It is, therefore, necessary to reduce the specific turn-overs of the various parts of fixed capital to a homogeneous form of turn-over, so that they remain only quantitatively dif- ferent so far as the duration of their turn-over is concerned.
This quantitative homogeneity does not materialize, if we take for our starting point P...P, the form of the continuous process of production. For definite elements of P must be continually reproduced in their natural form, while others need not to be. This homogeneity of turn-over is found, however, in the form M — M\ Take, for instance, a ma- chine valued at 10,000 pounds sterling, which lasts ten years and one tenth, or 1,000 pounds of which are annually reconverted into money. These 1,000 pounds have been con- verted in the course of one year from money-capital into productive capital and commodity-capital, and then recon- verted into money-capital. They have returned to their original money-form, just as did the circulating capital, if we study it from this point of view, and it is im- material whether this money-capital of 1,000 pounds sterling is once more converted, at the end of the year, into the natural form of a machine or not. In calculating the total turn-over of the advanced productive capital, we, there- fore, fix all its elements in the mold of money, so that the return to the money-form concludes the turn-over. We as sume that value has always been advanced in money, even in the continuous process of production, where this moneyform of value exists only as calculating money. Then we are enabled to compute the average.
3. It follows that the capital-value turned over during one year may be larger than the total value of the advanced capital, on account of the repeated turn-overs of the circu- lating capital within the same year, even if by far the greater part of the advanced productive capital consists of fixed capital, whose period of reproduction, and therefore of turn-over, comprises a cycle of several years.
210 Capital.
Take it that the fixed capital is 80,000 pounds sterling, its period of reproduction 10 years, so that 8,000 pounds of this capital annually return to their money-form, or com- plete one-tenth of its turn-over. Let the circulating capital be 20,000 pounds sterling, and its period of turn-over be five times per year. The total capital would then be 100,000 pounds sterling. The turned over fixed capital is 8,000 pounds, the turned-over circulating capital five times 20,- 000, or 100,000 pounds sterling. Then the capital turned over during one year is 108,000 pounds sterling, or 8,000 pounds more than the advanced capital. 1 + 2-25 of the capital have turned over.
4. The turn-over of the values of the advanced capital therefore is to be distinguished from its actual time of re- production, or from the actual time of turn-over of its com- ponent parts. Take, for instance, a capital of 4,000 pounds sterling and let it turn over five times per year. The turned over capital is then five times 4,000, or 20,000 pounds ster- ling. But that which returns at the end of its turn-ovei and is advanced anew is the original capital of 4,000 pounds sterling. Its magnitude is not changed by the number of its periods of turn-over, during which it performs anew its functions as capital. (We do not consider the question of surplus-value here.)
In the illustration under No. 3, then, the sums returned at the end of one year into the hands of the capitalist are (a) a sum of values in the form of 20,000 pounds sterling, which he invests again in the circulating parts of the capi- tal, and (b) a sum of 8,000 pounds, which have been set free by wear and tear from the advanced fixed capital; at the same time, this same fixed capital remains in the process of production, but with the reduced value of 72,000 pounds, instead of 80,000 pounds sterling. The process of produc- tion, therefore, would have to be continued for nine years longer, before the advanced fixed capital would have outlived its term and ceased to perform any service as a creator of products and values, so that it would have to be replaced. The advanced capital-value, then, has to pass through a cycle of turn-overs, in the present case a cycle of ten years, and Total Turn-Over of Advanced Capital. 211 tiiis cycle is determined by the life-time, in other words by the period of reproduction, or turn-over of the invested fixed capital.
To the same extent that the volume of the value and the duration of the fixed capital develop with the evolution of the capitalist mode of production, does the life of industry and of industrial capital develop in each particular invest- ment into one of many years, say of ten years on an average. If the development of fixed capital extends the length of this life on one side, it is on the other side shortened by the con- tinuous revolution of the instruments of production, which likewise increases incessantly with the development of capi- talist production. This implies a change in the instru- ments of production and the necessity of continuous replace- ment on account of virtual wear and tear, long before they are worn out physically. One may assume that this life- cycle, in the essential branches of great industry, now averages ten years. However, it is not a question of any one definite number here. So much at least is evident that this cycle comprising a number of years, through which capital is compelled to pass by its fixed part, furnishes a material basis for the periodical commercial crises in which business goes through successive periods of lassitude, average activity, overspeeding, and crisis. It is true that the periods in which capital is invested are different in time and place. But a crisis is always the starting point of a large amount of new investments. Therefore it also constitutes, from the point of view of society, more or less of a new material basis for the next cycle of turn-over. 22a 5. On the mode of calculation of the turn-overs, Scrope, an American economist, says in substance the following in his work on political economy (published by Alonzo Pot- ter, New York, 1841, pages 141 and 142): In some lines of business the entire capital advanced is turned over, or circulated, several times inside of a year. In some others, one portion is turned over more than once a year, another 22a "Municipal production is bound to a cycle of days, agricultural production to one of years." (Adam G. Mueller, Die Elemente der Staatskunst. Berlin, 1809, II, page, 178.) This is the naive conception tt industry and agriculture held by the romantic school.
