THE TURNOVER OF CAPITAL
THEORIES OF FIXED AND CIRCULATING CAPITAL.
THE PHYSIOCRATS AND ADAM SMITHIn Quesnay the distinction between fixed and circulating capital presents itself as avances primitives and avances annuelles . He correctly represents this distinction as one existing within productive capital, capital directly engaged in the process of production. As he regards the capital employed in agriculture, the capital of the farmer, as the only really productive capital, he draws these distinctions only for the capital of the farmer. This also accounts for the annual period of turnover of one part of the capital, and the more than annual (decennial) period of the other part. In the course of the development the physiocrats incidentally applied these distinctions also to other kinds of capital and to industrial capital in general. The distinction between annual advances and others of longer duration has retained such importance for society that many economists, even after Adam Smith, return to this definition.
The difference between these two kinds of advances does not arise until advanced money has been transformed into the elements of productive capital. It is a difference that exists solely within productive capital.
It therefore never occurs to Quesnay to classify money either among the original or the annual advances. As advances for production, i.e., as productive capital, both of them stand opposed to money as well as the commodities existing in the market. Furthermore the difference between these two elements of productive capital is correctly reduced in Quesnay to the different manner in which they enter into the value of the finished product, hence to the different manner in which their values are circulated together with those of the products, and hence to the different manner of their replacement or their reproduction, the value of the one being wholly replaced annually, that of the other partly and at longer intervals. [23]
The only progress made by Adam Smith is the generalisation of the categories. With him it no longer applies to one special form of capital, the farmer's capital, but to every form of productive capital. Hence it follows as a matter of course that the distinction derived from agriculture between an annual turnover and one of two or more years' duration is superseded by the general distinction into different periods of turnover, one turnover of the fixed capital always comprising more than one turnover of the circulating capital, regardless of the periods of turnover of the circulating capital, whether they be annual, more than annual, or less than annual. Thus in Adam Smith the avances annuelles transform themselves into circulating capital, and the avances primitives into fixed capital. But his progress is confined to this generalisation of the categories. His implementation is far inferior to that of Quesnay.
The crudely empirical manner in which Smith broaches the investigation engenders at the very outset a lack of clarity: "There are two different ways in which a capital may be employed so as to yield a revenue or profit to its employer." ( Wealth of Nations , Book II, Chap. I, p. 189, Aberdeen edition, 1848. [Wherever Marx did not give a page reference to quotations from Smith's work, editorial page references are given in square brackets to the London 1843 edition of An Inquiry into the Nature and Causes of the Wealth of Nations, A new edition in four volumes . This and all the following quotations from Smith have been checked with this edition. -- Ed .]
The ways in which value may be invested so as to perform the functions of capital, to yield surplus value to its owner, are as different and varied as the spheres of investment of capital. It is a question of the different branches of production in which capital may be invested. If put in this way, the question implies still more. It includes the question of the way in which value, even if it is not invested as productive capital, can function as capital for its owner, for instance as interest-bearing capital, merchants'
capital, etc. At this point we are already miles away from the real subject of the analysis, viz., the question of how the division of productive capital into its different elements, apart from their different spheres of investment, affects their turnover.
Adam Smith immediately continues: "First, it may be employed in raising, manufacturing, or purchasing goods, and selling them again with a profit." [Vol. II, p. 254.] He does not tell us anything else here than that capital may be employed in agriculture, manufacture, and commerce.
He speaks therefore only of the different spheres of investment of capital, including such in which, as in commerce, capital is not directly embodied in the process of production, hence does not function as productive capital.
In so doing he abandons the foundation on which the physiocrats base the distinctions within productive capital and their effect on the turnover.
More. He uses merchant's capital as an illustration in a problem which concerns exclusively differences within the productive capital in the product and value-creating process, which in turn cause differences in its turnover and reproduction.
He continues: "The capital employed in this manner yields no revenue or profit to its employer, while it either remains in his possession or continues in the same shape." [Vol. II, p. 254.] "The capital employed in this manner!" But Smith speaks of capital invested in agriculture, in industry, and he tells us later that a capital so employed divides into fixed and circulating capital! Hence investment of capital in this manner cannot make fixed or circulating capital of it.