The capitalist character of the system of the physiocrats excited opposition even during its flourishing period, on one side on the part of Linguet and Mably, on the other that of the champions of the freeholders of small farms.
The retrogression of Adam Smith31 in the analysis of the process of reproduction is so much more remarkable, as he manipulates other correct analyses of Quesnay, for instance, by generalizing the "avances primitives" and "avances annuelles" into "fixed" and "circulating" capital,32 and even 31 "Capital," volume I, page 647, footnote.
82 Some physiocrats had paved the way for him even here, especially Turgot. This author uses more frequently than Quesnay and the other physiocrats the term capital instead of avances and identifies still more the avances or capital of the manufacturers with those of the capitalist farmers. For instance: "Like these (the manufacturing entrepreneurs), the capitalist farmers must secure, over and above the return of their capitals, etc." (Turgot, Oeuvres, Daire edition, Paris, 1844, vol. I, page 416 Capital.
relapses entirely into physiocratic errors in some places. For instance, in order to demonstrate that the capitalist farmer produces more value than any other class of capitalists, he says: "No other capital sets a greater quantity of productive labor in motion than that of the capitalist farmer. Not only his laboring servants, but also his laboring cattle, con- sist of productive laborers." (Fine compliment for the la- boring servants!) "In agriculture, nature works as well as human beings; and although its labor does not require any expense, its product nevertheless has a value, the same as that of the most expensive laborer. The most important operations of agriculture seem to aim, not so much to in- crease the fertility of nature — although they do that, too — as to direct it toward the production of the plants most use- ful to mankind. A field grown up in thorns and weeds often enough furnishes as large a quantity of plant growth as the best tilled vineyard or corn field. Planting and cultivation serve frequently more to regulate than to stim- ulate the active fertility of nature; and after those have exhausted all their labors, there still remains a great deal of work to do for the latter. The laborer and the laboring cattle (! ) employed in agriculture, therefore, do not only effect, like the laborers in the manufactures, the reproduc- tion of a value which is equal to their own consumption and the capital employing them together with the profit of the capitalist, but that of a far greater value. Over and above the capital of the farmer and all his profits they effect regu- larly the reproduction of the rent of the land owner. The rent may be regarded as the product of the forces of nature, Ihe use of which the land owner lends to the farmer. It is larger or smaller according to the estimated degree of these forces, in other words, according to the estimated natural or artificially insured fertility of the soil. It is the work of nature which remains after deducting or replacing all that which may be regarded as the work of man. It is rare- ly less than one quarter and frequently more than one third of the total product. No other equal quantity of labor, employed in manufacture, can ever effect so large a repro- duction. In manufacture nature does nothing, man every- Former Discussions of the Subject. 417 thing; and reproduction must always be proportional to the strength of the agencies that carry it on. Therefore the capi- tal invested in agriculture does not only set in motion a greater quantity of productive labor than any equal capital employed in manufacture; but it also adds, in proportion to the quantity of productive labor employed by it, a far great- er value to the annual product of the soil and to the labor of a certain country, to the actual wealth and income of its inhabitants." (Book II, chapter 5, page 242.)
Adam Smith says in Book I, Chapter 6, page 42: "In value of the sowings is likewise a fixed capital in the proper meaning of the word." Here, then, capital is the same as capital-value; it exists in a "fixed" form. "Although the seed passes back and forth between the soil and the barn, yet it never changes owners and therefore does not circu- late in reality. The farmer does not make his profit by its sale, but by its increase." (Page 186.) The absurdity lies here in the fact that Smith does not, like Quesnay be- fore him, notice the reappearance of the value of constant capital in a new form, an important element of the process of reproduction, but merely another illustration, and a wrong one at that, of his distinction between circulating and fixed capital. In Smith's translation of "avances primi- tives" and "avances annuelles" into "fixed capital" and "circulating capital," the progress consists in the term "capi- tal," whose meaning is generalized and made independent of the special consideration for the "agricultural" applica- tion of the physiocrats; the retrogression consists in the fact that the terms "fixed" and circulating" are regarded as the fundamental distinction and so maintained.
