In the study of the second half of the time of circulation, in which money is reconverted into the elements of productive capital, it is not only this conversion itself which is important in itself, not only the time in which the money flows back according to the distance of the market on which the product is sold. It is also above all the volume of that part of the advanced capital to be held always available in the form of money, in the condition of moneycapital, which must be considered.
Making exception of all speculation, the volume of the purchases of those commodities which must always be available as a productive supply depends on the time of the renewal of this supply, in other words, on circumstances which in their turn depend on market conditions and which are, therefore, different for different raw materials. In these cases, money must be advanced from time to time in larger quantities in one sum. It flows back more or less rapidly, but always in instalments, according to the turnover of capital. One portion, namely that invested in wages, is continually re-expended in short intervals. But another part, namely that which is to be reconverted into raw material, etc., must be accumulated for long periods, as a reserve fund to be used either for buying or paying.
The Time of Circulation. 293 Therefore it exists in the form of money-capital, although the volume which it has as such changes.
We shall see in the next chapter that other circumstances, whether they arise from the process of production or circulation, necessitate this existence of a certain portion of the advanced capital in the form of money. In general it must be noted that economists are very prone to forget that a part of the capital required for business not only passes alternately through the three stages of money-capital, productive capital, and commodity-capital, but that different portions of it have continuously and simultaneously these forms, although the relative size of these portions varies all the time. It is especially the portion always available as money-capital which is forgotten by economists, although this circumstance is very important for the understanding of capitalist economy and makes its importance felt in practice.
294 Capital.
CHAPTER XV.
INFLUENCE OF THE TIME OF CIRCULATION ON THE MAGNITUDE OF AN ADVANCE OF CAPITAL.
In this chapter and in the next we shall treat of the influence of the time of circulation on the utilization of capital.
Take the commodity-capital which is the product of a certain working period, for instance, of nine weeks. Let us leave aside the question of that portion of value which is transferred to the product by the average wear and tear of the fixed capital, also that of the surplus-value added to it during the process of production. The value of this product is then equal to that of the circulating capital advanced for its production, that is to say, of the wages, raw and auxiliary materials consumed in its production. Let this value be 900 pounds sterling, so that the weekly outlay is 100 pounds sterling. The periodic time of production, which here coincides with the working time, is nine weeks. It is immaterial whether it is assumed that this working period produces a continuous product, or whether it is a continuous working period for a discontinuous product, so long as the quantity of discontinuous product, which is brought to market at one time, costs nine weeks of labor.
Let the time of circulation be three weeks. Then the entire time of turn-over is twelve weeks. At the end of nine weeks, the advanced productive capital is converted into a commodity-capital, but now it exists for three weeks in the period of circulation. The new time of production, therefore, cannot commence until the beginning of the thirteenth week, and production would be at a standstill for three weeks, or for a quarter of the entire period of turnover. It is again immaterial whether it is assumed that it takes so long on an average to sell the product, or that this term is conditioned on the distance of the market or on Influence of the Time of Circulation. 295 the terms of payment for the sold goods. Production would be at a standstill for three weeks every three months, or four times three, or twelve weeks, in a year, which means three months or one quarter of the annual period of turnover. Hence, if production is to be continuous and to be carried along on the same scale week after week, there are only two possibilities.
Either the scale of production must be reduced, so that those 900 pounds sterling will suffice to keep the work going during the working period as well as during the time of circulation of the first turn-over. A second working period is then commenced with the tenth week, hence also a new period of turn-over, before the first period of turn-over is completed, for the period of turn-over is twelve weeks, the working period nine weeks. A sum of 900 pounds sterling distributed over twelve weeks makes 75 pounds per week. It is evident in the first place that such a reduced scale of business presupposes changed dimensions of the fixed capital, and therefore a general reduction of the entire business. In the second place, it is questionable whether such a reduction can take place at all, for the development of production in the various businesses establishes a normal minimum for the investment of capital, below which an individual business is unable to sustain competition. This normal minimum grows continually with the advance of capitalist production, hence it is not a fixed magnitude. There are numerous gradations between the existing normal minimum and the ever increasing normal maximum, and this intermediate gradation permits of many different degrees of capital investment. Within the limits of this intermediate scale, a reduction may take place, its lowest limit being the normal minimum.
