Capital: A Critique of Political Economy, Vol. II. The Process of Circulation of Capital
By Karl Marx
One of Econlib’s aims is to put online the most significant works in the history of economic thought, and there can be no doubting the significance of Marx’s influence on both economic theory in the late 19th century and on the creation of Marxist states in the 20th century. From the time of the emergence of modern socialism in the 1840s (especially in France and Germany), free market economists have criticised socialist theory and it is thus useful to place that criticism in its intellectual context, namely beside the main work of one of its leading theorists,
Karl Marx.In 1848, when Europe was wracked by a series of revolutions in which both liberals and socialists participated and which both lost out to the forces of conservative monarchism or Bonapartism,
John Stuart Mill published his
Principles of Political Economy. The chapter on Property shows how important Mill thought it was to confront the socialist challenge to classical liberal economic theory. In hindsight it might appear that Mill was too accommodating to socialist criticism, but I would argue that in fact he offered a reasonable framework for comparing the two systems of thought, which the events of the late 20th century have finally brought to a conclusion which was not possible in his lifetime. Mill states in
Book II Chapter I “Of Property” that a fair comparison of the free market and socialism would compare both the ideal of liberalism with that of socialism, as well as the practice of liberalism versus the practice of socialism. In 1848 the ideals of both were becoming better known (and there were some aspects of the ideal of socialism which Mill found intriguing) but the practice of each was still not conclusive. Mill correctly observed that in 1848 no European society had yet created a society fully based upon private property and free exchange and any future socialist experiment on a state-wide basis was many decades in the future. After the experiments in Marxist central planning with the Bolshevik Revolution in 1917, the Chinese Communists in 1949, and numerous other Marxist states in the post-1945 period, there can be no doubt that the reservations Mill had about the practicality of fully-functioning socialism were completely borne out by historical events. What Mill could never have imagined, the slaughter of tens of millions of people in an effort to make socialism work, has ended for good any argument concerning the Marxist form of socialism.Econlib now offers online two important defences of the socialist ideal, Karl Marx’s three volume work on
Capital and the
collection of essays on Fabian socialism edited by George Bernard Shaw. These can be read in the light of the criticism they provoked among defenders of individual liberty and the free market: Eugen Richter’s anti-Marxist
Pictures of the Socialistic Future, Thomas Mackay’s
2 volume collection of essays rebutting Fabian socialism,
Ludwig von Mises post-1917 critique of
Socialism. One should not forget that
Frederic Bastiat was active during the rise of socialism in France during the 1840s and that many of his essays are aimed at rebutting the socialists of his day. The same is true for Gustave de Molinari and the other authors of the
Dictionnaire d’economie politique (1852). Several key articles on communism and socialism from the
Dictionnaire are translated and reprinted in Lalor’s
Cyclopedia.For further reading on Marx’s
Capital see David L. Prychitko’s essay
“The Nature and Significance of Marx’s
Capital: A Critique of Political Economy“.For further readings on socialism see the following entries in the
Concise Encyclopedia of Economics:
Poor Law Commissioners’ Report of 1834,
edited by Nassau W. Senior, et al.
March 1, 2004
Friedrich Engels, ed. Ernest Untermann, trans.
First Pub. Date
Chicago: Charles H. Kerr and Co.
First published in German. Das Kapital, based on the 2nd edition.
The text of this edition is in the public domain. Picture of Marx courtesy of The Warren J. Samuels Portrait Collection at Duke University.
- Preface, by Friedrich Engels
- Translators Note, by Ernest Untermann
- Part I, Chapter 1
- Part I, Chapter 2
- Part I, Chapter 3
- Part I, Chapter 4
- Part I, Chapter 5
- Part I, Chapter 6
- Part II, Chapter 7
- Part II, Chapter 8
- Part II, Chapter 9
- Part II, Chapter 10
- Part II, Chapter 11
- Part II, Chapter 12
- Part II, Chapter 13
- Part II, Chapter 14
- Part II, Chapter 15
- Part II, Chapter 16
- Part II, Chapter 17
- Part III, Chapter 18
- Part III, Chapter 19
- Part III, Chapter 20
- Part III, Chapter 21
In this chapter and in the next we shall treat of the influence of the time of circulation on the utilization of capital.
Take the commodity-capital which is the product of a certain working period, for instance, of nine weeks. Let us leave aside the question of that portion of value which is transferred to the product by the average wear and tear of the fixed capital, also that of the surplus-value added to it during the process of production. The value of this product is then equal to that of the circulating capital advanced for its production, that is to say, of the wages, raw and auxiliary materials consumed in its production. Let this value be 900 pounds sterling, so that the weekly outlay is 100 pounds sterling. The periodic time of production, which here coincides with the working time, is nine weeks. It is immaterial whether it is assumed that this working period produces a continuous product, or whether it is a continuous working period for a discontinuous product, so long as the quantity of discontinuous product, which is brought to market at one time, costs nine weeks of labor. Let the time of circulation be three weeks. Then the entire time of turn-over is twelve weeks. At the end of nine weeks, the advanced productive capital is converted into a commodity-capital, but now it exists for three weeks in the period of circulation. The new time of production, therefore, cannot commence until the beginning of the thirteenth week, and production would be at a standstill for three weeks, or for a quarter of the entire period of turn-over. It is again immaterial whether it is assumed that it takes so long on an average to sell the product, or that this term is conditioned on the distance of the market or on
the terms of payment for the sold goods. Production would be at a standstill for three weeks every three months, or four times three, or twelve weeks, in a year, which means three months or one quarter of the annual period of turn-over. Hence, if production is to be continuous and to be carried along on the same scale week after week, there are only two possibilities.
Either the scale of production must be reduced, so that those 900 pounds sterling will suffice to keep the work going during the working period as well as during the time of circulation of the first turn-over. A second working period is then commenced with the tenth week, hence also a new period of turn-over, before the first period of turn-over is completed, for the period of turn-over is twelve weeks, the working period nine weeks. A sum of 900 pounds sterling distributed over twelve weeks makes 75 pounds per week. It is evident in the first place that such a reduced scale of business presupposes changed dimensions of the fixed capital, and therefore a general reduction of the entire business. In the second place, it is questionable whether such a reduction can take place at all, for the development of production in the various businesses establishes a normal minimum for the investment of capital, below which an individual business is unable to sustain competition. This normal minimum grows continually with the advance of capitalist production, hence it is not a fixed magnitude. There are numerous gradations between the existing normal minimum and the ever increasing normal maximum, and this intermediate gradation permits of many different degrees of capital investment. Within the limits of this intermediate scale, a reduction may take place, its lowest limit being the normal minimum.
In case of an obstruction of production, an overstocking of the markets, an increase in the price of raw materials, etc., there is a reduction of the normal outlay of circulating capital, compared to a given scale of fixed capital, by the reduction of the working time, work being carried on, say, for only half a day. On the other hand, in times of prosperity, the fixed capital, remaining the same, there is an abnormal expansion of the circulating capital, partly by the
prolongation of the working time, partly by its intensification. In businesses which are adjusted from the outset to such fluctuations, recourse is either taken to the above-named measures, or a greater number of laborers are simultaneously employed, combined with an investment of reserve capital, such as reserve locomotives of railroads, etc. However, such abnormal fluctuations are not considered here, where we assume normal conditions.
In order to make production continuous, it is necessary, in the present case, to distribute the expenditure of the same circulating capital over a longer period, over twelve weeks instead of nine. In any section of time, a reduced productive capital is therefore employed. The circulating portion of the productive capital is reduced from 100 to 75, or one quarter. The total amount by which the productive capital serving for a working period of nine weeks is reduced is 9 times 25, or 225 pounds sterling, or one quarter of 900 pounds. But the proportion of the time of circulation to that of turn-over is likewise three twelfth, or one quarter. It follows, therefore: If production is not to be interrupted during the time of circulation of the productive capital transformed into commodity-capital, if it is rather to be continued parallel with circulation and continuously week after week, and if no special circulating capital is available, it can be done only by curtailing the productive operations, reducing the circulating portions of the productive capital in service. The portion of circulating capital thus set free for production during the time of circulation is proportioned to the total circulating capital invested as the time of circulation is to the time of turn-over. We repeat, that this applies only to branches of production in which the labor-process is continued on the same scale week after week, in other words, where no different amounts of capital are invested at different working periods as is done, for instance in agriculture.
