## The Rise In The Rate of Turnover (7)

“The greater the number of turnovers of the total industrial capital, the greater the mass of profits, the mass of annually produced surplus-value, and, therefore, other circumstances remaining unchanged, the rate of profit. It is different with merchant's capital. The rate of profit is a given magnitude with respect to it, determined on the one hand by the mass of profit produced by industrial capital, and on the other by the relative magnitude of the total merchant's capital, by its quantitative relation to the sum of capital advanced in the processes of production and circulation. The number of its turnovers does, indeed, decisively affect its relation to the total capital, or the relative magnitude of merchant's capital required for the circulation, for it is evident that the absolute magnitude of the required merchant's capital and the velocity of its turnovers stand in inverse proportion.”

(Capital III, Chapter 18)

Merchants' Capital is the commodity-capital of industrial capital, that has taken on an independent existence. But, because of what it is, merchant capital (understood here as merely the capital laid out by the merchant for purchase of commodities) must always stand in a certain proportion to the productive-capital. Productive-capital has produced a certain value of commodity-capital. It sells the commodities, which comprise it, to the merchant capital, at their price of production. The size of the merchant capital must always be determined by the value of this commodity-capital, which in turn is determined by the value of the productive-capital used to produce it.

Whether the merchant lays out their capital once or several times during the year does not change the amount of surplus value they can realise, because that is determined in production not distribution. If the merchant has a capital of £100, which they advance to buy commodities, which they can only sell once during a year, i.e. they can only turn over this capital once, they will sell these commodities for £110, thereby making the average rate of profit as described previously. But, if the merchant advances their £100 of capital to buy commodities, which can be sold in a matter of weeks, thereby returning their capital, and enabling them to advance it again, their profit margin on these commodities will be lower. If they are able to turn over this capital five times during the year, they will sell the commodities they bought for £100, not at £110, but at £102. In that way, although they will have laid-out £500 of capital during the year, they will still have only obtained £10 of profit. Their profit margin will have fallen from 10% to 2%. But, the £10 profit received will still constitute 10% of the capital they have advanced as opposed to laid out.

“If this were not so, merchant's capital would yield a much higher profit, proportionate to the number of its turnovers, than industrial capital, which would be in conflict with the law of the general rate of profit.”

(ibid)

But, it is clearly the case that a 10% profit margin has a different effect on prices than a 2% profit margin. This is a modification of the law in respect of productive-capital whereby the process which causes a falling rate of profit, simultaneously causes a growing mass of profit. The growing mass of profit is spread over an even greater mass of commodity units so that the profit per unit falls. But, here, because the merchant capital cannot increase the mass of profit available to it, any increase in the mass of commodities it sells, results in that given mass of profit being divided over this greater number of units so that the profit margin falls.

As Marx points out, this is why, particularly, larger merchant capitals seek to turn over their capital more frequently, because this means that the individual capital can apply a lower profit margin to the commodities it sells, and thereby undercut its smaller rivals who cannot turn over their capital so frequently. In fact, not only can they reduce their profit margin, but for the reasons set out above, they must reduce their profit margins. They may be able to avoid reducing them as much as would otherwise be necessary, but only because by increasing their rate of turnover, and undercutting their rivals, they increase their market share at the expense of others.

As Marx points out, in a way that explains the low profit margin of today's supermarkets, the low profit margins are not a strategy to reduce prices, and thereby obtain larger markets, and greater profits. The low profit margins are a consequence of selling very high volumes, and having high rates of turnover of capital. As with many other phenomena, it is competition which makes the real relations appear upside down.

I will continue the analysis of the role of merchant capital and the rate of turnover in respect of the Law in the next part.