NationMaster - Encyclopedia: Constant capital

Constant capital (c), is a concept created by Karl Marx and used in Marxian political economy. It refers to one of the forms of capital invested in production, which contrasts with variable capital (v). The distinction between constant and variable refers to an aspect of the economic role of factors of production in creating a new value. Karl Heinrich Marx (May 5, 1818 Trier, Germany â€“ March 14, 1883 London) was an influential philosopher, political economist, and revolutionary organizer of the International Workingmens Association. ... Marxian economics refers to a body of economic thought stemming from the work of Karl Marx. ... Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. ... Capital has a number of related meanings in economics, finance and accounting. ... Factors of production are resources used in the production of goods and services in economics. ... Value is a term that expresses the concept of worth in general, and it is thought to be connected to reasons for certain practices, policies, or actions. ...

Constant capital includes the outlay of money on (1) fixed assets, i.e. plant, machinery, land and buildings, (2) raw materials and ancillary operating expenses (including services purchased), and (3) certain faux frais of production (incidental expenses). Divisions Land plants (embryophytes) Non-vascular plants (bryophytes) Marchantiophyta - liverworts Anthocerotophyta - hornworts Bryophyta - mosses Vascular plants (tracheophytes) Lycopodiophyta - clubmosses Equisetophyta - horsetails Pteridophyta - true ferns Psilotophyta - whisk ferns Ophioglossophyta - adderstongues Seed plants (spermatophytes) â€ Pteridospermatophyta - seed ferns Pinophyta - conifers Cycadophyta - cycads Ginkgophyta - ginkgo Gnetophyta - gnetae Magnoliophyta - flowering plants Adiantum pedatum (a fern... A machine is any mechanical or electrical device that transmits or modifies energy to perform or assist in the performance of tasks. ... An estate is the right, interest, or nature of interest, a person has in real property. ... Building is either the act of creating an object assembled from more than one element, or the object itself; see also construction. ... Faux frais of production is a concept used by classical political economists and by Karl Marx in his critique of political economy. ...

The concept of constant vs. variable capital contrasts with that of fixed vs. circulating capital (used not only by Marx but by David Ricardo and other classical economists). The latter distinction corresponds to the very common distinction in economics, between fixed inputs (and costs) and variable inputs (and costs). It distinguishes inputs from the point of view of their user (the capitalist), in terms of the degree of flexibility that the user has in using them. David Ricardo (April 18, 1772 â€“ September 11, 1823), a British political economist, is often credited with systematizing economics, and was one of the most influential of the classical economists. ... Classical economics is a school of economic thought whose major developers include William Petty, Adam Smith, David Ricardo, Thomas Malthus, and John Stuart Mill, and Johann Heinrich von ThÃ¼nen. ...

On the other hand, constant capital refers to the non-human inputs into production, while variable capital refers to the human input (the hiring of labor power to do labor). Labor power (in German: Arbeitskraft, or labor force) is a crucial concept used by Karl Marx in his critique of political economy. ...

1 Measurement
2 Why "constant"?
3 Variable capital
4 Criticism
5 Marxist response
6 Value and price
7 The fetish of capital
8 Different capital compositions
9 See also

Measurement

Constant capital can be measured as a stock magnitude, i.e., the total value of means of production in use at a specific point in time. It can also be measured as a flow magnitude, i.e., the total value of raw materials and fixed means of production used up in an accounting period. Which measure is used depends on the purposes and assumptions of one's analysis, for example whether one is interested in the unit-costs of output or in the rate of return on capital invested. In economics, the distinction is often made between stock magnitudes and flow magnitudes. ... The means of production are physical, non-human, inputs used in production. ... In economics, the distinction is often made between stock magnitudes and flow magnitudes. ... Accountancy (British English) or accounting (American English) is the process of maintaining, auditing, and processing financial information for business purposes. ...

The flow value divided by the stock value provides a measure of the number of rotations of the stock (the speed of turnover or turnover time) in an accounting period. It is strongly related to the actual depreciation rate of fixed capital. Alternatively, the stock value divided by the flow value is what Marx called the "turnover time."

The faster the turnover of constant capital (i.e., the shorter the turnover time), other things being equal, the higher the rate of profit. Profit is a positive return made on an investment by an individual or by business operations. ...

Why "constant"?

