Understanding Capital Volume II, John Fox, 1985

Chapter 11: Theories of Fixed and Circulating Capital

"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 . . . Thereby the basis for an understanding of the real movement of capitalist production, and hence of capitalist exploitation is buried at one stroke." (p. 223 [297])

David Ricardo follows Adam Smith in confounding the distinction between fixed and circulating capital with that between constant and variable capital. In his discussion of fixed and circulating capital, Ricardo identifies fixed capital with instruments of labor and circulating capital with variable capital. The circulating portion of constant capital is wholly ignored. This, according to Marx, reflects Ricardo's "logical instinct," for to class constant circulating capital with variable capital when the issue is the self-expansion of value (i.e., the substance of the constantcapital/variable-capital distinction) is to commit a grave error.

Economists following Ricardo commit precisely this error, which, for Marx is the most serious result of failing to understand properly the basis for the definition of fixed and circulating capital. By equating variable capital with circulating capital, and, therefore, defining variable capital according to the way it circulates, rather than by its unique role as creator of value in the process of production, the source of new value (and of surplus-value) is obscured. Of course, for the bourgeois apologist, this is a self-serving error, an error which leads to the physiocratic notion that the value of the worker's subsistence is transferred to the product in the same manner as the value of constant capital. Note that Marx is more critical of this idea in the work of Ricardo and Smith than in the work of the physiocrats, for treating subsistence as value transferred to the product is consistent with physiocratic value theory and inconsistent with the labor theory of value propounded by Smith and Ricardo.

Marx concisely summarizes the consequences of Smith's confused treatment of fixed and circulating capital at the end of the chapter (p. 231 [304-305]).