ADAM SMITH : MARX : INDIA
Division of Labour
Concepts of Ownership, Possession and Management in respect of Capital and Land in Actual working:
Chapter 3 - of the Origin & Use of Money
Chapter 5: Price in labour and their price in money.
Prices its Components
Corporate contract farming in Agriculture : Adam Smith and Marx
Equality of Property in Land with Capital:
Land Stock Companies:
Social Security: Free Market Competition
Adam Smith to Karl Marx
Quesnai to Adam Smith
Origin of divergence between Adam Smith to Marx
[ Page 165 of Chapter-IV of Vol. I of Theories of surplus value ]
Good conduct and misconduct - Adam Smith
State action on general prices, incomes, wages, interest rates - Adam Smith and Marx
Inequalities - Nature and causes - Adam Smith
Inequality arising out of the individual value and market value.
I thought that the original ideas of Adam Smith and Marx minus certain shortcomings are still very relevant in explaining the globalization process including the problems manifested in Indian agriculture. Therefore I tried to analyze Adam Smith and Marx by extensively quoting from their original books viz.: The Wealth of Nations, DAS Capital and Theories of Surplus Value to trace the continuity of thought process from the stand point of theory of law of value. The assessment made by me is based upon my tentative conclusions. The write-up is only a rough draft without editing and quotations drawn from ‘Wealth of Nations’ and ‘Capital’ as well of ‘Theories of Surplus Value’ are not properly inserted and if any doubt exists it should be verified with reference to original books. The ideas expressed by me are not meant to offend or to do harm to anybody, but only intended to raise an intellectual discussion and debate over the current matters in issue in the ongoing globalization process affecting all the people.
S. LAKSHMA REDDY
A.P. LEGAL SERVICES (PVT)LTD
(compiled on 11.1.06)
Adam Smith is first person who has systematically presented the intrinsic connections in the body politic with the political economy and since then several developments have taken place. The capitalist economy is now transformed into corporate economy. Now it has taken in the shape of global proportions. New terminology like Globalization, Global economy, Global Price, World Bank and other Global Institutions, directing and controlling commodities, money, finance at global levels.
The legal concepts like Ownership, Possession, Control, Management have also undergone change since the time of Adam Smith. The individual ownership, possession and control either in the person of capitalist owning, controlling and directing the capital, landlord owning, controlling, directing the right over the land and the labour with power over his labour time etc., have changed. Now, there is no growing proportion of change towards diversement and separation of ownership with possession, control and management in respect of capital and the land vis-à-vis the landlord and capitalist and this separation has become necessity, due to growing application of Science & Technology to the productive and other commercial operations. Similarly, the concept of legal rights in the individual person vis-à-vis the state control are also undergoing change. There are demands from some interested groups for increasing state control over the individual rights and other interested groups demanding freedom from state control and freedom of contract and individual accountability. These trends are reflected in free economy on the one side, controlled communistic on the other side and the third Via Media welfare state concept. My present endeavour in this review of Adam Smith’s book is to analyse the social and economic processes over the periods and explain the advantages and disadvantages with reference to the intrinsic processes in the social development as explained by Adam Smith in his Book.
Adam Smith has taken the starting point of various economic phenomena by taking concept of value embedded in a commodity by the quantity of labour in each and determination of the prices, on the basis of the value embedded in the commodity. Several authors adopted the said concept after him and explained outward economic and political development on the basis of the said concept.
I am the opinion that the said concept still holds good in explaining the present day phenomena in social and economic life, like Globalization, in the sense of Global Market forces, Global Market Prices, Global Money and Finance, rates of interest vis-à-vis local and international market economies and the individual money and finance, and its political manifestations to outside the world like terrorism either in global or local scale, poverty, unemployment, suicides by farmers and other economic categories has to be seen and explained by taking Adam Smith’s approach to issues.
Therefore I have taken the decision to review of the Adam Smith’s book to the present context particularly with reference to the Indian political economy. In India, we have large territory with huge population. The problems of under development, poverty, unemployment in qualities and the extremists violence, corruption at all levels of Government and lack of social securities to the deprived sections have to be tackled and to be worked. The lack of understanding of the basic economic and political processes and the decisions taken at the political level having its huge impact on the economic processes are hindering the development processes. I will explain in the next chapter as a part of the plan to review the book, the fallacies and the measures to rectify the same.
Adam Smith has divided the subject under the Caption of "An Inquiry into the nature and Causes of the Wealth of Nations" into 5 books. The first book dealt with "Of the Causes of Improvement in the productive Powers of Labour, and the of the Order according to which its Produce is naturally distributed among the different Ranks of the People". The second book dealt with "Of the different Progress of Opulence in different Nations". The fourth book dealt with "Of Systems of Political Economy" and the 5th book dealt with "Of the Revenue of the Sovereign or Commonwealth". The 1st book was again divided into 11 Chapter. Chapter 1 – 3 dealing with "Of the Division of Labour", Chapter 4 dealt with "Of the Origin and Use of Money", Chapter 5 – 7 dealt with "Price of Commodities". Chapter 8 dealt with "Of the Wages of Labour", Chapter 9 dealt with "Of Profits of Stock". Chapter 10 dealt with "Of Wages and Profit in the different Employments of Labour and Stock and Inequalities arising from the Nature of the Employment and the Policy of Europe". Chapter 11 dealt with "Of Rent of Land", which again sub-divided into 3 parts. Similarly Book 2 sub-divided into 5 Chapters dealing with "Division of Stock, Accumulation of Capital, Productive and unproductive labour and different Employment of Capitals". Book 3 sub-divided into 4 Chapters dealing with "Natural Progress of Opulence and the Policy of Europe with reference to Agriculture after fall of Roman Empire and Rise and Progress of Cities and Towns and the contribution of commerce of the Towns to the improvement of the Country". The Book 4 sub-divided into 9 Chapters and explained the role of state imposing restrictions on Import and export of goods from foreign countries, balance of trade and principles of the Commercial and Mercantile system which guided the state in imposing restrictions on growing bounties and establishing new colonies or occupation of territories. Book 5 sub-divided into 3 Chapters and Chapter-1 again sub-divided into 4 parts, Chapter-2 sub-divided into 2 parts. He has explained in Book 5 the Role of State in augmenting its revenue and in spending it for promoting public welfare and natural system of perfect liberty and equity of its citizens. Now I take the Book 1 Chapter 1 "Of the Division of Labour".
DIVISION OF LABOUR
Adam Smith has held the view that the greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have the effects of the division of labour. To quote "the greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have the effects of the division of labour". He further explained that the Principle which gives occasion to the Division of Labour. To quote "This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility, the propensity to truck, barter and exchange one thing for another". This Division of Labour, according to him, is the "necessary consequence of the faculties of reason and speech" inhering in human nature common to all men and not to be found in other race of animals, which seem to know neither this nor any other species of contracts. In civilized societies, he stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals, each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour and show them that it is for their own advantage to do for him what he requires of them. "Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want and you shall have this, which you want, is the meaning of every such offer." "It is by treaty by barter, and by purchase, that we obtain from the another the greater part of those mutual good offices, which were stand in need of, so it is this same trucking disposition which originally gives occasion to the division of labour." In a tribe of hunters or shepherds a particular person makes bows and arrows, for example, with more readiness and dexterity than any other. He frequently exchanges them for cattle or for venison with his companions; and he finds at last that he can in this manner get more cattle and venison, than if he himself went to the field to catch them. From a regard to his own interest, therefore, the making of bows and arrows grows to be his chief business, and he becomes a sort of armourer. Another excels in making the frames and covers of their little huts or moveable houses. He is accustomed to be of use in this way to his neighbours, who reward him in the same manner with cattle and with venison, till at last he finds it his interest to dedicate himself entirely to this employment, and to become a sort of house-carpenter. In the same manner a third becomes a smith or a brazier, a fourth a tanner or dresser of hides or skins, the principal part of the clothing savages. And thus the certainty of being able to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he may have occasion for, encourages every man to apply himself to a particular occupation and to cultivate and bring to perfection whatever talent or genius he may possess for that particular species of business. He further states that "the difference between the most dissimilar characters, between a philosopher and a common street, for example, seems to arise not so much from nature, as from habit, custom and education". The division of labour is Adams has explained a case of improvement of productive powers of labour by giving the example of trade of Pin maker, as follows:
"Way in which the business is now carried on, not only the whole work is a peculiar trade, but is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifty grinds it at the top of receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business to whiten the pins is another; it is even a trade by itself to put them into the paper, and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactory, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very proof, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middle size. Those ten persons, therefore, could make among them upwards of forty eight thousand pins in a day. Each person, therefore, making a tenth part of forty eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable for performing, in consequence of a proper division and combination of their difference operations."
But, however, he expresses in his own words, the impossibility of making so complete and entire a separation of all the different branches of labour employed in agriculture, and that was the reason why the improvement of productive buyers of labour in this art "agriculture", does not always keep pace with their improvement in manufactures. The reason for inapplicability of principle to agriculture is explained in his own words, which is as follows:
"The nature of agriculture, indeed, does not admit of so many subdivisions of labour, nor of so complete a separation of one business from another, as manufactures. It is impossible to separate so entirely, the business of the grazier from that of the corn-farmer, as the trade of the carpenter is commonly separated from that of the smith. The spinner is almost always a distinct person from the weaver; but the ploughman, the harrower, the sower of the seed, and the reaper of the corn, are often the same. The occasions for those different sorts of labour returning with the different seasons of the year, it is impossible that one man should be constantly employed in any one of them.
"Apart from the dexterity and Judgment of a particular workman and also to the saving of the time which is commonly lost in passing from one species of work to another species of work, in case there is no division of labour, the other factors which has been highlighted by Adams, for great increase of the quantity of work is the invention of a great number of machines which facilitate and abridge labour, and enable one man to do work of many."
The underlying principle highlighted by the author is that the division of labour increases skill, dexterity and judgment of a workman in a particular trade and reduces the time taken to execute the particular work vis-à-vis where there is no division of labour. This principle can be taken to the logical ends of ond specializing in a particular trade, doing a particular part of a job in productive or manufacturing arts. He gives the example of superiority of manufacture, trade and commerce of England, France and other countries in respect of certain products as the commodities in exchange vis-à-vis the countries where no such division took place. He observed that the said principle was not to be found in agriculture.
Failure to appreciate the distinction of concept of Ownership, Possession and Management in respect of Capital and Land in Actual working:
The land is the natural basis and is an immovable property. A person who owns the land has a right to self-cultivate the same, combining himself the characters of a landlord, a capitalist, and the labour, provided his own capital and he together with his family level cultivates the same. If the landlord leases his land to another person who has capital to invest, his interest is that of a landlord for obtaining the lease rent by parting with the actual possession to lessee. If the lessee works with his own and family labour by advancing his own capital to produce the agricultural products for his personal consumption or for market exchange as commodities, the said lessee has not brought any division of labour and cannot bring such division of labour. If the same lessee acts as a capitalist, advancing his capital by taking large extent of land on lease and hiring wage labour to produce profit to him, he can bring about division of labour in his farm. The natural causes inhibiting the division of labour to the minute levels to increase the productivity of labour may be offset by the increasing application of technology and diversifying the productive operations to several agricultural commodities. But the sub-division of ownership of the land with the possession in the same person restricts the perfect division of labour and specialization in agriculture and to act as a free capitalist interferences. This sub-division of land by ownership, with possession, of a several small individual landlord cultivation is restricting the free flow of capital and labour into the land and appears to be the main reason for undermining the principle of Division of labour to its natural perfect levels now in agriculture. Any legal restrictions against the farmer from his freedom to separate his landlord interest from actual possession and cultivation of land i.e. right to legal ownership of the land is separated from management and possession and just as in the case of industry and manufacture have to be removed to develop the natural and perfect division of labour. By the time of Adam Smith, the Joint Stock Companies with individual share holding by separate management boards to control and manage the capital have become already in vogue. The said principles of division of labour could have been suggested as a measure to increase the productivity in agriculture on par with the manufacture and other productive of employment of capital. For example, the idea of the land holding ownership certificates as in the case of Share Certificate of a person who has invested the capital in the Joint Stock Companies for ensure the landlord interest and professional management and like the industry, the land like a capital. Board of Directors with a right to manage the affairs of the company in the instant case land-Joint Stock Company, to bring about maximum returns to his land shareholders by way of revenue out of the produce of the land by sharing the same with the capital and labour, as in the case of trade, industry and commerce. The later period, several political economists like Robertus, Ricardo, Marx have found ownership of lands in agriculture as a obstacle for the free flow of capital and labour into agriculture making the agriculture as an Island from the application of general principles of perfect competition in the economy, and suggested for abolishing property in land as a way to remove the said obstacle for the development of productive forces of the capital, labour in agriculture. In fact, the said principle was tried to be applied by Lenin in Soviet Union immediately after the October Revolution in 1917 as a first decree promulgated by him abolishing the property in land by way of nationalizing the same and vesting it into the state. But that did not bring about the desire result and a substitute mechanism which is in accordance with the natural system of perfect liberty and equity to an individual was not found and implemented. The measures taken by them to bring about cooperative agriculture, collectivizatioin and state farms while retaining individual right to possession to the extent of their own holding without allowing them to have share as the landowner to the extent of the holding submitted to the cooperative farm and collective farm and further without allowing them to employ the hired labour has stultified the natural division of labour and further the lack of ownership in the land has jeopardized the feelings of natural liberty and security of a person and the body of management in persons who have no self-interest in the property or maximization of the returns except imposing their decisions unconnected with the interest of land owners who are made to work as labour in the same farm has aggravated in situation. The economic decision making in respect of their own farms or the cooperative farms or the collective farms are not in accordance with the interest of the earlier owners of the said farms nor the management of the same is controlled by the erstwhile owners. It is neither a Joint Stock Company in the natural sense in which it was evolved nor is it a fully owned company of Government with professional management of the land-Joint Stock Company, applying the principles of maximizing the productivity and maximum returns of the profit. The division of labour in such circumstances is not a natural division of labour in accordance with the principle of human nature in a perfect system of natural liberty and equity as propounded by Adam Smith. The basic law norm to be observed. The short coming in the Adam’s approach in the application of principles of division of labour in agriculture lies in not distinguishing the right of ownership with the right to possession and management in respect of land as has happened during his time in industry. If, perhaps Adam Smith grasped that the same principle of separation of ownership with possession and management that have taken place in industry by way of Share Holder’s Certificate in a Joint Stock Company, is possible in agriculture, he could have realized that the ownership of land as a immovable property, could be no hindrance for free flow of capital and labour in agriculture and the possibility of separation of several trades to minute division of labour as in manufacture is also possible in agriculture and it could have improvised the productive buyers of labour in agriculture resulting in general universal opulence of the country. The other circumstances which perhaps made the Adam Smith during his time to think that the perfect division of labour in agriculture was not possible because the low technology in agriculture, fragmented division of land and the overwhelming influence of natural seasons over agriculture. But now the said circumstances during his time in agriculture is largely overcome by increasing an application of machinery, science and technology. Still there is fragmentation of land as an obstacle for the increasing application of machinery, science and technology. To bring about the perfect division of labour to remove any infringement of natural system of perfect liberty and equity of an individual in the society, it is possible by vesting the land into the land-Joint Stock Company or treating the agriculture as industry by launching of Land Ownership Certificates on par with Share Certificate in any other capital Joint Stock Company.
The benefits and advantages and the necessity and urgency of removing all restrictions which a state imposed till now on the sale, purchase, possession over land in India will be explained in the later chapters, when I deal with the concept of value, prices, components of such value and prices of commodities in the context of present globalisation and market price formations and its implications to Indian farmer or capitalist and other section of the people.
Adam Smith has elaborated that division of labour is circumscribed and limited by the extent of the market in chapter 3 of the Book 1. In his own words, "As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all the surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the products of other men’s labour as he has occasion for. He also state that the extent of the market, he compares the extent of market open to every sort of industry by means of water carriage over the land carriage alone and further compared the advantages of water carriage of the same quantity of goods to that of carriage by land and the mutually affording the market, give a good deal of encouragement to each others industry. It has brought opening the whole world for a market to produce every sort of labour to such countries who have advantage of water carriage through seacoast and the great navigable rivers. The opening of the market to the world through water carriage as a chief means of transport over the land carriage has increased the power of exchange of that country and the people giving occasion to possible perfect division of labour encouraging the persons to dedicate entirely to one employment which has its natural effect for the power of exchange and opulence over the people, who have no such market or occasion to the division of labour where the market is opened to a country with its superiority over the water carriage. The industry of every kind naturally begins to substitute to the natural perfection as a movement of capital and labour is faster over the vast market place open to them where there is no such market place. The power of exchange is limited to the disposable, surplus of other than the given territorial units… of village or town or country. The great advantages derived by England vis-à-vis over European countries that have opened their markets to other countries through water carriage and then the European countries again superiority of the England through its natural division of labour in industry, commerce and consequently control of seawaters.
Now new Science & Technology and the new era of jet speed in transport communication facilities transport over other in transporting of goods and services has given rise to the new power of exchange and it is consequently division of labour by reducing the time required to perform particular job. The new technology of Internet and IT communication services has given rise a new competition to the power of exchange, and opening of new market place to the producers of goods and services. It is the country and the individual capitalist or the corporate body which is capable of taking advantages of opening of the these new Science and Technology like internet and IT services, transport & other things being equal will have the advantage through a new division of labour.
To sum up a man is a social animal subject to natural laws. He has the inherent powers of faculties of reason and speech with propensity to truck, barter and exchange of one thing to another by way of contract. He has an inherent tendency to maximize his self interest and by his entering into the relationship with others by way of truck barter and exchange and his own natural propensity to maximize his self interest by attain in a perfection in particular trade by cultivating through habit, custom and education to have superiority in the power of exchanging the surplus produce with others and this propensity of power or disposition to barter and exchange brings about natural order of perfect division of labour which results greater opulence to the common stock where every man can purchase whatever part of the product of other man’s talents, he has occasion for, to general happiness of all.
CHAPTER 3 – OF THE ORIGIN & USE OF MONEY
When the division of labour has been once thoroughly established, it is but a very small part of the man’s wants which the produce of his own labour can supply. He supplies the far greater part of them by exchanging that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for. Every man thus lives by exchanging or becomes in some measures a merchant, and the society itself grows to be what is properly a commercial society.
