The Effect of Fluctuations in Price. 125 CHAPTER VI.
THE EFFECT OF FLUCTUATIONS IN PRICE.
I. Fluctuations in the Price of Raw Materials, and their Direct Effects on the Rate of Profit.
The assumption in this case, as in previous ones, is that no change takes place in the rate of surplus-value. This assump- tion is necessary in order that this case may be analysed in its pure state. However, it would be possible that a certain cap- ital, whose rate of surplus-value remains unchanged, might employ an increasing or decreasing number of laborers, in con- sequence of contraction or expansion caused by fluctuations in the price of raw materials such as we are about to analyse here. In that case, the mass of surplus-value might vary, while the rate of surplus-value remained the same. Still, it will be convenient to set aside also such a case as a side-issue. If improvements of machinery and changes in the price of raw materials simultaneously influence either the number of laborers employed by a certain capital, or the level of wages, one has but to tabulate 1) the effect caused by the variations of constant capital in the rate of proflt, and 2) the effect caused by variations in wages on the rate of proflt. The result then becomes apparent of itself. ■ But in general, it should be noted here, as in previous cases: If variations take place, either in consequence of economies in the constant capital, or in consequence of fluctuations in the price of raw materials, they alwaj^s affect the rate of proflt, even though they may leave the wages, and therefore the mass and rate of surplus-value, untouched. They change the mag- nitude of the C in s' -^, and thus the value of the whole frac- tion. It is therefore immaterial, in this case, in contradis- tinction to what we found to be the case in our analysis of surplus-value, in which sphere of production these variations 126 Capitalist Production.
take place, whether the lines of production affected by them produce articles of food for laborers, or constant capital for the production of such articles, or not. The deductions made here ajjply just as well if these variations occur in the produc- tion of articles of luxury, and by the production of articles of luxury I mean all production not serving for the reproduction of labor-power.
In the raw materials we include here also the auxiliary substances, such as indigo, coal, gas, etc. Furthermore, so far as machinery falls under this head, its own substance consists of iron, wood, leather, etc. Its own price is therefore affected by fluctuations in the prices of raw materials used in its con- struction. To the extent that its price is raised through fluctuations, either in the price of. the raw materials of which it consists, or of the auxiliary substances consumed in its operation, the rate of profit is lowered. And vice versa.
In the following analysis it will be necessary to confine ourselves to fluctuations in the price of raw materials, not so far as they go to make up the raw materials of machinery serving as means of production, or as raw materials in aux- iliary substances applied in the operation of machinery, but in so far as they are raw materials contributing to the process in which commodities are produced. We make only this re- mark: The wealth of nature in iron, coal, wood, etc., which are the principal elements used in the construction and oper- ation of machinery, presents itself here as a natural fertility of capital and becomes an element in determining the rate of profit, independently of the highness or lowness of wages.
Since the rate of profit is represented by -^, or ^-^, it is evident that everything which causes a variation of the mag- nitude of c, and thereby of C, must also bring about a varia- tion in the rate of profit, even if s and v, and their mutual proportions, remain unaltered. Now, raw materials consti- tute one of the principal portions of constant capital. Even in industries which consume no raw material, in the strict meaning, it enters as auxiliary material, or as a component part of machinery, etc., and fluctuations in its price influence to that extent the rate of profit. If the price of raw material The Effect of Fluctuations in Price. 127 falls by the amount d, then -^, or ^, become ^A^, or (T^^v^, in other words, the rate of profit rises. On the other hand, if the price of raw material rises, then -^, or -~, become cfd> ^^ •(c+d)+v? ^^ other words, the rate of profit falls. Other circumstances remaining unchanged, the rate of profit falls and rises, therefore, inversely as the price of raw material. This shows, among other things, how important the low price of raw material is for industrial countries, even if fluctuations in the price of raw materials were not accompanied by varia- tions in the selling sphere of the product, that is to say, quite aside from the relation of demand to supply. It follows fur- thermore that foreign trade influences the rate of profit, even aside from its influence on wages through the cheapening of the necessities of life, for it affects the prices of raw or aux- iliary materials consumed in industry or agriculture. T| is due to the imperfect understanding of the nature of the rate of profit and its specific difference from the rate of surplus- value that economists (like Torrens) give a wrong explana- tion of the marked influence of the prices of raw material on the rate of profit, as demonstrated by experience, and that on the other hand economists like Eicardo, who cling to general principles, misapprehend the influence of such factors as the world's trade on the rate of profit.
