Capital Volume II

Chapter 11: Theories of Fixed and Circulating Capital.

Ricardo introduces the distinction between fixed and circulating capital merely for the purpose of illustrating the exceptions to the rule of value, namely, cases where the rate of wages affects prices. The discussion of this point is reserved for Book III. [Karl Marx, Capital, Vol. III, Ch. XI, pp. 196-200. — Ed.]

But the original lack of clarity is apparent at the outset in the following immaterial juxtaposition:

“This difference in the degree of durability of fixed capital, and this variety in the proportions in which the two sorts of capital may be combined.”[25]

And if we ask him which two sorts of capital he is referring to, we are told:

“The proportions, too, in which the capital that is to support labour, and the capital that is invested in tools, machinery, and buildings, may be variously combined.”[26]

In other words, fixed capital equals instruments of labour and circulating capital equals capital laid out in labour. “Capital that is to support labour” is a senseless term culled from Adam Smith. On the one hand the circulating capital is here lumped together with the variable capital, i.e., with that part of productive capital which is laid out in labour. But on the other hand doubly erroneous definitions arise for the reason that the antithesis is not derived from the process of self-expansion of value — constant and variable capital — but from the process of circulation (Adam Smith’s old confusion).

First: The differences in the degree of durability of fixed capital and the difference arising from capital being composed of constant and variable capital are conceived as being of equal significance. But the last-named difference determines the difference in the production of surplus-value; the first named on the other hand, so far as the process of self-expansion is concerned, refers only to the manner in which a particular value is transferred from a means of production to the product; so far as the process of circulation is concerned, this difference refers only to the period of the renewal of the expended capital, or, from another point of view, to the time for which it has been advanced. If instead of seeing through the internal machinery of the capitalist process of production one considers merely the accomplished phenomena, then these distinctions actually coincide. In the distribution of the social surplus-value among the various capitals invested in different branches of industry, the differences in the different periods of time for which capital is advanced (for instance the various degrees of durability of fixed capital) and the different organic compositions of capital (and therefore also the different circulations of constant and variable capital) contribute equally toward an equalisation of the general rate of profit and the conversion of values into prices of production.

Secondly: From the point of view of the process of circulation, we have on one side the instruments of labour — fixed capital, on the other the material of labour and wages — circulating capital. But from the point of view of the process of labour and self-expansion, we have on the one side means of production (instruments of labour and material of labour) — constant capital; on the other, labour-power — variable capital. It is wholly immaterial for the organic composition of capital (Buch I, Kap. XXIII, 2, p. 647) [English edition, Volume I, Ch. XXV, 2, pp. 622-23. — Ed.] whether a specified quantity of value of constant capital consists of many instruments of labour and little material of labour or of much material of labour and few instruments of labour, while everything depends on the ratio of the capital laid out in means of production to that laid out in labour-power. Vice versa: from the point of view of the process of circulation, of the distinction between fixed and circulating capital, it is just as immaterial in what proportions a particular quantity of value circulating capital divides into material of labour and wages. From one of these points of view the material of labour is classed in the same category with the instruments of labour, as opposed to the capital-value laid out in labour-power; from the other view-point the part of capital laid out in labour-power ranges with that laid out in material of labour, as opposed to that laid out in instruments of labour.

For this reason the part of the capital-value laid out in material of labour (raw and auxiliary materials) does not appear on either side in Ricardo. It disappears entirely; for it will not do to class it with fixed capital, because its mode of circulation coincides entirely with that of the part of capital laid out in labour-power. And on the other hand it should not be placed alongside circulating capital, because in that event the identification of the antithesis of fixed and circulating capital with that of constant and variable capital, which had been handed down by Adam Smith and is tacitly retained, would abolish itself. Ricardo has too much logical instinct not to feel this, and for this reason that part of capital vanishes entirely from his sight.

