ready invested there would be a twofold effect. Only 400 la- borers could be employed with 400 p.st, at a rate of surplus- value amounting to 100%. They would then produce only 400 p. St. of surplus-value. Furthermore, since a constant capital of 2,000 p.st. requires 500 laborers for its operation, 400 laborers could operate only a constant capital of 1,600 p.st. If production is to continue on the same scale as be- fore and one-third of the machinery prevented from remaining idle, then the variable capital must be increased by 100 p.st., in order that 500 laborers may still be employed. And this can be accomplished only by tying up a hitherto disposable capital, so that a portion of the accumulation intended for an extension of production serves then merely for stopping a gap, or a portion reserved for revenue is added to the old capital. A variable capital increased by 100 p.st. produces then 100 p.st. less of surplus-value. More capital is required to em- ploy the same number of laborers, and the surplus-value yielded up by each laborer is at the same time reduced.
The advantages resulting from a release, and the disadvan- tages resulting from a tie-up of variable capital, affect only capital already engaged and reproducing itself under certain determined conditions. So far as newly invested capital is concerned, the advantage on the one, or the disadvantage on the other side, are limited to a raising or lowering of the rate of surplus-value and a variation of the rate of profit accord- ingly, if not always in the same proportion.
The release and tie-up of variable capital, analysed in the foregoing, is the result of a depreciation or appreciation of the elements of variable capital, that is to say, of the cost of reproduction of labor-power. However, variable capital might also be released, if the development of the productivity, with the rate of wages unchanged, results in the possibility of getting along with fewer laborers for the operation of the same amount of constant capital. Vice versa, additional vari- able capital may be formed, if the productive power declines and more laborers are needed to operate the same mass of con- stant capital. On the other hand, if a portion of capital for- merly employed in the capacity of variable capital is trans- The Effect of Fluctuations in Price. 139 ferred to the constant capital, so that there is merely a different distribution between the components of the same capital, this has its influence on the rate of surplus-value and of profit, but does not belong in this discussion of the release and tie-up of capital.
We have already seen that constant capital may be released or tied up by a depreciation or appreciation of its component elements. Aside from this, it can be tied up only in the case that the productive power of labor increases (not to mention the case in which a portion of the variable is transferred to the constant capital), so that the same amount of labor creates a greater product and therefore operates a larger constant cap- ital. The same may occur under certain circumstances when the productive power decreases, for instance in agriculture, so that the same quantity of labor requires more means of production, such as seeds, manure, drainage, etc., in order to produce the same output. Constant capital may be re- leased without depreciation, when improvements, the harness- ing of natural powers, etc., enable a constant capital of smaller value to perform the same technical services as those formerly performed by a constant capital of greater value.
We have seen in volume II that once that the commodi- ties have been converted into money, sold, a certain portion. of this money must be reconverted into the material elements of constant capital, and this in proportion to the technical na- ture of" any given sphere of production. In this respect, the most important element in all lines — ■ aside from wages, or variable capital — is the raw material, including the auxiliary substances, which are particularly important, in all lines of production that do not use any raw materials in the strict meaning of the term, for instance in mining and extractive industries in general. That portion of the price which has to make good the wear and tear of machinery plays mainly an ideal role in calculation, so long as the machine is at all in workable condition. It does not matter greatly whether it is paid and replaced by money to-day or to-morrow, or in any other section of the period of turn-over of the capital. It is different with the raw material. If the price of raw material 140 Capitalist Production.
