Marx deals here then with a crisis caused by a rise in the value of raw materials, due to a bad harvest. He excludes fixed capital from the analysis, on the basis that technology remains constant, and that the only contribution of fixed capital to value creation is wear and tear, which is set to zero.
“Since the reproduction of raw material is not dependent solely on the labour employed on it, but on the productivity of this labour which is bound up with natural conditions, it is possible for the volume, the amount of the product of the same quantity of labour, to fall (as a result of bad harvests). The value of the raw material therefore rises; its volume decreases, in other words the proportions in which the money has to be reconverted into the various component parts of capital in order to continue production on the former scale, are upset.” (p 515)
Marx's explication of the crisis that unfolds, as a result of these conditions is not as complete as it is in Capital III, Chapter 6, where he deals with this same set of conditions. There, Marx deals with a number of variations that may exist when the market price or value of raw materials rises. As I said earlier, one aspect will depend on the extent to which, say, producers of yarn already have large stocks of cotton waiting to be processed, or in the process of being spun, as well as being in the form of finished goods. If large amounts are in this form, then the rise in the value of cotton will provide a significant capital gain, as all these stocks are revalued. Any yarn sold at this higher value will then reproduce the value of the cotton consumed in its production, on the basis of its current value, irrespective of its historic cost. In that case, the rise in value of cotton due to a crop failure will have no effect, as this higher value of cotton, reflected in the higher value of yarn, will enable the consumed cotton to be replaced, on a like for like basis. The problem arises where the yarn has already been sold, at the old value, and where the stocks of cotton, and work in progress are small, in proportion to the cotton which must be bought, at the new higher value.
Moreover, as Marx sets out, in Capital III, Chapter 6, even where the value of cotton rises prior to the yarn being sold, it may not be possible to pass on the rise in cotton prices to yarn prices. Any rise in yarn prices will cause a reduction in demand, and consequently, market prices would fall back, if yarn supply remains at the previous level. That means that some of the rise in cotton prices would have to be borne out of the profit of the yarn producer. The bigger the rise in the cotton price, and the greater the price elasticity of demand for yarn, the less the ability there is to pass on the rise in the cotton price, and the more must it be absorbed from profit. On the other hand, if the rise in the cotton price is the consequence of a revolution in yarn production, that significantly increases demand for cotton, that may be offset by the rise in productivity in yarn production, so that although the price of cotton rises, the price of yarn does not, or even falls, whilst the demand for yarn rises.
It may be the case that the yarn producers, faced with falling demand, if they raised the price of yarn, in line with the rise in the price of cotton, cannot reduce their supply. Capitalist production is mass production, premised upon technically determined minimum efficient levels of production. A yarn producer will not find it efficient to only run 80% of their spinning machines, or to run all of their machines at 80% capacity. They are led then to run at full capacity, and to hope that any overproduction in the market is borne by their competitors and not by them. In this way, production continues, and overproduction continues, not because surplus value is not being produced by the workers, but because this surplus value cannot then be realised, in the sale of the yarn.
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