At the start of the discussion of Adam Smith, Engels notes that the source text now switches over to Marx's Manuscript VIII.

Quesnay's Tableau économique sketches, in a few broad strokes, how a year's national output — a definite amount of value — gets distributed through circulation in such a way that, other things staying equal, it can simply be reproduced: reproduced on the same scale. The starting point of the production period is, fittingly, last year's harvest. The countless individual acts of buying and selling are gathered at once into their characteristic social mass-movement: circulation between large, functionally defined classes of society. What interests us here: one part of the total product — a part which, like every other part of it, is as a use-object the fresh result of the past year's labour — is at the same time only the bearer of old capital-value, which reappears in the same bodily form. That part does not circulate; it stays in the hands of its producers, the tenant-farmer class, to start its work as capital all over again there. In this constant-capital part of the annual product Quesnay includes some elements that don't belong; but he hits the main point, and precisely thanks to the limits of his horizon, in which agriculture is the only sphere where human labour produces surplus-value — hence, from the capitalist standpoint, the only truly productive one. Economic reproduction, whatever its specific social character, is always intertwined on this ground (agriculture) with a natural process of reproduction. The tangible conditions of the natural process throw light on those of the economic one, and keep away confusions that only the dazzle of circulation produces.

The label on a system differs from the label on other goods in one respect: it cheats not only the buyer but often the seller too. Quesnay himself and his closest pupils believed in their feudal signboard. So, to this hour, do our schoolmen. In fact, though, the Physiocratic system is the first systematic formulation of capitalist production. The representative of industrial capital — the tenant-farmer class — directs the whole economic movement. Farming is run capitalistically: as the enterprise of the capitalist tenant on a large scale; the person who directly works the soil is a wage-labourer. Production turns out not just useful goods but their value; and its driving motive is the extraction of surplus-value, whose birthplace is the sphere of production, not of circulation. Among the three classes that act as carriers of the social reproduction process mediated by circulation, the direct exploiter of "productive" labour — the producer of surplus-value, the capitalist tenant — is set apart from its mere appropriators.

The capitalist character of the Physiocratic system provoked opposition even in its heyday: on one side from Linguet and Mably, on the other from the defenders of free small-scale landownership.

Adam Smith's step backwards in analysing the reproduction process is all the more striking because elsewhere he not only develops Quesnay's correct analyses further — generalizing Quesnay's "avances primitives" (original advances) and "avances annuelles" (annual advances) into "fixed" and "circulating" capital — but in places falls back entirely into Physiocratic errors. To show, for instance, that the farmer produces more value than any other species of capitalist, he says:

"No equal capital puts into motion a greater quantity of productive labour than that of the farmer. Not only his servants, but his labouring cattle, are productive workers." {A pleasant compliment for the farm servants!} "In agriculture, too, nature labours along with man; and though her labour costs no expense, its product has its value, just like that of the most expensive workers. The most important operations of agriculture seem directed not so much to increase the fertility of nature — though they do that too — as to steer it toward producing the plants most useful to man. A field overgrown with thorns and briars can often produce as great a quantity of vegetable growth as the best-tended vineyard or cornfield. Planting and cultivation often serve more to regulate than to rouse nature's active fertility; and after those have exhausted all their work, a great deal always remains for this to do. The workers and the labouring cattle (!) employed in agriculture therefore bring about not only, as workers in manufactures do, the reproduction of a value equal to their own consumption, or to the capital that employs them plus the capitalist's profit, but of a far greater value. Over and above the farmer's capital and all his profit, they also regularly reproduce the landlord's rent. The rent may be regarded as the product of those powers of nature which the landlord lends to the farmer. It is greater or smaller according to the assumed degree of those powers — in other words, according to the assumed natural or artificial fertility of the land. It is the work of nature that remains after deducting or replacing everything that can be regarded as the work of man. It is seldom less than a quarter, and often more than a third, of the whole produce. No equal quantity of productive labour applied in manufactures can ever effect so great a reproduction. In manufactures nature does nothing, man does all; and the reproduction must always be proportional to the strength of the agents who carry it out. Capital employed in agriculture therefore not only sets in motion a greater quantity of productive labour than any equal capital employed in manufactures, but also, in proportion to the quantity of productive labour it employs, adds a far greater value to the annual produce of the land and labour of the country — the real wealth and revenue of its inhabitants — than that capital does." (Book II, ch. 5, pp. 242–243.)

Adam Smith says in Book II, chapter 1:

"The whole value of the seed, too, is properly a fixed capital."

Here, then, capital means capital-value; and it exists in "fixed" form.

"Though the seed goes back and forth between the ground and the granary, it never changes owners, and therefore does not really circulate. The farmer makes his profit not by selling it, but by its increase." (p. 186.)

The narrowness here is that Smith fails to see — where Quesnay already did — the reappearance of constant capital's value in renewed form, an essential moment of the reproduction process; instead he sees just one more illustration, and a false one at that, of his own distinction between circulating and fixed capital. In Smith's translation of "avances primitives" and "avances annuelles" into "fixed capital" and "circulating capital", the progress lies in the word "capital": its concept is generalized, detached from the Physiocrats' special reference to application in agriculture. The step backwards lies in this: that "fixed" and "circulating" get taken for the decisive distinctions, and clung to as such.

Adam Smith, in Book I, chapter 6, page 42, says:

In Smith's own words: "In every society, the price of every commodity finally resolves itself into one or other of these three parts" — wages, profit, or rent — "or into all three; and in every improved society, all three become, more or less, components of the price of the far greater part of commodities." And on page 43: "Wages, profit and rent are the three original sources of all revenue as well as of all exchange-value."

We will look more closely at this doctrine of Smith's, that wages, profit and rent are the "components of the price of commodities" — of "all exchange-value" — further on. He continues:

"Since this is true of each particular commodity taken separately, it must hold for all commodities together, which make up the whole annual product of the land and labour of every country. The whole price or exchange-value of this annual product must resolve itself into the same three parts, and be distributed among the different inhabitants of the country, either as the wages of their labour, or as the profit of their stock, or as the rent of their land." (Book II, chapter 2, page 190.)

So Smith has dissolved the price of every single commodity, and also "the whole price or exchange-value of the annual product of the land and labour of every country", into three sources of income — wages for the wage-worker, profit for the capitalist, rent for the landowner. Yet he then has to smuggle a fourth element in by a side door: the element of capital. He does it with a distinction between gross income and net income:

"The gross revenue of all the inhabitants of a great country comprehends the whole annual produce of their land and labour; the net revenue what remains to them after deducting the expense of maintaining, first, their fixed, and, secondly, their circulating capital; or what they can place in their stock reserved for immediate consumption, or spend on their subsistence, conveniences and amusements, without encroaching upon their capital. Their real wealth, too, is in proportion, not to their gross, but to their net revenue." (Same page.)