It is to be noted at this point that the capitalist, to use the jargon of Political Economy, advances the capital laid out in wages for various periods of time, according to whether he pays these wages weekly, monthly, or quarterly. But as a matter of fact the reverse takes place. It is the labourer who advances his labour to the capitalist for a week, a month, or three months, according to whether he is paid by the week, by the month, or every three months. If the capitalist bought labour-power instead of paying for it, in other words, if he paid the labourer his wages in advance for a day, a week, a month, or a quarter, he would be justified in claiming that he advanced wages for those periods. But since he pays after the labour has lasted for days, weeks, or months, instead of buying it and paying for the time which it is to last, the whole thing amounts to a capitalist quid pro quo, and the advance which the labour gives to the capitalist in labour is turned into an advance of money given to the labourer by the capitalist. It does not alter the case in the least that the capitalist gets back the product itself or its value (together with the surplus-value embodied in it) from circulation, or realises it, only after a relatively long or short period of time, according to the different periods required for its manufacture or for its circulation. The seller of a commodity does not care a rap what its buyer is going to do with it. The capitalist does not get a machine cheaper because he must advance its entire value at one shot, while this value returns to him only gradually and piecemeal from circulation; nor does he pay more for cotton because its value enters entirely into the value of the product into which it is made and is therefore replaced fully and at one time by the sale of the product.

Let us return to Ricardo.

1. The characteristic feature of variable capital is that a definite, given (and as such constant) part of capital, a given sum of values (assumed to be equal in value to the labour-power, although it does not matter here whether the wages are equal, more or less than the value of the labour-power) is exchanged for a self-expanding, value-creating power, viz., labour-power, which not only reproduces its value, paid by the capitalist, but simultaneously produces a surplus-value, a value not existing previously and not paid for by any equivalent. This characteristic property of the part of capital laid out for wages, which distinguishes it toto coelo as variable capital from constant capital, disappears whenever the part of capital expended on wages is considered solely from the point of view of the process of circulation and thus appears as circulating capital in contradistinction to the fixed capital laid out in instruments of labour. This is apparent if only from the fact that it is then brought under one head — that of circulating capital — together with the component part of the constant capital laid out in material of labour and opposed to the other component of the constant capital — that laid out in instruments of labour. Surplus-value, hence the very circumstance which converts the laid-out sum of value into capital, is entirely ignored thereby. Similarly the fact is ignored that the part of the value added to the product by the capital laid out in wages is newly produced (and therefore really reproduced), while the part of the value which the raw material adds to the product is not newly produced, not really reproduced, but only preserved in the value of the product, conserved, and hence merely reappears as a component part of the value of the product. The distinction, as now seen from the point of view of the contrast between fixed and circulating capital, consists simply in this: The value of the instruments of labour used for the production of a commodity enters only partially into the value of the commodity and is therefore only partially replaced by its sale, hence is replaced altogether only piecemeal and gradually. On the other hand the value of the labour-power and subjects of labour (raw materials, etc.) used for the production of a commodity entirely enters into it and is therefore entirely replaced by its sale. In this respect, as far as the process of circulation is concerned, one part of capital presents itself as fixed, the other as fluent, or circulating. In both cases it is a matter of transferring given, advanced values to the product and of their replacement by the sale of the product. The difference now depends only on whether the transfer of value, and consequently the replacement of the value, takes place piecemeal and gradually, or in bulk. By this means the distinction between the variable and constant capital, which decides everything, is blotted out, hence the whole secret of the production of surplus-value and of capitalist production, the circumstances which transform certain values and the things in which they present themselves into capital, are obliterated. All constituent parts of capital are then distinguished merely by their mode of circulation (and, of course, circulation of commodities concerns itself solely with already existing given values); and the capital laid out in wages shares a peculiar mode of circulation with the part of capital laid out in raw materials, semi-finished products, auxiliary materials, as opposed to the part of capital laid out in instruments of labour.

It is therefore understandable why bourgeois Political Economy instinctively clung to Adam Smith’s confusion of the categories “constant and variable capital” with the categories “fixed and circulating,” and repeated it parrotlike, without criticism, from generation to generation for a century. The part of capital laid out for wages is no longer in the least distinguished by bourgeois Political Economy from the part of capital laid out for raw materials, and differs only formally from constant capital — on the point of whether it is circulated piecemeal or in one lump by the product. Thereby the basis for an understanding of the real movement of capitalist production, and hence of capitalist exploitation, is buried at one stroke. It is but a question of the reappearance of advanced values.