In case of an obstruction of production, an overstocking of the markets, an increase in the price of raw materials, etc., there is a reduction of the normal outlay of circulating capital, compared to a given scale of fixed capital, by the reduction of the working time, work being carried on, say, for only half a day. On the other hand, in times of prosperity, the fixed capital, remaining the same, there is an abnormal expansion of the circulating capital, partly by the 296 Capital.
prolongation of the working time, partly by its intensification. In businesses which are adjusted from the outset to such fluctuations, recourse is either taken to the abovenamed measures, or a greater number of laborers are simultaneously employed, combined with an investment of reserve capital, such as reserve locomotives of railroads, etc. However, such abnormal fluctuations are not considered here, where we assume normal conditions.
In order to make production continuous, it is necessary, in the present case, to distribute the expenditure of the same circulating capital over a longer period, over twelve weeks instead of nine. In any section of time, a reduced productive capital is therefore employed. The circulating portion of the productive capital is reduced from 100 to 75, or one quarter. The total amount by which the productive capital serving for a working period of nine weeks is reduced is 9 times 25, or 225 pounds sterling, or one quarter of 900 pounds. But the proportion of the time of circulation to that of turn-over is likewise three twelfth, or one quarter. It follows, therefore: If production is not to be interrupted during the time of circulation of the productive capital transformed into commodity-capital, if it is rather to be continued parallel with circulation and continuously week after week, and if no special circulating capital is available, it can be done only by curtailing the productive operations, reducing the circulating portions of the productive capital in service. The portion of circulating capital thus set free for production during the time of circulation is proportioned to the total circulating capital invested as the time of circulation is to the time of turn-over.
"We repeat, that this applies only to branches of production in which the labor-process is continued on the same scale week after week, in other words, where no different amounts of capital are invested at different working periods as is done, for instance in agriculture.
If, on the other hand, we assume that the nature of the business excludes the idea of a reduction of the scale of production and thus of the circulating capital to be invested weekly, then the continuity of production can be secured only by additional circulating capital, in the above-named Influence of the Time of Circulation. 297 case of 300 pounds sterling. During the period of turn' over of twelve weeks, 1,200 pounds sterling are successively invested in twelve weeks, and 300 is one quarter of this sum as three weeks is of twelve. At the end of the working time of nine weeks, the capital-value of 900 pounds sterling has been converted from the form of productive into that of commodity-capital. Its working period is concluded, but it cannot be re-opened with the same capital. During the three weeks in which it exists in the sphere of circulation, performing the functions of commodity-capital, it is in a condition, so far as the process of production is concerned, as though it did not exist at all. We make exception, at present, of all conditions of credit, and assume that the capitalist operates only with his own money. But while the capital advanced for the first working period, having completed its process of production, remains for three weeks in the process of circulation, an additional capital of 300 pounds sterling enters into service, so that the continuity of the production is not interrupted.
Now, the following must be noted in this connection: First: The working period of the capital first invested, of 900 pounds sterling, is completed at the close of nine weeks, and it does not flow back until after three weeks, that is to say, in the beginning of the thirteenth week. But a new working period is immediately begun with the additional capital of 300 pounds. By this means the continuity of production is secured.
Secondly: The functions of the original capital of 900 pounds sterling, and those of the additional capital of 300 pounds sterling added at the close of the first working period of nine weeks, inaugurating the second working period after the conclusion of the first, without any interruption, are clearly distinguished in the first period of turn-over, or at least they may be, while they cross one another in the course of the second period of turn-over.
Let us give this matter a tangible form.
First period of turn-over of 12 weeks: First working period of 9 weeks; the turn-over of the capital advanced for this is completed at the beginning of the 13th week. During the last 3 weeks, the additional capital of 300 pounds 298 Capital.
sterling performs its service, opening up the second working period of 9 weeks.
