Marx gives the example of British cotton exports to India. When times were good, and money is readily available, in the money-market, the exporter may pay the manufacturer for the products. At other times, the exporter may not be inclined to take that risk, instead serving only to ship the goods, leaving the manufacturer to bear the risk of whether they will be actually sold.
However, in the former case, the wages paid to the cotton workers from the money received from the exporter, are not the value they have produced being returned to them. That can only happen when that value is actually realised by the commodity being consumed, i.e. bought by a final consumer.
The exporter, here, is not a final consumer. He only buys in order to sell on. In reality, he buys these commodities with additional capital, just as if the manufacturer had introduced additional capital to cover the circulation period.
The exporter/merchant may have obtained this money-capital himself by borrowing in the money-market.
“Similarly, before this money is thrown on the market, or simultaneously with this, no additional product has been put on the English market that could be bought with this money and would enter the sphere of productive or individual consumption. If this situation continues for a rather long period of time and on a rather large scale, it must have the same effect as the previously mentioned prolongation of the working period.” (p 321)
In other words, in this situation, the English workers are producing goods, which are shipped out of the country. They are paid wages in money with which to buy goods. The money itself may have been obtained as credit in the money market, particularly where credit is easy, and interest rates are low. But, because their production has been exported, and the equivalent value of goods has not been imported, in return, a situation arises, of too much money chasing too few commodities, so that market prices are forced up – inflation.
Today, that situation arises in Britain, not because goods are being exported without a corresponding import of goods to the same value, but because money tokens are printed, and credit is created, so that workers can be encouraged to borrow and spend. Plenty of imported Chinese goods ensures that these prices are kept down, but the inflation manifests itself in the prices of energy, food, and of asset prices like property, shares and bonds, which rise way above their underlying value.
When the British cotton goods reach India, they may be bought, possibly by other merchants again using credit. The exporter/merchant may also themselves use this credit to buy Indian commodities. The way this worked was often via Bills of Exchange. For example, A sells £100 of goods to B. A is given a Bill of Exchange drawn on B to the value of £100, like an I.O.U. A can either wait until the due date of the bill and cash it for full payment, or they can discount it at a Discount House, which pays cash less a discount in return for it. Alternatively, A can endorse the bill, and use it as a means of payment themselves, passing it to C, from whom they buy goods, who then eventually collects from B.
“With this credit, products are bought in India and sent as return shipment to England or drafts remitted for this amount. If this condition is protracted, the Indian money-market comes under pressure and the reaction on England may here produce a crisis. This crisis, in its turn, even if connected with bullion export to India, calls forth a new crisis in that country on account of the bankruptcy of English firms and their Indian branches, which had received credit from Indian banks. Thus a crisis occurs simultaneously in the market in which the balance of trade is favourable, as well as in the one in which it is unfavourable. This phenomenon may be still more complicated. Assume for instance that England has sent silver bullion to India but India’s English creditors are not urgently collecting their debts in that country, and India will soon after have to ship its silver bullion back to England.” (p 321)
Credit here has hidden the fact that in reality the cotton has not been sold and its value has not been reproduced. The wages of the cotton workers have not been paid with the return of the value they previously created, but by the advance of additional capital, extracted from the money-market.
“But as soon as the crisis breaks out in England it turns out that unsold cotton goods are stored in India (hence have not been transformed from commodity-capital into money-capital — an over-production to this extent), and that on the other hand there are stored up in England unsold supplies of Indian goods, and moreover, a great portion of the sold and consumed supplies is not yet paid. Hence what appears as a crisis on the money-market is in reality an expression of abnormal conditions in the very process of production and reproduction.” (p 322)
Marx refers to one final aspect of the effect of the rate of turnover of circulating capital. It relates to where one or more of the inputs are themselves an output. For example, coal used to fuel steam engines for pumps in a coal mine. The shorter the working period, the more frequent these inputs are themselves made available, and so the less productive supply is required.
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