We note the following about this:

1. Smith is explicitly dealing here only with simple reproduction — keeping production going at the same scale — not with production on an expanded scale, not with accumulation. He speaks only of the expense of maintaining the capital currently at work. The "net" revenue is the part of the annual product — whether of society or of the individual capitalist — that can go into the "consumption fund", but the size of that fund must not eat into the working capital. So a portion of the value of the product, of the individual capitalist's just as of society's, resolves into neither wages, nor profit, nor rent — it resolves into capital.

2. Smith escapes from his own theory by a play on words — the distinction between gross and net revenue. The individual capitalist, like the whole capitalist class, like the so-called nation, receives in place of the capital used up in production a product whose value — thinkable as proportional shares of that product itself — replaces, on one side, the capital-value laid out. That is income in a literal sense, even more literally "revenue" (revenu, from revenir, to come back) — but mark this, capital-income, an income that comes back as capital. On the other side there are the portions of value that are "distributed among the different inhabitants of the country, either as the wages of their labour, or as the profit of their stock, or as the rent of their land" — what everyday life calls income.

On this accounting, the value of the whole product, whether for the individual capitalist or for the whole country, forms income for somebody — but on one side capital-income, on the other a "revenue" distinct from it. So what the analysis of the commodity's value into its components had removed is brought back in through a back door: the double meaning of the word "revenue". But only such portions of the product's value can be "received" as already exist in the product. If capital is to come in as revenue, capital must first have been laid out.

Smith further says:

"The lowest ordinary rate of profit must always be something more than what is sufficient to compensate the occasional losses to which every employment of stock is exposed. It is this surplus only which is the neat or clear profit."

What capitalist understands by profit the necessary outlays of his capital?

"What is called gross profit comprehends frequently not only this surplus, but what is retained for compensating such extraordinary losses." (Book I, chapter 9, page 72.)

But this says only that a part of surplus-value, looked at as part of gross profit, must form an insurance fund for production. This insurance fund is created by a part of surplus labour, which in this respect produces capital directly — the fund destined for reproduction. As for the expense of "maintaining" fixed capital and so on (see the passages quoted above): replacing worn-out fixed capital with new is no new investment of capital, only the renewal of the old capital-value in a new form. As for repairs of fixed capital, which Smith likewise counts among maintenance costs, their cost belongs to the price of the capital laid out in advance. The fact that the capitalist, instead of laying this out in one sum, lays it out gradually, as needed, while the capital is working, and can lay it out out of profit already pocketed, changes nothing about the source of that profit. The value-component it springs from only proves that the worker supplies surplus labour — for the repair fund just as for the insurance fund.

Smith now tells us that from the net revenue — revenue in the strict sense — the whole of fixed capital must be excluded; but also the whole portion of circulating capital needed for maintaining and repairing fixed capital, and for renewing it. In fact: all capital that does not exist in a physical form destined for the consumption fund.

"The whole expense of maintaining the fixed capital must evidently be excluded from the neat revenue of the society. Neither the materials necessary for supporting their useful machines and instruments of trade, nor the produce of the labour necessary for fashioning such materials into the proper form, can ever make any part of it. The price, indeed, of that labour" — that is, the wages paid for this labour — "may make a part of it; as the workmen so employed might place the whole value of their wages in their stock reserved for immediate consumption. But in other sorts of labour, both the price" — the wages — "and the produce go to" "this reserved stock; the price to the workmen's, the produce to other people's, whose subsistence, conveniences and amusements are augmented by the labour of those workmen." (Book II, chapter 2, pages 190–191.)

Here Smith stumbles on a very important distinction: between workers employed in producing means of production (things used to make other things) and workers employed directly in producing means of consumption (things consumed directly). The value of the commodity product of the first kind contains a component equal to the sum of wages — the value of the capital laid out in buying labour-power. That portion of value exists bodily as a certain share of the means of production these workers have made. The money they get as their wages forms revenue for them; but their labour has produced no product, for themselves or for anyone else, that can be consumed. So this product itself forms no part of the portion of the annual product destined to supply society's consumption fund — the only fund in which "net revenue" can be realised. Smith forgets to add that what holds for the wage component holds equally for the component of the value of those means of production that forms surplus-value — profit and rent, the revenue (in the first instance) of the industrial capitalist. These value-components exist in means of production, in things that cannot be consumed; only after being turned into money can they draw out of the consumption goods made by the second kind of worker a quantity matching their price, and transfer it into their owners' individual consumption funds. And all the more should Smith have seen this: the part of the annually produced means of production that is equal in value to the means of production functioning within that sphere of production — the means of production used to make means of production — a part of value equal to the constant capital applied here — is absolutely excluded from every value-component that could form revenue, not only by the physical form it exists in, but by its function as capital.

About the second kind of worker — those who produce means of consumption directly — Smith's determinations are not quite exact. He says that in these kinds of labour both the price of labour and the product go into (his word: go to) the fund for immediate consumption:

"the price" — the money received as wages — "to the workmen's stock, and the product to other people's, whose subsistence, conveniences and amusements are augmented by the labour of these workmen."

But the worker cannot live on the "price" of his labour, the money his wages are paid in; he realises that money by buying means of consumption with it — and these can partly consist of the very sort of goods he himself produced. On the other hand, his own product may be one that goes only into the consumption of the exploiters of labour.

Having thus excluded fixed capital entirely from a country's "net revenue", Smith continues:

"Though the whole expense of maintaining the fixed capital is thus necessarily excluded from the neat revenue of the society, it is not the same with that of maintaining the circulating capital. Of the four parts of which this latter capital is composed — money, provisions, materials and finished work — the three last, as has already been observed, are regularly withdrawn from it, and placed either in the society's fixed capital, or in the stock reserved for immediate consumption. The part of the consumable goods" — that is, of the circulating capital — "which is not employed in maintaining the former" — the fixed capital — "goes all to the latter" — the stock for immediate consumption — "and makes a part of the neat revenue of the society. The maintaining of these three parts of the circulating capital, therefore, diminishes the neat revenue of the society by no other part of the annual produce than what is necessary for maintaining the fixed capital." (Book II, chapter 2, pages 191–192.)

This is only a tautology: the part of circulating capital that does not serve the production of means of production goes into the production of means of consumption — that is, into the part of the annual product destined to form society's consumption fund. But what follows immediately after is important:

"The circulating capital of a society is in this respect different from that of an individual. That of an individual is totally excluded from his net revenue, and can never make any part of it; this can consist only in his profit. But though the circulating capital of every individual makes a part of that of the society to which he belongs, it is by no means wholly excluded from the society's net revenue — it may form a part of it. Though the whole goods in the shop of a merchant must never be placed in the stock reserved for his own immediate consumption, they may all be in the consumption fund of other people, who, from a revenue gained by other funds, may regularly replace its value to him, together with its profit, without occasioning any diminution either of his or of their capital." (Same place.)