rises, it may be impossible to make it good fully out of the price of the commodities after deducting the wages. Violent fluctuations of price therefore cause interruptions, great col- lisions, or even catastrophies in the process of reproduction. It is especially the products of agriculture, raw materials taken from organic nature, which are subject to such fluctua- tions of value in consequence of changing yields, etc., leaving aside altogether tlie question of the credit-system, for the pres- ent The same quantity of labor may, in consequence of un- controllable natural conditions, the favor or disfavor of sea- sons, etc., be incorporated in very different quantities of use-values, and a definite quantity of these use-values may have very different prices. If the value x is represented by 100 lbs. of the commodity a, then the price of one lb. of a equals ^. If it is represented by 1,000 lbs., the price of one lb. is ^, etc. This is one of the elements in the fluctu- ations of the price of raw materials. A second element, which is mentioned at this point only for the sake of completeness, since competition and the credit-system are still outside of the scope of our analysis, is this: It is in the nature of the thing that vegetable and animal substances, which are dependent on certain laws of time for their growth and production, cannot be suddenly augmented in the same degree as, for instance, machines and other fixed capital, or coal, ore, etc., whose aug- mentation, assuming the natural requirements to be present, can be accomplished in a very short time in an industrial country. It is therefore possible, and under a developed system of capitalist production even inevitable, that the pro- duction and augmentation of that portion of the constant cap- ital which consists of fixed capital, machinery, etc., should run ahead of that portion which consists of organic raw ma- terials, so that the demand for these last materials grows more rapidly than their supply, and their price rises in consequence. This rising of prices carries with it the following results: 1) A shipping of raw materials from great distances, seeing that the rising price covers greater freight rates; 2) an increase m their production, ^vhich, however, for natural reasons, will not be felt until the following year; 3) a using up of various The Effect of Fluctuations in Price. 141 hitherto unused accessories, and a better economising of waste. If this rise of prices begins to exert a marked influence on production and supply, the turning point has generally ar- rived at which the demand lets up on account of the protracted rise of the raw material and of all commodities made up of it, so that a reaction in the price of raw material takes place. Aside from convulsions due to the depreciation of capital in. various forms, this reaction is also accompanied by other cir- cumstances which will be mentioned immediately.
So much is evident from the foregoing: To the extent that capitalist production is developed, and with it the means of suddenly and permanently increasing that portion of the con- stant capital which consists of machinery, etc., and to the ex- tent that accumulation is accelerated (as it is particularly in times of prosperity), to that extent does the relative over- production of machinery and other fixed capital increase, the relative underproduction of vegetable and animal raw mate- rials become more frequent, the above described rise of their prices and the subsequent reaction more marked. And the revulsions increase correspondingly in frequency, so far as they are due to this violent fluctuation of one of the main elements of the process of reproduction.
ISTow, if these high prices collapse, because their rise had caused partly a falling off in the demand, partly an extension of production here, an importation of goods from remote and hitherto little noted or neglected regions of production in an- other place, and with them an excess of the supply over the demand, especially if this excess comes in with the old prices, then we have a result which offers various points of view. The sudden collapse of the price of raw materials checks their reproduction, and consequently the monopoly of the original producing countries, which are favored by the best conditions, is restored. It may be restored with certain limitations but still it is restored. The reproduction of tlie raw mate- rials proceeds indeed, after the first impulse has been given, on an enlarged scale, especially in countries which have more or less of a monopoly of this production. But the basis on which production takes place after the extension of machin- 142 Capitalist Production.
erj, etc.; and which, after some fluctuations, has to - serve as the new point of departure, is very much enlarged by the occurrences of the last cycle of turn-over. At the same time the barely increased reproduction has been considerably checked in the secondary countries of supply. For instance, it can be easily shown by a reference to the export tables that, during the last thirty years (up to 1865) the production of cotton gTows in India, whenever there has been a falling off in the American, and that there is after awhile a sudden drop and falling off in the Indian. During the period in which raw materials are high, the industrial capitalists get together in associations for the purpose of regulating production. So they did, for instance, after the rise of cotton prices in 1848, in Manchester, and a similar move was made in the production of flax in Ireland. But as soon as the immediate impulse has worn off, and the principle of competition reigns once more supreme, according to which one must " buy in the cheapest market" (instead of stimulating production in the most favored countries, as those associations attempt to do, without regard to the monetary price at which those countries may just happen to supply their product), the regulation of the supply is left once more to " prices." All thought of a common, far-reaching, circumspect control of the production of raw materials gives way once more to the belief that de- mand and supply will mutually regulate one another. And it must be admitted that such a control is on the whole ir- reconcilable with the laws of capitalist production, and re- mains for ever a platonic desire, or is limited to exceptional co-operation in times of great stress and helplessness.^^ The ^° Since the above was written (1865), competition on the world-market has been considerably intensified by the rapid development of industry in all civilized countries, especially in America and Germany. The fact that the rapidly and enormously growing productive forces grow beyond the control of the laws of the capitalist mode of exchanging commodities, inside of which they are supposed to move, this fact impresses itself nowadays more and more even on the minds of the capitalists. This is shown especially by two symptoms. First, by the new and general mania for a protective tariff, which differs from the old protectionism especially by the fact that now the articles which are capable of being exported are the best protected. In the second place it is shown by the trusts of manu- facturers of whole spheres of production for the regulation of production, and thus of prices and profits. It goes without saying that these experiments are practicable only so long as the economic weather is relatively favorable. The The Effect of Fluctuations in Price. 