The Rise In The Rate of Turnover (5)
The increase in the rate of turnover for productive-capital increases the annual rate of profit, but it does not change the price of commodities. Marx demonstrates in Capital III, Chapter 18, that this is not the case with Merchant Capital. Unfortunately, because Marx didn't live long enough to complete Capital, and because, as Engels points out, even much of the material for Volume III was missing, which meant he had to fill in where possible, despite his own increasing old age, Capital III is, in many ways, the most problematic, because a lot of material that Marx would undoubtedly have added to, and modified appears unsatisfactory. The sections on the rate of profit are an example of this.
In the chapters on it, Marx sets out that the rate of profit must be calculated on the advanced capital, but much of the confusion over the nature of the falling rate of profit arises, because in Chapter 13, setting out the law, Marx proceeds as though the capital is advanced only once during the year. On this basis, he demonstrates the effect of the falling rate, as output is expanded, under conditions of a rising organic composition of capital. The effect is to reduce the profit margin, because even as the price of individual commodity units falls, the portion of the price accounted for by the wear and tear of fixed capital, of variable capital and of surplus value declines, whilst the proportion attributable to the circulating constant capital rises. Despite the fact, that in this chapter he and Engels warn of the danger of taking this at face value, because the advanced capital will turn over more than once a year, this warning is unheeded by those who want to turn the Law of the Falling Rate of Profit into some kind of Philosopher's Stone to explain crises, and even open the door to socialist revolution, in a way that Marx never intended.
Unfortunately, those who want to use the Law in that way are assisted by the fact that all of Marx’s examples in this respect are undertaken on the basis of a single turnover of capital. In Chapter 4, Engels set out just what a dramatic effect the rate of turnover has on the annual rate of profit, compared to the “Rate of Profit”, and Marx certainly gives plenty of material about the concomitant rise in the mass of profit and capital that accompanies the falling rate. But, it is the headline chapters 12-15, that get the attention.
But, in examining the rate of profit for Merchant Capital the problem becomes manifest. On the one hand, the general, average rate of profit is described as the basis of the price of production, and as set out above, this is usually discussed in terms of a single turnover of capital. In contrast to this we have the annual rate of profit, which takes into consideration the rate of turnover. But, in Chapter 18, Marx is led to have to introduce another measure of profit, that he has not previously defined – that is the general annual rate of profit, which appears to be an amalgam of the the general rate of profit and the annual rate of profit. That is it is the actual annual rate of profit, which Marx requires for his discussion of Merchant Capital, combined with the concept of a general rate of profit, which provides the basis for determining the price of production.
It becomes clear from this point that the use of Rate of Profit in the way it is usually used to support the idea of a Falling Rate of Profit, is only a convenience of calculation and explanation used by Marx, as he had done in the past. Had he had more time, he would undoubtedly have filled out his analysis in that regard to demonstrate that the falling rate of profit, which causes a shrinkage of profit margins, simultaneously, because of the rise in the rate of turnover, increases the annual rate of profit. Given what he says, in Chapter 18, he would undoubtedly have been led to provide adequate examples to demonstrate that case. The examples he gives in Chapter 18, in respect of Merchant Capital, illustrate the point, at the same time as illustrating the difference between the effect on merchant capital and productive-capital.
I will analyse these next.
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