So what we have just heard is this:

1. Just like fixed capital, and like the circulating capital needed for its reproduction (this function he forgets) and its maintenance, the circulating capital of every individual capitalist engaged in producing means of consumption is totally excluded from his net revenue — which can consist only in his profit. So the part of his commodity product that replaces his capital cannot be resolved into value-components that form revenue for him.

2. The circulating capital of each individual capitalist forms a part of the circulating capital of society, exactly as each individual fixed capital does.

3. The circulating capital of society, though it is only the sum of the individual circulating capitals, has a character different from the circulating capital of each individual capitalist. The latter can never form a part of his revenue; a piece of the former — namely the part consisting of means of consumption — can on the contrary form at the same time a part of the revenue of society; or, as he put it before, it need not necessarily reduce society's net revenue by a portion of the annual product. In fact, what Smith here calls circulating capital is the commodity capital produced annually, which the capitalists producing means of consumption throw each year into circulation. Their whole annual commodity product consists of consumable articles, and so forms the fund in which the net revenues of society — wages included — are realised, or spent. Instead of taking the goods in the shopkeeper's shop as his example, Smith should have taken the masses of goods lying in the warehouses of the industrial capitalists.

If Smith had now drawn together the blocks of thought that forced themselves on him earlier in considering the reproduction of what he calls fixed capital, and now in considering what he calls circulating capital, he would have arrived at the following result:

I. Society's annual product consists of two departments: the first covers means of production, the second means of consumption; the two must be treated separately.

II. The total value of the part of the annual product consisting of means of production is distributed as follows. One portion of value is only the value of the means of production used up in making these means of production — capital-value reappearing merely in renewed form. A second portion is equal to the value of the capital laid out in labour-power, equal to the sum of the wages paid out by the capitalists of this sphere of production. A third portion of value, finally, forms the source of the profits — rent included — of the industrial capitalists of this category.

The first component — in Smith's terms, the reproduced fixed-capital part of all the individual capitals occupied in this first department — is "evidently excluded and can never make any part of the neat revenue", whether of the individual capitalist or of society. It always functions as capital, never as revenue. To that extent the "fixed capital" of every individual capitalist is no different from society's fixed capital. But the other value-portions of society's annual product consisting of means of production — value-portions which accordingly also exist as fractional shares of this total mass of means of production — do form revenues simultaneously for all the agents engaged in that production: wages for the workers, profits and rents for the capitalists. Yet for society they do not form revenue but capital — although society's annual product consists only of the sum of the products of the individual capitalists belonging to it. Mostly, by their very nature, these things can function only as means of production; and even those that could, if need be, serve as means of consumption are destined to serve as raw or auxiliary material for new production. They function as such — that is, as capital — but not in the hands of their producers; they function as capital in the hands of their users, namely:

III. the capitalists of the second department, the direct producers of means of consumption. These means of production replace for them the capital consumed in producing means of consumption (in so far as that capital does not consist of labour-power — of the sum of wages for the workers of this second department). And this consumed capital, which now sits in the hands of the capitalists who produced it, in the form of means of consumption, in turn forms — from society's standpoint — the consumption fund in which the capitalists and workers of the first department realise their revenue.

If Smith had pushed the analysis this far, only a little would have been missing to solve the whole problem. He was on the verge of it, since he had already noticed that certain value-portions of one sort (means of production) of the commodity capitals making up society's total annual product do form revenue for the individual workers and capitalists employed in their production, but no component of society's revenue; while a value-portion of the other sort (means of consumption) does form capital-value for its individual owners, the capitalists employed in that sphere, and yet forms only a part of society's revenue.

But the following already follows from what has gone before:

Firstly: although society's capital is only equal to the sum of the individual capitals, and society's annual commodity product (commodity capital) therefore only equal to the sum of the commodity products of these individual capitals; and although the analysis of commodity value into its components, which holds for every individual commodity capital, must therefore also hold for that of the whole of society — and in the final result really does hold — the appearance-form in which they present themselves in the total social reproduction process is different.

Secondly: even on the ground of simple reproduction, what takes place is not only the production of wages (variable capital) and of surplus-value, but the direct production of new constant capital-value — although the working day consists only of two parts: one in which the worker replaces the variable capital, really producing an equivalent for the purchase of his labour-power, and a second in which he produces surplus-value (profit, rent, etc.). Namely: the daily labour expended on the reproduction of means of production — whose value splits into wages and surplus-value — realises itself in new means of production, which replace the constant-capital part consumed in the production of means of consumption.

The main difficulties — the greater part of which has already been solved above — arise in considering not accumulation but simple reproduction. That is why both Smith, in Book II, and Quesnay before him, in his Tableau économique, start from simple reproduction as soon as the question is the movement of society's annual product and its reproduction mediated by circulation.

Adam Smith's dogma is that the price, or exchange-value, of every single commodity — and so of all the commodities together that make up society's yearly product (he rightly assumes capitalist production throughout) — is made up of three component parts, or resolves itself into: wages, profit and rent. This can be boiled down to the claim that the value of a commodity = v + s, that is, the value of the variable capital laid out plus the surplus-value. And we can make this reduction of profit and rent to one common unit, which we call s, with Adam Smith's explicit permission — as the quotations below show. In them we set aside everything secondary, especially any apparent or real departure from the dogma that the value of a commodity consists exclusively of the elements we write as v + s.

On manufacture, Smith writes:

"The value which the workmen add to the materials resolves itself ... into two parts, of which the one pays their wages, the other the profit of their employer upon the whole stock which he has advanced in materials and wages." (Book I, ch. 6.) And: "Though the manufacturer" — he means the manufacturing worker — "has his wages advanced by his master, they in reality cost him nothing, the value of those wages, together with a profit, being generally reserved in the value-enhanced object his labour has been applied to." (Book II, ch. 3.)

The part of the capital (stock) laid out —

"in the maintenance of productive labour ... after it has served him" — that is, the employer — "in the function of a capital ... forms a revenue to them" — the workers. (Book II, ch. 3.)

In that same chapter Smith says outright:

"The whole annual produce of the land and labour of every country ... naturally divides itself into two parts. One of them, and frequently the largest, is in the first place destined for replacing a capital, and renewing the provisions, materials and finished products withdrawn from a capital; the other is destined to form a revenue, either as the profit of the owner of that capital, or as the rent of some other person, the owner of his land."

Only one part of capital, as we just heard from Smith, forms a revenue for anyone at the same time: the part laid out in buying productive labour. That part — the variable capital — first performs "the function of a capital" in the employer's hands and for him, and then "forms a revenue" for the productive worker. The capitalist turns a portion of his capital-value into labour-power, and thereby into variable capital; only through this conversion does not just that portion but his whole capital function as industrial capital. The worker — the seller of his labour-power — receives its value in the form of wages. In his hands, labour-power is only a sellable commodity, the one he lives by selling, and so the sole source of his revenue. It functions as variable capital only in the hands of its buyer, the capitalist; and the purchase price is only seemingly advanced by the capitalist, since its value has already been supplied to him beforehand by the worker.

