Capital: A Critique of Political Economy, Vol. II. The Process of Circulation of Capital

Karl Marx
Marx, Karl
Display paragraphs in this book containing:
Friedrich Engels, ed. Ernest Untermann, trans.
First Pub. Date
Chicago: Charles H. Kerr and Co.
Pub. Date
Das Kapital, based on the 2nd edition.
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Part III, Chapter XIX.*36



Quesnay's Tableau Economique shows in a few broad outlines, how the result of national production in a certain year, amounting to some definite value, is distributed by means of the circulation in such a way, that, other circumstances remaining the same, simple reproduction can take place, that is to say, reproduction on the same scale. The starting point of this period of production is fittingly last years's crop. The innumerable individual acts of circulation are at once viewed in their characteristic social mass movement—the circulation between great social classes distinguished by their economic functions. We are especially interested in the fact that a portion of the total product—which, like every other portion of it is a new result of last year's labor and intended for use—is at the same time the bearer of old capital-values re-appearing in their natural form. It does not circulate, but remains in the hands of its producers, the class of capitalist farmers, in order to begin its service as capital once more for them. In this constant portion of the capital of one year's product, Quesnay includes also some elements that do not belong to it, but he sees the main thing, thanks to the limits of his horizon, in which agriculture is the only productive sphere of investment where human labor produces surplus-value, hence the only productive one from the capitalist point of view. The economic process of reproduction whatever may be its specific social character, intermingles in this sphere of agriculture always with a natural process of reproduction. The obvious conditions of the latter throw light on those of the former, and keep off a confusion of thought, which is due only to the witchery of circulation.


The label of a system differs from that of other articles, among other things, by the fact that it cheats not only the buyer, but often also the seller. Quesnay himself and his immediate disciples believed in their feudal shop sign. So did our school scientists to this day. But as a matter of fact, the system of the physiocrats is the first systematic conception of capitalist production. The representative of capitalist production, the class of capitalist farmers, directs the entire economic movement. Agriculture is carried on capitalistically, that is to say, it is the enterprise of a capitalist farmer on a large scale; the immediate cultivator of the soil is the wage laborer. Production creates not only articles of use, but also their value; its compelling motive is the production of surplus-value, whose birth-place is the sphere of production, not that of circulation. Among the three classes which figure as the bearers of the process of reproduction promoted by the circulation the immediate exploiter of "productive" labor, the producer of surplus-value, the capitalist farmer, is distinguished from those who merely appropriate surplus-value.


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 Smith*37 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,*38 and even 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, consist of productive laborers." (Fine compliment for the laboring 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 increase the fertility of nature—although they do that, too—as to direct it toward the production of the plants most useful 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 stimulate 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 reproduction 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 regularly the reproduction of the rent of the land owner. The rent may be regarded as the product of the forces of nature, the 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 rarely 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 reproduction. In manufacture nature does nothing, man everything; and reproduction must always be proportional to the strength of the agencies that carry it on. Therefore the capital 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 greater 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 circulate 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 before 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 primitives" and "avances annuelles" into "fixed capital" and "circulating capital," the progress consists in the term "capital," whose meaning is generalized and made independent of the special consideration for the "agricultural" application of the physiocrats; the retrogression consists in the fact that the terms "fixed" and circulating" are regarded as the fundamental distinction and so maintained.




Adam Smith says in Book I, Chapter 6, page 42: "In every society the price of every commodity finally dissolves into one or the other of these three parts (wages, profit, ground rent), or into all three of them; and in every advanced society all three of them pass more or less as component parts into the price of by far the greater part of the commodities."*39 Or, as he continues, page 63: "Wages, profit, and ground rent are the three final sources of all income as well as of all exchange value." We shall discuss further along this doctrine of Smith concerning the "component parts of the prices of commodities," or of "all exchange value."


He says furthermore: "As this is true of every single commodity individually, it must also be true of all commodities 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 different 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 commodities 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 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 proportional, 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 accumulation. 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 consumption," 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 and 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—replaces 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 capitalist, or of the whole country, yields an income for somebody; 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 portions 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 sufficient 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 produces 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 meaning, the entire fixed capital, furthermore that entire portion of the circulating capital which is required for the maintenance and repair of the fixed capital, and for its renewal; as a matter of fact, all capital not in the natural form intended 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 condition nor the product of the labor required for the transformation 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 laborers 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 labor 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, chapter 2, page 190, 191.)


Adam Smith here comes upon a very important distinction between the laborers employed in the immediate production 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 contains 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 categories of profit and rent. These portions of value likewise exist in means of production, articles which cannot be consumed. 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 means of production serving within the sphere of production—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 consumption—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 capital is thus necessarily excluded from the net revenue of society, the same is not the case with the expense of maintaining the circulating capital. Of the four parts which go to make up this last named capital, money, means of subsistence, raw materials, and finished products, the last three, as we have said, are regularly taken out of it and transferred 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 maintenance 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 does not diminish the net revenue of society by any other portion of the annual product than that required for maintaining 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 production 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 respect 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 belong in the fund for consumption of other people, who, by means of a revenue secured by other funds, may regularly 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 capital required for its reproduction (he forgets the function) and maintenance, are absolutely excluded from the net revenue 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 portion 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.


(3). The circulating capital of society, while representing 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 individual 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 capital, 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 commodities stored away in the warehouses of the industrial capitalists.


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 production consumed in the creation of these means of production; 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.


The first portion of value, according to Adam Smith the reproduced portion of the fixed capital of all the individual 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 portions 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 nature, and even those which may eventually serve as means of consumption are intended for service as raw or auxiliary 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 converted into labor-power, so that it consists in the sum of the wages of the laborers of this second class), while this consumed 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 solution of the problem. He was almost on the point of solving it, for he had already observed, that certain values of one kind (means of production) of the commodity-capitals constituting the total product of society yield indeed a revenue for the laborers and capitalists engaged in production, 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 individual 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 individual 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 commodity-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 capital, 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.



