The turnover of industrial capital is the unity of its production and circulation times and consequently embraces the entire production process. The turnover of commercial capital, on the other hand, since it is nothing but the movement of commodity capital that has become autonomous, represents only the first phase in the commodity metamorphosis, C–M, as the reflux movement of a special capital; M–C, C–M, from the merchant’s point of view, is the turnover of commercial capital. The merchant buys, transforming his money into commodities, then sells, transforming the same commodities again into money, and so on in constant repetition. Within the circulation sphere, the metamorphosis of industrial capital always presents itself as C1–M–C2; the money obtained from the sale of C1, the commodity produced, is used to buy C2 new means of production; this is in fact an exchange of C1 and C2, and the same money therefore changes hands twice. Its movement mediates the exchange of two different kinds of commodities, C1 and C2. In the merchant’s case, however, it is the same commodity that changes hands twice in M–C–M′; it simply mediates the reflux to him of his money.
If the merchant’s capital is £100, for example, and he uses it to buy commodities for £100, later selling these commodities for £110, this has made his capital of £100 turn over once, and the number of turnovers per year depends upon how often this movement of M–C–M′ is repeated.
We are completely leaving aside here the costs that may be involved in the difference between the purchase price and the sale price, since these costs in no way affect the form we are initially concerned to analyse.
The number of turnovers of a given commercial capital is thus completely analogous here with the repeated circuits of money as a simple means of circulation. Just as the same shilling circulating ten times buys ten times its value in commodities, so the same money capital belonging to the merchant, £100 for example, buys ten times its value in commodities, or realizes a total commodity capital of ten times its value, £1,000. But there is a difference, and it is this: with the circulation of money as means of circulation, the same piece of money passes through different hands, and this is how it repeatedly performs the same function and how the velocity of the circulation substitutes for the quantity of money in circulation. In the merchant’s case, however, the same money capital, irrespective of the pieces of money of which it is composed, repeatedly buys and sells commodity capital to the amount of its value and hence repeatedly returns to the same owner as M + Δ M, flowing back to its starting-point as value plus surplus-value. This is what characterizes its turnover as a turnover of capital. It always withdraws more money from circulation than it puts in. It goes without saying, of course, that as the turnover of commercial capital accelerates (and this is also where the function of money as means of payment predominates, with the development of the credit system), the same quantity of money also circulates more quickly.
The repeated turnover of commercial capital, however, is never anything more than a repetition of buying and selling; whereas the repeated turnover of industrial capital expresses the periodicity and renewal of the entire reproduction process (including the process of consumption). For commercial capital, on the contrary, this is simply an external condition. Industrial capital must constantly put commodities on the market and withdraw them from it again, if the rapid turnover of commercial capital is to remain possible. If the reproduction process is generally slow, so is the turnover of commercial capital. Now commercial capital certainly facilitates the turnover of productive capital; but it only does this in so far as it cuts down the latter’s circulation time. It has no direct effect on the production time, which also forms a barrier to the turnover time of industrial capital. This is the first limit to the turnover of commercial capital. Secondly, however, quite apart from the barrier formed by reproductive consumption, this turnover is decisively restricted by the speed and volume of the total individual consumption, since the overall part of the commodity capital that goes into the consumption fund depends on this.
Now, leaving aside completely the turnovers within the world of commerce, where one merchant after the other sells the same commodity, a kind of circulation which may present a very flourishing appearance in periods of speculation, commercial capital first of all abbreviates the phase C–M for productive capital. Secondly, given the modern credit system, it has a large part of the society’s total money capital at its disposal, so that it can repeat its purchases before it has definitively sold what it has already bought; and in this connection it is immaterial whether our merchant has sold directly to the final consumer or whether there are twelve other merchants between the two. Given the tremendous elasticity of the reproduction process, which can always be driven beyond any given barrier, he finds no barrier in production itself, or only a very elastic one. Besides the separation of C–M and M–C, which follows from the nature of the commodity, an active demand is now therefore created. Despite the autonomy it has acquired, the movement of commercial capital is never anything more than the movement of industrial capital within the circulation sphere. But by virtue of this autonomy, its movement is within certain limits independent of the reproduction process and its barriers, and hence it also drives this process beyond its own barriers. This inner dependence in combination with external autonomy drives commercial capital to a point where the inner connection is forcibly re-established by way of a crisis.
This explains the phenomenon that crises do not first break out and are not first apparent in the retail trade, which bears on immediate consumption, but rather in the sphere of wholesale trade, as well as banking, which places the money capital of the entire society at the wholesalers’ disposal.
