Friday, 29 May 2015

Capital III, Chapter 6 - Part 3

Unlike the fixed capital, which only has to gradually replace its wear and tear, via accumulation in a reserve fund, the cost of the raw material must be continually reproduced in the sale of the commodity. However, as indicated previously, if the price of the raw material rises sharply, then depending on the price elasticity of demand for the particular commodity, this cost increase may not be recoverable. Passing on the full price rise may cause demand to fall sharply, reducing overall income.

However, unless a sufficient proportion of the price rise can be passed on, the revenue may not be sufficient to cover the reproduction cost of the raw material. A firm may decide to ensure that cost is covered and reduce its level of output, to meet the new reduced level of demand. That is something today's oligopolies can do more easily than in an era of many competing small capitals. But, this may not be possible either.

“This shows again how a rise in the price of raw material can curtail or arrest the entire process of reproduction if the price realised by the sale of the commodities should not suffice to replace all the elements of these commodities. Or, it may make it impossible to continue the process on the scale required by its technical basis, so that only a part of the machinery will remain in operation, or all the machinery will work for only a fraction of the usual time.” (p 109)

Finally, the effects of the level of raw material prices mean that the issue of waste takes on added significance when prices rise sharply. Marx cites the example of Surat and American cotton. There was a difference of about 12.5% in waste between the US cotton and the cheaper Surat cotton. At lower prices the higher level of waste could more easily be borne, but at higher prices, considerably more money was simply thrown away as waste. That provided an incentive to move to the higher quality cotton that produced less waste.


These issues are discussed here “because they create the impression that not only the rate, but also the amount of profit — which is actually identical with the amount of surplus-value — could increase or decrease independently of the movements of the quantity or rate of surplus-value.” (p 110)

That impression is false because the amount of surplus value can only be increased by either a higher rate of surplus value or the exploitation of a greater quantity of labour-power.The false impression arises due to capital gains or losses, arising from the divergence of current reproduction cost from historic price, being confused with profits or losses, arising from the actual self-expansion or contraction of capital.

Appreciation and depreciation can occur for both fixed and circulating capital, and for constant and variable capital. An appreciation of capital simply means that its value has risen, and is, therefore, to be distinguished from the self-expansion of capital that occurs in the production process, via the creation of surplus value. A machine's value might rise because the steel required for its production has risen in price. The value of cotton held in stock, or going through the production process, might appreciate in value because a poor cotton harvest has caused the price of cotton to rise. Similarly, the value of a firm's commodity-capital, in the shape of yarn waiting to be sold, might rise because the value of cotton used in its production , or the wear and tear of the machine used for its production, have themselves risen in value. In short, the value of all these types of capital appreciates because the labour-time currently required for their reproduction has risen.

A depreciation of capital-value similarly arises if the labour-time currently required for its reproduction falls.

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