Having thus shown that the value of the product in manufacture = v + s (where s = the capitalist's profit), Smith tells us that in agriculture the workers, besides "reproducing a value equal to their own consumption or to the capital" — the variable capital — "that employs them, together with its owner's profit", also "regularly reproduce the rent of the landlord over and above the farmer's capital and all his profit". (Book II, ch. 5.)

That the rent ends up in the landlord's hands is quite irrelevant to the question we are examining. Before it reaches his hands it must be in the farmer's — the industrial capitalist's. It must form a value-component of the product before it becomes anyone's revenue. So even in Smith himself, rent and profit are only components of surplus-value, which the productive worker constantly reproduces alongside his own wages — that is, alongside the value of the variable capital. Rent and profit are therefore both parts of surplus-value s, and so for Smith the price of all commodities resolves into v + s.

The dogma that the price of all commodities (and so of the annual commodity product) resolves into wages plus profit plus rent takes, in the esoteric passages running through Smith's work, the form: the value of every commodity, and so of society's annual commodity product, = v + s — the capital-value laid out in labour-power and constantly reproduced by the worker, plus the surplus-value the workers add through their labour.

This final result in Smith reveals at the same time — more on this below — the source of his one-sided analysis of the components into which commodity value can be broken down. But the fact that these components also serve as revenue sources for different classes active in production has nothing to do with fixing the size of each component, or the limit of their value-sum.

When Smith says:

"Wages, profit and rent are the three original sources of all revenue as well as of all exchange-value. Every other revenue is in the end derived from one of these" (Book I, ch. 6) — then all sorts of confusions are heaped together here.

1. Everyone in society who does not figure directly in reproduction, with or without labour, can draw their share of the annual commodity product — their means of consumption — in the first instance only from the hands of the classes the product falls to first: productive workers, industrial capitalists and landowners. To that extent their revenues are derived, in material terms, from wages (of productive workers), profit and rent, and so appear as derived revenues next to those original ones. On the other hand, the recipients of these derived revenues in this sense earn them through their social function as king, priest, professor, prostitute, soldier and so on — and so they can look on those functions as the original sources of their revenue.

2. — and here Smith's foolish blunder reaches its peak. He begins by correctly determining the value-components of the commodity and the sum of the value product embodied in them, and by showing how these components then form just as many different sources of revenue. Having derived the revenues from value, he then proceeds the other way round — and this stays his dominant idea — letting the revenues, from "component parts", turn into "original sources of all exchange-value". With this, door and gate were flung wide open to vulgar economy.

Let us now watch how Smith tries to conjure the constant value-part of capital out of the commodity's value.

"In the price of corn, for example, one part pays the rent of the landlord."

The origin of this value-component has just as little to do with the fact that it is paid to the landlord and forms a revenue for him as rent, as the origin of the other value-components has to do with their serving as sources of revenue in the form of profit and wages.

"Another part pays the wages and maintenance of the labourers" — and, he adds, of the working cattle — "employed in its production, and the third part pays the profit of the farmer. These three parts seem" — seem, and indeed they do only seem — "either immediately or ultimately to make up the whole price of corn."

That whole price — its magnitude — is absolutely independent of how it is divided among three sorts of people.

Smith continues: "A fourth part may seem necessary to replace the farmer's capital, or the wear and tear of his working cattle and other implements. But it must be considered that the price of any implement, a working horse for example, is itself made up of the same three parts: the rent of the land on which it was bred, the labour of breeding, and the profit of the farmer who advances both that rent and those wages. Therefore, though the price of corn may pay both the price and the maintenance of the horse, the whole price still resolves itself, immediately or ultimately, into the same three parts: rent, labour" — he means wages — "and profit." (Book I, ch. 6.)

That is literally everything Smith offers in support of his astonishing doctrine. His proof consists simply of repeating the same assertion. He admits, for instance, that the price of corn consists not only of v + s but also of the price of the means of production used up in growing it — a capital-value the farmer did not lay out in labour-power. But, he says, the prices of those means of production themselves break down, like the corn price, into v + s; only Smith forgets to add: and also into the price of the means of production consumed in producing them. He passes from one branch of production to another, and from that one to a third. The claim that the whole price of commodities resolves "immediately" or "ultimately" into v + s would be something more than a hollow evasion only if it had been shown that the commodity products whose price resolves immediately into c (the price of used-up means of production) + v + s are finally replaced by commodity products which reproduce those "used-up means of production" in their entirety and which are themselves produced by the outlay of variable capital alone — capital laid out in labour-power. The price of the latter would then be immediately = v + s, and so the price of the former, c + v + s, where c figures as constant capital, would finally resolve into v + s. Smith himself did not believe he had delivered such a proof — his example of the Scotch pebble-collectors works only if they 1. supply no surplus-value of any kind but produce only their own wages, and 2. use no means of production (though even they need baskets, sacks and other containers to carry the pebbles away).

We have already seen that Smith later throws his own theory overboard without becoming aware of his contradictions. Yet the source of those contradictions lies precisely in his scientific starting points. The capital converted into labour produces more value than its own. How? Because, says Smith, the workers, during the production process, imprint on the things they work on a value which, besides the equivalent of their own purchase price, forms a surplus-value (profit and rent) that falls not to them but to their employers. But that is all they do, and all they can do. What holds of one day's industrial labour holds of the labour set in motion over a year by the whole capitalist class. The total mass of the annual social value product can therefore only break down into v + s: an equivalent, by which the workers replace the capital-value spent on their own purchase price, and the additional value they must supply to their employer over and above it. These two value elements of commodities are at the same time sources of revenue for the different classes engaged in reproduction: the first, wages, the workers' revenue; the second, surplus-value, of which the industrial capitalist keeps a part as profit and gives up another part as rent, the landowner's revenue. So where would any further value-component come from, since the annual value product contains no elements besides v + s? We stand here on the ground of simple reproduction. Since the whole of the year's labour resolves into labour needed to reproduce the capital-value laid out in labour-power, and labour needed to create a surplus-value — where would the labour for producing a capital-value not laid out in labour-power even come from?