In Ricardo the uncritical adoption of the Smithian confusion is more disturbing not only than in the later apologists, in whom the confusion of ideas is rather something not disturbing, but than in Adam Smith himself, because Ricardo, in contrast to the latter, is more consistent and incisive in his analysis of value and surplus-value, and indeed upholds the esoteric Adam Smith against the exoteric Adam Smith.

Among the physiocrats there is no such confusion. The distinction between avances annuelles and avances primitives refers only to the different periods of reproduction of the different component of capital, especially of agricultural capital, while their views on the production of surplus-value form a part of their theory that is independent of these distinctions, a part they hold up as the strong point of the theory. The formation of surplus-value is not explained as originating from capital as such, but is attributed to one particular sphere of the production of capital, agriculture.

Secondly. The essential point in the definition of variable capital — and therefore for the conversion of any sum of values into capital — is that the capitalist exchanges a definite, given (and in this sense constant) magnitude of value for value-creating power, a magnitude of value for the production, self-expansion, of value. Whether the capitalist pays the labourer in money or in means of subsistence does not affect this basic definition. It only alters the mode of existence of the value advanced by the capitalist which in one case exists in the form of money for which the labourer buys himself his means of subsistence in the market, in the other case in the form of means of subsistence which he consumes directly. Developed capitalist production rests indeed on the assumption that the labourer is paid in money, just as in general it presupposes the process of production brought about by the process of circulation, hence presupposes the monetary system. But the creation of surplus-value — and consequently the capitalisation of the advanced sum of values — has its source neither in the money-form of wages nor in the form of wages paid in kind, nor in the capital laid out in the purchase of labour-power. It arises out of the exchange of value for value-creating power, out of the conversion of a constant into a variable magnitude.

The greater or smaller fixity of the instruments of labour depends on their degree of durability, hence on a physical property. Other circumstances being equal, they will wear out sooner or later, will therefore function a longer or a shorter time as fixed capital, according to their durability. But it is by no means solely on account of this physical property of durability that they function as fixed capital. The raw material in metal factories is just as durable as the machines used in manufacturing, and more durable than many component parts of these machines, such as leather and wood. Nevertheless the metal serving as raw materials forms a part of the circulating capital, while the instrument of labour, although probably built of the same metal, is a part of the fixed capital when in use. Consequently it is not because of the material, physical nature, nor the relatively great or small speed with which it wears out that a metal is put now in the category of fixed, now in that of circulating capital. This distinction is rather due to the role played by it in the process of production, being a subject of labour in one case and an instrument of labour in the other.

The function of an instrument of labour in the process of production requires that on the average it should serve for a longer or shorter period in ever renewed labour-processes. Its very function therefore prescribes that the stuff of which it is composed should be more or less durable. But it is not the durability of the material of which it is fabricated that by itself makes it fixed capital. The same stuff, when raw material, becomes circulating capital, and among economists who confuse the distinction between commodity-capital and productive capital with the distinction between circulating and fixed capital, the same stuff, the same machine, is circulating capital as product and fixed capital as instrument of labour.

Although it is not the durability of the material of which it is fabricated that makes an instrument of labour fixed capital, nevertheless its role as such an instrument requires that it should be composed of relatively durable material. The durability of its material is therefore a condition of its function as an instrument of labour, and consequently the material basis of the mode of circulation which renders it fixed capital. Other things being equal, the higher or lower degree of wear and tear of the stuff it is made of impresses upon it in a higher or lower degree the stamp of fixedness, is therefore very closely interwoven with the quality of being fixed capital.

If the part of capital laid out in labour-power is considered exclusively from the point of view of circulating capital, hence in contrast with fixed capital, and if consequently the distinctions between constant and variable capital are lumped with those between fixed and circulating capital, then it is natural — supposing that material reality of the instrument of labour forms an essential basis of its character of fixed capital — to derive its character of circulating capital, in contrast with the fixed capital, from the material reality of the capital invested in labour-power, and then again to determine the circulating capital with the aid of the material reality of the variable capital.

