The results afforded by Smith’s analysis can now be recapitulated:
1. There is a total social fixed capital, but no part of it enters into net revenue. This fixed capital consists in “the materials necessary for supporting their useful machines and instruments of trade” and “the produce of labor necessary for fashioning those materials into the proper form.”20 By explicitly differentiating the production of this fixed capital from the production of direct means of subsistence, Smith effectively transforms fixed capital into what Marx calls constant capital, i.e. the component of capital that consists in all material means of production, as opposed to labor-power.
2. There is a total social circulating capital. However, after eliminating the “fixed” (i.e. constant) part of capital, only the category of means of subsistence remains; the latter does not form part of total social capital, but rather a net revenue or consumption fund.
3. The capital and net revenue of individuals do not strictly correspond to capital and net revenue at the level of society as a whole. What is merely fixed (i.e. constant) capital at the level of society as a whole may not be capital for individuals, but rather revenue or a consumption fund, i.e. in those components of the value of fixed capital that represent wages for workers and profits for capitalists. Conversely, the circulating capital of individuals may not be capital at the level of society as a whole, but rather revenue, namely insofar as it takes the form of means of subsistence.
4. The value of the annual total social product does not contain a single atom of capital, but resolves entirely into three types of revenue: wages for labor, profits on capital, and ground rents.
Anyone attempting to compose a picture of the annual reproduction of total social capital and its mechanism from the fragments of thought cited here would soon despair of the task. Ultimately, the above would seem infinitely removed from furnishing a solution to the problem of how the total social capital is renewed each year, how the consumption of all individuals is completely provided for by revenue, and how individuals can simultaneously take the standpoint of capital and revenue. However, it is necessary to gain an overview of the whole confusion of ideas and the plethora of contradictory points of view represented here in order to appreciate Marx’s elucidation of the problem.
Smith’s last thesis, which was sufficient to ensure the failure of classical economics in its attempt to tackle the problem of reproduction, can be considered first. Smith’s bizarre notion that the value of the total social product resolves without remainder into wages, profits, and ground rents has its roots precisely in his scientific conception of the theory of value. Labor is the source of all value. Considered as values, commodities are products of labor and nothing else. However, as wage-labor, all labor performed simultaneously replaces the wages advanced and creates a surplus of unpaid labor as profit for the capitalist and rent for the landowner (this identification of human labor with capitalist wage-labor is precisely the classical element in Smith). What is true for each individual commodity must be true for all commodities taken together as a whole. As a quantum of value, the total mass of commodities produced annually by society is nothing but the product of labor, and more precisely both paid and unpaid labor, and it likewise is composed only of wages, profits, and rents. It is of course true that for all labor, raw materials, tools, etc., must also be taken into consideration. However, what are these raw materials and tools themselves if not products of labor, and indeed partly paid and partly unpaid labor, in turn? No matter how far back the sequence is traced, nor how much it is twisted and turned, still nothing in the value or the price of all commodities will be discovered that is not simply human labor. Yet all labor can be divided into a part that replaces wages, and another that goes to capitalists and landowners. For Smith, there is nothing but wages and profits—and yet there is also capital, the capital of individuals and capital at the level of society as a whole. What, then, is the solution to this blatant contradiction?
That this posed an extremely difficult theoretical problem is demonstrated by the extent to which Marx himself burrowed deep into the matter without at first making any progress or finding a way out; these attempts can be retraced in Theories of Surplus Value.21 However, he did finally manage to provide a brilliant solution, and this came precisely on the basis of his theory of value. Smith was perfectly right: the value of each individual commodity, and of the total production of commodities, represents nothing other than labor. Furthermore, he was right when he stated that, from the capitalist point of view, all labor can be divided into paid labor (which replaces wages) and unpaid labor (which accrues to the various classes of owners of the means of production). However, he forgot (or rather he overlooked) the fact that labor, alongside its characteristic of creating new value, has also the attribute of transferring the old value contained in the means of production to the commodities newly produced with the latter. A baker’s ten-hour working day cannot produce more value than a ten-hour working day, and from the capitalist point of view these ten hours can be divided into paid and unpaid time—i.e. into v + s. However, the commodities produced in these ten hours will represent more value than that corresponding to the ten hours of labor. They will also contain the value of the flour, the ovens used, the buildings where labor is performed,* the fuel, etc.—in short, the value of all the means of production required for baking. The value of the commodities resolves into v + s alone under one condition alone, namely that humans work in midair, without raw materials, tools, or workshop. Since all material labor presupposes some means of production, which themselves are the result of past labor, then it must transfer this past labor—i.e. the value created by it—to the new product.