We may realise, then, the great importance of the abolition or reduction of tariffs on raw materials for industry. Al- ready the first rational development of the protective system made the utmost reduction of import duties on raw materials one of its cardinal principles. This, and the abolition of th<^ duty on corn, was the main object of the English free traders, who took also, above all, care to have the duty on cotton abol- ished.
The use of flour in the cotton industry may serve as an illustration of the importance of a reduction in the price of an article, which, although not strictly raw material, is an auxiliary and, of course, at the same time one of the princi- pal elements of food. As long ago as 183Y, E. H. Gteg ^^ " The Factory Question and the Ten Hours Bill. By R. H. Greg. London, 128 Capitalist Production.
calculated that the 100,000 power looms and 250,000 hand looms then operated in the cotton mills of Great Britain con- sumed 41 million lbs. of flour in the smoothing of chains. To this was added a third of this quantity for bleaching and other processes. The total value of the flour so consumed was placed by him at 342,000 p.st. per year for the preceding ten years. A comparison with the prices of flour on the con- tinent showed that the raise in the price of flour forced upon the manufacturers by the corn-laws amounted alone to 170,000 p.st. per year. For 1837, Greg estimated it at a minimum of 200,000 p.st., and he mentions the fact that one firm had to pay 1,000 p.st. more per year for flour. In consequence ot this "Large manufacturers, careful and calculated business men, declared that 10 hours of labor per day would be enough, if the corn-laws were repealed." (Rep. Fact., Oct., 1848, page 98.) The corn-laws were repealed. Also the duties on cotton and other raw materials. But no sooner had this been accomplished than the opposition of the manufacturers to the Ten Hours Bill became more violent than ever. And when the ten hour day in factories nevertheless became a law soon after, the first result was an attempt to reduce wages all around.
The value of the raw materials and auxiliary substances passes entirely, and all at one time, into the value of the product in whose creation they are consumed, while the ele- ments of fixed capital transfer their value only gradually to the product in proportion as they are worn away. It follows that the price of the product is influenced to a far higher de- gree by the price of raw materials than by that of fixed capi- tal, although the rate of profit is determined by the total value of the capital, regardless of how much of this capital is con- sumed in the product. But it is evident — although we men- tion this merely incidentall}^ since we are still assuming that commodities are sold at their values, so that fluctuations of price caused by competition do not concern us here — that the expansion or restriction of the market depends on the price of the individual commodity and is inversely proportioned to the rise or fall of this price. For this reason we note in reality i The Eifect of Fluctuations in Price. 129 that a rise in the price of raw material is not accompanied by a corresponding rise of the price of the product, nor a fall in the price of the raw material bj a corresponding fall of that of the product. Consequently the rate of profit falls lower in one case, and rises higher in the other, than it would if products w^ere sold at their value.
Furthermore, the mass and value of the employed machinery grows with the development of the productivity of labor, but not in the same proportion as this productivity, in other words, not in the same proportion as the machine increases its output. Those lines of industry, which consume raw materials, so that the objects on which they expend their labor are themselves products of previous labor, express the growing productivity of labor precisely by the proportion in which a certain in- creased portion of raw material absorbs a. definite quantity of labor. In other words, this increasing productivity is meas- ured by the increasing amount of raw material converted into products, worked up into commodities, for instance, in one hour. To the extent, then, that the productivity of labor is developed, the value of raw material forms an ever growing component of the value of the product in commodities, not only because it passes wholly into them, but also because every aliquot part of the aggregate product contains an ever decreasing share of that portion which represents the wear of machinery and that other which represents newly added labor. In consequence of this falling tendency the other portion of value which represents raw material increases correspondingly, unless this growth is counterbalanced by a proportionate de- crease in the value of the raw material due to a growing productivity of the labor required for its production.
Again, we know that the raw materials and auxiliary sul> stances, the same as wages, form parts of the circulating cap- ital and must be continually reproduced in their entirety through the sale of the product, while the machinery is re- newed only to the extent that it wears out, a reserve fund be- ing accumulated for that purpose. And it is not so essential that each individual sale should contribute its share to this reserve fund, so long as the total annual sales contribute their 130 Capitalist Production.
annual sliare. We see, then, once more that a rise in the price of raw material can curtail or clog the entire process of reproduction, since the price realised bj the sale of the com- modities may not suffice to reproduce all the elements of these commodities. Or, it may render a continuation of the process on a scale fitting for its technical basis impossible, so that either a portion of the machinery remains idle, or the whole machinery works only a part of the usual time.
