Constant capital (c; ), is a concept created by

Karl Marx Karl Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, political theorist, economist, journalist, and revolutionary socialist. He is best-known for the 1848 pamphlet '' The Communist Manifesto'' (written with Friedrich Engels) ...

and used in Marxian

political economy Political or comparative economy is a branch of political science and economics studying economic systems (e.g. Marketplace, markets and national economies) and their governance by political systems (e.g. law, institutions, and government). Wi ...

. It refers to one of the forms of

capital Capital and its variations may refer to: Common uses * Capital city, a municipality of primary status ** Capital region, a metropolitan region containing the capital ** List of national capitals * Capital letter, an upper-case letter Econom ...

invested in

production Production may refer to: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act of making products (goods and services) * Production as a stat ...

, 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 economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilised amounts of the various inputs determine the quantity of output according to the rela ...

in creating a new value. Constant capital includes (1) fixed assets, i.e.

physical plant A physical plant, building plant, mechanical plant or industrial plant (and where context is given, often just plant) refers to the technical infrastructure used in operation and maintenance of a given facility. The operation of these technical f ...

machinery A machine is a physical system that uses power to apply forces and control movement to perform an action. The term is commonly applied to artificial devices, such as those employing engines or motors, but also to natural biological macromolec ...

land Land, also known as dry land, ground, or earth, is the solid terrestrial surface of Earth not submerged by the ocean or another body of water. It makes up 29.2% of Earth's surface and includes all continents and islands. Earth's land sur ...

and

building A building or edifice is an enclosed Structure#Load-bearing, structure with a roof, walls and window, windows, usually standing permanently in one place, such as a house or factory. Buildings come in a variety of sizes, shapes, and functions, a ...

s, (2) raw materials and ancillary operating expenses (including external services purchased), and (3) certain

faux frais of production Faux frais of production is a concept used by classical political economists and by Karl Marx in his critique of political economy. It refers to "incidental operating expenses" incurred in the productive investment of capital, which do not themselv ...

(incidental expenses). Variable capital, by contrast, refers to the capital outlay on labour costs insofar as they represent workers' earnings, the sum total of wages. The concept of constant vs. variable capital contrasts with that of

fixed Fixed may refer to: * ''Fixed'' (EP), EP by Nine Inch Nails * ''Fixed'' (film), an upcoming animated film directed by Genndy Tartakovsky * Fixed (typeface), a collection of monospace bitmap fonts that is distributed with the X Window System * Fi ...

vs.

circulating capital Circulating capital includes intermediate goods and operating expenses, i.e., short-lived items that are used in production and used up in the process of creating other goods or services. Mark Blaug, 2008. "circulating capital," '' The New Palgr ...

(used not only by Marx but by

David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist, politician, and member of Parliament. He is recognized as one of the most influential classical economists, alongside figures such as Thomas Malthus, Ada ...

and other

classical economists Classical economics, also known as the classical school of economics, or classical political economy, is a school of thought in political economy that flourished, primarily in Britain, in the late 18th and early-to-mid 19th century. It includes ...

). 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. 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 Labour power (; ) is the capacity to work, a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do the work, i.e. labour power, and the physical act of working, i.e. labour ...

to do labor).

Measurement

Constant capital can be measured as a

stock Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...

magnitude, i.e., the total value of

means of production In political philosophy, the means of production refers to the generally necessary assets and resources that enable a society to engage in production. While the exact resources encompassed in the term may vary, it is widely agreed to include the ...

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 Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...

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. 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 may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...

. The concept of "constant capital" is closely related to the concept of "real capital" which is used by Marx to distinguish physical capital goods from

fictitious capital Fictitious capital (German: ''fiktives Kapital'') is a concept used by Karl Marx in his critique of political economy. It is introduced in chapter 25 of the third volume of Capital. Fictitious capital contrasts with what Marx calls "real capita ...

Why "constant"?

Marx calls the constant part of the capital "constant" because according to his

labour theory of value The labor theory of value (LTV) is a theory of value that argues that the exchange value of a good or service is determined by the total amount of " socially necessary labor" required to produce it. The contrasting system is typically known as ...

, constant capital inputs - once produced, 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. For example, if a machine that is used to make cars costs $1 million and it is used to make 10,000 cars before it is worn out and replaced, then each car would have $100 worth of that machine in it (constant capital involves both fixed costs and unit costs). 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

. 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, as the worker can produce value over and above what he needs to live (the "necessary labor time"), which is paid in wages. As the worker produces more than he is paid in wages, he thus creates new value. 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 In Marxism, the valorisation or valorization of capital is the increase in the value of capital assets through the application of value-forming labour in production. The German original term is "''Verwertung''" (specifically ''Kapitalverwertung'') ...

of capital. An example of variable capital would be as follows: a worker is hired for $100 and uses $1000 of materials and components to create a product which is sold for $1300. This would be $1000 constant capital plus $100 variable capital plus $200 surplus value. The $200 surplus value was added solely by the activity of the worker - of the $1100 investment, only the $100 variable capital expanded. The $1000 constant capital was transferred from the materials and components to the product and thus produced no new value.

Criticism

Critics of Marxian

value theory Value theory, also called ''axiology'', studies the nature, sources, and types of Value (ethics and social sciences), values. It is a branch of philosophy and an interdisciplinary field closely associated with social sciences such as economics, ...

object that labor is not the only source of value-added goods. Examples of such arguments: * devaluations or revaluations of types of assets in response to changing demand conditions, which are influenced by price inflation. In

national accounts National accounts or national account systems (NAS) are the implementation of complete and consistent accounting Scientific technique, techniques for measuring the economic activity of a nation. These include detailed underlying measures that ...