The matter stands as follows:

1. Smith determines a commodity's value by the amount of labour the wage-worker adds to the object of labour. His literal word is "to the materials", since he is dealing with manufacture, which already processes products of labour — but that changes nothing. The value the worker adds to a thing — and "adds" is Adam's own word — is wholly independent of whether the thing he adds value to already had value before. The worker therefore creates a value product in commodity form. For Smith this is, on the one hand, the equivalent of his wages, and this portion is fixed by the size of his wage: depending on whether that is larger or smaller, he must add more or less labour to produce or reproduce a value equal to it. On the other hand, beyond the limit so drawn, the worker adds further labour, which forms surplus-value for the capitalist employing him. Whether that surplus-value stays wholly in the capitalist's hands or is partly handed over to third parties changes absolutely nothing, neither its qualitative determination (that it is surplus-value at all) nor its quantitative one (its size). It is value like any other value-part of the product; it differs only in that the worker has received and will receive no equivalent for it — this value is appropriated by the capitalist without an equivalent. The total value of the commodity is fixed by the quantity of labour the worker has expended in producing it; one part of that total value is fixed by being equal to the value of the wages — the equivalent of them. The second part, the surplus-value, is therefore necessarily also fixed in size: it equals the total value of the product minus the portion of it that is the equivalent of the wages — the excess of the value product created in making the commodity over the portion of it equal to the wage-equivalent.

2. What holds for a commodity produced in a single industrial business by a single worker holds for the annual product of all branches of business together. What holds for the day's labour of one productive worker holds for the annual labour set flowing by the whole productive working class. It "fixes" — Smith's own word — in the annual product a total value fixed by the quantity of annual labour expended, and this total value splits into a part fixed by that portion of the year's labour in which the working class creates an equivalent of its annual wages — in fact creates those wages themselves — and a further part fixed by the additional annual labour in which the worker creates a surplus-value for the capitalist class. The annual value product contained in the annual product therefore consists of only two elements: the equivalent of the annual wages received by the working class, and the annual surplus-value delivered to the capitalist class. But the annual wages form the working class's revenue, the annual surplus-value the capitalist class's revenue; the two together represent — and this viewpoint is correct when depicting simple reproduction — the relative shares in the annual consumption fund, and are realized in it. And so nowhere is there room left for the constant capital-value, for the reproduction of the capital functioning in the form of means of production. That all parts of commodity value which function as revenue coincide with the annual labour-product destined for society's consumption fund, Smith states outright in the introduction to his work:

"What has been the revenue of the people at large, or what the nature of the fund which ... supplied their annual consumption, is the object of these four first books to explain."

And in the very first sentence of the introduction:

"The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations."

Smith's first error is to equate the value of the annual product with the annual value product. The latter is the product only of the labour of the past year; the former also includes all the value elements used up in making the annual product but produced in the preceding, and partly in still earlier, years: means of production whose value merely reappears — which, as far as their value goes, were neither produced nor reproduced by labour expended in the last year. Through this confusion Smith conjures the constant value-part of the annual product away. The confusion itself rests on another error in his basic conception: he does not distinguish the twofold character of labour itself — labour insofar as, as an expenditure of labour-power, it creates value, and insofar as, as concrete, useful labour, it creates objects of use (use-value). The whole mass of commodities produced in the year, the entire annual product, is the product of the useful labour that operated during the past year; only because socially applied labour was expended in a many-branched system of useful kinds of labour do all these commodities exist; only so is the value of the means of production consumed in making them preserved in their total value, reappearing in a new bodily form. The entire annual product is thus the result of the useful labour expended during the year; but only one part of the annual product value was created during the year — that part is the annual value product, in which presents itself the sum of the labour set flowing during the year itself.

So when Smith says in the passage just quoted:

"The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences which it annually consumes" and so on — he takes a one-sided stand on the viewpoint of useful labour alone, which has indeed brought all these means of consumption into consumable form. But he forgets that this was impossible without the help of the means and materials of labour handed down from earlier years, and that therefore the "annual labour", insofar as it formed value, by no means created the whole value of the product it finished: the value product is smaller than the product value.

One cannot reproach Smith for going in this analysis no further than all his successors (though a step in the right direction can already be found among the Physiocrats); but he loses himself further in a tangle, chiefly because his "esoteric" conception of commodity value keeps being crossed by exoteric ones, which predominate in the broader stretches of his work, while his scientific instinct lets the esoteric standpoint reappear from time to time.

Take any commodity — and so also the year's total product. The part of its value that merely equals the wages paid is equal to the capital the capitalist laid out in wages: the variable part of his total outlay. He gets this part back through a newly produced piece of value inside the goods the wage-workers make. It doesn't matter how the variable capital was advanced. He may pay the worker in money before the product is finished for sale, or after it's finished but not yet sold, or with money he has already taken in by selling the worker's product, or he may borrow the money in advance. In every case he spends variable capital, which reaches the worker as money; and on the other hand he holds the equivalent of that capital-value in the part of his commodities' value that the worker has newly produced — the part of the total value that falls to the worker himself, that is, the value of the worker's own wages. Instead of handing over this portion of value in the physical form of the worker's own product, the capitalist pays it out in money. So the variable part of the capitalist's advanced capital now exists for him in the form of commodities, while the worker has received the equivalent for his sold labour-power in the form of money.

So on one side: the part of the capitalist's outlay that was turned into variable capital by buying labour-power works inside the production process itself, as living labour-power. Through the spending of that power it is produced anew as new value in commodity form — reproduced. This is reproduction, meaning new production, of advanced capital-value. On the other side: the worker spends the value — or price — of his sold labour-power on means of living, on keeping his labour-power in existence. A sum of money equal to the variable capital forms his income, his revenue, and it lasts only as long as he can keep selling his labour-power to the capitalist.

The wage-worker's commodity — his labour-power itself — functions as a commodity only insofar as it is taken up into the capitalist's capital and functions as capital. The other way round, the capitalist's capital spent as money-capital in buying labour-power functions as revenue in the hands of the seller of that labour-power, the wage-worker.

Different processes of circulation and of production get tangled up together here, and Adam Smith does not keep them apart.

First. The acts belonging to circulation: the worker sells his commodity, labour-power, to the capitalist. The money the capitalist buys it with is money laid out to make more money — money-capital. It is not spent; it is advanced. (That is the real sense of the word "advance", the avance of the Physiocrats, and it makes no difference where the capitalist himself got the money. Anything the capitalist pays out for the purpose of the production process is advanced — whether he pays before or afterwards. It is advanced to the production process itself.) What happens here is just what happens in any sale of goods: the seller hands over a use-value (here, labour-power) and gets its value — realizes its price — in money; the buyer hands over his money and gets the commodity itself, here labour-power.

Second: inside the production process, the bought labour-power now forms a part of the functioning capital, and the worker himself functions here only as one particular physical form of that capital, distinct from its other elements, which exist in the physical form of means of production. During the process the worker, by spending his labour-power, adds to the means of production he turns into product a value equal to the value of his labour-power (leaving surplus-value aside). So he reproduces for the capitalist, in commodity form, the part of his capital that the capitalist advanced, or will advance, as wages; he produces an equivalent of it. He produces for the capitalist the capital which the capitalist can "advance" afresh in buying labour-power.

Third: when the commodity is sold, one part of its selling price therefore replaces for the capitalist the variable capital he advanced. That enables him to buy labour-power again, and enables the worker to sell it again.

