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 improve- ment of land, in the purchase of useful machines and in- struments 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 dif- ferent proportions between the fixed and circulating capi- tals 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 mate- rials, 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 be- comes 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." Ac- cording 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 differ- ent circulation of the various elements of productive capital, with differences of form successively assumed by the same capital when performing the functions of productive capi- tal within the sphere of production, while in the circulation it becomes capital of circulation, that is to say commodity- capital 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 produc- tive capital), or of "circulating" commodity-capital (prod- ucts 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 circulat- ing or as fixed capital. These two categories would, therefore, be different methods of employment of different capitals in- dependent of one another, some being employed in indus- tries, 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 differ- ences 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 perform- ing 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 cir- culating 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, in- cluding 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 func- tions of capital.
222 Capital.
To this extent they are material elements, modes of exist- ence of productive capital, that is to say, of capital serving in the process of production. But why is one of these con- stituents 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 mate- rial 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 prod- uct of the process, which circulates later on as a commodity, or commodity-capital, does not form an element of produc- tive 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 circu- lating 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 com- posing 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 manip- ulates it for the purpose of making it into yarn. He does not take his hand from it. Or, to use Smith's crudely er- roneous 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 produc- tion, the same as the spinning machines and the factory- buildings. 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 con- sumed 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 contin- ually 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 produc- tion, for it cannot proceed without them. And all the ele- ments of productive capital, whether fixed or circulating, are equally distinguished as productive capital from capital of circulation, that is to say, commodity-capital and money- capital.
It is the same with labor-power. A part of the productive capital must be continually fixed in it, and the same iden- tical 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 ma- chines enters piecemeal into it.
224 Capital.
Smith confounds different definitions, when he says of circulating capital as compared to fixed: "The capital em- ployed in this manner yields no revenue or profit to its em- ployer, while it either remains in his possession or continues in the same shape." He places the merely formal metamor- phosis 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 com- modities, 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 mer- chants' capital which is transformed from commodities into money and from money into commodities — the metamor- phosis C — M — C belonging to the circulation of commodi- ties. But this metamorphosis within the circulation signi- fies for the industrial capital in action that the commodi- ties 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 con- tinuous, that it makes of the process of production a contin- uous 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 commodi- ties 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 in- struments of labor, strictly speaking) serve in the labor- process (yield a profit to their master, as he erroneously ex- presses 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 produc- tion by virtue of this very fact. This difference in the be- havior 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 sub- stances is accompanied by a different yield of value to the product, and this in its turn corresponds to a different re- production 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 pro- duction, but because a part of the value invested in means of production remains fixed in them, while another part cir- culates 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 em- ployer), 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 repro- duction 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 commodi- ty, 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 pro- duction 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 capi- tal are differently employed, and have a different effect in the labor-process as different productive elements. In the 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 sub- jectively to the individual capitalist, whom one part of capi- tal 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 capi- tal 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 deter- mination of the fixed capital but the fact that it is repre- sented 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 distin- guished from the product, in the formation of which they co-operate. He forgets that all elements of productive capi- tal are continually confronted in their natural form (instru- ments 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: Labor- power 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 through- out, 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, al- though 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 dis- tinction rests on the circumstance that circulating capital is that part of productive capital which must be fully repro- duced by the value of the product and must therefore fully Theories of Fixed and Circulating Capital. 227 share in its metamorphoses, while this is not so in the case of the fixed capital. On the contrary, he jumbles it together with those forms which capital assumes in its transition from the sphere of production to that of circulation, that is to say,, commodity-capital and money-capital. But both forms, commodity-capital as well as money-capital, are bear- ers of the value of the fixed and the circulating parts of productive capital. Both of them are capitals of circulation, as distinguished from productive capital, but they do not represent circulating capital as distinguished from fixed capital.
Finally, owing to the entirely confused idea of the mak- ing of profit by the staying of the fixed capital in the process of production, and the passing from it and circulating of the circulating capital, the essential difference between the variable capital and the circulating parts of the constant capital in the process of self-expansion and the formation of surplus-value is hidden under the identity of form, so that the entire secret of capitalist production is obscured still more; by the application of the common term "circulat- ing capital" this essential difference is abolished; political economy subsequently went still farther by neglecting the distinction between variable and constant capital and dwell- ing on the difference between fixed and circulating capital as the essential and typical distinction.
After Adam Smith has defined fixed and circulating capital as two different ways of investing capital, each of which yields a profit by itself, he says: "No fixed capital can yield any revenue but by means of a circulating capital. The most useful machines and instruments of trade will produce nothing without the circulating capital which af- fords the materials they are employed upon, and the main- tenance of the workmen who employ them." (Page 188.)
Here it becomes apparent what the previously used phrases "yield a revenue, make a profit, etc.," signify, viz., that both parts of capital serve in the formation of the product.
