Friday, 15 February 2013

Constant Capital

Constant Capital is the term Marx uses to refer to the means of production employed under Capitalism. They can in turn be divided into various categories. The major division is between Fixed and Circulating Constant Capital.

Fixed Constant Capital is all of those means of production that have to be present for production to take place, and which are not wholly used up within a single production cycle. That would include things such as buildings, vehicles, machines, tools etc. These latter, can also be described as the Instruments of Labour. All of these undergo a certain amount of wear and tear in any production cycle, constituting a portion of the particular Use Value , and, therefore an equal portion of its Exchange Value. This portion of Exchange Value is transferred to the Value of the Commodity in whose production it has participated. It is not to be confused with depreciation.

Depreciation of such Fixed Capital takes place whether it is involved in production or not. Indeed, it can depreciate more as a result of not being used than being used, because lack of use causes it to rust etc. Depreciation is a function of time, whereas wear and tear is a function of use. The Value of wear and tear is transferred to the final product, and is thereby recovered by Capital in its price. The Value of Depreciation is not transferred to the final product, and is not thereby recovered by Capital. It represents a Capital Loss for the individual Capitalist, as well as a reduction in the Value of the total Capital Stock.

Circulating Constant Capital refers to those means of production, which are wholly consumed within the production cycle. That would, therefore, include the portion of wear and tear of the Fixed Capital. It also includes the primary products, and raw materials processed by labour. For Marx, raw materials are not materials as they are immediately taken from the ground. That would be primary or natural products. Marx defines as raw materials any product, which has been taken from the ground, and prepared for further use. On that basis, iron ore is a primary or natural product, whilst the iron made from it, is a raw material. Iron ore cannot immediately function in some other production process, but iron can.

As well as raw materials, other products enter the production process without themselves entering into the final product itself. For example, coal is used extensively to produce steam to power a steam engine, that may be used to power looms that produce yarn. The coal itself does not enter the finished yarn, but its use in the production process is nevertheless required for it to take place. Other materials are required for the production process in a similar way. Oil is needed to lubricate machines, electric is needed to provide heating and lighting within the factory, and so on.

These other incidental requirements are termed by Marx, the faux frais of production.

Marx calls these means of production Constant Capital, because their value is merely transferred to the final product. They can never transfer more value to the final product than they contain themselves. If these commodities were re-sold they could only recover their market value. In fact, because they depreciate as a result of time, they tend to transfer less than their own value. The more of their Use Value they lose due to depreciation, the more of their Exchange Value they also lose in the process.

As well as depreciation due to the passage of time/lack of use, constant capital can also suffer Moral Depreciation. That arises in two different ways. Firstly, if new methods of production arise, which reduce the labour-time required for their production, the value of this Constant Capital is likewise reduced. This applies not only to that being currently produced, but also that already in existence. That applies, for example, to cotton that a spinner has in stock, that is in the process of being spun, as well as the cotton contained in his spun yarn waiting to be sold.

That can have a significant effect in respect of Fixed Capital.

The second form of Moral Depreciation is where some new type of machine is developed that makes existing machines obsolete. A new machine that is able to process twice as much material in a given amount of time, makes all the previous machines worth only half as much.

By the same token, if for some reason productivity falls, e.g. a bad harvest means that less cotton is produced, then the value of the constant capital rises. Where productivity rises and the value of the Constant Capital falls, this does not constitute a reduction of Surplus Value, because it does not arise within the production process concerned – it arises in some other production process i.e. the one which produces the Constant Capital. It does constitute a Capital Loss for the Capitalist. However, as Marx points out, this lower value of Constant Capital does not affect the reproduction of Capital, because the lower Value of the Constant Capital transferred to the final product, is compensated for by the lower cost of replacing the Constant Capital consumed. For example,

C 1000 + V 1000 + S 1000 = E 3000.

Here Constant Capital let us say it is 100 kilos of cotton amounts to £1000. It is processed by £1000 worth of labour-power. That produces £1,000 of Surplus Value, which is wholly consumed by the Capitalist. Suppose, that productivity in cotton production doubles prior to production of yarn taking place. Now, 100 kilos of cotton has a Value of only £500. If the capitalist realised his capital, he would suffer a £500 Capital Loss. If production proceeds, only the current value of the cotton can be transferred to the final product. So,

C 500 + V 1000 + S 1000 = E 2500.

The Value of the final yarn has correspondingly fallen from £3,000 to £2,500. However, this does not affect the reproduction of the Capital, because this £2,500 still allows the purchase of the same quantities of cotton and labour-power as previously, because the replacement 100 kilos of cotton now costs only £500.

In the same way, if productivity falls and the value of constant capital rises, this does not constitute a rise in Surplus Value. Surplus Value can only be created within the production process by the exploitation of Labour. If the quantity of Labour exploited remains the same, and the rate of exploitation remains the same, then no change in the amount of surplus value produced can occur. Such a change represents a Capital Gain.

However, as with a fall in the Value of Constant Capital, a rise does not affect the reproduction of the Capital consumed. The higher Value of the Constant Capital is transferred to the final product, but is equally required to purchase its now higher valued replacement.

What these changes in the Value of Constant Capital do affect is the rate of accumulation. If the Value of Constant Capital falls, then a given quantity of Surplus Value will buy more, and vice versa. For example, using the figures above, but now assuming that S is accumulated.

We would have

  1. C 1000 + V 1000 + S 1000 becomes C 1500 + V 1500 + S 1500 whereas
  2. C 500 + V 1000 + S 1000 becomes C 833 + V 1666 + S 1666.

In other words with a lower Value of Constant Capital the rate of accumulation rises, because a given amount of Surplus Value now buys an increased quantity of Constant Capital, whilst leaving sufficient Surplus Value to buy the additional Labour-power required to process it.

No comments: