Circulating Capital

Circulating capital refers to the part of productive capital that is used to purchase raw materials, fuel, auxiliary materials and other objects of labor and labor-power, including all variable capital and a portion of constant capital. In contrast to fixed capital, the material form of circulating capital is consumed in its entirety in a single process of production and is transformed into the new product. Marx held that the past labor contained in the value of a commodity—the constant part of capital—consists partly of the wear and tear of fixed, partly of circulating, constant capital entirely consumed by that commodity, such as raw and auxiliary materials. Therefore, in the value-form, the capital advanced advanced by the capitalist on the circulating constant capital can be recovered in its entirety after the process of production and process of sale of product. The part of circulating variable capital used to purchase labor-power is the new value created by labor-power in the process of production, but the mode its value is turned over the same as that of circulating constant capital used for the objects of labor, i.e., its value is passed on to the new product once and in its entirety and recovered in the form of money with the sale of product, a characteristic that determines that it also belongs to circulating capital.

Fixed and circulating capital are distinguished on the basis of the difference in the mode its value is turned over in the process of utilization of capital. The proportion of the circulating capital in the productive capital and the velocity of its turnover rate affects the turnover rate of the capital advanced as a whole. The higher the proportion of circulating capital and the higher the turnover rate, the higher the turnover rate of the total capital advanced.