The real substance of the capital laid out in wages is labour itself, active, value-creating labour-power, living labour, which the capitalist exchanges for dead, materialised labour and embodies in his capital, by which means, and by which alone, the value in his hands turns into self-expanding value. But this power of self-expansion is not sold by the capitalist. It is always only a constituent part of his productive capital, the same as his instruments of labour; it is never a part of his commodity-capital, as for instance the finished product which he sells. In the process of production the instruments of labour, as components of the productive capital, are not opposed to labour-power as fixed capital any more than materials of labour and auxiliary substances are identified with it as circulating capital. Labour-power confronts both of them as a personal factor, while those are objective factors — speaking from the point of view of the labour-process. Both of them stand opposed to labour-power, as constant capital to variable capital — speaking from the point of view of the process of self-expansion of value. Or, if mention is to be made here of a material difference, so far as it affects the process of circulation, it is only this: It follows from the nature of value, which is nothing but materialised labour, and from the nature of active labour-power, which is nothing but labour in process of materialisation, that labour-power continually creates value and surplus-value during the time it functions; that what on the part of labour-power appears as motion, as a creation of value, appears on the part of its product in a state of rest, as created value. If the labour-power has performed its function, capital no longer consists of labour-power on the one side and means of production on the other. The capital-value that was invested in labour-power is now value which ( + surplus-value) was added to the product. In order to repeat the process, the product must be sold and new labour-power constantly bought with the proceeds and incorporated in the productive capital. This then gives to the part of capital invested in labour-power, and to that invested in material of labour, etc., the character of circulating capital as opposed to the capital remaining fixed in the instruments of labour.

But if, on the contrary, the secondary definition of the circulating capital, which it shares with a part of the constant capital (raw and auxiliary materials), is made the essential definition of the part of capital laid out in labour-power, to wit, that the value laid out in it is transferred in full to the product in whose creation it is consumed, and not gradually and piecemeal as in the case of the fixed capital, and that consequently it must be replaced in full by the sale of the product — then the part of the capital laid out in wages must likewise consist, materially, not of active labour-power but of the material elements which the labourer buys with his wages, i.e., it must consist of that part of the social commodity-capital which passes into the consumption of the labourer, viz., of means of subsistence. In that case the fixed capital consists of the more slowly perishable instruments of labour which therefore have to be replaced more slowly, and the capital laid out in labour-power consists of the means of subsistence, which must be replaced more rapidly.

However, the border-line between greater or lesser perishableness is very vague and indistinct.

“The food and clothing consumed by the labourer, the buildings in which he works, the implements with which his labour is assisted, are all of a perishable nature. There is however a vast difference in the time for which these different capitals will endure: a steam-engine will last longer than a ship, a ship than the clothing of the labourer, and the clothing of the labourer longer than the food which he consumes.”[27]

Ricardo forgets to mention the house in which the labourer lives, his furniture, his tools of consumption, such as knives, forks, dishes, etc., all of which have the same quality of durability as the instruments of labour. The same things, the same kinds of things, appear in one place as articles of consumption and in another as instruments of labour.

The difference, as stated by Ricardo, is this:

“According as capital is rapidly perishable and requires to be frequently reproduced, or is of slow consumption, it is classed under the heads of circulating or fixed capital.”[28]

And he adds this note:

“A division not essential, and in which the line of demarcation cannot be accurately drawn.”[29]

Thus we have once more happily arrived in the camp of the physiocrats, where the distinction between avances annuelles and avances primitives was one referring to the time of consumption, and consequently also to the different times of reproduction of the capital employed. Only, what with them constitutes an important phenomenon of social production and is described in the Tableau Économique in connection with the process of circulation, becomes here a subjective and, in Ricardo’s own words, superfluous distinction.

Once the part of capital invested in labour differs from that invested in instruments of labour only by its period of reproduction and hence its term of circulation, and once one part consists of means of subsistence and the other of instruments of labour so that those differ from these only in being more rapidly perishable, there being various degrees of durability within the first group itself, all differentia specifica between capital invested in labour-power and capital invested in means of production is naturally obliterated.

