Wednesday, 3 September 2014

Maito and The Rate of Turnover of Capital - Part 4

The other area referred to by Maito, agriculture also contradicts his argument. He says,

“Particularly in agricultural countries, primary production requires a time strongly regulated by the natural cycles of crop growth. In mining countries, it doesn´t seem to exist this limitation, but there is probably a pressure on turnover due to the exhaustion of the quarries and the increasing difficulty to extract from current mines and wells, which ultimately extend the turnover time, mainly the time of production.” (p 3)

If we take mining first, a gauge of whether the production time has been increasing or falling is given by the price of raw materials. In fact, its clear that any increase in production time caused by mine exhaustion has been more than compensated by rises in productivity, hence falling raw material prices over the period, from the 1980's, although this is magnified by the effects of the long wave on global demand and supply. Anyone familiar with mining knows that innovations, such as the introduction of long wall mining machines, have revolutionised productivity. This analysis  indicates that in US coal mining, the average rise in productivity since 1950 has been more than 4% p.a., and between 1980-95, it was actually rising by more than 6% p.a.

In 2000, copper prices (in 2004 $'s) were around 25% lower than they were in 1940, or 1960. On the same basis, despite the massive additional demand from China, current prices are only at the same level they reached, at the peak of the last long wave cycle, in 1974. Moreover, and this again demonstrates the weakness of Maito's methodology, in relation to inventories, increases in productivity and technology mean that raw material is used more efficiently.

Take oil. Global oil consumption rose from 63 million barrels per day in 1980, to 85 million barrels per day in 2006. That is an increase of 35%. But, between 1980 and 2012, Global GDP increased from $18.8 Trillion to $71.8 Trillion (1990 dollars). That is an increase of 282%! Even allowing for the 6 years difference in periods, that means that global GDP rose by around seven times the increase in oil consumption.  A similar pattern for crude oil prices in constant dollar terms also emerges for oil, as for copper.

But, also besides the fact of the change from manufacturing to service industries, even within manufacturing industry itself, there have been massive changes in the materials, and intermediate products used in production. A modern TV, or computer, uses microprocessors, not transistors, let alone the old glass, electric valves that electronic devices used 50 years ago. This makes Maito's metric of inventories next to useless, faced with this massive change in the nature of production.

If we take food production, the rise in the rate of turnover can again be illustrated, as I have shown previously.

“Using new varieties of seeds that have allowed them to shorten soya and corn crop cycles, Brazilian farmers in the country’s centre-west savannah areas have moved from planting one crop to incorporating the second, the safrinha. In some areas where irrigation is available they are even contemplating a third harvest.

The corn crop has benefited most from the safrinha. In the 2012-13 year, corn output is expected to total nearly 80m tonnes, up from about 56mt in 2011. Soyabeans, meanwhile, are estimated at more than 80mt compared with about 75mt in 2011.” (Source: FT)

On this basis, Maito's calculation, of an average rate of turnover of 12, looks unlikely to be correct. But, there are other reasons to believe that to be the case. On the back of this estimate, of a rate of turnover of 12, Maito says, in the WW, that he has used his method to extrapolate back to derive a rate of turnover for 1855. 

“Finally, to account for the turnover speed of circulating capital, I imputed to the UK a turnover speed of 12 in the year 2008 and then extrapolated it backwards according to the variation of GDP per capita, with the turnover speed reaching 1.3 annual turnovers in 1855.” 

That in itself should, perhaps, have led him to conclude that he had got something badly wrong. If the rate of turnover, of circulating capital, in 1855, was as low as 1.3, this would have been incompatible with the mass production that Marx describes as fundamental to capitalist production! It would have required incredibly low levels of labour productivity, or else manufacturers would have required huge warehouses to store the masses of commodities, streaming from their factories, before being sent to market, or else would have implied very long circulation times, not consistent even with the bulk shipment of commodities by canal, let alone by the trains that, by that time, shipped goods to markets. Such a hugely prolonged turnover period may have been applicable for goods exported from Britain to India or the US, but not for its production overall, and even these lengthy circulation times, to some foreign parts, had been massively reduced, by the second half of the century.

