sh. If d. per lb. The annual profit on capital invested in the sugar business would still be 15 p.st, on each 100 p.st. Only he has to sell 100 lbs. in the first case, while he must sell 2,000 lbs. in the second place. The high or low level of the price of production would not have anything to do with the rate of profit. But it would have a great deal, or even a decisive deal, to do with that aliquot part of the selling price of each lb. of sugar which resolves itself in mercantile profit; in other words, it would have a great deal to do with the addition to the price which the merchant makes on a certain quantity of commodities, or products. If the price of production of a certain commodity is small, then the amount advanced by the merchant for tlie purchase of a certain quantity of that commodity is also small, and so is the amount of profit made by him on this quantity of cheap commodities. Or, what amounts to the same, he can buy with a certain amount of capital, for instance with 100, a large quantity of these commodities, and the total profit of 15, which he makes on 100, will be distributed in small fractions over each individual portion of this mass of commodities. The opposite takes place in the opposite case. This depends entirely on the greater or smaller productivity of the industrial capital, with whose products he trades. If we except the cases, in which the merchant is a monopolist and monopolises at the same time the production of certain goods, as did the Dutch East India Company once upon a time, we must say that there is nothing more ridiculous than the current idea that it depends on the merchant whether he wants to sell many commodities at a small profit or few commodities at a large profit on the individual commodities.
The two limits of his selling price are: On one hand, the price of production of commodities, over which he has no control; on the other hand, the average rate of profit, over which he has also no control. The only thing which he has to decide is whether he wants to deal in cheap or in dear commodities, and even here the size of his available capital and other circumstances have something to say. Therefore it depends wholly on the degree of development of the capitalist mode of production, not on the good will of the merchant, 362 Capitalist Production.
what course lie shall follow in this. A purely commercial company like the old Dutch East India Company, which had a monopoly of production, could imagine that it would he able to continue a method, adapted at best to the beginnings of capitalist production, under entirely changed conditions. ^^ The following circumstances, among others, help to maintain that popular prejudice, which, like all wrong conceptions of profit, etc., arise out of the views of pure commerce: 1) Phenomena of competition, which, however, concern merely the distribution of mercantile profit among the individual merchants in their capacity as shareholders in the total merchant's capital; such as the underselling of other merchants by one of them for the purpose of beating his competitors.
2) An economist of the caliber of Professor Roscher of Leipsic may still imagine that a change in the selling prices may be brought about by considerations of '' prudence and humanity," instead of being due to a revolution in the mode of production itself.
3) If the prices of production fall on account of an increased productivity of labor, and if consequently the selling prices also fall, then the demand, and with it the market prices, often rise even faster than the supply, so that the selling prices yield more than the average profit.
4) A merchant may reduce his selling price (which amounts after all to no more than a reduction of the current profit which he adds to the price) in order to turn over a large capital more rapidly in his business.
All these things concern only competition between merchants themselves.
We have already shown in volume I, that the high or low **" Profit, on the general principle, is always the same, whatever be price; keeping its place like an incumbent body on the swelling or sinking trade. As, therefore, prices rise, a tradesman raises prices; as prices fall, a tradesman lowers price." (Corbet, An Inquiry into the Causes, etc., of the Wealth of Individuals. London, 1845, p. 15.) Here, as in the text of our work generally, we speak only of ordinary commerce, not of speculation. The analysis of speculation, as well as everything else pertaining to the division of mercantile capital, falls outside of the circle of our inquiry. " The profit of trade is a value added to capital which is independent of price, the second (speculation) is founded on the variation in the value of capital or in price itself." (L. c, p. 12.)
The Prices. 363 level of the prices of commodities determines neither the mass of surplus-value 2:)roduced bj a certain capital nor the rate of surplus-value; it is merely true that, according to the relative quantity of commodities produced by a certain quantity of labor, the price of the individual commodity, and with it the share of surplus-value falling upon this price, is greater or smaller. The prices of every quantity of commodities are determined, so far as they correspond to their values, by the total quantity of labor incorporated in these commodities.
