Circulating capital

Circulating capital

Circulating capital refers to physical capital and operating expenses, i.e., short-lived items that are used in production and used up in the process of creating other goods or services. This is roughly equal to Intermediate consumption. It includes raw materials, intermediate goods, inventories, ancillary operating expenses and (working capital). It is contrasted with fixed capital. The term was used by classical economists such as Adam Smith, David Ricardo and Karl Marx.

Therefore, circulating capital is a component of the technical capital that participates in and is used up in a single cycle of production. It always needs replacing at every cycle (raw materials, basic and intermediate materials, combustible, energy…). In accounting, the circulating capital comes under the heading of current assets.

According to Karl Marx (second volume of Das Kapital, end of chapter 7) the turnover of capital influences "the processes of production and self-expansion", the two new forms of capital, circulating and fixed, "accrue to capital from the process of circulation and affect the form of its turnover". In the following chapter Marx defines fixed capital and circulating capital. In chapter 9 he claims: "We have here not alone quantitative but also qualitative difference."

Conventionally, (physical) capital assets held by a business for more than one year are regarded in annual accounting statements as "fixed", the rest as "circulating". In modern economies such as the United States, roughly half of the intermediate inputs bought or used by businesses are in fact services, and not goods.

References


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  • circulating capital — index principal (capital sum) Burton s Legal Thesaurus. William C. Burton. 2006 …   Law dictionary

  • Circulating Capital — The portion of an organization s investment that is continually used and replenished in ongoing operations. Circulating capital can consist of operating expenses, raw material stock, inventories of finished goods or physical capital on hand.… …   Investment dictionary

  • circulating capital — noun : capital consumed in the process of production (as fuel, power, and raw materials) contrasted with fixed capital * * * the portion of capital goods that consists of goods in process, inventories of finished goods, and raw materials. Also… …   Useful english dictionary

  • circulating capital — the portion of capital goods that consists of goods in process, inventories of finished goods, and raw materials. Also called circulating capital goods. Cf. fixed capital. [1770 80] * * * …   Universalium

  • circulating capital — capital which is regularly changes hands, capital which regularly changes from one form to another …   English contemporary dictionary

  • circulating capital — /ˌsɜkjəleɪtɪŋ ˈkæpətl/ (say .serkyuhlayting kapuhtl) noun Finance capital which has been used to acquire assets intended to be sold or resold at a profit (opposed to fixed capital) …  

  • circulating capital — See capital …   Dictionary of sociology

  • circulating capital — /ˌsɜ:kjυleɪtɪŋ kæpɪt(ə)l/ noun capital in the form of cash or debtors, raw materials, finished products and work in progress which a company requires to carry on its business …   Dictionary of banking and finance

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