But, also, and this goes to the heart of the logical contradiction of Maito's position, a rate of turnover of 1.3 means that, on average, circulating capital was advanced for 40 weeks, before it was returned. To have produced on the large scale that occurred, at that time, this would have required immense amounts of capital to be advanced for such a prolonged period, to achieve this level of output.  It would have required a phenomenal rate of surplus value to make that profitable.  But, such a high rate of surplus value is only compatible with very high levels of productivity, which reduce the value of labour-power and increase the rate of turnover!

In fact, there is no need to speculate on this matter, because we have direct evidence, from Marx and Engels, of what the actual rate of turnover was at that time. Engels did not need to extrapolate data from other sources to make an estimate, because he was a functioning capitalist himself, who knew exactly how much capital he was advancing, and what his working period and circulation time was. On this basis, Engels tells us, in Capital III, Chapter 4, that the rate of turnover in 1871, for “the cotton spinnery of 10,000 mule spindles” was 8.5 times, or nearly seven times the figure that Maito arrives at!

In the same chapter, Engels also indicates the pace at which the rate of turnover can be increased as a result of rising productivity both in production and distribution. He cites the example, for production, of steel.

“The recently discovered methods of producing iron and steel, such as the processes of Bessemer, Siemens, Gilchrist-Thomas, etc., cut to a minimum at relatively small costs the formerly arduous processes.”

That also deals with Maito's objection to my argument, in relation to rising productivity, and increase in the rate of turnover, that this can only be accomplished by large scale increases in the amount of fixed capital employed. As Engels makes clear here, this was brought about “at relatively small costs”. Engels also cites,

“The making of alizarin, a red dye-stuff extracted from coal-tar, requires but a few weeks, and this by means of already existing coal-tar dye-producing installations, to yield the same results which formerly required years. It took a year for the madder to mature, and it was customary to let the roots grow a few years more before they were processed.”

Again little, in the way of additional fixed capital, was employed to achieve this result, but an increase in the rate of turnover, in this sector, of around ten or twelve times its original rate is achieved.

In the realm of circulation, Engels states,

“The time of circulation of a shipment of commodities to East Asia, at least twelve months in 1847 … has now been reduced to almost as many weeks. The two large centres of the crises of 1825-57, America and India, have been brought from 70 to 90 per cent nearer to the European industrial countries by this revolution in transport, and have thereby lost a good deal of their explosive nature. The period of turnover of the total world commerce has been reduced to the same extent, and the efficacy of the capital involved in it has been more than doubled or trebled. It goes without saying that this has not been without effect on the rate of profit.”

This same process can be seen in reducing circulation times more recently. 

According to this World Bank Report, using data from the McKinsey Report, the productivity in 1965 of dock labour (prior to containerisation) was 1.7 tons per hour. Post containerisation, in 1970, that had risen to 30 tons per hour. The average ship size went from 8.4 GRT to 19.4 GRT, insurance costs fell from £0.24 to £0.04, and capital tied up in transit halved from £2 per ton to £1 per ton. Today, 90% of goods are transported by container, in an integrated road, rail and sea system. As the report suggests, the reduction in cost and increase in speed has also had a significant effect in stimulating the circulation of commodity-capital in the process.

This is perhaps one of the most visible increases in transport productivity, but it should not be missed that, alongside it, many more such improvements continually occur, for example, in increasing the size of carriers, improvements in speeds of carriers, development of additional road and other transport networks and so on. Moreover, alongside these physical improvements in transport speed, through technological development, come others. For example, the development of common markets, across the globe, has speeded up the movement of goods and services, by the removal of various legal barriers. The introduction of the Shengen Agreement in Europe, means that time spent at border crossings has been slashed. Even, things such as the introduction of satellite navigation systems, has acted to speed up deliveries. 

Yet, these increases in the rate of turnover are minor compared to the increase brought about by the Internet, and electronic payments systems. Despite the fact that Engels indicates the rise in the rate of turnover doubling and trebling, in certain industries, during a matter of a few years in his own time, despite the doubling in capital efficiency, in transport, due to containerisation, in the space of just five years, according to Maito, this massive increase in productivity has caused the rate of turnover to rise by only 9 fold, over a period of 160 years, from his own calculation of the rate of turnover, of 1.3, for that time. Based on Engels' figure, of a rate of turnover of 8.5, in 1871, according to Maito, the rate of turnover would only have increased by less than 50%, to 12, since that time!

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