If, on the other hand, we assume that the nature of the business excludes the idea of a reduction of the scale of production and thus of the circulating capital to be invested weekly, then the continuity of production can be secured only by additional circulating capital, in the above-named
case of 300 pounds sterling. During the period of turn-over of twelve weeks, 1,200 pounds sterling are successively invested in twelve weeks, and 300 is one quarter of this sum as three weeks is of twelve. At the end of the working time of nine weeks, the capital-value of 900 pounds sterling has been converted from the form of productive into that of commodity-capital. Its working period is concluded, but it cannot be re-opened with the same capital. During the three weeks in which it exists in the sphere of circulation, performing the functions of commodity-capital, it is in a condition, so far as the process of production is concerned, as though it did not exist at all. We make exception, at present, of all conditions of credit, and assume that the capitalist operates only with his own money. But while the capital advanced for the first working period, having completed its process of production, remains for three weeks in the process of circulation, an additional capital of 300 pounds sterling enters into service, so that the continuity of the production is not interrupted.
Now, the following must be noted in this connection:
First: The working period of the capital first invested, of 900 pounds sterling, is completed at the close of nine weeks, and it does not flow back until after three weeks, that is to say, in the beginning of the thirteenth week. But a new working period is immediately begun with the additional capital of 300 pounds. By this means the continuity of production is secured.
Secondly: The functions of the original capital of 900 pounds sterling, and those of the additional capital of 300 pounds sterling added at the close of the first working period of nine weeks, inaugurating the second working period after the conclusion of the first, without any interruption, are clearly distinguished in the first period of turn-over, or at least they may be, while they cross one another in the course of the second period of turn-over.
Let us give this matter a tangible form.
First period of turn-over of 12 weeks: First working period of 9 weeks; the turn-over of the capital advanced for this is completed at the beginning of the 13th week. During the last 3 weeks, the additional capital of 300 pounds
sterling performs its service, opening up the second working period of 9 weeks.
Second period of turn-over. At the beginning of the 13th week, 900 pounds sterling have flown back and are able to begin a new turn-over. But the second working period has already been opened by the additional 300 pounds in the 10th week. At the commencement of the 13th week, this capital has already completed one third of its working period and 300 pounds sterling have been converted from a productive capital into a product. Seeing that only 6 weeks are required for the completion of the second working period, only two-thirds of the returned capital of 900 pounds sterling, or 600 pounds, can take part in the productive process of the second working period. Thus 300 pounds of the original 900 are set free and may play the same role, which the additional capital of 300 pounds played in the first working period. At the close of the 6th week of the second period of turn-over, the second working period is completed. The capital of 900 pounds sterling advanced in it flows back after 3 weeks, or at the end of 9th week of the second period of turn-over which comprises 12 weeks. During the 3 weeks of its period of circulation, the free capital of 300 pounds sterling comes into action. This begins the third working period of a capital of 900 pounds sterling in the 7th week of the second period of turn-over, which is the 19th running week.
Third period of turn-over. At the close of the 9th week of the second period of turn-over, there is a new reflux of 900 pounds sterling. But the third working period has already commenced in the 7th week of the second period of turnover, and at the beginning of the third period of turn-over, 6 weeks of the third working period have already elapsed. The third working period, then, lasts only 3 weeks longer. Hence only 300 pounds of the returned 900 take part in the productive process of the second period of turn-over, while the next 300 close the last three weeks of the third working period and thus open the first three weeks of the third period of turn-over. The fourth working period fills out the remaining 9 weeks of this period of turn-over,
and thus the 37th running week begins simultaneously the fourth period of turn-over and fifth working period.
In order to simplify this case for the calculation, we shall assume a working period of 5 weeks and a period of circulation of 5 weeks, making a period of turn-over of 10 weeks. Let the year be one of fifty working weeks, and the capital invested per week 100 pounds sterling. A working period then requires a circulating capital of 500 pounds sterling, and the period of turn-over an additional capital of 500 pounds sterling. The working periods and periods of turn-over then are as follows:
1. wrkg. prd. 1—5. week (500 p. stlg. of goods) returned end of 10.
2. wrkg. prd. 6—10. week (500 p. stlg. of goods) returned end of 15.
3. wrkg. prd. 11—15. week (500 p. stlg. of goods) returned end of 20.
4. wrkg. prd. 16—20. week (500 p. stlg. of goods) returned end of 25.
5. wrkg. prd. 21—25. week (500 p. stlg. of goods) returned end of 30.
If the time of circulation is zero, so that the period of turn-over is equal to the working time, then the number of turn-overs is equal to the working periods of the year. In the case of a working period of 5 weeks, this would make 10 periods of turn-over per year, and the value of the capital turned over would be 500 times 10, or 5,000. In our table, in which we have assumed a time of circulation of 5 weeks, the total value of the commodities produced per year would also be 5,000 pounds sterling, but one tenth of this, or 500 pounds, would always be in the form of commodity-capital, which would not flow back until after 5 weeks. At the end of the year, the product of the tenth working period (the 46th to the 50th working week) would have completed its period of turn-over only by half, because its time of circulation would fall within the first five weeks of the year.
Now let us take a third illustration: Working period 6 weeks, time of circulation 3 weeks, weekly advance of capital 100 pounds sterling.
1.Working period: 1—6th week. At the end of the 6th week, a commodity-capital of 600 pounds sterling, returned at the end of the 9th week.
2. Working period: 7—12th week. During the 7—9th week 300 pounds sterling of additional capital is advanced.
At the end of the 9th week, return of 600 pounds sterling. Of this, 300 pounds sterling are advanced during the 10—12th week. At the end of the 12th week, therefore, 300 pounds sterling are available, and 600 pounds sterling are in the form of commodity-capital, returnable at the end of the 15th week.
3. Working period: 13—18th week. During the 13—15th week, advance of above 300 pounds sterling, then reflux of 600 pounds, 300 of which are advanced for the 16—18th week. At the end of the 18th week, 300 pounds sterling available in cash, 600 on hand as commodity-capital, which flows back at the end of the 21st week. (See the detailed illustration of this case under II, farther along.)
In other words, during 9 working periods (54 weeks) a total of 600 times 9, or 5,400 pounds sterling is produced. At the end of the ninth working period, the capitalist has 300 pounds in cash and 600 pounds worth of commodities, which have not yet completed their time of circulation.
A comparison of these three illustrations shows first, that a successive release of capital I of 500 pounds sterling and of additional capital II of likewise 500 pounds sterling takes place only in the second illustration, so that these two portions of capital move independently of one another. But this is so only because we have made the exceptional assumption that the working time and the time of circulation are two equal halves of the period of turn-over. In all other cases, whatever may be the difference of the two terms of the period of turn-over, the movements of the two capitals cross one another, as they do in the first and third illustration, beginning with the second period of turn-over. The additional capital II, with a portion of capital I, then forms the capital serving in the second period of turn-over, while the remainder of capital I is set free for the original function of capital II. The capital serving during the time of circulation of the commodity-capital is not identical, in this case, with the capital II originally advanced for this purpose, but it is of the same value and forms the same aliquot portion of the advanced total capital.
Secondly: The capital which served during the working period, lies fallow during the time of circulation. In the
second illustration, the capital performs its function during 5 weeks of the working period, and lies fallow during a circulation period of 5 weeks. The entire time during which capital I here lies fallow amounts to one-half of the year. During this time, the additional capital II takes the place of capital I, which in its turn lies fallow during the other half of the year. But the additional capital required for insuring the continuity of the production during the time of circulation is not determined by the aggregate volume, or the sum, of the times of circulation during the year, but only by the proportion of the time of circulation to the time of turn-over. (We assume, of course, that all the turn-overs take place under the same conditions.) For this reason, 500 pounds sterling are required in the second illustration, not 2,500 pounds. This is simply due to the fact that the additional capital enters just as well into the turnover as the capital originally advanced, and that it, therefore, reproduces its volume the same as the other by the number of its turn-overs.
Thirdly: It does not alter the circumstances here described, whether or not the time of production is longer than the working time. True, the aggregate of the periods of turn-over is prolonged thereby, but this prolongation does not imply any additional capital for the labor-process. The additional capital serves merely the purpose of filling up the fallow places left by the time of circulation. Its mission is simply to protect production against interruption by the time of circulation. Interruptions arising from the conditions of production itself are compensated for in another way, which we do not discuss at this point. There are, however, some businesses, in which work is carried on only in intervals and to order, so that there may be interruptions in the working periods. In such cases, the necessity of additional capital is eliminated to that extent. On the other hand, in most cases of season work, there is a limit for the time of reflux. The same work cannot be renewed next year with the same capital, if the time of circulation of this capital is not completed. Still, the time of circulation may be shorter than the intervals between two periods of
production. In such an eventuality, capital lies fallow, unless it is employed otherwise in the meantime.
