As Marx analysed in Capital II, fixed and circulating capital only has meaning in the context of production, but the difference between them is manifest in the realm of circulation, in other words, in their rate of turnover. The fixed capital not only turns over more slowly than the circulating capital, but it only has to be replaced when it is completely worn out. The circulating capital has to be continually replaced in its entirety. The faster this capital turns over, the less capital must be advanced, and so the higher the annual rate of profit. But, this then has further implications for prices of production, and the distribution of the surplus value.
“The direct relation of the different component parts of capital to living labour is not connected with the phenomena of the circulation process. It does not arise from the latter, but from the immediate process of production, and its [expression] is the relation of constant to variable capital, whose difference is based only on their relationship to living labour.” (p 578-9)
In other words, the relation of constant capital to variable capital is not affected by the rate of turnover of capital, but by the technical composition of capital. This is why, in Capital II and III, in discussing the rate of turnover, the rate of turnover of the circulating constant capital and variable capital are taken as coincident. If 100 kilos of cotton is processed by 10 workers, it does not matter whether the capital turns over once or ten times during the year. In the latter case, it would simply mean that if the 100 kilos of cotton has a value of £1,000 and the wages of the 10 workers is £100, then in a year, the constant capital laid out would amount to £10,000 and the variable capital laid out would be £1,000. The ratio between the two would still be 10:1.
“Thus Barton says for example: The demand for labour does not depend on fixed capital, but only on circulating capital. But a part of circulating capital, raw material and auxiliary materials, is not exchanged against living labour, any more than is machinery. In all branches of industry in which raw material enters as an element into the process of the creation of value— in so far as we consider only that portion of the fixed capital which enters into the commodity—it forms the most important part of that portion of capital which is not laid out in wages.” (p 579)
In Capital II, Marx sets out his definition of fixed and circulating capital as being necessarily component parts of the productive-capital. He makes this distinction that thereby also illustrates that the commodity-capital and money-capital can neither be classified as being fixed or circulating capital. Rather he classifies them as capital in circulation. This analysis by Marx distinguishes him from other economists who confused these categories. Marx says, describing Barton's argument,
“Another part of the circulating capital, namely of the commodity capital, consists of articles of consumption which enter into the revenue of the non-productive class (i.e., [not of] the working class). The growth of these two parts of circulating capital therefore does not influence the demand for labour any more than does that of fixed capital. Furthermore, the part of the circulating capital which resolves into raw materials and auxiliary materials increases in the same or even greater proportion as that part of capital which is fixed in machinery etc.” (p 579)
Firstly, on the basis of Marx's analysis in Capital II, the commodity-capital is capital in circulation not circulating capital. Secondly, as Marx sets out in Capital III, Chapter 6, as described in the quote given earlier, the circulating capital, i.e. materials, necessarily increases to a greater extent than the fixed capital, rather than only in the same proportion.
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