II. Adam Smith.
(1.) The General Point of View of Adam Smith Adam Smith says in Book I, Chapter 6, page 42: "In every society the price of every commodity finally dissolve?
418 Capital.
into one or the other of these three parts (wages, profit, ground rent), or into all three of them; and in every ad- vanced society all three of them pass more or less as com- ponent parts into the price of by far the greater part of the commodities."33 Or, as he continues, page 63: "Wages, profit, and ground rent are the three final sources of all in- come as well as of all exchange value." We shall discuss further along this doctrine of Smith concerning the "com- ponent parts of the prices of commodities," or of "all ex- change value."
He says furthermore: "As this is true of every single commodity individually, it must also be true of all com- modities as a whole, constituting the entire annual product of the soil and the labor of every country. The total price or exchange-value of this annual product must dissolve into the same three parts, and be distributed among the differ- ent inhabitants of the land, either as wages of their labor, or as profit of their capital, or as rent of their real estate." (Book II, chapter 2, page 190.)
After Adam Smith has thus dissolved the price of all com- modities individually as well as "the total price or exchange- value...of the annual product of the soil and the labor of every country" into three sources of revenue for wage- workers, capitalists, and real estate owners, he must needs smuggle a fourth element into the problem by a circuitous route, namely the element of capital. This is accomplished by the distinction between a gross and a net income. "The gross income of all inhabitants of a large country comprises the entire annual product of their soil and their labor; the net income that portion which remains at their disposal after deducting the cost of maintenance, first of fixed, and second, of their circulating capital; or that portion which 33 In order that the reader may not be in doubt as to the meaning of the phrase "the price of by far the greater part of the commodities," the following lines may show how Adam Smith himself explains it. For instance, no rent passes into the price of sea fish, only wages and profit; only wages pass into the price of Scotch pebbles. He says: "In some parts of Scotland poor people make it their business to gather on the sea shore the varicolored pebbles, known as Scotch pebbles. The price which the stone cutters pay for them consists only of their wages, as neither ground rent nor profit constitute any part of it."
Former Discussions of the Subject. 419 they can place in their supply for consumption, or expend for their maintenance, comfort, and pleasure, without touching their capital. Their actual wealth likewise is pro- portional, not to their gross, but to their net income." (Ibidem, page 190.)
We make the following comment: (1). Adam Smith expressly deals here only with simple reproduction, not reproduction on an enlarged scale, or ac- cumulation. He speaks only of expenses for maintaining the capital in process. The "net" income is equal to that portion of the annual product, whether of society, or of the individual capitalist, which can pass into the "fund for con- sumption," but the size of this fund must not encroach upon capital in process. One portion of the value of both the individual and social product, then, is dissolved neither in wages, nor in profit, nor in ground rent, but in capital.
(2). Adam Smith flees from his own theory by means of a word play, the distinction between a gross arid net revenue. The individual capitalist as well as the entire capitalist class, or the so-called nation, receive in place of the consumed capital a quantity of commodities, whose value — represented by the proportional parts of this product — re- places on one hand the invested capital-value and thus forms an income, or revenue, but, mark well, a capital revenue; on the other hand, portions of value which are "distributed among the different inhabitants of the land, either as wages of their labor, or as profits of their capital, or as rent of their real estate," a thing commonly called income. Hence the value of the entire product, whether of the individual capi- talist, or of the whole country, yields an income for some- body; but it is on one hand an income of capital, on the other a "revenue" different from it. In other words, the thing which is eliminated by the analysis of the commodity in its component parts is brought back through a side door, the ambiguity of the term "revenue." But only such por- tions of the value of a product can be taken in as previously existed in it. If the capital is to come in as revenue, capital must first have been expended.
