For these reasons, Marx argued that the investment made by the capitalist could be divided into two parts. One was the expenditure on paying wages to hire the workers. This he called "variable capital"-because it was capital that by putting labour power to work expanded value to create surplus value in the course of production. The other part was expenditure on the means of production. He called this "constant capital" because its existing value passed into the value of the goods produced without growing any bigger-its value was simply transferred to the final product. In the case of fixed constant capital (factory buildings, machinery etc) this took place over several production cycles; in the case of circulating constant capital (raw materials, energy, components) in a single production cycle.
Marxists usually use the letter v to stand for variable capital (wages that purchase workers' labour); c to stand for constant capital (plant, equipment and raw materials); s to stand for surplus value. The ratio of surplus value to variable capital (wages) is the ratio of the length of the working day the worker gives to capital compared to that which provides for themselves-sometimes called the rate of exploitation. It can be represented by s/v.
But for the capitalist, the ratio of surplus value to wages is not the only thing that matters, since his investment is bigger than simply what he has spent on wages. He is interested in making his total capital expand, not just that which goes into wages. What matters, therefore, is the ratio of surplus value to total investmentthat is, expenditure on instruments and materials of production as well as on wages. This is the "rate of profit", which Marx depicted as s/(c+v).
It is affected not only by the ratio of surplus value to wages, but also by the ratio of expenditure on instruments and materials of production (constant capital) to wages (variable capital). Marx called this last ratio (c/v) the "organic composition of capital". This varies from industry to industry and over time. Different production processes can use the same amount of labour but different amounts of plant and equipment; the cost of equipment in a factory employing 1,000 people to sew cloth into clothes is less than that to employ the same number to smelt iron ore into steel. This has important implications for the dynamic of capitalism. It is driven forward not only by concern with the ratio of surplus value to wages, but by the drive to maintain and increase the ratio of surplus value to different levels of total investment. It is a point we will have to return to repeatedly.
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Understanding the System: Marx and Beyond