Adam Smith then gives the following illustration: "That part of the capital of the farmer which is employed in the implements of agriculture is a fixed, that which is employed 228 Capital.
in the wages and maintenance of his laboring servants is » circulating capital." (Here the difference of fixed and cir- culating capital is correctly applied as referring to the different circulation, the turn-over of different constitu- ent parts of productive capital.) "He makes a profit of the one by keeping it in his own possession, and of the other by parting with it. The price or value of his la- boring cattle is a fixed capital" (here he is again correct in that it is the value, not the material substance, which determines the difference), "in the same manner as that of the instruments of husbandry; their maintenance" (mean- ing that of the laboring cattle) "is a circulating capital, in the same way as that of the laboring servants. The farmer makes his profit by keeping the laboring cattle and part- ing with their maintenance." (The farmer keeps the fodder of the cattle, he does not sell it. He uses it to feed the cat- tle, while he exploits the cattle themselves as instruments of labor. The difference is only this: The feed used for the maintenance of the cattle is wholly consumed and must be continually reproduced by new feed, either by means of the products of agriculture or by their sale; while the cattle themselves are reproduced only to the extent that each specimen becomes worn out.) "Both the price and the mainte- nance of the cattle which are bought in and fattened, not for labor, but for sale, are a circulating capital. The farmer makes his profit by parting with them." (Every producer of commodities, hence the capitalist producer likewise, sells his product, the result of his process of production, but this is not a means of constituting this product a part of either the fixed or the circulating part of his productive capital. The product has now rather that form, in which it is re- leased from the process of production and compelled to per- form the function of commodity-capital. The fattened stock serve in the process of production as raw material, not as instruments of labor like the laboring cattle. Hence the fat- tened cattle enter bodily into the product, and their whole value enters into it, just as that of the auxiliary material, the feed, does. The fattened cattle are, therefore, a circu- lating part of the productive capital, but they are not so, because the sold product, these same cattle, have the same Theories of Fixed and Circulating Capital. 229 natural form as the raw material, that is to say these cattle when not yet fattened. This is a mere coincidence. At the same time Adam Smith might have seen by this illus- tration that it is not the material form of the elements of production, but their function within the process of produc- tion, which determines the value contained in them as a fixed or circulating one.) "The whole value of the seed, too, is a fixed capital Though it goes backwards and for- wards between the ground and the granery, it never changes masters, and therefore it does not properly circulate. The farmer makes his profit not by its sale, but by its increase."
At this point, the utter thoughtlessness of Smith's dis- tinction reveals itself. According to him, the seeds would be fixed capital, if there would be no change of masters, that is to say, if the seeds were directly reproduced out of the annual product by subtracting them from it. On the other hand, they would be circulating capital, if the entire product were sold and a part of its value employed for the purchase of another's seed. In the one case, there would be a change of masters, in the other there would not. Smith once more confounds circulating and commodity-capital at this point. The product is the material bearer of the com- modity-capital, but of course only that part of it which actually enters into the circulation and does not re-enter directly into the process of production, from which it came as a product.
Whether the seed is directly subtracted as a part of the product, or whether the entire product is sold and a part of its value converted in the purchase of another man's seed, in either case it is mere reproduction which takes place, and no profit is produced by it. In the one case, the seed enters into circulation with the remainder of the product as a com- modity, in the other it figures only in bookkeeping as a part of the value of the advanced capital. But in both cases, it remains a circulating part of the productive capital. It is entirely consumed in getting the product ready, and it must be entirely reproduced by means of it, in order to make self-expansion possible.
According to Adam Smith, raw and auxiliary materials lose their independent form, which they carried as use- 2'SO Capital.
values into the labor-process. Not so the instruments of labor proper. An instrument, a machine, a factory-build- ing, a vessel, etc., serve in the labor-process only so long as they preserve their original form and enter the labor-process to-morrow in the same form in which they did yesterday. Just as they preserve their independent form as compared to the product during life, in the labor-process, so they do after death. The corpses of machines, shops, factory-build- ings, still exist independently of the products, which they helped to form. (Book I, chapter VIII, page 227.)
These different ways in which means of production are used in the formation of the product, some of them preserv- ing their independent form as compared to the product, others changing or losing it entirely, — this difference per- taining to the labor-process itself, regardless of whether it is carried on for home use, without exchange, without any production of commodities, as it was, for instance, in the patriarchal family, is falsified by Adam Smith, (1) by viti- ating it with the irrelevant definition of profit, saying that some of the elements of production yield a profit to their owner by preserving their form, while others do so by los- ing it; (2) by jumbling together the changes of a part of the elements of production in the labor-process with that metamorphosis in the circulation of commodities which con- sists of the exchange, the sale and purchase, of products and involves a change of masters of the circulating com- modities.
The turn-over presumes the reproduction by the interven- tion of the circulation, by the sale of the product, by its conversion into money and its reconversion from money into elements of production. But to the extent that a part of the product of the capitalist producer serves him directly as his own means of production, he figures as its seller to himself, and this transaction is so entered in his books. This part of the reproduction is not accomplished by the intervention of the circulation, but proceeds directly. But a part of the product thus re-employed as means of produc- tion replaces circulating, not fixed, capital, to the extent, (1) that its value passes wholly into the product, and (2) that it is itself wholly reproduced in its natural form by means of the new product.
Theories of Fixed and Circulating Capital. 231 Adam Smith, however, tells us what circulating and fixed capital consist of. He enumerates the things, the ma- terial elements, which form fixed, and those which form circulating capital, just as though this character were due to the natural substance of those things, instead of to their definite function within the capitalist process of production. And yet in book II, chapter I, he makes the remark that although a certain thing, for instance, a residence, which is reserved for direct consumption, "may yield a revenue to its proprietor, and thereby serve in the function of a capital to him, it cannot yield any to the public, nor serve in the function of a capital to it, and the revenue of the whole body of the people can never be in the smallest degree in- creased by it." (Page 186.) Here, then, Adam Smith clearly states that the character of capital is not inherent in the things themselves, but is a function with which they may or may not be invested, according to circumstances. But what is true of capital in general, is also true of its subdi- visions.