Wednesday, 19 March 2014

1. The Working Period Equal to the Circulation Period

This occurs, in reality, only as an exception. Marx says, its a good starting point, because it illustrates relations in the simplest way. It allows us to present the original and the additional capital, as though they are two completely separate capitals, like two separate firms. Capital 1 operates in the first working period, and then lies fallow whilst it circulates, and Capital 2 operates in the second working period, then lying fallow in circulation, whilst Capital 1 is in the next working period. So, there is never any overlap between the two.

“With the exception of the first period, either of the two capitals is therefore advanced only for its own period of turnover.” (p 270-1)

Marx sets out the relations for such a situation in a series of tables, which I will come to later. However, he assumes a turnover period of 9 weeks, meaning a working period of 4.5 weeks, and the same for the circulation period. This seems to me to be unnecessarily complicated, so before detailing that, let me try to set out the basic principles instead using a turnover period of 4 weeks, 2 weeks for the working period, 2 weeks for circulation.

Marx sets out two basic laws, which these examples are intended to demonstrate.

“1) the number of working periods of the total capital advanced is equal to the sum of the value of the annual product of both advanced portions of capital divided by the total capital advanced, and

2) the number of turnovers made 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 too we must consider both portions of capital as if they performed turnover movements entirely independent of each other.” (p 274-5)

So, in a 52 week year, Capital 1, will have working periods in weeks, 1-2, 5-6, 9-10,...49-50. Amounting to 13 working periods. Capital 2 will have working periods in weeks 3-4, 7-8, 11-12, … 51-52. Again amounting to 13 working periods. Looking at Marx's two propositions above, the total capital advanced by Capital 1, if we assume £100 per week is advanced, amounts to £200 in each working period. It advances no capital in the circulation periods, weeks 3-4, and so on. The same is true for Capital 2.

So, Capital 1 lays out £2,600 in a year, and Capital 2 lays out the same amount. A total of £5,200 is laid out in a year, and because we have assumed no surplus value, this is also the value of the output. If we divide the value of this total output, by the total advanced by both capitals we get the number of working periods. Both Capital 1 and 2 advance £200 each = £400. £5,200/ £400 = 13, which in fact we already know to be the number of working periods. This is tautologically true in this instance because of the assumptions that have been made, but the further examples will demonstrate it is true when other assumptions are made.

If we look now at the second proposition, in relation to turnover, we know that the turnover period is 4 weeks – 2 weeks working period and 2 weeks circulation time. Capital 1, turns over in weeks 4,8,12,...52. In other words 13 complete turnovers. However, Capital 2 turns over in weeks 6,10, 14,...54. But week 54 is in the following year. So, Capital 2 only completes 12 turnovers. At week 52, it has completed its working period, and the capital has become commodity capital, in circulation. But, at this point it is only half way through its 13th turnover. It has turned over 12.5 times.

The total amount turned over by Capital 1 is 13 x £200 = £2,600. The amount turned over by Capital 2 is 12.5 times £200 = £2,500. The total amount turned over is then £2,600 + £2,500 = £5,100. Using proposition 2, we then have £5,100 / £400 (the total advanced capital) = 12.75.

So, if we think of these two capitals as two firms constituting an industry, the capital of that industry would have turned over 12.75 times, and would have had 13 working periods. We can extend this principle to represent the total social capital. The reason this is important, is because of what has been said previously about the influence of the rate of turnover on the rate of profit, which in turn influences the rate of capital accumulation i.e. the pace of growth.

But, similarly, looking at things from the perspective of the number of working periods is also important, because it is only during the working period i.e. production, that surplus value is created. The more working periods, the more frequently surplus value is produced. The surplus value is only realised in the circulation period.

The circulation period is also important for another reason. In reality, if we look at Capital 1 and 2, not as two separate capitals, but as Capital 2, being an additional capital to Capital 1, that allows production to be continuous, we see another feature. Now, capital is returned not every 4 weeks, but every two weeks, apart from the first working period. Capital 1, sells its output in week 4, bringing in £200. But, Capital 2, sells its output in week 6, bringing in another £200. From that point, capital returns every 2 weeks. Moreover, if we take any 4 week period after week 4, we will see that £400, or the whole advanced capital is returned – turned over. In short, after the first turnover period is up, capital is returned at periods equal in length not to the turnover period, but the working period. The further examples will show this is the case not just where the working period and circulation period are equal in length.