Circulating Constant Capital – raw material including intermediate production (2)
The opposite situation arises where the value/price of cotton falls, so that capital is released. In that case, money-capital that was previously required to replace the consumed cotton (constant capital) is released. It appears now as revenue, which creates the illusion of it being additional profit. Again, it is not really additional profit, because there has been no change in the amount of surplus value produced; it is just that money-capital, previously required to reproduce constant capital, is available as revenue. This revenue can be consumed unproductively, or it can be used to accumulate additional capital.
A change in productivity affecting the production of the raw material brings about a tie-up or a release of capital, because it results in the value of the raw material either rising or falling, respectively. It also, thereby, brings about a change in the value composition of capital. In other words, in the above example, 100 kilos of cotton is processed by 100 units of labour into yarn. A change in cotton production does not change this technical relation. It is 1:1. In value terms, this might be equal to £100 cotton, £100 for wages. If productivity in cotton production falls, so that the price of cotton rises to £200, the technical composition of capital still means that 100 kilos of cotton is processed by 100 units of labour, but, now the value composition is 200:100, or 2:1. If production is to continue on the same scale, then instead of £200 of capital being required, £300 is required. Alternatively, as Marx sets out in Theories of Surplus Value, Chapter 12 et al, the available £200 of capital will be only able to buy less cotton and labour, so that reproduction would have to be curtailed. Instead of capital accumulating, it contracts.
Similarly, if the value of cotton falls from £100 for 100 kilos to £50, £50 of capital is released. If the yarn is sold prior to the fall in price, the yarn producer obtains £100, for the reproduction of the cotton, but, now, needs only to spend £50 to replace it, releasing the other £50 of capital as revenue. They might either consume this revenue unproductively, or might use it to accumulate additional capital. For example, they could buy 33.33 kilos of additional cotton, and 33.33 units of additional labour. The same is true for a new producer committing capital to yarn production. Previously, they set aside £200 of capital, £100 for cotton, and £100 for wages. But, now £50 of this capital is released, as they only require £50 to cover the cost of cotton, to produce on the planned scale.
If the fall in the value of cotton arises prior to sale of the yarn, then the value of yarn falls from £300 to £250, and so there is no release of capital. However, the rate of profit rises, in the same way that happened in the case of a fall in the value of fixed capital. The fall in the value of cotton does not affect the £100 of surplus value produced by labour. But, now, instead of the rate of profit being 100/200 = 50%, it is 100/150 = 66.66%. The amount of profit remains unchanged, but the rate of profit rises, because less constant capital is now advanced in order to produce on the same scale.
In the case, where £50 of capital is released, because of the fall in the value of cotton, which is always the case for new capital being invested in this line of production, then if this £50 of released capital is used to accumulate additional capital, then the amount of profit will also rise. In other words, 33.33 additional units of labour are employed, and with a 100% rate of surplus value, this means that £33.33 of additional surplus value is produced, so that not only does the fall in the value of cotton cause the rate of profit to rise, but, by causing the employment of additional capital, it also causes the mass of profit to rise.
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