Though the above passage, Adam Smith is of a view that with the increasing division of labour, the society becomes commercial, in the sense the exchange of commodities by way of commodity production becomes a norm in society. When a matter of exchange of commodities of one with the other for the satisfaction of each others wants, the question of measuring the equivalency of the value of each commodity in exchange will become a practical problem. Each person will try to maximize the sale price on his own commodity offered for exchange while the buyer will try to purchase the same at the least possible price. But when the society each one is a buyer and is a seller in one and the buyer had another point and an average compensating of any deviation in the matter of values in exchange will be utilized. But still the question of measuring values with reference to some standard had become the issue. In different periods in different countries, the standard of measuring the values in exchange with reference to a neutral standard was either in the form of cattle, corn and later times metals like gold, silver, iron, copper etc. and applied the use of paper money. But still the question remains when either the cattle, metal or corn as used as money for measuring the values in exchange of commodities. The commodity, which is used as money was undergoing change in its value due to availability and non-availability of that particular commodity and the causes involved in the production and maintenance of the said commodity. The difficulties was explained by Adam Smith in the following passage:
The use of metals in this rude state was attended with two very considerable inconveniences; first, with the trouble of weighing; and, secondly, with that of assaying them. In the precious metals, where a small difference in the quantity makes a great difference in the value, even the business of weighing with scales. The weighing of gold in particular is an operation of some nicety. In the coarser metals, indeed, where a small error would be of little consequence, les accuracy would no doubt, be necessary. Yet we would find it excessively troublesome, if every time a poor man had occasion either to buy or sell a farthing’s worth of goods, he was obliged to weigh the farthing. The operation of assaying is still more difficult, still more tedious, and unless a part of the metal is fairly melted in the crucible, with proper dissolvents, any conclusion that can be drawn from it, is extremely uncertain. Before the institution of coined money, however, unless they went through this tedious and difficult operation, people must always have been liable to the grossest frauds and impositions, and instead of a pound weight of pure silver, or pure copper, might receive in exchange for their goods, an adulterated composition of the coarsest and cheapest materials, which had, however, in their outward appearance, been made to resemble those metals. To prevent such abuses, to facilitate exchanges and thereby to encourage all sorts of industry and commerce, it has been found necessary, in all countries that have made any considerable advances towards improvement, to affix a public stamp upon certain quantities of such particular metals, as where in those countries commonly made use of to purchase goods. Hence the origin of coined money, and of those public offices called mints.
But still the question of determining the real value embedded in the commodity to be exchanged with an another commodity as a buyer or seller to establish the general quality of values in exchange still remains and the said problem of the real measure of the value embedded in the commodity and its exchange value in a market price was explained by the Adam Smith in the chapter 5 of Book 1.
The principle underlying the use of money as a means of payment and as a measure of value still valid as on today though the different kinds of instruments in the form of money or equivalent to it has become in use in the real world.
Chapter 5: Adam Smith has explained the real measure of exchangeable value of all the commodities as follows:
The value of any commodity, to the person who possess it, and who means not to use of consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.
From the above passage the following can be deduced.
The value of any commodity is equal to the quantity of labour which enables him to purchase or command;
The labour is the real measure of exchangeable values of all commodities.
The words "Quantity of Labour" which it enables him to purchase or command connotes two different aspects: (1) is the commodity in exchange with an another commodity: (2) the commodity__________ by purchasing the labour power. These two have different significance. The one commodity exchanging other equivalent commodity in value which are already produced and materialized in ventitolecommodities. Marx has characterized the exchange of commodities in the first form., as exchange of materialized labour whereas in the second case, he has characterized is that the exchange of materialized labour with the living labour. But in the case of both forms, the determining factor, both Adam Smith and Marx, is the quantity of labour is the real measure of exchangeable value of all the commodities. But the question of determination of the quantity of labour which the owner of the commodity to purchase or command, the Marx has measuring rod and the labour time is taken as standard of measurement of the quantity embedded in a commodity. For instance, if the production of item ‘A’ involved other things, being equal use of 8 hours of labour time resulting in the production of 10 units of a product and with the same labour time the quantity of 20 units of ‘B’ is produced in value terms, both [A] and [B] are equal while in exchange, since both 10 units of [A] commodity and 20 units of [B] commodity contains 8hours of labour time. They made value in exchange as different from use value, which is reflected, in the physical quantity of the commodities. That is, values in exchange different with the physical quantities are used in the value of the commodity. The question of equation of several commodities like with gold or gold with another commodity. The physical quantity of the gold being small compared with the quantities of iron and other commodities, yet the value in exchange is measured by common yardstick of labour time necessary for production of ____ the gold and other commodities than the same given time. If the labour time required to produce gold has become less due to any factors like fertile gold mines, or increasing of use of machinery and technology and thereby the labour time required is reduced, then the value in exchange of the said commodity vis-à-vis other commodity will become cheap due to abundance of the said commodity. Similarly, if the labour time required producing any other commodity has increased than the value of that commodity in the real sense will increase and the exchange of other commodities vis-à-vis the said commodities will become dear and the same is reflected while producing the same in terms of money.
Adam Smith went on to state that the time spent in two different sorts of work will not always along determine this proportion. The different degrees of hardship endured and of ingenuity exercised, must likewise be taken into account. There may be more labour in an hour’s hard work than in two hours easy business or in an hour’s application to a trade which it cost ten years labour to learn, than in a month’s industry at an ordinary and obvious employment. But as general proportion will discounting the ___ from the average has compensated against each other. He states that equal quantities of labour, at all times and places, may be said to be equal value to the labourer. In his ordinary state of health, strength and spirits; in the ordinary degree of his skill and dexterity, he must always lay down the same portion of his case, his liberty and his happiness. The price, which he pays, must always be the same, whatever may be the quantity of goods, which he receives in return for it. Of these, common indeed, it may some times purchase a greater and some times a smaller quantity. He further proceeds to state that labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price, money is their nominal price only.
But still several question remain to be answered by Adam Smith (1) Whether a farmer employ the old techniques of production, like Wooden Plough for tilling, Bullock driven water irrigation from well, manual plantation and harvesting and weeding etc. and the total quantity of labour in producing ‘A’ quantity of corn meant for sale in market as commodity and the second farmer using medium techniques of production like iron plough, oil bar check motor for pumping the water, using the tiller for ploughing the wet lands and similar other instruments thereby producing half the time of the total quantity used by the traditional farmer of the illustration one, producing the total quantity of A, the third farmer using modern technology like Tractor, Bore, Canal water, using other equipments for planting, harvesting, weeding etc. using modern methods of management reducing the time and expense to 1/10th of the quantity of labour involved in farmer ‘A’ and producing 4 times the quantity of ‘A’ farmer by reducing the total quantity of labour time involved to 1/10th of A time. Now the Adam Smith’s measure of quantity of labour to measure the value in exchange of commodities produced by ABC than the quantity of the labour embedded in A is more than the B and the B than the C. Where in the matter of purchase and sale as the use the words power of purchase or command. A should have a better price than B and B than C. But in actual market exchange, the quality of commodities produced by ABC assumed as same. The price per unit of the quantity of the commodity is uniform to the ABC i.e. the price earned by A is less than B and B than C because the quantity of commodities produced by C is greater than B and B greater than A. This is a contradiction in real life, contrary to the proposition made by Adam Smith. Therefore a Re-look was made by subsequent authors and the said proposition of labour time embedded in commodity as the measure of value has been modifying so as to state that the necessary social labour time required to produce a commodity has been adopted. This improvisation was made by Marx by analysing the law of value has enunciated by Adams while analyzing and explaining the formation of general rate of profit over a period of time through market competition and fluctuation of market price tending towards formation of general rate of profit.
In the illustration given about, the total quantity of labour and the total quantity of commodities has to be taken and the average quantity of labour required to produce the total quantity of commodities has to be arrived it. The prices is arrived it, by ignoring __ through fluctuations over the social average, as fitting with the social average labour time and the prices of the said social labour time. This is like Einstein’s proposition of law of conservation where the total of the matter remains. In the case of law of value has improvised by Marx over Adam Smith is that the total aggregate value in the sense of labour time required to produce the total quantity of goods and the price of the total quantity of social goods is equal to the total quantity of values as measured by the labour time. By applying the above principle, the facts of the above illustration, the total quantity of goods produced by the ABC farmers and the total labour time employed by the ABC in producing the said goods and by dividing the total quantity of the goods by the total quantity of the labour time, required to produce the said goods is arrived it. And the deviation is to be found over the social average both above and below.
The social average is like a line of best fit in a statistical regression analysis and the farmer whose actual labour time in producing his commodities is falling below the line of best fit will be compensated by the farmer whole labour time is more than the time of average best fit and the line of best fit being equaled to price. The farmer who is employing the old mode of production using outdated technology, will be transferring his labour time and value to the farmer who is using advanced mode of technology, thereby the market price operates as a mechanism of __ of several interested in the over time. This is what is called a value price mechanism operated in market transferred to resources of persons from a lower mode of production to higher mode of production while the average person remaining on all to fall either this side or that side.
It is this phenomena which holds good in explaining continuous falling incomes, standards of life, unemployment and other consequential effects on the persons lives, liberty and properties and the social violence that results out of the tensions arising out of such phenomena manifested sometimes political and __ forms. Now since the globalization of the market economy integrated of local over national market into this whirlpool the consequences, also the global touching several national local economies and affecting the individual persons and their family economy.
Adam Smith is not surprised when a ordinary prudent man goes by money price of the good and not by the real price which in his sense the actual quantity of labour employed in producing the said commodity. In his words it is as follows:
As it is the nominal or money price of goods, therefore, which finally determines the prudence and imprudence of all purchases and sales, and thereby regulates almost the whole business of common life in which price is concerned, we cannot wonder that it should have been so much more attended to than the real price.
The same holds good even till date the prudent man both as a purchaser or seller, is concerned about the market money price and not by the actual labour time employed in producing his goods and / or commodities. In fact, a marginal farmer or an imprudent farmer conducting his agricultural operations not on business lines like a capitalist will be the victim more often than not. If the interplay of actual labour time employed by him and social average labour time required to produce the said commodity which is the determining the factor in the market price mechanism. He often works more time than social average time and yet he would not get the price for the labour employed time. This law operates even national and international scale. It is squarely applies to Indian farmer. 80% of our farmers have conducting their operations not on business lines like a prudent capitalist maintaining his business accounts, as an outmoded self cultivation with his own family level in a small units with outmoded technology. By operation of above law, which is working on global scale now in view of liberalization through WTO and GATE ___ is becoming the victim and glamouring for help from outside like government and other non-government for saving the life, liberty and properties. The solutions offered by the Government and other non-government institutions and touching the basic law is futile and any effort by Government __ to meet the new challenges by bringing the economy on par with line of best fit, social average, requisite labour time over the global scale or below it is not possible to save the situation without much human cost. The present phenomena of a farmers suicide due to bad debt and debt traps arising out of portion of the said law and the same is felt all over the country including advanced states like Punjab, Karnataka, Andhra Pradesh and also other states. Unless we under stand the different component prices of value and the price of a commodity. To better understand the same we have to look back to the way in which the Adam has analysed the various component parts of the prince of commodities. Therefore in the next chapter we will analyse the same and apply the present context.
In summing up the above, the real price of commodity is always measured by the quantity of the labour time employed and embedded in commodity and the nominal price is measured by the money which is equivalent to the social average labour time required to produce that particular commodity and the real price of commodity is not the same as the nominal price of the commodity and an ordinary prudent man is concerned about the nominal price of a commodity than by the real price. But it is the real price, which determines the nominal price of a commodity by operation of law of value in exchange in the more __ through market competition. The person, be a farmer, farmer capitalist or capitalist or corporate body producing the commodity by employing out moded mode of production employing the quantity of labour above the line of best fit which the same is that of social necessary labour time to produce that commodity is always victim in market price mechanism to that of (1) person producing the same commodity by using advanced mode of production employing the quantity of labour below the line of best fit is always a gainer in the game. Countries are no exception to this law. India, it is government and its people has to look back to find where they stand whether above or below or over the line of best fit and review their policies accordingly.
PRICES ITS COMPONENTS
Adam Smith has analysed the different component parts of the prices of the Commodities on the basis of certain basic premises, which are undisputed.
Land is a natural basis, when it was common in the rude state of society, not become private property has no value it itself.
It is the labour, which creates the value
Labour has different degrees and species of labour depending upon the skill, dexterity, judgment and trust involved.
Rent of land to the landowners is the price fixed by him out of the portion of the value added by the labour by using his land as component.
Profit is compensation for the labour of inspection and direction of a capitalist when he is acting as a capitalist in true sense.
When great works were carried out and the labour of inspection and direction is entrusted to some principal clerk.
The price of the capital, when invested in stocks, discharged of almost all-personal labour is correlated to profits as a component part of additional value added by the labour in the employment of the capital in production of goods or services.
A total annual revenue of a country is equaled to aggregate annual additional value added by the labour to the values of the material advanced and further the said revenue is divided, appropriated by three basic commodities, i.e. wages to the labour, profits to the capital and the rents to the land lord.
The profits of the stock, rent of the land, wages of the labour are regulated by quite different principles, which he elaborated in different chapters 8 to 11 of his Book 1.
The revenue of the state in the form of taxes is ultimately derived from some one or the other of the three original sources of revenue i.e. wages of the labour, profits of the stock and rent of the land and all of them from the additional value added by the labour to the value of the materials advanced for the production of goods and services.
In Chapter 7, he further divides parts into one of natural price and the other of market price and the natural price, according to him is that price of any commodity, which is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour and the profits of the stock employed in raising, preparing and bringing it to market, according to their natural rates and then sold and again the natural rates are explained by him as an ordinary or average rates may be called natural rates of wages, profit and rent, at the time and place in which they commonly prevail. That is Adam Smith takes ordinary average rates as the basis for determining the natural price and the deviations of the price from the average natural price which may be either above or below the natural price as market prices and the one which is coinciding with the natural price is the term by him as Central Price around which the prices of all other commodities are of continually gravitating. This again is determined by the interplay of supply and effectual demand. The effectual demand is determined by the total quantity of rising or falling or stationary rates of revenue by way of wages, profits and rents to the three basic constituents of the country and the production and supply of the commodities sufficient to meet the effectual demand. He gives the examples of deviations of the market price above and below the natural price to the one of central gravitating natural price and likewise the supply of commodity either above or below the effectual demand which is also according to Adam Smith is the same with natural price because according to Adam Smith natural price of any commodity is the one which is sufficient to pay the rent of land, wages of labour and profits of stock employed in raising, preparing and bringing it to market according to the natural rates and sold in the market. And he further assumes that given the natural state of things and perfect competition, the market prices will be continuously gravitating and settling with the natural price. But if there are accidents like natural causes, state regulations, monopolistic in favour of one or other individual or body of persons like ownership of land, exclusive privileges or corporations laws, which restrain particular employment and all those competition to a smaller number than might otherwise go into them will prevent the gravitation of the market price to a natural price conferring undue benefits or laws to a particular sections of people at the cost of the others within the society. He gives various instances of such monopoly, natural causes and other accidents which acts as obstacles to the free competition and free flow of capital and labour to bring all sections entitlements to all their due in the respective employments of land, capital and labour.
On the basis of the above findings, he advocates the removal all restrictions on the free flow of labour and capital and labour and dismantling of state regulations which tend to grant exclusive monopolies, privileges in favour of one or other interested groups.
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Only a nominal expression of money price to the real value embedded in commodity and realized by the three basic constituents as the owners of three basic factors of production i.e. owners of labour, capital and land in the form of wages, rents and profits and the state revenue is treated as deduction out of the basic revenue of these three component parts of the state. Marx has called the value added by the labour to the material advanced in raising, preparing and bringing commodity to the market minus the wages paid to the labourers as the surplus value giving it a political dimension as a point of conflict between the interest of the worker with the interest of owners of the capital, owners of the landing and state in creation and division of the values and their money expression revenues.
Minus the political dimensions, the analysis of Adam Smith is improvised by Marx in certain areas of political economy where Adam Smith was either unable to understand the economic phenomena or vacillating formulating the conceptual ideas consistently. For instance, Adam Smith analysed the rising and falling prices of the commodities to the different supply and effective demand fluctuations in the market competitions and the effective demand and supply for again correlated to revenues of the basic constituents of the population i.e. wages, rents and profits which again can included the state revenue through out taxes and other measures and the rise and fall of different components of this revenue and supply of commodities is correlated with the causes which increase or decrease i.e. labour time and social labour time required to produce commodities due to natural causes or due to better management techniques or due to increasing application of Science and Technology and so also different distributions of the value components in the form of revenue to different interested groups in its natural state and when intervened by State regulations, natural causes, concealing of information through playing trade secret, fraud, coercion or use of force and violence which is contrary to free consent and contracts.
We will analyse the effects of any decision making either by state political parties or trade unions or either employers or employees and the monopolies granted in favour of state, private corporations or individuals in distributing this natural state of gravitation in creating and distributing the aggregate social values added by the labour and its distribution to the various components in the form of revenues like wages, rents, interest and profits to the individuals in the following chapters.
CORPORATE AGRICULTURE : ADAMSMITH AND MARX
On land in its natural state has no value as explained by Adams as follows:
"As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gather them, come, even to him to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects and produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land, and in the price of the greater part of commodities makes a third component part". The other two component parts being (1) Wages and (2) Profits.
From the above, Adam Smith implies that before the land became the private property it has not cost the labourer any price except his own labour and the labourer was the full owner of the product of his labour. When the land has become the private property the labourer has to share the portion of his labour and the product of his labour with the landlord for the licence granted to him to use the land. The rent of land as a portion of total produced by the labour is relatable to the ownership of land as a private property when leased to labourers. This has an implication and the subject matter of political debates and political storms of various historical stages of societies. Land being limited as a natural basis and an essential component of means of production of goods and services, the exclusive monopoly in favour of individuals or corporations and further accumulation of the ownership of the particular means of production in the hands of few deprived the others of their right to produce their means of livelihood except with the licence on paying the price fixed by the landlord. In the early days, it was the king or person who has conquered the territory or who found the territory monopolized it and granted licence and sub-licence by way of feudatories’ subjects to such terms and conditions. Similarly when the permanent settlements were made with the ownership right, the owner in turn has become with the right to licence or to cultivate by himself for his own use and benefit. It was also a subject mater of purchase and sale like any other commodity. Unlike the other factors capital and labour the land because of its nature of immovable property has special features conferring the owner of such property, right to obstruct the free flow of capital and labour. To overcome this, the states have recognized the right of eminent domain i.e. the right of the individual owner is subject to the overriding public interests and the state can expropriate the owner of the land subject to law. Many of the common law countries and other continental countries have recognized right to property in land on par with right to property in capital and whenever expropriation or taking over of the land for public purposes, they recognized payment of just compensation equal to the market value, but in some countries, the said right was not accepted and no compensation is paid treating the lands as not a property and the property in land is not separate from the land and by similar measures like abolition of property in land was enacted by decree in Soviet Union in 1917. In between the two, there are intermediate states.
Adam Smith has reasoned by contrasting with rude state of society where the whole produce of labour belongs to the labourer and the quantity of labour commonly employed in acquiring or producing any commodity is the only circumstances which can regulate the quantity of labour which it ought commonly to purchase, command and exchange for and further when some stock has accumulated in the hands of particular person or persons, some of them will naturally employ it in setting to work industrious people, whom they will supply material and subsistence, in order to make a profit by the sale of their work, or by what their labour adds to the value of the materials in the process. The origins of private property and appropriation of the surplus out of the labour added to the value of the material and consequently the origin of right to private property including the private property in land is explained.
