We see that Smith here simply includes in this category of circulating capital everything but the fixed capital already employed, that is to say, foodstuffs and raw materials and in part commodities which, according to their natural form, belong to the replacement of fixed capital. Thus he has made the concept of circulating capital vague and ambiguous. But a further and most important distinction crops up and cuts right through this conception: ‘The circulating capital of a society is in this respect different from that of an individual. That of an individual is totally excluded from making any part of his neat revenue, which must consist altogether in his profits. But though the circulating capital of every individual makes a part of that of the society to which he belongs, it is not upon that account totally excluded from making a part likewise of their neat revenues.’[75]
In the following illustration Smith expounds what he means: ‘Though the whole goods in a merchant’s shop must by no means be placed in his own stock reserved for immediate consumption, they may in that of other people, who, from a revenue derived from other funds, may regularly replace their value to him, together with its profits, without occasioning any diminution either of his capital or theirs.’[76]
Here Smith has established fundamental categories with regard to the reproduction and movement of circulating social capital. Fixed and circulating capital, private and social capital, private and social revenue, means of production and consumer goods, are marked out as comprehensive categories, and their real, objective interrelation is partly indicated and partly drowned in the subjective and theoretical contradictions of Smith’s analysis. The concise, strict, and classically clear scheme of the Physiocrat theory is dissolved here into a disorderly jumble of concepts and relations which at first glance appears an absolute chaos. But we may already perceive new connections within the social process of reproduction, understood by Smith in a deeper, more modern and vital way than was within Quesnay’s grasp, though, like Michelangelo’s slave in the unhewn block of marble, they are still inchoate.
This is the only illustration Smith gives of this problem. But at the same time he attacks it from another angle—by an analysis of value. This very same theory which represents an advance beyond the Physiocrats—the theory that it is an essential quality of all labour to create value; the strictly capitalist distinction between paid labour replacing wages, and unpaid labour creating surplus value; and, finally, the strict division of surplus value into its two main categories, of profit and rent—all this progress from the analysis of the Physiocrats leads Smith to the strange proposition that the price of every commodity consists of wages, plus profits, plus rent, or, in Marx’s shorthand, of v + s. In consequence, the commodities annually produced by society as a whole can be resolved completely, as to value, into the two components: wages and surplus value. Here the category of capital has disappeared all of a sudden; society produces nothing but income, nothing but consumer goods, which it also consumes completely. Reproduction without capital becomes a paradox, and the treatment of the problem as a whole has taken an immense backward step against that of the Physiocrats.
The followers of Adam Smith have tackled this twofold theory from precisely the wrong approach. Before Marx nobody concerned himself with the important beginnings of an exact exposition of the problem in Smith’s second book, while most of his followers jealously preserved Smith’s radically wrong analysis of prices, accepting it, like Ricardo, without question, or else, like Say, elaborating it into a trite doctrine. Where Smith raised fruitful doubts and stimulating contradictions, Say flaunted the opinionated presumption of a commonplace mind. Smith’s observation that the capital of one person may be the revenue of another induced Say to proclaim every distinction between capital and income on the social scale to be absurd. The absurdity, however, that income should completely absorb the total value of annual production which is thus consumed completely, assumes in Say’s treatment the character of an absolutely valid dogma. If society annually consumes its own total product completely, social reproduction without any means of production whatever must become an annual repetition of the Miracle of the Creation.
In this state the problem of reproduction remained up to the time of Karl Marx.