This wholly contradicts Ricardo’s doctrine of value, likewise his theory of profit, which is in fact a theory of surplus-value. In general he considers the distinction between fixed and circulating capital only to the extent that different proportions of both of them in equally large capitals invested in different branches of production influence the law of value, particularly the extent to which an increase or decrease of wages in consequence of these conditions affects prices. But even within this restricted investigation he commits the gravest errors on account of his confusing fixed and circulating with constant and variable capital. Indeed, he starts his analysis on an entirely wrong basis. In the first place, in so far as the part of the capital-value laid out in labour-power has to be classified under the head of circulating capital, the definitions of circulating capital itself are wrongly developed, particularly the circumstances which place the part of capital laid out in labour under this head. In the second place there is a confusion of the definition according to which the part of capital invested in labour is variable capital with the definition according to which it is circulating capital, as opposed to fixed capital.

It is evident at the outset that the definition of capital invested in labour-power as circulating or fluent capital is a secondary one, obliterating its differentia specifica in the process of production. For in this definition, on the one hand, the capitals invested in labour are of the same importance as those invested in raw material, etc. A classification which identifies a part of the constant capital with the variable capital does not deal with the differentia specifica of variable capital in opposition to constant capital. On the other hand the parts of capital laid out in labour are indeed opposed to those invested in instruments of labour, but not in the least with reference to the fact that these parts enter into the production of value in quite different ways, but with reference to the fact that both transfer their value to the product, but in different periods of time.

In all of these cases the point at issue is how a given value, laid out in the process of production of commodities, whether it be wages, the price of raw materials, or that of instruments of labour, is transferred to the product, hence is circulated by the product, and returned to its starting-point by the sale of the product, or is replaced. The only difference lies here in the “how,” in the particular manner of the transfer, and therefore also of the circulation of this value.

Whether the price of labour-power previously stipulated by contract in each individual case is paid in money or means of subsistence does not alter in any way its character of being a fixed price. However it is evident in the case of wages paid in money that the money itself does not pass into the process of production in the way that the value as well as the material of the means of production do. But if on the other hand the means of subsistence which the labourer buys with his wages are directly classed in the same category, alongside raw materials, etc., as the material form of circulating capital and are opposed to the instruments of labour, then the matter assumes a different aspect. If the value of these things, of the means of production, is transferred to the product in the labour-process, the value of those other things, the means of subsistence, reappears in the labour-power that consumes them and is likewise transferred to the product by the functioning of this power. In both these cases it is equally a question of the mere reappearance, in the product, of the values advanced during production. (The physiocrats took this seriously and therefore denied that industrial labour created surplus-value.) Thus the previously quoted [Karl Marx, Capital, Vol. I, p. 207, Note 3. — Ed.] passage from Wayland.

“The form, however, is of no consequence... The various kinds of food, clothing, and shelter, necessary for the existence and comfort of the human being, are also changed. They are consumed, from time to time, and their value reappears...” (Elements of Pol. Econ., pp. 31, 32.)

The capital-values advanced for production in the form of both means of production and means of subsistence reappear here equally in the value of the product. Thus the transformation of the capitalist process of production into a complete mystery is happily accomplished and the origin of the surplus-value existing in the product is entirely withdrawn from view.

Furthermore this brings to completion the fetishism peculiar to bourgeois Political Economy, the fetishism which metamorphoses the social, economic character impressed on things in the process of social production into a natural character stemming from the material nature of those things. For instance, “instruments of labour are fixed capital,” is a scholastic definition, which leads to contradictions and confusion. Just as was demonstrated in the case of the labour-process (Buch I, Kap. V), [English edition: Ch. VII. — Ed.] that it depends wholly on the role which the material components play in a particular labour-process, on their function — whether they function as instruments of labour, material of labour, or products — so instruments of labour are fixed capital only if the process of production is really a capitalist process of production and the means of production are therefore really capital and possess economic definiteness, the social character of capital. And in the second place, they are fixed capital only if they transfer their value to the product in a particular way. If not, they remain instruments of labour without being fixed capital. In the same way if auxiliary materials like manure give up value in the same peculiar manner as the greater part of the instruments of labour, they become fixed capital although they are not instruments of labour. It is not a question here of definitions, which things must be made to fit. We are dealing here with definite functions which must be expressed in definite categories.