The dogma of Adam Smith, to the effect that exchangeable value, or the price of any commodity—and therefore of all commodities constituting the annual product of society (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 reduced 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 undertake 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 deviation from his dogma that the value of the commodities resolves itself exclusively into those elements which we call v plus s.


In manufacture: "The value which the laborers add to the material resolves itself...into two parts, one of which pays their wages, and the other the profit of their employer on the entire capital advanced by him in materials and wages." (Book I, chapter 6, page 41.) "Although the manufacturist gets his wages advanced by his master, he does not cost the latter anything in reality, since as a rule the value of these wages is preserved together with a profit, in the increased value of the object to which the labor was applied." (Book II, chapter 3, page 221). That portion of the stock which is invested "in the maintenance of productive labor...after it has served him (the employer) in the function of a capital...forms a revenue for them" (the laborers). (Book II, chapter 3, page 223.)


Adam Smith says explicitly in the chapter just quoted: "The entire annual product of the soil and the labor of each country...naturally resolves itself into two parts. One of them, and frequently the greater, is intended primarily to replace capital and to reproduce the means of subsistence, raw materials and finished products obtained from some capital; the other is intended to form a revenue either for the owner of this capital, as a profit on his capital, or for some one else, as a rent of his real estate." (Page 222.) Only a portion of the capital, so Adam Smith informed us just awhile ago, also forms a revenue for some one, namely that which is invested in the purchase of productive labor. This portion—the variable capital—performs first "the function of capital" for its employer and in his hands, and then it "forms a revenue" for the productive laborer himself. The capitalist transforms a portion of the value of his capital into labor-power and thereby into variable capital; it is only due to this transformation that not alone this portion of capital, but his entire capital, serve as industrial capital. The laborer—the seller of his own labor-power—receives its value in the form of wages. In his hands, labor-power is but a saleable commodity, a commodity whose sale keeps him alive, which is the sole source of his revenue; laborpower serves as a variable capital only in the hands of its buyer, the capitalist, and the capitalist advances its purchase price only apparently, since its value has been previously supplied to him by the laborer.


After Adam Smith has thus shown that the value of a product in manufacture is equal to v plus s (s standing for the profit of the capitalist), he tells us that, in agriculture, the laborers effect, aside from "the reproduction of a value which is equal to their own consumption and the (variable) capital employing them plus the profit of the capitalist," furthermore, "over and above the capital of the farmer and all his profit regularly the reproduction of the rent of the owner of the real estate." (Book II, chapter 5, page 243.) The fact that the rent passes into the hands of the real estate owner, is immaterial for the question under consideration. Before it can pass into his hands, it must be in those of the farmer, that is to say, of the industrial capitalist. It must form a part of the value of the product, before it can become a revenue for any one. Rent as well as profit are but component parts of surplus-value, even in the opinion of Adam Smith himself, and the productive laborer reproduces them continually together with his own wages, that is to say, with the value of the variable capital. Hence rent and profit are parts of the surplus-value s, and thus, with Adam Smith, the price of all commodities resolves itself into v plus s.


The dogma, that the price of all commodities (also of the annual product in commodities) resolves itself into wages plus profit, plus ground rent, assumes in the interspersed esoteric portion of Smith's work quite naturally the form that the value of every commodity, hence also that of the annual social product in commodities, is equal to v plus s, or equal to the value of the capital invested in labor-power and continually reproduced by the capitalist plus the surplus-value added by the labor of the laborers.


This outcome of the analysis of Adam Smith reveals at the same time—see farther along—the source of this one-sided analysis of the component parts into which the value of a commodity resolves itself. But the determination of the magnitude of these component parts and of the limit of their value has no bearing on the circumstance that they are at the same time different sources of revenue for different classes engaged in production.


Various inconsistencies are jumbled together when Adam Smith says: "Wages, profit, and ground rent are the three primary sources of all revenue as well as all exchange-value. Every other revenue is derived, in the last instance, from one of these." (Book I, chapter 6, page 48.)


(1). All members of society not directly engaged in reproduction, with or without labor, can obtain their share of the annual product of commodities—in other words, their articles of consumption—primarily only out of the hands of those classes who are the first to handle the product, that is to say, productive laborers, industrial capitalists, and real estate owners. To that extent their revenues are substantially derived from wages (of the productive laborers), profit, and ground rent, and appear as indirect derivations when compared to these primary sources of revenue. But, on the other hand, the recipients of these revenues, thus indirectly derived, draw them-by grace of their social functions, for instance that of a king, priest, professor, prostitute, soldier, etc., and they may regard these functions as the primary sources of their revenue.


(2). Here the ridiculous mistake of Adam Smith reaches its climax. After having taken his departure from a correct determination of the component parts of the value of commodities and the sum of values of the product incorporated in them, and having demonstrated that these component parts form so many different sources of revenue;*40 after having in this way deducted the revenues from the value, he proceeds in the opposite way—and this remains the ruling conception with him—and makes of the revenues "primary sources of all exchange-value" instead of "component parts," thereby throwing the doors wide open to vulgar economy. (See, for instance, our Roscher.)



Let us now see, how Adam Smith tries to spirit away the constant portion of the value of commodities.

"In the price of corn, for instance, one portion pays the rent of the land owner." The origin of this portion of value has no more to do with the circumstance that it is paid to the land owner and forms for him a revenue in the shape of rent than the origin of the other portions of value has to do with the fact that they constitute sources of revenue as profit and wages.

