Variable capital

Constant capital (c), is a concept created by Karl Marx and used in Marxian political economy. It refers to one of the forms of capital invested in production, which contrasts with variable capital (v). The distinction between constant and variable refers to an aspect of the economic role of factors of production in creating a new value.

Constant capital includes the outlay of money on (1) fixed assets, i.e. plant, machinery, land and buildings, (2) raw materials and ancillary operating expenses (including external services purchased), and (3) certain faux frais of production (incidental expenses). Variable capital by contrast refers to the capital outlay on labour costs insofar as they represent workers' earnings.

The concept of constant vs. variable capital contrasts with that of fixed vs. circulating capital (used not only by Marx but by David Ricardo and other classical economists). The latter distinction corresponds to the very common distinction in economics, between fixed inputs (and costs) and variable inputs (and costs). It distinguishes inputs from the point of view of their user (the capitalist), in terms of the degree of flexibility that the user has in using them.

On the other hand, constant capital refers to the non-human inputs into production, while variable capital refers to the human input (the hiring of labor power to do labor).

Constant capital can be measured as a magnitude, i.e., the total value of means of production in use at a specific point in time. It can also be measured as a magnitude, i.e., the total value of raw materials and fixed means of production used up in an accounting period. Which measure is used depends on the purposes and assumptions of one's analysis, for example whether one is interested in the unit-costs of output or in the rate of return on capital invested.

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