Finally, the expense due to waste varies in direct propor- tion to the fluctuations in the price of raw material, rises and falls with them. Of course, there is a limit also in this case. In 1850 it was still reported, in the factory reports for April, 1850, page 17, that one source of considerable losses through the raising of the price of raw material would hardly be no- ticed by any one who is not a practical spinner, namely losses through waste. The reporting inspector had been informed that a rise in the price of cotton implied a greater rise in the expenses of the spinner than is indicated by the difference in price. The waste in the spinning of coarse yams amounts to fully 15%. If this percentage causes a loss of -| d. per lb. when cotton is worth 3^ d., then the loss increases to 1 d. per lb. as soon as cotton rises to T d. per lb. But when, as a result of the American Civil War, cotton rose to a height not equalled in almost a century, the report read differently. We learn from the factory reports of October, 1863, page 106, that the price then paid for cotton w^aste, and the return of the waste to the factory as raw ma- terial, offered some compensation for the difference in the loss through waste between Indian and American cotton.
This difference amounted to 12^%. The loss in working up Indian cotton is 25%, so that really this cotton costs the spin- ner one-fourth more than he paid for it. The loss through waste was not so important while American cotton was quoted at 5 or 6 d. per lb., for it did not exceed f d. per lb. But it became a matter for serious consideration, Avhen cotton cost 2 sh. per lb. and the loss through waste amounted to 6d.-^^ '* The report makes a mistake in the last sentence. Instead of 6d. for loss, through waste, only 3d. should be allowed. This loss amounts indeed to 25% with The Effect of Fluctuafions in Price. 131 II. Appreciation, Depreciation, Release, and Tie-up of Capital.
The phenomena analysed in this chapter require for their fnll development the credit-system and competition on the world-market, the latter being the basis and vital element of capitalist production. These more concrete forms of capi- talist production can be comprehensively presented only after the general nature of cajiital is understood. Moreover, such a presentation lies outside of the scope of this work and be- longs in its eventual continuation. Nevertheless, the phenom- ena mentioned in the title of this chapter may be discussed at this stage in a general way. They are interrelated among themselves, and at the same time touch upon the rate and mass of profits. They are entitled to consideration right here for the further reason that they create the impression that not only the rate, but also the mass of profit — which is actually identical with the mass of surplus-value — could increase or decrease independently of the movements of surplus-value, whether it be its mass or its rate.
Are we to consider the release and tie-up of capital on one side, its appreciation or depreciation on the other, as different phenomena?
The question is first: What do we mean by the release and tie-up of capital? Appreciation and depreciation explain themselves. They do not signify anything but that a certain given capital grows or declines in value as a result of general economic conditions of some sort, for we do not discuss any particular fate of some individual capital. They indicate, in short, that the value of the capital invested in production rises or falls, aside from the question of its self-expansion by means of the surplus-labor employed by it.
By the tie-up of capital we mean that a certain portion of the total value of the product must be reconverted into the elements of constant and variable capital, if production is to Indian, but only to 12J^ to 15% with American cotton, and this last kind is meant, the same percentage being correctly stated for the price of 5 to 6d. It is true, however, that the percentage of waste increased at times considerably, for American cotton brought to Europe during the closing years of the Civil 132 Capitalist Production.
proceed on the same scale. By the release of capital we mean that a portion of that part of the total value of the product which had to be reconverted into constant or variable capital up to a certain time becomes disposable and superfluous, pro- vided production is to continue on the same scale. This re- lease or tie-up of capital is different from the release or tie- up of revenue. If the annual surplus-value of a certain capital C is equal to x, then a reduction in the price of com- modities consumed by the capitalists would suffice to procure the same enjoyments as before by means of x — a. In other words, a portion of the revenue equal to a is released, and may ser\'e either for the extension of consumption or the re- conversion into capital (for the purpose of accumulation). Vice versa, if x -|- a is needed in order to continue the same scale of living, then this scale must either be reduced or a portion of revenue equal to a and previously accumulated must be drawn upon as revenue.
The appreciation or depreciation may strike either the con- stant, or the variable capital, or both. In the case of the con- stant capital it may affect either the fixed, or the circulating portion, or both.
In the case of the constant capital we have to consider the raw materials and auxiliary substances, including half-wrought articles, all of which we comprise here under the term raw materials, furthermore, machinery and other fixed capital.
We referred in the preceding analysis especially to varia- tions in the price, or the value, of raw materials, and to their influence on the rate of profit. And we announced the general law that, other circumstances remaining the same, the rate of profit is inversely proportioned to the value of the raw materials. This is unconditionally true of a capital newly invested in any business enterprise, where the investment of capital, that is to say the conversion of money into productive capital, is just taking place.
