Friday, 28 July 2017

Theories of Surplus Value, Part I, Chapter 6 - Part 19

In the third case, the values of commodities exchanged do not cancel out, but more money is thrown into circulation than is required just as means of payment. So, if F buys ₣1 billion of commodities from S, whilst S buys ₣2 billion of commodities from F, all that is required is ₣1 billion to make up the difference. However, if S first buys ₣2 billion of commodities from F, they must throw ₣2 billion into circulation. Only when F then buys ₣1 billion of commodities from S does this additional ₣1 billion flow back to S.

The assumption here has been that the exchanges take place between two individuals, for example, a farmer and a manufacturer. But, in reality, these exchanges take place between many different individual capitals. However, this only adds complexity rather than invalidating the analysis of the underlying relations.

If we assume that there are three sellers – A, A' and A'' – and three buyers – B, B' and B'' – with the sellers each having ₣1 billion of commodities to sell, a series of purchases and sales may occur, but, in the end, ₣3 billion of commodities are exchanged, for ₣3 billion in money.

What changes, depending upon the sequence of the exchanges, is the amount of money which must be thrown into circulation, and so the velocity of circulation. If all three buyers want to buy simultaneously, each must have ₣1 billion, in money, so as to make the purchase. However, if some of the participants act both as buyers and sellers, its possible that only ₣1 billion in money is required to circulate the ₣3 billion of commodities.

“Thus for example: (1) A sells to B for 1 thousand in money; (2) A buys with this 1 thousand from B'; (3) B' with the 1 thousand in money buys from A'; (4) A' with the 1 thousand in money from B''; (5) B'' with the 1 thousand in money from A''. The money would have changed hands five times between the six persons; but also commodities to the value of 5 thousand would have circulated. If commodities for 3 thousand are to be circulated, it would be like this: (1) A [buys] from B for 1 thousand in money; (2) B from A' for 1 thousand in money; (3) A' from B' for 1 thousand in money.” (p 341)

In A Contribution To The Critique of Political Economy, Marx discusses the role of the velocity of circulation in relation to the quantity of money that must be thrown into circulation for any given value of commodities. The discussion here is consistent with the laws developed there.

“In example 1 above, 1 thousand in money circulates three times, and in fact it circulates commodities to the amount of 3 thousand. The amount of money in circulation is consequently 3,000 (sum of prices)/3 (velocity) or 3,000 (sum of prices)/3 cycles = 1,000 money.” (p 341)

The other point that Marx elaborates here is that in considering the velocity of circulation, although an average figure can be determined, this hides the fact that different sums of money may circulate at different speeds.

“In case III or IV the total prices of the commodities in circulation are, it is true, equal to 3,000 in money; but the rapidity of circulation is different. 2,000 in money circulates once, that is, 1,000 in money plus 1,000 in money. Of the 2,000, however, 1,000 circulates once more. 2,000 in money circulates two-thirds of the 3,000 in commodities, and half of it, 1,000 in money, circulates another third; one 1,000 in money circulates twice, but another 1 000 in money circulates only once.” (p 341)

In that case, in aggregate, the velocity of circulation is 1.5, because 2,000 in money circulates 3000 in commodities. What determines the differences in velocity here is the value of commodities in circulation at any one time. Marx notes,

“For the same reason, larger varieties of coin must circulate in wholesale trade than in retail trade.” (p 342)

This is also why I've pointed out that, in some conditions, its possible that even where an excess of liquidity is thrown into circulation, it may result in that liquidity being concentrated in certain segments of the market, and draining liquidity from elsewhere, so that the result is an inflation of some prices and a deflation of others..

In A Contribution To The Critique of Political Economy, in the chapter, The Circulation of Money, Marx indicates that the reflux of money shows that a buyer has become a seller. The money they threw into circulation makes possible the reflux of this money, in exchange for the commodities they later sell, even if the buyer of these commodities is not the person who first sold. This is also the basis of Marx's explanation, in Capital II, of how all capitalists together are able to realise their surplus value. In other words, each throw their money into circulation equal to the value of their surplus value, and this money flows back to them in purchase of the commodities in which that surplus value is represented.

“Continuity in the circulation of commodities —tantamount to its constant renewal (I, p. 78)—is, therefore, reproduction. The buyer can become in turn seller—as in the case of the manufacturer in relation to the labourer—without this denoting an act of reproduction. It is only the continuity, the repetition of this reflux, in relation to which it can be said that it denotes reproduction.” (p 342)

When money returns, as the money form of the commodity-capital, it represents the completion of the period of turnover of capital. It is available once more, for reconversion into productive-capital.

Back To Part 18

Forward To Part 20

No comments: