Red Theory: Constant and variable capital
To understand Marx’s critique of capitalism, it is essential to understand capital dialectically. We see again and again in Capital itself that Marx breaks things down into their contradictory aspects. We’ve already seen this with value, which considers both use-value and exchange-value. Now, as we look at capital itself, we will see Marx’s dialectical method of analysis at work again, as Marx shows how capital is divided into constant and variable capital.
Let’s dig a little deeper into the value of a commodity. Remember that the value of a commodity is determined by the socially necessary labor time that is required to produce it. This was dealt with in our last article on the Law of Value. Marx’s conception of constant and variable capital helps make this clearer.
According to Marx, “Capital is dead labor, which, vampire-like, lives only by sucking living labor, and lives the more, the more labor it sucks.” The relationship between capital to labor is parasitic, and this parasitic relationship is well-illustrated by this relationship between constant and variable capital.
Constant capital is what the capitalist spends on raw materials and fuel consumed in production, the machinery used, and the factory buildings. The capitalist builds, buys, maintains and repairs the factory, pays for materials, supplies, and the fuel needed to power the machinery. All of these things make up part of the value of the commodity. The cost of this capital investment is transferred into the commodities produced as they're worn out or used up in the production process. These things are called constant capital because they don’t add any new value to the commodity. The quantity of value isn’t changed by these things – it is constant.
Variable capital, on the other hand, is what the capitalist spends on the workers themselves, on purchasing their labor-power. The capitalist hires workers, agreeing to pay them a wage based on the socially necessary labor time that will allow them to go on living and working. Variable capital is called variable because it grows in the production process. It creates new value through creating a surplus, over and above what the worker is paid for. This is surplus value, which we’ll get into in detail later. For now, let’s give an example of how this works, as simply as possible.
Let’s say a worker is making a coffin for his capitalist boss, who owns a coffin factory. The worker earns a daily wage of $100, and uses $1000 worth of materials to make a coffin over the course of the work day. The capitalist then sells the finished coffin for $1200. The $1000 represents the constant capital that the capitalist has invested in machinery, tools, raw material and fuel. The $100 is the variable capital that is invested in labor power. The result of the process is the $100 surplus above both forms of capital invested, which the capitalist takes as profit.
Now, remember that a daily wage of $100 is paid to the worker. If the capitalist can get the worker to produce two coffins instead of one over the course of the day, then the capitalist will have invested $2000 in constant capital between the two coffins, and $100 in variable capital for the wage of the worker. Again, the capitalist then sells the coffins for $1200 each, totaling $2400 for both of them. Now the capitalist is ahead not by $100 per coffin, but by $150 per coffin.
Basically, what all of this means is that if a certain quantity of constant capital and variable capital are invested by a capitalist in a process of production, then by the end of that process these values will have reproduced or renewed themselves in the final product. However, if the labor power of the worker has exceeded the socially necessary labor time required for the worker to go on living and working, then there will be a surplus created which the capitalist pockets.
The profit, in this illustration, is made by increasing the intensity of the labor, by reducing the amount of labor time required to produce the commodity. Marx called this relative surplus value. The other method of increasing surplus value is lengthening the working day, which Marx called absolute surplus value. In either case, the capitalist is gaining from the unpaid labor of the worker. In our next article we’ll break down exactly how surplus value works in more detail.