Smith's Dogma

an erroneous conception of the British classical bourgeois political economist A. Smith.

According to Smith’s dogma the price or exchange value of the total annual product of society consists of incomes: wages, profit, and rent, as expressed in the formula v + s (where s stands for surplus value). While recognizing that the value of a single commodity includes in addition to these revenues the value of the means of production consumed, Smith nevertheless maintained that their value is created by living labor in other branches and that therefore, in the final analysis, the value of the aggregate social product is made up of the sum of revenues. Thus, constant capital (c), which represents the value of the means of production created by the labor of preceding years, does not figure in Smith’s formula. Since Smith disregarded constant capital as an element of value, he could not proceed to an analysis of simple and expanded reproduction. He tried to resolve the impasse of his teaching on reproduction by distinguishing between gross and net income. Gross income in his view was the total annual product of a country, whereas net income was the part of the product that can be classified as a consumption stock of the population. Thus, according to Smith the price of a commodity includes not only revenues but also advanced capital, which represents goods that one capitalist buys from other capitalists. But this capital too, Smith held, is composed of revenues (v + s), and constant capital (c) is therefore not part of the total sum of commodities.

Smith mistakenly identified the value of the annual product with the new value created in one year and confused the value of the total social product (c + v + s) with the national income (v + s) because he did not distinguish between the components of the dual nature of the labor that creates the commodity and did not know that only new value created by abstract labor is composed of revenues.

Nevertheless, Smith did recognize that the social product contains a part that does not consist of revenues, because the elements of constant capital are by their very nature not suitable for personal consumption. This brought him very close to the fundamental distinction between labor that creates articles of consumption and labor that creates means of production. V. I. Lenin pointed out that from there it was only “one step” to recognizing personal and productive consumption (see Poln. sobr. soch., 5th ed., vol. 3, pp. 37-38). However, the erroneous premises of Smith’s theory of reproduction prevented him from making this “step.”