pital 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 than anyone can tell. And an explanation becomes absolutely impossible because he starts out here with merchants’ capital, which moves only in the sphere of circulation. We shall return to this later. Let us first hear what he has to say about fixed capital. [Vol. II, pp. 254-55.]
“Secondly, it (capital) may be employed in the improvement of land, in the purchase of useful machines and instruments of trade, or in suchlike things as yield a revenue or profit without changing masters, or circulating any further. Such capitals therefore may very properly be called fixed capitals. Different occupations require very different proportions between the fixed and circulating capitals employed in them. ... Some part of the capital of every master artificer or manufacturer be fixed in the instruments of his trade. This part, however, is very small in some, and very great in others. ... The far greater part of the capital of all such master artificers (such as tailors, shoemakers, weavers) however is circulated, either in the wages of their workmen, or in the price of their materials, and to be repaid with a profit by the price of work.”
Apart from the naïve determination of the source of profit weakness and confusion become at once apparent from the following: To a machine manufacturer for example the machine is his product, which circulates as commodity-capital, or in Adam Smith’s words, “is parted with, changes masters, circulates further.” According to his own definition therefore this machine would not be fixed but circulating capital. This confusion is again due to the fact that Smith mixes up the distinction between fixed and circulating capital evolved out of the manifold circulation of the various elements of productive capital, with differences in the form assumed by the same capital which functions as productive capital within the process of production and as circulation capital, that is to say, as commodity-capital or as money-capital, within the sphere of circulation. Consequently with Adam Smith things can functi