Capital II, Chapter 4 - Part 4

Its only when value relations are constant that the cycle is normal, or is practically normal when disturbances to value relations balance each other out. But, the more of these disturbances that occur, the more capital has to hold money-capital to smooth out these disturbances.

“... we have here another circumstance to be added to those others which transform the function of the industrial capitalist more and more into a monopoly of big money-capitalists, who may operate singly or in association.” (p 110)

Any change in capital-value has a different appearance when viewed from the perspective of M – M' than for P...P and C' -C'.

M – M' is the circuit of newly invested money-capital. If the value of means of production has fallen, then less of this money-capital has to be laid out to buy a given quantity of it. That means that to start a business, of any given size, less capital is required, because this size is determined by the physical quantity of means of production needed, not the value of these means of production. Moreover, this size is further determined by the Technical Composition of Capital, not by the Value Composition. The reverse is the case if the value of means of production rises. But,

“In both cases it is only the amount of the money-capital required for new investment that is affected. In the former case money-capital becomes surplus, in the latter it is tied up, provided the accession of new individual industrial capital proceeds in the usual way in a given branch of production.” (p 111)

That is the case because any increase in the value of means of production – Constant Capital – is itself reflected (transferred to) the end product, and it is thereby automatically reproduced. For example, assuming simple reproduction:-

(1) C £1,000 (1,000 kilos of cotton) + V £1,000 (100 hours of labour) + S £1,000 = E £3,000.

If the value of the cotton rises by 10% prior to the yarn being sold, this is reflected in the value of the yarn, so although it was bought for £1,000, its value is £1,100. So,

(2) C £1,100 (1000 kilos of cotton) + V £1,000 (100 hours of labour) + S £1,000 = E £3,100

Consequently, in the next cycle the capital value consumed is automatically reproduced in the value of the end product. £1,000 (Surplus Value) is consumed unproductively by the capitalist, leaving £2,100 of capital value, £1,100 used to replace the 1000 kilos of cotton, £1,000 to replace the 100 hours of labour consumed.

“The circuits P ... P and C' ... C' present themselves as M ... M' only to the extent that the movement of P and C' is at the same time accumulation, hence to the extent that additional m, money, is converted into money-capital; here, too, we do not take into consideration the reaction of such changes in value on those constituent parts of capital which are engaged in the process of production. It is not the original expenditure which is directly affected here, but an industrial capital engaged in its process of reproduction and not in its first circuit; i.e., C' ... C, the reconversion of commodity-capital into its elements of production, so far as they are composed of commodities.” (p 111)

In other words, Marx is distinguishing here between the portion of capital that is simply reproduced, and that which is accumulated. Again, this is a weakness of the TSSI, which calculates the rate of profit on the basis of M – M'. But, as Marx points out, M – M' is only the circuit of newly invested Money-Capital. The circuit of existing capital, is P...P i.e. the circuit of productive capital, which assumes its reproduction. The effect of a change in capital-value on these two elements – the capital that is reproduced, and the capital that is accumulated – represented by M and m, is quite clearly different for the reasons described above.

For example, if we assume that instead of simple reproduction all of the surplus value above is accumulated, the effect of a change in value is manifest. So,

(3) C £1,000 (1,000 kilos of cotton) + V £1,000 (100 hours of labour) + S £1,000 = E £3,000

Then in cycle 2.

(4) C £1,500 (1,500 kilos of cotton) + V £1,500 (150 hours of labour) + S £1,500 = E £4,500.

At the heart of expanded reproduction is always
simple reproduction.  The original capital M self
expands as a consequence of the production
process, and extraction of surplus value.  M
becomes M' (M+m).  M continues to circulate
(simple reproduction), but m may be accumulated
or consumed in whole or part.  If its accumulated
it starts its own new cycle separate from M. 