In all buying and selling of commodities — so long as we look only at these transactions themselves — it is entirely indifferent what the seller does with the money he gets for his commodity, and what the buyer does with the article he has bought. So, as far as the bare circulation process goes, it is also a matter of complete indifference that the labour-power the capitalist bought reproduces capital-value for him, and that the money paid as its purchase price forms revenue for the worker. The value of the worker's article of trade, his labour-power, is affected neither by its being "revenue" for him, nor by the fact that the buyer's use of his article of trade reproduces capital-value for that buyer.

Because the value of labour-power — that is, the proper selling price of this commodity — is fixed by the amount of labour needed to reproduce it, and this amount of labour is itself fixed by the labour required to produce the worker's necessary means of living, and so to keep him alive, the wage becomes a revenue on which the worker has to live.

What Adam Smith says on page 223 is totally wrong:

"That part of capital which is laid out in the maintenance of productive labour... after it has served him {the capitalist} in the function of a capital, forms a revenue to them" {the workers}.

The money with which the capitalist pays for the labour-power he has bought "serves him in the function of a capital" insofar as by it he incorporates labour-power into the material elements of his capital and thereby puts his capital in a position to function at all as productive capital. Let us distinguish. Labour-power is a commodity, not capital, in the worker's hands, and it constitutes a revenue for him only insofar as he can keep selling it over and over; it functions as capital only after the sale, in the capitalist's hands, during the production process itself. What serves twice here is the labour-power: as a commodity sold at its value in the worker's hands; as a value- and use-value-creating force in the hands of the capitalist who bought it. But the money the worker gets from the capitalist he gets only after he has handed over the use of his labour-power, only after that use is already realized in the value of the product. The capitalist has this value in hand before he pays it out. So it is not the money that functions twice — first as the money-form of variable capital, then as wages. It is the labour-power that has functioned twice: first as a commodity, when it was sold (at the fixing of the wage, money acts only as an ideal measure of value, and need not yet be in the capitalist's hands at all); second in the production process, where it functions as capital, as an element creating use-value and value in the capitalist's hands. It has already delivered, in commodity form, the equivalent due to the worker before the capitalist pays it out in money. The worker himself creates the fund from which the capitalist pays him. And that is not all.

The money the worker receives he spends in order to keep his labour-power in being — which, looking at the capitalist class and the working class as wholes, means keeping in being the instrument by which alone the capitalist can remain a capitalist.

So the constant buying and selling of labour-power perpetuates labour-power, on the one hand, as an element of capital, whereby capital appears as the creator of commodities, use-values that have value; and whereby the part of capital laid out in buying labour-power is constantly re-created by labour-power's own product — so the worker himself constantly creates the capital-fund he is paid from. On the other hand, the constant sale of labour-power becomes the worker's ever-renewed source of subsistence, so that his labour-power appears as the asset by which he draws the revenue he lives on. Revenue here means nothing but the appropriation of values through the constantly repeated sale of a commodity, labour-power — values which themselves serve only to keep reproducing the commodity that is to be sold. In that much, Smith is right to say that the part of the value of the product the worker himself creates, for which the capitalist pays him an equivalent in the form of wages, becomes a source of revenue for the worker. But this changes the nature or size of that part of the commodity's value exactly as little as the fact that means of production function as capital-values changes their value, or as the nature and size of a straight line are changed by its functioning as the base of a triangle or the diameter of an ellipse. The value of labour-power remains just as independently determined as the value of those means of production. This part of the commodity's value consists neither of revenue as an independent factor constituting it, nor does it dissolve into revenue. Because this new value, constantly reproduced by the worker, forms for him a source of revenue, it does not follow the other way round that his revenue forms a component of the new value he produces. The size of the share of the new value paid out to him fixes the size of his revenue — not the other way round. That this part of the new value forms revenue for him shows only what becomes of it, the character of its use; it has as little to do with its formation as with the formation of any other value. If I take in ten thalers a week, this weekly taking changes nothing — neither the value-nature of the ten thalers nor their size. As with every other commodity, the value of labour-power is fixed by the labour necessary to reproduce it. That this quantity of labour is fixed by the value of the worker's necessary means of living — equal to the labour needed to reproduce his very conditions of life — is peculiar to this commodity, labour-power. But no more peculiar than that the value of beasts of burden is fixed by the value of the means of subsistence needed to keep them, and so by the amount of human labour needed to produce those.

But it is the category "revenue" that does all the mischief in Smith. The different sorts of revenue form for him the "component parts", the constituents, of the annually produced, newly created commodity-value; whereas in truth the other way round, the two parts into which that commodity-value falls for the capitalist — the equivalent of the variable capital he advanced in money-form when buying labour, and the other part of value, which also belongs to him but cost him nothing, the surplus-value — form sources of revenue. The equivalent of the variable capital is advanced afresh in labour-power, and in that respect forms a revenue for the worker in the form of wages; the other part, the surplus-value, since it replaces no capital outlay for him, can be spent by him on means of consumption, necessary ones and luxuries, consumed as revenue, instead of forming capital-value of any kind. What these revenues presuppose is the commodity-value itself, and its parts differ for the capitalist only insofar as they form either an equivalent for, or a surplus over, the variable capital-value he advanced. Both consist of nothing but labour-power expended, set to work, during the production of the commodity. They consist of outlay, not of income or revenue — of an expenditure of labour.

After this confusion — where revenue becomes the source of commodity-value instead of commodity-value being the source of revenue — the commodity-value now appears as "composed" of the different sorts of revenue. These are determined independently of one another, and by adding up the size of these revenues you get the total value of the commodity. But then the question is: how is the value of each of these revenues, from which commodity-value is supposed to spring, itself determined? For wages there is an answer: the wage is the value of the worker's commodity, labour-power, and that is determinable, like the value of any other commodity, by the labour needed to reproduce this commodity. But surplus-value — or with Smith rather its two forms, profit and ground-rent — how are they determinable? Here it stays empty chatter. Now Smith presents wages and surplus-value (wages and profit) as constituents out of which commodity-value, or price, is composed; now, often almost in the same breath, as parts into which the commodity price "resolves itself". But that second way of putting it says the reverse: that commodity-value is the given thing first, and that different parts of this given value fall to different people involved in production, in the form of different revenues. That is by no means the same as composing value out of these three "component parts". If I independently fix the length of three different straight lines and then form from these three lines, as "components", a fourth straight line equal to their sum, that is a quite different procedure from taking a given straight line and dividing it, for whatever purpose, into three different parts — "resolving" it, so to speak. The length of the line in the first case varies throughout with the length of the three lines whose sum it is; the length of the three segments in the second case is bounded from the start by the fact that they are parts of a line of given length.

