V. The Effect of a Change of Prices
We have just assumed unaltered prices and an unaltered scale of production on the one hand, and a contraction or expansion of the time of circulation on the other. Now let us suppose on the contrary an unaltered period of turnover and an unaltered scale of production, and on the other hand price changes, i. e., rise or fall of prices of raw materials, auxiliary substances, and labour, or of the two first-named elements alone. Take it that the price of raw and auxiliary materials, as well as wages, fall by one half. In that case the capital to be advanced in our example would be £50 instead of £100 per week, and that for the 9-week turnover period would be £450 instead of £900. £450 of the advanced capital value are eliminated first of all in the form of money capital, but the process of production continues on the same scale, with the same period of turnover, and with the previous division of the latter. The annual output likewise remains the same but its value has been cut in half. This change, which is accompanied by a change in the supply and demand of money capital, is brought about neither by an acceleration of the circulation, nor by a change in the quantity of circulating money. On the contrary. A fall by half in the value, or price, of the elements of productive capital would first have the effect of diminishing by half the capital value to be advanced for the continuation of Business X on the same scale as before, and hence only one half of the money would have to be thrown on the market by Business X, since Business X advances this capital value first in the form of money, i.e., as money capital. The amount of money thrown into circulation would decrease because the prices of the elements of production fell. This would be the first effect.
In the second place however one half of the originally advanced capital value of £900 = £450, which (a) passed successively through the forms of money capital, productive capital, and commodity capital, and (b) existed simultaneously and constantly side by side partly in the form of money capital, partly in that of productive capital, and partly in that of commodity capital, would be eliminated from the circuit of Business X and thus come into the money market as additional money capital, affecting it as an additional constituent. These released £450 act as money capital, not because they have become superfluous money for the operation of Business X but because they are a constituent part of the original capital value, and hence are intended to function further as capital and not to be expended as mere means of circulation. The best method of letting them operate as capital is that of throwing them as money capital on the money market. On the other hand the scale of production (apart from fixed capital) might be doubled. In that case a productive process of double the previous volume would be carried on with the same advanced capital of £900.
If on the other hand the prices of the fluid elements of productive capital were to increase by one half, £150 instead of £100 or £1,350 instead of £900 would be required per week. It would take an additional capital of £450 to carry on the business on the same scale, and this would exert a pro tanto pressure on the money market, big or small depending on its condition. If all the capital available on this market were then already engaged, there would be increased competition for available capital. If a portion of it were unemployed, it would pro tanto be called into action.
But, in the third place, given a certain scale of production, the turnover velocity and the prices of the elements of the circulating productive capital remaining the same, the price of the products of Business X may rise or fall. If the price of the commodities supplied by Business X falls, the price of its commodity capital of £600, which it constantly threw into circulation, drops to, say, £500. Hence one-sixth of the value of the advanced capital does not return from the process of circulation. (The surplus value contained in the commodity capital is not considered here.) It is lost in that process. But since the value, or price, of the elements of production remains the same, this reflux of £500 suffices only to replace [5]/[6] of the capital of £600 constantly engaged in the process of production. It would therefore require an additional money capital of £100 to continue production on the same scale.
Vice versa, if the price of the product of Business X were to rise, then the price of the £600 commodity capital would be increased, say, to £700. One-seventh of this price = £100 does not originate in the process of production, is not advanced in this process, but derives from the process of circulation. But only £600 are needed to replace the elements of production. Hence, release of £100.
It does not fall within the scope of the investigation hitherto made to ascertain why, in the first case, the period of turnover is shortened or lengthened, and why in the second case the prices of raw materials and labour, and in the third, the prices of the products supplied, rise or fall.
But the following does belong in it:
First Case. Unchanged Scale of Production, Unchanged Prices of the Elements of Production and of Products, a Change in the Period of Circulation and Thus of Turnover.
According to the assumptions of our example, '/g i e s s of the total advanced capital is needed as a result of the contraction of the period of circulation, so that the total capital is reduced from £900 to £800 and £100 of money capital is eliminated.
