THE CONCEPTS OF SURPLUS VALUE, VARIABLE CAPITAL, AND CONSTANT CAPITAL
While Marx appropriated many of the building blocks of the classical labour-input version of the theory of value, he put them to work for another set of purposes. With the aid of his argument that the value of labour and the value of commodities were governed by the same principles, he was equipped to provide an alternative interpretation of the mechanisms of production and distribution in capitalist societies.
The position he adopted was reinforced subsequently by his analysis of the consequences of the accumulation of capital. The initial steps, however, grew directly out of his theory of value.This extension of the argument involved the reassertion of the conclusion that the value of labour-power was based on labour inputs required for its subsistence and training. In a capitalistic system, workers would be obliged - simply as a condition of survival - to sell enough of their labour time to acquire the means of subsistence. But, in the conditions of capitalist production, more labour time would be demanded from labourers than was necessary to produce values equivalent to their subsistence requirements. In the absence of alternative sources of a livelihood, labourers would not only have to sell their time to capitalists but to accept the terms and conditions set by their employers. Workers, for example, might be able to produce enough to cover subsistence requirements in a six-hour working day, but employers could insist on labour inputs of longer duration. The working day was thus divided into two components: the 'necessary'12 labour time required for the production of values equal to maintenance requirements and 'surplus' labour time.
In Marx's view the commanding position in the power hierarchy attached to the ownership of the means of production enabled capitalists to demand a working day in excess of necessary labour time and to appropriate the value created during surplus labour time for themselves.
Indeed, Marx insisted, the creation of surplus value was the whole point of hiring workers in the first instance. From the employer's point of view the power of labour to create more value than was passed on to it in wages was a pre-condition of employment. This 'circumstance', as Marx described it, 'is, without doubt, a piece of good luck for the buyer [of labour], but by no means an injury to the seller.'13The special power of labour to generate surplus value provided the rationale for Marx's designation of wage payments as 'variable capital'. This usage, though puzzling to those schooled exclusively in modern terminology, was clearly in the classical lineage. For
Marx (as for the classical economists) the general term 'capital' was used to refer to the resources available for initiating and sustaining production. These resources could be allocated in varying proportions between the required productive inputs - e.g. labour, raw materials, and plant and equipment. In the mainstream of the classical tradition, two categories of capital - fixed and circulating - were distinguished. The line of demarcation was generally drawn on the basis of the length of the time periods before the values contained in these components of capital could be realized through sale.
Marx modified this procedure by dividing capital into a 'variable' component (the wage bill) and a 'constant' component (raw materials and depreciation allowances for plant and equipment). These distinctions turned on his concept of the surplus-generating capacity of direct labour inputs. Active labour, he maintained, had the unique property of 'being a source not only of value, but of more value than it has itself'.14 Indeed, the circumstances of capitalist production were such that labour would be hired only when surplus value could be appropriated. By contrast, the items of constant capital were embodiments of past labour inputs and thus inert. Their contribution to the productive process, though important, was passive; they could impart no more value to the final product than they themselves contained.
In Marx's words: 'However useful a given kind of raw material, or a machine, or other means of production may be, though it may cost £150, or say, 500 days' labour, yet it cannot, under any circumstances, add to the value of the product more than £150.'15These definitions, occupied a strategic position in the unfolding of Marx's analysis. Three important ratios were built around them. The first (S/V) related the capitalist's surplus to the wage bill and was described both as the 'rate of surplus value' and as the 'rate of exploitation'. The two components of capital could also be expressed in a ratio form (C/V); this relationship, labelled the 'organic composition of capital', provided a convenient device for expressing variations in the proportions of constant to variable capital. All three variables entered into the 'rate of profit' (S/V+C). This notion was clearly allied to the classical tradition in which the rate of profit was treated as the percentage return on the outlays advanced to labour as well as on the current costs of raw materials and fixed capital. The bulk of Marx's dynamic analysis was organized around the expected behaviour of these ratios.
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