This property again is exchangeable like any other commodity and further the exchange of the property in land with the other commodities is regulated by the same principle of the total quantity of the labour required to produce the said commodity and the quantity of labour embedded in it while exchanging with other commodities with equal quantity of labour. The only circumstance which differs from other properties, is its immovable nature and further its location, the natural fertility and other natural conditions which are not transferable and which owner of the particular land tries to reap the advantage without himself sowing anything. But if the land has already become subject matter of several purchases and sales and transfer like any other commodity, then the purchaser of the property must have had already exchanged the price taking into account the additional factors as a source of additional revenue to him and lost its original stamp of natural basis. The private property in the hands of individual or corporation, is recognized as the enforceable right in a society. The right to property in land was the some characteristics as that of the right in capital so also the labor power, the difference being that the property in land and the property in capital in the form of materialized labour embedded in them as commodities whereas the case of labour, it is a living labour yet to be converted to and realized the form of materials, goods and services. A farmer who owns a piece of land has a right to cultivate himself by employing his own stock and labour and thereby appropriate, the entire values added by his own labour to the value of the materials by use of land as the natural basis as one of the means of production. He appropriates to himself the rent on the land, the wages to his labour, and profits of the stock accumulated in his hands employed on his farm. Many of our Indian farmers owning small piece of land are in this category. All political parties, the Government is advocating the owning of small pieces of land by the farmers as self-cultivators. But this is conflicting with law and principles propounded by Adam Smith. He advocated the division of labour and specialization in particular trade as a means to reduce the labour time required to produce a commodity and further states that in agriculture, the ownership of land by holding small pieces of land is not conducive to bring about the perfect division of labour and therefore it is not possible to bring the agricultural division of labour with that of the division of labour in the manufacture and other sectors.
Marx has analysed the issue in continuation of Adams and found that the nationalization of land and abolishing property in land will remove the obstacles placed by the ownership of land towards perfect division of land in agriculture also allowing the operation of perfect competition through free flow of capital and labour in agriculture. The endeavor of both the authors appears to be to reduce the labour time required to produce any commodity including agriculture commodity by promoting the perfect division of labour and specialization and use of modern science and technology available in the contemporary world. But in the present day world, most of the states have not found a way out of this private ownership of land and it is conflict with the perfect possible division of labour in agriculture on par with the manufacturing and services sector. The experiments made by the Soviet Union in abolishing the right to property in land through nationalization by recognizing the possession of farmers who are self-cultivating the land and encouraging them voluntarily to join cooperatives-cum-collective farms and forcibly conversion into state forms has found to be not in accordance with the natural sense of liberties, justice and equities and had to be abandoned. The Soviet authors have not looked from the point of view of bringing about a natural perfect division of labour in accordance with the natural system of perfect liberty and equity advocated by Adam Smith. A person who has acquired and accumulated through his own efforts by overwork and savings has lost the recognition and recompense jeopardizing his own natural sense of liberty, justice and equities and lost initiative to bring about the perfect division of labour required to produce a commodity with a social labour time below the line of best fit. On the contrary the existing right to property in land with all its legal effects, having ownership and possession in respect of his small portion of the land compared with the huge productive powers brought about by the use of machinery, science and technology is not conducive as opined by the Adam Smith for the perfect division of labour.
The perfect division of labour in manufacturing and service sectors is made possible by the use of concepts like Joint Stock Companies and now huge multinational companies by diversing the ownership of capital with that of possession and management of the same. The owner of the capital is not the manager of the capital as Adam Smith explained the owner of the capital is discharged of almost all his personal labour by appointing a principal clerk who oversees the management. This was made possible in the Joint Stock Companies and Public Limited Companies but the essential principle is the division of functions which also a part of ongoing perfect division of labour confining ownership as a legal right to expect his profit in proportion to his capital out of the total value added to the material by the labour.
This principle is possible in agriculture and the same is conducive and in consonance with perfect division of labour in agriculture as well as in consonance with Adam Smith’s natural system of perfect liberty and equity of an individual. The owner of the land by investing his land-capital in any agricultural land stock companies is discharged of almost all of his personal labour like other manufacturing sector excepting his profits in proportion to his land stock and the management of land stock is taken over by the professional managers appointed by the land-joint stock companies.
The political parties advocating the division of labour to small pieces and created the self-cultivating farmers are ineffect advocating against the natural process of perfect division of labour in agriculture and specialization in particular trades and operations to bring about deduction of labour time required to produce the agricultural commodities in the country below the line of best fit, social labour time which the Adam Smith has called as the average rate or natural price and the measures suggested by the political parties and the government is only pushing the farmers to conduct their operations with a division of labour which produces the commodities with labour time and value embedded in it which is above the line of best fit and they will always suffer deprivation and expropriation of their natural labour time and value not able to meet the standard social labour time i.e. the line of best fit. The farmer in such situation will always be at the mercy of natural causes which some times reduces the overall production of agricultural commodities thereby brings about a demand to their commodities equal to the value embedded in it without any loss. When the operation of the market forces as on global scale and the supply of commodities is liberalized to free flow from one country to other, the Indian farmer can never except to a remunerative prices equal to the labour time and the expenses incurred by him in his agricultural operations with the present state of agricultural division of labour by small ownership holdings. The arguments are advanced by some political parties and the spokes person that the small ownership holding will increase the yield per acre and the same is not in the case of large holdings and further in the case of small ownership holdings, the family labour will work day and night without restrictions of time to bring about more production in his unit. This is unscientific.
1] What is to be seen is quantity of labour required to produce per unit of a commodity and the actual labour time employed in producing the commodity ?.
2] It is not only that particular commodity but every component of the material advanced in production of commodity and the labour required to produce each component of that particular material used in the production of commodity in combination with labour is also required to be reduced.
A reduction in labour time by increased division of labour and specialization in particular trade will be brought about by separation of ownership with management and control at different space time and phases of production and this will have effect increasing commodity relations of production which will have the effect, in increasing the home market of exchanging one's goods and services with others’ goods and services. It will also brings about capitalist and corporate relations of production and it will facilitate the freedom of an employing of the persons with particular aptitude and skills to carry on particular operations to its utmost dexterity and judgment and also help the movement of capital and labour to wherever their best fit to be employed.
Let us take an example of Indian average economy, where the caste division of labour centered around the owner of the agricultural land as land lords and other caste groups deriving their revenues out of the labour contributed and labour exchanged to agricultural land lord class and among the caste groups, they exchanged their labour time in the form of services in reciprocation. The carpenter will do a carpentry work of a farmer like making and maintaining the plough and other agricultural instruments ………
The needs of farmer community and during the festivals and other occasions or functions and household utilities. Similarly the weaver, the leather dealers, leather man etc. and they expected a remuneration in exchange of their services from out of the produce of the farmers. The farmer also employs hired labour in combination with the family labour alongwith the capital advanced by him in the agricultural operations. Many times, an agriculturist borrows the capital required for investment in his agricultural operations from the relatives, moneylenders and also from the cooperative / commercialized banks. The lending of money by the cooperative / commercial banks, money lenders will be either on the basis of simple mortgages or even sometimes use fructory mortgages. The cost of the production in the early times was not on the basis of any determined market force but only barter and a simple local market rates and price, many of the agricultural inputs were local and natural and the produce they are also distributed on the basis of settled principles amongst the caste labour traditionally handed down. If there are any dispute with regard to the quantum of compensation payable to any one of the contributors of the labour to the farmer as the purchaser are vis-à-vis among the labouring class within themselves, the same were settled through intervention of their caste elders by medium of panchayats. But with the onslaught of modern machinery particularly modern manufacturers like textile mills, the weaving cost and their utility as a cost, services exchanged with products by farming class has lost utility since the clothes supplied by the mills were cheaper than the cost of the labour of a weaver in village with better varieties of the quality cloth. Similarly, when the use of electricity and oil motors has become agricultural operations for pumping the water from the wells, the leather industry in the village and the caste groups who used to specialize in the leather supplied to the farmer while to pumping the water out of the well through pail has become disuse, so also the use of slippers and other footwear industry has ousted the leather industry caste group in the village. The use of steel in house-hold utensils has ousted the potter community. In all these cases, the caste labour were unable to withstand the increasing cheapening of the products the use of manufacture and highly evolved division of labour in that particular branch. But still the people are sticking to the same professions in sub-standard living conditions by taking up other avocations also as a part-time to secure their means of livelihood. Now the onslaught has come on the very farming community itself because of liberalization and globalisation and the principles operated in respect of other caste groups are also operating in the case of agriculture and its products. The small localized production units with low technology, incompetent of production methods with outmoded division of labour i.e. the same farmer doing number of operations through his own family labour or through equally incompetent part time family labour or other without specialization and skill devoting his full time to a particular operation of the time. This is nothing but reducing agricultural operations to disorderly conduct without any direction.
We are also been witnessing that many of the landlords in the villages have realized the unviability of agricultural operations have either sold or lease their agricultural plans to other and settled in the cities by taking up of other avocations. The part-time of full-time job in a particular trade or avocation or in the business is found to be more lucrative by the persons than in agriculture. Even the farmer prefers to a fixed –time job in any particular trade or avocation than uncertain and uneconomic agricultural operation. The ownership of land with self-cultivation involving several jobs like management of the farm, his house, dealing with several agencies which are not under his control like his relationship with the various governmental agencies, banks, money lenders, the suppliers of various inputs and finding himself, as to attend the job of marketing his product in the market yards. And the total sale price obtained him is not sufficient to meet the expenses incurred towards the cost of materials advanced by him in agricultural operations and also to pay the interests to the money lenders and the banks, rents and the cost of transportation and other expenditure, in selling the agricultural products. The price fetched by him, in the market it totally uncertain depending upon several uncontrolled and unforeseen factors. The net result is that he is tied to learn because of his ownership and possession of his land and the same time he has no other avenues of employment outside agriculture. The markets outside operated on the basis of capitalistic business principles of fixing the price on the basis of actual cost of production plus the average profits expected in case of other employment of the capital but the same principle is not being operated in agriculture due to self-cultivation and he is being forced to either conduct himself on capitalistic business principles or sell the land and become a agricultural labourer, free to move any place where he can offers his services at the best price available. This is an inevitable process by operation of the economic laws. The political parties instead of realising the reasons and causes for the disintegration of self-cultivated small farmer ownership holdings into market oriented progressive farmer running on capitalist lines, they are pushing the farmers into the same place where they are usually to run out and even sometimes forced to commit suicide due to their inability to cope up with the situation.
If one looks the way in which Adam Smith has looked forward the better way appears to be to take a model path of avoiding to the extremes of abolishing the property in land and small ownership holdings with self-cultivation i.e. by promoting the corporate way of doing agriculture by retaining ownership of the land with farmer diversify the management of the same and placing it in the hands of professional management in a joint-land stock companies, wherein, they auction the tracts of land to the willing enterprising farmers or group of farmers to take up on contract basis employing the hired labour of specialist trades and other avocation to carry on the particular operations to the perfect division of labour and which will have the effect of diversifying the agriculture operations to various new agricultural commodities in consonance with the international standards and supply demand conditions with labour time below the best fit. Government can laid down the standards keeping in view of conditions in particular line of agricultural activities so is to be below the line of best fit in that particular agricultural commodities and at the same time it will have the accelerating effect in creating employment to the displaced labour in the villages in the new time bound features, terms contractual employment. This will facilitate the movement of the labour and capital from one end of the country to the other end of the country expanding the home market for observation and provide market to all the goods and services. This will be further explained in the other places. The above measure will provide the revenue to the legal owners of the land as a shareholder in the joint land stock companies as a profit to the proportion of their share and at the same time the wages earned by him in other employment will be an additional source of revenue. He can also lend his capital, which he is saved by employing the same in other joint stock company market. The sources of revenue remaining the same but the land is released from outmoded mode of production and put to use in which the perfect division of labour by reducing the labour time below the line of best fit to be brought about and thereby facilitate the general welfare of the people be brought about. I therefore recommend to take the principle advocated by the Adam Smith in its seriousness to Indian context while taking the policy decision to overcome the agricultural crisis brewing up incessantly and resulting in forcing the farmers to commit suicide for having no other way out in the given situation.
EQUALITY OF PROPERTY IN LAND WITH CAPITAL:
The land as such has no value, but when it is put in motion by the labour to create some useful products, the product acquires the value and when it is exchanged with other products of labour it takes the form of commodity. To make the land useful, as a means of production to produce, investments in the form of capital and labour havae to be made over the land and when the land has become useful for producing the goods then it also acquires the value and the same is measured in terms of quantity of capital and labour invested in it, since it is a natural basis, its location and natural fertility and other potential advantages, it has also gives the owner of the said land, a right to demand higher value than the capital and labour invested in it. These natural advantages avoidable to the owner of the land, or also to be found the owners of other commodities like labour and the capital. In case of labour, a person with a natural good body constitution, beautiful appearances, naturally born genetic qualities in the matter of intelligence and ingenuity like in the case of natural fertility in the soil, the advantages of capital invested in any particular commodity which has become more useful to the general public due to unforeseen circumstances, hence the distinction of property in land vis-à-vis other properties from legal point of view is not of much relevance. The owner of the land is also like the owner of the capital and both of them can be expressed in quantitative terms of money i.e. the materialized social labour time and in both the cases, they are exchangeable one with the other. The once difference between two is the land is a immovable in nature and other commodities in the form of capital are moveable. In case of factories, lodge, undertakings, though the capital partakes character of an immovable property but still they are expressed in terms of price, money and interest and they are sold without actually .. removing the factory or undertaking what is sold is the right and interest in the property and there is no restriction of movement in such transactions and it is promoting the free flow of capital from one person to other without hindrance and thereby promoting the efficiency in the allocation of capital sresources determining upon the supply demand in the market situations. Similarly treatment should be given to the property in land an no restrictions could be imposed upon the free movement of the property in the land and the movement of the land as a commodity.
Several land ceiling regulations, regulations’ reserving certain lands has not alienable to general public like in the case of scheduled areas, restrictions imposed on the use, sale and purchase certain government assigned lands, and restrictions imposed in similar fashion on other lands have become outdated and obstacles to the optimum utilisatiion of given resources. For instance, a person owning an acre of agricultural land is not attached to the land only and he is not free to move to the place where he can get a good employment and wages. He cannot put his land to the modern cultivation with minimizing the cost of production. He has no skills to manage the farm in the modern sense of employing consulting services. He has no capital to invest in land as a result thereof though nominally he is a owner of the 1 acre land, he mortgages the land either to the co-operative bank or commercial bank or in the alternative usurous money lenders and borrows the capital to invest in his land. Since he himself is the owner and labour, he has no restriction in employing his own labour power and he works day and night in his land. But he cannot employ modern methods of cultivation like employing electric motor pump, tractor ploughing, machine weeding or even the chemical inputs, pesticides and other machinery to harvest. All these instruments are used to reduce the labour time required to produce a commodity and increase surplus value and profit to a capitalist farmer. The traditional farmer in case he undertakes to employ these techniques, expenses incurred per unit of his cultivation higher than the average in case of a capitalist farmer. Any increase in the money price of any one of the inputs will add additional burden of capital and interest charged on a capital by the bank or money lenders. Further, the said farmer credit worthiness in market with the banks and money lenders is not sufficient to get the finance in time when it is most useful. These time of uncertainties and incompetence due to being advantages except that he is free to work his own labour time in his own unit. But as already narrated by the Adam and further improvised by the Marx that the market price is determined by the average of the socially necessary labour time required to produce a commodity and in a global market, the social labour time required to produce is determined by the global social labour time and not by the individual labour time of a particular farmer. In this scenario, it is not the maximum length of labour time that is invested in the land, determines one’s place in the market but it is the minimum labour time employed to produce the same commodity that acts as a determining factor and if the quantity of commodity produced and brought to market is an excess of quantity of the demand for that particular commodity, than the excess quantity of the goods over and above the quantity of the demand will have to be sold at a price which is less than the cost of the production and even some times throw away the same as having no use value to the public as consumers. In such a situation, the falling prices will force the smaller and marginal farmers unable to realize the total labour time in the sense of materialized labour and living labour invested in his farm and will have to suffer losses, not even realizing the wages to his labour but also will be unable to pay the rent to his own land if he had leased it out to somebody, as also ownership of very land itself due to his inability to clear the debt borrowed from cooperative / commercial banks and usurous money lenders. It is this phenomena which is manifested itself in the rural India.
The Capital farmer will withdraw his capital from the business in agriculture, if the price of his produce is not sufficient to give a minimum average profit to his capital on par with any other capital if invested in alternative fields. But the small farmer who in himself combines the ownership of land and cultivates himself has no choice to run away from the said business. As he has no capital except his own labour power.
If the demand for the agricultural commodities is an excess of supply than perhaps the market price in that particular year may give the marginal farmer a cushion to recover his cost of production but this phenomena is not likely to happen in view of growing uses of technology and the management practices world over. It is only in the case of natural calamity which is also being offset by the use of modern technology hence the probability of smaller farmer reaping the profits for a period of more than 2-3 years is very likely not to happen and further the probability of increase in the cost of modern cultivation like use of new inputs and management practices involving consultancies is more likely to happen. In such growing situation, the only way to overcome the disease is to separate the ownership of land from its management and separate labour power from the ownership of land as well as ownership of capital. These three factors of production should act independently in their own interest which in turn will result in the interest of general public.
The Adam Smith precisely advocated the same. But the form in which it should take is not advocated by him. But now during the course of more than 1 ½ century, it has become clear that the disadvantage of agricultural division of labour not allowed the perfect division of labour to increase the specialization in each particular trade at minute levels and to reduce the labour time required to produce a particular commodity or otherwise which is available in the industrial and other sectors, was due to mainly ownership of land and he recognized the problem but didn’t analyse so as to give a finding and suggestive measures for removal of the said obstacles to bring the agriculture on par with industry.
Now increasing out-dated or commodity mode of production in all other spaces of activity, where the ownership and management it being separated, and the production of goods and services as well as distribution of the same to realize the values embedded in it and being carried down by undertakings whether individual or joint ventures by separating the ownership with possession and management and there is no reason why the same facility of separating the ownership with management cannot be brought in agriculture. It is the separation, which is facilitating the perfect division of labour in industry and services and the same is possible in agriculture also.
LAND STOCK COMPANIES:
The village is to be taken as the unit and Land Stock companies with a statutory basis is to be created for each village as unit and the Land Stock Company will conduct its operation on capitalist business principles of the said LSC appraise of lands belonging to the government as well as the private individuals. Land Stock holders like in other Joint Stock Companies will be the share holders of the company including Government also a stock holder and share holder. The Share holders will have annual General Body Meetings like other Joint Stock Companies under the Companies Act. The management of the company will be under the influence of professional manager and over all control of the share holders in the Annual General Body Meetings. The Professional Managers of the said company will auction the contracts of lands available for cultivation on certain days in a year and it is opened to enterprising farmers and other capitalist to participate in auctions to take a lease-out of the land on the terms agreed to between the company and contractor, and the contractor is free to use the land during the period of lease subject to such terms and conditions as any other capital in other industrial service sector and the profits derived by the company through auction amounts will be distributed in form of dividends to land stock holders including the government and to the extent of its stake. The stock holders like any other stock holders in industry, are free to sell their interest in the land stock to other including to government and vis-à-vis and this will facilitate the movement of labour and the capital from one place to other promoting free competition and perfect division of labour.
