Sunday, 28 September 2014

The Working Period

Marx defines the working period in Capital II, Chapter 12.   Basically, the Working Period is the amount of time required to produce some particular commodity in sufficient quantity that it can be sent to market. This quantity is different for each type of commodity, but also varies over time, and even from one firm to another within the same industry.

A manufacturer of linen, for example, may be able to produce ten yards of cloth in an hour, but aside from a hand loom weaver, it is unlikely that a capitalist producer of linen, using power looms, would be producing just ten yards as part of the production process. The machines may then run all day for ten hours, producing a hundred yards of cloth. But, even this quantity may not be a sufficient amount to justify the cost of transport in sending it to market. It may only be economical to send shipments to market in batches of five hundred yards. As a result, the working period is five days.

If we stick with this industry, it can be seen why the working period varies even for the same commodity. The hand loom weaver, for example, may only be able to produce ten yards of cloth per day. But, their cost of sending cloth to market, and so there minimum shipment, is no different than that of the power loom weaver. They must be able to produce five hundred yards, as part of their working period, which thereby extends to fifty days.

By, the same token it can be seen why the average working period for any type of commodity is reduced over time. When weaving was dominated by hand loom weavers, the average working period was determined by the length of time they required to produce this minimum quantity. Once the hand loom weavers are replaced by power looms, it is the much shorter time they require to produce this minimum quantity that determines the working period. Moreover, as the productivity of the power looms themselves increases, and as each firm employs more power looms, so that more cloth is produced per day, so the working period is reduced further. A firm that employs two power looms will reduce its working period in half, compared to another that only employs one.

But, its also clear that different commodities require different amounts of time for their completion, and different commodities will be required to be produced in different quantities before they can be sent to market. Marx gives the example of linen and locomotives. A single yard of linen can be produced in a fraction of the time required to produce a single locomotive, but a single locomotive can be sold when completed, whilst it may require the completion of five hundred yards of linen, before it is possible to send it to market. Even so, the five hundred yards of linen may be completed in five days, and sent to market, whereas the single locomotive may require six months before it is completed, and can be sent to market. The working period for the linen producer is then five days, whereas for the locomotive producer it is six months.

Similarly, a small builder who builds houses to order may require six months to build a house. On its completion, because it has been built to order, it is immediately sold. The working period for the builder would be then six months, as for the locomotive producer. But, Marx points out that for the producers of such commodities with long working periods, it is not uncommon for stage payments to be made. That is the completion of the house might be divided into six stages – the completion of the land preparation and foundations, erection of first floor, second floor, roof, plumbing and electrical installation, internal decoration – for example. On this basis, each stage becomes a working period, and payment for the completed work is then made for it, as though it was itself a commodity that had been sent to market.

The working period is an important concept because it is a major determinant of the rate of turnover of capital, which in turn is a major determinant of the annual rate of profit. For example, as Marx sets out, the linen manufacturer who has a working period of five days has to advance much less capital, proportionately, compared to the locomotive manufacturer. At the end of five days, the capital advanced by the former begins the process of its return, as the linen is sent to market and sold, so that the proceeds, including the profit arrive back in the capitalists pocket. He can then advance this same capital once more for the following working period. However, the locomotive maker has to keep advancing additional capital week after week for six months, before the engine is sent to market and the proceeds returned.

There is also an important and useful characteristic of the working period described by Marx, which is that its duration determines the frequency of these payments, following the first turnover of capital. Suppose, we take the linen manufacturer. They require five days to produce the 500 yards of linen, which is the minimum efficient quantity to be shipped to market. On average, it takes a further five days for the linen to be transported to the markets where it is to be sold, and a further five days for it then to be actually sold to final consumers. So, although the working period is only five days, it requires fifteen days in total, for the advanced capital to return to the capitalist, because the turnover of the capital requires this additional ten days of circulation time.