Marx calls the constant part of the capital outlay "constant" because according to his labour theory of value, constant capital inputs - once purchased, withdrawn from the market and used to create new products - do not by themselves add new value to output, or increase in value in the production process. Instead, the value of equipment and materials being used in production is conserved and transferred to the new product by living labor. The labor theory of value (LTV) is a theory in economics and political economy concerning a market-oriented society: the theory equates the value of an exchangeable good or service (i. ... Value is a term that expresses the concept of worth in general, and it is thought to be connected to reasons for certain practices, policies, or actions. ...

It is true that the ruling market prices for constant capital inputs could change after they have been bought for use in production, but normally this cannot affect those inputs (having been withdrawn from the market for use in production), only the market valuation of the outputs created from those inputs.

Variable capital

Constant capital contrasts with variable capital, v, the cost incurred in hiring labor-power. Marx argues that only living labour creates new value. The higher value of output, compared to input costs, is (other things being equal) attributable to the exploitation of living labor-power only. Variable capital is "variable" because its value changes (varies) within the production process. Although most commentaries on Marx do not acknowledge this, these changes could be both positive or negative. A misapplication of labour, or the devaluation of types of labour activity by the market can mean the loss of part of the capital invested, or all of it. However, Marx does generally assume that labour will accomplish the valorisation of capital. According to Karl Marx, there is a clear distinction between labor and labor-power in economics. ... This article discusses the economic concept of exploitation. ... The Valorisation of capital is a concept created by Karl Marx in his critique of political economy. ...

Criticism

Critics of Marxian value theory object that this attribution of the source of value-added to labour only is arbitrary and political, not scientific. In various ingenious thought experiments, cases are presented in which constant capital appears as the only possible source of the variability of an entrepreneur's capital. Value theory concerns itself with the worth, utility, trading or economic value, moral value, legal value, quantitative or aesthetic value of people and things - or the combination of all these. ... Politics is the process and method of decision-making for groups of human beings. ... In philosophy, physics, and other fields, a thought experiment (from the German Gedankenexperiment) is an attempt to solve a problem using the power of human imagination. ...

Examples would be devaluations or revaluations of types of assets in response to changing demand conditions, which are influenced by price inflation. In national accounts and business accounts, for example, the change in the value of inventories held is adjusted for changes in their current market prices, affecting the profit calculation. Measures of national income and output are used in economics to estimate the value of goods and services produced in an economy. ...

Steve Keen also argues for example that "Essentially, Marx reached the result that the means of production cannot generate surplus value by confusing depreciation, or the loss of value by a machine, with value creation" (Debunking Economics; The Naked Emperor of the Social Sciences, 2004, p. 294). His argument is, that a machine can add a value to new output in excess of the value of economic depreciation charged.

Marxist response

According to some Marxists, this type of objection cuts to the heart of the main dispute between Marx and mainstream economic theory -- their different conceptions of value. The labor theory of value (LTV) is a theory in economics and political economy concerning a market-oriented or commodity-producing society: the theory equates the value of an exchangeable good or service (i. ...

For Marx's critics, value, if it exists at all, is a technical feature of economic calculus or is simply another word for the price of a product. A critic (from Greek ÎºÏÎ¹Ï„Î¹ÎºÏŒÏ‚, kritikÃ³s - one who discerns, from Ancient Greek ÎºÏÎ¹Ï„Î®Ï‚, kritÃ©s, a judge) is a person who offers judgement or analysis, value judgement, interpretation, or observation. ... In economics and business, the price is the assigned numerical monetary value of a good, service or asset. ...

For Marx, however, economic value is a social attribution, which expresses a social relation between people specific to certain historical conditions. Inanimate objects can only feature in value relations as tokens of prior human effort, since they are not social beings. Thus, it is not the machine with which new outputs are produced which adds value to those outputs, but the people operating the machine who conserve its value and operate the transfer of part of its value to the new outputs. // Latin root meaning The term social is derived from the Latin word socius, which as a noun means an associate, ally, companion, business partner or comrade and in the adjectival form socialis refers to a bond between people (such as marriage) or to their collective or connected existence. ... Social relation can refer to a multitude of social interactions, regulated by social norms, between two or more people, with each having a social position and performing a social role. ...

Value and price

Other Marxian economists note that, at any time, most of the stock of objects of value in a society has no actual market price, because those objects are not being traded (i.e. they are withdrawn from the market); they are either being used in production or consumption activities, or else stored for later use. This can be easily verified by striking a ratio between gross product and the estimated total asset wealth of a country in money units.

In other words, this stock of owned objects has, at best, an ideal price which is estimated or hypothesized (the price it might have, if it was traded in the market).

