More than Wages

This argument is nonsense! While it is certainly possible to break down business expenditure into the categories above, it is quite wrong to say that purchasing power is only made up of payments to individuals within the firm. In fact, all the B payments represent incomes to persons other than those directly connected with the firm — raw material producing companies, transport companies, manufacturers, banks, local bodies and government — who will spend this money in their turn, buying goods or services of an equivalent amount to the B costs of the firm above. In this way, since every cost to one person is an income to someone else, production and consumption will be balanced throughout the economy.

Further to this, the 'A + B Theorem' overlooks one extremely important distinction within the economy; that is the distinction between the production of consumer goods and the production of producer goods. In a firm producing ships, machinery or factory buildings (and the like) very little of the payments to individuals within the firm will be spent on the purchase of the goods produced. Most of these payments will be spent on consumer goods. The products of the producer goods department will be bought by other firms.

On the other hand, firms producing consumer goods will produce far more that can be bought by the individuals actually working for the firm, but this excess will be purchased by workers and employers in the producer goods sector. The money earnt by selling these goods is then available for the purchase of new machinery, etc. from the producer goods sector. In this way a balance is maintained between the production of consumer goods and means of production.

At this stage of the argument, the perceptive reader will be gasping at the idiocy of the A + B Theorm, but at the same time a nagging question will have come to mind: 'It seems indeed that balance exists between production and consumption, and also between the production of sonsumer goods and the production of means of production. In that case, how can there be any economic crises under capitalism?'