The DEVELOPMENT of CAPITALISM in RUSSIA

Chapter I. The Theoretical Mistakes of the Narodnik Economists

V. The Views of
Adam Smith on the Production and Circulation of the Aggregate Social
Product in Capitalist Society and Marx’s Criticism of These
Views

In order properly to understand the theory of realisation we must start
with Adam Smith, who laid the foundation of the erroneous theory on this
subject that held undivided sway in political economy until Marx. Adam
Smith divided the price of a commodity into only two parts: variable
capital (wages, in his terminology) and surplus-value (he does not combine
“profit” and “rent,” so that actually he counted three parts in all.) [1]

Similarly, he divided the sum-total of commodities, the total annual social product, into the same parts and
allocated them directly to the “revenue” of the two classes of
society: the workmen and the capitalists (undertakers and landlords, as
Smith calls them). [2]

On what did he base his omission of the third component of value, constant
capital? Adam Smith could not fail to observe this part, but he assumed
that it also is made up of wages and surplus-value. Here is how he argued
on this subject: “In the price of corn, for example, one part pays
the rent of the landlord, another pays the wages or maintenance of the
labourers and labouring cattle employed in producing it, and the third
pays the profit of the farmer. These three parts seem either immediately
or ultimately to make up the whole price of corn. A fourth part, it may
perhaps be thought, is necessary for replacing the stock of the farmer, or
for compensating the wear and tear of his labouring cattle, and other
instruments of husbandry. But it must be considered that the price of any
instrument of husbandry, such as a labouring horse, is itself made up of
the same three parts” (namely, rent, profit and wages). “Though the price of the corn, therefore, may pay the price
as well as the maintenance of the horse, the whole price still resolves
itself either immediately or ultimately into the same three parts of rent,
labour and profit.” [3]

Marx calls this theory of Smith’s “astonishing.” “His proof consists simply in the
repetition of the same assertion” (II,

S. 366). [6]

Smith sends us “from pillar to post” (I. B., 2. Aufl.,

S. 612 [4] ). [7]

In saying that the price of farming instruments itself resolves
into the same three parts, Smith forgets to add: and also into the price
of the means of production employed in the making of these
instruments. The erroneous exclusion by Adam Smith (and also by subsequent
economists) of the constant part of capital from the price of the product
is due to an erroneous conception of accumulation in capitalist economy,
i.e., of the expansion of production, the transformation of surplus-value
into capital. Here too Adam Smith omitted constant capital, assuming that
the

accumulated part of surplus-value, the part converted into capital, is
entirely consumed by the productive workers, i.e., goes entirely in wages,
whereas actually the accumulated part of surplus-value is expended on
constant capital (instruments of production, raw and auxiliary materials)
plus wages. Criticising this view of Smith (and also of Ricardo ,
Mill and others) in Capital , Volume I (Part VII, “The
Accumulation of Capital,” Chapter 22, “Conversion of
Surplus-Value into Capital,” § 2, “Erroneous Conception,
by Political Economy, of Reproduction on a Progressively Increasing
Scale”), Marx there states that in Volume II “it will be shown
that Adam Smith’s dogma, inherited by all his successors, prevented
political economy from understanding even the most elementary mechanism of
the process of social reproduction” (I, 612). [8] Adam Smith committed this error because
he confused the value of the product with the newly created value: the
latter does indeed resolve itself into variable capital and surplus-value,
whereas the former includes constant capital in addition. This error had
been earlier exposed by Marx in his analysis of value, when he drew a
distinction between abstract labour, which creates new value, and
concrete, useful labour, which reproduces the previously existing value in
the new form of a useful product. [9]

An explanation of the process of the reproduction and circulation of the
total social capital is particularly necessary to settle the problem of
the national revenue in capitalist society. It is extremely interesting to
note that, when dealing with the latter problem, Adam Smith could no
longer cling to his erroneous theory, which excludes constant capital from
the country’s total product. “The gross revenue of all the
inhabitants of a great country comprehends the whole annual produce of
their land and labor; the neat revenue, what remains free to them after
deducting the expense of maintaining; first, their fixed; and, secondly,
their circulating capital; or what, without encroaching upon their
capital, they can place in their stock reserved for immediate consumption,
or spend upon their subsistence, conveniences, and amusements”
(A. Smith, Wealth of Nations , Book II. “Of the Nature,
Accumulation, and Employment of Stock,” Chapter II, Vol. II,
p. 18. Russ. trans., II, p. 21). Thus, from the country’s total product Adam Smith excluded capital, asserting
that it resolves itself into wages, profit and rent, i.e., into (net)
revenue; but in the gross revenue of society he includes capital,
separating it from articles of consumption (= net revenue). This is the
contradiction in which Marx catches Adam Smith: how can there be
capital in the revenue if there was no capital in the product? (Cf. Das Kapital, II,

