It is a matter of course that with the longer time of cir- culation the risk of a change of prices in the selling market increases, since it increases the period in which changes of price may take place.
A difference in the time of circulation, partly individual- ly between the various individual capitals of the same branch of business, partly between different branches of business according to different usages, when payment is not made in spot cash, arises from the different dates of payment in buying and selling. We do not linger for the present over this point, which is important for the credit business.
Other differences in the period of turn-over arise from the size of contracts for the delivery of goods, and their size grows with the extent and scale of capitalist production. Such a contract, being a transaction between buyer and seller, is an operation belonging to the market, the sphere of circulation. The differences in the time of turn -over arising from it have their source for this reason in the sphere 290 Capital.
290 Capital.
of circulation, but react immediately on the sphere of pro- duction, apart from all dates of payment and conditions of credit including cash payment. For instance, coal, cotton, yarn, etc., are discontinuous products. Every day supplies its quantity of finished product. But if the spinner or the mine owner accepts contracts for the delivery of large quan- tities, which require, say, a period of four or six weeks of successive working days, then this is the same, so far as the time of investment of advanced capital is concerned, as though a continuous working period of four or six weeks had been introduced in this labor-process. It is of course assumed in this case that the entire quantity ordered is to be delivered in one bulk, or at least is only paid after all of it has been delivered. Individually considered, every day had furnished its definite quantity of finished product. But this finished product is only a part of the quantity con- tracted for. Although the portion finished so far is no longer in the process of production, it is still in the ware- house as a potential capital.
Now let us take up the second epoch of the time of circu- lation, the buying time, or that epoch in which capital is converted from money back into the elements of productive capital. During this epoch, it must remain for a shorter or longer time in its condition of money-capital, so that a cer- tain portion of the total capital advanced is all the time in the form of money-capital, although this portion consists of continually changing elements. For instance, of the total capital advanced in a certain business, n times 100 pounds sterling must be available in the form of money- capital, so that, while all the constituent parts of these n times 100 pounds sterling are continually converted into productive capital, this sum is nevertheless just as continu- ally supplemented by new additions from the circulation, out of the realized commodity-capital. A definite part of the value of the advanced capital is, therefore, continually in the condition of money-capital, a form not belonging to its sphere of production, but to its sphere of circulation.
We have already seen that the prolongation of time caused by the distance of the market, by which capital is fettered in the form of commodity-capital, directly retards The Time of Circulation. 291 the return movement of the money and, consequently, the transformation of capital from its money into its productive form.
We have furthermore seen (chapter VI) with reference to the purchase of commodities, that the time of buying, the greater or smaller distance from the main sources of the raw material, makes it necessary to purchase raw material for a longer period and keep it on hand in the form of a productive supply, of latent or potential productive capital; in other words, that it increases the quantity of capital to be advanced at one time, and the time for which it must be advanced, the scale of production remaining otherwise the same.
A similar effect is produced in various businesses by the longer or shorter periods, in which large quantities of raw material are thrown on the market. In London, for in- stance, great auction sales of wool take place every three months, and the wool market is controlled by them. The cotton market, on the other hand, is on the whole restocked continuously, if not uniformly, from harvest to harvest. Such periods determine the principal dates of buying for these raw materials and affect especially the speculative purchases requiring longer or shorter advances of these ele- ments of production, just as the nature of the produced commodities exerts an influence on the premeditated specu- lative retention of the product for a longer or shorter term in the form of potential commodity-capital. "The farmer must also be to a certain extent a speculator, and, therefore, hold back the sale of his products according to prevailing conditions..." Here follow a few general rules. "...However, in the sale of the products, success depends mainly on the personality, the product itself, and the locality. A man with sufficient business capital, won by ability and good luck (!), will not be blamed, if he keeps his grain crop stored for a year when prices happen to be unusually low. On the other hand, a man who lacks business capital, or enterprise in general (! ), will try to get the average prices and be compelled to sell as soon and as often as oppor- tunity presents itself. It will almost always bring losses to keep wool stored longer than a year, while grain and rape 292 Capital.
seed may be stored for several years without injury to their condition and quality. Such products as are generally sub- ject to a large rise and fall in short intervals, for instance, rape seed, hops, teasel, etc., may be to good advantage stored during the years in which the market price is far below the price of production. It is least permissible to postpone the sale of such articles as require daily expenses for their preservation, such as fatted cattle, or which spoil easily, such as fruit, potatoes, etc. In some localities, a certain product has its lowest average price at a certain season, its highest at another. For instance, the average price of grain in some localities is lower about August than in the time between Christmas and Easter. Furthermore, some products sell well in certain localities only at certain periods, as is the case, for instance, with wool in the wool markets of those localities, where the wool trade is dull at other times, etc." (Kirchhof, page 302.)
In the study of the second half of the time of circulation, in which money is reconverted into the elements of produc- tive 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 avail- able in the form of money, in the condition of money- capital, which must be considered.
Making exception of all speculation, the volume of the purchases of those commodities which must always be avail- able as a productive supply depends on the time of the re- newal 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 turn- over 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 circu- lation, 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, pro- ductive 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 prac- tice.
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 in- fluence 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 ad- vanced 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 turn- over. 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 turn- over. 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 go- ing 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 capi- tal, and therefore a general reduction of the entire business. In the second place, it is questionable whether such a reduc- tion can take place at all, for the development of produc- tion in the various businesses establishes a normal mini- mum for the investment of capital, below which an indi- vidual 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 re- duction of the working time, work being carried on, say, for only half a day. On the other hand, in times of pros- perity, the fixed capital, remaining the same, there is an ab- normal expansion of the circulating capital, partly by the 296 Capital.
prolongation of the working time, partly by its intensifi- cation. In businesses which are adjusted from the outset to such fluctuations, recourse is either taken to the above- named measures, or a greater number of laborers are simul- taneously employed, combined with an investment of re- serve 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 pro- ductive 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 produc- tive capital transformed into commodity-capital, if it is rather to be continued parallel with circulation and con- tinuously week after week, and if no special circulating capi- tal is available, it can be done only by curtailing the pro- ductive 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 cir- culation is proportioned to the total circulating capital in- vested 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 pro- duction 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 addi- tional 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. Dur- ing the last 3 weeks, the additional capital of 300 pounds 298 Capital.
sterling performs its service, opening up the second work- ing 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 con- verted 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 cir- culation, 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 al- ready commenced in the 7th week of the second period of turnover, and at the beginning of the third period of turn- over, 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 turn- over, 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 circu- lation of 5 weeks, making a period of turn-over of 10 weeks. Let the year be one of fifty working weeks, and the capital in- vested 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 turn- over 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 circula- tion 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 il- lustration 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 as- sumption 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 capi- tals cross one another, as they do in the first and third illus- tration, 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 func- tion 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 pur- pose, 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 dur- ing 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 vol- ume, 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 illus- tration, not 2,500 pounds. This is simply due to the fact that the additional capital enters just as well into the turn- over as the capital originally advanced, and that it, there- fore, reproduces its volume the same as the other by the number of its turn-overs.