Second period of turn-over. At the beginning of the 13th week, 900 pounds sterling have flown back and are able to begin a new turn-over. But the second working period has already been opened by the additional 300 pounds in the 10th week. At the commencement of the 13th week, this capital has already completed one third of its working period and 300 pounds sterling have been converted from a productive capital into a product. Seeing that only 6 weeks are required for the completion of the second working period, only two-thirds of the returned capital of 900 pounds sterling, or 600 pounds, can take part in the productive process of the second working period. Thus 300 pounds of the original 900 are set free and may play the same role, which the additional capital of 300 pounds played in the first working period. At the close of the 6th week of the second period of turn-over, the second working period is completed. The capital of 900 pounds sterling advanced in it flows back after 3 weeks, or at the end the 9th week of the second period of turn-over which comprises 12 weeks. During the 3 weeks of its period of circulation, the free capital of 300 pounds sterling comes into action. This begins the third working period of a capital of 900 pounds sterling in the 7th week of the second period of turn-over, which is the 19th running week.
Third period of turn-over. At the close of the 9th week of the second period of turn-over, there is a new reflux of 900 pounds sterling. But the third working period has already commenced in the 7th week of the second period of turnover, and at the beginning of the third period of turnover, 6 weeks of the third working period have already elapsed. The third working period, then, lasts only 3 weeks longer. Hence only 300 pounds of the returned 900 take part in the productive process of the second period of turnover, while the next 300 close the last three weeks of the third working period and thus open the first three weeks of the third period of turn-over. The fourth working period fills out the remaining 9 weeks of this period of turn-over, Influence of the Time of Circulation. 299 and thus the 37th running week begins simultaneously the fourth period of turn-over and the fifth working period.
In orcler to simplify this case for the calculation, we shall assume a working period of 5 weeks and a period of circulation of 5 weeks, making a period of turn-over of 10 weeks. Let the year be one of fifty working weeks, and the capital invested per week 100 pounds sterling. A working period then requires a circulating capital of 500 pounds sterling, and the period of turn-over an additional capital of 500 pounds sterling. The working periods and periods of turnover then are as follows: 1. wrkg. prd. 1 — 5. week (500 p. stlg. of goods) returned end of 10.
2. wrkg. prd. 6 — 10. week (500 p. stlg. of goods) returned end of 15.
3. wrkg. prd. 11 — 15. week (500 p. stlg. of goods) returned end of 20.
4. wrkg. prd. 16 — 20. week (500 p. stlg. of goods) returned end of 25.
5. wrkg. prd. 21 — 25. week (500 p. stlg. of goods) returned end of 30.
etc.
If the time of circulation is zero, so that the period of turn-over is equal to the working time, then the number of turn-overs is equal to the working periods of the year. In the case of a working period of 5 weeks, this would make 10 periods of turn-over per year, and the value of the capital turned over would be 500 times 10, or 5,000. In our table, in which we have assumed a time of circulation of 5 weeks, the total value of the commodities produced per year would also be 5,000 pounds sterling, but one tenth of this, or 500 pounds, would always be in the form of commodity-capital, which would not flow back until after 5 weeks. At the end of the year, the product of the tenth working period (the 46th to the 50th working week) would have completed its period of turn-over only by half, because its time of circulation would fall within the first five weeks of the year.
Now let us take a third illustration: Working period 6 weeks, time of circulation 3 weeks, weekly advance of capital 100 pounds sterling.
1. Working period: 1 — Gth week. At the end of the 6th week, a commodity-capital of 600 pounds sterling, returned at the end of the 9th week.
2. Working period: 7 — 12th week. During the 7 — 9th week 300 pounds sterling of additional capital is advanced.
300 Capital.
At the end of the 9th week, return of 600 pounds sterling. Of this, 300 pounds sterling are advanced during the 10 — 12th week. At the end of the 12th week, therefore, 300 pounds sterling are available, and 600 pounds sterling are in the form of commodity-capital, returnable at the end of the 15th week.
3. Working period: 13— 18th week. During the 13— 15th week, advance of above 300 pounds sterling, then reflux of 600 pounds, 300 of which are advanced for the 16 — 18th week. At the end of the 18th week, 300 pounds sterling available in cash, 600 on hand as commodity-capital, which flows back at the end of the 21st week. (See the detailed illustration of this case under II, farther along.)