"Another portion pays the wages and subsistence of the laborers" (and of the laboring cattle, as he adds) "employed in its production, and the third portion pays the profit of the capitalist farmer. These three portions seem" (they seem indeed) "to constitute either directly, or in the last instance, the entire price of corn."*41 This entire price, that is to say, the determination of its magnitude, is absolutely independent of its distribution among three kinds of people. "A fourth portion may seem necessary in order to reproduce the capital of the farmer, or the wear of his laboring cattle and of his other implements. But it must be considered that the price of any agricultural implement, for instance of a laboring horse, is in its turn composed of the above three parts: the rent of the land on which it is bred, the labor of breeding, and the profit of the farmer who advances both the rent of this land and the wages of this labor. Hence, although the price of the corn may reproduce the price as well as the cost of maintenance of the horse, the entire price still resolves itself, directly or in the last instance, into the same three parts: ground rent, labor," (he means wages) "and profit." (Book I, chapter 6, page 42.)


This is verbatim all that Adam Smith has to say in support of his surprising doctrine. His proof consists simply in the repetition of the same contention. He admits, for instance, that the price of corn does not only consist of v plus s, but contains also the price of the means of production consumed in the production of corn, in other words, the value of a capital not invested in labor-power by the farmer. But, says he, the prices of all these means of production likewise resolve themselves into v plus s, the same as the price of corn. He forgets, however, to add in this case, that they also contain the prices of the means of production consumed in their production. He refers us from one line 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 plus s would not be a specious subterfuge in the sole case that he could demonstrate that the product in commodities, the price of which resolves itself immediately into c (price of consumed means of production) plus v plus s, is ultimately compensated by products which reproduce those "consumed means of production" completely and which are themselves produced by the investment of mere variable capital, by a mere investment of capital in labor-power. The price of these last products would then be v plus s. And in that case the price of the first products, represented by c plus v plus s, where c stands for the constant portion of capital, could be ultimately resolved into v plus s. Adam Smith himself did not believe that he had furnished such a proof by his example of the collectors of Scotch pebbles, who, according to him, do not produce any surplus-value, but produce only their own wages, and who, in the second place, do not employ any means of production (they do, however, employ them, such as baskets, sacks, and other means of carrying the stones).


We have already seen that Adam Smith later on throws his own theory over, without, however, being conscious of his contradictions. But the source of these is found precisely in his scientific premises. The capital converted into labor produces a greater value than its own. How does it do that? It is due, says Adam Smith, to the laborers, who impregnate, during the process of production, the things on which they work with a value which forms not only an equivalent for their own purchase price, but also a surplus-value, appropriated, not by them, but by their employers (profit and rent). That is all they accomplish, and all that they can accomplish. And what is true of the industrial labor of one day, is true of the labor set in motion by the entire capitalist class during one year. Hence the aggregate mass of the annual social product in values can resolve itself only into v plus s, into an equivalent by which the laborers reproduce the value of the capital expended for the purchase of their labor-power, and into an additional value which they must deliver over and above their own value to their employers. These two elements of 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 laborers; 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 real estate owners. Whence, then, should come another element of value, since the value of the annual product contains no other elements but v plus s? We are working on the basis of simple reproduction. Since the entire quantity of annual labor resolves itself into labor required for the reproduction of the value of the capital invested in labor-power, and labor required for the creation of surplus-value, where would the labor required for the production of the value of a capital not invested in labor-power come from?


The situation is as follows:


(1). Adam Smith determines the value of a commodity by the quantity of labor which the wage worker adds to the object of labor. He calls it materials of labor, since he is dealing with manufacture, which is working up products of other labor. But this does not alter the matter. The value which the laborer adds to a thing (and this "adds" is an expression of Adam Smith) is entirely independent of the fact whether or not this thing, to which value is added, had itself any value before this addition took place. The laborer creates a product of value in the form of a commodity; this, according to Adam Smith, is partly an equivalent for his wages, and this part, then, is determined by the value of his wages; according to whether his wages are high or low, he has to add more or less value in order to produce or reproduce an equivalent for his wages. On the other hand, the laborer adds more labor over and above the limit so drawn, and this constitutes the surplus value for the capitalist who employs him. Whether this surplus-value remains entirely in the hands of the capitalist or is yielded by him in portions to third persons, does not alter the qualitative fact that the additional labor of the laborer is surplus-value, not the quantity of this additional value. It is value the same as any other portion of the value of the product, but it differs from other portions by the fact that the laborer has not received any equivalent for it, nor will receive any later on, because it is appropriated by the capitalist without any equivalent. The total value of a commodity is determined by the quantity of labor expended by the laborer in its production; one portion of this total value is determined by the fact that it is equal to the value of the wages, an equivalent for them. The second portion, the surplus-value, is, therefore, likewise determined, for it is equal to the total value of the product minus that portion which is equivalent to the wages; it is equal to the excess of the value created in the manufacture of the product over that portion which is an equivalent for the wages.


(2). That which is true of a commodity produced in some individual industrial establishment by any individual laborer is true of the annual product of all lines of business together. That which is true of the day's work of some individual productive laborer is true of the entire year's work realized by the entire class of productive laborers. It "fixes" (expression of Adam Smith) in the annual product a total value determined by the quantity of the annual labor expended, and this total value resolves itself into one portion determined by that part of the annual labor which reproduces the equivalent of its annual wages, or these wages themselves; and into another portion determined by the additional labor by which the laboring class creates surplus-value for the capitalist class. The value contained in the annual product then consists of but two elements, namely the equivalent of the wages received by the laboring class, and the surplus-value annually created 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; both of them represent the relative shares in the annual fund for consumption (this view is correct when simple reproduction is the premise) and are realized in it. There is, then, no room left anywhere for the value of the constant capital, for the reproduction of the capital serving in the form of means of production. And Adam Smith states explicitly in the introduction of his work that all portions of the value of commodities which serve as revenue coincide with the annual product of labor intended for a social fund for consumption: "In what the revenue of the people consisted generally, or what was the nature of the fund, which...supplied their annual consumption, to explain this is the purpose of these first four books." (Page 12.) And in the very first sentence of the introduction we read: "The annual labor of every nation is the fund, which supplies them originally with all the subsistence which they consume in the course of the year, and which always consist either of the immediate product of this labor, or in articles bought with this product from other nations." (Page 11.)