But in fact — insofar as we hold onto what is right in Smith's account: that the new value created by the year's labour, contained in society's annual commodity product (as in every single commodity, or in the product of a day or a week), is equal to the value of the advanced variable capital — the part of value destined to buy labour-power again — plus the surplus-value; and that, with simple reproduction and other conditions unchanged, the capitalist can realize that surplus-value in means for his own individual consumption. If we hold onto this as well: that Smith runs together labour insofar as it creates value — an expenditure of labour-power — and labour insofar as it creates use-value, that is, is expended in useful, purposive form — then the whole conception comes down to this: the value of every commodity is the product of labour; so too the value of the product of the year's labour, the value of the annual social commodity product. But since all labour resolves into 1. necessary labour-time, in which the worker merely reproduces an equivalent for the capital advanced in buying his labour-power, and 2. surplus labour, by which he delivers to the capitalist a value for which the capitalist pays no equivalent, that is, surplus-value — therefore all commodity-value can only resolve into these two different parts, forming finally a revenue for the working class as wages and a revenue for the capitalist class as surplus-value. As for the constant capital-value, that is, the value of the means of production used up in making the annual product: it cannot be said how this value gets into the value of the new product (apart from the phrase that the capitalist charges it to the buyer when he sells his commodity). But in the end — ultimately — this part of value, since the means of production are themselves products of labour, can after all itself consist only of an equivalent of variable capital and of surplus-value; only of product of necessary labour and of surplus labour. And if the values of these means of production function as capital-values in the hands of those who use them, that does not prevent their "originally", when traced to the bottom — in another hand, even if an earlier one — from splitting into those same two parts of value, and so into two different sources of revenue.

One correct point in all this: in the movement of social capital — the totality of individual capitals — the matter presents itself differently than it does for each individual capital considered on its own, that is, from the standpoint of each individual capitalist. For the latter, commodity-value resolves into 1. a constant element (a fourth one, as Smith says) and 2. the sum of wages and surplus-value, or rather wages, profit and ground-rent. From the social standpoint, by contrast, Smith's fourth element — the constant capital-value — disappears.

The ridiculous formula — that the three revenues, wages, profit and rent, are three 'component parts' of commodity value — springs from a more plausible one in Adam Smith: that commodity value resolves itself into these three components. That one is false too, even if we grant that commodity value can only be divided into the equivalent of the labour-power used up and the surplus-value that labour-power creates. But the error again rests on a deeper, true foundation. Capitalist production rests on this: the productive worker sells his own labour-power, as his commodity, to the capitalist, in whose hands it then functions only as an element of his productive capital. This transaction — the sale and purchase of labour-power — belongs to circulation, yet it not only initiates the production process; it also implicitly determines its specific character. Producing a use-value, and even producing a commodity (for that can also be done by independent productive workers), is here only a means for the capitalist's production of absolute and relative surplus-value. So in analysing the production process we saw how the production of absolute and relative surplus-value determines: 1. the length of the daily labour process, and 2. the entire social and technical organization of the capitalist production process. Within that process itself the distinctions play out: mere preservation of value (the constant capital value), actual reproduction of value laid out (the equivalent of labour-power), and production of surplus-value — value for which the capitalist has advanced no equivalent beforehand and offers none after the fact.

The appropriation of surplus-value — a value in excess of the equivalent of the value the capitalist laid out — although introduced by the purchase and sale of labour-power, is an act that takes place within the production process itself, and forms an essential moment of it.

The initiating act, itself an act of circulation — the purchase and sale of labour-power — rests in turn on a distribution of the elements of production that precedes and is presupposed by any distribution of the social product: the separation of labour-power, as the worker's commodity, from the means of production, as the property of non-workers.

At the same time, this appropriation of surplus-value — this split of value-production into reproduction of laid-out value and production of new value replacing no equivalent — changes nothing at all about the substance of value or the nature of value-production. The substance of value is and remains nothing but expended labour-power — labour, regardless of the particular useful character of that labour — and value-production is nothing but the process of this expenditure. Take a serf: he expends labour-power six days, works six days, and it makes no difference to the bare fact of that expenditure that he does, say, three of those days for himself on his own field and three for his lord on the lord's field. His voluntary work for himself and his forced work for his lord are equally labour; considered as labour, with respect to the values or the useful products it creates, no difference exists within his six days of work. The difference concerns only the different conditions under which the expenditure of his labour-power is prompted in the two halves of the six-day working time. And that is exactly how it stands with the necessary labour and the surplus labour of the wage worker.

The production process extinguishes itself in the commodity. That labour-power was expended in making it now appears as a property of the thing itself: that it possesses value. The size of this value is measured by the amount of labour expended; the commodity's value resolves into nothing further and consists of nothing else. Suppose I have drawn a straight line of a certain length. By my drawing — done according to rules (laws) independent of me — I have 'produced' a straight line (only symbolically, and I know this in advance). If I divide the line into three segments (which may themselves correspond to some given problem), each segment remains a straight line just as before, and dividing the whole line does not turn it into something different from a straight line, a curve of some kind, for instance. Nor can I divide a line of given length so that the sum of the parts comes out larger than the undivided line itself; the size of the undivided line is therefore not determined by whatever sizes I choose for the parts. The other way round: the relative sizes of the parts are limited from the start by the boundaries of the line of which they are parts.

So far, the commodity produced by the capitalist differs in nothing from one produced by an independent worker, by communities of workers, or by slaves. In our case, however, the whole product of labour, like its whole value, belongs to the capitalist. Like any other producer, he must first turn the commodity into money by selling it before he can do anything further with it; he must convert it into the form of the universal equivalent.

Consider the commodity product before it is turned into money. It belongs wholly to the capitalist. As a useful product of labour — a use-value — it is entirely the product of the past labour process; not so its value. One part of that value is only the value of the means of production used up in making the commodity, reappearing in a new form. This value was not produced during the production process of this commodity: the means of production possessed it before that process, independently of it; they entered the process as its carriers. What was renewed and changed is only its form of appearance. This part of the commodity's value forms, for the capitalist, an equivalent for the portion of his advanced constant capital value consumed in producing the commodity. It existed before in the form of means of production; it exists now as a component of the value of the newly produced commodity. Once the latter is sold for money, this value, now existing as money, must be turned back into means of production, into the original form fixed for it by the production process and its function within it. The fact that this value functions as capital changes nothing about its character as value.

A second portion of the commodity's value is the value of the labour-power the wage worker sells to the capitalist. It is determined, like the value of the means of production, independently of the production process the labour-power is to enter, and is fixed in an act of circulation — the purchase and sale of labour-power — before it enters production. Through its function, the expenditure of his labour-power, the wage worker produces a commodity-value equal to the value the capitalist must pay him for the use of his labour-power. He gives the capitalist this value in commodity; the capitalist pays him the same in money. That this portion of the commodity's value is, for the capitalist, merely an equivalent for the variable capital he must advance as wages changes nothing whatever about the fact that it is a newly created commodity-value, formed during the production process, consisting of nothing other than what surplus-value consists of — namely expended labour-power flowed out. Nor is this fact affected by the circumstance that the value of labour-power paid out by the capitalist as wages takes the form of a revenue for the worker, and that through this not only is labour-power continuously reproduced, but also the class of wage workers as such — and with it the foundation of the whole of capitalist production.

