Marx sets out an example comparing a branch of the transport industry with tailoring. In the former, £1,000 of capital is advanced, comprising £500 fixed capital, and £500 of variable-capital. The fixed capital wears out over five years. The variable-capital turns over four times a year, so the consumed capital/laid-out capital or cost of production is £100 plus 4 x £500 = £2,100. the rate of surplus value is 5%, so that the annual rate of surplus value is 20%, thereby producing £100 of surplus value, in the year, on the £500 of advanced variable-capital. That means the exchange-value of output is £2,100 + £100 = £2,200.
In tailoring, no fixed capital is advanced, but £500 of circulating constant capital (materials) is advanced, along with £500 of variable-capital. The capital again turns over four times a year, and with the same 5% rate of surplus value, 20% annual rate of surplus value, £100 of surplus value is produced. The amount of consumed/laid-out capital/cost of production is then 4(£500 + £500) = £4,000. The value of output is then £4,000 + £100 = £4,100.
With the same value of advanced capital, and the same rate of surplus value, two completely different values of output are, thereby, derived, and this is the consequence of a large amount of fixed capital, in the first case, and none in the second. If we examine the rate of profit/profit margin and annual rate of profit we see that, in both cases, £1,000 of capital is advanced, and £100 of profit is produced, resulting in a 10% annual rate of profit, in both cases. But, the cost of production, in the first case, is £2,100, and the £100 profit represents 4.76% rate of profit/profit margin. In the second case, the cost of production is £4,000, and the £100 profit represents a 2.5% rate of profit/profit margin.
If we take the rate of turnover of the entire capital, fixed and circulating then, for the first capital, it turns over 2.10 times, during the year, i.e. capital advanced £1,000, capital turned over £2,100. In the case of the second capital it turns over four times, i.e. £1,000 advanced, £4,000 turned over. But, this makes no difference to the amount of surplus value produced, because that is a function only of the turned over variable-capital, which is the same in both cases, i.e. 4 x £500 = £2,000.
“If the second capitalist continues the reproduction process uninterruptedly, then he must constantly convert £500 into raw materials, etc., and must always use £500 for labour, while the other capitalist likewise uses £500 for labour and has invested the remaining £500 once and for all (that is, for five years) in such a form that he does not need to reconvert it again. This applies however only when the ratio of variable to constant capital is the same [in both capitals] despite the difference between fixed and circulating capital.” (p 393-4)
Marx says its possible for the circulating constant capital to amount to zero, for example, in industries such as transport, or mineral extraction. Here, raw materials are not processed by labour, as part of the production process. Instead, auxiliary materials are consumed, as part of that process. Coal or petrol are consumed as energy to power engines; oil is consumed as lubricant on machines etc. These auxiliary materials are treated as part of the maintenance of fixed capital. Their value is thereby reproduced along with the wear and tear of the fixed capital. Fixed capital, however, can never amount to zero, except Marx says, “in banking etc.” though its difficult to see how even in this case, that is true. A bank must operate out of some kind of building – even a purely online bank – and must employ machines etc.
“This is however immaterial so long as the ratio of constant capital to variable capital is the same in both cases, even though in one case there may be more fixed and less circulating constant capital than in the other, or vice versa.” (p 394)
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