I have set this out in relation to Capital III, Chapter 17. For productive-capital, the annual rate of profit is a function of the rate of turnover. The higher the average rate of turnover, the higher the annual rate of profit, and thereby the general rate of profit. The higher the rate of turnover, the more the mass of surplus value rises, because any given mass of advanced capital now employs a greater mass of labour, which thereby produces more surplus value. But commercial capital does not produce surplus value, it only realises it. Commercial capital, thereby, takes the average annual rate of profit as given. Say, the average rate of profit is 10%, if commercial capital obtains a 12% annual rate of profit, capital will move from productive activities to commercial activities. The prices commercial capital obtains will fall, as a result of increased competition, and the prices charged by producers to it will rise, for the same reason. So, commercial profits will fall, until they reach the average rate of profit. If the commercial rate of profit is only 8%, the opposite will happen.
Suppose then that the total advanced commercial capital is £1 million. The total commercial profit must be £100,000, if the average rate of profit is 10%. If this commercial capital turns over once during the year, the value of its sales is £1.1 million, and the rate of profit/profit margin is 10%. However, if it turns over ten times during the year, the value of its sales will be £10 million plus £100,000 = £10.1 million, and its rate of profit/profit margin will be 1%. A higher rate of turnover for commercial capital does not produce additional surplus value, as is the case with productive-capital. It only spreads the average profit it obtains over a larger mass of sales, so that the rate of profit/profit margin is thereby reduced.
Marx sets out the reason that the rate of turnover for calculating the annual rate of profit is based only on the circulating capital.
“If the fixed capital equals x, and it turns over only once every 15 years, then 1/15 of it is turned over in a single year, but likewise only 1/15 needs to be replaced each year. It would make no difference at all if it were replaced 15 times in a year. Its mass would still be the same as before.” (p 395)
Whatever proportion of the value of the fixed capital is consumed in each turnover period, of the circulating capital, it is likewise reproduced in that period, and returned along with the circulating capital. The only difference, here, in relation to the period of turnover of the fixed capital, is its effect on the value of the output. If fixed capital of £10,000 is advanced, it will contribute £1,000 to the value of output in a year, if this fixed capital turns over every ten years. But, if it turns over every year, it will contribute £10,000 to the value of output.
“The product would only become dearer as a result. But it is more difficult to dispose of it and the risk of depreciation is greater than if the same amount of capital were advanced in the form of circulating capital. But this does not affect the surplus[-value] in any way, although it does enter into the capitalists calculation of the rate of profit since this risk is included in the calculation of the depreciation.” (p 395)
here again we see the distinction between wear and tear, recovered in the value of output, and depreciation which is not, and which represents a capital loss. Again, we see the reason why capital seeks to reduce the value of fixed capital, so as to minimise the potential for such capital losses, even as it is forced to increase the employment of the mass of fixed capital, so as to raise productivity. It drives it to utilise fixed capital as extensively and intensively as possible, so as to a) reduce the unit fixed capital cost, so as to reduce unit output values, so that they can be sold more easily, and b) recovers the value of the fixed capital in the shortest possible time, so as to reduce the risk of capital losses from depreciation.
Marx sets out an example where circulating constant capital is £25,000 and variable-capital £5,000. If it turns over once a year, £30,000 of capital is advanced. With a 100% rate of surplus value, profit is £5,000 and the annual rate of profit is 16.66%. However, if the capital turns over five times in the year, only £5,000 of constant capital and £1,000 of variable-capital needs to be advanced. The £1,000 of variable-capital produces £1,000 of surplus value, five times in the year, or £5,000 for the year. So, £6,000 of advanced capital now produces the same £5,000 of profit, so that the annual rate of profit is 5/6 = 83.33%.
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