Chapter 22
[1. The Attempt to Distinguish Between Constant and Variable Capital. The View that Capital Is Not an Essential Social Form]
Marx distinguishes Ramsay from the vulgar economists that arose at the time, out of the dissolution of the Ricardian School. Ramsay distinguishes between constant capital and variable-capital, though he calls all of the former fixed capital, and calls the latter circulating capital. On this basis, he almost arrives at a correct understanding of surplus value. He also arrives at a more or less correct understanding of the average rate of profit, understanding that it is calculated on the total capital advanced, not just that consumed in production, and, thereby, also understands, to a degree, the role of the rate of turnover of capital. He also understands that the application of the average rate of profit does not act to increase or reduce the total amount of profit, but only affects its distribution amongst the class of capitalists. But, his ideas remain confused in relation to the distinction between labour and labour-power, so that his understanding of surplus value is never quite right. His ideas on the average rate of profit lead him to the conclusion that the value of commodities can no longer be determined by labour, and that, therefore, capital also acts to determine value.
Ramsay, in order to account for commercial capital, and commercial profit, calls it,
““the transport of commodities from one place to another” (op. cit., p. 19). He thus confuses trade with the carrying industry.” (p 326)
Ramsay's division of constant and variable capital into fixed and circulating capital is consistent with the increased focus of the bourgeois economists on the realm of exchange as the source of value as opposed to production. Ramsay, however, does continue to see production as the basis of the value of commodities. That value, he says, comprises the “fixed capital" plus the labour employed in processing it. The “circulating capital” (variable-capital) itself plays no part in determining the value. And, this is quite correct, as Marx sets out in Capital I.
As Marx sets out in Capital I, the value of a commodity is determined by the labour-time required for its production. That labour-time comprises the amount of dead labour embodied in the constant capital, (fixed capital for Ramsay) and the living labour required to process it into the final product. If 100 hours of labour are required to produce flax that is turned into yarn, and 100 hours of living labour are used to spin this flax into yarn, then the value of the yarn is equal to 200 hours. It comprises 100 hours of dead labour (constant capital) and 100 hours of living labour. Ramsay recognises that this value added by the living labour is not, and cannot be the same as the “circulating capital” (variable-capital). If it were, then no surplus value would be possible.
““Circulating capital consists exclusively of subsistence and other necessaries advanced to the workmen, previous to the completion of the produce of their labour” (loc. cit., p. 23).” (p 326),
and he says,
““… fixed capital alone, not circulating, is properly speaking a source of national wealth” (loc. cit., p. 23). “…labour and fixed capital are the only elements of expense of production” (op. cit., p. 28).” (p 327)
In other words, Ramsay recognises that, in terms of the value of the commodity, the variable-capital, whether this be taken as the actual wage goods required for the reproduction of labour-power, or the money wages paid to buy those wage goods, plays no part. The wage goods, consumed by the workers, reproduce the workers' labour-power, but they play no part in the production process itself. They determine the value of labour-power, but, contrary to the confusion of Adam Smith, it is not the value of labour-power that determines the value of commodities, but the quantity of labour expended.
So, if we take the yarn example above, if the value of labour-power is equal to 50 hours, then the workers would be paid wages equal to 50 hours labour, and this would constitute the variable-capital. But, whether the value of this labour-power is 50 hours, 60 hours or 40 hours does not change the value of the yarn as equal to 200 hours, because that value is determined by the quantity of labour expended on the production, not the value of the labour-power used in production. That is the difference between the labour theory of value, and Adam Smith's cost of production theory of value.
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