The contractors are free to employ the labour on hire basis suited to their requirement and brings owners of land as well as the landless poor will have an opportunity to offer their services on hire basis in specialized employments under the contractor suitable to their qualification and experience. A person who is having technical and supervisory qualification in a particular trade will have an opportunity to work as a employee under the contractor on full time basis suited to his qualification instead of under utilization of his services or non-utilisation of his services in the earlier owner-cum-self-cultivator in agriculture. A person with no qualification except his man power will have an opportunity to offer himself as an agricultural labourer doing manual work. And at the same time since he is not lost his right in the property still have a property as a security to his life and liberty as an additional income opportunity from the wages. These are streamlining the village administration with the proper accounting and accountability including taking up several other services. The village becomes a unit for income and expenditure and as a administrative unit. It acts also as a unit for maintenance of other legislative, executive and judicial functions for its own population.
While the village becomes unit through its Land Stock Company, the other end of the unit is social security to its price. The social security is to be maintained by the Central Government and the village is a unit for its local administration. As already narrated above it is not the individual labour time embedded in a particular commodity produced by the farmer or the manufacturer but it is the social labour time required to produce the particular commodity that determined the value and price of the commodity and this social labour time is not static but dynamic change from time to time depending upon the changes in the technology and managerial practices in a particular field and also on the supply demand of a particular commodity including natural causes which are all beyond the control of an individual farmer, therefore, incomes and expenditures of an individual is not excessively determined by his individual effort but by the overall social averages and in the process, there is always transfer of labour time and the values from one end to other in the process of formation of market price, which is desirable that a mechanism at central level is divised to undertake the social security measures to such of those people who are falling below the particular income level by supplementing their incomes so as to sustain them in life to live with the dignity and to exercise their natural life and liberty and at local levels unforeseen such social security benefits through the village administration. This will have two faces (1) people who own the property in land stock company, talking every initiative to increase the productivity and to increase the revenue to its price and by putting the land to the optimum use and the (2) other end a social security administration taking care of deprived and disadvantageous people in the … economy so as to act as a Pressure group and also for free mobility of labour. Both these ends will promote the Indian industry and agriculture acting one with the other as expending home markets and also to bring about maximum specialization with possible full employment reducing the labour time required to produce the same. Now, India is facing dumping of goods and services at rates which the Indian consumers are finding it more potential to them saving their disposable incomes due to cheapness and the quality in the product. It may be from China or South East Asia, Japan or US or any other European countries. Most of the advanced technologies are beyond the pale of Indian manufacturing industries. The situation can be arrested and over by advocating and promoting the measures which are in tune with measures advocated by the Adam Smith or even Marx.
Since village is taken as a Unit at the local administration for the purpose of revenue and other services, the local village Panchayat should be empowered to exercise all powers within itself territorial limits of legislative, executive and judicial powers including police administration. It should have total autonomy subject only to the overall measures taken by the central government through its legislative and executive actions and judicial administration at the Central Government level. The local police is also to be under the control of village administration including the appointment of the executive officers and the judicial officers and all of them have to act on the principles of separation of powers. With no person combining more than two powers out of three in himself.
Adam Smith said that "in every society the price of every commodity finally resolves itself into some one or other, or all of those three parts; and in every improved society, all the three enter more or less, as component parts, in the price of the far greater part of commodities". He then proceeded to give an ample of the price of corn as values, to elucidate his point as follows:
"In the price of corn, for example, one part pay the rest 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 labour".
ADAM SMITH TO KARL MARX
The conceptional clarity in explaining the different economic phenomena in the political economic lagged behind even while by the time of Adam Smith. The Adam Smith propounded the labour as the only source of value, and the productivity of labour measured in the terms of the labour time taken to produce goods or services and value of the goods and services to measured in terms of quantity of the labour embedded in the commodity and it is the division of labour which increases skill, dexterity and judgment of a workmen in particular trade and reduce the time to execute the particular work vis-à-vis where there is no division of labour and that it is very competition and very movement of labour and capital that increases the division of the labour and specialization to magnitude part, but he was unable to explain the formation of prices, general rate of profits, interest rates, rents, in the market places with reference to his pet conception labour theory of value. He has relied upon the natural laws of human propensities and inherent tendency of an individual with natural faculties of reason with propensities to truck barter and exchange of one end to another by way of contracts to maximize was self interest and surplus produce and according to him which brings about natural order of perfect division of labour and equilibrium in market supply and demand of any particular commodity or services. He has tried to explained money prices of commodity as equal to the quantity of labour which it enabled him to buy from others in exchange for the commodities offered by the seller and in the competition of exchange of commodities and struggle for a maximum of money prices in the exchange of quantity of the values in terms of quantity of labour. An average compensating of any deviations in the matter of values in exchange will be brought about by natural order of things and the same what he calls the natural prices of the commodity. Still questions remained unanswered. It was Marx who has sharpened the concept of value by a new definition of value measured in terms of labour time i.e., a new dimension of concept of time as a neutral standard to measure quantities of labour and the value embedded in the commodity is introduced by Marx. This is perhaps revolutionized thought process in explaining till then unexplained phenomena. He started measuring the whole social product in terms of quantities of total labour time required to produce the same. There was yet another element introduced by Marx was concept of social labour and social labour time. According to Marx in highly developed capitalist market economy with concomitant higher forms of social life, it is not the individual labour time that determinates the value or price of the commodities. But the average of the sum total of individual labour time embedded in particular commodities that determinates the value of price of the commodity. On this basis, he has analyzed economic phenomena and came to the conclusion that the higher mode of production, lower will be the quantity of individual labour time embedded in the commodity. And the lower mode of production than the social average the higher the total quantity of individual labour time in the commodities production in particular branch or society and found that in the value – price interaction mechanism, the capitalist adopting the lower mode of production will lose and have to transfer the some quantity of their labour time to capitalist employing the higher mode of production, though price which is uniform and neutral to the mode of production in terms of money values does not apparently look like that. Marx was also able to explain through the above conceptionalization phenomena of general rate of profit as well as falling rate of profit with increasing accumulation of capital and productivity of the capital in following quotation.
"It is a law of capitalist production that its development is attended by a relative decrease of variable in relation to constant capital, and consequently to the total capital set in motion. This is just another way of saying that owing to the distinctive methods of production developing in the capitalist system the same number of labourers, i.e., the same quantity of labour-power set in motion by a variable capital of a given value, operate, work up and productively consume in the same time span an ever-increasing quantity of means of labour, machinery and fixed capital of all sorts, raw and auxiliary materials – and consequently a constant capital of an ever-increasing value. This continual relative decrease of the variable capital vis-à-vis the constant, and consequently the total capital, is identical with the progressively higher organic composition of the social capital in its average. It is likewise just another expression for the progressive development of the social productivity of labour, which is demonstrated precisely by the fact that the same number of labourers, in the same time, i.e., with less labour, convert an ever-increasing quantity of raw and auxiliary materials into products, thanks to the growing application of machinery and fixed capital in general. To this growing quantity value of the constant capital-although indicating the growth of the real mass of use-values of which the constant capital materially consists only approximately-corresponds a progressive cheapening of products. Every individual product, considered by itself, contains a smaller quantity of labour than it did on a lower level of production, where the capital invested in wages occupies a far greater place compared to the capital invested in means of production. The hypothetical series drawn up at the beginning of this chapter expresses, therefore, the actual tendency of capitalist production. This mode of production produces a progressive relative decrease of the variable capital as compared to the constant capital, and consequently a continuously rising organic composition of the total capital. The immediate result of this is that the rate of surplus,-value, at the same, or even a rising, degree of labour exploitation, is represented by a continually falling general rate of profit. (We shall see later why this fall does not manifest itself in an absolute form, but rather as a tendency toward a progressive fall.) The progressive tendency of the general rate of profit to fall is, therefore, just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labour. This does not mean to say that the rte of profit may not fall temporarily for other reasons. But proceeding from the nature of the capitalist mode of production, it is thereby proved logical necessity that in its development the general average rate of surplus-value must express itself in a falling general rate of profit. Since the mass of the employed living labour is continually on the decline as compared to the mass of materialised labour set in motion by it, i.e., to the productively consumed means of production, it follows that the portion of living labour, unpaid and congealed in surplus-value, must also be continually on the decrease compared to the amount of value represented by the invested total capital. Since the ratio of the mass of surplus-value to the value of the invested total capital forms the rate of profit, this rate must constantly fall.
Simple as this law appears from the foregoing statements, all of political economy has so far had little success in discovering it, as we shall see in a later part. The economists perceived the phenomenon and cudgelled their brains in tortuous attempts to interpret it. Since this law is of great importance to capitalist reduction, it may be said to be a mystery whose solution has been the goal of all political economy since Adam Smith, the difference between the various schools since Adam Smith having been in the divergent approaches to a solution. When we consider, on the other hand, that up to the present political economy has been running in circles round the distinction between constant and variable capital, but has never known how to define it accurately; that it has never separated surplus-value from profit, and never even considered profit in its pure form as distinct from its different, independent components, such as industrial profit, commercial profit, interest, and ground-rent; that it has never thoroughly analysed the differences in the organic composition of capital, and, for this reason, has never thought of analysing the formation of the general rate of profit – if we consider all this, the failure to solve this riddle is no longer surprising.
It is Marx who has highlighted the theory of surplus value which is produced by labouring class i.e., people who sale their labour power as commodity and other agencies of production as not productive but yet necessary for realization and appropriation the surplus value embedded in the total social product. The total aggregate social product and the labour time spent by them are equal only to the cost of our production of said labour power. In this way he analyzed the total social product and the total social values in terms of total social labour time and out of social labour time materialized labour advance to produce the total social labour time is deducted to arrive it newly added value out of which again actual amount paid by the owners of means of production to the labouring class to arrive at total social surplus value or aggregated profit to which other class of people i.e., owners of capital and the owners of the land appropriate the same in the form of profits, rents and interests. And with that concept in mind he came to the conclusion that the owners of means of production like land and capital are not in fact productive of any value and in view of the socialization of means of production and increasing division of labour and specialization, this unproductive class in the sense that they are merely appropriating considerable proportion of social surplus values by mere owners of this means of production and the individual ownership has become superfluous due to ever increasing socialization of production and circulation of the commodities as well as the means of production through the Joint Stock Companies and he also came to conclusion that due to this process there was developing gap and contradiction between social production and individual appropriation resulting in disharmony and dis-equilibrium and periodic economic crises as inherent tendency in the capitalist mode of production. He therefore he predicted and suggested that this contradiction can be over come by abolishing the ownership of means of production and by transferring them to public ownership of means and production. It is this thought process which led him to think and advocate several prescriptions to the apparently appearing discomforting social phenomeno like polarization of society on the lines of owners of means of production on the one side and the proletarisation of vast population subject to whims and fancy is of such owners of means of production.. It was on that basis and consequential predictions made by him about future course of events he suggested the social programme suggested to the working class and same is made clear in the following paragraphs.
(1) An enormous expansion of the scale of production and of enterprise, that was impossible for individual capitals. At the same time, enterprises that were formerly government enterprises, become public.
(2) The capital, which in itself rests on a social mode of production and presupposes a social concentration of means of production and labour-power, is here directly endowed with the form of social capital (capital of directly associated individuals) as distinct from private capital, and its undertakings assume the form of social undertakings as distinct from private undertakings. It is the abolition of capital as private property within the frame-work of capitalist production itself.
(3) Transformation of the actually functioning capitalist into a mere manger, administrator of other people’s capital, and of the owner of capital into a mere owner, a mere money-capitalist Even if the dividends which they receive include the interest and the profit of enterprise, i.e., the total profit (for the salary of the manager is, or should be, simply the wage of a specific type of skilled labour, whose price is regulated in the labour-market like that of any other labour), this total profit is henceforth received only in the form of interest, i.e., as mere compensation for owning capital that now is entirely divorced from the function in the actual process of reproduction, just as this function in the person of the manager is divorced from ownership of capital. Profit thus appears (no longer only that portion of it, the interest, which derives its justification from the profit of the borrower) as a mere appropriation of the surplus – labour of others, arising from the conversion of means of production into capital, i.e., from their alienation vis-à-vis the actual producer, from their antithesis as another’s property to every individual actually at work in production, from manager down to the last day-labourer. In stock companies the function is divorced from capital ownership, hence also labour is entirely divorced from ownership of means of production and surplus-labour. This result of the ultimate development of capitalist production is a necessary transitional phase towers the reconversion of capital into the property of producers, although no longer as the private property of the individual producers, but rather as the property of associated producers, as outright social property. On the other hand, the stock company is a transition toward the conversion of all functions in the reproduction process which still remain linked with capitalist property, into mere functions of associated producers, into social functions.
This is the abolition of the capitalist mode of production within the capitalist mode of production itself, and hence a self-dissolving contradiction, which prima facie represents a mere phase of transition to a new from of production. It manifests itself a such a contradiction in its effects. It establishes a monopoly in certain spheres and thereby requires state interference. It reproduces a new financial aristocracy, a new variety of parasites in the shape of promoters, speculators and simply nominal directions; a whole system of swindling and cheating by means of corporation promotion , stock issuance, and stock speculation. It is private production without the control of private property.
Conceptions, which have some meaning on a less developed state of capitalist production, become quite meaningless here. Success and failure both lead here to a centralization of capital, and thus to expropriation on the most enormous scale. Expropriation extends here from the direct producers tot he smaller and the medium-sized capitalists themselves. It is the point of departure for the capitalist mode of production; its accomplishment is the goal of this production. In the last instance, it aims at the expropriation of the means of production from all individuals. With the development of social production the means of production cease to be means of private production and products of private production, and can thereafter be only means of producti9on in the hands of associated producers, i.e., the latter’s social property, much as they are their social products. However, this expropriation appears within the capitalist system in a contradictory form, as appropriation of social property by a few; and credit lends the latter more and more the aspect of pure adventurers,. Since property here exists in the form of stock, its movement and transfer become purely a result of gambling on the stock exchange, where the little fish are swallowed by the sharks and the lambs by the stock-exchange wolves. There is antagonism against the old form in the stock companies, in which social means of production appear as private property; but the conversion to the form of stock still remains ensured in the trammels of capitalism; hence, instead of overcoming the antithesis between the character of wealth as social and as private wealth, the stock companies merely develop it in a new form.
The co-operative factories of the labourers themselves represent within the old form the first sprouts of the new, although they naturally reproduce, and must reproduce, everywhere in their actual organization all the shortcomings of the prevailing system. But the antithesis between a capital and labor is overcome within them, if at first lonely by way of making the associated labourers into their won capitalist, i.e., by enabling them to use the means of production for the employment of their own labour. They show how a new mode of production naturally grows out of an old one, when the development of the material forces of production and of the corresponding forms of social production have reached a particular stage. Without the factory system arising out of the capitalist mode of production there could have been no co-operative factories. Nor could these have developed without the credit system arising out of the same mode of production. The credit system is not only the principal basis for th3e gradual transformation of capitalist private enterprises into capitalist stock companies, but equally offers the means for the gradual extension of co-operative enterprises on a more or less national scale. The capitalist stock companies, as much as the co-operative factories, should be considered as transitional forms from the capitalist mode of production to the associated one, with the only distinction that the antagonism is resolved negatively in the one and positively in the other."
These predictions have not come true. Appropriation and concentration of social property by a few also found to be not true in experience and practice. The factum of social production is remaining true but the division of population into antagonistic class and solution to overcome set antagonism is found to be contrary to the natural laws and fact.
QUESNAI TO ADAM SMITH
Adam Smith seems to confuse quantity of the products with the value of the products. He has developed the concept of value and labour as the measure value but was not able to se the difference between the value embedded in a product and quantity of physical material embedded in it. The Mercantile system expounded by Mr. Quesnai experienced the same difficulty, in the analysis of political economy The said defective appreciation had lead them to think that the agricultural class are the only productive labourers in the political economy and "the labour of artificers and manufacturers never adds anything to the value of whole amount of the rude produce of the land" so that "the value of the whole amount is not, at any moment of time, in the least augmented by it. And therefore, the class of people representing them are treated as "barren unproductive." The reasons for holding the agricultural class as productive are that it is only agricultural "the surplus produce of the land, or what remains after deducting the maintenance, first, of the cultivators, and afterwards, of the proprietors, that maintains and employs, the unproductive class. The greater surplus, the greater must likewise be the maintenance and employment of that class". The Adam Smith out of the agricultural class has sub-divided them into (1) Proprietors of the land, (2) class of cultivators, farmers, (3) country labourers and were classified them as productive class. The Adam Smith while agreeing with the Physiocrats led by Mr. Quesnai as disagreeded with them in so far as classifying the artificers, manufacturers and merchants as unproductive labour and argued that they have to be included among the productive labourers. The reason for difference with the Quesnai was explained by him setting that in case of productive labour / service by arguing that they "fixed or realize itself in any vendible commodity which can replace the value of their wages and maintenance". The labour or surplus which perish generally in the every instant of their performance, and does not fix or realize itself in any vendible commodity which can replace value of maintenance is to be treated as unproductive labour and according to him the menial servants can be classified among the barren or unproductive labour and since the labour of artificers and manufacturers according to the Smith does fix and realize itself in some vendible commodity and therefore has to be classified as productive labour.
Adam Smith observation of the Physiocrats analysis of the political economy is worth quoting :
"This system (of Physiocrats) however, with all its imperfection is, perhaps, the nearest approximation to the truth that has yet been published upon the subject of political economy, and is upon that account well worth the consideration of every man who wishes to examine with attention the principles of that very important science.
Though in representing the labour which is employed upon land as the only productive labour, the notions which it inculcates are perhaps too narrow and confined, yet in representing the wealth of nations as consisting, not in the unconsumable riches of money, but in the consumable goods annually reproduced by the labour of the society, and in representing perfect liberty, as the only effectual expedient for rendering this annual reproduction the greatest possible, its doctrine seems to be in every respect as just as it is generous and liberal, Smith found that this theories of the Physiocrats have influenced in some measure the public administration in favour of agriculture and as a consequence, agriculture of France has been delivered from several of the oppressions which it before laboured under. The term during which such a lease can be granted, as will be valid against every future purchaser or proprietor of the land has been prolonged from 9 to 27 years. The antient provincial restraints upon the transportation of corn from one province of the kingdom to another, have been entirely taken away, and the liberty of the exporting it to all foreign countries, has been established as the common law of the kingdom in all ordinary cases. This sect, of their works, which are very numerous and which treat not only of what is properly called political economy, or nature and causes of the wealth of nations, but of every branches of the system of civil government, all follow implicitly, and without any sensible variation, the doctrine of Mr. Quesnai.
The Smith has been able to disprove the conception of the then policy doctrines of Physiocrats system to effect that it was not the surplus material quantity of the goods produced or possessed by the country. But the exchangeable value of the total goods and services of the country are the real causes of wealth of the Nations. In that sense he has introduced the element of value not only the value embedded in goods by the quantity of labour spent on it but also the element of exchangeable value as the nature and cause of the wealth of nations.