Adam Smith says furthermore: "The lowest ordinary rate of profits must always amount to a little more than is suffici- 420 Capital.
ent to make good the losses incidental to every investment of capital. It is this surplus alone which represents the clear, or net, profit." (Which capitalist understands by profit necessary investment of capital?) "That which people call gross profit comprises frequently not only this surplus, but also the portion retained for such extraordinary losses." (Book I, chapter 9, page 72.) This means nothing else but that a portion of the surplus-value, considered as a part of the gross profit, must form an insurance fund for the production. This insurance fund is created by a portion of the surplus-labor, which to that extent produces capital directly, that is to say, the fund intended for reproduction. As regards the expense for the "maintenance" of the fixed capital (see the above quotations), the replacement of the consumed fixed capital by a new one is not a new investment of capital, but only a renewal of the value of the old capital. And as far as the repair of the fixed capital is concerned, which Adam Smith counts likewise among the cost of maintenance, this expense belongs to the price of the capital advanced. The fact that the capitalist, instead of investing this all at one time, invests it gradually according to the requirements during the process of capital in service, and that he may invest it out of profits already pocketed, does not change the source of this profit. The portion of value of which it consists proves only that the laborer pro- duces surplus-value, for the insurance fund as well as for the repairing fund.
Adam Smith then tells us that he excludes from the net revenue, that is to say, from the revenue in its specific mean- ing, the entire fixed capital, furthermore that entire por- tion of the circulating capital which is required for the main- tenance and repair of the fixed capital, and for its renewal; as a matter of fact, all capital not in the natural form in- tended for the fund for consumption.
"The entire expenditure for the maintenance of the fixed capital must evidently be excluded from the net revenue of society. Neither the raw materials by means of which the machines and tools of industry must be kept in condi- tion nor the product of the labor required for the transforms- Former Discussions of the Subject. 421 tion of these raw materials into their intended form can ever constitute a portion of this revenue. The price of this labor may indeed form a portion of that revenue, as the labor- ers so employed may invest the entire value of their wages in their immediate fund for consumption. But in other kinds of labor the price" (that is to say, the wages paid for this labor) "as well as the product" (in which this la- bor is incorporated) "enter into the fund for consumption; the price into that of the laborers, the product into that of other people, whose subsistence, comfort, and pleasure are increased by the labor of these workmen." (Book II, Adam Smith here comes upon a very important distinc- tion between the laborers employed in the immediate pro- duction of means of production and those employed in the immediate production of articles of consumption. The value of the commodities produced by the first-named con- tains a part which is equal to the sum of the wages, that is to say, equal to the value of the amount of capital invested in the purchase of labor-power. This value exists bodily as a certain share of the means of production produced by these laborers. The money received by them as wages is their revenue, but their labor has not produced any goods which are consumable, either for them or for others. Hence these products are not an element of that portion of the annual product which is intended for a social fund for consumption, in which a "net revenue" can alone be realized. Adam Smith forgets to add here that the same thing which applies to wages is also true for that portion of the value of the means of production, which forms the revenue (in the first hand) of the industrial capitalist under the cate- gories of profit and rent. These portions of value likewise exist in means of production, articles which cannot be con- sumed. They cannot secure out of the articles of consumption produced by the second kind of laborers a quantity corresponding to their price until they have been sold; only then can they transfer those articles to the individual fund for consumption of their owner. But so much more Adam Smith should have seen that this excludes the value of the 422 Capital.
means of production serving within the sphere of produc- tion— the means of production which produce means of production — a portion of value equal to the value of the constant capital employed in this sphere and excluded from the portions of value forming a revenue, not only by the natural form in which it exists, but also by its function as capital.
The statements of Adam Smith regarding the second kind of laborers— who produce immediately articles of con- sumption— are not quite exact. He says that in this kind of labor, both the price of labor and the product go to the fund for immediate consumption, "the price" (that is to say, the money received in wages) "to the stock for the consumption of the laborers, and the product to that of other people, whose subsistence, comfort, and pleasure are increased by the labor of these workmen." But the laborer cannot consume the "price" of his labor directly, the money in which his wages are paid; he makes use of it by buying articles of consumption with it. These may in part consist of classes of commodities produced by himself. On the other hand, his own produce may be such as goes only into the consumption of the exploiters of labor.
