## Sunday, 22 November 2015

### Capital III, Chapter 18 - Part 6

Marx then turns to the role of the rate of turnover of merchant's capital on prices, and the general rate of profit. The price of production of commodities does not affect the rate of profit, but it does affect the amount of profit contained in each commodity unit. In other words, if the price of a commodity is high, then, with any given rate of profit, the amount of profit in any commodity unit will necessarily be higher than for a commodity whose price is low. This is clearly significant for the merchant capital.

If the price of production of sugar is £1 per kilo, then a merchant can buy 100 kilos with a capital of £100. If the rate of profit is 15%, they sell these 100 kilos for £115, or £1.15 per kilo. However, if the price of production falls to £0.10 per kilo, then with their £100 capital, they can now buy 1000 kilos. With a rate of profit of 15%, their £100 would still bring them a profit of £15, but only if they can sell the whole 1000 kilos. They will sell each kilo for £0.115 per kilo., which means that demand will undoubtedly be higher than at its previous price of £1.15 per kilo, but there is no reason it will be ten times as high, so the merchant may not be able to sell all of their stock, even at this price, and so will not be able to realise all of their profit.

Whether the price of production is high or low depends upon the types of commodities he's trading in. A diamond merchant will make a larger quantity of profit from selling a given weight of diamonds than will a merchant selling the same weight of salt. But, the rate of profit will be the same, because the diamond merchant will have laid out a larger amount of capital to buy the diamonds than will have been laid out to buy the salt.

“If we except the cases in which the merchant is a monopolist and simultaneously monopolises production, as did the Dutch East India Company in its day, nothing can be more ridiculous than the current idea that it depends on the merchant whether he sells many commodities at a small profit or few commodities at a large profit on each individual piece of the commodities. The two limits of his selling price are: on the one hand, the price of production of the commodities, over which he has no control; on the other hand, the average rate of profit, over which he has just as little control. The only thing up to him to decide is whether he wants to deal in dear or in cheap commodities, and even here the size of his available capital and other circumstances also have their effect. Therefore, it depends wholly on the degree of development of the capitalist mode of production, not on the merchant's goodwill, what course he shall follow.” (p 306)

There are a number of factors which give the illusion that this is the case. Firstly, if instead of looking at the position of the merchant's profit as a whole, the position of some individual merchant is considered, this may appear to be true. So, one merchant may take a lower profit margin, in order to win a greater market share from their competitors. Secondly, the continued rise in social productivity, as was seen in Chapter 13, results in a falling rate of profit (profit margin), on each unit of production. It is not that profit margins are reduced, so that more can be sold, or as Roscher thought, because it was “common sense and humanitarian”, but that rising productivity results in a growing mass of profit being divided over an even greater mass of produced commodities.

Thirdly, where rapidly rising productivity causes prices of production to fall, demand, especially for new types of commodities, or commodities with low existing levels of demand, can rise sharply. The increase in demand can then outstrip even the rise in supply, so that market prices rise, resulting in higher than average profits.

Fourthly, a merchant may reduce his selling prices in order to turn over a large capital more quickly. As will be seen shortly, just as a falling rate of profit is consistent with a rising annual rate of profit, because it implies an increased rate of turnover, for industrial capital, so the same principle applies to merchant capital.