This conceptional difference between Physiocrats and the Adam smith that led them to prescribe the different policy measures to the Soverign Governments to increase the wealth of the nations. While Physiocrats opposed any restrictions on the production, distribution and sale of the agricultural products and favoured restrictions on the employments of artificers, manufacturers and merchants and other menial servants For example the Physiocrats opposed any restrictions on the free flow of the transportation of the corn from the one Province of the Kingdom to the other and as well as the liberty exporting to all foreign countries they have supported several restrictions on the employment and free flow of such employment in the form of restriction to licensing to the guilds and manufacturers. The Smith conception of labour of artificer, manufacturer and merchant as equally productive with that of agricultural labour as led him to advocate, the freedom of trade and business to these strata of people and opposed of any preference or restriction by the state, in the matter of production, distribution and sale of their products and service within or outside the country to export.
The Adam Smith says "that those systems, therefore, which preferring agriculture to all other employments in order to promote it, impose restraints upon manufacturers and foreign trade, act contrary to the very end which they propose, and indirectly discourage that very species of industry which they meant to promote." He further states "every system which endeavours, either, by extraordinary encouragements, to draw towards a particular species of industry a greater share of the capital of the society than what would naturally go to it: or, by extraordinary restraints, to force from a particular species of industry some share of the capital which would other otherwise be employed in it:, is in reality subversive of the great purpose which it means to promote. It retards accelerating, the progress of the society towards real wealth and greatness and diminishes, instead of increasing, the real value of the annual produce, of its land and labour. He went further to state that whatever, besides, tends to diminish in any country the number of artificers and manufacturers, tends to diminish the home market, the important of all markets for the rude produce of the land, and thereby still further to discourage agriculture. And with the above diagnosis of the prevalent ills of the state action towards its political economy, he endeavored to enlighten on the following measures to adopt by the state or the sovereigns.
"All systems of preferences or of restraints, therefore, being thus completely taken away, obvious and simple system of natural liberty establishes of own record. Every man, as long as he does not violate laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into the competition with those of any other man, or order of men. This sovereign completely discharged from a duty, in attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of the Superintending the industry of private people and of directing it towards the employment must suitable to the interest of the society.
He further went ahead and suggested that the duties of sovereign should be confined only three aspects of great importance to its people. He said "according to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed but plain and intelligible to common understandings: first, the duty of protecting the society from the violence and invasion of other independent societies". Secondly duty of protecting, as far as possible every member of society from the injustice and oppression of every other member of it, or duty of establishing an exact administration of justice, and thirdly duty of erecting and maintaining public works and public institutions, which can never be for the interest of any individual or small number of individuals to erect and maintain. This is the accme of the Smith policy prescriptions to the government in power, which is in accord with the natural liberty, natural accord of equality all the people and natural laws of justice, maximum of the competition among all the people of their profession and employment of their capital and labour, service subject only to laws of justice which are even now are most relevant than in his period and which is backbone of all the strength of the Western democracies and economies more particularly the American political economy.
ORIGIN OF DIVERGENCE BETWEEN ADAM SMITH TO MARX
Both Adam and Marx have strongly believed in the labour theory of the value. Both of them have accepted that the labour is only the source of value and that the social product of any country has to be measured by the total quantity of labour spent in creating the same either in the form of material wealth or intellectual. Both of them have accepted that it is only productive labour in the society that creates new material wealth and values and that among the unproductive labourers the class of population has to be included which merely facilitates by their own useful services’ the production of commodities in the form of material wealth or used values but not creating any new values in the sense of commodity capital for sale producing surplus over and above the cost of production, but they are only incidental expenses or unproductive expenses to be added to the cost of production of the commodity and that there are other class of people who are purely unproductive labour like according to the Adam as well as Marx whose labour or services are not producing any surplus value to the purchaser of their services and are instantly consumed or disappeared.
Though the unanimity of view on some of these a very important conceptional aspects of the labour as the producer of the value, the actual of divergence started with their attitude and comprehension about the character of the labour as such and its social aspect.
Adam Smith took the individual value embedded in the commodity produced by an individual capitalist for the purpose of measuring the total value embedded in the commodity. The total quantity of labour in the total quantity of goods produced by him was summed up to arrive at the total value. In this way he has split the value into the cost of raw-material advanced and the cost of wages. And then added the cost of superintendent by the entrepreneur labour as the profit i.e., approach adopted by the Adam Smith was additive of all the components of the total value made by a different factors of production for determining the value whereas the Marx has adopted the divergence view that it was the surplus value which is generated in the production process of commodity that was to be divided into their individual components i.e., wages, profits, rents and interests. This divergence is manifest of through their thought process analysing of political economy and their policy prescriptions.
Adam Smith recommended free enterprising market economy based upon the individual ownership of private property whereas the Marx has come to the conclusion that the divergence between social mode of production and individual ownership and appropriation will become stumbling block for the development of the advanced productive force and that stumbling block will be removed by abolishing the private ownership means of production thereby socialization and communism was recommended.
The Adam Smith differed with the Physiocrats and Mercantilist on productive labour. For Mercantilist surplus value means surplus produce or net product. For Physiocrats surplus produce is possible only in agriculture and mining. For Mercantilists it was surplus money or gold in the form of permanent thing. The Adam Smith freed the subject from surplus product or net product to surplus value over and above the value advanced for production of the commodity. This surplus value was realised through purchase and sale of the commodity. In the words of Marx it is as follows. "He only frees it from misconception, and in this way brings out its inner kernel. Though wrong in thinking that only agricultural labour is productive, the Physiocrats put forward the correct view from the capitalist standpoint only that labour is productive which creates a surplus value; and in fact a surplus value not for itself, but for the owner of the conditions of the production; labour which produces a net product not for itself, but for the land owner. For the surplus value or surplus labour time is materialized in a surplus produce or net product. (But here again they have a wrong conception of this; in as much as there is for ex.ample, more wheat than labourers and farmers eat; but also in the case of cloth there is more than what the cloth manufacturers - workman, and master – need for their own clothing.) Surplus value itself is wrongly conceived, because they have a wrong idea of value and reduce it to use-value of labour, not to labour time, social, homogeneous labour. Nevertheless, there remains the correct definition that only the wage-labour which creates more value than it costs is productive. Adam Smith frees this definition from the wrong conception with which the Physiocrats linked it."
"If we go back from the Physiocrats to the Mercantilists, there too we find one aspect of their theory which contains the same view of the productive labour, even though they were not conscious of it. The basis of their theory was the idea that labour is only productive in those branches of production whose products, when sent abroad, bring back more money than they have cost (or than had to be exported in exchange for them}; which therefore enabled a country to participate to a greater degree in the products of newly-opened gold and silver mines which led Mercantilists to declare that labour employed in such branches of production was alone productive."
The Marx again quotes the Adam Smith from his book enquiry into the nature of wealth of the nation and critically analysed it. He has found one part of the Adam Smiths view of productive labour as wrong while the other part he approved it. The quotation on read as follows:-
"There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Thus the labour of a manufacturer adds , generally, to the value of the materials which he works upon, that of his own maintenance, and of his master’s profit. The labour of a menial servant, on the contrary, adds to the value of nothing. Though the manufacturer has his wages advanced to him by his master, he, in reality, costs him no expense, the value of those wages being generally restored, together with a profit, in the improved value of the subject upon which his labour is bestowed. But the maintenance of a menial servant never is restored. A man grows which rich by employing a multitude manufacturers; he grows poor, by maintaining a multitude of menial servants".
Analyzing the above paragraph, the Marx emphasized the words that of his own maintenance and of "his master’s profit" as to show that the manufacturer not only reproduces the value of his (labourer’s) "own maintenance", but also "his master’s profit that is what Marx characterized as labour which produce surplus value to the master is the one which is understood by Adam Smith as productive labour. In this sense he explains Adam Smith. Secondly, underlined that it is only the master who employed the manufactures (working men) who reproduced not only their own maintenance but also the master’s profit grows rich and the master’s who employed multitude of menial servants should never restore the value of his own maintenance nor produced his master’s profit grows poor.
The above statement of fundamental conception of productive labour propounded by Adam Smith was further corroborated by his statement made as follows:-
"If the quantity of food and clothing, which were .. consumed by unproductive, had been distributed among productive hands, they would have reproduced, together with a profit, the full value of their consumption". Marx apprised the above statement made by Adam Smith as follows:-
"This is one of his greatest scientific merits (as Malthus rightly observed, this critical differentiation between productive and unproductive labour remains the basis of all bourgeois political economy) that he defines productive labour as labour which is directly exchanged with capital; that is, he defines it by the exchange of through which the conditions of production of labour, and the value in general, whether money or commodity, are first transformed into capital (and the labour into wage labour in its scientific meaning)."
The Marx went further and made definition of unproductive labour more scientific and precise in terms of Adam Smith viewed as follows:-
"This also establishes absolutely what unproductive labour is. It is the labour which is not exchanged with capital, but directly with revenue, that is, with wages or profit (including of course the various categories of those who share as co-partners in the capitalist’s profit, such as interests and rent)."
Up to this point, the Marx and Adam Smith go together and there was convergence with each other in the words of Marx, the same labour is productive in part and unproductive in other in relation to the work he performs. Approving point of view of Adam Smith’s definition he gave the following example:-
"Where all labour in part still pays itself ("like for example the agricultural labour of the serfs) and in part is directly exchanged for revenue (like the manufacturing labour in the cities of Asia), no capital, and no wage labour exists in the sense of bourgeois political economy. An Actor, for example, or even a clown, according to this definition, is a productive labourer if he works in the service of a capitalist (an entrepreneur) to whom he returns more labour than he receives from him in the form of wages; while a jobbing tailor who comes to the capitalist’s house and patches his trousers for him, producing a mere use value for him, is an unproductive labourer. The former’s labour is exchanged with capital, the latter’s with revenue. The former’s labour produces a surplus value; in the latter’s revenue is consumed."
Marx viewed this definition of productive and unproductive labour is the one conceived from the standpoint of the possessor of money, from the standpoint of the capitalist, not from that of the workman, in his own words it is as follows:-
"Productive and unproductive labour is here throughout conceived from the standpoint of the processor of money; from the standpoint of capitalist, not from that of workman".
From the above standpoint of views of Adam Smith, the churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians etc, including sovereign with all the officers both of justice and war were characterized by the Adam Smith as an unproductive labour.
"The labour of the most respectable orders in the society is, like that of menial servants, unproductive of any value … The sovereign, for example with all the officers both of justice and war who serve under him, the whole army and navy, are unproductive labourers. They are the servants of the public, and are maintained by a part of the annual produce industry of the industry of other people…. In the same class must be ranked … churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera-singers etc.
Adam Smith’s definition of productive and unproductive labour is determined by one more factor that is, whether the labour adds or does not fix or realise itself in any particular or vendible commodity. The following paragraph of the Adam Smith was critically viewed by Marx to bring about different conclusion.
It (the labour of the unproductive labourer) is "unproductive of ….. value", "adds to the value of nothing’, "the maintenance" (of the unproductive labourer) "never is restored", "(it) does not fix or realise itself in any particular subject or vendible commodity". On the contrary, "his services generally perish in the very instant of their performance, and seldom leave any trace or value behind them for which an equal quantity of service could afterwards be procured". Finally, his labour "does not fix or realise itself in any permanent subject or vendible commodity".
Here in the above passage Marx discovers the terms used as different from those which were originally used and find him that he is slipping back under the influence of Physiocrats standpoint and abandoning the concept surplus value and going back to net produce and tries to say that industrial class reproduces its own wages that is the value equal to value consumed by it and thereby classifies them as what is productive labour.
An interesting paragraph from the Adam Smith was extracted at Page 163 of the Chapter IV of the Volume-I of Theory of service value and then subjected it to critical analysis and arrived at the conclusion based on important words used therein "fund" in contradistinction the vendible commodity which can replace the value of wages and maintenance to classify the people into different classes both productive and unproductive."
"Secondly, says Adam Smith, it seems, on this account, altogether improper to consider artificers, manufacturers, and merchants, in the same light as menial servants. The labour of menial servants does not continue the existence of the fund which maintains and employs them. Their maintenance and employment is altogether at the expense of their masters, and the work which they perform is not a nature to repay expense. The work consists in services which perish generally in the very instant of their performance, and does not fix or realise itself in any vendible commodity, which can replace the value of their wages and maintenance. The labour, on the contrary, of artificers, manufacturers, and merchants, naturally does fix and realise itself in some such vendible commodity. It is up on this account that, in the chapter in which I treat of productive and unproductive labour, I have classed artificers, manufacturers, and merchants among the productive labourers, and menial servants among the barren or unproductive".
On the basis of the above conclusions Adam Smith says that the annual produce of the land and labour of any society can be augmented only by improving the productive powers of the labour actually maintained within it. In his own words "The annual produce of the land and labour actually can be augmented only in two ways; either, first, by some improvement in the productive powers of the useful labour actually maintained within it; or, secondly, by some increase in the quantity of that labour. The improvement in the productive powers of useful labour depends, first, upon the improvement in the ability of the workman, and, secondly, upon that of the machinery, with which he works … The increase in the quantity of useful labour actually employed within any society must depend altogether upon the increase of the capital which employs it; and the increase of that capital, again, must be exactly equal to the amount of the savings from the revenue, either of the particular persons who manage and direct the employment of that capital, or of some other persons, who lend it to them.."
One of the great merits of the Adam Smith’s contribution with which Marx also concurred in many ways is the differentiation made between the productive and unproductive labour. The first principle annunciated by Adam Smith to differentiate productive and unproductive labour is to be found in the following statement.
"There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour".
In support of the above statement, he gives an illustration of manufacturers labour in contrast menial servants labour. According to him, the manufacturers labour is productive and the menial servants labour is unproductive. The reasons for such definition is again given by Adam Smith in the following statement.
"Though the manufacturer has his ways advanced to him by his master, he, in reality, costs him no expense, the value of those wages being generally restored, together with a profit, in the improved value of the subject upon which his labour is bestowed. But the maintenance of a menial servant never is restored."
From the above statement a labour has productive if it is able to restore the value of wages pay to the labourer together with a profit, in the improved value of the subject upon which his labour is bestowed. "A manufacturer, at his time considered as productive labourer under his employer, master will be producing goods or services with which contained an improved value together with the value of the goods and services consumed as a raw- material as well as value of the labour that is wages together with a profit for the employer. To made a point further clearing Adam Smith says "But the labour of the manufacturer fixes and realizes itself in some particular subject or vendible commodity, which lasts for sometime at least after that labour is past."
He further characterized words "supply" or "vendible commodity" upon which labour of the manufacturer fixes and realizes itself as "it is as it were, a certain quantity of labour stocked and stored up to be employed, if necessary upon some other occasion." Upto that point there was no difficulty, because the very concept of labour as the only source of value and that the values is determined by the quantity of labour that is embedded in a commodity and that when it is exchanged with other commodities including the money commodity it is exchanged with a commodity which contains equivalent quantity of labour may be in that commodity or when exchanged with labour it should be able to command equal quantity of the labour and that such thing is possible only if the labour is realized and fixed itself in some particular subject or vendible commodity which lasts for sometime at least after that labour is past and that subject or vendible commodity should be available to be employed as a stocked and stored up, upon some other occasion. This test which Adam Smith ennunciated for identifying productive labour and unproductive laborer with other laborers, the labour is supplied by him against the labour of the menial servant and he came to the conclusion that since "the labour of menial servant, on the contrary does not fixes or realizes itself in any particular subject or vendible commodity." "His services generally perish in the very instant of their performance, and seldom leave any trace or value behind them, for which an equal quantity of services could afterwards be procured." He characterized the said labour of the menial servant as unproductive. What followed from the said characterization of productive and unproductive labourer was his subsequent analyses and conclusions for the nature and causes of wealth of nations for their present or future generation. In his inimitable simple description of the most important principles, he characterized the most respectable orders in the society that is sovereign with all its officers both of justice and wars who serve under him, the whole army and navy, as unproductive labourers. They are the servants of the public, and are maintained by a part of the annual produce of the industry of the other people. Their services, how honourable, however useful, or how necessary so ever, produces nothing for which an equal quantity of services can afterwards be procured. He ranked among the same class some both of the gravest and most important, and some of the most frivolous professions; churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera singers, opera dancers etc. The reason again advanced by Adam was that such labour however, most useful, produces nothing which could afterwards produce or procured an equal quantity of labour. "like the declaration of the actor, the harangue of the orator, or tune of musician, who work of all of them perishes in the very instant of its production. AT this point while concurring with the views of the Adam Smith, the Marx supplemented only by the same that if the same labour that is the same labourer classed by the Adam Smith as unproductive is employed by the employer for hire to produce, what Adam Smith called, the improved value of the subject upon which the labour is bestowed and which improved the value is the restoration of value consumed in the production of the said subject or vendible commodity together with a profit and in Marx language advanced capital together with surplus value to the employer same unproductive labour will become a productive labour. Marx said as follows:-
[ Page 165 of Chapter-IV of Vol. I of Theories of surplus value ]
But however, large or small the number of these "unproductive labourers" may be, this much at any rate is evident– and is admitted by the limitation expressed in the phrase "services which perish generally in the very instant of their performance", etc.- that neither the special kind of labour nor the external form of its product necessarily make it "productive" or "unproductive". "The same labour can be productive when I buy it as a capitalist, as a producer, in order to create more value, and unproductive when I buy it as a consumer, a sender of revenue, in order to consume its use value, no matter whether this use value perishes with the activity of the labour power itself or materializes and fixes itself in an object." In the very next paragraph of the same book the Marx used an illustration of a cook employed by the hotel proprietor and other person and class services of labour of the cook to the hotel proprietor as productive and labour of the cook for a consumer for her to cook her- directly as unproductive for the reason that in the first case the cook as replaced his swages together with profit or surplus value to the hotel proprietor whereas the same labour is though used to cook him to the director consumer has not produced any vendible commodity and it was directly exchanged with the revenue of the same. Therefore, there was no surplus value or profit by sale of the any vendible commodity. The same is reproduced as follows:-
"The cook in the hotel produces a commodity for the person who as a capitalist has bought her labour– the hotel proprietor; the consumer of the mutton chops has to pay for her labour, and this labour replaces for the hotel proprietor (apart from profit) the fund out of which he continues to pay the cook. On the other hand if I buy the labour of a cook for her to cook meat, etc., for me, not to make use of it as labour in general but to enjoy it, to use it as that particular concrete kind of labour, then her labour is unproductive, in spite of the fact that this labour fixes itself in a material product and could just as well (in its result) be a vendible commodity, as it in fact is for the hotel proprietor. The cook who does not replace for me) (the private person) the fund from which I pay her, because I buy her labour not as a value creating element but purely for the sake of its use value. Her labour as little replaces for me the fund with which I pay for it, that is, her wages, as, for example, the dinner I eat in the hotel in itself enables me to buy and eat the same dinner again a second time. This distinction however is also to be found between the commodities. The commodity which the capitalist buy’s to replace his constant capital (for example cotton material, if he is a cotton printer) replaces its value in the printed cotton. But if on the other hand he buys it in order to consume the cotton itself, then the commodity does not replace his outlay" He went further and analyzed apart of the labour spent by the productive labour upon himself or his household furniture and other consumable items or labour has also to be treated as unproductive labour, unless the same work is done by the same hire labour through an employer, producer or capitalist.
