In the second place, it is not only the entire new value added to the product by means of one week's labor which enters completely into the weekly product, but also the value of the raw and auxiliary materials consumed by the weekly product. These values circulate with the product containing them. They assume the form of money by the sale of the product and must be reconverted into the same elements of production. This applies as well to the labor-power as to the raw and auxiliary materials. But we have already seen (chapter IV, 2, A) that the continuity of the produc- 214 Capital.
tion requires a supply of means of production, different for various branches of industry, and different within one and the same branch for the various component parts of the circulating capital, for instance, for coal and cotton. Hence, although these materials must be continually replaced in their natural form, they need not be bought continually.
How often new purchases of them must be made, depends on the magnitude of the available supply, on the times it takes to use it up. In the case of the labor-power, there is no such storing of a supply. The reconversion into money of the capital invested in labor-power goes hand in hand with that of the capital invested in raw and auxiliary materials. But the reconversion of the money, on one side into labor-power, on the other into raw materials, proceeds separately on account of the special terms of purchase and payment of these two constituents of productive capital, one of them being bought as a productive supply for long terms, the other, labor-power, for shorter terms, for instance, for terms of one week. On the other hand, the capitalist must keep a supply of finished commodities besides a supply of materials for production. Apart from the difficulties of selling, etc., a certain quantity must be produced, say for instance, on order. While the last portion of this quantity is being produced, the finished product is waiting in storage until the order can be completely filled. Other differences in the turn-over of circulation capital arise as soon as some of its individual elements must stay in some preliminary stage of the process of production, such as the drying of wood, etc., longer than others.
The credit-system, to which Scrope here refers, and commercial capital, modify the turn-over for the individual capitalist. They modify the turn-over on a social scale only in so far as they do not accelerate merely production, but also consumption.
Theories of Fixed and Circulating Capital. 215 CHAPTER X.
THEORIES OF FIXED AND CIRCULATING CAPITAL. THE PHYSIOCRATS AND ADAM SMITH.
In Quesnay's analysis, the distinction between fixed and circulating capital assumes the form of avances primitives and avarices annuelles. He correctly represents this distinction as one to be made with regard to productive capital, to capital directly engaged in the process of production. But owing to the fact that he regards the capital invested in agriculture, the capital of the capitalist farmer, as the only really productive capital, he makes these distinctions only for the capital of this farmer. This also accounts for the annual period of turn-over of one part of the capital, and the more than annual (decennial) of the other part. Incidentally it may be noted, that in the course of their development the physiocrats applied these distinctions also to other kinds of capital, to industrial capital in general. The distinction between annual advances and others extending over a longer period retained such lasting value for social science that many economists, even after Adam Smith, returned to it.
The distinction between these two kinds of advances is not made, until money has been transformed into the elements of productive capital. It is a distinction which applies solely to the divisions of productive capital. Quesnay, therefore, never thinks of classing money either among the primitive or the annual advances. In their capacity as advances on production, these two categories confront on one side the money, on the other the commodities existing on the market. Furthermore, the distinction between these two elements of productive capital is correctly defined as testing on the different manner in which they enter into the value of the finished product, and this implies the different way in which their values are circulated together with those of the products. From this, again, follows the different method of their reproduction, the value of the one being 216 Capital.
entirely replaced annually, that of the other only partially and in longer intervals.23 The only progress made by Adam Smith is the generalization of the categories. He no longer applies them to one special form of capital, the tenant's capital, but to every form of productive capital. Hence it follows as a matter of fact that the distinction between an annual period of turn-over and one of longer duration, derived from agriculture, is replaced by the general distinction of the different periods of turn-over, so that one turn-over of the fixed capital always comprises more than one turn-over of the circulating capital, regardless of the periods of turn-over of the circulating capital, whether they be annual, more than annual, or less. Thus Adam Smith transforms the annual advances into circulating capital, and the primitive advances into fixed capital. But his progress is confined to this generalization of the categories. His analyses are far inferior to those of Quesnay.
His unclearness is manifested at the very outset by the crudely empirical manner in which he broaches the subject: "There are two different ways in which a capital may be employed so as to yield a revenue or profit to its employer." (Wealth of Nations. Book II, Chap. I, page 189, Aberdeen edition, 1848.)