Fourthly: The capital advanced for a certain working period, for instance, the 600 pounds sterling in the third illustration, is invested partly in raw and auxiliary materials, in a productive supply for the working period, in constant circulating capital, partly in variable circulating capital, in the payment of labor itself. The portion invested in constant circulating capital may not exist for the same length of time in the form of a productive supply, the raw material, for instance, may not be on hand for the entire working period, coal may be purchased only every two weeks. However, credit being out of the question, according to our assumption, this portion of capital, to the extent that it is not available in the form of a productive supply, must be kept on hand in the form of money in order to be converted into a productive supply when needed. This does not alter the magnitude of the constant circulating capital-value advanced for 6 weeks. The wages, on the other hand, are generally paid weekly, making exception of the money supply for unforeseen expenses, the strict reserve fund for the compensation of disturbances. Unless the capitalist, therefore, compels the laborer to advance his labor for a longer time, the money required for the payment of wages must be on hand. During the reflux of the capital, a portion must, therefore, be reserved in the form of money for the payment of labor, while the remaining portion may be converted into a productive supply.
The additional capital is subdivided exactly like the original. But it is distinguished from capital I by the fact that (apart from conditions of credit), in order to be available for its own period of labor, it must be advanced during the entire duration of the first working period of capital I, in which it does not take part. During this time, it may be converted into constant circulating capital, at least in part, being advanced for the entire period of turn-over. To what extent it will assume this form, or persist in the form of additional money-capital, up to the time where this conversion becomes necessary will depend partly on the special conditions of production of definite lines of business, partly
on the fluctuations in the prices of raw material, etc. Looking at it from the point of view of the aggregate social capital, there will always be a more or less considerable part of this additional capital for a rather long time in the form of money-capital. But as for that portion of capital II which is to be advanced for wages, it is always gradually converted into labor-power to the extent that small working periods are closed and paid for. This portion of capital II, then, is available in the form of money-capital for the entire working period, until it is converted into labor-power and thus takes part in the function of productive capital.
The advent of the additional capital required for the transformation of the time of circulation of capital I into a time of production increases not only the magnitude of the advanced capital and length of time for which the aggregate capital must be necessarily advanced, but it also increases specifically that portion of the advanced capital which exists in the form of a money-supply, which persists in the condition of money-capital, and has the form of potential capital.
The same takes also place, as concerns both the advance in the form of a productive supply and in that of a money supply, when the separation of capital into two parts required by the time of circulation, namely, capital for the first working period and reserve capital for the time of circulation, is not caused by the increase of the invested capital, but by a decrease of the scale of production. In proportion to the scale of production, the increase of the capital tied up in the form of money is apt to grow still more in this case.
It is the continuous succession of the working periods, the continuous function of an equal portion of the advanced capital as productive capital, which is insured by this separation of capital into an original productive and a reserve capital.
Let us look at the second illustration. The capital continuously employed in the process of production amounts to 500 pounds sterling. The working period being 5 weeks, it works ten times during a working year of 50 weeks. Hence
its product, apart from surplus-value, is 10 times 500 or 5,000 pounds sterling. From the point of view of a directly and uninterruptedly working capital in the process of production, a capital-value of 500 pounds sterling, the time of circulation seems entirely eliminated. The period of turn-over coincides with the working period, the time of circulation being assumed as equal to zero.
But if the capital of 500 pounds sterling were interrupted in its productive activity by regular times of circulation covering 5 weeks, so that it could not become productively active until after the close of the entire period of turn-over of 10 weeks, we should have 5 turn-overs of ten weeks each in 50 running weeks. These would comprise 5 periods of production of 5 weeks each, or 25 productive weeks with a total product of 5 times 500, or 2,500 pounds sterling; and 5 times of circulation of 5 weeks each, or a total period of circulation of 25 weeks. If we say in this case that the capital of 500 pounds sterling has been turned over 5 times in the year, it is evident and obvious that this capital of 500 pounds sterling did not serve at all as a productive capital during one-half of each period of turn-over, and that, taking all in all, it performed its function only during one half of the year, while it did not serve at all during the other half.
In our illustration, the reserve capital of 500 pounds sterling comes to the rescue during those five periods of circulation, and the turn-over is thus expanded from 2,500 to 5,000 pounds. But now the advanced capital is 1,000 instead of 500 pounds sterling. Hence there are only five turn-overs instead of ten. This is indeed the way in which people count. But when it is said that the capital of 1,000 pounds has been turned over five times in the year, the recollection of the time of circulation disappears in the hollow skulls of the capitalists, and a confused idea is formed that this capital has served continuously in the process of production during the successive five turn-overs. As a matter of fact, if we say that the capital of 1,000 pounds has been turned over five times in a year, we include both the time of circulation and the time of production. For, indeed,
if 1,000 pounds sterling had actually been continuously active in the process of production, the product would have to be 10,000 pounds sterling instead of 5,000, according to our assumptions. But in order to have 1,000 pounds sterling continuously in the process of production, 2,000 pounds would have to be advanced. The economists, who as a general rule have nothing clear to say in reference to the mechanism of the turn-over, always overlook this main point, to-wit, that only a part of the industrial capital can actually be engaged in the process of production, if production is to proceed uninterruptedly. While one part is busy in the process of production, another must always be engaged in the process of circulation. Or in other words, one part can perform the functions of productive capital only on condition that another part is withdrawn from production in the form of commodity or money-capital. In overlooking this, the significance and role of money-capital is entirely ignored.
We have now to ascertain to what extent differences in the turn-over are caused according to whether the two sections of the period of turn-over, the working period and the circulating period, are equal to one another, or the working period greater or smaller than the circulating period, and furthermore, what effect this has on the retention of capital in the form of money-capital.
We assume, that the capital advanced weekly is in all cases 100 pounds sterling, and the period of turn-over 9 weeks, so that the capital invested in each period of turnover is 900 pounds sterling.
Although this case occurs in reality only accidentally, as an exception, it must serve as our point of departure in this analysis, because conditions here shape themselves in the simplest and most intelligible way.
The two capitals (capital I advanced for the first working period, and reserve capital II advanced during the time of circulation of capital I) relieve one another in their movements without crossing. With the exception of the first period, either of the two capitals is therefore advanced only
for its own period of turn-over. Let the period of turnover be 9 weeks, as indicated in the two following illustrations, so that the working period and the time of circulation are each of them 4½ weeks. Then we have the following annual diagram:
|Periods of Turn-Over.||Working Periods.||Advance.||Periods of Circulation.|
|I.||1-9. week||1-4. 5. week||450 p. st.||4. 5-9. week|
|II.||10-18. “||10-13. 5. “||450 p. st.||13. 5-18. “|
|III.||19-27. “||19-22. 5. “||450 p. st.||22. 5-27. “|
|IV.||28-36. “||28-31. 5. “||450 p. st.||31. 5-36. “|
|V.||37-45. “||37-40. 5. “||450 p. st.||40. 5-45. “|
|VI.||46-(54) “||46-49. 5. “||450 p. st.||49. 5-(54) ”
|Periods of Turn-Over.||Working Period.||Advance.||Periods of Circulation.|
|I.||4. 5-13. 5. week||4. 5-9. week||450 p. st.||10-13. 5. week|
|II.||13. 5-22. 5. “||13. 5-18. “||450 p. st.||19-22. 5. “|
|III.||22. 5-31. 5. “||22. 5-27. “||450 p. st.||28-31. 5. “|
|IV.||31. 5-40. 5. “||31. 5-36. “||450 p. st.||37-40. 5. “|
|V.||40. 5-49. 5. “||40. 5-45. “||450 p. st.||46-49. 5. “|
|VI.||49. 5-(58. 5.) “||49. 5-(54.) “||450 p. st.||(54-58. 5.) “|
Within the 50 weeks which we here assume to stand for one year, capital I has absolved six full working periods, making 6 times 450, or 2,700 pounds sterling, and capital II making in five full working periods 5 times 450, or 2,250 pounds sterling’s worth of commodities. In addition there-to, capital II has produced, within the last one and a half weeks of the year (middle of the 50th to the end of the 51st week) an extra 150 pounds sterling’s worth, making the aggregate product 5,100 pounds sterling. So far as the direct production of surplus-value is concerned, which is produced only during the working period, the aggregate capital of 900 pounds sterling would have been turned over 5 2-3 times (5 2-3 times 900 equal to 5,100 pounds sterling). But if we consider the actual turn-over, then capital I has been turned over 5 2-3 times, since at the close of the 51st week it still has to absolve 3 weeks of its sixth period of turn-over; 5 2-3 times 450 make 2,550 pounds sterling; and capital II turned over 5 1-6 times, since it has completed only 1 1-2 week of its sixth period of turn-over, so that 7 1-2 weeks of it fall within the next year; 5 1-6 times 450 make
2,325 pounds sterling; actual aggregate turn-over 4,875 pounds sterling.