If much labor is incorporated in few commodities, then the price of the individual commodities is low and the surplusvalue contained in them is small. No matter in what proportion the labor incorporated in a commodity is divided into paid and unpaid labor, and no matter what portion of its price may represent surplus-value, it has nothing to do with the total quantity of this labor, nor, consequently, with its price. On the other hand, the rate of surplus-value does not depend on the absolute magnitude of the surplus-value contained in the price of the individual commodity, but on its relative magnitude, on its proportion to the wages contained in the same commodity. The rate of surplus-value may therefore be large, while the absolute magnitude of the sui'plusvalue in each individual commodity may be small. This absolute magnitude of the surplus-value in each commodity depends in the first place on the productivity of labor, and only in the second place on its division into paid and unpaid labor.
Moreover, in the case of the commercial selling price, the price of production is a condition determined by external circumstances.
The high prices of commerce in former times were due 1) to the dearness of the prices of production, in other words, to the unproductivity of labor; 2) to the absence of an average rate of profit, which enabled the merchant's capital to absorb a much larger quantity of the surplus-value than would have fallen to its share, had the capitals enjoyed a greater general mobility. The cessation of this condition, in both of its aspects, is due to the development of the capitalist mode of production.
364 Capitalist Production.
The turn-overs of merchant's capital vary in length, their numbers consequently are greater or smaller, in different lines of commerce. Within the same line of commerce, the turnover is more or less rapid in different phases of the economic cycle. However, an average number of turn-overs, which is found by experience, takes place.
We have already noted, that the turn-over of merchant's capital differs from that of industrial capital. This follows from the nature of the case; one single phase in the turnover of industrial capital appears as a complete turn-over of some independently constituted merchant's capital, or of a part of some such merchant's capital. This turn-over has also a different relation to the determination of profit and prices.
In the case of the industrial capital, its turn-over expresses on one hand tlie periodicity of reproduction, and on it depends the mass of commodities, which may be thrown on the market in a certain period. On the other hand, its time of circulation forms a barrier, which is elastic and exerts more or less of a restraint on the creation of value and surplusvalue, because it exerts a pressure on the volume of the process of production. The turn-over therefore acts as a determining element on the mass of annually produced surplusvalue, and thus helps to determine the average rate of profit, but it acts as a negative, not as a positive element. For the merchant's capital, however, the average rate of profit exists as a given magnitude. The merchant's capital does not directly participate in the creation of value or surplus-value, and it participates in the formation of an average rate of profit only to the extent that draws a dividend, in proportion to its size in the total social capital, out of the mass of profit produced by the industrial capital.
The greater the number of turn-overs of a certain industrial capital is under the conditions described in Volume II, Part II, the greater is the mass of profits created by it. ^ow, the formation of an average rate of profit distributes the total profit among the different capitals, not in proportion to their actual participation in its direct production, but in proportion to the aliquot parts which they constitute in the total capital, that is, in proportion to their magnitudes. But this does not alter the essence of the matter. The greater the number of turnovers of the industrial capital as a whole is, the greater is the mass of profits, the mass of annually produced surplusvalue, and therefore the rate of profit, always assuming other circumstances to remain unchanged. It is different with merchant's capital. For it, the rate of profit is a given magnitude, determined on one hand by the mass of profit produced by the industrial capital, on the other hand by the relative magTiitude of the total merchant's capital, by its quantitative relation to the sum of capital advanced in the processes of production and circulation. The number of its turn-overs does indeed exert a determining influence on its relation to the total social capital, or on the relative magnitude of the total merchant's capital required for the circulation. For it is evident that the absolute magnitude of the total merchant's capital and the velocity of its turn-over are inversely proportioned to one another. But, all other circumstances remaining the same, the relative magnitude of the merchant's capital, or its aliquot proportion in the total social capital, is determined by its absolute magnitude. If the total social capital is 10,000, and the merchant's capital 1,000, then it is yg" of the total; if the total capital is 1,000, and the merchant's capital 100, it is again j-^. To that extent, the absolute magnitude of the merchant's capital may vary, while its relative magnitude in the total social capital remains the same. But in the present case, we assume that its relative magnitude of yq- of the total social capital is given. This relative magnitude, again, is determined by its turn-over. If it is turned over rapidly, its absolute magnitude will be 1,000 in the first case, and 100 in the second, so that its relative magnitude will be -^-q. But if it is turned over more slowly, then its absolute magnitude may be 2,000 in the first case, and 200 in the second case. Then its relative magnitude will have increased from -^^ to i of the total social capital. Circumstances which reduce the average turn-over of merchant's capital, for instance, the development of means of transportation, reduce to that extent the 366 Capitalist Production.
