Effects of Constant Capital, Variable Capital - Essay Example

Effects of Constant Capital, Variable Capital, and Surplus on Process of Capital Accumulation 0 The concept of capital in human economy Though there are many meanings of the term capital, a detailed definition treats the term as the amount of durable physical goods that an economic system uses to produce other goods and services. In economic terms, capital refers to the economic instruments or elements of production that comprise the financial resources or money, resource values and human’s ability to manipulate the resources for his own benefit or the human capital (Evans, 2013). Therefore, the instruments of economic production provide the economic system with production materials that requires labor input. Therefore, capital is a very critical aspect of socioeconomic resource because it influences the production, transformation of natural resources, consumption and plays a significant role in the creation of the by-products thus an important aspect of pollution. There are two major types of capital variable and constant capital. On the other hand, investment of these capitals creates or reduces the value of production, and this is the basis of the term surplus value. The assignment aims to discuss constant capital, variable capital, and surplus-value with an illustration of how they lead to capital accumulation. Constant Capital Marx defined constant capital as the materials and materials that production of a certain commodity requires (Evans, 2013). In this case, constant capital is the capital proportion that investors channel on the materials as well as the purchased components. On the other hand, the value forms part cost of selling the product thus constant capital remains the same until a product is sold to the market. Constant capital includes the cost of using materials, machinery, and tools since they are all inclusive of the production process. For instance, if the production process involves using a million dollar worth of machinery in producing 10,000 cars then each car will have $100 of the machinery. However, constant capital is measurable when a commodity or a product has now worn out or depreciated. Therefore, constant capital sums up both unit and fixed costs implying that no matter how amount of materials, machines, and components are brought into the production and sold, they do not add any new value to the product. The implication is that whether the factors of productions undergo prolonged storage in the warehouse, or used in the production, there is no difference in the amount of capital. Marx concluded that whatever value the materials add when capitalists buy them for production purposes, they assume the same value even afterward. Variable Capital Variable capital refers to the capital used on wages thus it is used in purchasing labor-power (Evans, 2013). Marx considered the value variable that wise use of the capital may produce and create surplus value during the labor usage process. On the other hand, the usage of the capital above normal labor time which a worker needs to be paid as wages. Most importantly, the capital investment is the only that produces and creates new value because a worker normally has to work and produce more so as to live. In this case, the more the variable capital, the higher the value created for the production process. A classic example is a worker earning $100 but consumes components and materials worth $1000 in producing a product valued or sold at $ 1300. To represent the value, it is imperative to consider the constant capital ($1000) and add it up to the variable capital ($100) and sum the value to surplus value ($200). In this case, the surplus-value is as a result of the value that the workers activity adds to the product. In this case, if a capitalist invests $ 1100, the variable capital expands by $100. Variable capital depends on the labor power of a particular economic market (Evans, 2013). In most cases, there is always a difference in hierarchy of jobs where workers in an individual group may have less or more labor power than others in certain groups. The implication is that difference in wages limits workers from joining forces and to improve their working conditions or rather join unions with a common agenda. In addition, labor power is an equivalent of the value of wage goods that workers put in their shopping baskets. On the contrary, jobs pay different wages thus their shopping baskets will never be equal, and this translates to the variability of the investment in the labor force as a capital for production. It is also questionable how labor power varies considering that the labor is a common factor for making and commodities. However, all labor power is never the same because workers have different competencies. The implication is that some workers are more able in handling job tasks and adding value to the production process than others. Labor will always vary because any group of workers is a collection of individuals with more or fewer skills where level of diligence varies that explaining the variability of the labor force as a capital. Surplus value By definition, surplus value refers to the difference between the wages of workers or their exchange value and the actual value of goods and services that they produce or the use value (Evans, 2013). In most cases, the use value should always be higher the laborers exchange value. In this case, workers always produce positive surplus values when using their labor. However, the value has no relations with the value of the physical economic resources or goods. The implication is that the value is only realizable by considering the amount of labor that the production process requires and its application results in an increase in the value of the item above the original cost. According to the surplus value concept, workers and their productivity are the primary determinants of the overall value of the consumer goods and services within a particular economic market. Therefore, the surplus value concept illustrates economic exploitation of the laborers since the employers are the ones who benefit from the unaccounted human capital. The surplus value concept originates from Marxian economic theory that explains how the capitalist economic system is unstable (Evans, 2013). One of the underlying assumptions of defining the concept is that human labor is the only source of economic value. Marx assumed that capitalist economic system pays their workers less than what their labor adds to the production process. In this case, the capitalist economy only pays their workers wage levels that can sustain their daily lives. The surplus value concept, therefore, presumes that of the total value or worth of the labor force, employers only compensate for a mere portion of employees worth, usually equivalent means of subsistence of the workers. In this case, remainder of the labor-capital not compensated is the surplus labor and the value it adds to the production process is the surplus value. Under these economic conditions, making a profit entails the capitalists appropriating the surplus value thus exploiting the labor force. The implication is that, labor power is the main determinant of surplus value, and it is the only commodity that creates exchange value after usage. According to the concept, the value that laborers produce exceeds what keep them alive where most of the value that workers produce goes unpaid for under the capitalist economy. Capital accumulation Constant capital, variable capital and surplus value lead all have a direct impact on capital accumulation since they are factors of production. Constant capital, being the value added to machinery and equipment does not change the capital of the entire production process or the investment. Constant capital only affects the accumulation of capital through overhead charges of running the machines and maintaining the equipment. On the contrary, variable capital contributes a great deal to capital accumulation since it is the amount that an economic invests on the labor force. Investing in skilled and non-skilled labor adds value to the production process since it involves manipulation of the human capital for production purposes. The more the economy invests on the labor force, the more value it adds in the production process leading to more accumulation of capital. On the other hand, less investment in labor force, especially skilled labor, implies that the production process is of low value thus less capital accumulates. Nonetheless, surplus capital has a direct influence on capital accumulation because the more the production process saves by paying laborers less in terms of wages, the more the capital process saves for future use. On the other hand, surplus capital itself is an accumulated capital because it refers to the labor force that the economy does not compensate. Marx expressed the relationship among the three factors of production as c + v -› c + v + s (Evans, 2013). In this case, the constant and variable capital ratio, c/v, is known as the organic composition of the capital while the surplus value and wages ratio, s/v, gives the rate of the surplus-value. From the equation, it is also possible to determine the rate of labor exploitation and rate of gaining profits from the production process where s/(c + v) is the rate of profit. From the equation, it is evident that the capitalist economic production work to reduce wage bills while spending a lot on expensive machinery thereby increasing the constant capital with an aim to cut the labor cost. Investing more machinery or constant capital increases the organic composition of the capital, c/v. however, the principles of economics dictate that only variable capital can produce profits thus over-investment on constant capital reduces the profitability of the production process. Reference Evans M.V. (2013). Karl Marx Routledge Leading Linguists. London: Routledge. Read More