After Adam Smith has thus entirely excluded the fixed capital from the "net revenue" of a certain country, he continues: "While the entire expense for maintaining the fixed capi- tal is thus necessarily excluded from the net revenue of society, the same is not the case with the expense of main- taining the circulating capital. Of the four parts which go to make up this last named capital, money, means of sub- sistence, raw materials, and finished products, the last three, as we have said, are regularly taken out of it and trans- ferred either to the fixed capital of society, or to the fund intended for immediate consumption. That portion of the consumable articles which is not employed for the main- tenance of the former" (the fixed capital) "passes wholly into the latter" (the fund for immediate consumption) "and forms a part of the net revenue of society. Hence the maintenance of these three parts of the circulating capital Former Discussions of the Subject. 423 does not diminish the net revenue of society by any other portion of the annual product than that required for main- taining the fixed capital." (Book II, chapter 2, page 192.)
This is but a tautology, to the effect that that portion of the circulating capital, which does not serve for the pro- duction of means of production, passes into that of means of consumption, in other words, passes into that part of the annual product, which is to serve as a fund for the social consumption. However, the immediately following passage is important: "The circulating capital of society is different in this re- spect from that of an individual. That of an individual is wholly excluded from his net revenue, and can never form a part of it; it can consist only of his profit. But although the circulating capital of each individual goes to make up a portion of the circulating capital of the society to which he belongs, it is nevertheless not absolutely excluded for this reason from the net revenue of society, and may form a part of it. While all the commodities in the store of some small dealer must not by any means be placed in the supply for his own immediate consumption, still they may be- long in the fund for consumption of other people, who, by means of a revenue secured by other funds, may regular- ly make good for him their value together with his profit, without thereby causing a reduction of either his or their capital." (Ibidem.)
We learn, then, the following facts from him: (1). Just as the fixed capital, and the circulating capi- tal required for its reproduction (he forgets the function) and maintenance, are absolutely excluded from the net reve- nue of the individual capitalist which can consist only of his profit, so is also the circulating capital employed in the production of means of consumption. Hence that por- tion of his commodity-product which reproduces his capital cannot be dissolved into portions of value which yield any revenue for him.
(2). The circulating capital of each individual capitalist constitutes a part of the circulating capital of society, the same as every individual fixed capital.
424 Capital.
424 Capital.
(3). The circulating capital of society, while represent- ing only the sum of the individual circulating capitals, has a different character than the circulating capital of every individual capitalist. The circulating capital of the individ- ual capitalist can never be a part of his own revenue; but a portion of the circulating capital of society (namely, that consisting of means of consumption) may at the same time be a portion of the revenue of society, or, as he expressed it in the preceding quotation, it must not necessarily reduce the net revenue of society by a portion of the annual product. Indeed, that which Adam Smith here calls circulating capi- tal, consists in the annually produced commodity-capital, which is thrown into circulation annually by the capitalists producing it. This entire annual commodity-product of theirs consists of consumable articles and, therefore, forms the fund in which the net revenue of society (including wages) is realized or expended. Instead of choosing for his illustration the commodities in the store of the small dealer, Adam Smith should have selected the masses of commodi- ties stored away in the warehouses of the industrial capi- talists.
Now if Adam Smith had summed up the snatches of thought which forced themselves upon him, first in the study of the reproduction of that which he calls fixed, then of that which he calls circulating capital, he would have arrived at the following result: I. The annual product of society consists of two divisions; one of them comprises the means of production, the other the means of consumption. Both must be treated separately.
II. The aggregate value of the annual product consisting of means of production is divided as follows: One portion of the value represents but the value of the means of pro- duction consumed in the creation of these means of produc- tion; it is but capital-value reappearing in a renewed form; another portion is equal to the value of the capital invested in labor-power, or equal to the sum of the wages paid by the capitalists of this sphere of production. A third portion of value, finally is the source of profits, including ground rent, of the industrial capitalists in this sphere.
