Capital in circulation refers to capital that has passed through the production process, and been transformed into commodity-capital, and subsequently money-capital, prior to once more being transformed into productive-capital. But, neither commodity-capital nor money-capital can be circulating capital. The terms fixed capital and circulating capital refer only to productive-capital. That is means of production (constant capital) and labour-power (variable-capital) engaged in the production process.
value to the end product. But, circulating capital comprises both constant capital and variable-capital. In contrast to fixed capital, a part of whose value remains fixed within it, after the production process has been completed, all of the value of circulating capital is used up during the production process, which means it has to be continually reproduced in its entirety, for production to continue on the same scale. The situation in respect of the circulating constant capital is fairly straightforward here.
The situation as regards the labour-power is not so straightforward. The term variable-capital is frequently confused with wages, when, in fact, as Marx describes, at length, in Capital II, they are two completely different things. Variable-capital is capital employed productively by capital, in the form of labour-power, but wages are not capital at all. Wages are simply money received by workers in exchange for the sale of their labour-power. They are no different than the payment of money for the purchase of any other commodity. Indeed, when the worker buys the commodities they need for their own reproduction, what they hand over to the seller of those commodities is not wages, but simply money.
The capital-value of the variable capital, like the capital value of the circulating constant capital, is reproduced in the capital-value of the commodity-capital. But, unlike the circulating constant capital, whose use value is consumed in the production process, and whose value is transferred to the end product, this is not the case with the variable-capital. The use value of the variable capital resides in its ability to create new value. That is why it is variable capital, it is capital with a constant value that is transformed into a variable value, in the production process, a value which varies depending upon the length and intensity of the working day. That use value cannot be transferred. Similarly, it is not the value of the variable capital that is transferred. Rather, the labour-power that constitutes the variable-capital creates entirely new value equal to the time it performs labour.
Similarly, all capital is circulating capital. If a machine has a life of 10 years, then at the end of ten years, it will have transferred all of its value (less depreciation) to the products it helps create, via wear and tear. If the production process is taken as being a period of 10 years, then all of its value has been consumed and reproduced during that period. This means that capitalists are able to utilise this ambiguity in their accounting practices to manipulate profits, particularly for tax purposes.
“The difference between these two kinds of advances does not arise until advanced money has been transformed into the elements of productive capital. It is a difference that exists solely within productive capital. It therefore never occurs to Quesnay to classify money either among the original or the annual advances. As advances for production, i.e., as productive capital, both of them stand opposed to money as well as the commodities existing in the market. Furthermore the difference between these two elements of productive capital is correctly reduced in Quesnay to the different manner in which they enter into the value of the finished product, hence to the different manner in which their values are circulated together with those of the products, and hence to the different manner of their replacement or their reproduction, the value of the one being wholly replaced annually, that of the other partly and at longer intervals.” (Capital II, p 193-4)
advanced capital is capital advanced to production. Capital is required to be advanced during the circulation period, i.e. during the period when the commodity-capital is being sold, and when the resultant money-capital is being once more converted into productive-capital, but that is only because capitalist production is continuous. If production ceased during the circulation period, as it does with other modes of production, then no additional capital would need to be advanced during this circulation period. The productive-capital advanced is only the capital-value, not the money paid for the purchase of means of production or labour-power.
The period during which, the capital is advanced is the turnover time, which combines these two periods – the production time and the circulation time. But, the production time is determined by physical constraints, and historical precedents. The production time in agriculture was taken as being a year by the Physiocrats, because that was the limitation imposed by nature. The production time for wine is determined by the time required for the wine to ferment, and mature etc. as well as for the grapes to grow and be processed. The production time for timber is determined by the length of time required for trees to grow and so on.
On the one hand, therefore, as productivity rises under capitalism, the production time for any given quantity of output declines, but that same expansion of capital means that the average quantity produced during the production process increases, which lengthens the production time. Generally, as Marx points out the rise in productivity outweighs the increase in the normal quantity of units within the production process, so that the production time tends to continually decline, shortening the turnover time.
Whatever, the length of the production process, the capital that is fully consumed within it, and therefore has to be reproduced in full, is circulating capital, that which retains a portion of its value fixed within it at the end of that period is fixed capital.