Let us regard capital I and capital II as two capitals independent of one another. They are independent in their movements; these movements supplement one another merely because their working and circulating periods directly relieve one another. They may be regarded as two entirely independent capitals belonging to different capitalists.
Capital I has completed five full turn-overs and two-thirds of its sixth period of turn-over. At the end of the year it has the form of commodity-capital, which lacks three weeks of its normal realization. During this time, it cannot take part in the process of production. It performs the function of commodity-capital, it circulates. It has completed only two-thirds of its last period of turn-over. This is expressed in the words: It has been turned over only two-thirds, only two-thirds of its total value have completed their turn-over. We say that 450 pounds sterling complete their turn-over in 9 weeks, hence 300 do in 6 weeks. But in this expression, the organic conditions of the two specifically different portions of the period of turn-over are neglected. The exact meaning of the expression, that the advanced capital of 450 pounds sterling has made 5 2-3 turn-overs, is merely that it has completed five turn-overs fully and of the sixth only two-thirds. On the other hand, the expression that the turned-over capital is equal to 5 2-3 of the advanced capital, or, in the above case, 5 2-3 times 450 pounds sterling, making 2,550, is correct only in so far as it means that unless this capital of 450 pounds sterling were supplemented by another capital of 450 pounds sterling, one portion of it would have to be in the process of circulation while another is in the process of production. If the period of turn-over is to be expressed in the quantity of the turned-over capital, it can be expressed only in a quantity of existing values (embodied in the finished product). The fact that the advanced capital is not in a condition in which it may reopen the process of production is due to the circumstance that only a part of it is in a condition suitable for production, or that, in order to be in a condition suitable
for continuous production, it would have to be divided into a portion which would be continually in the period of production and into another which would be continually in the period of circulation, according to the mutual relation of these periods. It is the same law which determines the quantity of the continually serving productive capital by the proportion of the time of circulation to the period of turn-over.
As for capital II, 150 pounds sterling of it are advanced in the production of unfinished goods at the close of the 51st running week, which we regard here as the last of the year. Another part exists in the form of circulation constant capital—raw materials, etc.,—that is to say, in a form, in which it can serve as productive capital in the process of production. But a third part of it exists in the form of money, namely at least the amount of the wages for the remainder of the working period (3 weeks), which is not paid, however, until the end of each week. Now, although this portion of capital, in the beginning of a new year, and of a new cycle of turn-over, is not in the condition of productive capital, but in that of money-capital, in which it cannot take part in the process of production, there is, nevertheless, circulating variable capital, namely labor-power, active in the process of production at the opening of the new cycle of turn-over. This is due to the fact that labor-power is not paid until at the end of the week, although it was bought at the beginning of the working period, say, per week, and so consumed. Money serves here as a means of payment. For this reason, it is still in the hands of the capitalist, while on the other hand labor-power is already busy in the process of production. so that the same capital-value here appears twice.
If we look merely at the working periods, then there has been produced:
By capital I, 5 2-3 times 450, or 2,550 pounds sterling,
By capital II, 5 1-3 times 450, or 2,400 pounds sterling,
Total, 5 2-3 times 900, or 5,100 pounds sterling.
Hence the advanced capital of 900 pounds sterling has
performed the function of productive capital 5 2-3 times per year. It is immaterial for the production of surplus-value, whether there are always 450 pounds sterling in the process of production and always 450 pounds sterling in the process of circulation, or whether 900 pounds sterling serve 4 1-2 weeks in the process of production and 4 1-2 weeks in the process of circulation.
On the other hand, if we consider the periods of turn-over, there has been produced:
By capital I, 5 2-3 times 450, or 2,550 pounds sterling,
By capital II, 5 1-6 times 450, or 2,325 pounds sterling,
Or, by the aggregate capital, 5 5-12 times 900, or 4,875 pounds sterling, in the total turn-over. For the turn-over of the total capital is equal to the sum of the quantities turned over by capital I and II, divided by the sum of I and II.
It is to be noted, that capital I and II, if they were independent of one another, would nevertheless be merely different independent portions of the social capital advanced for the same sphere of production. Hence, if the social capital within this sphere of production were solely composed of I and II, the same calculation would apply to the turn-over of the social capital, which here applies to the two constituent parts I and II, of the same private capital. In a wider generalization, every portion of the entire social capital invested in any special sphere of production may be so calculated. But in the last analysis, the amount of the turn-over of the entire social capital is equal to the sum of the capitals turned over in the various spheres of production, divided by the sum of the capitals advanced in those spheres.
It must be further noted that just as the capitals I and II in the same private business have, strictly speaking, different years of turn-over (the cycle of turn-over of capital II beginning 4 1-2 weeks later than that of capital I, so that the year of capital I closes 4 1-2 weeks earlier than that of capital II), just so the various private capitals in the same sphere of production begin their activities at totally different sections of time and, therefore, conclude their years of turn-over at different times of the year. The same calculation of
averages, which we employed above for capitals I and II, suffices also for the reduction of the years of turn-over of the various independent portions of the social capital to one uniform year of turn-over.
The working and circulating periods of capitals I and II cross one another instead of relieving one another. Simultaneously some capital is set free. This was not so in the previously considered case.
But this does not alter the fact that, as before, (1) the number of working periods of the advanced total capital is equal to the sum of the values of the annual products of both advanced portions of capital divided by the advanced total capital, and (2) the amount turned over by the total capital is equal to the sum of the two amounts turned over, divided by the sum of the two advanced capitals. Here, again, we must regard both portions of capital as though they performed movements of turn-over entirely independent of one another.
We assume once more, then, that 100 pounds sterling are advanced weekly in the working process. Let the working period last 6 weeks, requiring every time an advance of 600 pounds sterling (capital I). Let the time of circulation be 3 weeks, so that the period of turn-over is 9 weeks, as before. Let a capital of 300 pounds sterling step in as a substitute during the three weeks of the time of circulation of capital I. Considering both capitals as independent of one another, we find the diagram of the annual turn-over to be as follows:
The process of production continues uninterruptedly all year on the same scale. The two capitals I and II remain entirely separate. But in order to represent them thus as separate, we had to tear apart their actual interrelations and intersections, and thus also to change the amount of turnover. For according to the above diagram, the amounts turned over would be:
|Capital I, 2 2-3 times 600…||or 3,400 p. st.|
|Capital II, 5 times 300…||or 1,500 p. st.
|Total capital…5 4-9 times 900,||or 4,900 p. st.|
But this is not correct, for we shall see that the actual periods of production and circulation do not absolutely coincide with the above diagrams, in which it was mainly a question of presenting capitals I and II as independent of one another.
Now, in reality, capital II has no working and circulating periods separate and distinct from capital I. The working period is 6 weeks, the circulation period 3 weeks. Since capital II amounts to only 300 pounds sterling, it can fill out only a part of the working period. This is indeed the case. At the close of the 6th week, a product valued at 600 pounds sterling passes into circulation and flows back in money at the close of the 9th week. Then capital II begins its activity at the opening of the 7th week and responds to the requirements of the next working period for the 7th to 9th week. But according to our assumption, the working period is only half completed at the end of the 9th week. Hence, in the beginning of the 10th week, capital I of 600 pounds sterling, having just returned, comes once more into activity and advances 300 pounds sterling for the requirements of the 10th to 12th week. This completes the second
working period. Products valued at 600 pounds sterling are once again in circulation and will return in money at the close of the 15th week. Furthermore, 300 pounds sterling are set free, equal to the original amount of capital II, and are enabled to serve in the first half of the following working period, that is to say, in the 13th to 15th week. After the lapse of these, the 600 pounds sterling flow back; 300 of them suffice for the remainder of the working period, 300 are set free for the following working period.
The course of events is, therefore, as follows:
I. Period of turn-over 1-9. week.
1. Working period: 1-6. week. Capital I, of 600 p. st., performs its function.
1. Period of circulation: 7-9. week. After the lapse of the 9th week, 600 p. st. flow back in money.
II. Period of turn-over: 7-15 week.
2. Working period: 7-12. week.
First half: 7-9. week. Capital II, of 300 p. st., performs its function. After the lapse of the 9th week, 600 p. st. (capital I) flow back in money.
Second half: 10-12. week. 300 p. st. of capital I perform their function. The other 300 p. st. of capital I remain free.
2. Period of circulation: 13-15. week.
After the close of the 15. week, 600 p. st. (one half belonging to capital I, the other to capital II) flow back in money.
III. Period of turn-over: 13-21. week.
3. Working period: 13-18. week.
First half: 13-15. week. The free 300 p. st. perform their function. After the close of the 15th week, 600 p. st. flow back in money.
