Wednesday, 10 September 2014

The Law Of The Tendency For The Rate of Profit To Fall - Part 38

The Rise In The Rate of Turnover (3)

An article, in The American Banker, last year, bemoaned the slowness of electronic payments in the US, pointing out,

“In the United Kingdom, you can send money to someone else's bank account within a couple of hours. In Mexico, the process takes no more than a minute or two. In Sweden, it happens even faster, via mobile phones.

Here in the United States, electronic payments move at a snail's pace by comparison. Times vary by bank, but it's common for three, four or five days to elapse before the cash arrives in the recipient's account.”

In fact, compared to the slowness of payments, discussed by Marx, even the US seems extremely rapid. The Internet has made possible, not only such almost instantaneous payments, direct from your bank account, or credit card account, it has established other money-dealing capitalists, such as Paypal, as means of transmitting money, from one place to another, more securely and quickly. It has also, of course, speeded up circulation, by making credit instantly available, over mobile phones, even if the circulation may later be sharply curtailed, as the consequent debts turn bad.

The Internet speeds up circulation in other ways too. In order for the circuit to be completed, the produced commodities must be sold, which means consumers having to go to stores to buy them. But, the Internet, via online shopping, speeds up that part of the circulation process too. The consumer may never see any money paid to them as wages, dividends, interest or rent, as it gets transferred electronically into their account. They may even have a standardised weekly shopping list, that gets filled by the supermarket, and delivered to them, and nor will they see the money paid for those commodities, as its electronically, and immediately transferred from their own account to that of the store. Not only does this hugely speed up the process of circulation, by increasing the velocity of commodity transactions, as well as money transactions, but it also hugely reduces the quantity of money that must be thrown into actual circulation, which represents a significant reduction in the costs of circulation for capital.

The role of the Internet, in massively increasing the speed of circulation, is manifest in another way too. That is related to the shift in the patterns of production and consumption. Not only is it the case that 80% of the economy, of developed nations, is today comprised of the production of service industries, but this shift in production is symptomatic of a corresponding shift in consumption. Although, the bubble in property prices in the UK, blown up over the last 30-40 years, has massively increased the proportion of household budgets that must be devoted to shelter – particularly for those in rented accommodation – the massive reduction in commodity values, that the aforementioned rise in social productivity has brought, alongside the shift of production, of many manufactured goods, to low wage economies, such as China, means that the proportion of the budget spent on such consumer goods has continually fallen in real terms, and often even in absolute terms – for example, the price of computers etc.

Similar improvements in productivity, and the increase in global agricultural land under cultivation, notably now also in Africa, means that food prices have also continually fallen in real terms, apart from short term price spikes caused by temporary failures to meet sharply rising demand. In fact, in Britain, food has become so cheap, that the average family is calculated to throw away a third of the food it buys. A significant proportion of the average family spending on food, is actually made up of what is really leisure activity, or entertainment, i.e. eating out at restaurants, rather than the actual purchase of food.

This shift also has a significant effect on the rate of turnover, both in terms of the time of production and of circulation. Take some manufacturing business. It advances labour-power, and materials, and sets them to work, with machines, to produce motor cars. Ford's Model T, production line brought the time for production of a car down to 93 minutes, whereas previously it took 12 hours.  Today a car requires around 30 man hours for production.  This might seem to suggest that productivity has fallen.  But, this is measuring different things.  If 1800 workers today expend a minute each on the production of a car that gives the 30 man hours per car.  So, on that basis the production time would be only a minute as opposed to the 93 minutes for the Model T.

At the Toyota plant, in Burnaston, a car comes off the production line every minute, an increase in the rate of turnover of capital of 93, in respect of the working period, since the 1920's! The average car transporter carries 12 cars at a time. So, if a working period is equal to the minimum time required for production of some minimum sized shipment, 12 cars today can be shipped every 15 minutes, whereas in the 1920's, even if 12 cars at a time could have been shipped, it would have required a day's production, before they were ready.

Even allowing for modern production techniques, the cars probably do not go from the initial arrival of engines, body panels, gearboxes and so on through to assembly, finishing, and transport to showrooms in less than a few days days, on average, given different times for delivery to various markets around the world. Trains take 2,400 cars per day from Volkswagen's Wolfsburg plant, every day.  As dealers place orders with suppliers for cars to meet orders in turn placed with them by final consumers it would take another couple of days, for the car to be detailed, to cover administration and so on.  In short, on average the capital advanced for car production can turn over on average around 52 times a year, although the Internet is changing this too, as it means increasingly, consumers will be able to order their cars directly from producers, and have them delivered directly to their home.   But, even assuming the average turnover period for such industrial capital, is a week, this compares badly with the situation for these new forms of capital.

Take a fast food restaurant. It advances productive-capital in the form of means of production (burgers, onions, salads, buns etc.) and labour-power, on the basis of orders received, just as does the car producer.   But, the order for a burger is completed, and delivered to the customer, and paid for, i.e. the circuit of productive-capital is completed, within a matter of just minutes, rather than days.  It is even likely to obtain the return of this capital, plus surplus value,  several times, before this advanced capital has even been paid for! Even if a certain amount of means of production are bought one day and used the next, this does not change anything, because this capital held as a productive-supply only counts as advanced when it enters the production process; what has been bought yesterday, does not have to be bought again today, if it has not been used. The produced output, as commodity-capital is also sold immediately to customers, who pay by cash or card, thereby completing the circuit of the capital within minutes.

In other words, instead of this new more prevalent form of capital turning over once a week, or 52 times a year, it turns over several times a day, or hundreds and thousands of times a year! The increase in the rate of turnover, and consequent rise in the annual rate of profit arise not just because of a shortened production period, but a much curtailed circulation period. As Marx points out, if two capitals of the same size are employed one in this sphere, and the other in the old form of manufacturing industry, then, although they have the same rate of surplus value, the annual rate of surplus value for the former will be greater than that of that of the latter, by the amount that the rate of turnover is greater, and all other things being equal the rate of profit will be that much higher too.

But, its not just in the realm of restaurants that such a transformation occurs. The growth of leisure and entertainment, to become a major component of household spending, means that capital employed in a range of such ventures, from cinemas to football clubs, from gyms to pop concerts, enjoy a similar high rate of turnover of capital, and rate of profit.

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