Capital: A Critique of Political Economy, Vol. II. The Process of Circulation of Capital

Karl Marx
Marx, Karl
Display paragraphs in this book containing:
Friedrich Engels, ed. Ernest Untermann, trans.
First Pub. Date
Chicago: Charles H. Kerr and Co.
Pub. Date
Das Kapital, based on the 2nd edition.
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Part II, Chapter XIV


All circumstances considered so far, which distinguish the periods of rotation of different capitals invested in different branches of industry and the periods for which capital must be advanced, have their source in the process of production itself, such as the difference between fixed and circulating capital, the difference in the working periods, etc. But the period of turn-over of capital is equal to the sum of its time of production plus its time of circulation. It is, therefore, a matter of course that a difference in the time of circulation changes the time of turn-over and to that extent the length of the period of turn-over. This becomes most plainly apparent, either in comparing the different investments of capital in which all circumstances modifying the turn-over are equal, except the time of circulation, or in selecting a given capital with a given composition of fixed and circulating parts, a given working time, etc., permitting only the time of circulation to vary hypothetically.


One of the sections of the time of circulation—relatively the most decisive—consists of the time of selling, the period during which capital has the form of commodity-capital. According to the relative length of this time, the time of circulation, and to that extent the period of turn-over, are lengthened or shortened. An additional outlay of capital may become necessary as a result of expenses of storage. It is evident from the outset that the time required for the sale of finished products may differ considerably for the individual capitalists in one and the same branch of industry; and this does not refer merely to the grand totals of capital invested in the various departments of industry, but also to the different individual capitals, which are in fact individual parts of the aggregate capital invested in the same department of production. Other circumstances remaining equal, the period of selling for the same individual capital will vary with the general fluctuations of the market conditions, or with their fluctuations in that particular business department. We do not tarry over this point any longer. We merely state the simple fact that all circumstances which produce differences in the periods of turn-over of the capitals invested in different business departments, also carry in their train differences in the turn-over of the various individual capitals existing in the same departments, provided these circumstances have any individual effects (for instance, if one capitalist has an opportunity to sell more rapidly than his competitor, if one employs more methods shortening the working periods than the other, etc.).


One cause which acts continuously in differentiating the time of selling, and thus the periods of turn-over in general, is the distance of the market, in which a commodity is finally sold from its regular place of sale. During the entire time of its trip to the market, capital finds itself fettered in the form of commodity-capital. If goods are made to order, this condition lasts up to the time of delivery; if they are not made to order, the time of the trip to the market is further increased by the time during which the goods are on the market waiting to be sold. The improvement of the means of communication and transportation abbreviates the wandering period of the commodities absolutely, but does not abolish the relative difference in the time of circulation of different commodity-capitals arising from their wanderings nor that of different portions of the same commodity-capital which wander to different markets. The improved sailing vessels and steamships, for instance, which shorten the wanderings of commodities, do so equally for near and for distant ports. But the relative differences may be altered by the development of the means of transportation and communication in a way that does not correspond to the natural distances. For instance, a railroad, which leads from a place of production to an inland center of population, may relatively or absolutely prolong the distance to a nearer point inland not connected with a railroad, compared to the one which is naturally more distant. In the same way, the same circumstances may alter the relative distance of places of production from the larger markets, which explains the running down of old and the rise of new places of production through changes in the means of communication and transportation. (In addition to these circumstances, there is the greater relative cheapness of transportation for long than for short distances.) Moreover, it is not alone the velocity of the movement through space, and the consequent reduction of distance in space, but also in time, which is brought about by the development of the means of transportation. It is not only the quantity of means of communication which is developed, so that, for instance, many vessels sail simultaneously for the same port, or several trains travel simultaneously on different railways between the same two points, but freight vessels may, for instance, clear on different successive days of the week from Liverpool for New York, or freight trains may start at different times of the day from Manchester to London. It is true, that the absolute velocity, or this part of the time of circulation, is not modified by this latter circumstance, a certain definite capacity of the means of transportation, being given. But successive quantities of commodities can start on their passage in shorter succession of time and thus reach the market one after another without accumulating as potential commodity-capital in large quantities before shipping. Hence the return movement likewise is distributed over shorter successions of time, so that a part is continually transformed into money-capital, while another circulates as commodity-capital. By means of this distribution of the return movement over several successive periods the total time of circulation is abbreviated and thereby also the turn-over. On one hand, the greater or lesser frequency of the function of means of transportation, for instance the number of railroad trains, develops first to the extent that a place of production produces more and becomes a greater center of production, and this development tends in the direction of the existing market, that is to say, toward the great centers of production and population, export places, etc. But on the other hand this special facilitation of traffic and the consequent acceleration of the turn-over of capital (to the extent that it is conditioned on the time of circulation) give rise to a hastened concentration of the center of production and of its market. Along with this hastened concentration of masses of men and capital, the concentration of these masses of capital in a few hands likewise progresses. Simultaneously there is a movement, which shifts and displaces the center of commercial gravity as a result of changes in the relative location of centers of production and markets caused by transformations in the means of communication. A place of production which once had a special advantage by its favored location on some highway or canal then finds itself set aside on a single side-track, which runs trains only at relatively long intervals, while another place, which formerly lay removed from the main roads of traffic, then finds itself located at the crossing point of several railroads. This second point is built up, the former goes down. A transformation in the means of transportation thus causes a local difference in the time of circulation of commodities, the opportunity to buy, to sell, etc., or an already existing local differentiation is distributed differently. The significance of this circumstance for the turn-over of capital is shown in the disputes of the commercial and industrial representatives of the various places with the railroad managers. (See, for instance, the above quoted bluebook of the Railway Committee.)