143 superstition of the capitalists in this respect is so crude that even the factory inspectors lift tlieir hands in sui-pHse, in their reports. The variation of good and bad years, of course, leads at times to the production of cheaper raw materials. Aside from the direct effect of this on the extension of the de- mand, an added stimulant is found in the previously men- tioned influence on the rate of profit. Thereupon the afore- said process of a gradual overtaking of the production of raw materials by that of machinery, etc., is repeated on a larger scale. An actual improvement of raw materials in such a way that not only their quantity, but also their qual- ity would come up to expectations, for instance supplying cotton of American quality from Indian fields, would neces- sitate a long continued, progressively growing, and steady Euroj^ean demand (quite aside from the economic conditions under which the Indian producer labors in his country). As it is, the sphere of production of raw materials is extended only convulsively, being now suddenly enlarged, and then vio- lently contracted. All this, and the spirit of capitalist pro- duction in general, may be very well studied in the cotton crisis of 1861-65, which was further aggravated by the fact that raw materials were at times entirely missing which are one of the principal factors of reproduction. The price may also rise while there is an abundant supply, namely in the case that this abundance takes place under difficult condi- tions. Or, there may be an actual shortage of raw material. It was the last condition which originally prevailed in the cotton crisis.
The closer we approach in the history of production to our own times, so much more regularly do we find, especially in the essential lines of industry, the ever recurring fluctuation between a relative appreciation and the resulting depreciation of raw materials purloined from organic nature. The pre- ceding statements will be verified by the following illustra.- tions from reports of factory inspectors.
first storm must upset them and prove, that, although production assuredly needs regulation, it is certainly not the capitalist class which is fitted for that task. Meanwhile the trusts have no other mission but to see to it that the little fish are swallowed by the big fish still more rapidly than before — P E.
144 Capitalist Production.
The moral of this story, which may also be deduced from other observations in agriculture, is that the capitalist sys- tem works against a rational agriculture, or that a rational agriculture is irreconcilable with tlie capitalist system, al- though technical improvements in agriculture are promoted by capitalism. But under this system, agriculture needs either the hands of the self-employing small farmer, or the control of associated producers.
We present now the following illustrations from the Eng- lish factory reports.
According to E,. Baker, factory reports for October, 1858, pages 56-61, the condition of business was then better. But the cycle of good and bad times was shortened with the in- crease of machinery, and to the extent that the demand for raw materials increases, the fluctuation in the conditions of business occur more frequently. Tor the time being confi- dence had been restored after the panic of 1857, and the panic itself seemed almost forgotten. Whether this improvement would be lasting, depended, in Baker's opinion, to a large ex- tent on the price of raw materials. He saw indications that the maximum had already been reached, beyond which manu- facture becomes less and less profitable, and finally ceases al- together to yield any profits. Taking the prosperous years in the worsted business, 1819 and 1850, it will be seen that the price of English carded wool was 13 d., and of Australian, 11 to 17 d. per lb., and that the average price of English wool, for the decade from 1811 to 1850, never exceeded 14 d., nor that of Australian 17 d. But at the beginning of the disastrous year 1857, Australian wool was quoted at 23 d. It fell in December, at the time of the worst panic, to 18 d., but rose once more in the course of the year 1858 to 21 d.
English wool likewise began in 1857 with 20 d., rose in April and September to 21 d., fell in January, 1858 to 14 d., and rose subsequently to 17 d., so that it stood 3 d. per lb. higher than the average of the aforementioned 10 years. This shows, in Mr. Baker's opinion, that either the failures of 1857, which were due to similar prices, have been forgotten, The Effect of Fluctuations in Price. 145 or that barelj enough wool is produced to keep the existing spindles running. Or the prices of fabrics may experience a lasting rise. But he has seen in his experience that spin- dles and frames multiplied in an incredibly short time, not only in numbers, but also in speed; that the English wool export to France rose at almost the same rate, while the aver- age age of sheep in England and other countries was steadily reduced, since the population was rapidly increasing and breeders were trying to turn their stock into money as quickly as possible. He often was seriously alarmed, when he saw people, igiiorant of these facts, invest their ability and their capital in enterprises whose success depended on the supply of a product which can be increased only according to certain organic laws. The conditions of supply and demand of all raw materials seems to explain to Mr. Baker many fluctua- tions in the cotton business as well as the condition of the English wool market in the fall of 1857 and the subsequent commercial crisis. ^^ The most flourishing time of the worsted industry of the West-Riding of Yorkshire was from 1849 to 50. This in- dustry employed 29,246 persons in 1838, 37,000 persons in 1813, 48,097 in 1845, 74,891 in 1850. (Factory Reports, 1850, page 60.) This prosperity of the carded wool industry began to excite certain forebodings in October, 1850. In his report for April, 1851, sub-inspector Baker says in regard to Leeds and Bradford that the condition of business is very un- satisfactory. The carded wool spinners are rapidly losing the profits of 1850, and the majority of the weavers do not make much progress. He believes that more wool machinery is momentarily standing idle than ever before, and the flax spinners are likewise discharging laborers and stopping ma- chinery. The cycles of the textile industry are very uncer- tain, and he thinks that people will soon realise that no pro- portion is observed between the productivity of the spindles, the quantitv of raw materials, and the increase of population.