212 Capital.
212 Capital.
portion not so often. It is the average period required by the entire capital for the purpose of passing through the hands of the capitalist, or in order to turn over once, which must furnish the basis on which the capitalist figures his profits. Take it, that a certain individual engaged in a cer^ tain business has invested half of his capital for buildings and machinery, which are replaced once in every ten years; one-quarter for tools, etc., which are replaced in two years; and the last quarter, invested in wages and raw materials, which quarter is turned over twice per year. Let his entire capital be $50,000. Then his annual expenditure will be: 50,000-2, or $25,000 in 10 years, or $2,500 in one year. 50,000-4, or $12,500 in 2 years, or $6,250 in one year. 50,000-4, or $12,500 in y2 year, or $25,000 in one year.
The average time, then, in which his capital is turned over once, is 16 months. Take another case: One quarter of the entire capital of $50,000 circulates in 10 years; another quarter in one year; the other half twice in one year. The annual expenditure will then be: Turned over in one year 63,750 6. Real and apparent differences in the turn-over of the various component parts of capital. Scrope also says in the same place that the capital invested by a manufacturer, landlord, or merchant in wages circulates most rapidly, as it is probably turned over once a week, if he pays his labor- ers weekly, by the weekly receipts from his sales or from paid bills. The capital invested in raw materials and fin- ished supplies does not circulate so fast; it may be turned over two or four times per year, according to the time pass- ing between the purchase of the one and the sale of the other, provided that the capitalist buys and sells on equal terms Total Turn-Over of Advanced Capital. 213 of credit. The capital invested in tools and machinery circulates still more slowly, as it is turned over, that is to say consumed and circulated, probably on an average of once in five or ten years; many tools, however, are used up in one single series of manipulations. The capital invested in buildings, for instance, in factories, stores, storerooms, barns, streets, irrigation works, etc., circulates almost imper- ceptibly. But of course these structures are likewise worn out just the same as the others, so long as they serve in production, and must be replaced, in order that the pro- ducer may be able to continue his operations. They are merely consumed and reproduced more slowly than the others. The capital invested in them is probably turned over in twenty or fifty years. So far Scrope. — Scrope here confounds the differences in the flow of cer- tain parts of the circulating capital, caused by terms of payment and conditions of credit so far as the individual capitalist is concerned, with the turn-overs due to the nature of capital. He says that wages are paid weekly on account of the weekly receipts from paid sales or bills. We must note in the first place, that certain differences occur relative to wages, according to the length of the term of payment, that is to say the length of time for which the laborer must give credit to the capitalist, whether it be a week, a month, three months, six months, etc. In this case, the rule stated in volume I, chapter III, 3b, page 158, holds good, to the effect that "the quantity of the means of payment required for all periodical payments (in this case the quantity of the money-capital to be advanced at one time) is in inverse pro- portion to the length of their periods."
In the second place, it is not only the entire new value added to the product by means of one week's labor which enters completely into the weekly product, but also the value of the raw and auxiliary materials consumed by the weekly product. These values circulate with the product contain- ing them. They assume the form of money by the sale of the product and must be reconverted into the same elements of production. This applies as well to the labor-power as to the raw and auxiliary materials. But we have already seen (chapter IV, 2, A) that the continuity of the produc- 214 Capital.
tion requires a supply of means of production, different for various branches of industry, and different within one and the same branch for the various component parts of the cir- culating capital, for instance, for coal and cotton. Hence, although these materials must be continually replaced in their natural form, they need not be bought continually. How often new purchases of them must be made, depends on the magnitude of the available supply, on the times it takes to use it up. In the case of the labor-power, there is no such storing of a supply. The reconversion into money of the capital invested in labor-power goes hand in hand with that of the capital invested in raw and auxiliary mate- rials. But the reconversion of the money, on one side into labor-power, on the other into raw materials, proceeds sep- arately on account of the special terms of purchase and pay- ment of these two constituents of productive capital, one of them being bought as a productive supply for long terms, the other, labor-power, for shorter terms, for instance, for terms of one week. On the other hand, the capitalist must keep a supply of finished commodities besides a supply of materials for production. Apart from the difficulties of sell- ing, etc., a certain quantity must be produced, say for instance, on order. While the last portion of this quantity is being produced, the finished product is waiting in storage until the order can be completely filled. Other differences in the turn-over of circulation capital arise as soon as some of its individual elements must stay in some preliminary stage of the process of production, such as the drying of wood, etc., longer than others.
