Tuesday, 4 March 2014

Capital II, Chapter 15 - Part 1

Effect of the Time of Turnover on the Magnitude of Advanced Capital

The effect of different rates of turnover of capital has been touched upon previously. In the next two chapters, Marx goes into the effects in more detail. The consequences of changes in the rate of turnover is often ignored by economists. That is a big mistake, as Marx demonstrates. It is especially a mistake, today, when rapid technological, and methodological, changes bring about significant reductions in both the time of production and time of circulation.

Marx begins with an example that includes several simplifying assumptions. So, he takes a commodity where the wear and tear of fixed capital is excluded, and where also surplus value is excluded. In other words, the value of the commodity is made up entirely of circulating capital. That is a certain amount of constant capital, in the form of raw and auxiliary materials, and a certain amount of variable capital, i.e. labour-power.

The time of production is nine weeks, and each week £100 is consumed in constant and variable capital. So, the value of the commodity is £900. It doesn't matter whether this is a single commodity, such as a carriage, or whether it is a batch of some identical commodities e.g. 10,000 metres of linen, provided it is sold in one bundle.

But, in addition to the production time, this commodity also requires three weeks time of circulation. It doesn't matter whether this is because that is how long it takes to sell, on average, or because it is the transit time, or because it is the time to receive payment.

What does matter is that it requires this additional three weeks before money is available from the sale to be used to buy replacement productive capital. So, the total turnover time is 12 weeks. The capital required to ensure continuous production, therefore, is not £900, but £1,200. Marx examines other alternatives.

Firstly, at the end of nine weeks, production could cease for three weeks, until payment was made and replacement productive capital bought. But, capitalist production is based on continuous production. Money laid out, on fixed capital, would lie fallow during this period, if production was not occurring, and it would be depreciating in value.

Alternatively, the firm could spread its £900 capital over the twelve weeks, spending £75 a week, instead of £100. But, this reduction, in the scale of production, may not be possible. Firstly, using existing fixed capital for a shorter period of the day, or less intensively, is not really any different from it lying idle for three weeks. It will still be depreciating in value, because that is a function of time not use. But, its productivity will fall because it will produce a smaller output in a given time. Secondly, it may simply be too inefficient to use the fixed capital on such a reduced basis. Finally, it may not be possible to get round this by reducing the fixed capital. In Volume I, it was demonstrated that a minimum size of business is established, for each industry, below which production cannot be efficiently undertaken. The more capital develops, the larger that minimum size of business becomes.

Marx also excluded, for the purpose of this simplifying example, other extraneous circumstances. For example, if raw material prices rise, after the commodity has been sent to market, its value will not reflect that, and its sale will not make possible the reproduction of the productive capital. So, less material and labour-power would then be bought.

Similarly, if markets are overstocked, market prices will fall below exchange values/prices of production, and so the productive capital will not be reproduced. By contrast, in a boom, market prices may rise above exchange value/price of production, and so there will be a surfeit of circulating capital that will be used to cover employment of additional workers, over-time, purchase of additional materials, employment of spare fixed capital and so on.

For simplicity, Marx assumes that production and circulation proceed on a regular and uniform basis.

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