If to be capital laid out in wages is considered one of the qualities of means of subsistence as such under all circumstances, then it will also be a quality of this “circulating” capital “to support labour.” (Ricardo, p. 25.) If the means of subsistence were not “capital” they would not support labour-power; whereas it is precisely their quality of capital that endows them with the faculty of supporting capital by foreign labour.

If means of subsistence as such are circulating capital — after the latter had been converted into wages — it follows further that the magnitude of wages depends on the ratio of the number of labourers to the given amount of circulating capital — a favourite economic proposition — while as a matter of fact the quantity of means of subsistence withdrawn from the market by the labourer, and the quantity of means of subsistence available for the consumption of the capitalist, depend on the ratio of the surplus-value to the price of labour.

Ricardo, like Barton, [29a] everywhere confounds the relation of variable to constant capital with that of circulating to fixed capital. We shall see later to what extent this vitiates his investigation of the rate of profit. [Karl Marx, Capital, Vol. III, Ch. I-III. — Ed.]

Ricardo furthermore identifies the differences which arise in the turnover from other causes than the distinction between fixed and circulating capital with this distinction:

“It is also to be observed that the circulating capital may circulate, or be returned to its employer, in very unequal times. The wheat bought by a farmer to sow is comparatively a fixed capital to the wheat purchased by a baker to make into loaves. The one leaves it in the ground, and can obtain no return for a year; the other can get it ground into flour, sell it as bread to his customers, and have his capital free, to renew the same, or commence any other employment in a week.”[30]

It is characteristic here that wheat, although not serving as a means of subsistence but as raw material when used for sowing, is in the first place circulating capital, because in itself it is a means of subsistence, and in the second placed fixed capital, because its return takes over a year. However it is not only the more or less slow or rapid return which makes a fixed capital of a means of production, but also the definite manner in which it transfers its value to the product.

The confusion created by Adam Smith has brought about the following results:

1. The distinction between fixed and circulating capital is confused with that between productive capital and commodity-capital. For instance a machine is considered circulating capital when in the market as a commodity, and fixed capital when incorporated in the process of production. Moreover, it is absolutely impossible to ascertain why one kind of capital should be more fixed or circulating than another.

2. All circulating capital is identified with capital laid out or to be laid out in wages. This is so in John Stewart Mill, [J. St. Mill, Essays on Some Unsettled Questions of Political Economy, London, 1844, p. 164. — Ed. ] and others.

3. The distinction between variable and constant capital, which was previously mistaken by Barton, Ricardo, and others for that between circulating and fixed capital, is finally wholly reduced to this last-named distinction, for instance in Ramsay, where all means of production, raw materials, etc., as well as instruments of labour are fixed capital, and only capital laid out in wages is circulating capital. [G. Ramsay, An Essay on the Distribution of Wealth, Edinburgh, 1833, pp. 21-24. — Ed.] But because the reduction takes place in this form, the real distinction between constant and variable capital is not understood.

4. The latter-day British, especially Scotch, economists, who look upon all things from the inexpressibly narrow-minded point of view of a bank clerk, such as MacLeod, [H. D. MacLeod, The Elements of Political Economy, London, 1858, pp. 76-80. — Ed.] Patterson, [R. H. Patterson, The Science of Finance. A Practical Treatise, Edinburgh and London, 1868, pp. 129-44. — Ed.] and others, transform the distinction between fixed and circulating capital into one between money at call and money not at call.


25 Ricardo, Principles, etc., p. 25.

26 Loc. cit.

27 Ricardo, Principles, etc., p. 26.

28 Ibid.

29 Ibid.

29a Observations on the Circumstances Which Influence the Condition of the Labouring Classes of Society, London, 1817. A pertinent passage is quoted in Book I, p. 655, Note 79. [English edition: p. 631, Note 1.]

30 Principles, etc., pp. 26 and 27.