Friday, 15 May 2015

Capital III, Chapter 4 - Part 1

The Effect of the Turnover on the Rate of Profit 

Chapter 4 was written entirely by Engels, as only the heading was contained in Marx’s manuscript. However, the main principle is taken from Marx's analysis of the rate of turnover on the rate of surplus value, in Volume II.

As described in Volume II, the advanced capital must be greater than required for the working period, because, for production to be continuous, enough must be available to allow productive capital to be purchased during all of the production time, and all of the circulation time. Capital will always, therefore, spend some time tied up. It

“[...always lies idle, either in the form of money-capital, of raw material supplies, of finished but still unsold commodity-capital, or of outstanding claims” and “...the capital in active production, i.e., in the production and appropriation of surplus-value, is always short by this amount, and that the produced and appropriated surplus-value is always curtailed to the same extent.]” (p 70)

The shorter the turnover time, the greater proportion of capital is actively engaged in producing surplus value. As was shown in Volume II, the reduction in turnover time increases the rate of surplus value proportionately.

“[But since the rate of profit only expresses the relation of the produced quantity of surplus-value to the total capital employed in its production, it is evident that any such reduction increases the rate of profit.]” (p 70)

The chief means of achieving the increase in the rate of turnover is through an increase in productivity. It reduces both the working period and circulation period by revolutionising production and communication, particularly transport. Engels cites the improvements in metallurgy and the chemical industry that had significantly speeded up the production of steel and of dyes. In the case of the latter a process that previously took years to complete was now achieved within a few weeks. In terms of communications, railways replaced roads and canals; steamships replaced sailing vessels; telegraph wires sent information around the globe at a fraction of the time previously required.

Engels also makes another important point here. In the crises earlier in the century, a part in exacerbating them had been the length of the circulation period for commodities sent to and from major markets in the US and India. As described in in Volume II, in times of prosperity, merchants would buy in the UK to sell in these markets. British producers would get their productive capital reproduced and continue producing with it. But, it would take months to ship these commodities to these distant markets, and longer still for the commodity-capital to be realised.

As a result, these markets could become overstocked many months before the consequence would be felt on production. The consequence then of an overproduction of commodity-capital, would have an exaggerated effect on a consequent over-accumulation of productive-capital. The much shorter circulation time, arising from faster, more regular transport, meant that any overstocking, of these markets, would be more rapidly conveyed to producers who could curtail their production, thereby limiting the potential over-accumulation of productive-capital.

“[The two large centres of the crises of 1825-57, America and India, have been brought from 70 to 90 per cent nearer to the European industrial countries by this revolution in transport, and have thereby lost a good deal of their explosive nature. The period of turnover of the total world commerce has been reduced to the same extent, and the efficacy of the capital involved in it has been more than doubled or trebled. It goes without saying that this has not been without effect on the rate of profit.]” (p 71)

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