In other words, during 9 working periods (54 weeks) a total of 600 times 9, or 5,400 pounds sterling is produced. At the end of the ninth working period, the capitalist has 300 pounds in cash and 600 pounds worth of commodities, which have not yet completed their time of circulation.
A comparison of these three illustrations shows first, that a successive release of capital I of 500 pounds sterling and of additional capital II of likewise 500 pounds sterling takes place only in the second illustration, so that these two portions of capital move independently of one another. But this is so only because we have made the exceptional assumption that the working time and the time of circulation are two equal halves of the period of turn-over. In all other cases, whatever may be the difference of the two terms of the period of turn-over, the movements of the two capitals cross one another, as they do in the first and third illustration, beginning with the second period of turn-over. The additional capital II, with a portion of capital I, then forms the capital serving in the second period of turn-over, while the remainder of capital I is set free for the original function of capital II. The capital serving during the time of circulation of the commodity-capital is not identical, in this case, with the capital II originally advanced for this purpose, but it is of the same value and forms the same aliquot portion of the advanced total capital.
Secondly: The capital which served during the working period, lies fallow during the time *£ ^.xculation. In the Influence of the Time of Circulation. 301 second illustration, the capital performs its function during 5 weeks of the working period, and lies fallow during a circulation period of 5 weeks. The entire time during which capital I here lies fallow amounts to one-half of the year. During this time, the additional capital II takes the place of capital I, which in its turn lies fallow during the other half of the year. But the additional capital required for insuring the continuity of the production during the time of circulation is not determined by the aggregate volume, or the sum, of the times of circulation during the year, but only by the proportion of the time of circulation to the time of turn-over. (We assume, of course, that all the turn-overs take place under the same conditions.) For this reason, 500 pounds sterling are required in the second illustration, not 2,500 pounds. This is simply due to the fact that the additional capital enters just as well into the turnover as the capital originally advanced, and that it, therefore, reproduces its volume the same as the other by the number of its turn-overs.
Thirdly: It does not alter the circumstances here described, whether or not the time of production is longer than the working time. True, the aggregate of the periods of turn-over is prolonged thereby, but this prolongation does not imply any additional capital for the labor-process. The additional capital serves merely the purpose of filling up the fallow places left by the time of circulation. Its mission is simply to protect production against interruption by the time of circulation. Interruptions arising from the conditions of production itself are compensated for in another way, which we do not discuss at this point. There are, however, some businesses, in which work is carried on only in intervals and to order, so that there may be interruptions in the working periods. In such cases, the necessity of additional capital is eliminated to that extent. On the other hand, in most cases of season work, there is a limit for the time of reflux. The same work cannot be renewed next year with the same capital, if the time of circulation of this capital is not completed. Still, the time of circulation may be shorter than the intervals between two periods of 302 Capital.
production. In such an eventuality, capital lies fallow, unless it is employed otherwise in the meantime.
Fourthly: The capital advanced for a certain working period, for instance, the 600 pounds sterling in the third illustration, is invested partly in raw and auxiliary materials, in a productive supply for the working period, in constant circulating capital, partly in variable circulating capital, in the payment of labor itself. The portion invested in constant circulating capital may not exist for the same length of time in the form of a productive supply, the raw material, for instance, may not be on hand for the entire working period, coal may be purchased only every two weeks. However, credit being out of the question, according to our assumption, this portion of capital, to the extent that it is not available in the form of a productive supply, must be kept on hand in the form of money in order to be converted into a productive supply when needed. This does not alter the magnitude of the constant circulating capital-value advanced for 6 weeks. The wages, on the other hand, are generally paid weekly, making exception of the money supply for unforeseen expenses, the strict reserve fund for the compensation of disturbances. Unless the capitalist, therefore, compels the laborer to advance his labor for a longer time, the money required for the payment of wages must be on hand. During the reflux of the capital, a portion must, therefore, be reserved in the form of money for the payment of labor, while the remaining portion may be converted into a productive supply.