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*In the case of the elements of constant capital (buildings, machinery, etc.) that are not consumed by the labor process in a given production period, this is true to the extent that these are worn out by it.
At issue here is not a process that only occurs in capitalist production; rather, these are the universal foundations of human labor, independent of the historical form of society. The employment of self-made tools of labor is the fundamental hallmark of human civilized society. The concept of past labor, which precedes all new labor and prepares the basis on which it can operate, is an expression of the relationship between humankind and nature that characterizes the history of civilization—it expresses the endless, interlocking chain of labors performed in human society, whose beginnings are lost in the grey mists of the evolution of humans as social beings, and whose end can only be brought about with the demise of human civilization itself. All human labor must thus be conceived of as being carried out with the use of means of labor that are in turn the product of previous labor. Thus each new product contains not only the new labor that gives it its final form, but also the past labor that provides its materials and tools of labor, etc. In value production—i.e. in commodity production, of which capitalist production is a form—this phenomenon does not disappear, it is merely given a specific expression. It is expressed in the dual character of commodity-producing labor, which, qua concrete, useful labor, produces the useful object, the use-value, on the one hand, and qua abstract, universal, socially necessary labor, creates value on the other. In the first of these capacities it does what human labor has always done: it transfers the past labor contained in the means of production that are used to the new product, the only difference being that this past labor also appears as value, as old value. In its second capacity it creates new value, which from the capitalist point of view resolves itself into paid and unpaid labor—i.e. into v + s. The value of each commodity must therefore contain both old value, transferred by labor in its quality as concrete, useful labor from the means of production to the commodity, and new value, which labor creates through its mere expenditure, through its duration, due to its quality as socially necessary labor.
Smith was unable to make this distinction, because he did not differentiate between the dual characteristics of value-producing labor, and Marx claims on one occasion to have discovered in this fundamental error in Smith’s value-theory the ultimate source of the latter’s bizarre doctrine that the entire mass of values produced resolves without remainder into v + s.22 The failure to distinguish between the two dimensions of commodity-producing labor—concrete, useful labor on the one hand, and abstract, socially necessary labor on the other—indeed forms one of the most prominent hallmarks not only of Smith’s value-theory, but of that of the entire classical school.
Untroubled by any social repercussions, classical economics recognized human labor as the sole value-creating factor and elaborated this theory to the degree of clarity that is to be found in Ricardo’s exposition. The fundamental distinction between the Ricardian and the Marxian labor theory of value—a distinction that was not only overlooked by bourgeois economists, but was also mostly disregarded in popularizations of the Marxian doctrine—is that Ricardo, according to his universal natural law–based conception of the bourgeois economy, holds value creation also to be a natural property of human labor, and thus of the individual, concrete labor of the single individual.
Such a conception is expressed even more crassly by Smith, who indeed states directly, for example, that the “propensity to exchange” is a specific trait of human nature, having failed to find it in animals such as dogs, etc.
Incidentally, although Smith doubts the existence of a “propensity to exchange” in animals, he attributes the same value-creating quality to the labor of animals as he does to human labor on those occasions when he lapses back into the Physiocratic conception:
No equal capital puts into motion a greater quantity of productive labor than that of the farmer. Not any of his laboring servants, but his laboring cattle, are productive laborers …
The laborers and laboring cattle, therefore, employed in agriculture, not only occasion, like the workmen in manufactures, the reproduction of a value equal to their own consumption, or to the capital that employs them, together with its owner’s profits, but of a much greater value: Over and above the capital of the farmer and all its profits, they regularly occasion the reproduction of the rent of the landlord.23
This represents the most graphic expression of Smith’s view that value creation is a direct physiological characteristic of labor as a manifestation of the animal organism of humans: just as the spider spins its web from its own body, so the laboring human being—the laboring human being per se, every human being who produces useful objects—creates value, since he is by birth a producer of commodities; just as human society rests by nature on exchange, so the commodity economy is the normal form of human economy.
