Thursday, 18 December 2014

Capital II, Chapter 20 - Part 35

11) Replacement of the Fixed Capital 

“In the analysis of the exchanges of the annual reproduction the following presents great difficulty. If we take the simplest form in which the matter may be presented, we get:

I) 4,000 c + 1,000 v + l,000 s = 3000

II) 2,000 c + 500 v + 500 s = 9,000.” (p 453)

The reason it poses a difficulty is that this formula is based on an equality that seems to disappear once you introduce the idea of the value of the wear and tear of equipment. The value of wear and tear of fixed capital is transferred to the value of the final product, and recovered in its price. However, the fixed capital continues to function and is only replaced some time later. Consideration then shows why this appears to breach the equality condition of the previous formula. Department 1 (v+s) bought £2,000 of consumer goods from Department 2. They were able to do this because Department 2 bought £2,000 of means of production from Department 1.

However, suppose of Department 2's production £200 of value comprises £200 of wear and tear of machinery. This will mean that the machinery continues to function, and as seen previously, Department 2 will then hoard the £200 of the proceeds from the sale of its commodities, to fund their eventual replacement. However, the consequence of this is that Department 2 only spends £1,800 buying means of production from Department 1. Department 1 is then £200 short of money revenue with which to buy consumer goods.

Marx sets about explaining how this apparent problem is resolved. In setting this out, Marx uses the terms “wear and tear” and “depreciation” interchangeably. I am following his practice here because it is simply easier to talk about depreciation. However, what is really meant here is wear and tear not depreciation. As set out elsewhere, except in special circumstances, depreciation does not transfer value. On the contrary, because it involves a reduction in use value, outside the production process, it represents a reduction in value, and capital loss.

What is being analysed here is the instruments of labour, big and small, from the tiniest tool to the largest mine, railway or factory. The raw and auxiliary materials are not involved here because they are wholly consumed, once they enter the production process. Of the actual instruments of labour, some of them too will be consumed during the year, and as we are considering the national product of a year's labour, they too can be discounted. Finally, some of the instruments of labour will require extensive repairs to continue functioning, some may even require entire parts and components to be replaced.

“These parts belong in one category with the elements of fixed capital which are to be replaced within one year.” (p 453)

The circulating capital, in the form of the raw and auxiliary materials, as well as the labour-power consumed, must be continually reproduced, changed from the money form back into the form of productive capital. It doesn't matter if these materials are bought in large quantities infrequently, or small quantities frequently. If they are bought in large amounts less frequently, so that a stock of material builds up, waiting to be used, this does not change matters either.

Here, a larger sum of capital has been advanced at the start to purchase these means of production, and as seen previously, the capital so advanced returns as the commodities produced as a result are sold. The capital as it returns, accumulates ready to make the next purchase.

“It is not a revenue-capital; it is productive capital suspended in the form of money.” (p 454)

But, this is not the case with the fixed capital. It is wholly employed in the production process, but only that part of it used up in wear and tear transfers its value to the end product. When the commodity is sold, the money equivalent of that wear and tear is realised, in the price of the commodity, along with all the other components of its value. But, the money equivalent of the wear and tear then separates off, and is hoarded until it is needed to replace the fixed capital entirely.

“This money then serves to replace the fixed capital (or its elements, since its various elements have different durabilities) in kind and thus really to renew this component part of the productive capital. This money is therefore the money-form of a part of the constant capital-value, namely of its fixed part. The formation of this hoard is thus itself an element of the capitalist process of reproduction; it is the reproduction and storing up — in the form of money — of the value of fixed capital, or its several elements, until the fixed capital has ceased to live and in consequence has given off its full value to the commodities produced and must now be replaced in kind.” (p 455)

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