Business X supplies, just as before, the same six weeks' product of the same value of £600, and as work continues year in year out without interruption, it supplies in 51 weeks the same quantity of products, valued at £5,100. There is, then, no change so far as the quantity and price of the product thrown into circulation by this business are concerned, nor in the time when it throws its product on the market. But £100 are eliminated because due to the contraction of the circulation period the requirements of the process are satisfied with only £800 instead of the former £900. The £100 of eliminated capital exist in the form of money capital. But they do not by any means represent that portion of the advanced capital which would have to function constantly in the form of money capital. Let us assume that [4]/[5] = £480 of the advanced circulating capital I = £600 are constantly invested in productive materials and '/s = £120 in wages. Then the weekly investment in materials of production would be £80 and in wages £20. Capital II = £300 should then also be divided into +/[5] = £240 for materials of production and '/s = £60 for wages. The capital invested in wages must always be advanced in the form of money. As soon as the commodity product, worth £600, has been reconverted into the money form, or sold, £480 of it can be transformed into materials of production (productive supply), but £120 retain their money form in order to serve for the payment of wages for 6 weeks. These £120 are the minimum of the returning capital of £600, which must always be renewed and replaced in the form of money capital and therefore must always be kept on hand as that portion of the advanced capital which functions in the form of money.
Now, if £100 of the £300 periodically released for three weeks, and likewise divisible into £240 for productive supply and £60 for wages, are eliminated, completely thrust out of the turnover mechanism, in the form of money capital by shortening the circulation time, where does the money for this money capital of £100 come from? Only one-fifth of this amount consists of money capital periodically set free within the turnovers. But [4]/[5] = £80 are already replaced by an additional productive supply of the same value. In what manner is this additional productive supply converted into money, and where does the money for this conversion come from?
If the abridged period of circulation has become a fact, then only £400 of the above £600, instead of £480, are reconverted into productive supply. The remainder, £80, is retained in its money form and constitutes, together with the above £20 for wages, the £100 of eliminated capital. Although these £100 come from the sphere of circulation through the sale of the £600 worth of commodity capital and are now withdrawn from it by not being re-invested in wages and elements of production, it must not be forgotten that, being in the money form, they are once more in that form in which they were originally thrown into circulation. In the beginning £900 were invested in productive supply and wages. Now only £800 are necessary to carry out the same productive process. The £100 thus released in money now form a new, employment-seeking money capital, a new constituent part of the money market. True, they have already previously been periodically in the form of released money capital and of additional productive capital, but these latent states were themselves the requisites for the execution of the process of production, because they were the requisites for its continuity. Now they are no longer needed for that purpose and for this reason form new money capital and a constituent part of the money market, although they by no means form either an additional element of the available social money supply (for they existed at the beginning of the business and were thrown by it into the circulation), or a newly accumulated hoard.
These £100 are now in actual fact withdrawn from circulation inasmuch as they are a part of the advanced money capital that is no longer employed in the same business. But this withdrawal is possible only because the conversion of the commodity capital into money, and of this money into productive capital, C — M — C, is accelerated by one week, so that the circulation of the money operating in this process is likewise hastened. They have been withdrawn from it because they are no longer needed for the turnover of capital X.
It has been assumed here that the advanced capital belongs to him who employs it. Had he borrowed it nothing would be changed. With the shortening of the time of circulation he would have to borrow only £800 instead of £900. The £100, if returned to the lender, would as before form £100 of new money capital, only in the hands of Y instead of X. Should capitalist X receive £480 worth of materials of production on credit, so that he has to advance only £120 in money for wages out of his own pocket, he would now have to pro-cure £80 worth of productive materials less on credit and this sum would constitute superfluous commodity capital for the capitalist granting the credit, while capitalist X would have eliminated £20 in money.