It was Marx who first recognized that value is a particular social relation emerging under determinate historical conditions, and who was thus able to distinguish the two dimensions of commodity-producing labor: concrete, individual labor and undifferentiated social labor; it was through this distinction that the solution to the riddle of money first became apparent, as if suddenly illuminated by a spotlight.
In order to differentiate the twofold character of labor and to distinguish the laboring human being from the value-creating producer of commodities statically, within the bourgeois economy, Marx had first to differentiate the producer of commodities from the laboring human being per se dynamically, in the temporal sequence of history—i.e. he had to identify commodity production merely as a determinate historical form of social production. In order to decipher the hieroglyphics of the capitalist economy, Marx had, in a word, to adopt a method of inquiry diametrically opposed to the deduction of classical political economy—i.e. he was obliged to counter the belief that the bourgeois mode of production is human and normal with the insight into its historical transience, and it was necessary for him to invert the metaphysical deduction of the classical economists into its opposite, the dialectical deduction.*
It is evident from this that it was impossible for Smith to establish the clear differentiation between the two aspects of value-creating labor, such that it both transfers the old value of the means of production to the new product and simultaneously creates new value. Moreover, the latter’s thesis that total value resolves into v + s would seem to flow from another source. It cannot be assumed that Smith overlooked the fact that every commodity produced contains not only the value created in its immediate production, but also the value of all the means of production used up in its production. The very fact that he continually refers back from one stage of production to a previous one, sending the inquirer from pillar to post, as Marx puts it,† in order to resolve the total social value into v + s, demonstrates that he himself was well aware of the fact. Bizarrely, however, he continually resolves the old value of the means of production into v + s in turn, such that v + s accounts for the whole of the value contained in the commodity.
Thus, in the above-cited passage on the price of corn, Smith states the following:
In the price of corn, for example, one part pays the rent of the landlord, another pays the wages of maintenance of the laborers and laboring cattle employed in producing it, and the third pays the profit of the farmer. These three parts (wages, profit, and rent) seem either immediately or ultimately to make up the whole price of corn. 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 laboring cattle and other instruments of husbandry. But it must be considered that the price of any instrument of husbandry, such as a laboring horse, is itself made up of the same three parts: the rent of the land upon which he is reared, the labor of tending and rearing him, and the profits of the farmer who advances both the rent of this land and the wages of this labor. 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, of labor, and profit.24
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*For more on Luxemburg’s view of the category of the “dual character of labor,” see “Back to Adam Smith!” in The Complete Works of Rosa Luxemburg, Vol. I, pp. 79–88.
†Marx’s Capital, Vol. 1, p. 737.
It would appear that Smith’s confusion consists in the following:
1. All labor is carried out with means of production of some kind or other. However, that which is means of production in relation to a given labor (raw materials, tools, etc.), is itself the product of previous labor. For the baker, flour is a means of production, to which he adds new labor. However, the flour itself has been produced by the labor of the miller, for whom it was not a means of production, but a product, just like the bakery products are now. As a product, flour in turn presupposes grain as a means of production, and going back a further stage, the grain was not a means of production for the farmer, but rather his product. It is impossible to find any means of production containing value that is not itself the product of some previous labor.
2. In capitalist terms, it follows from this that all capital completely used up in the production of any commodity can ultimately be resolved into a certain quantum of labor performed.
3. The total value of the commodity, including all capital advanced, is thus simply resolved into a certain quantum of labor. Further, what is true for every commodity must also be true for the total mass of commodities produced annually by society: its total value resolves into a quantum of labor performed.
4. All labor performed in the capitalist mode of production can be divided into two parts: paid labor, which replaces wages, and unpaid labor, which generates profits and rents—i.e. surplus value. All labor carried out in the capitalist mode of production corresponds to the formula v + s.25
All of the above theses are completely correct and incontrovertible. Their elaboration by Smith is proof of the rigor and undeviating character of his scientific analysis, and of the fact that his conception of value and surplus value represents an advance beyond the Physiocrats. Yet he casually commits a gross error in his reasoning in the third thesis in stating that the total value of the annually produced mass of commodities can be resolved into the quantum of labor performed in that year, whereas he himself shows in other places that he is very well aware that the value of commodities produced by a nation in any one year also necessarily includes the labor of previous years—i.e. the labor comprised in the means of production that have been retained from this time.
