Circulating Constant Capital – raw material including intermediate production (1)
Unlike fixed capital, the value of raw material, which for Marx includes the value of processed materials, or intermediate production (Department I (v + s) = Department II (c)), which is used productively, transfers the whole of its value in the labour process, because the whole of it is physically consumed in that process. The whole of its value is thereby reproduced in the labour process, and thereby is available for the physical replacement of the consumed material. However, for this same reason, it depends at what point the value/price of the material changes, as to whether a release or tie-up of capital occurs. It can be seen that because this circulating constant capital turns over several times, during the year, and the rate of turnover rises over time, due to technological developments in production and circulation (for example, containerisation, the introduction of flexible specialisation and Just In Time etc.) the effect of a release or tie-up of capital, as a result of changing prices is less significant than the effect of those changing prices on the rate of profit itself, because the proportion of raw materials held in stock, or as work in progress, is always only a small proportion of the total raw material processed during the year.
Suppose, 100 kilos of cotton are processed into 100 kilos of yarn. The cotton has a current exchange-value/price of £100. £100 is paid in wages, with £100 of surplus value being produced. The value of output is then £300. If, at any point, prior to the yarn being sent to market, the value of cotton changes, this change in value will impact the value of the yarn. Suppose there is a bad cotton harvest, so that the value of cotton rises to £200 for 100 kilos. The value of yarn will then rise to £400. This has to be the case, because the yarn producers, having consumed the 100 kilos of cotton, must now physically replace it, “on a like for like basis” out of their current production, and its value. Unless, the value of yarn, currently on the market, rises to £400, the yarn producers will not recover sufficient value, from the sale of yarn, to cover their purchase of cotton, so as to continue production on the same scale.
“If the price of raw material, for instance of cotton, rises, then the price of cotton goods — both semi-finished goods like yarn and finished goods like cotton fabrics — manufactured while cotton was cheaper, rises also. So does the value of the unprocessed cotton held in stock, and of the cotton in the process of manufacture. The latter because it comes to represent more labour-time in retrospect and thus adds more than its original value to the product which it enters, and more than the capitalist paid for it.
Hence, if the price of raw materials rises, and there is a considerable quantity of available finished commodities in the market, no matter what the stage of their manufacture, the value of these commodities rises, thereby enhancing the value of the existing capital. The same is true for the supply of raw materials, etc., in the hands of the producer.”
(Capital III, Chapter 6)
If the value of output rises, therefore, so that yarn that previously had a value of £300, now has a value of £400, there is no tie-up of capital as a result. However, assume that the yarn was sold prior to the rise in cotton prices, so that the yarn is sold for £300. But, this sale takes place prior to the £300, now in the form of money-capital, having being metamorphosed once more into productive-capital. In other words, £300 of yarn is sold, £300 is put in the bank, but it has not yet bought the cotton required to reproduce that consumed in the production of that yarn. Now, cotton prices rise to £200. In that case, the £100 that has been reproduced, in the sale of yarn, to reproduce the consumed 100 kilos of cotton, is not sufficient. In order to continue production on the same scale, and so to replace “on a like for like basis” the 100 kilos of cotton, the capitalist must now add another £100 of capital. The capitalist has sold yarn for £300. Previously, that represented £100 for cotton, £100 for wages, and £100 for profit. The profit constituted revenue for the capitalist, which they could consume without throwing it back into production. But, now, to continue producing on the same scale, they must take this £100 of revenue/profit and convert it into capital, so as to buy 100 kilos of cotton, whose value is now £200. £100 of revenue has now had to be converted to capital. That is a tie-up of capital, or to put it another way, £100 of revenue that could have been used to accumulate additional capital is now tied up simply to replace the consumed capital.
Suppose, however, that the circulating capital turns over four times during the year. In that case, initially, £25 is advanced for cotton. The output value is £75 for the turnover period. If it is sold at this point, but then the value of cotton doubles, the spinner will suffer a £25 tie-up of capital, because this £75, will be £25 short of the capital required for production in the following period. However, a £25 tie-up of capital is significantly less than a £100 tie-up of capital. More significant is the effect on the rate of profit, which falls as a result of the fact that more capital must now be advanced, as a result of the rise in the value of raw material. If, the price of cotton rose, prior to the sale of the yarn, then the spinner would obtain a £25 capital gain (they bought cotton for £25 that now has a value of £50), but assuming that they intend to continue producing, and not liquidate all of their capital, this capital gain is only on paper. They obtain £100 for their output, rather than £75, but they must now use £75, of this to reproduce their consumed capital rather than £50, so that the capital gain disappears. More significant to them, again, is the fact that the price of cotton has risen, which means they must now lay out £75 more, in capital for the rest of the year, than would have been the case, and with a consequent effect on their rate of profit.
Marx makes clear that he is assuming that the change in the price of the cotton is due to a change in its value, as a result of a change in social productivity. But, it could equally be simply a change in its market price, which would have the same effect. Suppose, a new spinning machine is introduced, so that the existing capital advanced for labour is able to spin a much greater quantity of cotton into yarn. In that case, the demand for cotton might rise, substantially. There may be no change in the value of cotton, but the sharp rise in demand for cotton would cause its market price to rise. For the buyers of cotton, this higher price appears in just the same way as if the value of cotton itself had risen, and has the same effect for them.
There may be a difference, however. Where a rise in productivity in spinning arises, this means relatively less labour is used, and this has a consequent effect in reducing the value of yarn. A fall in the value of yarn, would lead to a rise in demand for yarn. If the rise in demand for cotton leads to higher cotton prices, these higher cotton prices may offset some of the fall in the value of yarn, so that demand for yarn may rise more modestly. However, if it is the value of cotton itself that rises, whilst there is no change in productivity in spinning, the higher price of cotton will pass through into a higher price of yarn, and from there into a higher price of cotton cloth, and clothing, which will cause the demand for cotton goods, cloth and yarn to fall. If demand falls sufficiently, it may not be possible for producers of yarn, cloth and cotton goods to pass on the higher price into their own prices, because it would cause demand to fall to a level where they could not continue to produce at the levels required to utilise their capital efficiently. In that case, they would have to absorb some of the rise in cotton prices out of their profits.
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