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. *

Steve Keen Steve Keen (born 28 March 1953) is an Australian economist and author. He considers himself a post-Keynesian, criticising neoclassical economics as inconsistent, unscientific, and empirically unsupported. Keen was formerly an associate profe ...

argues 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". His argument is, that a machine can add value to new output in excess of the value of economic depreciation charged. Keen uses an analogy with labor to demonstrate the problem:

If workers receive a subsistence wage, and if the working day exhausts the capacity to labor, then it could be argued that in a day a worker “depreciates” by an amount equivalent to the subsistence wage—the exchange-value of labor power. However this depreciation is not the limit of the amount of value that can be added by a worker in a day’s labor—the use-value of labor. Value added is unrelated to and greater than value lost; if it were not, there could be no surplus.

*Keen further argues that Marx speculated that machines could have a use-value greater than their exchange-value, much like labor. Keen argues that though Marx did not develop this point, if it was developed then this would mean that the amount of value a machine loses in depreciation will be less than the value it contributes to output, allowing it to be a source of surplus value alongside labor. *Another argument is that Marx's theory does not account for things such as time. For example, yeast is added to crushed grapes to turn them into wine. No human labor is involved yet the value of the wine is higher than that of the grapes. Another example is that wine gains value as it ages, even though for Marx the aging process shouldn't add value. This would indicate value could arise from sources other than labor. *It has also been argued that Marx's theory ignores time preference (the common preference for goods and services immediately rather than later). Workers generally prefer to be paid when their work is completed rather than when it is sold (which could be much later). For workers to be paid immediately, they must be given wages - thus their service has a value. It is argued that the labor theory of value would "have it both ways" - workers would receive the full future value of their product before it is actually sold.Donald Ernsberger, Jarret Wollstein
"The Labour Theory of Value (an analysis)"
Liberty International, 12 October 1988

Marxist response

According to some Marxists, the first two types of objection above cut to the heart of the main dispute between Marx and mainstream economic theory—their different conceptions of value. 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 A price is the (usually not negative) quantity of payment or compensation expected, required, or given by one party to another in return for goods or services. In some situations, especially when the product is a service rather than a ph ...

of a product. For Marx, however, economic value is a

social Social organisms, including human(s), live collectively in interacting populations. This interaction is considered social whether they are aware of it or not, and whether the exchange is voluntary or not. Etymology The word "social" derives fro ...

attribution, which expresses a

social relation A social relation is the fundamental unit of analysis within the social sciences, and describes any voluntary or involuntary interpersonal relationship between two or more conspecifics within and/or between groups. The group can be a language or ...

between people that is 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 that itself adds value to those outputs, but rather the people operating the machine who permit its value to be conserved and who operate the transfer of part of its value to the new outputs. Another clarification is that Marx may have used the terms fixed and variable capital to emphasize the idea that the input cost of compensation can be varied by the enterprise, which sets the compensation levels of its workers, whereas the price of the other input factors sold to the company is "fixed," insofar as it is set by external vendors.

The particular fetish of the money commodity as capital

The fact that the productive force of labour appears within

capitalism Capitalism is an economic system based on the private ownership of the means of production and their use for the purpose of obtaining profit. This socioeconomic system has developed historically through several stages and is defined by ...

as the productive force of

was for

Marx Karl Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, political theorist, economist, journalist, and revolutionary socialist. He is best-known for the 1848 pamphlet '' The Communist Manifesto'' (written with Friedrich Engels) ...

an example of reification of the

relations of production Relations of production () is a concept frequently used by Karl Marx and Friedrich Engels in their theory of historical materialism and in ''Das Kapital''. It is first explicitly used in Marx's published book '' The Poverty of Philosophy'', al ...

or of

commodity fetishism In Marxist philosophy, commodity fetishism is the perception of the economic relationships of production and exchange as relationships among things (money and merchandise) rather than among people. As a form of Reification (Marxism), reificati ...

. In other words, property (a "thing") is given

human Humans (''Homo sapiens'') or modern humans are the most common and widespread species of primate, and the last surviving species of the genus ''Homo''. They are Hominidae, great apes characterized by their Prehistory of nakedness and clothing ...

powers and characteristics which it does not truly have. Economists talk about the "productivity of capital" to describe the yield or return on capital, but capital itself "produces" nothing, people do that. The fetish of capital is broken as soon as living labour is withdrawn; then it becomes clear that the constant part of capital produces nothing, and declines in value. Because of its role as a traditional money commodity some individuals give a reference display of this fetish by seeing

gold Gold is a chemical element; it has chemical symbol Au (from Latin ) and atomic number 79. In its pure form, it is a brightness, bright, slightly orange-yellow, dense, soft, malleable, and ductile metal. Chemically, gold is a transition metal ...

as the only 'real' money, even in the current time when most money is lacking any substantial form whatsoever, even paper.

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 theory of capitalism, which was simultaneously his critique of the political economy of his time. It is derived from his more basic concepts of 'value composition ...

. As noted above, the distinction between constant and variable capital overlaps with the distinction between

fixed capital In accounting, fixed capital is any kind of real, physical asset that is used repeatedly in the production of a product. In economics, fixed capital is a type of capital good that as a real, physical asset is used as a means of production which i ...

and

. 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 materials used and the intermediate inputs produced by the factory. 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.