Former Discussions of the Subject. 425 The first portion of value, according to Adam Smith the reproduced portion of the fixed capital of all the in- dividual capitals employed in this first section, is "evidently excluded and can never form a part of the net revenue," either of the individual capitalist or of society. It always serves as capital, never as a revenue. To that extent the "fixed capital" of each individual capitalist is in no way different from the fixed capital of society. But the other por- tions of the annual product of society consisting of means of production, — portions of value which also exist in the aliquot parts of this mass of means of production — form indeed revenues for all agents engaged in this production, yielding wages for the laborers, profits and ground rent for the capitalists. But so far as society is concerned, they are capital, not revenue, although the annual product of society consists only of the sums of the products of the individual capitalists belonging to it. These things are generally fit only for service as means of production by their very na- ture, and even those which may eventually serve as means of consumption are intended for service as raw or auxili- ary materials of new production. But they serve as such — as capital — not in the hands of their producers, but in those of their purchasers, namely, III. The capitalists of the second category, the direct producers of means of consumption. These things reproduce for these capitalists the capital consumed in the production of means of consumption (so far as this capital is not con- verted into labor-power, so that it consists in the sum of the wages of the laborers of this second class), while this con- sumed capital, which now exists in the form of means of consumption in the hands of the capitalists producing them, constitutes in its turn — from the point of view of society — the fund intended for consumption, in which the capitalists and laborers of the first category realize their revenue.
If Adam Smith had continued his analysis to this point, then he would have lacked but little for the complete so- lution of the problem. He was almost on the point of solv- ing it, for he had already observed, that certain values of one kind (means of production) of the commodity-capitals 426 Capital.
426 Capital.
constituting the total product of society yield indeed a revenue for the laborers and capitalists engaged in produc- tion, but do not contribute anything toward the revenue of society; while another part of value of another kind (means of consumption), although it is capital for its in- dividual owners, that is to say, for the capitalists engaged in this sphere, is only a part of the social revenue.
So much is evident from the foregoing: First: Although the social capital is but made up of the sum of the individual capitals, and for this reason the annual product in commodities (or the commodity-capital) equal to the sum of commodities produced by these indi- vidual capitals; and although the analysis of the value of commodities into its component parts, applicable to every individual commodity-capital, must also apply to the entire social con modity-capital, and actually does so result in the end, nevertheless the forms which these different component parts assume, when incorporated in the aggregate process of social production, differ.
Second: Even on the basis of simple reproduction, there is not merely a production of wages (variable capital) and surplus-value, but a direct production of new constant capi- tal, although the working day consists only of two parts, one in which the laborer reproduces the variable capital, an equivalent for the purchase price of his labor-power, and another in which he produces surplus-value (profit, rent, etc.). For the daily labor, which is expended in the reproduction of means of production — and whose value is composed of wages and surplus-value — realizes itself in new means of production that take the places of the constant parts of capital consumed in the production of means of consumption.
The main difficulties, the greater part of which has been solved in the preceding analyses, are not offered by a study of accumulation, but by that of simple reproduction. For this reason, Adam Smith (book II) as well as Quesnay (Tableau Economique) take their departure from simple reproduction, whenever it is a question of the movements of the annual product of society and of its reproduction by means of circulation.
Former Discussions of the Subject. 427 II. Smith Resolves Exchange- Value Into V Plus S.
The dogma of Adam Smith, to the effect that exchange- able value, or the price of any commodity — and therefore of all commodities constituting the annual product of so- ciety (since he justly assumes everywhere the existence of capitalist production) — is made up of three component parts, or resolves itself into wages, profit, and rent, may be re- duced to the fact that the value of a commodity is equal to v plus s, that is to say, equal to the value of the advanced variable capital plus the surplus-value. And we may un- dertake this reduction of profit and rent to a common unit called s with the expressed permission of Adam Smith, as shown by the following quotations, in which we leave aside all minor points, especially any actual or apparent devia- tion from his dogma that the value of the commodities re- solves itself exclusively into those elements which we call v plus s.