As a matter of fact, the ways in which value may be employed so as to perform the functions of capital and yield 23 Compare with regard to Quesnay the Analyse du Tableau Economique in Physiocrates, edition of Daire, part I, Paris, 1846. There we read, for instance, -that the annual advances consist of the expenses incurred annually for the work of cultivation; these advances must be distinguished from the primitive ones, which form the funds for the establishment of the farming business." (Page 59.) In the works of the later physiocrats, these advances are sometimes termed capital, for instance by Dupont de Nemours in his Oriyine et Progres <Tune Science Nouvelle, 1767, Daire edition, I, page 291, where he speaks of "capital or advances," furthermore by Le Trosne: "As a result of the longer or shorter duration of the employment of manual labor, a nation possesses a considerable fund of wealth independent of its annual reproduction, and this fund is a capital accumulated in long periods and originally paid by productive acts, which are always continued and increased." (Daire, II, page 928.) Turgot employs the term capital more regularly for advances, and identifies the advances of the manufacturers still more with those of the tenants of land. (Tufgat, Reflexions \sur la Formation et la Distribution des Richesses, 1766.)
Theories of Fixed and Circulating Capital. 217 surplus-value to its owner are as different and varied as the spheres of investment of capital. It is a question of the different spheres of production in which capital may be invested. If put in this way, the question implies still more. It includes the other question of the way in which value, even if it is not employed as productive capital, may perform the functions of capital for its owner, for instance, as interest-bearing capital, merchants' capital, etc. At this point we are already far away from the real object of the an alysis, that is to say from the question: How does the division of productive capital into its various elements affect their periods of turn-over, leaving out of consideration their different spheres of investment?
Adam Smith continues immediately: "First, it may be employed in raising, manufacturing, or purchasing goods, and selling them again with a profit." He does not tell us anything else in this statement than that capital may be employed in agriculture, manufacture, and commerce. He speaks only of the different spheres of investment of capital, including commerce, in which capital is not directly embodied in the process of production and does not perform the functions of productive capital. In so doing he abandons the foundation on which the physiocrats base the distinctions of the elements of productive capital and their influence on its periods of turn-over. He goes still farther and uses merchants' capital as an illustration of a problem, which concerns exclusively differences of productive capital in the process of production and the creation of value, which differences cause those of its turn-over and reproduction.
He continues: "The capital employed in this manner yields no revenue or profit to its employer, while it either remains in his possession or continues in the same shape." The capital employed in this manner! Smith is referring to capital invested in agriculture, in industry, and he tells us later on that a capital so employed is divided into fixed and circulating capital! But the investment of capital "in this manner" cannot make fixed or circulating capital of it.
Or does he mean to say that capital employed in the production of commodities and their sale at a profit must again 218 Capital.
be sold after its transformation into commodities and must pass in the first place from the possession of the seller into that of the buyer, and in the second place from its commodity-form into the money-form, so that it is of no use to its owner so long as it retains the same form in his hands? In that case, the problem amounts to this: The same capital-value, which formerly performed the functions of productive capital in a form typical of the process of production, now performs those of commodity-capital and moneycapital in forms typical of the process of circulation, where it is no longer either fixed or circulating capital. And this applies equally to those elements of value which are added by means of raw and auxiliary material, in other words to circulating capital, and to those which are added by the consumption of instruments of production, or to fixed capital. We do not get any nearer to the distinction between fixed and circulating capital in this way.
Adam Smith says furthermore: "The goods of the merchant yield him no revenue or profit till he sells them for money, and the money yields him as little till it is again exchanged for goods. His capital is continually going from him in one shape, and returning to him in another, and it is only by means of such circulation, or successive exchanges, that it can yield him any profit. Such capitals, therefore, may very properly be called circulating capital."
That which Adam Smith here calls circulating capital, is a thing which I shall call capital of circulation, that is to say, capital in a form characteristic of the process of circulation, changes of form due to exchange (a change of substance and of hands), in other words, commodity-capital and money-capital, as distinguished from the form of productive capital, which is characteristic of the process of production. These are not special divisions made by the industrial capitalist of his capital, but different forms assumed and discarded by the advanced capital-value during its course of life, in ever renewed cycles. The great backward step of Adam Smith as compared with the physiocrats is that he does not discriminate between these forms and those which arise in the circulation of capital-value through its successive metamorphoses while it exists in the form of Theories of Fixed and Circulating Capital. 219 productive capital, and which are due to different ways in which the various elements of productive capital take part in the formation of values and transfer their own value to the products. We shall see the consequences of confounding these fundamentals, productive capital and capital in the sphere of circulation (commodity-capital and money-capital) on one side, and fixed and circulating capital on the other. The capital-value advanced in fixed capital is as much circulated by the product as that which has been advanced in the circulating capital, and both are equally transformed into money-capital by the circulation of commodity-capital. The difference arises only from the fact that the value of fixed capital circulates piece-meal and is, therefore, reproduced in the same way in shorter or longer intervals in its natural form.
