Constant and Variable Capital
불변자본과 가변자본
The two parts into which Marx, in chapter 6 of Capital, volume I, divided the capital advanced in production according to the role each plays in forming value. The part laid out on means of production (raw materials, auxiliary materials, machines, buildings) only transfers its own value to the product and does not change its magnitude in the process, so he called it constant capital (c). The part laid out on buying labour-power reproduces its own value and adds a surplus value on top, so its magnitude varies, and he called it variable capital (v). The distinction carries the claim that new value is created by living labour, not by machines, and underlies the rate of surplus value and the organic composition of capital.
In depth
Why divide capital in two?
A capitalist who sets up a factory spends money on two kinds of things. One is means of production: raw materials, auxiliary materials, machines and buildings. The other is the right to put workers to work for a set time, that is, labour-power. In the account books both are equally "costs". But Marx asked: if, when production is over, more value comes back than was laid out, from which side did the increase come?
Take a small calculation (the figures are assumptions for the sake of illustration). A shirt factory spends 700,000 won a day on cloth, thread and electricity, and its sewing machines wear down by 100,000 won's worth: 800,000 won goes on means of production. It pays 200,000 won in wages. If the workers add 400,000 won of new value in a day's work, the shirts made that day are worth the 800,000 won transferred plus the 400,000 won newly added, 1.2 million won. The capitalist puts in 1 million won and takes out 1.2 million won's worth. In Marx's notation:
c (constant capital) 80 + v (variable capital) 20 + s (surplus value) 20 = value of the product 120
The 800,000 won spent on means of production only reappears in the shirts as 800,000 won. The extra 200,000 won came from the 200,000 won paid out in wages, because the workers produced more value than their wages. Marx divided capital into "constant" and "variable" to bring this difference to light.
How does the value of the means of production pass into the product?
It seems obvious that the value of the cloth enters the value of the shirt, but Marx asked how this happens. The worker does not do one job of adding new value and another of preserving the old value of the materials. "The worker does not work twice in the same time ... it is simply by adding new value that he preserves the old value."
Sondern durch bloßes Zusetzen von neuem Wert erhält er den alten Wert.
Marx explained this double result by the dual character of labour. Spinning, as a particular useful labour (concrete labour), turns cotton and spindle into the materials of a new use-value, yarn, and in doing so carries their value over into the yarn. The same labour, as expenditure of human labour-power in general (abstract labour), adds new value in proportion to the time worked. So in working once in a given time the worker both preserves old value and adds new.
Means of production used over many years, such as machines and buildings, give up value only as they wear out. If a sewing machine costing 10 million won is used for 1,000 days and then scrapped (an assumption), 10,000 won's worth passes into each day's product. Marx wrote that in the production process the machine "never gives up more value than it possesses independently of this process".
In diesem Prozeß gibt sie nie mehr Wert ab, als sie unabhängig von diesem Prozeß besitzt.
Why "constant" and why "variable"?
At the end of chapter 6 Marx defined the two names: "That part of capital, therefore, which is turned into means of production, i.e. into raw material, auxiliary material and instruments of labour, does not change its magnitude of value in the production process. I therefore call it the constant part of capital, or more briefly, constant capital."
Der Teil des Kapitals also, der sich in Produktionsmittel, d.h. in Rohmaterial, Hilfsstoffe und Arbeitsmittel umsetzt, verändert seine Wertgröße nicht im Produktionsprozeß. Ich nenne ihn daher konstanten Kapitalteil, oder kürzer: konstantes Kapital.
"On the other hand, the part of capital turned into labour-power does change its value in the production process. It reproduces its own equivalent and an excess over it, surplus value." Within the production process this part turns from a fixed magnitude into a varying one, hence variable capital.
Der in Arbeitskraft umgesetzte Teil des Kapitals verändert dagegen seinen Wert im Produktionsprozeß. Er reproduziert sein eignes Äquivalent und einen Überschuß darüber, Mehrwert, der selbst wechseln, größer oder kleiner sein kann.
The same components of capital, Marx sums up, are distinguished from the standpoint of the labour process as objective and subjective factors (means of production and labour-power), and from the standpoint of the valorisation process as constant and variable capital. "Constant" means that it creates no new value in production, not that means of production are worthless or unnecessary. Without machines and materials labour can make nothing. They simply add no value beyond their own.
Is it still constant capital if prices change?
The prices of means of production can change. Marx gave the example himself: if a pound of cotton costs sixpence today and rises to a shilling tomorrow after a bad harvest, the cotton already bought at sixpence and lying in the factory now passes on a shilling's worth of value to the product. "The concept of constant capital," he wrote, "in no way excludes a revolution in the value of its components."
Der Begriff des konstanten Kapitals schließt eine Wertrevolution seiner Bestandteile in keiner Weise aus.
This change in value arises because the socially necessary labour time in growing cotton, outside the factory, has changed, not in the process in which the cotton serves as a means of production. In the same way, Marx held, if technology changes so that cheap tools once used by ten workers are replaced by an expensive machine run by one, the difference between the roles of means of production and labour-power remains. How the proportion between constant and variable capital changes is treated separately under the organic composition of capital.
How does it differ from fixed and circulating capital?
Ricardo and other classical economists had already divided capital into fixed and circulating capital. That distinction looks at how fast capital comes back, its turnover: machines and buildings give up their value bit by bit over many years and are fixed capital, raw materials and wages are recovered in a single round of production and are circulating capital. Marx's distinction runs on a different axis. Raw materials are circulating capital but constant capital, and wages are circulating capital but variable capital. The criterion is means of production or labour-power, that is, whether a part merely transfers value or creates it.
Marx treated the fixed and circulating distinction in his analysis of the circulation process in volume II of Capital and criticised Smith and Ricardo for mixing it up with the question of value formation. Rosa Luxemburg, in The Accumulation of Capital, combined the two distinctions into "fixed constant capital" and "circulating constant capital".
What follows from the distinction?
Dividing constant from variable capital makes it possible to define the key ratios of Capital. With the shirt factory above:
- Rate of surplus value s/v = 20/20 = 100%: surplus value in relation to the money spent on labour-power, the degree of exploitation.
- Rate of profit s/(c+v) = 20/100 = 20%: the return the capitalist sees. The same exploitation shows up as a lower rate of profit the larger the constant capital.
- Organic composition of capital c/v = 80/20 = 4. It tends to rise with mechanisation, and from this Marx derived the law of the tendency of the rate of profit to fall.
In chapter 23 of volume I Marx argued that as accumulation proceeds the variable part of capital shrinks relative to the constant part. Demand for labour-power does not grow as fast as production, so people who cannot find work, the industrial reserve army, appear.
What criticisms have been made?
The distinction rests on the labour theory of value, which holds that only labour creates new value, so economists who reject that theory criticise it. Mainstream economics treats machines, like labour, as "factors of production" that contribute to output and earn incomes according to their contribution. Marxists point out that part of this dispute is terminological: in mainstream economics "value" means price or utility in any era, whereas Marx's value is a form specific to a particular social relation, capitalism.
The Australian economist Steve Keen argued that Marx confused the value a machine loses, its depreciation, with value creation, and that a machine can add more value to new output than it loses through wear. The Marxist reply is that Marx stated plainly that a machine gives up no more value than it possesses, and that a machine raising the productivity of labour so that more use-values are produced is not the same as it producing more value.