The credit-system, to which Scrope here refers, and com- mercial capital, modify the turn-over for the individual capitalist. They modify the turn-over on a social scale only in so far as they do not accelerate merely production, but also consumption.
Theories of Fixed and Circulating Capital. 215 CHAPTER X.
THEORIES OF FIXED AND CIRCULATING CAPITAL. THE PHYSIOCRATS AND ADAM SMITH.
In Quesnay's analysis, the distinction between fixed and circulating capital assumes the form of avances primitives and avarices annuelles. He correctly represents this dis- tinction as one to be made with regard to productive capital, to capital directly engaged in the process of production. But owing to the fact that he regards the capital invested in agriculture, the capital of the capitalist farmer, as the only really productive capital, he makes these distinctions only for the capital of this farmer. This also accounts for the annual period of turn-over of one part of the capital, and the more than annual (decennial) of the other part. Incidentally it may be noted, that in the course of their development the physiocrats applied these distinctions also to other kinds of capital, to industrial capital in general. The distinction between annual advances and others extending over a longer period retained such lasting value for social science that many economists, even after Adam Smith, returned to it.
The distinction between these two kinds of advances is not made, until money has been transformed into the ele- ments of productive capital. It is a distinction which ap- plies solely to the divisions of productive capital. Quesnay, therefore, never thinks of classing money either among the primitive or the annual advances. In their capacity as advances on production, these two categories confront on one side the money, on the other the commodities existing on the market. Furthermore, the distinction between these two elements of productive capital is correctly defined as testing on the different manner in which they enter into the value of the finished product, and this implies the different way in which their values are circulated together with those of the products. From this, again, follows the different method of their reproduction, the value of the one being 216 Capital.
entirely replaced annually, that of the other only partially and in longer intervals.23 The only progress made by Adam Smith is the general- ization of the categories. He no longer applies them to one special form of capital, the tenant's capital, but to every form of productive capital. Hence it follows as a matter of fact that the distinction between an annual period of turn-over and one of longer duration, derived from agriculture, is replaced by the general distinction of the different periods of turn-over, so that one turn-over of the fixed capital al- ways comprises more than one turn-over of the circulating capital, regardless of the periods of turn-over of the circu- lating capital, whether they be annual, more than annual, or less. Thus Adam Smith transforms the annual advances into circulating capital, and the primitive advances into fixed capital. But his progress is confined to this generaliza- tion of the categories. His analyses are far inferior to those of Quesnay.
His unclearness is manifested at the very outset by the crudely empirical manner in which he broaches the subject: "There are two different ways in which a capital may be employed so as to yield a revenue or profit to its employer." (Wealth of Nations. Book II, Chap. I, page 189, Aberdeen edition, 1848.)
As a matter of fact, the ways in which value may be em- ployed so as to perform the functions of capital and yield 23 Compare with regard to Quesnay the Analyse du Tableau Econom- ique in Physiocrates, edition of Daire, part I, Paris, 1846. There we read, for instance, -that the annual advances consist of the expenses in- curred annually for the work of cultivation; these advances must be distinguished from the primitive ones, which form the funds for the es- tablishment of the farming business." (Page 59.) In the works of the later physiocrats, these advances are sometimes termed capital, for in- stance by Dupont de Nemours in his Oriyine et Progres <Tune Science Nouvelle, 1767, Daire edition, I, page 291, where he speaks of "capital or advances," furthermore by Le Trosne: "As a result of the longer or shorter duration of the employment of manual labor, a nation possesses a considerable fund of wealth independent of its annual reproduction, and this fund is a capital accumulated in long periods and originally paid by productive acts, which are always continued and increased." (Daire, II, page 928.) Turgot employs the term capital more regularly for advances, and identifies the advances of the manufacturers still more with those of the tenants of land. (Tufgat, Reflexions \sur la Formation et la Distribution des Richesses, 1766.)