That Adam Smith means nothing else by this term of.circulating capital in the above passage but capital of circulation, that is to say, capital in the form of commoditycapital and money-capital characteristic of the process of circulation, is shown by his singularly ill-chosen illustration. He selects for this purpose a kind of capital which does not belong to the process of production, but to the sphere of circulation. This is merchants' capital, which consists only of capital of circulation.
How absurd it is to start out with an illustration, in which capital does not perform the functions of productive capital, is immediately shown by himself. "The capital of a merchant is altogether a circulating capital." But later on we learn that the difference between circulating and fixed capital arises out of the essential differences within the productive capital itself. On one side, Adam Smith has the distinction of the physiocrats in mind, on the other the different forms assumed by capital-value in its cycles. And these things are jumbled together by him without any discrimination.
But it is quite incomprehensible how profit should arise by the transformation of money and commodities, by the mere exchange of one of these forms for the other. And an explanation becomes impossible for Adam Smith, because he starts out with merchants' capital which moves only in 220 Capital the sphere of circulation. We shall return to this later. Let us first hear what he has to say about fixed capital.
"Secondly, it (capital) may be employed in the improvement of land, in the purchase of useful machines and instruments of trade, or in such like things as yield a revenue or profit without changing masters, or circulating any further. Such capitals, therefore, may very properly be called fixed capitals. Different occupations require very different proportions between the fixed and circulating capitals employed in them Some part of the capital of every master artificer or manufacturer must be fixed in the instruments of his trade. This part, however, is very small in some, and very great in others The far greater part of the capital of all such master artificers (such as tailors, shoemakers, weavers) however, is circulated, either in the wages of their workmen, or in the price of their materials, and to be repaid with a profit by the price of the work."
Apart from the naive determination of the source of profit, the weakness and confusion of these statements becomes at once apparent, when we consider, e. g., that, for a machine manufacturer, a machine is his product, which circulates as commodity-capital, or in Adam Smith's words, "is parted with, changes masters, circulates farther." According to his own definition, therefore, this machine would not be fixed, but circulating capital. This confusion is due to the fact that Smith confounds the distinction between fixed and circulating capital, which arises out of the different circulation of the various elements of productive capital, with differences of form successively assumed by the same capital when performing the functions of productive capital within the sphere of production, while in the circulation it becomes capital of circulation, that is to say commoditycapital and money-capital. According to the place which the same things occupy in the life-processes of capital, they may, in the opinion of Adam Smith, perform the functions of fixed capital (means of production, elements of productive capital), or of "circulating" commodity-capital (products transferred from the sphere of production to that of circulation).
Theories of Fixed and Circulating Capital. 221 But Adam Smith suddenly changes the entire basis of his division, and contradicts the statements with which he had opened his analysis a few lines previously. This is done especially by the statement that "there are two different ways in which a capital may be employed so as to yield a revenue or profit to its employer," that is to say as circulating or as fixed capital. These two categories would, therefore, be different methods of employment of different capitals independent of one another, some being employed in industries, others in agriculture. But immediately he says: "Different occupations require very different proportions between the fixed and circulating capitals employed in them." Here fixed and circulating capital are no longer different independent investments of different capitals, but different proportions of the same productive capital, which represent different portions of the total value of this capital in different spheres of investment. They are here differences arising from the appropriate division of the productive capital itself and valid only with respect to it. But this is contrary to the distinction of commercial capital, which according to him is circulating capital as compared to fixed capital, when he says: "The capital of B, merchant is altogether a circulating capital." It is indeed a capital performing its functions entirely within the sphere of circulation, and is for this reason distinguished from productive capital embodied in the process of production. But for this very reason it cannot be regarded as a constituent part of the circulating portion of productive capital, as distinguished from its fixed portion.
