Second Case. A Change in the Price of Materials of Production, All Other Circumstances Remaining the Same.
Marx examines what happens if everything else is held constant, but the price of materials is halved.
Of the £900 advanced capital, 4/5 = £720, was previously spent on materials, and £180 on wages. If the price of materials falls by 50%, only £360 is required for 9 weeks, or £240 for the 6 week working period.
£180 is still required for wages, so the total capital advanced for 9 weeks, is £180 + £360 or £540. That means £360 of the original £900 capital is now released. If the business is not to be expanded, this released capital now becomes superfluous, and enters the money market, in search of some other venture to finance.
“If this fall in prices were not due to accidental circumstances (a particularly rich harvest, over-supply, etc.) but to an increase of productive power in the branch of production which furnishes the raw materials, then this money-capital would be an absolute addition to the money-market, and to the capital available in the form of money-capital in general, because it would no longer constitute an integral part of the capital already invested.” (p 295-6)
In other words, this money could only act as permanently released capital, if the fall in prices was itself permanent rather than a temporary fluctuation in market prices. If it were the latter, it would be likely to be cancelled out by a future variation in the opposite direction.
But, a fall in price caused by a fall in value is itself reflected in the fact that, as a consequence of the fall in the value of materials, goes a fall in the value of the end product. Less money-capital is advanced to purchase materials, and a smaller corresponding amount is returned from the sale of the end product. Less capital circulates in this sphere (£360) and is spun off to elsewhere.
Third Case. A Change in the Market Price of the Product Itself.
It should be noted that this is a change in its market price not its value. A change in market price arises as a consequence of changes in its demand and supply. A change in its value arises from a change in the socially necessary labour time required for its production.
Suppose a commodity is produced by the average productivity, but, when it is brought to market, for some reason, for example a change of fashion, demand for it has fallen sharply. Supply exceeds demand and prices fall. Technically, too much labour-time has been spent on its production, but this may be merely a temporary situation. If the product is ice cream, and this week is cold, demand next week, when there is a heatwave, could more than compensate for this week's low demand.
Either way, the fact that the commodity has to be sold at a market price below its exchange value represents a capital loss for the seller. In order to continue production, on the same scale they will have to make it good with additional capital from their own pocket, or borrowing.
The loss to the seller may be a gain to the buyer. If the price of ice cream falls this week, because of bad weather, the producers and wholesalers may suffer a loss as prices fall. But, vendors who buy up these cheap supplies will benefit if they sell them next week during the height of a heat wave. That is a direct gain for the buyer. But, the buyer may gain,
“Indirectly, if the change of prices is caused by a change of value reacting on the old product and if this product passes again, as an element of production, into another sphere of production and there releases capital pro tanto.” (p 296)
In this case, the producer of X has sent it to market having expended say £80 in materials and £20 in wages on its production. In the meantime, the value of the materials falls to £70, which can now only be recovered in its price. It falls to £90. If X is used in the production of Y, the producers of Y gain indirectly, because £10 of capital, they previously advanced, has now been released.
But, the producer of X does not really suffer a loss here. The £90 they receive for X is enough to buy the replacement labour-power, and the materials at its new price of £70. They can continue production on the same scale. They may have suffered a paper capital loss, because the historic price paid for these materials was £80, and are now worth only £70, but not only is the £70 they now receive, as part of the price of their own commodity, sufficient to reproduce this capital, but because the capital they now have to advance for production has been reduced by £10, their rate of profit is correspondingly increased. In short, any surplus value they produce would now buy a greater quantity of these materials than it did previously.
The same is true in reverse if prices rise. A rise in market price not related to a change in value, provides a capital gain to the seller, and capital loss to the buyer. But, a higher price could also be due to a change in its value resulting from productivity changes arising after it was sent to market. If its linen, for example, and the price of cotton rises by 50% (say a £10 rise) then the price of linen will rise by £10 also, even though this £10 was never advanced for its production.
The seller of the linen appears to make a £10 gain, but in reality, they need this extra £10 in order to replace the cotton consumed in production. The value of the linen is based not on the money-capital advanced for its purchase, its historic price, or the labour-time embodied in the productive capital it bought, but on the labour-time currently required to reproduce it. In fact, value is not intrinsic to a commodity; it is not somehow embodied, and fixed within it. The commodity is only a shell, which at any time acts as a receptacle within which a given portion of society's available social labour-time is kept. Because the latter is constantly changing, the value residing in each commodity is constantly changing too.
“As we have assumed that the prices of the elements of the product were given before it was brought to market as commodity-capital, a real change of value might have caused the rise of prices since it acted retroactively, causing a subsequent rise in the price of, say, raw materials. In that event capitalist X would realise a gain on his product circulating as commodity-capital and on his available productive supply. This gain would give him an additional capital, which would now be needed for the continuation of his business with the new and higher prices of the elements of production.” (p 296)
It can be seen, from these examples, why interest rates have fallen over the last 30 years. Not only have huge rises in productivity brought about a massive rise in the rate and volume of profit, but the same causes have also reduced the value of constant and variable capital, bringing about the kind of “freeing” of money-capital into the money market described by Marx above. In addition, those same increases in productivity have brought about a significant reduction in both the working period and circulation period of capital, throwing even greater amounts of “freed” money-capital into money markets, continually pushing down the global rate of interest.
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