hat formerly functioned in the form of productive capital, in a form peculiar to the process of production, now functions as commodity-capital and money-capital, in forms peculiar to the process of circulation, where it is no longer either fixed or circulating capital. And this applies equally to those elements of value which are added by raw and auxiliary material, i.e., by circulating capital, and to those which are added by the wear and tear of instruments of labour hence by fixed capital. We do not get any nearer to the difference between fixed and circulating capital in this way.
“The goods of the merchant yield him no revenue or profit till he sells them for money, and the money yields him as little till it is again exchanged for goods. His capital is continually going from him in one shape, and returning to him in another, and it is only by means of such circulation, or successive exchanges, that it can yield him any profit. Such capitals therefore may very properly be called circulating capitals.” [Vol. II, p. 254.]
What Adam Smith here defines as circulating capital is what I want to call capital of circulation, capital in a form pertinent to the process of circulation, to a change of form by means of exchange (a change of substance and change of hands), hence commodity-capital and money-capital, as distinguished from its form pertinent to the process of production, that of productive capital. These are not different kinds into which the industrial capitalist divides his capital, but different forms over and over again assumed and stripped off successively by the same advanced capital-value during its curriculum vitae. Adam Smith lumps this together — and this is a big step back compared to the physiocrats — with the distinctions in form which arise in the sphere of circulation of capital-value, in its circular course through its successive forms, while the capital-value exists in the form of productive capital; and they arise because of the different ways in which the different elements of productive capital take part in the formation of values and transfer their value to the product. We shall see below the consequences of this basic confusion of productive capital and capital in the sphere of circulation (commodity-capital and money-capital) on the one hand, with fixed and circulating capital on the other. The capital-value advanced in fixed capital is as much circulated by the product as that which has been advanced in the circulating capital, and both are equally converted into money-capital by the circulation of the commodity-capital. The difference evolves only from the fact that the value of the fixed capital circulates piece-meal and therefore must likewise be replaced piecemeal, at shorter or longer intervals, must be reproduced in its bodily form.
That by circulating capital Adam Smith means here nothing but capital of circulation, i.e., capital-value in the forms pertaining to the process of circulation (commodity capital and money-capital) is shown by his singularly ill-chosen illustration. He selects for this purpose a kind of capital which does not belong at all in the process of production, but whose abode is exclusively the sphere of circulation, which consists solely of capital of circulation — merchant’s capital.
How absurd it is to start out with an illustration in which capital does not figure altogether as productive capital is stated right afterwards by him himself:
"The capital of a merchant, for example, is altogether a circulating capital."
[Vol. II, p. 255.] Yet we are told later on that the difference between circulating and fixed capital evolves out of essential differences within the productive capital itself. On the one hand Adam Smith has the distinction of the physiocrats in mind, on the other the different forms assumed by capital-value in its circuit. And both these things are higgledy-piggledy jumbled together.
But how a profit is to come into existence by changes of form of money and commodities, by a mere transmutation of value from one of these forms into another, is more th