In the illustrations given by Adam Smith, he defines the instruments of trade as fixed capital, and the portion of productive capital invested in wages and raw materials, including auxiliary materials, as circulating capital, "repaid with a profit by the price of the work."
He starts out, then, from the various constituents of the labor-process, from labor-power (labor) and raw materials on one side, and instruments of labor on the other. And these are constituents of capital, because a quantity of values is invested in them for the purpose of performing the functions of capital.
222 Capital.
To this extent they are material elements, modes of existence of productive capital, that is to say, of capital serving in the process of production. But why is one of these constituents called fixed? Because "some parts of the capital must be fixed in the instruments of trade." But the other parts are also. fixed in wages and raw materials. Machines, however, and "instruments of trade...such like things...yield a revenue or profit without changing masters or circulating any further. Such capitals, therefore, may very properly be called fixed capitals."
Take, for instance, the mining industry. No raw material at all is used there, because the object of labor, such as copper, is the product of nature, which must be obtained first of all by labor. The copper to be obtained, the product of the process, which circulates later on as a commodity, or commodity-capital, does not form an element of productive capital. No part of its value is thus invested. On the other hand, the other elements of the productive process, such as labor-power, and auxiliary materials such as coal, water, etc., do not enter bodily into the product. The coal is entirely consumed and only its value enters into the product, just as a part of the value of the machine is transferred to it. The laborer, finally, remains just as independent so far as the product, the copper, is concerned, as the machine. Only the value which he produces by his labor becomes a part of the value of the copper. But in this illustration, not a single constituent part of productive capital changes masters, nor do any of them circulate further, because none of them enter bodily into the product. What becomes of the circulating capital in this case? According to Adam Smith's own definition, the entire capital employed in mining would consist only of fixed capital.
On the other hand, let us look at some other industry, which utilizes raw materials that form the substance of its product, and auxiliary materials that enter bodily into the product, instead of only so far as their value is concerned, as in the case of coal for fuel. Simultaneously with the product, for instance with the yarn, the raw material composing it, the cotton, likewise changes masters, and passes from the process of production to that of consumption. But Theories of Fixed and Circulating Capital. 225 so long as the cotton performs the function of an element of productive capital, its owner does not sell it, but manipulates it for the purpose of making it into yarn. He does not take his hand from it. Or, to use Smith's crudely erroneous and trivial terms, he does not make any profit by parting with it, by its changing masters, or by circulating it. He does not permit his materials to circulate any more than his machines. They are fixed in the process of production, the same as the spinning machines and the factorybuildings. Indeed, a part of the productive capital in the form of coal, cotton, etc., must be just as continually fixed as that in the form of instruments of labor. The difference is only that the cotton, coal, etc., required for the process of production, say, for one week, is always entirely consumed in the manufacture of the weekly product, so that new specimens of cotton, coal, etc., must be supplied; in other words, these elements of productive capital consist continually of new specimens of the same species, identical only so far as the species is concerned, while the same individual spinning machine, the same individual factory-building, continue their participation in a whole series of weekly productions without being replaced by new specimens of their kind. All the elements of productive capital constituting its parts must be continually fixed in the process of production, for it cannot proceed without them. And all the elements of productive capital, whether fixed or circulating, are equally distinguished as productive capital from capital of circulation, that is to say, commodity-capital and moneycapital.
It is the same with labor-power. A part of the productive capital must be continually fixed in it, and the same identical labor-powers, just as in the case of the machines, are everywhere employed for a certain length of time by the same capitalist. The difference between labor-power and machines in this case is not that the machines are bought once for all (which is not even the case when they are paid for in instalments), while the laborer is not. The difference is rather that the labor expended by the laborer enters wholly into the value of the product, while the value of the machines enters piecemeal into it.