The first mistake of Adam Smith consists in identifying the value of the annual product with the annual product in values. The latter is only the product of labor of the current year, the former includes furthermore all elements of value consumed in the making of the annual product, but which have been produced in the preceding or even in earlier years, means of production whose value merely re-appears, but which have been neither produced nor reproduced by the labor expended in the current year. By this mistake, Adam Smith spirits away the constant portion of the value of the annual product. His mistake rests on another error in his fundamental conception: He does not distinguish the two-fold nature of labor itself, of labor which creates exchange-value by the expenditure of labor-power, and labor which creates articles of use (use-values) as a concrete, useful, activity. The total quantity of the commodities made annually, in other words, the total annual product, is the product of the useful labor active during the the past year; all these commodities exist only because socially employed labor has been spent in a systematized network of many kinds of useful labor; it is due to this fact alone that the value of the means of production consumed in their production, re-appearing in a new natural form, is contained in their total value. The total annual product, then, is the result of the useful labor expended during the year; but only a portion of the value of the annual product has been created during the year; this portion is the annual product in values, in which the quantity of labor set in motion during the year itself is represented.


Hence, if Adam Smith says in the just cited passage: "The annual labor of every nation is the fund, which supplies them originally with all the subsistence which they consume in the course of the year, etc.," he places himself one-sidedly upon the standpoint of mere useful labor, which has indeed given all these means of subsistence their consumable form. But he forgets that this was impossible without the assistance of instruments and materials of labor supplied by former years, and that, therefore, the "annual labor," so far as it has created any values, did not create all the value of the products finished by it; that the product in values is smaller than the value of the products.


While we cannot reproach Adam Smith for going in this analysis no farther than all his successors (although a step toward a correct solution is already found among the physiocrats), he loses himself, on the other hand, in a chaos further along, mainly because his "esoteric" conception of the value of commodities in general is constantly vitiated by exoteric ideas, which on the whole prevail with him, while his scientific instinct permits his esoteric conception to reappear from time to time.



That portion of the value of every commodity (and therefore also of the annual product) which is but an equivalent of the wages is equal to the capital advanced by the capitalist for labor-power, in other words, equal to the variable portion of the total capital advanced. The capitalist recovers this portion of the value of his advanced capital through a portion of the value of a commodity newly supplied by the wage laborer. Whether the variable capital is advanced in such a way that the capitalist pays the laborer his share in a product which is not yet ready for sale, or which, though ready, has not yet been sold by the capitalist, or whether he pays him with money obtained by the sale of commodities previously supplied by the laborer, or whether he has drawn this money in advance by means of credit—in all these cases the capitalist expends variable capital, which passes into the hands of the laborer in the form of money, and at the same time he possesses the equivalent of this value of his capital in that portion of the value of his commodities by which the laborer reproduces his share of its total value, in other words, by which he reproduces his own wages. Instead of giving him this portion of the value in its natural form, that of his own product, the capitalist pays him in money. The capitalist then holds the variable portion of his advanced capital in the form of commodities, while the laborer has received the equivalent for his sold labor-power in the form of money.


Now while that portion of the capital advanced by the capitalists, which has been converted by the purchase of labor-power into variable capital, serves in the process of production itself as laboring power and is produced as a new value, or reproduced, by the expenditure of this force, in the form of commodities,—hence a reproduction, or new production of capital—the laborer spends the value or price of his sold labor-power in means of subsistence, in means for the reproduction of his labor-power. A quantity of money equal to the variable capital forms his revenue, which lasts only so long as he can sell his labor-power to the capitalist.


The commodity of the wage laborer—his labor-power—serves as a commodity only to the extent that it is incorporated in the capital of the capitalist and acts as capital; on the other hand, the capital expended by the capitalist as money-capital in the purchase of labor-power serves as a revenue in the hands of the seller of labor-power, the wage laborer.


Various processes of circulation and production intermingle here, which Adam Smith does not clearly distinguish.


First: Processes belonging to circulation. The laborer sells his commodity—labor-power—to the capitalist; the money with which the capitalist buys it is from his point of view money invested for gain, in other words, money-capital; it is not spent, but advanced. (This is the real meaning of "advance"—avance in the language of the physiocrats—no matter where the capitalist gets the money. Every value which the capitalist pays out for the purposes of the productive process, is advanced from his point of view, regardless of whether this takes place before or after the fact; it is advanced for the process of production.) The same takes place here as in every other sale of commodities: The seller gives away a use-value (in this case his labor-power) and receives its value (realizes its price) in money; the buyer gives away his money and receives in turn the commodity itself—in this case labor-power.


Secondly: In the process of production, the purchased labor-power now forms a part of the acting capital, and the laborer himself serves here merely as one particular natural form of this capital, distinguished from the elements existing in the natural form of means of production. During the process, the laborer adds value to the means of production which he converts into products, by expending labor-power to the amount of his wages (without surplus-value); he reproduces for the capitalist that portion of his capital in the form of commodities which has been, or has to be, advanced for wages; hence he produces for the capitalist that capital which he can "advance" once more for the purchase of labor-power.


Thirdly: In the sale of the commodities, one portion of their selling price reproduces the variable capital advanced by the capitalist, whereby he, on the one hand, is enabled to buy more labor-power, and the laborer, on the other hand, to sell more.


