Understanding Capital Volume II, John Fox, 1985

Chapter 8: Fixed Capital and Circulating Capital

"But the instruments of labor never leave the sphere of production, once they have entered it . . . . A portion of the advanced capital-value becomes fixed in this form determined by the function of the instruments of labor in the process. In the performance of this function, and thus by the wear and tear of the instruments of labor, a part of their value passes on to the product, while the other remains fixed in the instruments of labor and thus in the process of production." (pp. 160-161 [237-238])

In this chapter, Marx introduces the distinction between fixed and circulating capital, a distinction that is central to his treatment of turnover. We shall see that this distinction applies to the elements of productive capital, and involves the manner in which the value of different parts of productive capital circulates.

Following the analysis of the labor process in Volume I of Capital, in real terms (that is, in terms of use-values), the elements of productive capital comprise raw and auxiliary materials, instruments of labor, and labor-power. These factors enter differently into the fabrication of the product. Raw and auxiliary materials are wholly consumed in the productive process, although only the former enter materially into the product. Instruments of labor (including, for example, tools, machines and buildings) wear away gradually, and are hence employed in more than one labor process. Together, raw materials, auxiliary materials, and instruments of labor constitute means of production. Labor-power, used as labor, transforms means of production into a product.

In value terms, the value of means of production is transmitted to the product as these means of production are used up in the productive process. The value of raw and auxiliary materials, therefore, is wholly incorporated in an individual product, while the value of instruments of labor is transmitted piecemeal (i.e., is distributed over many products) as their use-value wears away. Because the means of production merely transfer their value to the product, Marx (in Volume I) termed this portion of productive capital "constant" capital. Labor-power, on the other hand, creates new value when employed as labor in the productive process. When the worker labors beyond necessary labor time, surplus-value is created, and the portion of capital advanced for labor-power expands its value in production. Marx, therefore, termed this portion of productive capital "variable" capital.

Marx's consideration of the manner in which different components of productive capital circulate leads to the distinction between fixed and circulating capital. Because the value of raw and auxiliary materials is wholly incorporated in the product, this value is circulated with the product, and returns completely to the capitalist as soon as the commodity product is sold. Likewise, money laid out in wages reappears in the value of the product and circulates with it. (Surplus-value is irrelevant in the present context, for Marx is concerned with the mode of circulation of components of advanced capital.) For this reason, raw and auxiliary materials, and labor-power comprise circulating capital.

In contrast, because the value of instruments of labor is spread over the products of many production periods, only part of their value circulates with the product of a single such period. Part of their value, then, remains (is fixed) in the sphere of production, and, for this reason, instruments of labor constitute fixed capital. The several, parallel distinctions applied to the elements of productive capital are shown in Figure 3.

Figure 3. Components of Productive Capital

Role in the Labour Process Instruments of Labour Raw Materials Auxiliary Materials Labour Power
Role in Value Creation Constant Capital Variable Capital
Mode of Circulation Fixed Capital Circulating Capital

The distinction between fixed and circulating capital is based solely on the manner in which the parts of productive capital circulate. If, therefore, certain components of productive capital invested in raw materials are not wholly consumed in one production period (Marx employs here the example of fertilizer used in agriculture), these too count as fixed capital. Likewise, if a tool is completely used up in a single production period, it represents circulating capital. Note that circulating capital is a variety of productive capital, and, as such, must be distinguished from capital in the sphere of circulation, that is, from money capital and commodity capital.

The money obtained for circulating capital upon the sale of the product is immediately reinvested in new elements of circulating capital, to be used in the next production period. That portion of the value of fixed capital that is circulated with the product, in contrast, is kept in money form, is hoarded until the fixed capital must be replaced in its entirety.

Marx mentions that this account of the replacement of fixed capital is a simplification, because instruments of labor may, in reality, be replaced by components. Moreover, instruments of labor must be maintained and repaired. Although he discusses certain analytic difficulties, Marx treats capital expended in normal repair and maintenance as a type of circulating capital, to the extent that this capital regularly returns to the capitalist with the sale of the product and must be  reinvested in continued repair and maintenance.