The additional supply for production is now reduced by '/[3]. It consisted of £240 constituting [4]/[5] of £300, the additional capital II, but now it is only £160, i. e., additional supply for 2 instead of 3 weeks. It is now renewed every 2 weeks instead of every 3, but only for 2 instead of 3 weeks. The purchases, for instance in the cotton market, are thus more frequent and smaller. The same amount of cotton is withdrawn from the market, for the quantity of the product remains the same. But the withdrawals are distributed differently in time, extend-ing over a longer period. Supposing that it is a question of 3 months or 2. If the annual consumption of cotton amounts to 1,200 bales, the sales in the first case will be:
January 1 300 bales le t in storage 900 bales April 1 300 >> >) >> 33 600 „ July 1 300 55 Î ) •>•> 33 300 „ October 1 300 55 33 33 33 0 „ in the second case:
January 1 sold 200, in storage 1,000 bales March 1 >> 200, 33 33 800 „ May 1 :) 200, 33 33 600 July 1 >> 200, 33 33 400 „ September 1 55 200, 33 33 200 „ November 1 55 200, 33 33 0 „
So the money invested in cotton only returns completely one month later, in November instead of October. If therefore V9 of the advanced capital = £100 is eliminated in the form of money capital by the contraction of the circulation time and thus of the turnover, and if these £100 are composed of £20 worth of periodically superfluous money capital for the payment of weekly wages, and of £80 which existed as periodically superfluous productive supply for one week, then the diminished superfluous productive supply in the hands of the manufacturer corresponds, so far as these £80 are concerned, to an enlarged commodity supply in the hands of the cotton dealer. The longer this cotton lies in the latter's warehouse as a commodity, the less it lies in the storeroom of the manufacturer as a productive supply.
Hitherto we presupposed that the contraction of the time of circulation in Business X was due to the fact that X sold his commodities quicker, received his money for them sooner, or, in the event of credit, was given shorter terms of payment. The contraction was therefore attributed to a quicker sale of the commodities, to a quicker transformation of commodity capital into money capital, C — M, the first phase of the process of circulation. But it might also derive from the second phase, M — C, and hence from a simultaneous change, be it in the working period or in the time of circulation of capitals Y, Z, etc., which supply capitalist X with the productive elements of his circulating capital.
For instance if cotton, coal, etc., with the old methods of transport, are 3 weeks in transit from their place of production or storage to the place of production of capitalist X, then X's productive supply must last at least for 3 weeks, until the arrival of new supplies. So long as cotton and coal are in transit, they cannot serve as means of production. They are then rather a subject of labour for the transport industry and the capital employed in it; they are also commodity capital in process of circulation for the producer of coal or the dealer in cotton. Suppose improvements in transport reduce the transit to 2 weeks. Then the productive supply can be changed from a three-weekly into a fortnightly supply. This releases the additional advanced capital of £80 set aside for this purpose and likewise the £20 for wages, because the turned-over capital of £600 returns one week sooner.
On the other hand if for instance the working period of the capital which supplies the raw materials is cut down (examples of which were given in the preceding chapters), so that the possibility arises of renewing the supply of raw materials in less time, then the productive supply may be reduced and the interval between periods of renewal shortened.
If, vice versa, the time of circulation, and thus the period of turnover, are prolonged, then it is necessary to advance additional capital.
This must come out of the pocket of the capitalist himself if he has any additional capital. But it will then be invested in some form or other as a part of the money market. To make it available, it must be stripped of its old form. For instance stocks must be sold, deposits withdrawn, so that in this case too the money market is indirectly affected. Or he must borrow it. As for that part of the additional capital which is needed for wages, it must under normal conditions always be advanced in the form of money capital, and for that purpose the capitalist X exerts his share of direct pressure on the money market. But this is indispensable for the part which must be invested in materials of production only if he must pay for them in cash. If he can get them on credit, this does not have any direct influence on the money market, because the additional capital is then advanced directly as a productive supply and not in the first instance as money capital. But if the lender throws the bill of exchange received from X directly on the money market, discounts it, etc., this would influence the money market indirectly, through someone else. If, however, he uses this note to cover a debt not yet due for instance, this additional advanced capital does not affect the money market either directly or indirectly.
Second Case. A Change in the Price of Materials of Production, All Other Circumstances Remaining the Same.
We have just assumed that the total capital of £900 was [4]/[5] invested in materials of production (= £720) and ljb in wages ( = £180).
If the materials of production drop to half, they require for the 6-week working period only £240 instead of £480, and for the additional capital No. II only £120 instead of £240. Capital I is thus reduced from £600 to £240 + £120 = £360, and capital II from £300 to £120 + £60 = £180. The total capital of £900 is therefore reduced to £360 + £180 = £540. A sum of £360 is therefore released.