In all purchases and sales of commodities—so far as these transactions are merely regarded by themselves,—it is quite immaterial what becomes of the money in the hands of the seller received for his commodities, and what becomes of the article of use in the hands of the buyer received in exchange for this money. Hence, so far as the mere process of circulation is concerned, it is quite immaterial that the labor-power bought by the capitalist reproduces the value of capital for him, and that, on the other hand, the money received by the laborer as a purchase-price of his labor-power serves as his revenue. The magnitude of the value of the commodity of the laborer, his labor-power, is not affected either by serving as a revenue for him or by reproducing, through its use, on the part of the buyer, the value of the capital of the buyer.


Since the value of the labor-power—that is to say, the adequate selling price of this commodity—is determined by the quantity of labor required for its reproduction, and this quantity of labor itself is here determined by that required for the necessary subsistence of the laborer, the wages become a revenue on which the laborer has to live.


It is entirely wrong, when Adam Smith says (page 223): "That portion of capital which is invested in the maintenance of productive labor...after it has served him" (the capitalist) "in the function of a capital...forms a revenue for them" (the laborers). The money with which the capitalist pays for the labor-power purchased by him, "serves him in the function of a capital," to the extent that he thereby incorporates labor-power in the material elements of his capital and thus enables his capital to serve as productive capital. We make this distinction: The labor-power is a commodity, not a capital, in the hands of the laborer, and it constitutes for him a revenue, so long as he can repeat its sale; it serves as capital, after its sale, in the hands of the capitalist, during the process of production itself. That which here serves twice is labor-power; as a commodity which is sold at its value, in the hands of the laborer; as a power creating exchange-values and use-values, in the hands of the capitalist who has bought it. But the money which the laborer receives from the capitalist is not given to him until after he has given the capitalist the use of his labor-power, after it has already been realized in the value of the product of labor. The capitalist holds this value in his hands, before he pays for it. Hence it is not the money which serves twice here; first, as the money-form of the variable capital, and then as wages. It is labor-power which has served twice; first, as a commodity in the sale of labor-power (in stipulating the amount of wages to be paid, the money serves merely as an ideal measure of value and need not even be in the hands of the capitalist); secondly, in the process of production, in which it serves as capital, in other words, as an element in the hands of the capitalist creating exchange-value and use-values. Labor-power first supplies, in the form of commodities, the equivalent which is to be paid to the laborer, and then only is it paid by the capitalist to the laborer in money. In other words, the laborer himself creates the fund out of which the capitalist pays him. But this is not all.


The money, which the laborer receives, is spent by him for the maintenance of his labor-power, or—looking upon the capitalist class and working class as an aggregate mass—is spent to preserve for the capitalist an instrument by means of which alone he can remain a capitalist.


The continuous purchase and sale of labor-power, then, perpetuates on one hand labor-power as an element of capital, by the the grace of which it appears as the creator of commodities, use-values having an exchange-value, by means of which, furthermore, that portion of capital which buys labor-power is continually reproduced by its own product, so that the laborer himself creates the fund of capital out of which he is paid. On the other hand, the sale of labor-power becomes the ever renewed source for the maintenance of the laborer and makes of his labor-power that faculty through which he secures his revenue, by which he lives. Revenue in this case signifies nothing else but an appropriation of values by means of ever repeated sales of a commodity (labor-power), these values serving merely for the continual reproduction of the commodity to be sold. And to this extent Smith is right when he says that that portion of the value of the laborer's product, for which the capitalist pays him an equivalent in the form of wages, becomes a source of revenue for the laborer. But this does not alter the nature or magnitude of this portion of value of the commodity any more than the value of the means of production is changed by the fact that they serve as capital-values, or the nature and magnitude of a straight line are changed by the fact that it serves as a basis for some triangle or as a diameter of some ellipse. The value of labor-power remains quite as independent as that of those means of production. This portion of the value of a commodity neither consists of a revenue as one of its independent constituent factors, nor does it resolve itself into revenue. Because this value, ever renewed by the laborer, constitutes a source of revenue for him, that is no reason why his revenue, on the other hand, should be an element of the new values produced by him. The magnitude of his share in the new value created by him determines the volume of the value of his revenue, not vice versa. The fact that this portion of the new value forms a revenue for him indicates merely what becomes of it, shows the character of its employment, and has no more to do with its formation than with that of any other value. The fact that my receipts are ten dollars a week changes nothing in the nature of the value of the ten dollars nor in the magnitude of their value. As in the case of every other commodity so in that of labor-power its value is determined by the labor necessary for its reproduction; that the quantity of this labor is determined by the value of the necessary subsistence of the laborer, in other words, that it is equal to the labor required for the reproduction of his own life's conditions, is peculiar for this commodity (labor-power), but no more peculiar than the fact that the value of laboring cattle is determined by the subsistence necessary to produce this subsistence.


But it is this category of "revenue" which is to blame for all the confusion in Adam Smith over this question. The various kinds of revenue constitute with him the "component parts" of the annually produced new values of commodities, while, vice versa, the two portions into which these values resolve themselves for the capitalist form sources of revenue—namely the equivalent of his variable capital advanced for the purchase of labor-power and the other portion of value, the surplus-value, which likewise belongs to him but did not cost him anything. The equivalent of the variable capital is once more advanced for labor-power and to that extent forms a revenue for the laborer in the shape of wages; the other portion, the surplus-value, which does not reproduce any advance of capital for the capitalist, may be spent by him in articles of consumption (whether necessary or luxuries), it may be consumed by him as a revenue, instead of forming capital-value of some kind. The first condition of this revenue is the value of the commodities itself, and its component parts differ from the point of view of the capitalist only to the extent that they are an equivalent for, or an excess over the variable portion of the value of the capital advanced by him. Both of them consist of nothing but labor expended and materialized during the production of commodities. They consist of an expenditure, not of an income or revenue—an expenditure of labor.