The additional capital is subdivided exactly like the original. But it is distinguished from capital I by the fact that (apart from conditions of credit), in order to be available for its own period of labor, it must be advanced during the entire duration of the first working period of capital I, in which it does not take part. During this time, it may be converted into constant circulating capital, at least in part, being advanced for the entire period of turn-over. To what extent it will assume this form, or persist in the form of additional money-capital, up to the time where this conversion becomes necessary will depend partly on the special conditions of production of definite lines of business, partly Influence of the Time of Circulation. 303 on the fluctuations in the prices of raw material, etc. Looking at it from the point of view of the aggregate social capital, there will always be a more or less considerable part of this additional capital for a rather long time in the form of money-capital. But as for that portion of capital II which is to be advanced for wages, it is always gradually converted into labor-power to the extent that small working periods are closed and paid for. This portion of capital II, then, is available in the form of money-capital for the entire working period, until it is converted into labor-power and thus takes part in the function of productive capital.
The advent of the additional capital required for the transformation of the time of circulation of capital I into a time of production increases not only the magnitude of the advanced capital and length of time for which the aggregate capital must be necessarily advanced, but it also increases specifically that portion of the advanced capital which exists in the form of a money-supply, which persists in the condition of money-capital, and has the form of potential capital.
The same takes also place, as concerns both the advance in the form of a productive supply and in that of a money supply, when the separation of capital into two parts required by the time of circulation, namely, capital for the first working period and reserve capital for the time of circulation, is not caused by the increase of the invested capital, but by a decrease of the scale of production. In proportion to the scale of production, the increase of the capital tied up in the form of money is apt to grow still more in this case.
It is the continuous succession of the working periods, the continuous function of an equal portion of the advanced capital as productive capital, which is insured by this separation of capital into an original productive and a reserve capital.
Let us look at the second illustration. The capital continuously employed in the process of production amounts to 500 pounds sterling. The working period being 5 weeks, it works ten times during a working year of 50 weeks. Hence 304 Capital.
its product, apart from surplus-value, is 10 times 500 or 5,000 pounds sterling. From the point of view of a directly and uninterruptedly working capital in the process of production, a capital-value of 500 pounds sterling, the time of circulation seems entirely eliminated. The period of turn-over coincides with the working period, the time of circulation being assumed as equal to zero.
But if the capital of 500 pounds sterling were interrupted in its productive activity by regular times of circulation covering 5 weeks, so that it could not become productively active until after the close of the entire period of turn-over of 10 weeks, we should have 5 turn-overs of ten weeks each in 50 running weeks. These would comprise 5 periods of production of 5 weeks each, or 25 productive weeks with a total product of 5 times 500, or 2,500 pounds sterling; and 5 times of circulation of 5 weeks each, or a total period of circulation of 25 weeks. If we say in this case that the capital of 500 pounds sterling has been turned over 5 times in the year, it is evident and obvious that this capital of 500 pounds sterling did not serve at all as a productive capital during one-half of each period of turn-over, and that, taking all in all, it performed its function only during one half of the year, while it did not serve at all during the other half.
In our illustration, the reserve capital of 500 pounds sterling comes to the rescue during those five periods of circulation, and the turn-over is thus expanded from 2,500 to 5,000 pounds. But now the advanced capital is 1,000 instead of 500 pounds sterling. Hence there are only five turn -overs instead of ten. This is indeed the way in which people count. But when it is said that the capital of 1,000 pounds has been turned over five times in the year, the recollection of the time of circulation disappears in the hollow skulls of the capitalists, and a confused idea is formed that this capital has served continuously in the process of production during the successive five turn-overs. As a matter of fact, if we say that the capital of 1,000 pounds has been turned over five times in a year, we include both the time of circulation and the time of production. For, in- Influence of the Time of Circulation. 305 deed, if 1,000 pounds sterling had actually been continuously active in the process of production, the product would have to be 10,000 pounds sterling instead of 5,000, according to our assumptions. But in order to have 1,000 pounds sterling continuously in the process of production, 2,000 pounds would have to be advanced. The economists, who as a general rule have nothing clear to say in reference to the mechanism of the turn-over, always overlook this main point, to-wit, that only a part of the industrial capital can actually be engaged in the process of production, if production is to proceed uninterruptedly. While one part is busy in the process of production, another must always be engaged in the process of circulation. Or in other words, one part can perform the functions of productive capital only on condition that another part is withdrawn from production in the form of commodity or money-capital. In overlooking this, the significance and role of money-capital is entirely ignored.