224 Capital.
Smith confounds different definitions, when he says of circulating capital as compared to fixed: "The capital employed in this manner yields no revenue or profit to its employer, while it either remains in his possession or continues in the same shape." He places the merely formal metamorphosis of the commodity, which the product in the form of commodity-capital, undergoes in the sphere of circulation and which brings about the change of masters of the commodities, on the same level with the bodily metamorphosis, which the different elements of productive capital undergo during the process of production. He unceremoniously jumbles together the transformation of commodities into money, of money into commodities, or purchase and sale, with the transformation of elements of production into products. His illustration for circulating capital is merchants' capital which is transformed from commodities into money and from money into commodities — the metamorphosis C — M — C belonging to the circulation of commodities. But this metamorphosis within the circulation signifies for the industrial capital in action that the commodities into which the money is retransformed are elements of production (means of production and labor power), in other words, that it renders the function of industrial capital continuous, that it makes of the process of production a continuous one, a process of production. This entire metamorphosis takes place in circulation. It is the process of circulation which brings about the bodily transition of the commodities from one master to another. On the other hand, the metamorphoses experienced by productive capital within the process of production take place in the labor-process and are necessary for the purpose of transforming the elements of production into the desired product. Adam Smith clings to the fact that a part of the means of production (the instruments of labor, strictly speaking) serve in the laborprocess (yield a profit to their master, as he erroneously expresses it) without changing their natural form and wear out only by degrees; while another part, the materials, change their form and fulfill their duty as means of production by virtue of this very fact. This difference in the behavior of the elements of productive capital in the labor- Theories of Fixed and Circulating Capital. 225 process, however, serves only as the point of departure for the difference between fixed capital and capital which is not fixed, but it is not this difference itself. This is evident from the mere fact that this different behavior is common to all modes of production, whether they are capitalist or not. But on the other hand, this different behavior of the substances is accompanied by a different yield of value to the product, and this in its turn corresponds to a different reproduction of value by the sale of the product. And this is what constitutes the difference in question. Hence capital is not fixed capital, because it is fixed in the means of production, but because a part of the value invested in means of production remains fixed in them, while another part circulates as a part of the value of the product.
"If it (the stock) is employed in procuring future profit, it must procure this profit by staying with him (the employer), or by going from him. In the one case it is a fixed, in the other it is a circulating capital." (Page 189.)
In this statement, it is the crudely empirical conception of profit derived from the ideas of the ordinary capitalist, which is remarkable, being contrary to the better esoteric understanding of Adam Smith. Not only the price of the materials, but also that of the labor-power is reproduced by the price of the product, and so is that part of value which is transferred by wear and tear from the instruments of labor to the product. Under no circumstances does this reproduction yield any profits. Whether a value advanced for the production of a commodity is reproduced entirely or in part, at one time or gradually, by the sale of that commodity, cannot change anything except the manner and time of its reproduction. But it can in no way transform that which is common to both, the reproduction of value, into a production of surplus-value. We meet here once more the common idea that surplus-value arises only through sale, in the circulation, because it is not realized until the product is sold, until it circulates. As a matter of fact, the different genesis of the profit is in this case but a mistaken phrase for the truth that the different elements of productive capital are differently employed, and have a different effect in the labor-process as different productive elements. In the 226 Capital.
226 Capital.
final analysis, the difference is not attributed to the process of production or self-expansion, not to the function of productive capital itself, but it is supposed to apply only subjectively to the individual capitalist, whom one part of capital serves a useful purpose in one way, while another does in a different way.
Quesnay, on the other hand, had derived this difference from the process of reproduction and its requirements. In order that this process may be continuous, the value of the annual advances must be annually reproduced in full by the value of the annual product, while the value of the capital stock is reproduced only by degrees, for instance, in ten years, and is not fully worn out to the point of replacement by another specimen of the same kind until then. Adam Smith here falls far below Quesnay.
Nothing remains therefore to Adam Smith for the determination of the fixed capital but the fact that it is represented by instruments of production which do not change their form in the process of production and continue to serve in production until they are worn out, as distinguished from the product, in the formation of which they co-operate. He forgets that all elements of productive capital are continually confronted in their natural form (instruments of labor, materials, and labor-power) by the product and by the circulating commodity, and that the difference between the part consisting of materials and labor-power and that consisting of instruments of labor is this: Laborpower is always purchased afresh, not bought for good like the instruments of labor; the materials manipulated in the labor-process are not the same identical specimens throughout, but always new specimens of the same kind. At the same time the false impression is created that the value of the fixed capital does not participate in the circulation, although Adam Smith has previously analyzed the wear and tear of fixed capital as a part of the price of the product.
In mentioning the circulating capital as distinguished from the fixed, he does not emphasize the fact, that this distinction rests on the circumstance that circulating capital is that part of productive capital which must be fully reproduced by the value of the product and must therefore fully Theories of Fixed and Circulating Capital. 227