After this reversion of facts, by which a revenue becomes the source of the value of commodities instead of the value of commodities being the source of revenue, the value of commodities has the appearance of being "composed" of various kinds of revenue; these revenues are determined independently of one another, and the total value of commodities is determined by the addition of the values of these revenues. But now the question is: How is the value of each of these revenues determined, which are supposed to be the sources of the values of commodities? In the case of wages it is done, for wages are the value of the commodity labor-power, and this is determined (the same as that of all other commodities) by the labor required for its reproduction. But surplus-value, or as Adam Smith has it, profit and ground rent, how are they determined? Here Adam Smith has but empty phrases to offer. He either represents wages and surplus-value (or wages and profit) as component parts of the value, or price, of commodities, or, sometimes in the same breath, as component parts into which the price of commodities resolves itself; but this means precisely the reverse of his contention and makes of the value of commodities the primary thing, different parts of which fall as different revenues to the share of different persons engaged in the productive process. This is by no means identical with the composition of value of these three "component parts." If I determine the magnitude of three different straight lines independently and then form a fourth straight line out of these three lines as "component parts" equal to their sum, it is by no means the same process as if I have some given straight line before me and "resolve" it, so to say, into three different parts for some purpose. In the first case, the magnitude of the line changes throughout with the magnitude of the three lines whose sum it is; in the second case, the magnitude of three parts of the line is from the outset limited by the fact that they are parts of a line of given magnitude.


However, if we keep in mind that part of the analysis of Smith which is correct, namely, that the value newly created by the annual labor and contained in the annual social product in commodities (the same as in every individual commodity, or every daily, weekly, etc., product) is equal to the value of the variable capital advanced (in other words, equal to the value intended for the purchase of new labor-power) plus the surplus-value which the capitalist can realize in means of his individual consumption—simple reproduction being assumed, and other circumstances remaining the same, if we keep furthermore in mind that Adam Smith confounds labor which creates values and is an expenditure of labor-power with labor which creates articles of use and is expended in a useful, appropriate, manner, then the entire conception amounts to this: The value of every commodity is the product of labor; hence this is also true of the value of the product of annual labor, or of the value of the annual product of society in commodities. But since all labor resolves itself, (1), into necessary labor time, in which the laborer reproduces merely an equivalent for the capital advanced in the purchase of his labor-power, and, (2), into surplus-labor, by which he supplies the capitalist with a value for which the latter does not give any equivalent, in other words, a surplus-value, it follows that all value of commodities can resolve itself only into these two component parts, so that ultimately it forms a revenue for the laboring class in the form of wages, and for the capitalist class in the form of surplus-value. As for the constant value of the capital, in other words, the value of the means of production consumed in the production of the annual product, it cannot be explained how this value gets into that of the new product (unless we accept the phrase that the capitalist charges the buyer with it in the sale of his goods), but ultimately, seeing that the means of production are themselves products of labor, this portion of value can consist only of an equivalent for variable capital and surplus-value, of a product of necessary labor and surplus-labor. The fact that the values of these means of production serve in the hands of their employers as capital-values does not prevent them from resolving themselves "originally," even though in some other hands, if we go to the bottom of the matter, and at some previous time, into the same two portions of value, hence into two different sources of revenue.


One point is correct in this conception, namely, that the matter has a different aspect from the point of view of the movement of social capital, in other words, of the totality of individual capitals, that it has from the standpoint of the individual capital, considered by itself, or from the standpoint of each individual capitalist. For these, the value of commodities resolves itself, (1), into a constant element (a fourth one, as Adam Smith says), and (2), into the sum of wages and surplus-value, or wages, profit, and ground rent. But from the point of view of society, the fourth element of Adam Smith, the constant value of capital, disappears.



The absurd formula that the three revenues, wages, profit, and ground rent, form the three "component parts" of the value of commodities, is due in the case of Adam Smith to the more plausible idea that the value of commodities resolves itself into these three parts. However, this is likewise incorrect, even granted that the value of commodities is only divisible into an equivalent of the consumed labor-power and surplus-value created by it. But the mistake rests here again on a deeper and truer basis. The capitalist mode of production is conditioned on the fact that the productive laborer sells his own labor-power, as a commodity, to the capitalist, in whose hands it then serves merely as an element of his productive capital. This transaction, taking place in the circulation,—the sale and purchase of labor-power—does not only inaugurate the process of production, but also determines implicitly its specific character. The production of a use-value, and even that of a commodity (for this can be done eventually by independent productive laborers), is here only a means of producing absolute or relative surplus-value for a capitalist. For this reason we have seen in the analysis of the process of production, that the production of absolute and relative surplus-value determines, (1), the duration of the daily labor-process, (2), the entire social and technical formation of the capitalist process of production. Within this process, there is realized the distinction between the mere conservation of value (the value of the constant capital), the actual reproduction of advanced value (an equivalent of labor-power), and the production of surplus-value, that is to say, of value for which the capitalist has neither advanced an equivalent nor will advance one subsequently.


The appropriation of surplus-value—a value in excess of the equivalent advanced by the capitalist—although it is inaugurated by the purchase and sale of labor-power, is a transaction taking place within the process of production itself, and forms an essential part of it.


The introductory transaction taking place in the circulation, the purchase and sale of labor-power, is itself conditioned on a distribution of the elements of production, which is the premise and prelude of the distribution of the social products, and implies the separation of labor-power, as a commodity of the laborer, from the means of production, as the property of non-laborers.