Because capitalist production is a continuous process, the linen manufacturer must then advance additional circulating capital, during this ten day circulation period. Assume the circulating capital that must be advanced is £100 per week, and there is a 10% rate of profit. The linen manufacturer, will advance £100 in week 1, a further £100 in week 2, and a final £100 in week 3. But, at the end of week 3, the linen, produced in week 1, is sold, which returns along with 10% of profit - £110 in total. The manufacturer, therefore, need not advance any additional circulating capital for week 4, because that capital is now provided by the return of this £110.

Moreover, at the end of week 4, the commodities produced in the second working period – week 2 – have gone through their ten day circulation period, and been sold, bringing in a further £110, so this is again available to cover the circulating capital required in week 5. So, although the turnover period of this capital is three weeks – 1 week working period, 2 weeks circulation time – it is the length of the working period which determines the regularity of payments, after the first turnover period is completed.

This characteristic is an important analytical tool, because it means that, if we know the regularity of payments, we know the maximum duration of the working period. It only tells us the maximum duration, because, as Marx points out, for some commodities, the working period itself is not continuous. For example, labour may be expended for a week ploughing and planting wheat, but a period of several months may then elapse when no further labour is expended on it, but the wheat cannot be sold, because it is growing. Only at the end of this time will additional labour be expended for reaping and threshing, before the wheat is sent to market and sold. The working period may then be ten days in total, but is spread out over a period of six months. This total time required for the production process to be completed, Marx calls the Production Time.

In this case, then, the payment would only be made when the wheat is sold. Moreover, if wheat can only be planted once a year, and the capital involved only produces wheat, it may be another six months before the capital can be employed to plant wheat again. There would only be one payment per year, even though the production time for the wheat is only six months, and the working period is only ten days. Its for that reason that capital employed in agriculture sought other avenues for employment during those times of the year when it could not be employed in production of a particular crop.

But, the fact that the frequency of payments sets this maximum duration of the working period, is still a useful analytical tool for all those commodities where this prolonged production time, in excess of the working period, is not a significant feature. If we know the average frequency with which payments are made for particular commodities, we know the maximum duration of the working period for those commodities. That does not tell us the turnover time for those commodities, because that also includes the circulation period, but there are many commodities, today, where the circulation period itself is near to zero. That is true for services, for example, as well as commodities that can be downloaded instantaneously over the Internet.

We can take two different examples. Take a water company. It supplies 90 (million) customers. Following Marx's example, we will exclude fixed capital and surplus value from the calculation. In a year (360 days) it lays out 2400 (million) for constant capital and 1200 (million) for variable capital = 3600 (million) in total. Each day, therefore it lays out 10 (million) of capital. There is effectively no circulation time for this water, because it is supplied continuously via a network of pipes to consumers. The consumers pay their bill for water four times a year, i.e. each quarter. However, in each quarter (90 days), on average, 1 million customers will pay their bill, on each day of the quarter. On the assumptions made, the average bill, per customer, is 40 per year, and so 10 per quarter. That means that, each day of the year, the company receives payments of 10 (million), thereby turning over the 10 (million) of capital it advances per day. It would then have a rate of turnover of its capital of 360 per year, as it turns over its circulating capital, on average once per day.

This example, would apply also to electricity, phone, gas and other such utility companies. The actual rate of turnover would be less than this, because the payments would tend to be bunched at different points of the quarter rather than evenly spread, and because deducting weekends and bank holidays, the number of payment dates would be more like 250 than 360.

The second example is that of a fast food restaurant. During a day it might receive 500 payments from customers. If there are five tills in the restaurant, all taking receipts more or less simultaneously, this can then be viewed as 100 payments during say a 10 hour day, or an average of 10 payments per hour, or one every 6 minutes. So, here the working period is no longer in duration than six minutes. As the completed commodities are handed more or less instantaneously to customers, and paid for in the same way, there is no circulation time for the commodities here, so that the rate of turnover is 100 per day, or around 36,000 times per year. Its on this basis that large profits can be made with low profit margins.

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