Capital II, Chapter 10 - Part 5

At root, Smith's confusion is one between fixed and circulating capital on the one hand, and productive and circulation capital on the other, though he chops and changes his definitions between them. The arguments Smith uses for defining capital as fixed can be used to describe productive capital, and those he uses to describe circulating capital to describe circulation capital. But, in the end the definitions are all jumbled together.

“In opposing circulating capital to fixed, no emphasis is placed on the fact that this opposition exists solely because it is that constituent part of productive capital which must be wholly replaced out of the value of the product and must therefore fully share in its metamorphoses, while this is not so in the case of the fixed capital. Instead the circulating capital is jumbled together with those forms which capital assumes on passing from the sphere of production to that of circulation, as commodity-capital and money-capital. But both forms, commodity-capital as well as money-capital, are carriers of the value of both the fixed and the circulating component parts of productive capital. Both of them are capital of circulation, as distinguished from productive capital, but not circulating (fluent) capital as distinguished from fixed capital.” (p 203)

Marx points out that this false distinction between fixed and circulating capital, rather than the distinction between constant and variable capital also then acts to obscure the real source of surplus value. 

Smith: “That part of the capital of the farmer which is employed in the instruments of agriculture is a fixed, that which is employed in the wages and maintenance of his labouring servants is a circulating 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 labouring cattle is a fixed capital in the same manner as that of the instruments of husbandry; their maintenance” (that of the labouring cattle) “is a circulating capital in the same manner as that of the labouring servants. The farmer makes his profit by keeping the labouring cattle, and by parting with their maintenance. 

“Both the price and the maintenance of the cattle which are bought in and fattened, not for labour but for sale, are a circulating capital. The farmer makes his profit by parting with them.” [Vol. II, pp. 255-56.]” (p 204)

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