Theories of Fixed and Circulating Capital. 217 surplus-value to its owner are as different and varied as the spheres of investment of capital. It is a question of the dif- ferent spheres of production in which capital may be in- vested. If put in this way, the question implies still more. It includes the other question of the way in which value, even if it is not employed as productive capital, may per- form the functions of capital for its owner, for instance, as interest-bearing capital, merchants' capital, etc. At this point we are already far away from the real object of the an alysis, that is to say from the question: How does the di- vision of productive capital into its various elements affect their periods of turn-over, leaving out of consideration their different spheres of investment?
Adam Smith continues immediately: "First, it may be employed in raising, manufacturing, or purchasing goods, and selling them again with a profit." He does not tell us anything else in this statement than that capital may be employed in agriculture, manufacture, and commerce. He speaks only of the different spheres of investment of capital, including commerce, in which capital is not directly em- bodied in the process of production and does not perform the functions of productive capital. In so doing he aban- dons the foundation on which the physiocrats base the dis- tinctions of the elements of productive capital and their influence on its periods of turn-over. He goes still farther and uses merchants' capital as an illustration of a problem, which concerns exclusively differences of productive capital in the process of production and the creation of value, which differences cause those of its turn-over and reproduc- tion.
He continues: "The capital employed in this manner yields no revenue or profit to its employer, while it either remains in his possession or continues in the same shape." The capital employed in this manner! Smith is referring to capital invested in agriculture, in industry, and he tells us later on that a capital so employed is divided into fixed and circulating capital! But the investment of capital "in this manner" cannot make fixed or circulating capital of it.
Or does he mean to say that capital employed in the pro- duction of commodities and their sale at a profit must again 218 Capital.
be sold after its transformation into commodities and must pass in the first place from the possession of the seller into that of the buyer, and in the second place from its com- modity-form into the money-form, so that it is of no use to its owner so long as it retains the same form in his hands? In that case, the problem amounts to this: The same capi- tal-value, which formerly performed the functions of pro- ductive capital in a form typical of the process of produc- tion, now performs those of commodity-capital and money- capital in forms typical of the process of circulation, where it is no longer either fixed or circulating capital. And this ap- plies equally to those elements of value which are added by means of raw and auxiliary material, in other words to cir- culating capital, and to those which are added by the con- sumption of instruments of production, or to fixed capital. We do not get any nearer to the distinction between fixed and circulating capital in this way.
Adam Smith says furthermore: "The goods of the mer- chant yield him no revenue or profit till he sells them for money, and the money yields him as little till it is again ex- changed for goods. His capital is continually going from him in one shape, and returning to him in another, and it is only by means of such circulation, or successive exchanges, that it can yield him any profit. Such capitals, therefore, may very properly be called circulating capital."
That which Adam Smith here calls circulating capital, is a thing which I shall call capital of circulation, that is to say, capital in a form characteristic of the process of cir- culation, changes of form due to exchange (a change of substance and of hands), in other words, commodity-capital and money-capital, as distinguished from the form of pro- ductive capital, which is characteristic of the process of pro- duction. These are not special divisions made by the indus- trial capitalist of his capital, but different forms assumed and discarded by the advanced capital-value during its course of life, in ever renewed cycles. The great backward step of Adam Smith as compared with the physiocrats is that he does not discriminate between these forms and those which arise in the circulation of capital-value through its successive metamorphoses while it exists in the form of Theories of Fixed and Circulating Capital. 219 productive capital, and which are due to different ways in which the various elements of productive capital take part in the formation of values and transfer their own value to the products. We shall see the consequences of confounding these fundamentals, productive capital and capital in the sphere of circulation (commodity-capital and money-capital) on one side, and fixed and circulating capital on the other. The capital-value advanced in fixed capital is as much cir- culated by the product as that which has been advanced in the circulating capital, and both are equally transformed into money-capital by the circulation of commodity-capital. The difference arises only from the fact that the value of fixed capital circulates piece-meal and is, therefore, repro- duced in the same way in shorter or longer intervals in its natural form.
That Adam Smith means nothing else by this term of .circulating capital in the above passage but capital of cir- culation, that is to say, capital in the form of commodity- capital and money-capital characteristic of the process of circulation, is shown by his singularly ill-chosen illustration. He selects for this purpose a kind of capital which does not belong to the process of production, but to the sphere of cir- culation. This is merchants' capital, which consists only of capital of circulation.
How absurd it is to start out with an illustration, in which capital does not perform the functions of productive capital, is immediately shown by himself. "The capital of a merchant is altogether a circulating capital." But later on we learn that the difference between circulating and fixed capital arises out of the essential differences within the productive capital itself. On one side, Adam Smith has the distinction of the physiocrats in mind, on the other the different forms assumed by capital-value in its cycles. And these things are jumbled together by him without any discrimination.