Second half: 16-18. week, 300 of the returned 600 perform their function, the other 300 again remain free.
In this way, there are eight full periods of turn-over of a capital of 600 p. st. (I: 1-9. week; II: 7-15. week; III: 13-21; IV: 19-27.; V: 25-33.; VI: 31-39.; VII: 37 -45.; VIII: 43-51) to the end of the 51st week. But as the 49-51st weeks fall within the eighth period of circulation, the 300 p. st., of free capital must step in and keep production moving. Thus the turn-over at the end of the year is as follows: 600 p. st. have completed their cycle eight times, making 4,800 p. st. In addition thereto we have the product of the last 3 weeks (49-51.), which, however, has completed but one third of its cycle of 9 weeks, so that it counts in the amount turned over only with one third of its value, 100 p. st. If, then, the annual product of 51 weeks is 5,100 p. st., the capital actually turned over is only 4,800 plus 100, or 4,900 p. st. The advanced total capital of 900 p. st. has, therefore, been turned over 5 4-9 times, somewhat more than in the first case.
In the present example, we had assumed a case, in which the working time was 2-3, the circulation time 1-3, of the period of turn-over, so that the working time was a simple multiple of the circulation time. The question is now, whether capital is likewise set free, in the same way as shown before, when this assumption is not made.
Let us assume a working time of 5 weeks, a circulation time of 4 weeks, and a capital advance of 100 p. st. per week.
I. Period of turn-over: 1-9. week.
1. Working period: 1-5. week. Capital I, of 500 p. st., performs its function.
1. Circulation period: 6-9. week. After the close of the 9th week, 500 p. st. flow back in money.
II. Period of turn-over: 6-14. week.
2. Working period: 6-10. week.
Second section: 10. week. 100 of the returned 500 p. st. performs their function. The remaining 400 p. st. are set free for the following working period.
2. Circulation period: 11-14. week.
After the close of the 14. week, 500 p. st. flow back in money.
Up to the end of the 14th week (11-14.), the free 400 p. st. perform their function; 400 of the 500 p. st. then returned fill the requirements of the third working period (11-15. week), so that 400 p. st. are once more set free for the fourth working period. The same phenomenon is repeated in every working period; in its beginning, 400 p. st. are ready at hand, sufficing for the requirements of the first 4 weeks. After the close of the 4th week, 500 p. st. flow back in money, only 100 of which are needed for the last week, while the remaining 400 are set free for the next working period.
Let us furthermore assume a working period of 7 weeks, with a capital I of 700 p. st.; a circulation period of 2 weeks, with a capital II of 200 p. st.
In that case, the first period of turn-over lasts from the 1st to the 9th week; its first working period from the 1st to the 7th week, with an advance of 700 p. st., its first circulation period from the 8th to the 9th week. After the close of the 9th week, 700 p. st. flow back in money.
The second period of turn-over, from the 8th to the 16th week, contains the second working period of the 8th to 14th week. The requirements of the 8th and 9th week of this period are covered by capital II. After the close of the 9th week, the above 700 p. st. flow back. Up to the close of this working period (10-14.), 500 p. st. of this sum are used up. 200 p. st. remain free for the next working period. The second circulation period lasts from the 15th to the 16th week. After the close of the 16th week, 700 p. st. flow back once more. From now on, the same phenomenon is
repeated in every working period. The demand in capital of the first two weeks is covered by the 200 p. st. set free at the close of the preceding working period; after the close of the second week, 700 p. st. flow back in money; but the working period lasts only 5 weeks longer, so that only 500 p. st. can be consumed; therefore, 200 p. st. always remain free for the next working period.
We find, then, that in this case, where the working period has been assumed greater than the circulation period, there is under all circumstances a money-capital set free at the close of each working period, and this money-capital is of the same magnitude as capital II, which is advanced for the circulation time. In our three illustrations, capital II was 300 p. st., in the first, 400 p. st., in the second, 200 p. st. in the third example. Corresponding thereto, the capital set free at the close of each working period was 300, 400, and 200 p. st.
We begin by assuming once more a period of turn-over of 9 weeks. Let the working period be 3 weeks, with an available capital I of 300 p. st. Let the circulation period be 6 weeks. For these 6 weeks, an additional capital of 600 p. st. is required. We may divide this in turn into two portions of 300 p. st. each, so that each portion meets the requirements of one working period. We have, then, three capitals of 300 p. st. each, 300 of which are always busy in production, while 600 are circulating.
We have, here, the exact opposite of case I, only with the difference that now three capitals relieve one another instead of two. There is no intersection or intermingling of capitals. Each one of them can be traced separately to the end of the year. Capital is no more set free in this instance than in case one, at the close of a working period. Capital I is entirely consumed at the end of the 3rd week, flows back entirely at the end of 9th, and resumes its functions in the beginning of the 10th week. Similarly in the case of capitals II and III. The regular and complete relief excludes any release of capital.
The total turn-over is calculated as follows:
|Capital I, 300 times 5 2-3, or 1,700 p. st.|
|Capital II, 300 times 5 1-2, or 1,600 p. st.|
|Capital III, 300 times 5 , or 1,500 p. st.
|Total capital 900 times 5 1-3, or 4,800 p. st.|
Let us now choose also an illustration, in which the circulation period is not an exact multiple of the working period. For instance, let the working period be 4 weeks, the circulation period 5 weeks. The corresponding amounts of capital would then be: Capital I, 400 p. st.; capital II, 400 p. st.; capital III, 100 p. st. We present only the first three turn-overs.
There is in this case an intermingling of capitals to the extent that the working period of capital III, which has no independent working period, because it lasts only for one week, coincides with the first working period of capital I. On the other hand, an amount of 100 p. st., equal to capital III, is set free by capital I and II at the close of the working period. For when capital III fills out the first week of the second, and of all following working periods of capital I, and the entire capital I of 400 p. st. flows back at the close of this first week, then only 3 weeks and a corresponding capital of 300 p. st. remain for the rest of the working period of capital I. The 100 p. st. thus set free suffice for the first week of the immediately following working period of capital II; at the close of this week, the entire capital of 400 p. st. then flows back (capital II). But since the new working period can absorb only 300 p. st. more, there are once more 100 p. st. disengaged at its close. And so forth. There is, then, a setting free of capital at the close of a working period, as soon as the circulation period is not a simple multiple of the working period. And this released capital is equal to that portion of capital which has to fill out the excess of the circulating period over the working period, or over a multiple of working periods.
In all cases investigated by us it was assumed that both the working period and the circulation period remain the same throughout the year in any of the businesses selected. This assumption was necessary, if we wished to ascertain the
influence of the time of circulation on the turn-over and advance of capital. It does not alter the matter, that this assumption is not borne out unconditionally in reality, and that it frequently does not apply at all.
In this entire section, we have discussed only the turn-overs of the circulating capital, not those of the fixed. The reason is that this question has nothing to do with the fixed capital. The means of production employed in the process of production form fixed capital only to the extent that their time of employment exceeds the period of turn-over of circulating capital, so long as the time during which these instruments of labor continue to serve in continually repeated labor processes, is greater than the period of turn-over of circulating capital, in other words, comprises n periods of turn-over of circulating capital. Whether the total time represented by these n periods of turn-over of circulating capital, is long or short, that portion of productive capital which was advanced for this time in fixed capital is not advanced anew during its course. It continues its functions in its old use-form. The difference is merely this: According to the different lengths of the individual working periods of each period of turn-over of circulating capital, the fixed capital yields a greater or smaller portion of its original value to the product of this working period, and according to the duration of the time of circulation of each period of turn-over, this value yielded by the fixed capital to the product flows back in money rapidly or slowly. The nature of the topic which we discuss in this section—the turn-over of the circulating portion of productive capital—is determined by the nature of this portion itself. The circulating capital employed in a working period cannot be invested in a new working period, until it has completed its turn-over, until it has been converted into commodity-capital, then into money-capital, and then back into productive capital. In order that the first working period may be immediately followed by a second, additional capital must be advanced and converted into the circulating elements of productive capital, and its quantity must be sufficient to fill out the void left by the circulation of the capital advanced
for the first working period. This is the source of the influence exerted by the duration of the working period of the circulating capital over the scale of the process of production and the division of the advanced capital, or eventually the advance of new portions of capital. It is precisely this which we had to examine in this section.
From the preceding analyses, it follows that,
A. The different portions, into which capital must be divided in order that one part of it may be continually in the working period while others are in the period of circulation, relieve one another like different independent private capitals, in two cases: First, when the working period is equal to the period of circulation, so that the period of turn-over is divided into two equal sections; secondly, when the period of circulation is longer than the working period, but at the same time represents a simple multiple of the working period, so that one period of circulation is equal to n working periods, in which case n must be a whole number. In these cases, no portion of the successively advanced capital is set free.
