## The Rise In The Rate of Turnover (6)

The rise in the rate of turnover of industrial capital, increases the annual rate of profit. It does so, because for two capitals of equal size, the one that turns over more frequently produces more surplus value, as Marx describes in Capital II, Chapters 15 and 16. In Chapter 16, Marx demonstrates that an advanced capital of £500, which turns over ten times a year, produces as much surplus value in a year, as a capital of £5,000, which turns over just once a year, if they both have the same rate of surplus value. In each turnover period, the advanced capital of £500 produces £500 of surplus value, which equals £5,000. But, the capital of £5,000 also only produces £5,000 in a year. The smaller capital produces as much surplus value, in a year, as a capital ten times its size.

On this basis, the rate of profit of the smaller capital is ten times that of the larger capital, because it has produced the same quantity of surplus-value, with a tenth of the quantity of capital. However, if we look at the value of the commodities produced, the rate of turnover has no effect on it. If £100 equals 100 hours of labour, so that each week 200 hours of labour is expended (100 paid and 100 unpaid), then in a year, both capitals have expended the same amount of labour. Both capitals laid-out £5,000 as variable capital, both bought labour-power, which performed 10,000 hours of labour, and which created 10,000 hours of new value.

If we calculate the average rate of profit, taking into consideration the merchant capital, then proceeding as Marx did by assuming a single turnover of capital in the year, the basis becomes the amount of surplus value produced in the year, divided by the sum of productive-capital and merchant capital. If the quantity of productive capital amounts to £80 and the commercial capital £20 (we can think of figures in billions for greater realism) and the amount of surplus value is £10, then, for the productive-capitalists alone, the rate of profit is 12.5%. If they sold the goods at their price of production, the price would be £90. However, although the merchant capital adds no value, nor surplus value, it does get to share in the surplus value. Adding in the merchant capital, the rate of profit then falls to 10%.

The productive-capitalists sell their commodities at their price of production to the merchant capitalists, i.e. £80 costs plus 10% profit, £88. But, the value of these commodities is £90. The merchants then add the average profit to their own capital, and so add £2, as their own profit margin, thereby selling the commodities at the value of £90.

If the productive-capitalist turns over their capital more often, then the mass of surplus value produced, and their annual rate of profit rises, but, Marx demonstrates this is not the case, for the merchant capitalist, but it does affect his profit margin per unit.

“If the price of production of 1 lb. of sugar were £1, the merchant could buy 100 lbs. of sugar with £100. If he buys and sells this quantity in the course of the year, and if the average annual rate of profit is 15%, he would add £15 to the £100, and 3s. to £1, the price of production of 1 lb. of sugar. That is, he would sell 1 lb. of sugar at £1.3s. But if the price of production of 1 lb. of sugar should fall to 1s., the merchant could buy 2,000 lbs. of sugar with £100, and sell the sugar at 1s. 1 4/5d. per lb. The annual profit on capital invested in the sugar business would still be £15 on each £100. But the merchant has to sell 100 lbs. in the first case, and 2,000 lbs. in the second. The high or low level of the price of production has nothing to do with the rate of profit. But it would greatly and decisively affect that aliquot part of the selling price of each lb. of sugar, which resolves itself in mercantile profit, i.e., the addition to the price which the merchant makes on a certain quantity of commodities or products. If the price of production of a commodity is small, so, too, the amount the merchant advances in its purchase price, i.e., for a certain quantity of it. Hence, with a given rate of profit, the amount of profit he makes on this quantity of cheap commodities is small as well. Or, what amounts to the same, he can then buy with a certain amount of capital, say, 100, a larger quantity of these cheap commodities, and the total profit of 15, which he makes per 100, breaks up into small fractions over each individual piece or portion belonging to this mass of commodities.”

Capital III, Chapter 18

I will examine this further in the next part.