All branches of production which are dependent on local consumption by the nature of their product, such as breweries, are therefore developed to greatest dimensions in the main centers of population. The more rapid turn-over of capital compensates in this case for the eventual increase in the price of some elements of production, such as building lots, etc.


While on one hand, the development of the means of transportation and communication by the progress of capitalist production reduces the time of circulation for a given quantity of commodities, the same progress, on the other hand, coupled to the growing possibility of reaching more distant markets to the extent that the means of transportation and communication are improved, leads to the necessity of producing for ever more remote markets, in one word, for the world market. The mass of commodities in transit for distant places grows enormously, and with it also grows absolutely and relatively that part of social capital which remains constantly for longer periods in the stage of commodity-capital, within the time of circulation. Simultaneously that portion of social wealth increases, which, instead of serving as direct means of production, is invested in the fixed and circulating capital required for operating the means of transportation and communication.


The mere relative length of the transit of the commodities from their place of production to their market causes a difference, not only in the first part of the time of circulation, the selling time, but also in its second part, the reconversion of money into the elements of productive capital, the buying time. For instance, some commodities are shipped to India. This requires, say, four months. Let us assume that the selling time is equal to zero, that is to say, the commodities are made to order and are paid for on delivery to the agent of the producer. The return of the money (no matter what may be its form) requires again four months. Thus it takes eight months, before the same capital can again serve as productive capital and renew the same operations. The differences in the turn-over thus caused are one of the material bases of the various terms of credit. Trans-oceanic commerce in general, for instance in Venice and Genoa, is one of the sources of the credit system—strictly so called. The London Economist of July 16, 1866, wrote that the crisis of 1847 enabled the banking and trading business of that time to reduce the Indian and Chinese usage (for the running time of checks between those countries and Europe) from ten months after sight to six months, and the lapse of twenty years with its acceleration of the trip and the institution of telegraphs renders necessary a further reduction from six months after sight to four months after date as a preliminary step toward four months after sight. The trip of a sailing vessel from Calcutta around the cape of London lasts on an average less than 90 days. A usage of four months after sight would be equivalent to a running time of 150 days, approximately. The present usage of six months after sight is equivalent to a running time of 210 days. On the other hand, we read in the issue of June 30, 1866, of the same paper, that the Brazilian usage is still fixed at two and three months after sight, checks of Antwerp on London are drawn for three months after date, and even Manchester and Bradford draw on London for three months and longer dates. By a tacit understanding, the merchant is thus given sufficient opportunity to realize on his goods by the time the checks are due, if not before. For this reason, the usage of Indian checks is not excessive. Indian products, which are sold in London generally on three months' time, cannot be realized upon in much less than five months, if some time for the sale is allowed, while another five months pass on an average between the purchase in India and the delivery to an English warehouse. Here we have a period of ten months, while the checks drawn against the goods do not run above seven months. And again, on July 7, 1866, we read that, on July 2, 1866, five great London banks, dealing especially with India and China, and the Paris Comptoir d'Escompte, gave notice that, beginning with January 1, 1867, their branch banks and agencies in the Orient would buy and sell only such checks as were not drawn for more than four months after sight. However, this reduction miscarried and had to be revoked. (Since then the Suez canal has revolutionized all this.)


It is a matter of course that with the longer time of circulation the risk of a change of prices in the selling market increases, since it increases the period in which changes of price may take place.


A difference in the time of circulation, partly individually between the various individual capitals of the same branch of business, partly between different branches of business according to different usages, when payment is not made in spot cash, arises from the different dates of payment in buying and selling. We do not linger for the present over this point, which is important for the credit business.


Other differences in the period of turn-over arise from the size of contracts for the delivery of goods, and their size grows with the extent and scale of capitalist production. Such a contract, being a transaction between buyer and seller, is an operation belonging to the market, the sphere of circulation. The differences in the time of turn-over arising from it have their source for this reason in the sphere of circulation, but react immediately on the sphere of production, apart from all dates of payment and conditions of credit including cash payment. For instance, coal, cotton, yarn, etc., are discontinuous products. Every day supplies its quantity of finished product. But if the spinner or the mine owner accepts contracts for the delivery of large quantities, which require, say, a period of four or six weeks of successive working days, then this is the same, so far as the time of investment of advanced capital is concerned, as though a continuous working period of four or six weeks had been introduced in this labor-process. It is of course assumed in this case that the entire quantity ordered is to be delivered in one bulk, or at least is only paid after all of it has been delivered. Individually considered, every day had furnished its definite quantity of finished product. But this finished product is only a part of the quantity contracted for. Although the portion finished so far is no longer in the process of production, it is still in the warehouse as a potential capital.