In his words, "the largest part of society, that is to say the working class, must incidentally perform this kind of labour for itself; but it is only able to perform it when it has laboured "productively". It can only cook meat for itself when it has produce a wage with which to pay for the meat; and it can only keep its furniture and dwellings clean, it can only polish its boots, when it has produced the value of furniture, house rent and boots. To this class of productive labourers itself, therefore, the labour which they perform for themselves appears as "unproductive labour". This unproductive labour never enables them to repeat the same unproductive labour a second time unless they have previously laboured productively.
Marx again classifies the unproductive labour to become productive in the last sentence as "unless they have previously laboured productively" and that is possible only if the same work which the productive labourer spent their own labour power "upon themselves" through hiring the said labour to a capitalist and which can reproduce the past labour together with surplus labour or surplus value that is "laboured productively". He gave an example of the same labour which the Adam Smith called however, useful they may be but still as unproductive labour as productive labour when the same is being employed by an entrepreneur to produce surplus value in the following quotation the Marx stated the same.
"Thirdly; on the other hand; an entrepreneur of theatres, concretes, brothels, etc., buys the temporary disposal over the labour power of the actors, musicians, prostitutes, etc.- in fact in a round about way that is only of formal economic interest; in its result the process is the same – he buys this so called "unproductive labour", whose "services perish in the very instant of their performance" and do not fix or realize themselves " any permanent" ("particular" is also used) "subject or vendible commodity" (apart from themselves). The sale of these to the public provides him with wages and profit. And these services which he has huts bought unable him to buy them again; that is to say, they themselves renew the fund from which they have paid for. The same is true for example of the labour of clerks employed by a lawyer in his office except for the fact that these services as a rule also embody themselves in very bulky "particular subjects" in the form of immense bundles of documents".
In a very clinching way he supplemented the ideas of the Adam Smith the following additional test to characterize whether the same labour is to be characterized as productive and unproductive labour. He said that the labour or services which are bought by the capital or labour or services bought directly by revenue. In the first case it is called productive because the capitalist brought the labour or services to produce a profit for him by replacing the wages and other is consumed incidentally without productive wages or profit in the words of Marx any surplus value. In the following passages he made point clearly.
"If therefore on the one hand a part of the so called unproductive labour embodies itself in material use values which might just as well be commodities (vendible commodities), so on the other hand a part of the services in strict sense which assume no objective form – which do not receive an existence as things separate from those performing the services, and do not enter into a commodity as a component part of its value- may be bought with capital (by the immediate purchaser of the labour), may replace their own wages and yield a profit for him. In short, the production of these services can be in part subsumed under capital, just as a part of the labour which embodies itself in useful things is bought directly by revenue and is not subsumed under capitalist production.
With the above conclusions Marx further critically analyzed the reasoning of Adam with regard to labour power which is used to train, develop, maintain or reproduces the labour power itself and stated that though the said labour does not appear in the form of a thing, it can only appear in the form of labour power itself. And stated that "productive labour would therefore be such labour as produces commodities or directly produces, trains, develops, maintains or reproduces labour power itself. Adam Smith excludes the latter from his category of productive labour; arbitrarily, but with a certain correct instinct- that if he included it, this would open the flood gates for false pretensions to the title of productive labour.
With the above supplementing observations by Marx he practically concurred with the Adam when he said "In so far therefore as the leave the labour power itself out of account, the productive labour is the labour which produces commodities, material products, whose production has cost a definite quantity of labour or labour time. These material products included all products of art and science, books, paintings, statues etc., in so far as they take the form of things. In addition, however, the product of labour must be a commodity in the sense of being "some vendible commodity", that is to say, a commodity in its first form, which has still to pass through its metamorphosis. He agreed with the conclusions of Adam Smith character of labours of menial servants however with the following classifications "certain labours of menial servants- may therefore equally well take form of (potential) commodities and even of the same use values considered as material objects. But they are not productive labour, because in fact they produce no "commodities" but immediate "use values". He further went on to say which is also consistent to the reasoning of Adam Smith when he spokes about actors labour.
"As for labours which are productive for their purchaser or employer himself as for example the actors labour for the theatrical entrepreneur. The fact that their purchaser can not sell them, in the form of commodities but only in the form of the action these would show that they are unproductive labours". Marx agreed with the Adam Smith to extent that the labour should be embedded in the form of commodity to be stored and exchanged for value which included the surplus value and direct performance of actors labour who an entrepreneur without embedding itself in the form of commodity is not a productive labour. In the modern times the actors labour is now embedded in the vendible commodity in the form of reproduceable cinematographic reels or in a computer, disk, or other material things upon which they are fixed so as to reproduce them in the form of vendible commodity with added value that is together with profit. This again shows that the same labour which at one point of time was unproductive labour under lower the mode of production and technical knowledge becomes productive overtime. (and since in which Adam Smith used when the relationship of capital and the labour is introduced)
Adam Smith extended the above line of reasoning to the natural produce of the land and labour of the country and the counties in general in the global context. He said that "both productive and unproductive labourers, and those who do not labour at all, are all equally maintained by the annual produce of the land and labour of the country. This produce, how great so ever, can never be infinite, but must have certain limits. According, therefore, as a smaller or greater proportion of it is in any one year employed in maintaining unproductive hands, the more in the one case, and the less in the other will remain for the productive, and the next year’s produce will be greater or smaller accordingly; the whole annual produce, if we except the spontaneous productions of the earth, being the effect of productive labour. He (further went on to say dealing with the same subject as follows:-
"Though the whole annual produce of the land and labour of every country, is, no doubt, ultimately destined for supplying the consumption of its inhabitants, and for procuring a revenue to them; yet when it first comes either from the ground or from the hands of the productive labourers, it naturally divides itself into two parts. One of them, and frequently the largest, is, in the first place, destined for replacing a capital, or for renewing provisions, materials, and finished work which had been withdrawn from capital; the other for constituting a revenue either to the owner of this capital; as the profit of his stock; or to some other person, as the rent of his land. Thus, of the produce of land, one part replaces the capital of the farmer; the other pays his profit and the rent of the landlord; and thus constitutes a revenue both to the owner of this capital, as the profits of his stock; and to some other person, as the rent of his land of the profits of a great manufactory, in the same manner, one part, and that always the largest, replaces the capital of the undertaker of the work; the other pays his profit, and thus constitutes a revenue to the owner of the capital.
That part of the annual produce of the land and labour of any country which replaces a capital, never is immediately employed to maintain any but productive hands. It pays the wages of productive labour only. That which is immediately destined for constituting a revenue either as profit or as rent, may maintain indifferently either productive or unproductive hands.
Here passing for a moment Adam Smith has made the whole annual produce of the land and labour into two components one which is replacing capital which included the various provisions of raw material used for the production of commodities as well as capital paid towards wages of productive labour and the rest of the annual produce is treated as revenue owners of capital and land that is the capitalist and landlord in the form of profit to the capital and rents to the landlord. And the annual produce of the land and labour is depended upon the proportion between productive and unproductive hands employed and the greater unproductive hands the lesser annual produce of the land and labour of any country. Of course he qualifies it a later stage by the statement stating that the same is subject to changes in the material lines of production employ by the productive hands and there is one more category of people mentioned by the Adam Smith that is "those who do not labour at all"
The proportion of category of this people out of the total population also adds to the matter of determining the annual produce of the land and labour of any country. So also Adam stated that the mode of spending revenue by the owners of capital of land though indifference for them but makes difference in the aggregate social annual products of any society. But while spending revenue as for a productive or unproductive hands Adam Smith believes in the natural human propensity that is wisdom on the basis of natural laws. Here is the great point of difference between Adam and Marx approach Adam believed in the wisdom of a man in his words it is as follows:-
Whatever part of his stock a man employs as a capital, he always expects is to be replaced to him with a profit. He employs it, therefore, in maintaining productive hands only; and after having served in the function of a capital to him, it constitutes a revenue to them. Whenever he employs any part of it in maintaining productive hands of any kind, that part is, from that moment, withdrawn from his capital, and placed in his stock reserved for immediate consumption.
The above statement clearly goes to say that an ordinary man acting as entrepreneurs will always use his best as natural propensity, inspecting the capital which he employed out of his stock to be replaced to him with a profit. He enlarges the same by using natural propensity of an individual as the owner of his own stock vis-à-vis propensity of a public service or sovereign government who employ the stock of other persons under the name of public welfare and public interest. He made the differentiation in expressing the same in the words of frugal and prodigal and parsimony and gives examples of the proportion between those different funds spent by the sovereign or government or public servant, funds at the disposal of profit maximizing entrepreneur or capitalist and the funds at the disposal of great landlords or spent thrifty people.
This proportion which determines the general character of the inhabitants as to industry or idleness of the country. He gave examples of mercantile and manufacturing towns, where the inferior ranks of people are chiefly maintained by the employment of capital, they are in general industrious, sober, and thriving; as in many English, and in most Dutch towns and wherever inferior ranks of people are chiefly maintained by the spending of revenue, they are in general idle, dissolute, and poor; as at Rome, Versailles, Compiegne and Fontain- bleau.
And further went to say "the idleness of the greater part of the people who are maintained by the expense of revenue corrupts, it is probable, the industry of those who ought to be maintained by the employment capital, and renders it less advantageous to employ a capital there than in other places. These observations are very significant and have foreboding for the future of any country and its people and they proved to be very true. But these observations are not in any way is contra dicting to the reasoning of Marx. Both Marx and Adam believed in the production of profit for the performance continuing the reproduction in the next stage at a higher level and any obstruction to the production surplus value in the words of Marx or profit or surplus product in the words of Adam hinders the production process and production of goods and services to maintain the same level of incomes and profits of the people of the country.
Both of them believed that higher surplus value or profit and use of productive hands in proportion to the unproductive hands the higher development and the benefits flowing out of the said development to the people. But the difference appears to be that Adam Smith believed in the natural propensity of an individual as the owner of the land or capital to maximize the revenue whereas Marx has not appreciated the same line and felt that the large prevailing forces of production will reach a stage where individual will become subordinate to the economic laws and therefore individual will has little role to play. In fact he subordinated role of state and the role of natural laws of a human being in taking decisions affecting his interest on assumption and by giving the determining role to the economic laws in the development capital as historical phase in centralization of productive powers and dispossession of majority of the people from their possession of means of production and their subordination to the will of the few of people who centralized with them as the owners of the land and capital. These assumptions which Marx proceeded to make out of his analysis of the process of capitalist production as a matter forecasting led him to different conclusion and thereby differ in the means suggested by him to remove possible obstructions to the process of production and to increase and maximize public wealth and distribution of welfare. This part of it will be further canalized in the latter sections.
Good conduct and misconduct – Adam Smith
The Adam Smith ideas about good conduct of an individual as well as industry and the state vis-à-vis misconduct are the nature result of his original ideas of his productive labaour and the unproductive labourers. He equates the employment of capital as synonymous with productive labour, creation of wealth in any society. And consumption of revenue without affecting upon the annual maintenance and restoration of values and that perish generally in the very instant of their performance by any individual, industry or state as misconducts resulting in diminishing of wealth of nation.
Going to still further he characterize the persons who saves from his revenue and adds to his capital, employing by himself or enabling some other by use of his funds in employing the additional number of productive hands and to generate profits, in the language of Marx, the surplus value, as a man of frugality with good conduct and quoted in terms of industry and state as a sum of such people and government as good state and government. In contrast to that a person or industry and the state that indulges in spending revenue in consuming idle guests, menial servants etc., that diminish the value of annual produce along with it the quantity of money which can be employed in circulating them as also injudicious and unsuccessful employment of capital in projects in agriculture, mines, fisheries, trades or manufacturers will have the same affects of misconduct and of prodigality. In the case of injudicious and unsuccessful projects, Adam Smith says that though the capital is consumed by productive hands only, yet as by the injudicious manner in which they are employed, they do not reproduce full value of the consumption, which will result in some diminution in what would otherwise have been the productive funds of the society. This criteria or test in judging the person, industry or government in exercise of faculties are not disputed by Marx and both of them concur in this aspect because for Adam Smith and Marx reproduction of annually consumed value with addition of surplus value is a condition for growth and development of the productive process in any society. So also the criteria and test laid down by them to judge any laws or action taken by the legislative bodies or the individual decision making power. The following illustration given by the Adam Smith in respect of the individual or state are noteworthy.
"Parsimony, and not industry is the immediate cause of the increase of capital. Industry, indeed, provides the subject which parsimony accumulates. But whatever industry might acquire, if parsimony did not save and store up, the capital would never be the greater."
Parsimony, by increasing the fund which is destined for the maintenance of productive hands, tends to increase the number of those hands whose labour adds to the value of the subject upon which it is bestowed. It tends therefore to increase the exchangeable value of the annual produce of the land and labour of the country. It puts into motion an additional quantity of industry, which gives an additional value to the annual produce".
What is annually saved is as regularly consumed as what is annually spent, and nearly in the same time too; but it is consumed by a different set of people. That portion of his revenue which a rich man actually spends, is in most cases consumed by idle guests, and menial servants, who leave nothing behind them in return for their consumption. That portion which he annually saves, as for the sake of the profit it is immediately employed as a capital, is consumed in the same manner, and nearly in the same time too, but by a different set of people, by labourers, manufacturers, and artificers, who reproduce with a profit the value of their annual consumption. His revenue, we shall suppose, is paid him in money. Had he spent the whole, the food, clothing, and lodging which the whole could have purchased, would have been distributed among the former set of people "unproductive prodigality". By saving a part of it, as that part is for the sake of the profit immediately employed as a capital their by himself or by some other person, the food, clothing, and lodging, which may be purchased with it, are necessarily reserved for the latter "productive frugality". The consumption is the same, but the consumers are different".
The above statement as a matter of principle is applicable to industry and nation. Analyzing further and applying the said principle to his contemporary situations makes the following remarks in respect of industry and enterprises as well as in relation to nations. In relation to enterprises he says like this.
"With regard to misconduct, the number of prudent and successful undertakings is every where much greater than that of injudicious and unsuccessful ones. After all our complaints of the frequency of bankruptcies, the unhappy men who fall into this misfortune make but a very small part of the whole number engaged in trade, and all other sorts of business; not much more perhaps than one in a thousand. Bankruptcy is perhaps the greatest and most humiliating calamity which can befall an innocent man. The greater part of men, therefore, are sufficiently careful to avoid it. Some, indeed, do not avoid it; as some do not avoid the gallows".
In the above passage again the Adam Smith reposes the great reliance upon the natural propensity of an average prudent man in taking a rational decisions that maximizes the revenue and minimize the risk expectations being same who do not care to avoid the gallows. His reliance upon natural propensity of an individual in taking his own decision as productive men to maximize his revenue to minimize the risk is also the starting point of his further analysis and opposition to the public control of the private decision making power and also his reasoning for protection of an individual right to liberty and property from unreasonable restrictions from the public power as a vehicle for maximum annual produce of any society or country and its revenue and any restrictions upon said liberty and property of an individual will diminish the total sum of annual produce and labour of the people.
His observations on the principles of good conduct to the nations is noted as follows:-
"Great nations are never impoverished by private, though they some times are by public prodigality and misconduct. The whole, or almost the whole public revenue, is in most countries employed in maintaining unproductive hands such are the people who compose a numerous and splendid court, a great ecclesiastical establishment, great fleets and armies, who in time of peace produce nothing, and in time of war acquire nothing which can compensate the expense of maintaining them, even while the war lasts. Such people, as they themselves produce nothing, are all maintained by the produce of other men’s labour. When multiplied, therefore, to an unnecessary number, they may in a particular year consume so great a share of this produce, as not to leave a sufficiency for maintaining the productive labourers, who should reproduce it next year. The next years produce, therefore, will be less than that of the foregoing, and if the same disorder should continue, that of the third year will be still less than that of the second. Those unproductive hands, who should be maintained by a part only of the spare revenue of the people, may consume so great a share of their whole revenue, and thereby oblige, so great a number to encroach upon their capitals, upon the funds destined for the maintenance of productive labour, that all the frugality and good conduct of individuals may not be able to compensate the waste and degradation of produce occasioned by this violent and forced encroachment."
The above test applied to the nations and its governments in the matter of the public spending of the public revenue appropriated by the respective governments out of the total annual produce as its share, for judging its legislative and administrative acts as good conduct or misconduct, however, is compensated in many a times by increase in the production powers of the same number of labourers as a consequence either of some addition and improvement to those machines and instruments which facilitate and abridge labour; or of a more proper division and distribution of employment which included both capital and labour power. Adam Smith compares this inherent tendency as if a part of natural law of every man to better his condition, the principle from which public and national, as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration. He compares the said urge innate in any men "Like the unknown principle of animal life, it frequently restores the health and vigour to the constitution, in spite, not only of the disease, but of the absurd prescriptions of the Doctor."
The above principle, according to Adam Smith is demonstrated in the recurring private and public profusion, many expensive and unnecessary wars, great perversion of the annual produce from maintaining productive to maintain unproductive hands; during the periods of history.
He opines that had there been no such wars, and waste, disorder, maintenance of unnecessary and unproductive hands to disproportionate levels during the periods of history, the humanity would have advanced further than present level by virtue of their own laws of frugality and good conduct.
If we apply the above principle, to present arena, maintenance of huge arms business expenditure, huge public administrative structure entailing spending of public revenue of the state to maintain unproductive hands to disproportionate levels and the institutions created to maintain such unproductive hands will have to be re-looked into so as to stream line of public administration as well as the administration of private enterprises both at national levels and in the global context so as to enhance the reproductive powers of people and the state to add more values to be spent on productive and personal consumption of the public and the industry as a whole.
They are however, periods of crisis in which the views of Adam Smith was seriously doubted at a latter time in times of economic depressions and crisis, wherein there was a mismatch between production of goods and services and the consumption of produced goods and services resulting in breakdown of reproduction process in certain areas acquiring general character. But the reasons advanced by a latter economists and the social specialists varied and the prescriptions given to remove the said obstructions to put the economy on line also varied. Marx has predicated and foresaw the possible divergence and mismatch between production and consumption due to accumulation of means of production as well as annual produce and revenue in hands of few by dispossession of the same from large majority of populace turning them to proletariat class and thereby creating gulf between the production and consumption due to lack of purchasing power as the revenue remained with the large populous was only a small vis-à-vis produced goods and services. Similarly, when a great economic crisis of mismatch occurred during 1918, 1st world war, 1935 & 1936, second world war, it was thought that the accelerated public spending by intervention of state by imposing restrictions upon the people as private individual and enterprises resulting disrupting the natural laws inherent in any social organism to adjust its through from flow of capital and labour through freedom of trade and contract and is said to be setback to Adams. There is natural tendency of division of labour to do any particular job or work with increase addition of machine and skills and separation of tracks to multitude level specialization including separation of powers ands functions among nations including the separation of money from commodity and acquiring the money as an independent source of value due to specialized functions it was assigned to establishment of banking institutions. But however, Mr. Keynes has prescribed the means to overcome the crisis by creating spending power to the public so to match the production and consumption to restore regular reproduction process. But did this in any way militate against the basic principles propounded by Adam Smith as to the reasons to the nature and causes of the wealth of nation?