B. On the other hand, in all cases in which, (1) the period of circulation is longer than the working period without being a simple multiple of it, and (2) in which the working period is longer than the circulation period, a portion of the circulating total capital is continually set free periodically at the close of each working period, beginning with the second turn-over. This free capital is equal to that portion of the total capital which has been advanced to fill out the time of circulation, provided the working period is longer than the period of circulation, and equal to that portion of capital which has to fill out the excess of the time of circulation over one working period, or over a multiple of one working period, provided the time of circulation is longer than the working time.
C. It follows that for the aggregate social capital, so far as its circulating capital is concerned, the setting free of
capital must be the rule, while the mere relieving of portions of capital following successively in the process of production must be the exception. For the equality of the period of work and circulation, or the equality of the period of circulation with a simple multiple of the working period, in other words, a similar proportion of the two portions of the period of turn-over has nothing to do with the nature of the case, and for this reason it cannot be found in general, but only in rare instances.
A very considerable portion of the social circulating capital, which is turned over several times per year, will therefore exist periodically in the form of released capital during the annual cycle of turn-over.
It is furthermore evident that, all other circumstances being equal, the magnitude of the released capital grows with the volume of the labor-process, or with the scale of production, or with the development of capitalist production in general. In the case cited under
B (2), this will be so, because the advanced total capital increases, in
B (1), because the length of the period of circulation grows with the development of capitalist production, hence the period of turn-over is lengthened in cases where the working period is extended, without a regular proportion between the two periods.
In the first case, for instance, we had to invest 100 p. st. per week. This required 600 p. st. for a working period of 6 weeks, 300 p. st. for a circulation period of 3 weeks, together 900 p. st. In that case, 300 p. st. are released continually. On the other hand, if 300 p. st. are invested weekly, we have 1,800 p. st. for the working period and 900 p. st. for the circulation period. Hence 900 instead of 300 p. st. are periodically released.
D. The total capital, for instance 900 p. st., must be divided into two portions, for instance, 600 p. st. for the working period and 300 p. st. for the period of circulation. That portion, which is really invested in the labor-process, is thus reduced by one third, or from 900 to 600 p. st. The scale of production is thus reduced by one third. On the other hand, the 300 p. st. perform their function only to make
the working period continuous, in order that 100 p. st. may be invested every week of the year in the labor-process.
Abstractly speaking, it is the same, whether 600 p. st. work during 6 times 8, or 48 weeks (product 4,800 p. st.), or whether the total capital of 900 p. st. is expended during 6 weeks in the labor-process and then kept fallow during the period of circulation of 3 weeks. In the latter case, it would be working, in the course of the 48 weeks, 5 1-3 times 6, or 32 weeks (product 5 1-3 times 900, or 4,800 p. st.), and be fallow for 16 weeks. But, apart from the greater decay of the fixed capital during the fallow of 16 weeks, and apart from the appreciation of labor, which must be rapid during the entire year, although it is employed only during a part of it, such a regular interruption of the process of production is irreconcilable with the operations of modern great industry. This continuity is itself a productive power of labor.
Now, if we take a closer look at the released, or rather suspended, capital, we find that a considerable part of it must always be in the form of money-capital. Let us adhere to our illustration: Working period 6 weeks, period of circulation 3 weeks, expenditure per week 100 p. st. In the middle of the second working period, after the close of the 9th week, 600 p. st. flow back, and 300 of them must be invested for the remainder of the working period. After the close of the second working period, 300 p. st. are then released. In what condition are these 300 p. st.? We will assume that 1-3 is invested for wages, 2-3 for raw materials and auxiliary substances. Then 200 of the returned 600 p. st. exist in the form of money for wages, and 400 p. st. in the form of a productive supply, in the form of elements of the constant circulating productive capital. But since only one half of this productive supply is required for the second half of the second working period, the other half is for 3 weeks in the form of a surplus, that is to say, of a productive supply exceeding the requirements of one working period. The capitalist, on the other hand, knows that he needs only one-half (200 p. st.) of this portion (400 p. st.) of the returned capital for the current working period.
It will, therefore, depend on market conditions, whether he will immediately reconvert these 200 p. st. entirely or partially into a surplus productive supply, or reserve them entirely or partially in the form of money in the expectation that the conditions of the market will improve. It goes without saying, that the portion of capital to be used for the payment of wages (200 p. st.) is reserved in the form of money. The capitalist cannot store labor-power in warehouses after he has bought it, as he may do with the raw material. He must incorporate it in the process of production and he pays for it at the end of the week. At least these 100 p. st. of the released capital of 300 p. st. will, therefore, have the form of money not required for the working period. The capital released in the form of money-capital must therefore be at least equal to the variable portion of capital invested in wages. At a maximum, it may comprise the entire released capital. In reality it fluctuates continually between this minimum and maximum.
The money-capital released by the mere mechanism of the movement of turn-over (together with the successive reflux of fixed capital and the money-capital required in every labor-process for variable capital) must play an important role, as soon as the credit system develops, and must at the same time be one of its foundations.
Let us assume that the time of circulation in our illustration is contracted from 3 weeks to 2. This is not to be a normal change, but due, say, to prosperous times, shortened terms of payment, etc. The capital of 600 p. st., which is expended during the working period, flows back one week earlier than needed, it is therefore released for this week. Furthermore, in the middle of the working period, as before, 300 p. st. are released (a portion of those 600 p. st.), but in this case for 4 weeks instead of 3. There are then on the money market 600 p. st. for one week, and 300 p. st. for 4 weeks instead of 3. As this concerns not one capitalist alone, but many, and occurs at various periods in different businesses, it brings more available money-capital on the market. If this condition last for a long time, production will be expanded, wherever feasible. Capitalists working with borrowed money will bring less demand to bear on the
money-market, whereby it is relieved as much as it is by an increased supply. Or, finally, the sums made superfluous by the mechanism are thrown definitely on the money-market.
In consequence of the contraction of the period of turnover from 3 weeks to 2, and thus of the period of turn-over from 9 weeks to 8, one ninth of the advanced total capital becomes superfluous. The working period of 6 weeks can now be kept going as continuously with 800 p. st. as formerly with 900. One portion of the value of the commodity-capital, equal to 100 p. st., therefore persists in the form of money-capital without performing any more functions as a part of the capital advanced for the process of production. While production is continued on the same scale and with other conditions, such as prices, etc., remaining equal, the value of the advanced capital is reduced from 900 to 800 p. st. The remainder of the originally advanced value, to the amount of 100 p. st., is released in the form of money-capital. As such it passes over into the money-market and forms an additional portion of the capitals serving in that capacity.
This shows the way in which a plethora of money may arise—quite apart from the reason that the supply of money may be greater than the demand for it; this eventuality causes always but a relative plethora, which occurs, for instance, in the “melancholy period” opening a new cycle after a commercial crisis. In our case we speak of a plethora in the sense that a definite portion of the capital advanced for the promotion of the entire process of social reproduction, including the process of circulation, becomes superfluous and is, therefore, released in the form of money-capital. This plethora comes about by the mere contraction of the period of turn-over, while the scale of production and prices remain the same. The amount of money in the circulation, whether great or small, did not exert the least influence on this.
Let us assume, on the other hand, that the period of circulation is prolonged from 3 weeks to 5. In that case, the reflux of the advanced capital takes place 2 weeks too late at the very next turn-over. The last part of the process
of production of this working period cannot be carried on, the mechanism of the turn-over of the advanced capital itself interfering. In case of a longer duration of this condition, a contraction of the process of production, a reduction of its volume, might take place, just as an extension did in the previous case. But in order to continue the process on the same scale, the advanced capital would have to be increased by 2-9, or 200 p. st., for the entire duration of the prolongation of the circulation period. This additional capital can be obtained only from the money-market. If, then, the prolongation of the period of circulation applies to one or more great lines of business, it may cause a pressure on the money-market, unless this effect is compensated by some counter-effect from some other direction. In this case likewise it is evident and obvious that such a pressure is not in the least due to a change in the prices of the commodities nor to the quantity of the existing means of circulation.