However, this appropriation of surplus-value, or this separation of the production of values into a reproduction of advanced values and a production of new values (surplus-values) which do not offset any equivalent, does not alter in any way the substance of value itself nor the nature of the production of values. The substance of value is and remains nothing but expended labor-power—labor independent of the specific, useful, character of this labor—and the production of values is nothing but the process of this expenditure. A serf, for instance, expends his labor-power for six days, labors for six days, and the fact of this expenditure is not altered by the circumstances, that he may be working three days for himself, on his own field, and three days for his lord, on the field of the latter. Both his voluntary labor for himself and his compulsory labor for his lord are equally labor; so far as this labor is considered with reference to the values, or even the useful articles, created by it, there is no difference in his six days of labor. The difference refers merely to the distinct conditions by which the expenditure of his labor-power during each half of his labor-time of six days is affected. The same applies to the necessary and surplus-labor of the wage worker.


The process of production ends in a commodity. The fact that labor-power has been expended in its creation now is manifest in its attribute of value; the magnitude of this value is measured by the quantity of labor expended in it; the value of a commodity resolves itself into nothing else and is not composed of anything else. If I have drawn a straight line of definite length, I have "produced" a straight line (true, only symbolically, as I know beforehand) by means of a certain mode of drawing which is determined by certain laws independent of myself. If I divide this line into three sections (which may correspond to a certain problem), every one of these sections remains a straight line, and the entire line, whose sections they are, does not resolve itself, by this division, into anything different from a straight line, for instance, a curve of some kind. Neither can I divide a line of a given magnitude in such a way, that the sum of its divisions is greater than the undivided line itself; hence the magnitude of the undivided line is not determined by any arbitrary division of its parts. Vice versa, the relative magnitudes of these divisions are limited from the outset by the size of the line whose parts they are.


A commodity produced by a capitalist does not differ in itself from that produced by an independent laborer, or by a laboring commune, or by slaves. But in the present case, the entire product of labor as well as its value belong to the capitalist. Like every other producer, he has to convert his commodity by sale into money, before he can manipulate it further; he must convert it into the form of the universal equivalent.


Let us look at the product in commodities before it is converted into money. It belongs wholly to the capitalist. On the other hand, as a useful product of labor, a use-value, it is entirely the product of a past labor-process. Not so its value. One portion of this value is but the value of means of production consumed in the production of the commodities and re-appearing in a new form; this value has not been produced during the process of production of this commodity; for the means of production possessed this value before this process of production, independently of it; they entered into this process as the bearers of their value; it is only the external form of this value which has been renewed and changed. This portion of the value of the commodity serves the capitalist as an equivalent of the constant value of the capital advanced by him and consumed in the production of the commodity. It existed previously in the form of means of production; it exists now as a component part of the value of the newly-produced commodity. As soon as this commodity has been turned into money, the value then existing in the form of money must be reconverted into means of production, into its original form determined by the process of production and its function in it. Nothing is altered in the character of the value of a commodity by the function of this value as capital.


A second portion of the value of a commodity is the value of the labor-power which the wage-worker sells to the capitalist. It is determined, the same as that of the means of production, independently of the process of production into which labor-power is to enter, and it is fixed in a transaction of the circulation, the purchase and sale of labor-power, before it goes to the process of production. By means of his function—the expenditure of labor-power—the wage-laborer produces a value of the commodity equal to the value which the capitalist has to pay him for the use of his labor-power. He gives this value to the capitalist in commodities, and is paid for it in money. The fact that this portion of the value of commodities is for the capitalist but an equivalent for the capital which he has to advance in wages does not alter in any way the truth that it is a value of commodities newly created during the process of production and consisting of nothing but past expenditure of labor, the same as the surplus-value. Neither is this truth affected by the fact that the value paid by the capitalist to the laborer assumes the form of a revenue for the laborer, and that not only labor-power is continually reproduced thereby, but also the class of wage-laborers itself, and thus the basis of the entire capitalist production.


However, the sum of these two portions of value does not constitute all there is to the value of commodities. There remains an excess over both of them, the surplus-value. This, like that portion of value which reproduces the variable capital advanced in wages, is a value newly created by the laborer during the process of production—materialized labor. But it does not cost the owner of the entire product, the capitalist, anything. This circumstance permits the capitalist to consume the surplus-value entirely as his revenue, unless he has to give up some portions of it to other claimants—such as ground rent to land owners, in which case such portions constitute a revenue of third persons. This same circumstance was also the compelling motive, which induced the capitalist to engage in the first place in the manufacture of commodities. But neither his original benevolent intention of securing some surplus-value, nor its subsequent expenditure as revenue, by him or others, affect the surplus-value as such. They do not impair the fact that it is coagulated, unpaid, labor, nor the magnitude of this surplus-value, things which are determined by entirely different conditions.


However, if Adam Smith wanted to occupy himself, as he did, with an analysis of the role of different constituent parts of value in the total process of reproduction, even while he was investigating the question of the value of commodities, then it was evident that, while some particular portions of value served as a revenue, others served just as continually as capital—and, according to his logic, these would likewise have to be regarded as constituent parts of the value of commodities, or parts into which this value resolves itself.