State action on general prices, incomes, wages, interest rates – Adam Smith and Marx
Prices:- There is a great deal of convergence between the views of Adam Smith and Marx as to the factors that determined the prices and consequential distribution of incomes and profits of various entities. The first and foremost convergence being similarity of expressions used by both the authors but divergence become explicit in the matter of explaining the reasons and the causes for the determination of general market price, determination of general rate of profit, and also in explaining the falling rate of profit.
Both of them have taken their starting point of value as determined by the quantity of labour embedded in any commodity as the basic determining factor in determining the price of any commodity. But diverged when applied the same principle from an individual entrepreneur stand point of view producing a commodity for sale in a market vis-à-vis the general market price of the same commodity produced by entrepreneurs in the society and brought to market for sale. The price of the said commodity is predicated to depend upon the demand for the said commodity from the consumers in the market and it is the supply-demand factors which will ultimately determine the price of that commodity and he called the price that satisfy the effectual demand as effectual price and he further stated that this natural price therefore is, as it were the central price to which the prices of all commodities are continuously gravitated. He called the market price as temporary fluctuations due to local supply and demand of any commodity will be revolving around natural price. But Marx has refined the said argument on the strong foundations of basic theory of law value.
Marx has to put same issue in a very proper perspective and explain the social phenomena in a more scientific manner he put his views more in tune with natural laws like in the case of law of conservation of matter and energy propounded by Newton and other natural scientists. He called that the total annual produce of any society as equaled to the total labour time spent in the production of the said annual produce and increase or decrease of the total labour time required to be produced the same quantity of the annual produce neither increase or decrease the value of the said produce and price is only expression of an average quantity of the labour time required to produce a unit commodity and an increase in the labour time taken to produce the said commodity will increase the value of the commodity and any decrease in the labour time required to produce will decrease the value of the said commodity. This principle is applicable to the individual entrepreneur producing a commodity in his own line of activity or in combination of several activities to produce of commodity so also at the national aggregate level.
But Marx has drawn one important distinction from Adam Smith in that he started that the determination of value of commodity in the case of an individual entrepreneur is not the same as determination of the value at the social aggregate level. For Marx an individual value or a particular value is not the same as that of social value or general value. But as consequence analysis Adam Smith though not consciously but otherwise accepted the same in explaining the variation of prices or natural prices on the basis of the market supply demand, consequentially said the same thing that used, the price or market price is not the same thing as that of the individual value embedded in a commodity quantified by the total quantity of the labour required to produce the said commodity in his own line of activity and said that it is an income and profit of an entrepreneur will be ultimately determined by the market price which may be higher than the individual value for which he produced or it may be in fortuous or otherwise in certain favourable circumstances more than the individual value at which he produced reaping more profit than the actually due to him. But Adam Smith has not used appropriate words and phrases to describe the same in a more fitting manner and the same was done by Marx. Marx did it differentiating the individual phenomena to social phenomena of the money analysis and explanation are more in the tune with the reality than the Adam.
Marx has stated the same thing as an individual value of a commodity produced by an individual entrepreneur in a particular line of activity as the individual value and price expressed in terms of money equivalent. He applied the same to the social aggregates he called it social aggregate value and dividing the same by the total quantity of labour time required to produce the total social aggregate quantity of the commodities was arrived at aliquot part of each individual quantity of the commodity and it is this each individual quantity aliquot part of the social aggregate value an individual entrepreneur will be getting in market on sale of his produce as commodity. This he called it a commodity value as distinct cum value in any produce. He also called it a social value as distinct from individual value. He further explained that this individual value any commodity produce by any entrepreneur may be higher than the social value or coincide in the social value or may be below the social value. This is again according to Marx is dependent upon the several factors as to the mode of production adopted by the said entrepreneur, methods of production which includes a management, control of the production methods as well as the location and other natural factors like a good weather, fertility of the land, natural calamities etc. If an entrepreneur is producing a commodity with a higher mode and methods of production than the social average, the commodity which he produced the required quantity of labour time less than that of social average. In each case he will be getting in the market price mechanism a higher value than what is due to him. This he said in any way ………… the basic principle of equality of total quantity of labour time required to produce the social annual produce with that of the total quantity of goods and services produced and the averaging by dividing the total quantity of the goods by the total quantity of labour time required. This is akin to law of conservation of matter or energy that metamorphosis of matter from one form to other did not alter the total quantity of the matter or energy it is only the different redistribution.
This has its implication in the stand taken by the Adam Smith in the matter of state action or public control of this market forces and prices as well as the stand taken by the Marx..
Adam Smith on market prices of commodity.
In chapter-VII of his book he dealt with natural and market price of commodity. He called a price of commodity itself natural price "when the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price. The commodity is then sold precisely for what it is worth, or for what it really costs the person who brings it to market".
He called the natural rates as "these rates are average rates may be called the natural rates or wages, profit, and rent, at the time of place in which they commonly prevail. He distinguished the said natural price with the market price as "the actual price at which any commodity is commonly sold is called its natural price. It may either be above, or below, or exactly the same with its natural price.
He further co-related to the market price with the supply demand factors as follows.
"The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to market (which in Marx words the total quantity of labour/value") and the demand of those who are willing to pay "natural price of the commodity") is the same as that of Marx. In terms of the quantity of labour, or the whole value of the rent, labour, and profit which must be paid in order to bring it thither. Such people may be called. The effectual demanders, and their demand the effectual demand; since it may be sufficient to effectuate the bringing of the commodity to market. It is different from the absolute demand. A poor man may be said in some sense to have a demand for a coach and six; he might like to have it; but his demand is not an effectual demand, as the commodity can never be brought to market in order to satisfy it". He explained the rise and fall up of market price above the natural price or below it on the basis of its co relation with the effectual demand and the absolute demand. "The market price will rise more or less above the natural price according as either the greatness of the deficiency, or the wealth and luxury of the competition. The market price will sink more or less below the market price, according as the greatness of the excess increases more or less the competition of the sellers, to get rid of the commodity. "When the quantity brought to market is just sufficient to supply the effectual demand and no more, the market price naturally comes to be either exactly, or as nearly as can be judged of, the same with the natural price.
"If at any time the quantity of the commodity brought to market exceeds the effectual demand, some of the component parts of its price must be paid below their natural rate and according to Adam as early as said natural rate is nothing but ordinary or average rate, which is nothing but the total quantity to produce divided by the total quantity of labour. He called that the market competition will prompt the owners of the component parts of its price to withdraw apart of their factors of production like landlords withdrawing their land, labourers withdrawing their labour, and labourers withdrawing their labour and the employers adding their stock from that particular area of employment where price fetched is the below their natural rates and if the market price fetched is above the natural rates will prompt them to bring fourth to the market more supply.
Is this not the same as that adopted by Marx? But still there is a lot of divergence between Marx and Adam on this issue. The division of the market price into various component parts and consequential incomes and profits to various factors of production and approach adopted by both the authors in analyzing the prices. Adam Smith analyzed the prices as summing of its component parts whereas Marx analyzed it as a division of sum into its various component part. This subtitle in approach in explaining phenomena made by Marx more popular than Adam has already said the above. A very approach of the Adam is evident in the following two statements and passages.
"When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages, of the labour, and the profits of the stock employed in raising, preparing, bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price.
The occasional and temporary fluctuations in the market price of any commodity fall chiefly upon those parts of its price which resolve themselves into wages and profit That part which resolves itself into rent is less affected by them.
"The real value of all the different component parts of its price, it must be observed, is measured by the quantity of labour which they can, each of them, purchase or command". "Labour measures the value not only of that part of price which resolves itself into labour, but of that which resolves itself into rent, and of that which resolves itself into profit.".
"In every society the price of every commodity finally resolves itself into some one or other, or all of those three components; and in every improved society, all the three enter more or less, as component parts, into the price of the far greater part of commodities." He made further clear in a latter paragraph stating as follows:-
"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. Existing the same to aggregate social levels he stated as follows:-
"As the price or exchangeable value" of every particular commodity, resolves itself into some one or other or all of those three parts; so that of all the commodities which compose the whole annual produce of the labour of every country, taken complexly, must resolve itself into the same three components, and be parceled out among different inhabitants of the country, either as the wages of their labour, the profits of their stock, or the rent of their land. The whole of what is annually either collected or produced by the labour of every society, or what comes to the same thing, the whole price of it, is in the same manner originally distributed among some of its different members. The wages, profit, and rent, are the three original sources of all revenue as well as of all exchangeable value. All other revenue is ultimately derived from some one or other of these. He stated further that " all taxes, and all revenue which is founded upon them, all salaries, pension and annuities of every kind , are ultimately derived from some one or other of those three original sources of revenue, and are paid either immediately or mediately from the wages of labour, produce of stock, or the rent of land.
The principle approach of what summing up of values of the component parts into the natural price and therefore the revenue of owners of different component parts of factors of the production are made clear in the following illustration given by Adam in Chapter-VII of his book.
"The commodity is then sold precisely for what it is worth, or for what it is really costs, the person who brings it to market, for though in common language what is called the prime cost of any commodity does not comprehend the profit of the person who is to sell it again, yet if he sells it at a price which does not allow him the ordinary rate of profit in his neighbourhood, he is evidently a loser by the trade; since by employing his stock in some other way he might have made that profit. His profit, besides, is his revenue, the proper fund of his subsistence. As, while he is preparing and bringing the goods to market, he advances to his workmen their wages, or their subsistence; so he advances to himself, in the same manner, his own subsistence, which is generally suitable to the profit which may reasonably expect from the sale of his goods. Unless they yield him this profit, therefore, they did not re pay him what they may very properly be said to have really cost him.
"Though the price, therefore which leaves him this profit, is not always the lowest at which a dealer may some times sell his goods, it is the lowest at which he is likely to sell them for any considerable time; at least where there is perfect liberty, or where he may change his trade as often as he pleases."
"The actual price at which any commodity is commonly sold is called its market price. It may either be above or below, or exactly the same with its natural price."
From the above passage Adam approach the problem from all determined the market price by summation of component parts of the price. He approached this issue from the right and interest of the owners of factors of production in a given situation to demand and add their share to the component parts of the value as consequence warranting in the case of perfect liberty and its this addition of the interest of the component parts of the price that determines the market price. But this approach of the Adam giving more weight to the owners of the factors of production in adding their assumed values due to them in a given circumstances of supply demand situations than to the basic concept of the quantity of the labour that determine the value and price of individual commodity as well as at the social aggregate level as propounded by himself.
This is the reason where by the approach of Adam led him in an inexplicable abysm where the aggregate social value is in an open ended situation and the total aggregate social values is dependent upon the willingness or willful thinking or demand of the interest of the owners of the factors of the production who add their own assumed values to the price of production. This may be true partially but this did not explain the phenomena of fluctuations in prices and the formation of general rate of profit the capital stock advanced by each component parts of production process and also continues falling rate of profit as well as the interest rates. This needed the explanation and therefore approach of Adam Smith in summing up the assumed values added by each component owners of factors of production as their shares due was rejected by Marx and he has refined the Adam Smith placing his own principle to the social aggregate levels by substituting inadequate expressions of labour, quantity of labour, by introducing time element into concept of labour as actual source value and also the concept of social labour time by adding this two concepts of labour time and social labour time he has clarified that the market prices as not determined by an individual labour time spent by an entrepreneur in his own line of activity but that it is the social labour time required to produce that particular commodity which determines the price of that commodity and the social labour time again is determined by the total quantity of labour time required to produce aggregate quantity of commodity required to satisfy the aggregate social demand thereby he combined the elements of social labour time with the social demand which in fact has supplemented and enriched the analysis of Adam Smith.
But in the matter of state action to control the market forces that determined the market prices to the system of perfect liberty to trade and contract in a system of perfect justice, Adam Smith opposed any interference of the state in the natural process of perfect liberty and equality in the operation of market forces and the duty of the state is only to establish a system of perfect justice of liberty, equality and according to Adam Smith, this very simple secret which must effectively secure the highest degree of prosperity to all three classes. Any control of this market price of fixing administering prices or by imposing restrictions upon liberty of equality of owners of component parts of these prices will distort "establishment of perfect justice", perfect liberty and perfect equality, which must effectively secure the highest degree of prosperity to all. The restrictions on the component of price of production or all the components of the price of production will only redistribute the total values embedded in the commodity and this distorts the natural process in which those factors of production or otherwise entitled. It may some times result in withdrawing of owners of the factors of production to their detriment and to favour the other. The factors of this distortion may some times reduced the total quantity of use values as well as the exchangeable values at aggregate levels. An individual capitalist or an entrepreneur is also a natural person subject to the natural laws and even the social combinations in the form of undertakings in the form of companies, corporations, etc., are also not above the natural inclinations and errors of the firtrees of the natural person heading them and any sort of restrictions imposed on the judgement of such persons in accordance with their own circumstances will effect in different ways of decision making process for the production of goods and services and the decision or perspective public authority theory for public goods is not the same as that of private entrepreneur for the good of his own enterprises and the people who are behind it. We see this bicitamy between the private interest and the public interest in all walks of life as relationship between the state and the citizen.
Had there been natural persons whose vision of action coincided with that of maximum public good in as in the case of Lientiff model without allowing public power to be abused for his personal end which may be a case where there is no conflict between the public good and private interest but in a society where the political system guarantees and products by law the right to life, liberty and property such can coincidence is rare.
And also not applicable because as already explained above that there is always scramble between the different component parts of owners of the factors of production to be above social labour time and not below the social labour time required to produce a particular commodity and that it is not his individual labour time that determines the social labour time or the social value or market price of that particular commodity and the factors that determines the social labour time and the market price are outside and independent of him in a perfect competitive economy and that where economy is integrated to national economies and now the globalize economies the social labour time requires to produce that particular commodity to use the term of global social labour time and that itself is dependent upon innumerable factors including new scientific and technological factors, natural distance, natural factors as location of the land and fertility and weather conditions which influences the component parts of the price and thereby the price itself. It is like an ocean where with a dropping of stone causes spread of waves and fluctuations. Any disturbances in one place may overtake and submerge the other parts and may also cause tsunamis. This characteristic of social labour time will increase the wonderful initiative of individual capitalist or entrepreneur in the market economy. It also gives him pleasure of overtaking others. He has to face the challenges and every entrepreneur has to be vigilant and update both by adopting such mode and methods of production which will abridge the individual value of his particular commodity above the global social labour time required to produce that commodity and this requires continues supervision and control and minute to minute assessment and decision making. Any delay in responding and readjusting oneself to the momentary waves of disturbances produced in a global economy by a new inventions or methods of production which abridge labour time to produce commodity to be below the globally required labour time, he will not stand in the competition and may have to give way to others. In such scenario the role of state in administering the markets, and prices and re-administering the freedom of an individual and other corporate bodies is to be evaluated. Adam Smith by giving several examples of his own time as facts, came to the conclusion that the state intervention distorts competition and suggested for minimizing the same except the areas mentioned by him for the good of the public.
Marx though concurred with the Adam Smith, but since he has perceived an idea that over a period, individual competition will be substituted by monopoly of future over the majority of the people and that the majority of the people will be deprived by their right to lives, liberties, equality and property and will be at the mercy future of the few who control the means of production and control the economy. And further this was result of capitalist process of production where continues drive to pump the surplus value from producing labour working class and appropriated by few. He felt that this could be the remedied by changing the political system wherein the ownership of means of production is transformed and the state will become the public owner of all means of production and with that correction, the factors that militated against labour working class can be over come and then liberty and equal opportunity is restored and also his perception that capitalist production will bring about a conflict between the production and consumption and thereby obstructing reproduction process to a higher level and that removal of conflict by a removal of ownership by means of production will bring harmony among the people as a cooperative social producers on perfect system of liberty, equality and justice taking society to a higher mode of social production and communist mode production.
But Marx approached in opposed to Adam smith in prescribing the remedies to certain social and economic evils and to promote economic social good has forgotten natural laws of human being in a social life. The ideas propounded by Marx were taken verbally by subsequent authors and leaders and found them in actual practice in conflict to the natural propensities of an individual human being vis-à-vis their claims for right life, liberty, property and equal opportunities as well as fundamental freedoms like a freedom of expression, right to move, and right to carry on their own vocation or business of choice suited to their natural aptitudes and conditions. When found that decisions of the state were not consonance with the expressions of the public and natural persons either in the policy of employing public ownership of means and private industry, trade, agriculture, and even the individual decisions and ownership rights there was every way conflict between the state and citizen. But still where the institutions that were created on the basis of ideas of Marx that facilitated higher mode and methods of production system proved to be as valuable in the sense that goods and services produced by such institutions undertaking were higher than the social average labour time and they survived the competition the matter of exchange of goods and services in the national market crises. But since the institutions are not built upon the natural laws of an individual human being they unavoidably economy came in conflict with the fundamental aspiration of a person and his interest in freedoms and this dampen the other advantages factors which the institutions have built on the ideas of the Marx. This again has to be seen that Adam and Marx are divergent poles one prescribing laisviz faire economy of minimal state interference or the other Socialist or communist maximum state control i.e. free enterprises economy, the other totally controlled plan socialist economy. Both of them have some features which are noteworthy and to be adopted and some features which are found to be not worthy of imitation. World has not gone to the extreme position of Adam Smith during 18th and 19th century and reverted back to welfare state institutions so also the world has seen Marx ideas of the total controlled plan socialist economies and have abandoned the said ideas as not practicable but does it mean that neither Adam called Marx are relevant in analysing and understanding the person global economy? There is no saying that fundamental ideas propounded by Adam Smith and expanded by Marx have lost their relevance in explaining the global phenomena or global economy phenomena excepting certain shortcomings who tried to explain the ups and downs or running disturbances in a dynamic dis equilibrium global economy, there is no other theory which is capable of connecting the entire material wealth and natural wealth of this planet than by Adam Smith labour theory of value. This is regarding the prescriptions made by Adam Smith as well as Marx in their own perceived notions or predictions but still it appears only theory which still clearly explains the rationality of formation of general rates of prices, profits, interest, rents and another incomes to various class and groups through their own entitlement to the common national or global fund of annual produce according to the social contribution of their own labour time and entitlement to their share from out of the fund of the nation or globe created by natural social labour time.
While Marx has analyzed the inherent tendency of the capitalist mode of production in ever increasing intensity exploitation of the surplus value by the use of advanced productive forces of social labour, enormous mass of fixed capital, said from the actual machinery which goes into the process social production into a while, he found that even though there is a rising rate of surplus value but the same is a tendency to express its in a falling rate of profit. According to Marx it implies the higher composition of capital. According to him a fall in the rate of profit again hastens the concentration of capital and its centralization thorough expropriation of minor capitalists, the few direct producers who still have anything left to be expropriated, According to Marx, the capitalist mode of production has any other purpose than the just as self expansion of capital. It breeds over production, speculation, crises, surplus capital along side surplus population. The total surplus value created by productive labourers, though increasing in the total quantity of surplus value but due to increase proportion of concrete capital vis-à-vis variable capital. The rate of profit which is according to Marx is nothing but S/C = P/C and different descriptions of this surplus value to various class of factors like profit, interest, rents will not alternate the total quantity of surplus value or profit and in the said context he draws the following conclusion.