(The preparation of this chapter for publication has given me no small amount of difficulties. Expert as Marx was in algebra, the handling of figures in arithmetic nevertheless gave him a great deal of trouble and he lacked especially the practice of commercial calculation, although he left behind a ponderous volume of computations in which he had practiced by many examples the entire variety of commercial reckoning. But a knowledge of the various modes of calculation and a practice in the daily practical calculations of the merchant are by no means the same. Consequently Marx entangled himself to such an extent in his computation of turn-overs, that the result, so far as he completed his work, contained various errors and contradictions. In the diagrams given above, I have preserved only the simplest and arithmetically correct data, and my reason for so doing was mainly the following:
The indefinite results of this tedious calculation have led Marx to attribute an undeserved importance to a circumstance, which, in my opinion, has actually little significance. I refer to that which he calls the “release” of money-capital. The actual state of affairs, based on the above premises, is this:
No matter what may be the proportion in the magnitude of the working and circulation periods, or of capital I and II, there is returned to the capitalist, in the form of money, at the end of the first turn-over, in regular intervals of the duration of one working period, the capital required for each working period, a sum equal to capital I.
If the working period is 5 weeks, the circulation period 4 weeks, and capital I 500 p. st., then a sum of money equal to 500 p. st. flows back periodically at the end of the 9th, 14th, 19th, 24th, 29th, etc., week.
If the working period is 6 weeks, the circulation period 3 weeks, and capital I 600 p. st., then 600 p. st. flow back periodically at the end of the 9th, 15th, 21st, 27th, 33rd, etc., week.
Finally, if the working period is 4 weeks, the circulation period 5 weeks, and capital I 400 p. st., then 400 p. st. are periodically returned at the end of the 9th, 13th, 17th, 21st, 25th, etc., week.
Whether any of this returned money is superfluous, and thus released, for the current working period, and how much of it, makes no difference. It is assumed that production continues uninterruptedly on the same scale, and in order that this may be possible, money must be available and must, therefore, flow back, whether “released” or not. If production is interrupted, release stops likewise.
In other words: There is indeed a release of money, a formation of latent, or merely potential, capital in the form of money. But it takes place under all circumstances, and not only under the conditions enumerated especially in the above analysis; and it takes place on a larger scale than that assumed there. So far as circulating capital I is concerned, the industrial capitalist, at the end of each turn-over, is in the same situation as at the establishment of his business: he has all of it in his hands in one bulk, while he can convert it only gradually back into productive capital.
The essential point in the above analysis is the demonstration that, on one hand, a considerable portion of the industrial capital must always be available in the form of money, and, on the other hand, a still more considerable
portion must temporarily assume the form of money. This proof is, if anything, still more emphasized by these additional remarks of mine.—F. E.)
We had assumed that prices remained the same and the scale of production remained unaltered, while, on the other hand, the time of circulation was either contracted or expanded. Now let us assume, on the contrary, that the period of turn-over remains the same, likewise the scale of production, while prices change, that is to say, either the prices of the raw materials, auxiliaries, and labor-power rise or fall, or those of the two first-named elements alone. Take it, that the price of raw materials, auxiliaries, and labor-power falls by one half. In that case, the capital to be advanced in our above examples would be 50 instead of 100 p. st. per week, and that for the period of turn-over of 9 weeks, 450 p. st., instead of 900. A sum of 450 p. st. of the advanced capital is released in the form of money-capital, but the process of production continues on the same scale and with the same period of turn-over, and with the same sub-division as before. The quantity of the annual product likewise remains the same, but its value has fallen by one half. This change, which is at the same time accompanied by a change in the demand and supply of money-capital, is due neither to an acceleration of the turn-over, nor to a change in the quantity of money in circulation. On the contrary. A fall in the value, or price, of the elements of productive capital by one half would first have the effect of reducing by one half the capital-value to be advanced for the continuation of the business of X in the same scale, so that only one half of the money would have to be thrown on the market by the business of X, since the business of X advances this capital-value first in the form of money, of money-capital. The amount of money thrown into circulation would have decreased, because the prices of the elements of production had fallen. This would be the first effect.
In the second place, one half of the originally advanced
capital of 900 p. st. or 450 p. st., which (a) passed alternately through the forms of money-capital, productive capital, and commodity-capital, and (b) existed simultaneously and continuously side by side partly in the form of money-capital, partly in the form of productive capital, partly in the form of commodity-capital, would be eliminated from the rotation of the business of X, and thus come into the money market as an additional capital, affecting it as such. These released 450 p. st. serve as money-capital, not because they have become superfluous for the operation of the business of X, but because they were a constituent portion of the original capital-value, so that they are intended for further service as capital, not as mere means of circulation. The next form in which they may serve as capital is that of money on the money-market. Or, the scale of production (apart from fixed capital) might be doubled. In that case a productive process of double the previous volume would be carried on with a capital of 900 p. st.
If, on the other hand, the prices of the circulating elements of productive capital were to increase by one half, it would require 150 p. st. per week instead of 100 p. st., or 1,350 instead of 900 p. st. An additional capital of 450 p. st. would be needed to carry on production on the same scale, and this would exert a pressure to that extent, according to the condition of the money-market, on the quotations of money. If all the capital available on this market were then engaged, there would be an increased competition for available capital. If a portion of it were unemployed, it would to that extent be called into action.
But, in the third place, given a certain scale of production, the velocity of the turn-over and the prices for the circulating elements of productive capital remaining the same, the price of the product of the business of X may rise or fall. If the price of the commodities supplied by the business of X falls, the price of his commodity-capital of 600 p. st., which it threw continually into circulation, sinks, for instance, to 500 p. st. In that case, one sixth of the value of the advanced capital does not flow back from the process of circulation, (the surplus-value contained in the commodity-capital
is not considered here), and it is lost in circulation. But since the value, or price, of the elements of production remains the same, this reflux of 500 p. st. suffices only to replace 5-6 of the capital of 600 p. st. engaged in the process of production. It requires therefore an addition of 100 p. st. of money-capital to continue production on the same scale.
Vice versa, if the price of the product of the business of X were to rise, then the price of the commodity-capital of 600 p. st. would be increased, say to 700 p. st. One seventh of this price, or 100 p. st., does not come from the process of production, has not been advanced in it, but flows from the process of circulation. But only 600 p. st. are needed to replace the elements of production. Therefore 100 p. st. are set free.
It does not fall within the scope of the present analysis to ascertain why, in the first case, the period of turn-over is abbreviated or prolonged, why, in the second case, the prices of raw materials and auxiliaries, in the third case, those of the products supplied by the business, rise or fall.
But the following points fall under this analysis:
According to the assumptions of our example, one ninth less of the advanced total capital is needed after the contraction of the period of circulation, so that the total capital is reduced from 900 to 800 p. st. and 100 p. st. of money-capital are released.
The business of X supplies the same as ever a six weeks’ product of the same value of 600 p. st., and as work continues without interruption during the entire year, the same quantity of products, valued at 5,100 p. st., is supplied in 51 weeks. There is, then, no change so far as the quantity and price of the product thrown into circulation by this business are concerned, nor in the terms of time in which it throws its product on the market. But 100 p. st.
are released, because the requirements of the productive process are satisfied with 800 instead of 900 p. st., after the contraction of the period of circulation. The released 100 p. st. of capital exist in the form of money-capital. But they do not by any means represent that portion of the advanced capital, which would have to serve continually in the form of money-capital. Let us assume that 4-5, or 480 p. st. of the advanced circulating capital are continually invested in material elements of production, and 1-5, or 120 p. st., in labor-power. Then the weekly investment in materials of production would be 80 p. st., and in labor-power 20 p. st. Of course, capital II, of 300 p. st., must also be divided into 4-5, or 240 p. st., for materials of production, and 1-5, or 60 p. st., for wages. The capital invested in wages must always be advanced in the form of money. As soon as the commodity-product to the amount of 600 p. st. has been reconverted into money, 480 p. st. of it may be transformed into materials of production (productive supply), but 120 p. st. retain their money-form, in order to serve in the payment of wages for six weeks. These 120 p. st. are the minimum of the returning capital of 600 p. st., which must always be renewed in the form of money-capital and so replaced, and therefore this minimum must always be kept on hand as that portion of the advanced capital which serves in its money-form.
Now, if 100 p. st. of the capital of 300 p. st. periodically released for three weeks, and likewise divided into 240 p. st. of a productive supply and 60 p. st. of wages, are entirely eliminated in the form of money-capital by the contraction of the circulation time, if they are completely removed from the mechanism of the turn-over, where does the money for these 100 p. st. of money-capital come from? This amount consists only one fifth of money-capital periodically released within the turn-overs. But four fifths, or 80 p. st., are already replaced by an additional productive supply of the same value. In what manner is this additional productive supply converted into money, and whence comes the money for this conversion?
