannot be reduced to just v + s, to the new value created, precisely because those materials used, the constant capital, do already possess value that is transferred into the final product.

“Now Adam Smith’s first mistake consists in equating the value of the annual product to the newly produced annual value. The latter is only the product of labour of the past year, the former includes besides all elements of value consumed in the making of the annual product, but which were produced in the preceding and partly even earlier years: means of production whose value merely re-appears — which, as far as their value is concerned, have been neither produced nor reproduced by the labour expended in the past year.” (p 381)

In part, Smith's error rests upon his confusion between abstract and concrete labour, and between labour and labour-power, which itself rests on the two-fold nature of labour itself. Abstract labour is the essence and measure of value, it creates value through the expenditure of labour-power. But, labour-power can only ever be concrete. Workers do not exist as abstract workers, but as specific kinds of workers, tailors, spinners, teachers etc. It is this concrete labour-power that is sold as a commodity. It is concrete labour that is the source of value, because it is only concrete labour that exists as a material thing, and which produces use values. Abstract labour cannot be sold as a commodity, as labour-power, precisely because it does not exist as a material thing. It is only an abstraction.

“The total quantity of the commodities fabricated annually, in other words, the total annual product is the product of the useful labour active during the past year; it is only due to the fact that socially employed labour was spent in a ramified system of useful kinds of labour that all these commodities exist; it is due to this fact alone that the value of the means of production consumed in the production of commodities and reappearing in a new bodily form is preserved in their total value. The total annual product, then, is the result of the useful labour expended during the year; but only a part of the value of the annual product has been created during the year; this portion is the annual value-product, in which the quantity of labour set in motion during the year is represented.” (p 381)

So, Smith puts forward a one-sided argument when he claims that it is only the useful labour expended during the year which creates the value of the total output, because he forgets the value contributed by all of the materials used in it, the tools and machines used to assist labour and so on, and 

“...therefore, the “annual labour,” while it created value, did not create all the value of the products fabricated by it; that the value newly produced is smaller than the value of the product.” (p 381-2)

The simple answer, in a way, was given by the quote Marx gave from William Thompson earlier in Chapter 17, that a society could continue to consume for a time even if it did not produce. It could consume its existing capital. A portion of that capital always is consumed each year. But, in order to prevent its diminution each year, a portion of production must always be devoted not to consumption, but to the replacement of that capital.

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