absolute magnitude of merchants' capital and thereby increase the average rate of profit. The opposite takes place, if things are reversed. A developed mode of capitalist production, compared to previous conditions, exerts a twofold influence on merchants' capital. In the first place, the same quantity of commodities is turned over with a smaller mass of actually functioning merchants' capital; for the proportion of the mcrcliants' capital to industrial capital is reduced by the more rapid turn-over of merchants' capital and the greater velocity, of the process of reproduction that is its basis. On the other hand, the development of the capitalist mode of production turns all production into a production of commodities, which puts all products into the hands of the agents of circulation. This is so much more notable, as under previous modes of production, wliich produced things on a small scale, a large portion of the producers sold their goods directly to the consumers or worked for their personal orders, leaving out of consideration that mass of products, which were immediately consumed by the producer himself, and that mass of services, which were performed in natura. While, therefore, under former methods of production, commercial capital represented proportionately a larger share of the commodity-capital which it turned over, it was.
1) absolutely smaller, because a disproportionately smaller part of the total product was produced in the shape of commodities, passed as commodity-capital into circulation, and fell into the hands of merchants. It was smaller, because the commodity-capital was smaller. But it was proportionately larger, not only because its turn-over was slower, and because it constituted a larger portion of the mass of commodities turned over by it, but also because the price of this mass of commodities, and consequently the merchants' capital to be advanced for it, were greater than under capitalist production on account of a lower productivity of labor, so that the same value was incorporated in a smaller mass of commodities.
2) T^ot alone is a larger mass of commodities produced on the basis of capitalist production (taking account also of the reduced value of these commodities), but the same mass of products, for instance, of corn, also becomes to a greater extent commodity, that is, more and more of the product becomes an object of commerce. As a consequence, not only tlie mass of the merchants' capital, but of all capital invested in the circulation, increases, such as capital invested in marine shipping, railroading, telegraph business, etc.; 3) However, there is one point of view, which belongs in the discussion of " competition among capitals," namely: The merchants' capital, which is not serving in any function, or serving only in part, grows with the progress of the capitalist mode of production, with the facility of its investment in retail trade, with the increase of speculation, and with the superfluity of released capital.
But, assuming the relative magnitude of the merchants' capital in proportion to the social capital to be given, the difference of the turn-overs in the various lines of commerce does not affect the magnitude of the total profit falling to the share of the total merchants' caj)ital, nor the general rate of profit. The profit of the merchant is determined, not by the mass of the commodity-capital turned over by him, but by the magnitude of the money-capital advanced by him for the promotion of this turn-over. If the yearly general rate of profit is 15%, and the merchant advances 100 p.st., which he turns over once a year, then he will sell his commodities at 115. If his capital is turned over five times per year, then he will sell a commodity-capital of 100 purchase price five times per year at 103, which will amount in one year to a commoditycapital of 500 sold 515. This constitutes the same annual profit of 15% on his advanced capital of 100 as before. If this were not so, then the merchants' capital would yield a much higher profit in proportion to the number of its turnovers than the industrial capital, and this would be a contradiction to the law of the average rate of profit.
