There are two factors affecting the rate of turnover. Firstly, the Production Time, and secondly the Circulation Time. In the case of the production time, this divides into two elements. Firstly, some commodities simply take longer to produce than others; a ship takes longer to produce than a dinner set, for example.
“In this case, the product continually absorbs labour—often a great deal of labour is absorbed (for instance by luxury articles and buildings) in relation to the constant capital—the amount depending on the composition of the productive capital, its division into constant and variable capital. Thus in the measure as the time required for the production of the commodity increases and the labour process continues uniformly, a continuous absorption of labour and of surplus labour takes place.” (p 390-1)
Secondly, some commodities are subject to natural processes that must take place, even though labour is not being undertaken on them. Crops must be allowed to grow, livestock to fatten, beer and wine to ferment, and so on. During this time, the commodity, and constant capital is not absorbing labour, but the capital remains locked up in the production process, unable to be put into circulation. For some commodities, this production time can extend beyond a single year, but, for purposes of comparison with the average rate of profit, the profit must still be calculated on the basis of an annual rate.
“But the value of the product cannot be realised, that is, in the sense that it cannot be converted into money, and neither can the surplus-value. The latter cannot therefore be accumulated as capital nor used for consumption. The capital advanced, and also the surplus-value, serve, so to speak, as foundations for further production. They are a precondition for it and enter, to some extent, as semi-finished products, or, in one way or another, as raw material into the production process of the second year.” (p 391)
Marx sets out an example whereby a capital of £500 is advanced, comprising £400 of constant capital and £100 of variable-capital. It produces £50 of surplus value. However, the commodity requires two years to produce. The value of output of the first year is £350, and the £50 profit represents a 10% rate of profit on the £500 of capital advanced. But, the £550 now represents the value of constant capital advanced in the second year. In addition, a second £500 of capital is advanced, for the second year, and a further £50 of surplus value is produced. But, the rate of profit, for the second year, cannot be the same as for the first year, because now £550 + £500 = £1,050 of capital is advanced for the second year, to produce this £50 of surplus value. The total value of output is £1100, of which £100 is surplus value, which represents a 10% rate of profit over the two years, but this is clearly not the same as a 10% annual rate of profit.
In order to obtain a 10% annual rate of profit, the profit, in the second year, would need to be £1,050 x 10% = £105. In that case, the output would have to be sold at a price of £1,050 + £105 = £1,155.
“In this case, the profit is greater than the surplus-value produced, for this only amounts to £100. If one includes the consumption costs which the capitalist has to advance over two years, then the capital laid out is even greater in proportion to the surplus-value. On the other hand, it is true that the entire surplus-value gained in the first year has been converted into capital in the second. Furthermore, the capital laid out in wages is greater, because the £100 is not reproduced at the end of the first year, so that in the second year £200 must be advanced for the same labour for which £100 would have been sufficient if it had been reproduced in the first year.” (p 392)
Again, this is the reason that the average rate of profit is based on this annual rate of profit, calculated on the advanced capital, rather than on the rate of profit/profit margin, calculated on the laid out capital, or cost of production. Its quite clear that capitalists who advance capital that turns over slowly will expect to obtain the same annual rate of profit as that they would obtain on capital advanced for a much shorter duration. If the price they obtain for their commodities does not provide them with the same annual rate of profit, they will employ their capital elsewhere. The supply of the former commodities will then be reduced pushing their prices up, and the supply of the latter will rise, pushing their prices down, until both sell at their price of production, whereby the capital produces the same annual rate of profit.
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