Nobody however will say that because this stock of objects has no actual market price, that it has no value; everybody knows that its exchange value could be expressed in money, within a certain range of probable prices; they may also know approximately that a quantity of one good is "worth" a certain quantity of another good. In Marxian political economy, exchange value refers to one of three major aspects of a commodity, i. ...

This simple insight may help to clarify Marx's concept of value, because it shows that beyond prices there are also economic value relations referring to the changing relationships between objects of value which have no specific, defined or actual market price, and to the social outcome of the interactions between a myriad of prices. In turn, these value relations between objects reflect social relations between people. Although Harvard University has featured a Department of Social Relations (in which Talcott Parsons played a prominent role), and although the term social relations is frequently used in social sciences, there is no commonly agreed meaning for this concept (see also the entry social). ...

The fetish of capital

The fact that the productive force of labour appears within capitalism as the productive force of capital was for Marx an example of reification of the relations of production or of commodity fetishism. In other words, property (a "thing") is given human powers and characteristics which it does not truly have. Productive forces is a term within Marxism indicating the combination of the means of production with human labour power. ... Wikiquote has a collection of quotations related to: Capitalism The page is about the economic system. ... In politics, a capital (also called capital city or political capital â€” although the latter phrase has an alternative meaning based on an alternative meaning of capital) is the principal city or town associated with its government. ... Marx is a common German surname. ... Reification, also called hypostatization, is treating a concept, an abstraction, as if it were a real, concrete thing. ... Relations of production (German: Produktionsverhaltnisse) is a concept frequently used by Karl Marx in his theory of historical materialism and in Das Kapital. ... In Marxist theory, commodity fetishism is an inauthentic state of social relations, said to arise in complex capitalist market systems, where social relationships are confused with their medium, the commodity. ... [[{{{diversity_link}}}|Diversity]] {{{diversity}}} Binomial name Homo sapiens Linnaeus, 1758 Trinomial name {{{trinomial}}} Type Species {{{type_species}}} Subspecies Homo sapiens idaltu (extinct) Homo sapiens sapiens [[Image:{{{range_map}}}|{{{range_map_width}}}|]] Synonyms {{{synonyms}}} Homo (genus). ...

The fetish of capital is broken as soon as all human labour is withdrawn; then it becomes clear that the constant part of capital produces nothing and declines in value, ultimately leaving nothing but a situation similar to a ghost town. This article concerns the concept of fetishism in anthropology. ... A street corner in the ghost town of Bodie, California. ...

Critics object however that without the supply of means of production, labour also can produce nothing. That is, separated from means of production, workers are also nothing. This however raises the question of why and how workers come to be separated from the means of production which they have themselves created. The means of production are physical, non-human, inputs used in production. ...

For Marx at least, the answer to this question is not "technical" but purely social, i.e. a matter of property relations which provides capital and its owners with a social power over people. But ownership by itself creates no net addition to new value produced, other than, perhaps, profit from speculation which redistributes existing asset values and claims to them. // Latin root meaning The term social is derived from the Latin word socius, which as a noun means an associate, ally, companion, business partner or comrade and in the adjectival form socialis refers to a bond between people (such as marriage) or to their collective or connected existence. ... // Use of the term The concept of property or ownership has no single or universally accepted definition. ... It has been suggested that Bases of power be merged into this article or section. ... Speculation involves the buying, holding, and selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives or any valuable thing to profit from fluctuations in its price as opposed to buying it for use or for income ( via dividends, interest etc). ...

Different capital compositions

The ratio, c/v is one measure of the organic composition of capital. The organic composition of capital (OCC) is a concept created by Karl Marx in his critique of political economy and used in Marxian economics as a theoretical alternative to neo-classical concepts of factors of production, production functions, capital productivity and capital-output ratios. ...

As noted above, the distinction between constant and variable capital overlaps with the distinction between fixed capital and circulating capital. Constant capital has both fixed and circulating components: for example, the fixed constant capital would include a factory and the machinery in it, while the circulating constant capital would include the raw matericals used and the intermediate inputs produced by the factory. Fixed capital is a concept in economics and accounting, first theoretically analysed in some depth by the economist David Ricardo. ... Circulating capital is a term used by classical economists such as David Ricardo and others such as Karl Marx. ...

Variable capital is almost exclusively a component of circulating capital. However, the salaries of some "overhead" employees (who have long-term security from being fired or laid off) are in effect, fixed elements of variable capital.

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