Circulation Time

Circulation time stands in opposition to Production Time. As Marx puts it, from the perspective of circulation, production appears, as a hold up, but from the perspective of production, it is circulation that appears as an interruption. The concept of circulation and circulating capital caused great confusion for Adam Smith, Ricardo and others, that Marx clears up.

The circulation period consists of all that time when capital is not engaged in production. Even during that part of the production period when labour is not being expended, capital is still engaged in production, because it is tied up in the production process. The rate of turnover, and the annual rate of profit are calculated on that basis. But, before the production process can even begin, productive-capital in the form of buildings, machines, raw material and labour-power must first be assembled. Money-capital must be advanced for its purchase, and there may be a period of time between this money-capital being advanced, and the actual productive-capital being delivered available to take part in the production process. The further away sources of supply of those inputs, the less efficient modes of transport, the longer it will take for inputs to be delivered, and so the longer this period of circulation time will be.

In addition, if means of transport are not reliable, or transport times are lengthy, producers may order in large quantities of materials etc., placing a smaller number of larger orders, that require more money-capital to be advanced for their purchase. These deliveries then form a productive-supply in the warehouse of the producer, rather than as commodity-capital in the warehouse of the supplier. During this period, this capital is not productive, it is not taking part in the productive-process, and creating profit. The more transport improves, and becomes faster and more reliable, that production is located closer to sources of materials and so on, the more this element of circulation time is reduced, and the more measures such as “Just In Time” production and stock control can be introduced, which both reduce the levels of productive supply, and the duration of the circulation period. 

The second element of circulation time, is the period after the end of the production time, and when the commodity-capital is thrown on to the market, but during which it must be sold, and the capital-value realised in money form, as money-capital. A number of factors can speed up this circulation period. Improvements in productivity, increase the rate of turnover of capital, so that the same quantity of output is produced and sent to market in a much shorter period of time. This reduces the production time, but the same rise in productivity also improves transport, thereby reducing the time required to transport commodities to market. Because it also makes transport more reliable, commodities can be shipped in relatively smaller batches, more frequently.

But, the increase in the quantity of output also makes the role of specialised merchants more important. Merchant capital can take the increasingly large volumes of output from a range of producers, more effectively, and also sell them faster, and at less cost. This is not only those merchants that sell commodities, it applies also to those merchants who specialise in moving money around, the money dealing capitalists, as opposed to the money lending capitalists. The former make their profits in the same way as any other merchant capital. They reduce the costs of producers by acting as an intermediary between them and the consumer, be they a productive or unproductive consumer. The money dealing capitalist simply takes payments from consumers, and passes it to producers, and makes a charge for the service provided. Similarly, they move money around as bullion from one country to another for international payments.

By speeding up the process by which commodities are sent to market, sold, and the money realised from that sale, transferred to the producer's bank account, these merchants reduce the period of circulation. But money lending-capitalists can also perform a role in this regard too. As Marx describes in Capital I and II, not only does the economy as a whole, require the establishment of various reserves and hoards, to cover fluctuations in the demand for money, as means of circulation and means of payment, but individual capitals require such reserves and hoards too, for similar purposes. A firm may not be able to use all of its profits in one go to expand its production, for example. It will also need to set aside that portion of the value of its output that is attributable to the wear and tear of its fixed capital, but which is not yet ready for replacement. The capitalist themselves, will need to keep a float of working capital to cover fluctuations in payments and receipts, and the fact that these are not synchronised in the times when they arise.

To simply leave this potential money-capital in money hoards would mean that it was not being used productively. On the other hand some productive-capitals need money capital to be able to buy productive-capital to expand, but do not have it. The money lending capitalist resolves this problem. Either by lending the money-capital, for example, in the form of a bank loan, or in the form of the purchase of company shares, and bonds, the required money-capital can be provided to the productive-capitalist that requires it. In return for making available the use value of this capital, to the productive-capitalist, for a given period, the money-capitalist makes a charge, for this use-value – capital sold as a commodity. That charge, the price of the use-value of capital, is the rate of interest. It is determined by the demand for this loanable money-capital, on the one hand, and the supply of loanable money-capital on the other.

By centralising all of this loanable money-capital in a few hands, and ultimately via the banks, the quantity of this loanable money-capital required is kept to a minimum, which not only helps to reduce the interest rate, but also means that the process of circulation is speeded up.

Adam Smith and others were confused, because they considered the capital that was in the process of being circulated – the money-capital, and the commodity-capital – was circulating capital. But, as Marx demonstrates, circulating capital and capital in circulation are two different things entirely. The terms fixed capital and circulating capital apply only to productive-capital. It refers to whether the value of that productive-capital is fully consumed in the production process. That is, for example, the value of the wood used in the making of a chair is fully consumed in that process, so is the value of the labour-power, so used. Both of these forms of capital, are therefore, circulating capital, their value and their use value, must be wholly reproduced by the sale of the chair, for production to continue on the same scale. However, the tools used by the carpenter to make the chair are not wholly used up in the production of this chair. Only a portion of their use value is consumed, as wear and tear, and only the value of that wear and tear is consumed, and needs to be reproduced from the sale of the chair. The other portion of the value of the tools remains fixed within them, which is what defines them as fixed capital. 

But, neither money-capital nor commodity-capital participate in the production process. They stand in opposition to it, in the overall circuit of industrial capital. Neither money-capital, nor commodity-capital can constitute fixed or circulating capital. They represent only capital that is itself in circulation. The period of that circulation constitutes the circulation time of the capital. The combination of the production time, and the circulation time, of industrial capital, is its total turnover time. The number of times this capital turns over during the year is its rate of turnover.