In reality (4) is two separate cycles. Firstly, M, which becomes M-C (MP +L) is reproduced. It is existing capital. The real circuit here is not M – M', although it has that appearance. The real circuit is P...P. So, M = £2,000, only because C(MP) = £1,000, and C(L) = £1,000. If the value of means of production changes then the value of M has to be changed accordingly. Here, M becomes C(MP+L), which goes through the process of production P, resulting in the production of C' which is really C + c, and is converted into M', again which is really M + m. The circuits of M and m then divide. M is merely the circuit of productive capital as it is reproduced. To the extent that m is accumulated, it is a new circuit of capital.

What appears on the surface as one new circuit of capital is really two. We have the circuit of the reproduction of the original capital, which is really P..P, seen as, M £2,000 – C (MP + L) £2,000 … P... C' (C + c) £3,000 – M' (M + m) £3,000, which then becomes, M £2,000 – C (MP + L) £2,000 … P … C' (C + c) £3,000 - M' (M + m) £3,000, and we also have the circuit of the accumulated capital, which really is M-M'. That is, M £1000 - C (MP + L) £1,000 … P … C' (C + c) £1,500 - M' (M + m) £1,500.

But, if the value of cotton rises by 10% then the importance of Marx's breaking down these separate circuits in this way, becomes apparent. We have,

(5) C £1,100 (1,000 kilos of cotton) + V £1,000 (100 hours of labour) + S £1,000 = E £3,100.

The original capital-value of the cotton consumed is equal to £1,100 (however much the original money sum laid out to buy it was). That value is transferred to the end product, and thereby reproduced within it. So, in the next cycle, M recirculates as,

(6) C £1,100 (1,000 kilos of cotton) + V £1,000 (100 hours of labour) + S £1,000 = E £3,100.

But, again M' is actually M + m. M has recirculated as reproduced capital not as newly invested capital. That is although it appears as the circuit M – M', it is actually P...P. It is only m that now circulates as newly invested capital.

And, as a consequence the result becomes manifest. The surplus value, m, is equal to £1,000. It is accumulated, and has to buy means of production and labour-power. It must do so, in accordance with the Technical Composition of Capital, which requires 100 hours of labour to process 1000 kilos of cotton. The rise in price of cotton has had no effect on the ability to reproduce the cotton consumed in the first cycle, because its value was transferred to, and was reproduced in the end product. M commenced as £1,000 and reappears as £1,100 here not because capital-value has expanded, but simply because the Exchange Value of Cotton has risen relative to money.

If we view the circuit of this capital as we should, not as M-M', but as P...P, then it is clear that nothing has changed in this regard. The circuit commenced with 1000 kilos of cotton, and 100 hours of labour, and the new circuit commences on exactly the same basis. That was illustrated by looking at the result of the 10% price rise under conditions of simple reproduction. It made no difference to the scale of production.

But, that is not the case with m. The rise in price of cotton does impact m, precisely because it is a new investment of capital, and not simply a reproduction of existing capital. Consequently, this £1,000 is divided according to the requirements of the Technical Composition into 476.2 kilos of cotton, and 47.62 hours of labour. The value of these is £523.8 and £476.2 respectively. So, this newly accumulated capital amounts to:

(7) C £523.8 (476.2 kilos of cotton) + V £476.2 (47.62 hours of labour) + S £476.2 = E £1,476.2

Compare this with the accumulation where no price rise occurred. There 500 kilos of cotton valued at £500 was bought, and 50 hours of labour costing £500 was bought to process it. Using Marx's method of analysis of the circuits of Productive and Money Capital then, the effect of a change in value of means of production, on the Rate of Profit and on accumulation can be seen. A rise in price retrospectively changes the value of the Capital laid out, and which is reproduced. It thereby enables this capital to be reproduced on the same scale. However, and precisely for that reason, it reduces the Rate of Profit, because although the amount of Surplus Value is not changed, the proportion of this Surplus Value to the capital laid out (and to be reproduced) necessarily falls.

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