But aside from this capital in process of new investment, a large portion of the already functioning capital is engaged in the sphere of circulation, while another portion is busy in the sphere of production. One portion exists on the market The Effect of Fluctuations in Price. 133 in the shape of commodities waiting to be converted into money; another exists in the shape of money of some kind waiting to be reconverted into elements of production, finally, a third portion exists in the sphere of production, either in the primitive form of means of production (raw materials, auxiliary substances, half-wrought articles purchased on the market, machinery and other fixed capital), or as products in process of manufacture. The effect of appreciation or de- preciation of any of these depends in a large measure on the relative proportions of these things. Let us leave aside, for the sake of simplicity, all fixed capital, and let us consider only that portion of constant capital which consists of raw materials, auxiliary substances, partly wrought articles, and commodities in the making or in a finished state.
If the price of raw material, for instance of cotton, rises, then the price of those cotton goods which were made while cotton was cheaper — both half-wrought articles like yarn, and finished goods like cotton fabric — rises along wuth that of the rest. So does the value of the cotton held in stock and waiting to be worked up and that of the cotton in process of being worked. This last-named cotton then represents by in- direction more labor-time than was incorporated in it, and consequently it adds more value than its own original one to the product which it goes to make up, and more than the capitalist paid for it.
If, then, a rise in the price of raw materials finds on the market a considerable quantity of finished commodities, what- ever may be the state of their perfection, the value of these connnodities rises, and consequently the value of the existing capital is enhanced. The same is true for the supply of raw materials in the hands of the producers. This appreciation of value may Indemnify the individual capitalist, or even an entire sphere of capitalist production, for the loss caused by a fall in the rate of profit incidental to a rise in the price of raw materials, or it may even more than make good that loss. Without entering into the details of the effects of com- petition, we may state for the sake of completeness that, in the first place, when the supplies of raw material held in sf^k 134 Capitalist Production.
are considerable, they fend to oppose a rise in the price of raw materials at the place where they are produced; and in the second place, when the half-wrought articles and finished goods press very heavily upon the market, they prevent the price of these things from rising in proportion to the price of their raw materials.
The reverse takes place when there is a fall in the price of raw materials. Other circumstances remaining the same, it increases the rate of profit. The commodities on the mar-^ ket, the articles in the making, and the supplies of raw mate- rial depreciate in value and thereby counteract the accom- panying rise in the rate of profit.
The effect of a variation in prices of raw materials be- comes so much more marked, the smaller a quantity of sup- plies exists in the sphere of production and on the market, for instance at the close of a business year, when great masses of raw materials are delivered anew, as happens in agriculture after the harvest.
We start in this entire analysis from the supposition that a rise or a fall in prices are the expressions of actual varia- tions in value. But since we are here concerned in the effects of such variations in price on the rate of profit, it matters little what is at the bottom of them. The present statements apply just as well in the case that prices rise or fall, not on account of variations in value, but of the influence of the credit-system, competition, etc.
Seeing that the rate of profit is the expression of the excess of the value of the product over the value of the total capital advanced, a rise of the rate of profit due to a depreciation of the advanced capital would be accompanied by a loss in the value of capital. And a lowering of the rate of profit due to an appreciation of the advanced capital might be accompanied. by gains.
As for the other portion of constant capital, such as ma- chinery, and fixed capital in general, the appreciation of val- ues taking place in them, and referring mainly to buildings, real estate, etc., they cannot be discussed without an under- standing of the theory of ground rent, and do not belong in TJic Eifect of Fluctuations in Price. 135 this chapter, for this reason. But thej have a general im- portance for the question of depreciation.
There are, in the first place, constant improvements which lower relatively the use-value, and therefore the exchange- value, of existing machinery, factory equipments, etc. This process has a dire effect especially during the first epoch of newly introduced machinery, before it has reached a certain stage of maturity, when it becomes continually antiquated before it has had time to reproduce its own value. This is one of the reasons for the irrational prolongation of the work- ing time customary at such periods, of working with day and night shifts, in order that the value of the machinery may be reproduced in a shorter time without having to place the fig- ures for wear and tear too high. On the other hand, if a short period of effectiveness of machinery (its short term of life compared to anticipated improvements) is not compen- sated in this w'ay, then it yields too much of its value to the product by moral wear, so that it cannot compete even against hand-labor. ^^ When machinery, equipment of buildings, and fixed capital in general have reached a certain maturity, so that they re- main unaltered in their basic construction, at least for an or- dinary length of time, then a similar depreciation takes place in consequence of improvements in the methods of reproduc- tion of this fixed capital. The value of machinery, etc., falls in that case, not because this machinery is rapidly crowded out and depreciated to a certain degree by new and more pro- ductive machinery, etc., but because it can be reproduced more cheaply. This is one of the reasons why large enterprises fre- quently do not fiourish until they pass into the second hand, after their first proprietors have been bankrupted, so that their successors, who buy them cheaply, are enabled to begin with a smaller investment of capital at the very outset.
