Thursday, 3 April 2014

Capital II, Chapter 15 - Part 16

Continuing the example from Part 15, then suppose the circulation period is shortened because prosperity means that goods are sold faster, and payments settled more quickly. If it falls from 3 weeks to 2, the £600 will be returned in week 8. But, the additional capital will have been operating from week 7, and still have enough left to last another week.

Moreover, when part of the £600 supplements it from the end of week 9, that together with the £300 will be returned in week 12. The result is that more capital is set free and finds its way into the money market.

“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.” (p 286)

The consequence is a fall in interest rates, and the opposite condition results in interest rates rising.

The fall in the turnover time due to a reduction in circulation time means a portion of capital becomes superfluous. The working period can continue anew with just £800 rather than £900. The other £100 is then set free to enter the money market.

Marx distinguishes this plethora of capital from that which arises in the “melancholy period”, which follows the end of a crisis. In the latter, the rate of profit may rise, as the opening of a new cycle sees demand rise, whilst capital may be, at first, reluctant to invest, until it is sure that conditions really are improving.

By contrast, the reduction in the circulation time reduces the amount of capital that has to be advanced, irrespective of the scale of production or prices. The opposite is true where the circulation time increases. That means it takes longer for the advanced capital to return, and so additional capital has to be advanced, to ensure that production is continuous. Alternatively, the scale of production has to be cut back.

“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 mass of existing circulating medium.” (p 287)

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