Even if the above four theses are completely correct in themselves, the conclusion Smith draws from them, that the total value of every commodity and that of the annual mass of commodities produced by society resolves without remainder into v + s, is completely false. Smith identifies the correct thesis that the whole value of a commodity represents nothing other than social labor with the false one that all value represents nothing other than v + s. The formula v + s expresses the function of living labor under capitalist economic relations—i.e. it expresses the following double function: (1) the replacement of variable capital (wages); (2) the creation of surplus value for the capitalist. Wage-labor fulfills this function while it is employed by the capitalist, who both retrieves the variable capital he has advanced in the form of wages and pockets the surplus value. The formula v + s thus expresses the relation between wage-laborer and capitalist, a relation that is concluded each time with the production of the commodity. When the commodity is sold, and the relation v + s is realized in money for the capitalist, the relation is extinguished and leaves no trace upon the commodity itself. In no way can it be seen from the commodity and its value in which relation, or whether at all, its value has been produced by paid and unpaid labor; only one fact is beyond doubt, which is the circumstance that the commodity contains a certain quantum of socially necessary labor that is expressed in its exchange. It is as much a matter of complete indifference for exchange itself as it is for the use of the commodity whether the labor that it represents can be divided into v + s or not. In relation to exchange, all that counts is its value-magnitude, whereas in relation to its use, it is only its concrete constitution, its usefulness that matters. The formula v + s merely expresses the intimate relationship between capital and labor, as it were, the social function of wage-labor, which is completely extinguished in the product. It is different with the part of capital advanced that has been invested in means of production—i.e. constant capital. Apart from wage-labor, the capitalist must procure means of production, since all labor requires certain raw materials, tools, buildings, etc., for it to be carried out. The capitalist character of this condition of production is manifested in the fact that these means of production appear as c, as capital—i.e. (1) as the property of a person other than the laborer, separated from labor-power, as the property of those who do not work themselves; (2) as a mere advance, an outlay for the purpose of generating surplus value. Constant capital, c, appears here merely as the foundation for v + s. However, constant capital is an expression of something more than this—namely the function of the means of production in the human labor process, irrespective of its sociohistorical form. Raw materials and tools of labor are required just as much by the inhabitant of Tierra del Fuego making his family canoe, the communist peasant community in India tilling its communal lands, the Egyptian fellah cultivating his village lands or building pyramids for the Pharaoh, the Greek slave in the small workshops of Athens, the feudal serf, the master craftsman of the medieval guild or the modern wage-laborer. Means of production, themselves the result of human labor, are the expression of the contact between human labor and natural matter and are thus the eternal and universal precondition for the human production process. The figure c in the formula c + v + s thus expresses a determinate function of the means of production, one that is not extinguished when labor ceases. While it is completely irrelevant both for the exchange and the use of the commodity whether it has come into being through paid or unpaid labor, through wage-labor, slave labor, corvée,* or any other kind of labor, it is of decisive importance for the use of the commodity whether it is itself a means of production or a means of consumption. The fact that both paid and unpaid labor were used in the production of a machine is only of significance to the manufacturer of the machine and to his workers; for the company that acquires the machine through exchange, only its character as means of production, its function in the production process, is of any importance. Furthermore, just as every producing society since time immemorial has had to make allowances for the important function of the means of production by ensuring that those means of production are produced in each period of production that are required for the following period, it is equally the case that capitalist society can only undertake its production of value according to the formula v + s (i.e. through the exploitation of wage-labor) if the necessary quantity of means of production for the formation of constant capital is available as the fruit of the preceding period of production. This specific interconnection between each past period of production and the following one, which forms the universal, eternal foundation of the social process of reproduction and consists in the fact that a portion of the products of each period is determined as forming the means of production of the following period, was overlooked by Smith. He was not interested in the specific function of the means of production in the production process in which they are used, but only in the fact that they are themselves a product of the capitalist employment of wage-labor like any other commodity. For Smith, the specifically capitalist function of wage-labor in the process of production of surplus value completely obscured the eternal, universal function of the means of production in the labor process. Remaining within the bourgeois horizon, Smith completely failed to see the universal relation between human beings and nature behind the particular social relation between wage-labor and capital. It would seem, then, that herein lies the real source of Smith’s fanciful thesis that the total value of annual social production resolves into v + s. Smith overlooked the fact that constant capital, as the first term in the formula c + v + s, is the necessary expression of the universal social foundation for the capitalist exploitation of wage-labor.
