Turnover Time

Turnover time is the sum of the Production Time and Circulation Time. If Industrial Capital is taken to be, as Marx sets out in Capital II, the fusion of the circuits of Money-Capital, Productive-Capital, and Commodity-Capital, then the capital advanced during the turnover period is equal to the advanced productive-capital, because under capitalism, production is continuous. Enough productive-capital must be advanced to cover not just the production time, but the circulation time too, because production does not stop after the commodities produced in one production period are put in circulation.

Suppose a capitalist starts up in business. As Marx sets out in Capital II, until such time as he actually purchases productive-capital with his money, that money does not constitute money-capital. It is only money, that could just as easily be used as revenue. Only when the money is used to buy productive-capital is that money shell filled with capital-value. Again, as Marx sets out in Capital II, the circuit M – C … P … C' – M', whereby money-capital buys commodities (means of production and labour-power), which comprise the productive-capital, which in turn produces surplus value, in the production process, which becomes embedded in the commodity-capital, which in turn is realised as potential money-capital, is only the circuit of newly invested money capital. For example, here, where a business is first being established. The same applies to money-capital realised from surplus value, which is accumulated.

For every other business, that has already commenced operation, the circuit of its capital is instead, P … C' – M'. M – C … P.

Its expanded form given by Marx is.

That is it starts from the fact that it already has a stock of productive-capital, and being already in business, the basic form of the circuit of its capital, is at least to physically reproduce the capital it already has – simple reproduction, signified by the top line C - M - C (L +MP)... P. This, Marx says, reflects the reality of capitalist production that it is characterised by this continuous flow.

The productive-capital, thrown into the production process, must remain there until such time as that process is complete, and the finished product emerges, to be thrown into circulation. Suppose, the capitalist needs to advance £80 of means of production, and £20 of labour-power every week, and that the production time is 5 weeks. In that case, in total during the production period, the capitalist advances £500 of productive-capital. However, the commodities then enter the circulation period during which they must be sent to market, be sold, and the proceeds of their sale return to the capitalist so as to be able to buy means of production and labour-power to reproduce that used in the previous production process.

Suppose the circulation period lasts also for 5 weeks. The capitalist has the choice of closing down production, and waiting 5 weeks until that capital returns to them, before starting up again, or else they must advance additional productive-capital so that production can continue during this period of five weeks of circulation time. In reality, because capitalism relies on continues production, it is this latter option that the capitalist must adopt. Only if there was some break down in the circuit of capital, due to some form of crisis, would the capitalist stop production.

On this basis, the advanced productive-capital is not just the £500 required for the 5 weeks of the production period, but also includes the second lot of £500 of productive-capital required to ensure that production is continuous, and carries on seamlessly throughout the circulation period. The advanced productive-capital is then that required to ensure continuous production throughout the whole of the turnover period.

This remains true where the productive-capitalist farms out the task of realising the commodity-capital to a specialist merchant capitalist. Leaving aside the capital laid out by the merchant for labour-power, and for constant capital in the form of shops etc., the merchant capitalist only lays out money-capital in exchange for commodity-capital. All that happens here, is that the money-capital that the producer would have had to lay out for productive-capital, during the circulation period, is now provided by the merchant capitalist instead. But, it is still advanced as productive-capital, so that production can continue unabated. 

At the end of the first 5 week production process, the merchant buys the completed commodities from the producer. Leaving aside the surplus value, the producer now has £500, which they lay out for productive-capital to continue production in the second production period. The merchant has £500 of commodity-capital, ready to sell. During the five week period of the circulation time, the merchant capitalist sells the £500 of commodities. At the end of 10 weeks, therefore, the producer has completed their second production period, and produced £500 of commodities. The merchant has sold, the £500 of commodities produced during the first production period, and now has £500 of money-capital, ready to buy the output of the second production period.

All that has happened here, is that the commodity-capital of industrial capital has taken on an independent existence of its own, in the form of merchant capital. The productive-capital has not been turned over, Marx says, until such time as the produced commodities are actually consumed, or bought by the final consumer. It does not matter whether they are consumed productively by some other productive-capital or whether they are used for personal consumption, but the circuit only closes at that point. The fact, of the commodities being bought by a merchant, does not complete the circuit, and that remains true where the commodity is bought and sold by a series of merchants. Until the commodity is actually consumed, it remains in the form of commodity-capital, which may or may not be realised. 

