[11. On the Forms of Crisis]
The general possibility of crisis arises not in the process of production of capital, but “in the process of metamorphosis of capital itself.” (p 513-4). And, the general possibility of crisis arises in two ways. Firstly, in so far as money acts as means of circulation, it represents the separation of purchase and sale. It is precisely this separation that acts as one major potential for crises. Secondly, in so far as money acts as means of payment, it fulfils two roles, one as measure of value and the other as realisation of value.
“These two aspects [may] become separated. If in the interval between them the value has changed, if the commodity at the moment of its sale is not worth what it was worth at the moment when money was acting as a measure of value and therefore as a measure of the reciprocal obligations, then the obligation cannot be met from the proceeds of the sale of the commodity, and therefore the whole series of transactions which retrogressively depend on this one transaction, cannot be settled. If even for only a limited period of time the commodity cannot be sold then, although its value has not altered, money cannot function as means of payment, since it must function as such in a definite given period of time. But as the same sum of money acts for a whole series of reciprocal transactions and obligations here, inability to pay occurs not only at one, but at many points, hence a crisis arises.” (p 514)
For example, if A contracts to buy 10,000 kilos of cotton from B, with an exchange-value of £100,000, and agrees to pay within 90 days, by the time A receives the cotton, still less by the time they have processed it into yarn, the price of cotton may fall from £10 per kilo to say, £8 per kilo. That may be because of a bumper cotton crop, because some new machine for processing raw cotton is introduced, or because demand for cotton falls. This fall in cotton prices will pass on into yarn prices. If previously, the price of a kilo of yarn comprised £10 cotton, £1 wear and tear of machinery, £5 wages, £5 profit = £21, it may now be £8 cotton, £1 wear and tear, £5 wages, £5 profit = £19. But, for the spinners who have bought cotton at £10 per kilo, they will still have to make the payment to their suppliers, so that, in effect, their profit will have been reduced from £5 per kilo to £3 per kilo. Had they not only bought, but also paid for the cotton, at the date of purchase, this situation would not arise, because they would have had to have had the money-capital available. They would have suffered a capital loss, as a result of the fall in the price of cotton, but as illustrated earlier, this is a paper loss, which is more than made up for by the fact that when they come to replace the consumed cotton at its current cost, it is 20% cheaper, which reduces their capital outlay, and thereby results in a higher rate of profit.
How much of an effect this might have depends on the extent to which the price falls, and the proportion of the outlay that is involved. For example, if in a year, the spinner consumes £1 million of cotton, and buys it in ten times a year, they may effectively suffer a £20,000 capital loss on the 10,000 kilos they contract to buy, at £10 per kilo, when its market price drops to £8 per kilo. However, if they had £1 million of money-capital set aside to cover the purchase of cotton, during the year, this £20,000 of capital loss is more than offset by the £180,000 capital gain they effectively make on the remainder of this money-capital, which now buys a much greater quantity of cotton, at its lower price of £8 per kilo. And, at this lower price of cotton, the rate of profit rises from 5/16 = 31.25%, to 5/14 = 35.71%.
The problem arises as effectively a cash flow crisis, where A has bought cotton in the expectation of being able to realise its full value in the yarn they produce, but in reality, can only realise 80% of that value, whilst still having to meet their commitment for the full £100,000. Yet, even here, its clear that the real cause of any crisis resides, not in the fact that the transaction is conducted on the basis of commercial credit, but on the basis of the actual change in the value of cotton.
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