The value of each commodity must thus be expressed in the formula c + v + s. The question now becomes to what extent this applies to total commodity production in society. Smith’s doubts on this score can now be considered, namely his argument that the fixed and circulating capital, and revenue, of individuals do not strictly correspond to the same categories from the standpoint of society as a whole (point 3 above). According to Smith, that which is circulating capital for one person is not capital for others, but revenue, e.g. the capital advanced as wages. This claim rests upon an error. When the capitalist pays wages to workers, he does not transfer his variable capital to the workers, such that it is transformed into their revenue; rather he gives up the value-form of his variable capital in return for its natural form: labor-power. Variable capital always remains in the hands of the capitalist: first in the money-form, then in the form of the labor-power that he has purchased, and later in the form of a component of the value of the commodities produced, finally returning to him, together with an increment, in the form of money from the proceeds of the commodities sold. The workers, on the other hand, never gain possession of variable capital. Their labor-power is never capital to them, but it is a capacity, an asset—indeed it is the only asset that they possess. When they sell it and receive money as wages in return, these wages are likewise not capital to them, but rather the price of the commodity that they have sold. Finally, the fact that the workers buy means of subsistence with the wages they have received has as little to do with the function that this money fulfills as variable capital in the hands of the capitalist as does the private use that any seller of a commodity makes of the money received for it. Therefore it is not the capitalist’s variable capital that is transformed into workers’ revenue, but rather the price of the labor-power sold as a commodity by workers, while the variable capital remains in the hands of the capitalist and continues to operate as such.
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*Corvée labor is a labor tax, in which members of a community are obligated to perform services for the society (or state) on a compulsory basis. It is the earliest form of taxation in human history.
Equally erroneous is the notion that the capitalist’s revenue (his surplus value), which, in the above example of the manufacturer of machines, is incorporated in machines that have not as yet been realized, is fixed capital for another person, i.e. for the buyer of the machines. It is not machines or machine-parts that constitute revenue for the manufacturer of machines, but the surplus value incorporated in them, i.e. the unpaid labor of his wage-laborers. After the sale of the machine, this revenue remains in the hands of the manufacturer of machines—it has merely changed the form in which it appears, and has been converted from the form of machines to that of money. Conversely, the buyer of the machine has not come into possession of fixed capital through this purchase, for he already had this in his hands as a certain money-capital. Through his purchase of the machine, he has merely given his capital the adequate material form for it to function productively. Both before and after the sale of the machine, the revenue (the surplus value) remains in the hands of the manufacturer of machines, and the fixed capital in the hands of the other person, the capitalist buyer of the machine, just as in the first example variable capital always remained in the hands of the capitalist and revenue in the hands of the worker.
What caused the confusion in Smith and in all his successors was that they confused the use-form of commodities with their value-relations in the capitalist exchange of commodities, and further that they did not separate out the individual circuits of capitals and of commodities that intersect at every turn. One and the same act of exchange can represent the circulation of capital when viewed from one side, and the simple exchange of commodities for the satisfaction of consumption needs from the other. The false proposition that what is capital for one person is revenue for another, and vice versa, can thus be reduced to the correct proposition that what is the circulation of capital for one person is the simple exchange of commodities for another, and vice versa. This merely expresses the capacity for capital to transform itself in its circuit, and the way in which different spheres of interest in the social process of exchange interlock; however, this in no way overcomes the sharply defined existence of capital, in both its distinctive forms as constant and variable capital as opposed to revenue.
Nevertheless, Smith did get very close to the truth with his claims that the capital and revenue of individuals do not strictly correspond to these categories at the level of the totality; the problem was merely that further mediations were required for a clear exposition of these relations.