Karl Marx - "Effect of Turnover Time on Magnitude of Advanced Capital (Chap. 2.15.4)" lyrics

IV. Conclusion From the preceding investigation 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 individual capitals, in two cases: (1) when the working period is equal to the period of circulation, so that the period of turnover is divided into two equal sections; (2) when the period of circulation is longer than the working period, but at the same time is 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 total circulating capital is set free continually and periodically at the close of each working period, beginning with the second turnover. This freed capital is equal to that portion of the total capital which has been advanced for the circulation period, provided the working period is longer than the period of circulation; and equal to that portion of the capital which has to fill up the excess of the circulation period over the working period or over a multiple of working periods, provided the circulation period is longer than the working period. C. It follows that for the aggregate social capital, so far as its circulating part is concerned, the release of capital must be the rule, while the mere alternation of portions of capital functioning successively in the production process must be the exception. For the equality of the working and circulation periods, or the equality of the period of circulation and a simple multiple of the working period, this regular proportionality of the two components of the period of turnover has absolutely nothing to do with the nature of the case and for this reason it can occur on the whole only as a matter of exception. A very considerable portion of the social circulating capital, which is turned over several times a year, will therefore periodically exist in the form of released capital during the annual turnover cycle. It is furthermore evident that, all other circumstances being equal, the magnitude of the released capital grows with the volume of the labour-process or with the scale of production, hence with the development of capitalist production in general. In the case cited under B, (2), because the total advanced capital increases; in B (1), because with the development of capitalist production the length of the period of circulation grows, hence also the period of turnover in those cases where the working period is less than the period of circulation, and there is no regular ratio between the two periods. In the first case for instance we had to invest £100 per week. This required £600 for a working period of 6 weeks, £300 for a circulation period of 3 weeks, totalling £900. In that case £300 are released continually. On the other hand if £300 are invested weekly, we have £1,800 for the working period and £900 for the circulation period. Hence £900 for the circulation period. Hence £900 instead of £300 are periodically set free. D. A total capital of, say £900 must be divided into two portions, as above, £600 for the working period and £300 for the period of circulation. That portion which is really invested in the labour-process is thus reduced by one-third, from £900 to £600; consequently, the scale of production is diminished by one-third. On the other hand the £300 function only to make the working period continuous, in order that £100 may be invested every week of the year in the labour-process. Abstractly speaking, it is all the same whether £600 work during 6 times 8, or 48, weeks (product £4,800) or whether the total capital of £900 is expended during 6 weeks in the labour-process and then lies idle during the 3-week period of circulation. In the latter case, it would be working, in the course of the 48 weeks, 5⅓ times 6, or 32 weeks (product 5⅓ times 900, or £4,800), and lie idle for 16 weeks. But, apart from the greater spoilage of the fixed capital during the idle 16 weeks and apart from the appreciation of labour, which must be paid during the entire year, even if employed only during a part of it, such a regular interruption of the process of production is altogether irreconcilable with the operations of modern big industry. This continuity is itself a productive power of labour. 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, investment per week — £100. In the middle of the second working period, end of the 9th week, £600 return, and only £300 of them must be invested for the remainder of the working period. At the end of the second working period, £300 are therefore released. In what state are these £300? We shall a**ume that ⅓ is invested for wages and ⅔ are for raw and auxiliary materials. Then £200 of the returned £600 exist in the form of money for wages and £400 in the form of 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 exists for 3 weeks in the form of a surplus productive supply, i.e., of a supply exceeding the requirements of one working period. But the capitalist knows that he needs only one half, or £200, of this portion (£400) of the returned capital for the current working period. It will therefore depend on market conditions whether he will immediately reconvert these £200, in whole or in part, into a surplus productive supply, or keep them entirely or partially in the form of money-capital in anticipation of a more favourable market. On the other hand it goes without saying that the portion to be laid out for wages (£200) is retained in the form of money. The capitalist cannot store labour-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 pay for it at the end of the week. At any rate these £100 of the released capital of £300 will therefore have the form of money-capital set free, i.e., 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 constantly between this minimum and maximum. The money-capital thus released by the mere mechanism of the turnover movement (together with that freed by the successive reflux of fixed capital and that required in every labour-process for variable capital) must play an important role as soon as the credit system develops and must at the same time form one of the latter's foundations. Let us a**ume that the time of circulation in our illustration is shortened from 3 to 2 weeks. This is not to be a normal change, but due, say, to prosperous times, shorter terms of payment, etc. The capital of £600, which is laid out during the working period, returns one week earlier than needed. It is therefore released for this week. Furthermore, in the middle of the working period, as before, £300 are released (a portion of those £600), but for 4 weeks instead of 3. There are then, on the money-market £600 for one week and £300 for 4 