In the case of agriculture it is evident that the same causes which raise the price of the product or lower it must also raise or lower the value of capital, since this capital con- '^ For illustrations see Bahbage, among others. The usual expedient, a reduction of wages, is employed also in this instance, and so this continual depreciation works out quite contrary to the dreams of the harmonious brain of Mr. Carey.
136 Capitalist Production.
sists to a large degree of this product, such as grain, cattle, etc.
There still remains the variable capital for our considera- tion.
To the extent that the value of labor-power rises on ac- count of a rise in the price of the means of existence required for its reproduction, or falls on account of a reduction of the value of these means of existence — ^ and a rise or fall in the value of variable capital are but expressions of those two cases — a rise in surplus-value corresponds to such deprecia- tion and a fall in surplus-value to such appreciation, assum- ing the length of the working-day to remain the same. But other circumstances — a release or tie-up of capital — may- accompany such cases, and as we did not analyse them so far, we may briefly mention them now.
If wages fall in consequence of a depreciation of the value of labor-power (which may be accompanied even by a rise in the actual price of labor), then a portion of the capital hith- erto invested in wages, is released. Variable capital is set free. For new investments of capital, this signifies a working with a higher rate of surplus-value. It takes less money than before to set in motion the same amount of labor, and in this way the unpaid portion of labor increases at the expense of the paid portion. But in the case of already invested capital not only the rate of surplus-value is raised, but a portion of the capital previously invested in wages is also released. It had been tied up until this time and formed a regular portion which had to be deducted from the proceeds of the product and advanced for wages, in order to perform the functions of variable capital, provided the business was to continue on its former scale. Now" this portion becomes disposable and may be used for a new investment, either in the extension of the same business, or to perform a function in some other sphere of production.
Let us assume, for instance, that 500 p.st. were required at first to employ 500 laborers per week, and that now only 400 p.st. are needed for the same purpose. If the mass of value The Eifect of Fluctuations in Price. 137 produced in either case was 1,000 p.st., then the mass of siir- phis-value produced per week in the first case was 500 p.st., and the rate of surplus-value f-g-g-, or 100%. But after the reduction of wages the mass of surplus-value will be 1,000 — 400, or 600 p.st., and its rate f ^f, or ISO^o. And this rais- ing of the rate of profit is the onlj effect produced for any one who starts a new enterprise in this sphere of production with a variable capital of 400 p.st. and a corresponding con- stant capital. But in a business already existing when this takes place, the depreciation of the variable capital does not only increase tlie rate of surplus-value from 500 to 600 p.st., and the rate of surplus-value from 100 to 150%, but 100 p.st. of the variable capital are released and enabled to exploit more labor. The same amount of labor is then not alone advan- tageously exploited, but the release of 100 p.st. makes it pos- sible to exploit more laborers with those 500 p.st. at the in- creased rate.
l^ow take the opposite case. Take it that the original pro- portion of division, with 500 laborers, was 400 v -j- 600 s, making 1,000, so that the rate of surplus-value was 150%. The laborer, in that case, received f p.st., or 16 shillings per week. ISTow, if in consequence of an appreciation of variable capital 500 laborers cost 500 p.st. per week, then each one of them will receive 1 p.st. per week, and 400 p.st. can employ only 400 laborers. If the same number of laborers as before is to be employed, then we must have 500 v -j- 500 s, or 1,000. The rate of surplus-value w^ould have fallen from 150 to 100%, which is by one-third. If some new capital were now to be invested, the only effect felt by it would be this lower rate of surplus-value. Other circumstances remaining the same, the rate of profit would also have fallen, although not to the same extent. For instance, if c equals 2,000, we should have in the one case 2,000 c -f 400 v + 600 s ==. 3,000. The rate of surplus-value would be 150 9f, the rate of profit -^VV? or 25%. In the second case we should have 2,000 c -f" 500 v -I- 500 s =. 3,000. The rate of surplus-value would be 100%, the rate of profit yVoiTj oi" 20%. However, for a capital al- 138 Capitalist Production.