The sum of these two portions of value still does not make up the whole value of the commodity. Over and above both there remains a surplus: the surplus-value. Like the portion replacing the variable capital advanced as wages, it is a value newly created by the worker during the production process — congealed labour. But it costs the owner of the whole product, the capitalist, nothing. That last circumstance is what in fact allows the capitalist to consume the whole of it as revenue, if he does not have to cede parts of it to other sharers — ground rent to the landowner, for instance, in which case those parts form the revenues of such third persons. The same circumstance was also the driving motive why our capitalist took up commodity production at all. But neither his original fond intention of grabbing surplus-value, nor its subsequent spending as revenue by him and others, affects the surplus-value as such. They change nothing about its being congealed unpaid labour, and equally nothing about its magnitude, which is determined by quite different conditions.

But if Adam Smith wanted — as he does — to busy himself, already in examining the commodity's value, with the role played by its various parts in the total reproduction process, then it was clear that if particular parts function as revenue, others function just as constantly as capital — and by his own logic these should therefore also have been designated as constituent parts of commodity value, or parts into which it resolves itself.

Adam Smith identifies commodity production as such with capitalist commodity production: the means of production are 'capital' from the outset, labour is wage labour from the outset — and hence 'the number of useful and productive workers everywhere ... is in proportion to the quantity of capital stock which is employed in setting them to work' (Introduction, p. 12).

In a word, the various factors of the labour process — objective and personal — appear from the outset in the character masks of the capitalist period of production. The analysis of commodity value therefore immediately coincides with the consideration of how far that value is, on the one hand, a mere equivalent for capital laid out, and how far, on the other, it forms 'free' value replacing no advanced capital value — surplus-value. The portions of commodity value compared from this standpoint thus sneak into being its independent 'component parts', and finally 'sources of all value'. A further consequence is the composition of commodity value out of — or, alternately, its 'resolution into' — revenues of various sorts, so that it is not the revenues that consist of commodity value, but rather the commodity value that consists of revenues. Yet just as nothing in the nature of a commodity value as commodity value, or of money as money, is changed by its functioning as capital value, so nothing is changed in a commodity value by its later functioning as revenue for this or that person. The commodity Adam Smith deals with is from the outset commodity capital — including, besides the capital value consumed in the commodity's production, the surplus-value — that is, the capitalist-produced commodity, the result of the capitalist production process. That process should therefore have been analysed beforehand, and with it the process of valorization and value-formation it contains. Since its own presupposition is in turn the circulation of commodities, presenting it also requires an independent and prior analysis of the commodity itself. Even where Adam Smith 'esoterically' hits the right thing in passing, he always considers value-production only on the occasion of the analysis of the commodity — that is, of commodity capital.

Engels notes that from this point to the end of the chapter, the text is an insertion taken from Marx's Manuscript II.

Ricardo repeats Adam Smith's theory almost word for word:

"It must be agreed that all the products of a country are consumed, but it makes the greatest conceivable difference whether they are consumed by those who reproduce another value, or by those who do not. When we say that revenue is saved and added to capital, what we mean is that the part of revenue converted into capital is consumed by productive workers instead of unproductive ones." (Ricardo, Principles, p. 163.)

In fact Ricardo has fully accepted Smith's theory that the price of a commodity breaks down into wages and surplus-value — that is, into variable capital and surplus-value. His quarrels with Smith are, first, about what makes up surplus-value: he drops ground rent as a necessary part of it. Second, Ricardo takes the price of the commodity as already split into these parts. The size of the value comes first. The sum of the parts is assumed as a given, and he starts from that — unlike Smith, who often does the reverse, in contradiction to his own deeper insight, and produces the commodity's value after the fact by adding the parts together.

Ramsay makes an objection to Ricardo:

"Ricardo forgets that the whole product is not divided only between wages and profit, but that a part is also needed to replace the fixed capital." (Ramsay, Essay on the Distribution of Wealth, Edinburgh 1836, p. 174.)

What Ramsay calls fixed capital is the same thing as what I call constant capital:

"Fixed capital exists in a form in which it indeed contributes to the production of the commodity in the making, but not to the upkeep of the workers." (p. 59.)

Adam Smith recoiled from the necessary consequence of his own breakdown of the commodity's value — and so of the value of society's yearly product — into wages and surplus-value, that is, into mere revenue. The consequence would be that the whole yearly product could be eaten up. It is never the original thinkers who draw the absurd conclusions. They leave that to the Says and the MacCullochs.

Say settles the matter easily enough. What is an advance of capital for one person is, or was, revenue or net product for someone else; the difference between gross and net product is purely subjective, and "so the total value of all products has distributed itself in society as revenue." (Say, Traité d'Écon. Pol., 1817, II, p. 64.) "The total value of every product is made up of the profits of the landowners, the capitalists and the industrious" — with wages figuring here as the profits of the industrious! — "who contributed to its making. This means that the revenue of society is equal to the gross product produced, not, as the sect of the Economists" — the Physiocrats — "thought, equal only to the net product of the land." (p. 63.)

Proudhon, among others, has taken over this discovery of Say's as his own.

Storch, who likewise accepts Smith's doctrine in principle, still finds that Say's use of it will not hold.

"If one admits that a nation's revenue is equal to its gross product — that is, that no capital" — which should read: no constant capital — "is to be deducted — then one must also admit that this nation can unproductively consume the whole value of its annual product without doing the slightest damage to its future revenue ... The products that make up a nation's" — constant — "capital are not consumable." (Storch, Considérations sur la nature du revenu national, Paris 1824, p. 147, 150.)

But how this constant part of capital is supposed to fit with the Smithian analysis of prices that Storch himself accepts — an analysis on which the value of a commodity contains only wages and surplus-value, and no constant capital part — that Storch has forgotten to say. It becomes clear to him only through Say: that this analysis of prices leads to absurd results. And Storch's own last word on the matter is:

"that it is impossible to resolve the necessary price into its simplest elements." (Storch, Cours d'Écon. Pol., St Petersburg 1815, II, p. 141.)

Sismondi made the relation of capital to revenue his special concern — he makes his particular treatment of that relation the defining mark of his Nouveaux Principes — and yet he has not said one scientific word about it, not contributed one atom to clearing the problem up.

Barton, Ramsay and Cherbuliez all try to get beyond Smith's formulation. They fail, because from the start they pose the problem one-sidedly: they never clearly separate the difference between constant and variable capital from the difference between fixed and circulating capital.

John Stuart Mill, too, with his usual pomposity, reproduces the doctrine that Adam Smith passed down to his successors.

The result: Smith's muddle exists to this very hour, and his dogma is an orthodox article of faith of political economy.