Tuesday, 3 December 2013

Capital II, Chapter 10 - Part 6

Marx says, that Smith begins by correctly distinguishing fixed and circulating capital, in relation to the difference in circulation of productive capital. He is also correct to say that the difference is one that applies to the value and not the physical aspect of the capital i.e. it is a part of the value of the fixed capital that remains fixed, whilst another part circulates, whereas all the value of the circulating capital circulates.

But, then Smith's attempt to explain profit on the basis of exchange, of the capital having a change of masters, leads him astray. Smith's answer to the question posed earlier of how can the fixed capital produce a profit if it is not exchanged appears to be it can only do so in consequence of the circulating capital.

“"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 affords the materials they are employed upon, the maintenance of the workmen who employ them." (P. 188.)” (p 204) 

But, the application of this idea, when he says,

“...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.” (above)

is clearly false. As Marx says,

“The farmer keeps the fodder of the cattle, he does not sell it. He uses it to feed the cattle, while he uses the cattle themselves as instruments of labour. The difference is only this: The fodder that goes for the maintenance of the labouring cattle is consumed wholly and must be continually replaced by new cattle fodder out of the products of agriculture or by their sale; the cattle themselves are replaced only as each head becomes incapacitated for work.” (p 204)

It is not the fact that the farmer sells the fattened cattle that makes them, or the fodder circulating capital. In fact, as shown earlier, as commodity-capital, the fattened cattle are neither fixed nor circulating capital, because that distinction only applies to productive capital.

As productive capital, i.e. at that point where they are being fattened, prior to becoming commodity-capital, waiting for sale, they are raw material, a physical component of the end product, and so circulating capital, as is the auxiliary material (fodder) used in their production process.

The fact that the end product has the same physical form as the raw material i.e. cattle, is not relevant. The fattened cattle is a different commodity than the unfattened cattle that entered the production process.

Smith: “The whole value of the seed too is properly a fixed capital. Though it goes backwards and forwards between the ground and the granary, it never changes masters, and therefore it does not properly circulate. The farmer makes his profit not by its sale, but by its increase.” [Vol. II, p. 256.]” (p 205)

Marx comments,

“At this point the utter thoughtlessness of the Smithian distinction reveals itself. According to him seed would be fixed capital, if there would be no “change of masters,” that is to say, if the seed is directly replaced out of the annual product, is deducted from it. On the other hand it would be circulating capital, if the entire product were sold and with a part of its value seed of another owner were bought. In the one case there is a “change of masters,” in the other there is not. Smith once more confuses here circulating and commodity-capital. The product is the material vehicle of the commodity-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 emerged as a product. 

Whether the seed is directly deducted from the product as a part of it or 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 replacement that takes place and no profit is made by this replacement. In the one case the seed enters into circulation as a commodity together with the remainder of the product; in the other it figures only in book-keeping as a component part of the value of the advanced capital. But in both cases it remains a circulating constituent of the productive capital. The seed is entirely consumed to get the product ready, and it must be entirely replaced out of the product to make reproduction possible.” (p 205-6)

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