Adam Smith identifies the production of commodities in general with capitalist production; the means of production are to him from the outset "capital," labor is wage-labor, and therefore "the number of the useful and productive laborers is always...proportional to the quantity of capital stock which is employed in setting them to work." (Introduction, page 12.) In short, the various elements of the productive process—both objective and subjective ones—appear from the first with the masks characteristic of the process of capitalist production. The analysis of the value of commodities, therefore, coincides with the reflection, to what extent this value is, on the one hand, a mere equivalent for invested capital, and, on the other, to what extent it forms "free" value, that is to say, value not reproducing any advance of capital, or surplus-value. The proportions of value compared from this point of view transform themselves clandestinely into its independent "component parts," and finally into the "sources of all value." A further consequence of this method is the alternate composition or dissolution of the value of commodities into revenues of various kinds, so that the revenues do not consist of values of commodities, but rather the value of commodities consists of revenues. But the fact that the value of a commodity may serve as a revenue for this or that man does not change the nature of value as such any more than the fact that the value of a commodity as such, or of money as such, may serve as capital changes their nature. The commodity with which Adam Smith is dealing represents from the outset a commodity-capital (which consists of the value of the capital consumed in production plus a surplus-value), it is a commodity produced by capitalist methods, a result of the capitalist process of production. It would have been necessary, then, to analyze first this process, and this would have implied an analysis of the process of self-expansion and of the formation of value, which it includes. Since this process is in its turn conditioned on the circulation of commodities, its description requires also a previous and independent analysis of a commodity. However, even where Adam Smith hits "esoterically" upon the correct thing in a haphazard way, he refers to the formation of values only in the analysis of commodities, that is to say, in the analysis of commodity-capital.



Ricardo reproduces the theory of Smith almost verbatim: "It is agreed that all products of a certain country are consumed, but it makes the greatest imaginable difference, whether they are consumed by those who reproduce another value, or by those who do not. When we say that revenue is saved up and added to the capital, we mean that the portion of revenue added to the capital is consumed by productive laborers, instead of unproductive ones." (Principles, Page 163.)


In fact, Ricardo fully accepted the theory of Adam Smith concerning the separation of the price of commodities into wages and surplus-value (or variable capital and surplus-value). The points in which he differs from him are, 1) the composition of the surplus-value; Ricardo eliminates ground rent as one of its necessary elements; 2), Ricardo starts out from the price of commodities and dissects it into these component parts. In other words, the magnitude of value is his point of departure. The sum of its parts is assumed as given, it is the starting point, while Adam Smith frequently subverts this order and proceeds contrary to his deeper insight, by producing the quantity of value subsequently by an addition of its component parts.


Ramsay makes the following remark against Ricardo: "Ricardo forgets that the total product is not only divided into wages and profits, but that a portion is also required for the reproduction of the fixed capital." (An Essay on the Distribution of Wealth. Edinburgh, 1836, page 174.) Ramsay means by fixed capital the same thing which I call constant capital, for he says on page 53: "Fixed capital exists in a form in which it contributes toward the production of the commodity in process of formation, but not toward the maintenance of laborers."


Adam Smith refuses to accept the logical outcome of his dissolution of the value of commodities, and therefore of the value of the annual product of social labor, into wages and surplus-value, or into mere revenue. This logical outcome would be that the entire annual product might be consumed in that case. It is never the original thinkers that draw the absurd conclusions. They leave that to the Says and Mac-Cullochs.


Say takes the matter indeed easy enough. That which is an advance of capital for one, is, or was, a revenue and net product for another. The difference between the gross and the net product is purely subjective, "and thus the total value of all products in a society is divided as revenue." (Say, Traité d'Economie Politique, 1817, II, page 69.) "The total value of every product is composed of the profits of the land owners, the capitalists, and the industrious people (wages figure here as profits des industrieux!) who have contributed toward its production. This makes the revenue of society equal to the gross value produced, not equal to the net products of the soil, as was claimed by a sect of economists" (the physiocrats). (Page 63.)


Among others, Proudhon has appropriated this discovery of Say.


Storch, however, who likewise accepts the doctrine of Smith in principle, finds that Say's application of it does not hold water. "If it is admitted, that the revenue of a nation is equal to its gross product, so that no capital" (that is to say, no constant capital) "is to be deducted, then it must also be admitted that this nation may consume unproductively the entire value of its annual product, without in the least reducing its future revenue.... The products which represent the" (constant) "capital of a nation are not consumable." (Storch, Considérations sur la nature du revenu national. Paris, 1824, page 150.)


However, Storch forgot to tell us how the existence of this constant portion of capital agrees with the analysis of prices by Smith, which he has accepted, and according to which the value of commodities consists only of wages and surplus-value, but not of any constant capital. He realizes only through Say that this analysis of prices leads to absurd results, and his own opinion of it is "that it is impossible to dissolve the necessary price into its simplest elements." (Cours d' Economie Politique, Petersburg, 1815, II, page 140.)


Sismondi, who occupies himself especially with the relation of capital and revenue, and makes the peculiar formulation of this relation the specific difference of his Nouveaux Principes, did not say one scientific word, did not contribute one atom toward a clarification of this problem.


Barton, Ramsay and Cherbuliez attempted to surpass the formulation of Smith. They failed, because they conceive the problem in a onesided way, by not making clear the distinction of constant and variable capital-value from fixed and circulating capital.


John Stuart Mill likewise reproduces, with his usual pomposity, the doctrine handed down by Adam Smith to his followers.


As a result, the Smithian confusion of thought persists to this hour, and his dogma is one of the orthodox articles of faith of political economy.

Notes for this chapter

Beginning of manuscript VIII.
"Capital," volume I, page 647, footnote.
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 40.)
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."
I reproduce this sentence verbatim from the manuscript, although it seems to contradict, in its present connection, both the preceding and the following statements. This apparent contradiction is solved farther along in (4). Capital and Revenue in Adam Smith.—F. E.
We do not make anything of the fact that Adam Smith was here particularly unlucky in the choice of his example. The value of the corn resolves itself into wages, profit, and rent only, because the food consumed by the laboring cattle is regarded as wages, and the laboring cattle as laborers, so that, on the other hand, the wage laborer also appears in the role of the laboring cattle. (Note added from manuscript II.)
From here to the end of the chapter, an extract from manuscript II is presented.

Part III, Chapter XX.

End of Notes

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