" It goes without saying that we do not, with Mr. Baker, explain the wool crisis of 1857 out of the disproportion between the raw material and the product. This disproportion was itself but a symptom, and the crisis was general. — F. E.
J 146 Capitalist Production.
The same is true of the cotton industry. In the same report for October, 1858, we read that, since the fixing of the hours of labor in factories, tlie amounts of raw material consumed, of production, and of wages in all textile industries have been reduced to a simple rule of three. The inspector quotes from a recent lecture by Mr. Payns, who was then mayor of Black- burn, on the cotton industry, in which the industrial statistics of that region were very accurately compiled. The mayor said in substance that every actual horse-power operates 450 self-actor spindles with preparatory spinning machinery, or 200 throstle spindles, or 15 looms for clotk 40 inches wide, with machinery for reeling, warping and smoothing. Every horse-power employs two and a half laborers in spinning, or 10 in weaving. Their average wages are fully 10^ shillings per capita per week. The worked iTp average numbers are Xos. 30-32 for the warp and Xos. 34-36 for the woof. As- suming the product of one week's spinning to be 13 ounces per spindle, the weekly output of yarn would be 824,700 lbs., which imply a consumption of 970,000 lbs., or 2,300 bales of cotton valued at 28,300 p.st. In a circle of five mil': around Blackburn the weekly consumption of cotton amounted to 1,530,000 lbs., or 3,650 bales, at a cost-price of 44,625 p.st. This is one-eighteenth of the entire cotton spun in the United Kingdom, and one-sixteenth of the entire mechanical weav- ing- The inspector says that according to the calculations of Mr. Payns the total number of cotton spindles in the United Kingdom would be 28,800,000, and it would require 1,432,- 080,000 lbs. of cotton to keep them going at full speed. But the cotton imports, after deducting the exports, amounted in 1856 and 1857 only to 1,022,576,832 lbs. so that there must have been a shortage of 409,503,168 lbs. Mr, Payns, who had the kindness to discuss this point with the inspector, held that a computation of the annual consumption of cotton, based on the consumption of the Blackburn district, would total up too high, on account of the difference, not only of the num- bers spun, but also of the excellence of the machinery. He estimated the total consumption of cotton per year in the The Eifect of Fluctuations in Price. 147 United Kingdom at 1,000 million lbs. But if he is correct, and there is actually a surplus-import of 22^ million lbs., then the inspector thinks that demand and supply are nearly balanced, without taking into account the additional spindles and looms which are about to be erected in Mr. Payns' own district, according to him, and the same applies probably to other districts as well. (Pages 59, 60.)
III. General Illustration. The Cotton Crisis of 1861— 18G5. Preliminary History, 18Ii-5-1860.
1845. Prosperity of cotton industry. Price of cotton very low. L. Horner says on this point that he has not witnessed a more active period of business than that of the last sum- mer and fall. Especially in the spinning of cotton. Through- out the entire six months he received every week reports of new investments of capital in factories. ISTow new factories were being built, now the few vacant ones had found new renters, now factories which were in operation were extended, new and stronger steam engines installed and more working machinery added. (Factory Eeports, JSTovember, 1845, page 1845. The complaints are beginning. For some time the inspector hears general complaints among the manufacturers over the depressed state of their business. During the last six weeks, he says, various factories have begun working short time, generally 8 hours instead of 12. This seemed to become general. There had been a great rise in the price of cotton, while the price of the products had not alone not risen, but fallen to a lower figure than that before the rise in cotton. The great increase in the number of cotton factories during the preceding four years must have caused a strong increase in the demand for raw material and a large supply of products on the market. Both of these things must have operated to depress profits, so long as the supply of raw ma- terial and the demand for the product remained unchanged. But they actually had a far stronger influence, because the supply of cotton had recently been insufficient, and the de- 11 148 Capitalist Production. ^1 mand for the product had let up in various inland and foreign markets. (Factory Reports, December, 1846, page 10.)
