Circulating Capital

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Related to Circulating Capital: working capital, Fixed capital, Floating capital
The following article is from The Great Soviet Encyclopedia (1979). It might be outdated or ideologically biased.

Circulating Capital


the monetary capital of an economically accountable socialist enterprise or organization that is used to create production stocks of raw and processed materials, fuel, packing materials, tools, and production and domestic accessories. It is also used to create stocks of unfinished goods and inventories of finished products. Circulating capital is also invested in bank accounts and in monetary balances maintained at the disbursing office of the enterprise or organization. One portion of circulating capital serves the production process while the other functions in the sphere of circulation.

Circulating capital is either normative or nonnormative. The former consists of stocks of material assets, including both unfinished goods and finished products; the latter is made up of goods shipped, capital held on account, and monetary capital. Circulating capital within the national economy of the USSR at the beginning of 1973 totaled around 246 billion rubles, more than 187 billion rubles of which was normative. Of the 69 billion rubles of normative circulating capital devoted to industry, about 60 percent was invested in production stocks, 21 percent represented incomplete production, and 14 percent represented inventories of finished goods and merchandise. By source of formation, circulating capital is either generated from within the enterprise or borrowed from without, with credits from Gosbank (State Bank of the USSR) to meet temporary needs. Internally generated circulating capital is allocated annually, based on minimum enterprise size as measured against standards for the creation of production stocks, the backlog of unfinished production, and stocks of finished products. This capital is reflected in the statutory fund. Enterprise needs for capital exceeding this minimum are met through short-term bank loans and normal indebtedness to suppliers. Expenditures that arise during the sales process, that is, from the moment the finished products are shipped until the receipts from their sale arrive in the supplier’s bank account, are covered by bank credit.

Circulating capital generated from within the enterprise may be drawn away only on the basis of an annual report indicating that the amount of such capital available exceeds requirements according to standards. Standards for internally generated circulating capital are determined by the enterprise itself on the basis of existing plans for the supply, production, and marketing of output and with due regard for such concrete economic conditions as frequency of supply, geographic dispersal of suppliers, and forms of payment to be employed. An increase in circulating capital generated from within the enterprise may be secured according to the financial plan out of enterprise profit, out of growth in fixed liabilities, out of redistribution of such capital by higher-level economic organizations, and in some cases out of the state budget.

Sectorial ministries and production associations have reserve funds of circulating capital intended for temporary financial assistance to lower-level enterprises and economic organizations. To stimulate improved use of an enterprise’s and an organization’s own circulating capital, a charge is imposed for the use of this capital, payable to the state budget. This charge is ordinarily 6 percent of the average annual sum of capital used. A differentiated annual rate that ranges from 1 to 8 percent, depending on the type and purpose of the loan, is charged for the use of capital borrowed from other sources.

Circulating capital is an important element in organizing economic activity on the basis of economic accountability. The realization of the principle of paying-back adequacy at the enterprises and economic organizations involved—with respect to current, noncapital expenditures, economic efficiency, prompt and complete payment for goods received and services and other work performed, observance of contracts, and meeting of mandatory payments to the state budget and for bank credit—results to a large extent from the planned movement of such capital. Any speedup or slowdown in the turnover of circulating capital has a direct economic effect. Improving the use of circulating capital and accelerating its rate of turnover are important factors in raising the efficiency of social production. The movement of circulating capital affects all types of economic process. A shortage of capital goods at any stage of funds circulation among socialist enterprises disrupts smooth and continuous production and circulation.


Materialy XXIVs”ezda KPSS. Moscow, 1971.
Birman, A. Planirovanie oborotnykh sredstv. Moscow, 1956.
Usoskin, M. Organizatsiia i planirovanie kredita. Moscow, 1961.
Shumov, N. S. Oborotnye sredstva promyshlennykh predpriiatii v novykh usloviiakh khoziaistvovaniia. Moscow, 1968.
Finansy i kredit v usloviiakh khoziaistvennoi reformy. Moscow, 1969.
Bunich, P., V. Perlamutrov, and L. Sokolovskii. Ekonomiko-matematicheskie melody upravleniia oborotnymi sredstvami. Moscow, 1973.


The Great Soviet Encyclopedia, 3rd Edition (1970-1979). © 2010 The Gale Group, Inc. All rights reserved.
References in periodicals archive ?
Net circulating capital management includes the development of capital structure as well as management of corporate circulating assets which determine the demand for net circulating capital.
The basic goal of corporate net circulating capital management is the maintenance of the optimal volume and structure of circulating assets and most advantageous structure of financing sources.
Possibilities of using stepped coupon bonds and restructuring factoring as instruments of net circulating capital management
Replacing Ricardo's concept of circulating capital as demand for labor with the alternative notion of demand for goods as demand for labor, McCulloch argued as follows (see O'Brien 1975, 227-8): If product demand is unitary elastic such that price falls induce proportionate rises in quantity demanded, then labor re-absorption is complete.
It is, indeed, to Marx's credit that in dissecting the inherited notion of circulating capital, he made a twofold tour de force.
circulating capital, as if this characteristic belonged
Marx himself implied this when he emphasized Smith's confusion of circulating capital with capital of circulation.
Note that this objection applies as much to the simple model as to one in which there is fixed capital, since division of labour and IRS may take place even when there is only circulating capital.
(ii) Capital intensity must remain constant, which can only be the case if the proportion of the productive workforce assigned to capital goods production is such that fixed capital grows at the same rate as circulating capital and population.
d) non-monetary exchanges are not possible during the period (these exchanges concern circulating capital goods; for all other transactions--concerning fixed capital goods and their services, the goods produced in the period, securities and their yields, interest and principal on loans--are settled at the end of the period under examination with monetary payments made only for the balance due, or balance to be paid, by any agent):
While the model does not assume properly c), one implication of this property is explicitly stated, namely, the invariability of the circulating capital in the period.
They are the owners of fixed capital goods (including, in this formulation, also land and the old fixed capital goods, which were produced in past periods and are not produced in the period under consideration) and the owners of circulating capital goods.