Capital III, Chapter 18 - Part 2

At one extreme, merchant-capital can simply keep selling the same commodities to each other, restricted only by the shelf-life of those commodities. This indeed is what happens during periods of speculation, and its extension is the buying and selling on commodities markets, of financial instruments, representing such physical commodities.

The same thing applies to all speculation. No new houses need be produced, or any change in the value of houses occur, in order for existing houses to be repeatedly bought and sold, as part of a giant paper chase, in which prices are driven higher, simply on the basis of speculation. The same is true in relation to speculation in stocks and bonds. No new value, no new wealth is created by such speculation, which is why, ultimately, all such speculative bubbles burst, resulting in a financial crisis, as this fictitious capital is destroyed.

But, industrial capital can only complete its circuit if the commodities it produces are ultimately consumed. An infinite number of purchases and sales of the same commodities, between merchants, cannot change that. In the end, the merchant capital, as a whole, must be in a position to buy additional new commodities from industrial capital. They cannot do that simply as a result of circulating the same commodities, and money-capital amongst themselves. They can only do so if they sell these commodities to final consumers.

Although the merchant-capital can speed up the circulation process, for industrial capital, and although speculative activity by merchant-capital can, for a time, create a fictitious demand for commodities, from industrial capital, in the end, the rate of turnover for the industrial capital depends partly on its production time, and partly on the state of aggregate demand in the economy.

If economic activity is robust, industrial capital will quicken its own pace of purchases, of means of production, from merchants. That, in turn, will raise the rate of turnover of the merchant's capital. The producers of those means of production, supplied by the merchants, will be other industrial capitalists, who will in turn see demand for their own commodities rise, speeding up their own rate of turnover, and causing them in turn to quicken the pace of their own purchases.

The increased employment of workers will mean that more demand for wage goods appears in the market, increasing the pace of sales and again raising the rate of turnover. Further demand arises from the increased prosperity of capitalists etc. who increase their own demand for consumption and luxury goods.

By contrast, if the level of aggregate demand in the economy is falling, producers will find that merchants slow their purchases, which in turn, causes the producers to slow their own own purchases of inputs from merchants and so on.

Merchant's capital always faces a barrier to its own turnover, therefore, from the rate of turnover of the industrial capital.

“Secondly, aside from the barrier formed by reproductive consumption, the turnover of merchant's capital is ultimately limited by the velocity and volume of the total individual consumption, since all the commodity-capital which is part of the consumption-fund depends on it.” (p 303)

In other words, it depends on the level of aggregate demand. But, as Marx sets out in Theories of Surplus Value, as well as the level of aggregate demand depending on the vigour of the productive-capital, it also depends on consumer preferences, as well as relative rates of productivity between different industries.

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