It follows, then, that the number of turn-overs of merchants' capital in the various lines of commerce affects the mercantile prices of commodities directly. The amount of the mercantile addition to the price, the addition of that aliquot part of the mercantile profit of a given capital which 368 Capitalist Production.
falls upon the price of i^roduction of the individual commodities, stands in an inverse ratio to the number of turn-overs, or the velocity of turn-over, of the merchants' capitals in the various lines of commerce. If a certain merchants' capital is turned over five times per year, it will add to a commoditycapital of its own value but one-fifth of the profit, Avhich another merchants' capital of the same value, which is turned over but once per year, will add to a commodity-capital of the same value.
This modification of selling prices by the average time of turn-over of the capitals in different lines of commerce amounts to this: In proportion to the velocity of turn-over, the same mass of profits, which is determined by the annual rate of average profit for any given magnitude of merchants' capital, independently of the specific commercial character of the operations of this capital, is differently distributed over masses of commodities of the same value. For instance, if the merchants' capital is turned over five times per year, it will add ^ = 3% to the price of commodities, and if turned over once per year, it will add 15% to their price.
The same percentage of the commercial profit in different lines of industry, according to the proportions of their times of turn-over, increases the selling prices of commodities by different percentages calculated on their values.
On the other hand, in the case of industrial capital, the time of turn-over does not affect in any way the magnitude of the v^alue of the individual commodities produced during that time, although it does affect the mass of value and surplusvalue produced in a given time, because it affects the mass of exploited labor. This is indeed concealed and seems to be otherwise, as soon as one has an eye only to the prices of production. But this is due solely to the fact that, according to the previously analysed laws, the prices of production of the various commodities deviate from their values. As soon as we look upon the process of production in its totality, upon the mass of commodities produced by the entire industrial capital of society, we shall find the general law vindicated.
We see then, that a closer inspection of the influence of the time of turn-over on the formation of the values leads us back, in the case of the industrial capital, to the general law and to the basis of political economy, to-wit, the law that the values of commodities are determined by the labor time contained in them. But the influence of the turn-overs of merchants' capital on the mercantile prices reveals phenomena, which, without a very lengthy analysis of the connecting links, seem to point to a purely arbitrary fixing of prices. They seem to be fixed purely on the intention that a certain capital should make a definite quantity of profits in one year. Particularly it looks, on account of this influence of the turn-overs, as though the process of circulation determined by itself the prices of commodities, independently, within certain limits, of the process of production. All superficial and false conceptions of the process of reproduction as a whole arise from the point of view of merchants' capital and from the conceptions, which its peculiar movements call forth in the minds of the agents of circulation.
If it is realised — and the reader will have realised it to his great dismay — that the analysis of the actual internal interconnections of the capitalist process of production is a very complicated matter and a very protracted work; if it is a work of science to resolve the visible and external movement into the internal actual movement, then it is understood as a matter of course, that the conceptions formed about the laws of production in the heads of the agents of production and circulation will differ widely from these real laws and will be merely the conscious expression of the apparent movements. The conceptions of a merchant, a stock gambler, a banker, are necessarily quite perverted. Those of the manufacturer are vitiated by the acts of circulation, to which their capital is subject, and by the compensation of the general rate of profit.'*- Competition likewise plays a completely perverted role in these heads. If the limits of value and surplus-value are *^ It is a very naive, but also very correct remark that " Surely the fact that one and the same commodity may be had from different sellers at considerably different prices is frequently due to mistakes of calculation." (Feller and Oldermann. Das Ganze der kaufmannischen of Arithmetik, 7. Aufl., 1859.) This shows how purely theoretical, that is abstract, the determination oi prices becomes.
X 370 Capitalist Production.
given, then it is easy to understand, in what manner the competition of capitals will transform values into prices of production and further into mercantile prices, and surplus-value into average profit. But without these limits, w^e cannot see any reason at all, why competition should reduce the average rate of profit to such and such a level instead of some other, should make it 15% instead of 1,500%. Competition at best can only reduce the rate of profit to one and the same level. But it does not contain any element, by which this level could be determined.
