Former Presentations of the Subject (Chap. 2.19.3)

III. Later Economists [41]

Ricardo reproduces the theory of Adam Smith almost verbatim:

“It must be understood that all the productions of a country are consumed; but it makes the greatest difference imaginable whether they are consumed by those who reproduced, or by those who do not reproduce another value. When we say that revenue is saved, and added to capital, what we mean is, that the portion of revenue, so said to be added to the capital, is consumed by productive instead of unproductive labourers.” (Principles, p. 163.)

In fact Ricardo fully accepted the theory of Adam Smith concerning the resolution of the price of commodities into wages and surplus-value (or variable capital and surplus-value). The points of dispute with him are 1) the component parts of the surplus-value: he eliminates ground-rent as an essential element of it; 2) Ricardo splits the price of the commodity into these component parts. The magnitude of value is, then, the prius. The sum of component parts is assumed as a given magnitude, it is the starting point, while Adam Smith frequently acts to the contrary, against his own better judgement, by subsequently deducing the magnitude of value of the commodity through the sum of the component parts.

Ramsay makes the following remark against Ricardo:

“... He seems always to consider the whole produce as divided between wages and profits, forgetting the part necessary for replacing fixed capital.” (An Essay on the Distribution of Wealth, Edinburgh, 1836, p. 174.)

By fixed capital Ramsay means the same thing that I mean by constant capital:

“Fixed capital exists in a form in which, though assisting to raise the future commodity, it does not maintain labourers.” (Ibid., p. 59.)
Adam Smith opposed the necessary conclusion of his resolution of the value of commodities, and therefore also of the value of the social annual product into wages and surplus-value and therefore into mere revenue — the conclusion that in this event the entire annual product might be consumed. It is never the original thinkers that draw the absurd conclusions. They leave that to the Says and MacCullochs.

Say, indeed, settles the matter 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, has been distributed in society as revenue.” (Say, Traitè d’Economie Politique, 1817, II, p. 64.) “The total value of every product is composed of the profits of the landowners, the capitalists, and those who ply industrial trades” [wages figure here as profits des industrieux! ] “who have contributed towards 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 believed by the sect of the economists” [the physiocrats]. (p. 63.)

Among others, Proudhon has appropriated this discovery of Say.
Storch, who likewise accepts Adam Smith’s doctrine in principle, finds however that Say’s practical application of it does not hold water.
“If it is admitted that the revenue of a nation is equal to its gross product, i.e., that no capital” [it should 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 the least detriment to 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, pp. 147, 150.)

However, Storch forgot to tell us how the existence of this constant portion of capital harmonises with the Smithian analysis of prices accepted by him, according to which the value of commodities contains only wages and surplus-value, but no part of any constant capital. He realises only through Say that this analysis of prices leads to absurd results, and his own last word on the subject is

“that it is impossible to resolve the necessary price into its simplest elements.” (Cours d’Économie Politique, Petersburg, 1815, II, p. 141.)

Sismondi, who occupies himself particularly with the relation of capital to revenue, and in actual fact makes the peculiar formulation of this relation the differentia specifica of his Nouveaux Principes, did not say one scientific word, did not contribute one iota to the clarification of the problem.

Barton, Ramsay, and Cherbuliez attempt to go beyond the formulation of Adam Smith. They founder because they pose the problem one-sidedly from the outset by failing to make clear the distinction between constant and variable capital-value and between 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

41. From here to the end of the chapter, a supplement from Manuscript II. — F. E.