Now let us take up the second epoch of the time of circulation, the buying time, or that epoch in which capital is converted from money back into the elements of productive capital. During this epoch, it must remain for a shorter or longer time in its condition of money-capital, so that a certain portion of the total capital advanced is all the time in the form of money-capital, although this portion consists of continually changing elements. For instance, of the total capital advanced in a certain business, n times 100 pounds sterling must be available in the form of money-capital, so that, while all the constituent parts of these n times 100 pounds sterling are continually converted into productive capital, this sum is nevertheless just as continually supplemented by new additions from the circulation, out of the realized commodity-capital. A definite part of the value of the advanced capital is, therefore, continually in the condition of money-capital, a form not belonging to its sphere of production, but to its sphere of circulation.


We have already seen that the prolongation of time caused by the distance of the market, by which capital is fettered in the form of commodity-capital, directly retards the return movement of the money and, consequently, the transformation of capital from its money into its productive form.


We have furthermore seen (chapter VI) with reference to the purchase of commodities, that the time of buying, the greater or smaller distance from the main sources of the raw material, makes it necessary to purchase raw material for a longer period and keep it on hand in the form of a productive supply, of latent or potential productive capital; in other words, that it increases the quantity of capital to be advanced at one time, and the time for which it must be advanced, the scale of production remaining otherwise the same.


A similar effect is produced in various businesses by the longer or shorter periods, in which large quantities of raw material are thrown on the market. In London, for instance, great auction sales of wool take place every three months, and the wool market is controlled by them. The cotton market, on the other hand, is on the whole restocked continuously, if not uniformly, from harvest to harvest. Such periods determine the principal dates of buying for these raw materials and affect especially the speculative purchases requiring longer or shorter advances of these elements of production, just as the nature of the produced commodities exerts an influence on the premeditated speculative retention of the product for a longer or shorter term in the form of potential commodity-capital. "The farmer must also be to a certain extent a speculator, and, therefore, hold back the sale of his products according to prevailing conditions..." Here follow a few general rules. "...However, in the sale of the products, success depends mainly on the personality, the product itself, and the locality. A man with sufficient business capital, won by ability and good luck (!), will not be blamed, if he keeps his grain crop stored for a year when prices happen to be unusually low. On the other hand, a man who lacks business capital, or enterprise in general (!), will try to get the average prices and be compelled to sell as soon and as often as opportunity presents itself. It will almost always bring losses to keep wool stored longer than a year, while grain and rape seed may be stored for several years without injury to their condition and quality. Such products as are generally subject to a large rise and fall in short intervals, for instance, rape seed, hops, teasel, etc., may be to good advantage stored during the years in which the market price is far below the price of production. It is least permissible to postpone the sale of such articles as require daily expenses for their preservation, such as fatted cattle, or which spoil easily, such as fruit, potatoes, etc. In some localities, a certain product has its lowest average price at a certain season, its highest at another. For instance, the average price of grain in some localities is lower about August than in the time between Christmas and Easter. Furthermore, some products sell well in certain localities only at certain periods, as is the case, for instance, with wool in the wool markets of those localities, where the wool trade is dull at other times, etc." (Kirchhof, page 302.)


In the study of the second half of the time of circulation, in which money is reconverted into the elements of productive capital, it is not only this conversion itself which is important in itself, not only the time in which the money flows back according to the distance of the market on which the product is sold. It is also above all the volume of that part of the advanced capital to be held always available in the form of money, in the condition of money-capital, which must be considered.


Making exception of all speculation, the volume of the purchases of those commodities which must always be available as a productive supply depends on the time of the renewal of this supply, in other words, on circumstances which in their turn depend on market conditions and which are, therefore, different for different raw materials. In these cases, money must be advanced from time to time in larger quantities in one sum. It flows back more or less rapidly, but always in instalments, according to the turn-over of capital. One portion, namely that invested in wages, is continually re-expended in short intervals. But another part, namely that which is to be reconverted into raw material, etc., must be accumulated for long periods, as a reserve fund to be used either for buying or paying. Therefore it exists in the form of money-capital, although the volume which it has as such changes.


We shall see in the next chapter that other circumstances, whether they arise from the process of production or circulation, necessitate this existence of a certain portion of the advanced capital in the form of money. In general it must be noted that economists are very prone to forger that a part of the capital required for business not only passes alternately through the three stages of money-capital, productive capital, and commodity-capital, but that different portions of it have continuously and simultaneously these forms, although the relative size of these portions varies all the time. It is especially the portion always available as money-capital which is forgotten by economists, although this circumstance is very important for the understanding of capitalist economy and makes its importance felt in practice.

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