From the point of view of merchants' capital, the turn-over itself takes on the guise of a determining element of prices. On the other hand, while the velocity of the turn-over of industrial capital, in so far as it enables a certain industrial capital to exploit more or less labor, exerts a determining and limiting influence on the mass of j)rofit and thus on the average rate of profit, this rate of profit exists as an external fact for the merchants' capital, and the internal connection of this rate with the production of surplus-value is entirely obliterated. If the same industrial capital, under otherwise equal circumstances, particularly with the same organic composition, is turned over four times per year instead of twice, it produces twice as much surplus-value and, consequently, profit. And this becomes palpable, as soon and so long as this capital has the monopoly of that improved mode of production, to which it owes its accelerated turn-over. Vice versa, differences in the times of turn-over in different lines of commerce manifest themselves in such a way that the profit made on the turn-over of some given commodity-capital is in an inverse ratio to the number of turn-overs of the money-capital which turns this commodity-capital over. Small profits and quick returns appears particularly to the shopkeeper as a principle, which he follow^s on principle.
For the rest, it is a matter of course, that this law of turnovers of merchants' capital holds good in each line of commerce only for the average of turn-overs made by the entire merchants' capital invested in each particular line, and always without a consideration of any succession of alternating and mutually compensating turn-overs of longer or shorter duration. The cajDital of A, who deals in the same line as B, may make more or less than the average number of turn-overs. This does not alter the turn-over of the total mass of merchants' capital invested in this line. But this is of decisive moment for the individual merchant or shopkeeper. He makes in this case an extra profit, just as the industrial capitalists make extra profits, if they produce under conditions more favorable than the average. If competition compels him, he can sell cheaper than his competitors without lowering his profit below the average. If the conditions, which would enable him to turn his capital over more rapidly, are themselves for sale, such as a favorable location of the shop, he can pay extra rent for it, that is to say, a portion of his surplus-profit is converted into ground rent.
CHAPTER XIX.
FINANCIAL CAPITAL.
The purely technical movements performed by money in the process of circulation of industrial capital, and, as we may now add, of commercial capital, which assumes a part of the circulation movement of industrial capital as its own peculiar movement, — these movements, if individualised into an independent function of some particular capital that performs nothing but just this service, convert a capital into financial capital. In that case, one portion of the industrial capital, and of commercial capital, persists not only in the form of money, of money capital in general, but as money-capital, which performs only these technical functions. A definite part of the total social capital separates from the rest and individualises itself in the form of money-capital, whose capitalist function consists exclusively in performing the financial operations for the entire class of industrial and commercial capitalists. As in the case of the commercial capital, so in that of financial capital a portion of the industrial capital in process of function in circulation separates from the rest and 372 Capitalist Production.
performs these operations of the process of reproduction for all the other capital. These movements of such money-capital, then, are once more merely movements of an individualised part of industrial cajjital in the process of reproduction.
Capital appears as the first and last point of this movement only to the extent that capital is newly invested, as happens in accumulation. But for every capital, which is already in process, this first and last point appear merely as points of transit. To the extent that industrial capital, from the moment of its exit from the sphere of production to that of its return to it, passes through the metamorphosis C — M — C, M represents merely the final result of one phase of this metamorphosis and becomes at once the starting point of its supplementing second phase, as we have already seen in the discussion of the simple circulation of commodities. And although the C — M of industrial capital signifies always M — C — M for the commercial capital, nevertheless the actual process for this last named capital, once that it has become engaged, is also C — M — C. But the commercial capital passes continually through and simultaneously through the acts C — M and M — C, that is to say, there is not only one capital in the stage C — M, while another is in the stage M — C, but the same capital buys continually and sells continually at the saniti time, on account of the continuity of the process of production. It is continually and simultaneously in both stages. While one of its parts is converted into money, to be reconverted later into commodities, another is simultaneously converted into commodities, to be reconverted into money.
Whether the money serves here as a means of circulation or of payment, depends on the form of the exchange of commodities. In both cases, the capitalist has to pay out money continually to many persons, and to receive money continually from many persons. This purely technical labor of paying money and receiving money constitutes an employment by itself, which necessitates the making of balances, the balancing of accounts, so far as money serves as a means of payment. This labor belongs to the expenses of circulation, it does not Financial Capital. 373 create any values. It is abbreviated by being organised as a special department of agents, or capitalists, who perform this work for all the rest of the capitalist class.