"Given the necessary means of production, i.e., a sufficient accumulation of capital, the creation of surplus value is only limited by the labouring population if the rate of surplus value, i.e., the intensity of exploitation is given; and no other limit but the intensity of exploitation if the labouring population is given. And the capitalist process of production consists essentially of the production of surplus value, represented in the surplus product or tat aliquot portion of the produced commodities materializing unpaid labour. It must never be forgotten that the production of this surplus value and the re-conversion of a portion of it into capital, or the accumulation, forms an integrate part of this production of surplus value is the immediate purpose and compelling motive of capitalist production. It will never do, therefore, to represent capitalist production as something which it is not, namely as production whose immediate purpose is enjoyment or the manufacture of the means of enjoyment for the capitalist. This would be overlooking its specific character, which is revealed in all its inner essence.
The creation of this surplus value makes up the direct process of production, which as we have said, has no other limits but those mentioned above. As soon as all the surplus labour it was possible to squeeze out has been embodied in commodities, surplus value has been produced. But this production of surplus value completes but the first act of the capitalist process of production – the direct production process. Capital has absorbed so and so much unpaid labour. With the development of the process, which expresses itself in a drop in the rate of profit, the mass of surplus value thus produced swells to immense dimensions. Now comes the second act of the rocess. The entire mass of commodities, i.e., the total product, including the portion which replaces the constant and variable capital, and that representing surplus value, must be sold. If this is not done, or done only in part, or only at process below the prices of production, the labourer has been indeed exploited, but his exploitation is not realised as much for the capitalist, and this can be bound up with a total or partial failure to realise the surplus value pressed out of him, indeed even with the partial or total loss of the capital. The conditions of direct exploitation, and those of realizing it, are not identical. They diverge not only in place and time, but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society. But this last named is not determined either by the absolute productive power, or by the absolute consumer power, but by the consumer power based on antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum varying within more or less narrow limits. It is furthermore restricted by the tendency to accumulate, the drive to expand capital and produce surplus value on an extended scale. This is law for capitalist production, imposed by incessant revolutions in the methods of production themselves, by the depreciation of existing capital always bound up with them, by the general competitive struggle and the need to improve production and expand its scale merely as a means of self-preservation and under penalty of ruin. The market must, therefore, be continually extended, so that its interrelations and the conditions regulating them assume more and more the form of a natural law working independently of the producer, and become over more uncontrollable. This internal contradiction seeks to resolve itself through expansion of the outlying field of production. But the more productiveness develops, the more it finds itself at variance with the narrow basis on which the conditions of consumption rest. It is no contradiction at all on this self-contradictory basis that there should be an excess of capital simultaneously with a growing surplus of population".
On the basis of the above said findings he went further that a development of productive forces which would diminish the absolute number of labourers i.e., enable the entire nation to accomplish its total production in a shorter time span, would cause a revolution, because it would put the bulk of the population out of the running. This is another manifestation of the specific barrier of capitalist production, showing also that capitalist production is by no means an absolute form for the development of the productive forces and for the creation of wealth, but rater that at a certain point it comes into collision with this development. He went on to say "This collision appears partly in periodical crises, which arise from the circumstance that now this and now that portion of the labouring population becomes redundant under its old mode of employment."
The limit of capitalist production is the excess time of the labourers. The absolute spare time gained by society does not concern it. The development of productivity concerns it only in so far as it increases the surplus labour time of the working class, not because it decreases the labour time for material production in general. It moves thus in a contradiction.
We have seen that the growing accumulation of capital implies its growing concentration. Thus grows the power of capital, the alienation of the conditions of social production personified in the capitalist from the real producers. Capital comes more and more to the fore as a social power, whose agent is the capitalist. This social power no longer stands in any possible relation to that which the labour of a single individual can create. It becomes an alienated, independent, social power, which stands opposed to society as an object, and as an object that is the capitalist’s source of power. The contradiction between the general social power into which capital develops, on the one hand, and the private power of the individual capitalists over these social conditions of production, on the one hand, and the private power of the individual capitalists over these social conditions and yet contains the solution of the problem, because it implies at the same time the transformation of the conditions of production into general, common, social, conditions. This transformation stems from the development of the productive forces under capitalist production, and from the ways and means by which this development takes place.
On the basis of the above said findings with regard to obstacle to development arising out of the mismatch between production and consumption and as result in political economy, he made a prediction as well as prescription on the basis of tendency which was then manifested in the growing centralization of capital in England in the big joint stock companies and the merger and farming together into cartels for the regular of -production in England as well as in America ……. examples . He predicted the following:-
(1) An enormous expansion of the scale of production and of enterprises, that was impossible for individual capitals. At the same time, enterprises that were formerly government enterprises, become public.
The capital, which in itself rests on a social mode of production and presupposes a social concentration of means of production and labour power, is here directly endowed with the form of social capital (capital of directly associated individuals) as distinct from private capital, and its undertakings assume the form of social undertakings as distinct from private undertakings. It is the abolition of capital as private property within the frame work of capitalist production itself.
(3) Transformation of the actually functioning capitalist into a mere manager, administrator of other people’s capital, and of the owner of capital into a mere owner, a mere money capitalist. Even if the dividends which they receive include the interest and the profit of enterprise, i.e., the total profit (for the salary of the manager is, or should be, simply the wage of a specific type of skilled labour, whose price is regulated in the labour market like that of any other labour), this total profit is henceforth received only in the form of interest, i.e., as mere compensation for owning capital that now is entirely divorced from the function in the actual process of reproduction, just as this function in the person of the manager is divorced from ownership of capital. Profit thus appears (no longer only that portion of it, the interest, which derives its justification from the profit of the borrower) as a mere appropriation of the surplus labour of others, arising from the conversion of means of production into capital, i.e., from their alienation vis-à-vis the actual producer, from their antithesis as another’s property to every individual actually at work in production, from manager down to the last day labourer. In stock companies the function is divorced from capital ownership, hence also labour is entirely divorced from ownership of means of production and surplus labour. This result of the ultimate development of capitalist production is a necessary transitional phase towards the reconversion of capital into the property of producers, although no longer as the private property of the individual producers, but rather as the property of associated producers, as outright social property. On the other hand, the stock company is a transition toward the conversion of all functions in the reproduction process which still remained with capitalist property, into mere functions of associated producers, into social functions.
This is the abolition of the capitalist mode of production within the capitalist mode of production itself, and hence a self-dissolving contradiction, which prima facie represents a mere phase of transition to a new from of production. It manifests itself as such a contradiction in its effects. It establishes a monopoly in certain spheres and thereby requires state interference. It reproduces a new financial aristocracy, a new variety of parasites in the shape of promoters, speculators and simply nominal directors; a whole system of swindling and cheating by means of corporation promotion, stock issuance, and stock speculation. It is private production without the control of private property.
Conceptions which have some meaning on a less developed stage of capitalist production, become quite meaningless here. Success and failure both lead here to a centralization of capital, and thus to expropriation on the most enormous scale. Expropriation extends here from the direct producers to the smaller and the medium sized capitalists themselves. It is the point of departure for the capitalist mode of production; its accomplishment is the goal of this production. In the last instance, it aims at the expropriation of the means of production from all individuals. With the development of social production the means of production cease to be means of private production and products of private production, and can thereafter be only means of production in the hands of associated roducers, i.e., the latter’s social property, much as they are their social products. However, this expropriation appears within the capitalist systemk in a contradictory form, as appropriation of social property by a few; and credit lends the latter more and more the aspect of pure adventurers. Since property here exists in the form of stock, its movement and transfer become purely a result of gambling on the stock exchange, where the little fish are swallowed by the sharks and the lambs by the stock exchange wolves. There is antagonism against the old form in the stock companies, in which social means of production appear as private property; but the conversion to the form of stock still remains ensnared in the trammels of capitalism; hence, instead of overcoming the antithesis between the character of wealth as social and as private wealth, the stock companies merely develop it in a new form.
The co-operative factories of the labourers themselves represent within the old form the first sprouts of the new, although they naturally reproduce, and must reproduce, everywhere in their actual organization all the shortcomings of the prevailing system. But the antithesis between capital and labour is overcome within them, if at first only by way of marking the associated laborers into their own capitalist, i.e., by enabling them to use the means of production for the employment of their own labour. They show how a new mode of production naturally grows out of an old one, when the development of the material forces of production and of the corresponding forms of social production have reached a particular stage. Without the factory system arising out of the capitalist mode of production there could have been no co-operative factories. Nor could these have developed without the credit system arising out of the same mode of production. The credit system is not only the principal basis for the gradual transformation of capitalist private enterprises into capitalist stock companies, but equally offers the means for the gradual extension of co-operative enterprises on a more ore less national scale. The capitalist stock companies, as much as the co-operative factories, should be considered as transitional forms from the capitalist mode of production to the associated one, with the only distinction that the antagonism is resolved negatively in the one and positively in the other.
Inequalities – Nature and causes – Adam Smith
One of the most important area of research in political economy studies is as to the nature and causes of inequalities. The Adam smith approached issues on the basis of his notion that "the whole of advantage and disadvantage of the different employment of labour and stock, in the same period, be either perfectly equal or continually tending to equality. If there was any employment evidently either more or less advantages than the rest, so many people would creep into it in the one case, and so many would desert it, in the other, so that disadvantages would be seen return to the level of other employments. This at least would be the case in a society where things were left to follow their natural course, where there was perfectly liberty, and where every man is perfectly free both to choose what occupation he thought proper, and to change it as often as he thought proper. Every men interest would prompt him to seek the advantages and to shun disadvantages employments". The modern democratic and other civil societies have expressed their full agreement with the ideas of Adam Smith by recognizing the fundamental rights of their citizens with a freedom of contract, right to carry on business, trade, avocation of their choice and also imposed restrictions upon the state from imposing and unreasonable restrictions on the said rights of the citizens. But what Adam Smith perceived as perfect liberty and equality in an ideal state to which every society would tend provided the said ideal perfect liberty, equality and competition will be on the basis of his basic principles on which he built the said edifice.
One of the basic principle he visualized perhaps on the basis of his observations of social reality up to then prevailing i.e., (1) labour, is he real measure of exchangeable value of the commodities, (2) labour is the price, original the purchase money that was paid for all the things. The equal quantity of labour is supposed to contain the value of an equal quantity of the labour and exchange. Though the labour is be real measure of the exchangeable value of all commodities, it is not by which there value is commonly estimated. Money has become the common instrument to estimate the value in exchange. The equal quantity of labour, at all times and places may be said to be of equal value to the labourer qualified by his ordinary state of health, strength and spirit; in the ordinary degree of his skill and disposition must always lay down the same value of his ease, his liberty and his happiness.
"Labour, according to Adam Smith, therefore, appears evidently is the only universal as well as the only an accurate measure of value or the only standard by which to compare the values of different commodities at all times and at all places". He also states that at the same time and place the real and nominal price of commodities are exactly in proportion to one another. He clarified the said statement by his illustration that the more or less money for any commodity, in London market for example, the more or less it will add time and labour unable you to purchase or command therefore accordingly to him money is the exact measure of the real exchangeable value of all commodities of the same time and place only.
The next chapter on the component parts of price commodity he stated that in the early and rude state of society which received both accumulation of stock and property in land, "proportion between quantities of labour" necessary for acquiring different objects seems to be only circumstances which can afford any real for exchanging them for one another. Of course he has given several allowances to measure the quantity of labour by the species of labour on the basis of their hardship and superior value etc. While propounding the said proposition applicable to the early and rude state of society i.e., in Barter system he started a new dimension to the concept of labour to the society where stock has already accumulated in the hands of particular persons i.e., the capitalist societies by saying that it is not only the labour which creates and adds value but owners of the capital and the owners of the land will add value to the materials which they employ i.e., the labourer and make a profit by the selling their work. At a latter analysis an observation of the developments in the corporate world then in progress that even the labour of inspection and direction which was once performed by the individual capitalist is now being performed by some principle clerk and therefore owner of the capital, thus discharged of all most all labour, will expects that his profits should bear a regular proportion to his capital. The same is because with that of owner of land who expects rent from out of employment of his land in setting it to work industrious people as a component part. Here is point at which Marx has criticized the Adam smith by abandoning his own basic principle of labour theory of value to explain the economic reality and he investigated and found that profit and rents as well as interest aid to various categories of owners of capital and labour are not additions to any new value created or added by them but is a proportion on the values which were already created by the labour and therefore there is no gap or inadequacy of the basic principle of labour theory of value propounded by Adam Smith.
Here again the question of social inequalities and nature and causes of the same were not explicit from the reasoning given by Adam Smith. He co-related the quantity of wages to the quantity of labour and circumstances which gave rise to inequalities of wages to the same quantity of labour as well as different proportions of quantum of profits and rents, interest in different employment to the same quantum of land or stock at the same time and place were merely descriptory based upon observations and no explanatory as to the reasons and the causes for such phenomena. He based his analysis on the natural law of human tendency for ease or hardship, cleanliness or dirtiness, honourableness or dishonourableness of the employment. And further he has taken the usual wages of common labour as the standard and a person who has dexterity and skill above the said common labour because of his education or other circumstances. He will expect wages to replace his educational expenses or other special circumstances in his favour so also in the case of owners of the capital and land.
But one of the important circumstance which was not paid attention by Adam Smith was that the market price of any commodity whether be it labour, land or capital or any other commodity is not determined by the quantity of the individual labour time but it is determined the social labour time. And the social labour time is itself dependent upon innumerable factors like supply demand for the particular commodity. The quantity of social labour time required to produce that commodity, the proportion of constant or fixed capital vis-à-vis variable capital or payment of wages, etc. The perfect liberty and equality in perfect competitive economy, movement of capital and labour move without any restrictions as to the place or time. But in reality the movement of labour and capital is restricted by borders, state regulations, family and group regulations and preferences. Adam Smith condemned such regulations as discriminatory and many times serving interest of existing interest of one or other of the groups at the cost of other. He referred to the restrictions imposed by the state in respect of apprenticeship and periods of apprentices under master as in the interest of masters and against the interest of public. So also restrictions upon the movement of the labour from one local area to another local area and this will increase the exorbitant cost against the people who would not get the labour or capital at the price it which the could have got had the capital or labour allowed freedom of contract or transport.
The following observations of the Adam Smith explain his view on freedom of contract and assemble from positive and negative side of said right and attitude and said "the people of the same trade seldom meet together, even for merriment and diversion, but conversation ends in a conspiracy against the public, or in some contrivance to raise prices." It is impossible indeed to prevent such meetings, by any law which other would execute or would consistent with liberty and justice. But those law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; which less to render them necessary. Elaborating his ideas about inequality arising out of different employment of labour and stock as follows:-
It is in this manner that the policy of Europe by restraining competition in some employments to a smaller number than would otherwise by disposed to enter into them, occasions a very important inequality in the whole of advantages and disadvantages of different employment of labour and stock. The policy of Europe , by increasing in the competition in some employment beyond what is naturally would be, occasions another inequality in the whole of advantages and disadvantages different employments of labour and stock. He gave the examples of several regulations against several employments labour and stock in the history in different countries of Europe and found that "whatever obstructs free circulation of labor from one employment to another obstructions that of stock likewise". He also criticized the prescriptions of qualifications of a person with reference to the certification issued by the state authorities under some regulation or statute as promoters of equal price of labour by artificial means.
Inequality arising out of the individual value and market value.
One factor which perfect competition and the state regulations against obstructions to the perfect competition in the socio economic life of people in a day today transactions in the forms of contract, is the market value which is determined by the total quantity of materialised labour and living the labour i.e., fixed capital as well as variable capital and surplus values. The fixed capital is forming part of the bulk of the total value produced by any society in an year as well as number of turnover in an year, and the proportion of living labour to the past materialized labour in the form of constant capital, the expression used by the Marx in his capital, an entrepreneur who employs a size of capital in which the proportion of his constant capital to the variable capital is below the average social of the constant capital than the living labour which he employs and the total living labour time spent in the production of his commodity he may not be able to realise the value added by him to his commodity because the social labour time for money price of the same i.e., the market rice is or below the individual capitalist. Here it is not quantum of labour or labour time in his line of production in producing any commodity which is in fact determining the value of his commodity or price fetched on that commodity. Though nature terms of concept value by quantity of labor commodity may be having the higher quantity of labour for unit commodity but still the law of exchange of equal quantities of labour must exchanged with equal quantity of labour in other commodities. But then can it be said that the labor theory of value has become wrong or is it possible to explain without directly conflicting with the said theory. Had the theory of law of exchange of equal quantities of labour in other commodities is to be strictly applied to a person who is employing out model mode of production as well as methods of production should be able to exchange the commodity produced by him with equal quantity of labour contained in more number of commodities. But this was the reason where Marx has explained that general rate of profit or wages are formed by an average social labour time required to produce a commodity and not by an individual labour time. And this is the source of inequality of various trades and employments during the course of business and a social labour time required to produce of any particular commodity is also not static and permanent and into moves in fluctuations from time to time depending upon the changes in the proportion of capital to labour employed over time in respect of productive that commodity. If there is an invention in any particular process of production which has abridged time required to produce that commodity by employing a new means of production or modified means of production or modified methods of production an individual labour time as a result there of the social labour time as well as the market price of that particular commodity undergoes change and if there is a change in the organic composition of capital of any commodity which is used as component in the production of the commodity then also the fluctuations will be generated in the individual labour time as well as social labour time required to produce that commodity and thereby the market price will undergo change. If the area of operation which was earlier confined the national boundaries or even similar boundaries to global levels then the fluctuations will be governed by global factors and individual labour time spent on the production of that particular commodity will have to be in coincidence. With global social labour time required to produce that commodity or else, the higher quantity of labour time embedded in his own commodity will be transferred to the global social labour time and the people who employ higher mode of production involving less quantity of labour will gain in the market value price mechanism operated through the market forces of free contractual systems and enforcement of the same by law. This inequality is inherent and invisible in every process of production and natural formation of price within free competitive economy. It is this inherent and invisible force which is the source of continues inequality between the developed and undeveloped countries as well as between the rich and poor employments of labour and stock.
Adam Smith did not address to this aspect that he proceeded on the assumption that in a perfect competitive economy equal quantities of labour will exchange with equal quantities of labour in other commodities including labour production or command over labour power. The policy prescriptions which he made on the basis of his assumptions in the light of above fundamental needs review to the extant to make the same in tune with his original theory.
In fact over the periods several governments and the people have found through experience that there is a need for transfer of resources from rich to poor to mitigate the circumstances arising out of state of inequalities in free market competitive economy. It was thought that it was moral down on the part of the rich as well as state to provide funds to charitable and other institutions as well as to the individuals to distribute the resources and wealth to the poor and deprived and they have devised several programmes of social security and welfare activity including a restrictions imposed on capital and labour of their employment in certain areas both quantitative as well as qualitative restrictions. Now the question is whether and to what extent the said restrictions and burdens imposed by the state on the citizens and other persons in the name of equitable distribution in public interest justified? And also to what measures the state can employ to mitigate the hardships of the people who fall below the line of best fit in free competition to sustain the individual freedom with social security?