If the contraction of the period of circulation has become a fact, then only 400 p. st. of the above 600, instead of 480,
are reconverted into a productive supply. The other 80 p. st. are retained in their money-form and constitute, together with the above 20 p. st. for wages, the 100 p. st. eliminated from the process. Although these 100 p. st. come from the circulation by means of the purchase of the 600 p. st. of commodity-capital and are now withdrawn from it, because they are not re-invested in wages and materials of production, yet it must not be forgotten that, in their money-form, they are once more in that form in which they were originally thrown into circulation. In the beginning 900 p. st. were invested in a productive supply and wages. Now only 800 p. st. are required in order to carry along the same productive process. The 100 p. st. thus withdrawn in money now form a new money-capital seeking investment, a new constituent part of the money-market. True, they were previously periodically in the form of released money-capital and of additional productive capital, but these latent forms were the conditions for the promotion and continuity of the process of production. Now they are no longer needed for this purpose, and for this reason they form a new money-capital and a constituent part of the money-market, although they are neither an additional element of the existing social money-supply (for they existed at the beginning of the business and were thrown by it into the circulation), nor a newly accumulated hoard.
These 100 p. st. are now indeed withdrawn from circulation inasmuch as they are a portion of the advanced money-capital and are no longer employed in the same business. But this withdrawal is possible only because the conversion of the commodity-capital into money, and of this money into productive capital, in the metamorphosis C’—M—C, is accelerated by one week, so that the circulation of the money engaged in this process is likewise hastened. This sum is withdrawn from circulation, because it is no longer needed for the turn-over of the capital of X.
It has been assumed here, that the capital belongs to him who invests it. But if he had borrowed it, nothing would be altered in these conditions. With the contraction of the
period of circulation, he would need only 800 p. st. of borrowed money instead of 900. This sum of 100 p. st., if returned to the lender, forms nevertheless 100 p. st. of new money-capital, only in the hands of Y instead of X. If the capitalist X receives his materials of production to the amount of 480 p. st. on credit, so that he has only to advance 120 p. st. for wages out of his own pocket, then he would now have to purchase 80 p. st.’s worth of goods less on credit, so that this sum would constitute an excess of commodity-capital for the capitalist giving it on credit, while the capitalist X would have released 20 p. st. of his money.
The additional supply for production is now reduced by one-third. It consisted of 240 p. st.’s worth of goods, constituting four-fifths of additional capital II of 300 p. st., but now it consists only of 160 p. st.’s worth of goods. It is an additional productive supply for 2 instead of 3 weeks. It is now renewed every 2 weeks, instead of every 3, but only for the next 2 instead of the next 3 weeks. The purchases, for instance, on the cotton market, are repeated more frequently and in smaller portions. The same portion of cotton is withdrawn from the market, for the quantity of the product remains the same. But the withdrawal is distributed differently in time, extending over a longer period. Take it that it is a question of 3 months or 2. If the annual consumption of cotton amounts to 1,200 bales, the sales in the first case will be:
January 1, 300 bales, remaining in storage 900 bales.
April 1, 300 bales, remaining in storage 600 bales.
July 1, 300 bales, remaining in storage 300 bales.
October 1, 300 bales, remaining in storage 0 bales.
But in the second case, the situation would be:
January 1, sold 200, remaining in storage 1,000 bales.
March 1, sold 200, remaining in storage 800 bales.
May 1, sold 200, remaining in storage 600 bales.
July 1, sold 200, remaining in storage 400 bales.
September 1, sold 200, remaining in storage 200 bales.
November 1, sold 200, remaining in storage 0 bales.
In other words, the money invested in cotton flows back completely one month later, in November instead of October.
If, therefore, one-ninth of the advanced capital, or 100 p. st., is eliminated in the form of money by the contraction of the period of circulation, and if these 100 p. st. are composed of 20 p. st. of periodically released money-capital for the payment of wages, and of 80 p. st. existing periodically as a released productive supply for one week, then the reduction of the productive supply in the hands of the manufacturer, so far as these 80 p. st. are concerned, corresponds to an increase of the cotton supply in the hands of the cotton dealer. The same cotton retains as much longer in his warehouse the form of a commodity as it stays a shorter time in the hands of the manufacturer under the form of a productive supply.
Hitherto we assumed that the contraction of the time of circulation was due to the fact that X sold his articles more rapidly, received his money for them in a shorter time, or, in the case of credit, that his time of payment was reduced. In that case, the contraction was attributed to the sale of the commodities, to the conversion of commodity-capital into money-capital, C’—M, the first phase of the process of circulation. But it might also be due to the second phase, M—C, and hence to a simultaneous change, either in the working period, or in the time of circulation of the capitals Y, Z, etc., which supply the capitalist X with the elements of production of his circulating capital.
For instance, if cotton, coal, etc., with the old methods of transportation, are three weeks in transit from their place of production or storage to the location of the factory of the capitalist X, then the minimum supply of X up to the arrival of new transports must last for three weeks. So long as cotton and coal are in transit, they cannot serve as means of production. They are then rather an object of labor in the transportation industry and of the capital invested in it, they represent for the producer of coal or the dealer in cotton a commodity-capital in process of circulation. Now let improvements in transportation reduce the transit to two weeks. Then the productive supply can be transformed from a three-weekly into a fortnightly supply. This releases the additional capital of 80 p. st. set aside for the
purchase of the weekly supply, and likewise the 20 p. st. for wages, because the turned-over capital of 600 p. st. returns one week earlier.
On the other hand, if the working period of the capital invested in raw materials is contracted (examples of this case were given in the preceding chapter), so that the possibility of renewing the productive supply in a shorter time is given, then the productive supply may be reduced, the interval between the periods of renewal being shortened.
If, vice versa, the time of circulation and thus the period of turn-over are prolonged, then advance of additional capital is necessary. This must come out of the pockets of the capitalist himself, provided he has any additional capital. If he has, it will be invested in some way, in some portion of the money-market. In order to make it available, it must be detached from its old form, for instance, stocks must be sold, deposits withdrawn, so that there is indirectly an effect on the money-market, also in this case. Or, he must borrow it. As for that portion of the additional capital which is to be invested in wages, it must under normal conditions always be advanced in the form of money, and the capitalist X exerts to that extent his share of a direct pressure on the money-market. But so far as that portion is concerned which must be invested in materials of production, money is indispensable only if he must pay for them in cash. If he can get them on credit, this does not exert any direct influence on the money-market, because the additional capital then is directly advanced in the form of a productive supply, not in the first instance in money. But if the lender throws the note received from X directly on the market and discounts it, this would to that extent influence the money-market indirectly.
If the price of the materials of production drops by one-half, then a working period of 6 weeks requires only 240 p. st. instead of 480 for their purchase, and an additional capital of only 120 p. st. instead of 240 p. st. Capital I is then reduced from 600 p. st. to 240 plus 120, or 360 p. st., and capital II from 300 to 120 plus 60, or 180 p. st. The total capital of 900 is therefore reduced to 360 plus 180, or 540 p. st. A sum of 360 p. st. is eliminated.
This eliminated and now unemployed capital, which seeks investment in the money-market, is nothing but a portion of the originally advanced capital of 900 p. st. This portion has become superfluous by the fall in the price of the materials of production, so long as the business is carried along on the same scale and not expanded. If this fall in prices is not due to accidental circumstances, such as a rich harvest, over-supply, etc., but to an increase of productive power in the line which supplies the raw materials, then this money-capital is an absolute addition to the money-market, or in general to the capital available in the form of money-capital, because it no longer constitutes an integral portion of the capital already invested.
In this case, a fall in prices means a loss of a portion of capital, which must be made good by a new advance of additional money-capital. This loss of the seller may be recovered by the buyer. It is recovered by the buyer directly, if the market price of the product has fallen merely through an accidental fluctuation of the market and rises once more to its normal level. It is recovered indirectly, if the change of prices is caused by a change of value reacting on the product, and if this product passes as an element of production into another sphere of production and there releases capital to that extent. In either case, the capital lost by X, for the replacement of which he touches the money-market, may be introduced by his business friends as a new additional capital. Then there is a simple transfer of capital.
If, on the other hand, the price of the product rises, then a portion of the capital which was not advanced is taken away from the circulation. This is not an organic portion of the capital advanced in this process of production and constitutes, therefore, eliminated money-capital, unless production is expanded. As we assumed that the prices of the elements of production were fixed before the product came upon the market, an actual change of value might have caused the rise of prices to the extent that it is retroactive, causing a subsequent rise in the price of raw material. In such an eventuality, the capitalist X would realize a gain on his product circulating as a commodity-capital and on his available productive supply. This gain would give him an additional capital, which would be needed for the continuation of his business with the new and higher prices of the elements of production.
Or, the rise of prices is but temporary. To the extent that additional capital is then needed on the side of the capitalist X, the same amount is released on another side, inasmuch as his product is an element of production for other lines of business. What the one has lost, the other wins.
Part II, Chapter XVI.