A definite portion of the capital must be continually available as a hoard, as potential money-capital. It constitutes a reserve of means of purchase, a reserve of means of payment, unemployed capital in the form of money waiting to be put to work. And one portion of the capital continually returns in this form. This requires not only the collecting, paying, and bookkeeping operations, but also the storing of a hoard, which constitutes an operation by itself. This work consists indeed in a continual conversion of a hoard into means of circulation and means of payment, and its restoration to the form of a hoard by means of money secured through sales and due payments. This continuous movement of that part of capital, which exists in the form of money, separated from the function of capital itself, this purely technical function causes its own labors and expenses, which belong to the expenses of circulation.
The division of labor brings it about, that these technical operations, which are conditioned on the functions of capital, should be performed as much as possible for the entire capitalist class by one class of agents, or capitalists, into whose hands it is concentrated as their exclusive function. We have here, as in the case of commercial capital, a division of labor in a twofold sense. It becomes a special business, and because it is performed as a special business for the moneymechanism of the whole class, it is concentrated and performed on a large scale. And then a further division of labor takes place within this special business, on one hand by a separation into various independent lines, on the other by a segmentation of tlie work within each office of these special lines. Large offices, many bookkeepers and cashiers, far going division of labor, disbursing of money, receiving of money, balancing of accounts, keeping of current accounts, storing of money, etc., all these things, separated from the acts that necessitate these technical operations, make of the capital advanced for these functions a financial capital 374 Capitalist Production.
The various operations, whose individualisation gives rise to special lines of financial business, follow from the different capacities of money itself and from its different functions, through which capital in its money-form must likewise pass.
I have pointed out on a previous occasion, that the money business in general developed originally from an exchange of products between different communes. ^^ The financial business, the trade with money as a commodity, developed first out of international commerce. As soon as different national coins exist, the merchants buying in foreign countries must exchange their national coins into foreign coins, and vice versa, or exchange different coins for uncoined pure silver or gold as international money. This gives rise to the business of money-exchange, which is one of the primitive foundations of modern financial business.^-* Out of it developed the modern banks of exchange, in which silver (or gold) serve as world money — now called bank money or commercial money — as distinguished from current money.
*^ Critique of Political Economy, p. 53.
" " The great differences of coins themselves, as concerns their grain, and their coinage by many privileged princes and towns, necessitated the establishment of a business, which should enable merchants to use local money wherever any compensation between different coins was necessary. In order to be able to make cash payments, merchants who traveled to a foreign market provided themselves with uncoined pure silver, or perhaps with gold. In the same way they exchanged the money received by them in local markets for uncoined silver or gold, when they prepared to return home. The business of exchanging money, the exchange of uncoined precious metals for local coins, and vice versa, thus became a widespread and paying business." (Hiillmann, Stadteivesen des Mittelalters. Bonn, 1826-29, I, p. 4.37.) " Banks of exchange do not owe their name to the fact that they issue bills of exchange,...but to the fact that they used to exchange coins. Long before the establishment of the Amsterdam Bank of Exchange in 1609, there existed in the Dutch merchant towns money changers and exchange houses, even exchange banks...The business of these money changers consisted in exchanging the numerous varieties of coin, that were brought into the country by foreign traders, for the current coin of the realm. Gradually their circle of activity extended...They became the bankers and cashiers of modern times. But the government of Amsterdam saw a danger in the combination of the cashier business with the exchange business, and in order to meet this danger, it was resolved to establish a large institution, which should be able to perform both the cashier and the exchange operations. This institution was the famous Amsterdam Bank of Exchange of 1609. In like manner, the exchange banks of Venice, Genoa, Stockholm, Hamburg, owe their origin to the continual necessity of changing money. Of all these, the Hamburg Exchange is the only one that is still doing business, because the need of such an institution is still felt m that merchants' town, which has no Mint of its own. Etc." (S. Vissering, Handboek van Praktische Staathuishoudkunde. Amsterdam, 1860, I, 247.)