The rising demand for raw materials went, of course, hand in hand with the overstocking of the market with products. By the way, at that period the expansion of industry and the subsequent stagnation were not confined to the cotton dis- tricts. The carded wool district of Bradford contained in 1836 only 318 factories, but 490 in 1846. And these figures do not by any means express the actual extension of produc- tion, since the existing factories were at the same time con- siderably enlarged. This was especially true of the flax mills. According to the factory report, November, 1846, page 30, all of them had contributed more or less, during the preceding 10 years, to that overstocking of the market which was to blame for the stagnation of business at the time being. The depression in business followed naturally after such a rapid expansion of factories and machinery.
1847. In October, a money panic. Discount 8%. This was preceded by a collapse of railroad speculation, and of jobbing with East-Indian bills of exchange.
The factory report for October, 1847, page 30, states that Mr. Baker presented very interesting details concerning the rise in the demand for cotton, wool, and flax, in recent years, caused by the expansion of these industries. He held that the increased demand for these raw materials, particularly at a time when their supply had fallen far below the average, was sufficient to explain the prevailing depression in those lines of business, without reference to the insecurity of the money- market. This view was fully supported by the personal ex- perience of the Avriter of the report, and by statements made to him by experts in business. All these various lines of business had been very much depressed, when discounts were still practicable at 5% and less.- On the other hand, the sup- ply of raw silk was abundant, prices reasonable, and the busi- ness correspondingly brisk until a few weeks previously, when ' doubtless the money-panic affected not only the dealers in raw silk, but still more their principal customers, the manufac- turers of custom made goods. A glance at the published offi- The Effect of Fluctuations in Price. 149 cial reports showed that the cotton industry had increased by almost 27% during the preceding three years. As a result, cotton had risen in round figures from 4 d. to 6 d. per lb., while yarn, thanks to the increased supply, stood only a trifle above its former price. The wool industry commenced to expand in 1836. Since then it had grown by 40% in York- shire, and still more in Scotland. The increase in the worsted industry was still larger. -^^ The calculations showed in its case, for the same length of time, an expansion of more than 74%. The consumption of raw wool had, therefore, been very large. The linen industry showed since 1839 an in- crease of about 25% in England, 22% in Scotland, and al- most 90% in Ireland,^^ the consequence of this, and of tiiC failure of flax crops, was that the price of the raw material rose by 10 p.st. per ton, while the price of yarn had fallen by 6 d. per bundle.
1849; Beginning with the last months of 1848, business revived. According to factory reports, 1849, pages 30, 31, the price of flax, which was so low that it guaranteed a reason- able profit under all possible future circumstances, induced manufacturers to push their business steadily. The wool manufacturers were very busy for a time in the beginning of the year. The writer of the report feared, however, that consignments of woolen goods often took the place of real de- mand, and that periods of seeming prosperity, that is to say, of full employment, did not always coincide w-ith periods of legitimate demand. The worsted business was particularly good for some months. In the beginning of this period, wool stood especially low. The mill-owners had stocked them- selves at advantageous prices, and no doubt in considerable quantities. When the price of wool rose with the spring auc- tions, the mill-o\\Tiers had the advantage, and they retained it, since the demand for goods became strong and irresistible.
" A careful distinction is made in England between the woollen manufacture, which spins carded yarn from short wool and weaves it (main centre Leeds), and the worsted manufacture, which makes worsted yarn from long wool and weaves it (main seat Bradford, in Yorkshire). — F. E.
'^ This rapid expansion of the manufacture of linen yarn by machinery, in Ireland, gave the death-blow to the exportation of the linen made of hand-made yarn in Germany (Silesia, Lusatia, and Westphalia). — F. E.
150 Capitalist Production.
On page 42 of the factory report for April, 1849, we read that, considering the fluctuations in the conditions of business, which had taken place in the factory districts for three or four years, it must be admitted that there is somewhere some great disturbing cause. May not the productive power of the increased machinery have become a new element?