instead of 3 weeks. As this concerns not one capitalist alone but many and occurs in various periods in different businesses, more available money-capital makes its appearance in the market. If this condition lasts for some time, production will be expanded wherever feasible. Capitalists operating on borrowed money will exercise less demand on the money-market, which eases it as much as increased supply; or finally the sums which have become superfluous for the mechanism are thrown definitely on the money-market. In consequence of the contraction of the time of circulation from 3 weeks to 2, and consequently of the period of turnover from 9 weeks to 8, one-ninth of the total capital advanced becomes superfluous. The 6-week working period can now be kept going as continuously with £800 as formerly with £900. One portion of the value of the commodity-capital, equal to £100, once it has been reconverted into money, persists therefore in the state of money-capital without performing any more functions as a part of the capital advanced for the process of production. While the scale of production and other conditions, such as prices, etc., remain the same, the sum of value of the advanced capital is reduced from £900 to £800. The remainder of the originally advanced value amounting to £100 is eliminated in the form of money-capital. As such it enters the money-market and forms an additional portion of the capitals functioning here. This shows the way in which a plethora of money-capital may arise — and not only in the sense that the supply of money-capital is greater than the demand; this is always only a relative plethora, which occurs for instance in the “melancholy period” opening a new cycle after the end of a crisis. But also in the sense that a definite portion of the capital-value advanced becomes superfluous for the operation of the entire process of social reproduction which includes the process of circulation and is therefore eliminated in the form of money-capital — a plethora brought about by the mere contraction of the period of turnover, while the scale of production and prices remain the same. The amount of money in circulation, whether great or small, did not influence it in the least. Let us a**ume on the contrary that the period of circulation is prolonged from, say, 3 weeks to 5. In that case at the very next turnover the reflux of the advanced capital takes place 2 weeks too late. The last part of the process of production of this working period cannot be carried on further by the mechanism of the turnover of the advanced capital itself. Should this condition last any length of time, a contraction of the process of production, a reduction of its volume, might take place, just as an extension occurred 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, for the entire term of the prolongation of the circulation period. This additional capital can be obtained only from the money-market. If the lengthening of the period of circulation applies to one or several big branches of business, it may exert pressure on the money-market, unless this effect is paralysed by some counter-effect. In this case it is likewise evident and obvious that this pressure, like that plethora before, had nothing whatever to do with a movement either of prices of the commodities or the ma** of existing circulating medium. [The preparation of this chapter for publication presented no small number of difficulties. Firmly grounded as Marx was in algebra, he did not get the knack of handling figures, particularly commercial arithmetic, although there exists a thick batch of copybooks containing numerous examples of all kinds of commercial computations which he had solved himself. But knowledge of the various methods of calculation and exercise in daily practical commercial arithmetic are by no means the same, and consequently Marx got so tangled up in his computations of turnovers that besides places left uncompleted a number of things were incorrect and contradictory. In the tables reproduced above I have preserved only the simplest and arithmetically correct data. My reason for doing so was mainly the following: The uncertain results of these painstaking calculations led Marx to attach unwarranted importance to a circumstance, which in my opinion, has actually little significance. I refer to what he calls the “release” of money-capital. The actual state of affairs, based on the above a**umptions, is this: No matter what may be the ratio between the working period and circulation time, hence between capital I and capital II, there is returned to the capitalist, in the form of money, after the end of the first turnover and thereafter at regular intervals equal to the duration of one working period, the capital required for one working period, i.e., a sum equal to capital I. If the working period is 5 weeks, the circulation time 4 weeks, and capital I £500, then a sum of money equal to £500 returns each time at the end of the 9th, 14th, 19th, 24th, 29th week, etc. If the working period is 6 weeks, the circulation time 3 weeks, and capital I £600, then £600 return at the end of the 9th, 15th, 21st, 27th, 33rd week, etc. Finally, if the working period is 4 weeks, the circulation time 5 weeks, and capital I £400, then £400 are returned at the end of the 9th, 13th, 17th, 21st, 25th week, etc. Whether any, and if so how much, of this returned money is superfluous and thus released for the current working period is immaterial. It is a**umed that production continues uninterruptedly on the current scale, and in order that this may come about money must be available and must therefore return, whether “released” or not. If production is interrupted, release stops likewise. In other words: There is indeed a release of money, a formation therefore of latent, merely potential, capital in the form of money. But it takes place under all circumstances and not only under the special conditions set forth in the text; and it comes about on a larger scale than that a**umed in the text. So far as circulating capital I is concerned, the industrial capitalist is in the same situation at the end of each turnover as when he established his business: he has all of it in one bulk, while he can convert it back into productive capital only gradually. The essential point in the text is the proof that on the one hand a considerable portion of the industrial capital must always be available in the form of money and that on the other hand a still more considerable portion must temporarily a**ume the form of money. The proof is, if anything, rendered stronger by these additional remarks of mine. — F. E.]