Understanding Capital Volume II, John Fox, 1985

Chapter 16: The Turnover of Variable Capital

"Only the capital actually employed in the labor-process produces surplus-value and to it apply all laws relating to surplus value, including therefore the law according to which the quantity of surplus-value, its rate being given, is determined by the relative magnitude of the variable capital." (p. 301 [373])

In the previous chapter, Marx investigated the turnover of circulating capital. Hence, he combined variable capital with the constant part of circulating capital, and he ignored fixed capital and surplus-value. Consonant with his interest in examining the effect of turnover upon the value expansion of circulating capital, Marx focuses his attention in the present chapter on the turnover of variable capital and on the surplus-value which variable capital engenders.

The turnover of circulating capital as a whole was treated in the previous chapter. As part of the circulating capital, variable capital is advanced for the period of turnover, comprising both the production period and the period of circulation. At the end of the period of circulation, variable capital employed in the previous production period returns to the capitalist along with the surplus-value it produced (and along with circulating constant capital used in production, and the wear and tear of fixed capital for the production period, though these latter two value components are irrelevant in the present context).

Marx here differentiates between (1) the real rate of surplus-value, the ratio of surplus-value produced in a given period of time (say, one turnover period) to the variable capital employed during that time, and (2) the annual, rate of surplus-value, the ratio of surplus-value produced in a year to the amount of variable capital advanced for production in that year. The key distinction is the difference between capital employed and capital advanced.

Variable capital employed in production during a particular period of time is the amount of functioning labor-power purchased by the capitalist during that time. Using Marx's example (but with dollars rather than pounds as the monetary unit), if a capitalist operates an enterprise with a weekly wage bill of $1000, in a 50 week year the capitalist employs a variable capital of 50 x 1000 = $50,000. Note that for a given scale of production (i.e., here, a given weekly variable capital), capital employed is not dependent upon the period of turnover.

Variable capital advanced for production is the amount of wages the capitalist must lay out prior to selling the commodity product, and thereby replenishing the fund for variable capital. Variable capital advanced, then, is equal to the weekly wage bill times the number of weeks comprising the turnover period of variable capital. For example, if the period of turnover is five weeks, then, using the conditions of the previous illustration, variable capital advanced is 1000 x 5 = $5000. Alternatively, if the variable capital has an annual turnover, variable capital advanced is 1000 x 50 = $50,000 (assuming, with Marx, a 50 week year).

In symbols, the real rate of surplus-value is given by s' = s/v, where s is the amount of surplus-value produced in a particular period of time and v is the variable capital employed. The annual rate of surplus-value is given by S' = s'vn/v = s'n = n(s/v). Here, n is the number of annual turnovers of the variable capital, and the other symbols have their previous meanings. The numerator of the first expression for S', that is s'vn, is the amount of surplus-value produced annually. Assuming a real rate of surplus-value of one (i.e., 100 per cent), the annual rates of surplus value for the two illustrations are:

(1) S' = 1(10) = 10 or 1000 per cent
(2) S' = 1(1) = 1 or 100 per cent.

A capitalist whose capital turns over quickly, who therefore produces a large quantity of surplus-value for a given initial investment (capital advanced), realizes a high annual rate of surplus-value. A capitalist whose capital turns over slowly must continue to advance variable capital (and, indeed, circulating constant capital) throughout the lengthy turnover period, and, thus, realizes a low annual rate of surplus-value. From the point of view of society (as opposed to that of the individual capitalist), the capitalist whose capital turns over slowly continually advances money to the market, withdrawing means of production and labor-power from it. The capitalist's laborers spend their wages on subsistence goods, withdrawing these from the market as well. Until the period of production is completed, however, the capitalist supplies no new commodities to the market. The delays caused by long turnover periods can magnify imbalances in the market and therefore contribute to economic crises.