If the merchant does not sell the commodity to a final consumer, this leaves the producer in the same position as if they had not been able to sell it. It means the capital used in the production of the commodity cannot be realised, and thereby cannot be reproduced. In other words, the potential for a crisis arises, and as Marx sets out in his theory of crises in Theories of Surplus Value Part 2, Chapter 17, Section 6 et al, (See also my book - Marx and Engels Theories of Crisis) this is a potential source of crisis that arises with commodity production and exchange, and the separation of production and consumption. The longer the turnover time, the greater the potential for such a crisis to arise. All that changes here is that instead of the producer being able to sell their output from the first production period, the merchant is placed in that position. But, the consequence now is that, other things being equal, the merchant now does not have the money-capital necessary to buy the producer's output from the second production period.

The potential for what Marx calls a crisis of the second form arises here, because if the producer sells their output to the merchant, on commercial credit, by drawing a Bill of Exchange, and the producer obtains their means of production from their suppliers on the same basis, when the merchant cannot sell the output, they are unable, then to pay the producer for the initial output. That means the producer is then unable to pay their suppliers. Whenever, money becomes used as a means of payment, rather than as a means of circulation, therefore, the potential for such a crisis due to a cascading failure of payments arises, and again this risk is intensified the longer the turnover period, because the longer the period during which this credit is extended between capitalists.

Because, the advanced capital, is the productive-capital advanced for the whole of the turnover period, the amount of capital advanced can be reduced by either a reduction in the production time or the circulation time. After the first turnover of capital, its reflux will be determined by the length of the production period, or working period where they coincide. If in the example above, the circulation time was three weeks rather than 5 weeks, for example, the turnover period would be 8 weeks in total. No capital would return in the shape of new productive-capital, until the start of week 9.

However, the first production period ended with week 5. A new production period started in week 6, and this production period ended in week 10. It then requires a further 3 weeks for the circulation period to end, so that the capital returns as new productive-capital at the start of week 14. But, week 14 is only 5 weeks after the first replacement productive-capital commenced. That is it returns in an amount of time equal to the production period, not the turnover time.

What has to be born in mind, however, is that the total advanced productive capital is that advanced here for 8 weeks, or £800. The capital that returns on each occasion after the first turnover of the capital is only £500, equal to the amount of capital advanced during the production period. On each occasion, this £500 is sufficient to enable production to continue uninterrupted for the whole of the turnover period, because it supplements the £300 of additional productive-capital originally advanced by the capitalist to cover the circulation period. 

Dividing the number of weeks in the year by the number of weeks in the turnover period gives the number of turnovers per year. In other words, if the turnover period is 10 weeks, then in a 50 week year, the rate of turnover is 50/10 = 5. The turnover period for capital is only in relation to the circulating capital, not the fixed capital, and because the circulating constant capital is, in most cases, advanced alongside the variable capital that processes it, the rate of turnover of capital, is taken by Marx to be essentially the rate of turnover of the variable capital.

The reason the rate of turnover is taken by Marx to be only that relating to the circulating capital, and not the fixed capital is because of the essential difference between fixed capital and circulating capital. The value of the circulating capital must be continually reproduced, because that value alongside the use value of that circulating capital is completely used up in the production process. Production can only be continuous if that value and use value is wholly reproduced, i.e. turned over. That is not the case for the fixed capital, because although it passes a portion of its value into the production process, in respect of its wear and tear, this value does not have to be thrown immediately back into circulation, because the fixed capital continues to function until it is worn out. Only then does the value equivalent of that use value have to be thrown into circulation.

This is important, because, as Marx sets out extensively in Capital II, this rate of turnover of the variable capital, substantially modifies the calculation of the rate of surplus value. The rate of surplus value measures the amount of surplus value produced by a given quantity of variable-capital. If a given capital lays out £1,000 in a year for labour-power, which in that year produces a surplus value of £1,000, so that the workers have only received back in wages an amount of value equal to half of the new value they have created during that time, the rate of surplus value is 1000/1000 = 100%.

However, if the variable capital turns over 5 times during the year, only £200 of capital actually has to be advanced as variable capital, because having been advanced, this capital keeps returning to be advanced over again. In that case, what Marx calls the annual rate of surplus value is equal to the rate of surplus value for one turnover period, multiplied by the number of turnovers per year, or put another way, is equal to the surplus value produced in one turnover period (£200), multiplied by the number of turnovers (5) to obtain the annual surplus value, divided by the advanced capital for one turnover period (£200). So £200 x 5 = £1,000 / 200 = 5/1 = 500%.

This is also fundamental for Marx and Engels. modification of the rate of profit, in Capital III, Chapter 4, to obtain an annual rate of profit, to take account of the rate of turnover of the circulating capital.