This eliminated and now unemployed capital, or money capital seeking employment in the money market, is nothing but a portion of the capital of £900 originally advanced as money capital, which, due to the fall in the prices of the elements of production, into which it is periodically reconverted, has become superfluous if the business is not to be expanded but carried on on the same scale. If this fall in prices were not due to accidental circumstances (a particularly rich harvest, over-supply, etc.) but to an increase of productive power in the branch of production which furnishes the raw materials, then this money capital would be an absolute addition to the money market, and to the capital available in the form of money capital in general, because it would no longer constitute an integral part of the capital already invested.
Third Case. A Change in the Market Price of the Product Itself.
In the case of a fall in prices a portion of the capital is lost, and must consequently be made good by a new advance of money capital. This loss of the seller may be a gain to the buyer. Directly, if the market price of the product has fallen merely because of an accidental fluctuation, and afterwards rises once more to its normal level. Indirectly, if the change of prices is caused by a change of value reacting on the old product and if this product passes again, as an element of production, into another sphere of production and there releases capital pro tanto. In either case the capital lost by X, and for whose replacement he exerts pressure on the money market, may be supplied to him by his business friends as new additional capital. All that takes place then is a transfer.
If, on the contrary, the price of the product rises, a portion of the capital which was not advanced is taken out of circulation. This is not an organic part of the capital advanced in the process of production and unless production is expanded therefore constitutes money capital eliminated. As we have assumed here that the prices of the elements of the product were given before it was brought to market as commodity capital, a real change of value might have caused the rise of prices since it acted retroactively, causing a subsequent rise in the price of, say, raw materials. In that event capitalist X would realise a gain on his product circulating as commodity capital and on his available productive supply. This gain would give him an additional capital, which would now be needed for the continuation of his business with the new and higher prices of the elements of production.
Or the rise of prices is but temporary. What capitalist X then needs by way of additional capital becomes released capital for the other side, in so far as X's product forms an element of production for other branches of business. What the one has lost the other has gained.
Endnotes
[6] Mercantilism — a school of bourgeois political economy, that emerged in the last third of the fifteenth century; it expressed the interests of the merchant bourgeoisie in the period of the primitive accumulation of capital, identified the wealth of the country with the accumulation of money, and attached primary importance in this to the state. Marx called the early period of mercantilism the monetary system.— 13, 66
[3] From the numerous notebooks compiled by Marx in the period indicated by Engels, the Institute of Marxism-Leninism of the CC CPSU published nearly all the passages from Russian sources (see Marx-Engels Archives, vols XI-XII, XVI, Moscow, 1948, 1952, 1955, 1982) as well as Mathematical Manuscripts (Moscow, 1968). Marx's notebooks are published in full in Section IV of Marx-Engels Gesamtausgabe.— 7
[5] Engels is referring to the letter written by K. Rodbertus to J.Zeller on March 14, 1875. Rodbertus died in 1875 but his letter to Zeller was not published until 1879. A copy of Briefe und Sozialpolitische Aufsätze mentioned below (ed. by R.Meyer, Berlin, 1881), with Engels' remarks, was kept in Marx's personal library.—10
[4] State socialism — a bourgeois-reformist and opportunist conception whose adherents reduced the essence of socialism to bourgeois state interference in economics and to a certain degree of regulation of social relations. Among its theoreticians were Louis Blanc (France), Ferdinand Lassalle, Karl Rodbertus-Jagetzow (Germany) and others. Armchair socialism (Kathedersozialismus) — a trend in German bourgeois political economy that emerged in Germany at the close of 1860s as a reaction to the growth of the working-class movement and the dissemination within it of the ideas of scientific socialism propounded by Marx and Engels. Under the banner of socialism its exponents (L. Brentano, A. Wagner, W. Zombart and others) preached bourgeois reformism; they asserted that any state, including the German Empire, had a super-class character and that with its help it was possible to achieve a considerable improvement in the condition of the working class through social reforms effected by governments. The armchair socialists called upon the workers to refrain from economic and political revolutionary struggle.— 9