We have now to ascertain to what extent differences in the turn-over are caused according to whether the two sections of the period of turn-over, the working period and the circulating period, are equal to one another, or the working period greater or smaller than the circulating period, and furthermore, what effect this has on the retention of capital in the form of money-capital.
We assume, that the capital advanced weekly is in all cases 100 pounds sterling, and the period of turn-over 9 weeks, so that the capital invested in each period of turnover is 900 pounds sterling.
I. The Working Period Equal to the Period of Circulation.
Although this case occurs in reality only accidentally, as an exception, it must serve as our point of departure in this analysis, because conditions here shape themselves in the simplest and most intelligible way.
The two capitals (capital I advanced for the first working period, and reserve capital II advanced during the time of circulation of capital I) relieve one another in their movements without crossing. With the exception of the first period, either of the two capitals is therefore advanced only Capital.
for its own period of turn-over. Let the period of turnover be 9 weeks, as indicated in the two following illustrations, so that the working period and the time of circulation are each of them 4% weeks. Then we have the following annual diagram: Periods of Turn-Over.
Table I. CAPITAL I.
Working Periods. Advance.
Periods of Circulation.
I.
CAPITAL II.
Periods of Periods of Turn-Over. Working Period. Advance. Circulation.
Within the 50 weeks which we here assume to stand for one year, capital I has absolved six full working periods, making 6 times 450, or 2,700 pounds sterling, and capital II making in five full working periods 5 times 450, or 2,250 pounds sterling's worth of commodities. In addition thereto, capital II has produced, within the last one and a half weeks of the year (middle of the 50th to the end of the 51st week) an extra 150 pounds sterling's worth, making the aggregate product 5,100 pounds sterling. So far as the dizect production of surplus-value is concerned, which is produced only during the working period, the aggregate capital of 900 pounds sterling would have been turned over 5 2-3 times (5 2-3 times 900 equal to 5,100 pounds sterling). But if we consider the actual turn-over, then capital I has been turned over 5 2-3 times, since at the close of the 51st week it still has to absolve 3 weeks of its sixth period of turn-over; 5 2-3 times 450 make 2,550 pounds sterling; and capital II turned over 5 1-6 times, since it has completed only 1 1-2 week of its sixth period of turn-over, so that 7 1-2 weeks of it fall within the next year; 5 1-6 times 450 make 28 The weeks falling within the second year of turn-over are placed in parentheses.
Influence of the Time of Circulation. 30% 2,325 pounds sterling; actual aggregate turn-over 4,875 pounds sterling.
Let us regard capital I and capital II as two capitals independent of one another. They are independent in their movements; these movements supplement one another merely because their working and circulating periods directly relieve one another. They may be regarded as two entirely independent capitals belonging to different capitalists.
Capital I has completed five full turn-overs and two-thirds of its sixth period of turn-over. At the end of the year it has the form of commodity-capital, which lacks three weeks of its normal realization. During this time, it cannot take part in the process of production. It performs the function of commodity-capital, it circulates. It has completed only two-thirds of its last period of turn-over. This is expressed in the words: It has been turned over only two-thirds, only two-thirds of its total value have completed their turnover. We say that 450 pounds sterling complete their turnover in 9 weeks, hence 300 do in 6 weeks. But in this expression, the organic conditions of the two specifically different portions of the period of turn-over are neglected. The exact meaning of the expression, that the advanced capital of 450 pounds sterling has made 5 2-3 turn-overs, is merely that it has completed five turn-overs fully and of the sixth only two-thirds. On the other hand, the expression that the turned-over capital is equal to 5 2-3 of the advanced capital, or, in the above case, 5 2-3 times 450 pounds sterling, making 2,550, is correct only in so far as it means that unless this capital of 450 pounds sterling were supplemented by another capital of 450 pounds sterling, one portion of it would have to be in the process of circulation while another is in the process of production. If the period of turn-over is to be expressed in the quantity of the turnedover capital, it can be expressed only in a quantity of existing values (embodied in the finished product). The fact that the advanced capital is not in a condition in which it may reopen the process of production is due to the circumstance that only a part of it is in a condition suitable for production, or that, in order to be in a condition suitable