S. 355.) [10] Without noticing it
himself, Adam Smith here recognises three component parts in the value of
the total product: not only variable capital and surplus-value, but also
constant capital. Further on, Adam Smith comes up against another very
important difference, one of enormous significance in the theory of
realisation. “The whole expense of maintaining the fixed
capital,” he says, “must evidently be excluded from the neat
revenue of the society. Neither the materials necessary for supporting
their useful machines and instruments of trade, their profitable
buildings, etc., nor the produce of the labor necessary for fashioning those materials into the proper form, can ever make any part of it.
The price of that labor may indeed make a part of it; as the workmen so
employed may place the whole value of their wages in their stock reserved
for immediate consumption.” But in other kinds of labour, both the
“price” (of labour) “and the produce” (of labour)
“go to this stock, the price to that of the workmen, the produce to
that of other people” (A. Smith, ibid. ). Here we find a
gleam of recognition of the need to distinguish two kinds of labour: one
that produces articles of consumption which may enter into the “neat
revenue,” and another which produces “useful machines and
instruments of trade...buildings, etc.,” i.e., articles that can
never be used for personal consumption. From this it is only one step to
the admission that an explanation of realisation absolutely requires that
two forms of consumption be distinguished: personal and productive (=
putting back into production). It was the rectification of these two
mistakes made by Smith (the omission of constant capital from the value of
the product, and the confusing of personal with productive consumption)
that enabled Marx to build up his brilliant theory of the realisation of
the social product in capitalist society.

As for the other economists, those between Adam Smith and Marx, they all repeated Adam Smith’s error [5] and for that reason did not advance
one step. Of the confusion that consequently reigns in the theories of
revenue we shall speak later. In the controversy as to the possibility of
a general overproduction of commodities that was waged by Ricardo, Say,
Mill and others, on the one hand, and by Malthus, Sismondi, Chalmers, Kirchmann and others, on the other, both sides adhered
to Smith’s erroneous theory, and consequently, as Mr. S. Bulgakov
justly remarks, “in view of the false premises and the wrong
formulation of the problem itself, these controversies could only lead to
empty and scholastic wordspinning” (loc. cit., p. 21. See an account
of this wordspinning in Tugan-Baranovsky’s Industrial Crises , etc., St. Petersburg, 1894, pp. 377-404).

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Notes:
[1]
Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations , 4th ed., 1801, Vol. I, p. 75, Book I: “Of the
Causes of Improvement in the productive Powers of Labor, and of
the Order according to which its Produce is naturally distributed among the different Ranks of the People,” Chapter
VI, “Of the component Parts of the Price of Commodities,”
Bibikov’s Russian translation (St. Petersburg, 1866), Vol. I,
p. 171.— Lenin

[2]
Loc cit., I, pg. 78 Russ. trans. I, p. 174.— Lenin

[3]
Ibid., Vol I pp. 75-76. Russ. trans, I, p. 171.— Lenin

[4]
Vol. I, 2nd Ed., p. 612.— Lenin

[5]
For example, Ricardo asserted that “the whole produce of the land
and labour of every country is divided into three portions: of
these, one portion is devoted to wages another to profits, and the
other to rent” ( Works, Sieber’s translation, St. Petersburg, 1882, p. 221.)— Lenin

[6]
Karl Marx, Capital , Vol. II, Moscow, 1957, p. 373.

[7]
Karl Marx, Capital , Vol. I, Moscow, 1958, p. 590.

[8]
Karl Marx, Capital , Vol. I, Moscow, 1958, Chapter XXIV,
Section 2.

[9]
Karl Marx, Capital , Vol. I, Moscow, 1958, pp. 199-202.

[10]
Karl Marx, Capital , Vol. II, Moscow, 1957, pp. 363-64.