The manufacturer may actually sell to the exporter, and the exporter to his foreign customer; the importer may sell his raw materials to the manufacturer, and the manufacturer sell his products to the wholesaler, etc. But at some particular imperceptible point the commodity lies unsold; or else the total stocks of producers and middlemen gradually become too high. It is precisely then that consumption is generally at flood tide, partly because one industrial capitalist sets a series of others in motion, partly because the workers these employ, being fully occupied, have more than usual to spend. The capitalists’ expenditure increases with their revenue. And besides this, there is also, as we have already seen (Volume 2, Part Three),* a constant circulation between one constant capital and another (even leaving aside the accelerated accumulation) which is initially independent of individual consumption in so far as it never goes into this even though it is ultimately limited by it, for production of constant capital takes place never for its own sake but simply because more of it is needed in those spheres of production whose products do go into individual consumption. This can continue quite happily for a good while, stimulated by prospective demand, and in these branches of industry business proceeds very briskly, as far as both merchants and industrialists are concerned. The crisis occurs as soon as the returns of these merchants who sell far afield (or who have accumulated stocks at home) become so slow and sparse that the banks press for payment for commodities bought, or bills fall due before any resale takes place. And then we have the crash, putting a sudden end to the apparent prosperity.
The superficial and irrational character of commercial capital’s turnover is still greater in so far as the turnover of the same commercial capital can mediate the turnovers of very different productive capitals at the same time or in succession.
But not only can the turnover of commercial capital mediate the turnovers of various different industrial capitals; it can also mediate the opposing phases of commodity capital’s metamorphosis. The merchant may for instance buy linen from the manufacturer and sell it to the bleacher. Here, therefore, the turnover of the same merchant’s capital – in actual fact the same C–M, the realization of the linen – represents two opposite phases for two different industrial capitals. If the merchant sells for productive consumption, his C–M represents the M–C of one industrial capital and his M–C the C–M, of another.
If, as in this present chapter, we leave aside K, the costs of circulation, i.e. the portion of capital that the merchant advances besides the sum laid out on the purchase of commodities, of course we must also leave aside; Δ K, the additional profit that he makes on this additional capital. This is the strictly logical and mathematically correct way of looking at things, if it is a question of seeing how profit and turnover of commercial capital affect prices.
If the production price of 1 lb. of sugar is £1, with £100 the merchant can buy 100 lb. of sugar. If this is the amount he buys and sells in the course of a year, and the average annual rate of profit is 15 per cent, he will add £15 to this £100, and 3 shillings to each £1, the production price of 1 lb. He will thus sell the sugar at £1 3s. a lb. If the production price of 1 lb. of sugar falls to 1 shilling, then with his £100 the merchant will now buy 2,000 lb., and sell each 1 lb. at ls. 1 4/5d. The annual profit on the capital of £100 laid out in his sugar business will still be £15, as before. It is simply that he has to sell 100 lb. in one case and 2,000 lb. in the other. The level of the price of production, whether high or low, has nothing to do with the profit rate; but it has a decisive effect on the aliquot part of the sale price of each 1 lb. of sugar that goes to form commercial profit; i.e. the addition to the price that the merchant makes on a certain quantity of commodity (product).* If the production price of a commodity is low, so is the sum that the merchant advances in its purchase price, i.e. for a given quantity, and so too, at a given rate of profit, is the amount of profit he makes on a given quantity of this cheaper commodity. Alternatively, and this comes to the same thing, he can buy a larger amount of this cheaper commodity with a given capital, of e.g. £100, and the overall profit of £15 which he makes on his £100 is then distributed in small fractions over the individual portions of this mass of commodities. And vice versa. This depends completely on the higher or lower productivity of the industrial capital whose commodities he trades in. If we ignore those cases where the merchant is a monopolist and also monopolizes production, as was the case with the Dutch East India Company in its day, nothing could be more ridiculous than the prevailing conception that it depends on the merchant whether he wants to sell many commodities at a low profit on the individual commodity, or a few commodities at a high profit. The two limits to his sale price are, on the one hand, the production price of the commodity, which he has no control over; and on the other hand the average rate of profit, which he has no control over either. The only thing on which he can make a decision, though the size of his available capital and other circumstances play a part here too, is whether he wants to deal in expensive commodities or in cheap ones. The attitude of the merchant therefore depends entirely on the degree of development of the capitalist mode of production and not on his own will. The old Dutch East India Company, as a purely commercial company having a monopoly of production, imagined it could still pursue, under completely changed conditions, a method that corresponded at most to the beginnings of capitalist production.40
The following circumstances foster the popular prejudice mentioned above, which, moreover, like all wrong ideas about profit, etc., arises from taking the viewpoint of trade alone and from commercial preconceptions.
Firstly, phenomena of competition, which pertain simply to the division of commercial profit among the individual merchants, the shareholders in the total commercial capital; e.g. when one merchant sells more cheaply than another, so as to drive his competitor from the field.
Secondly, an economist of Professor Roscher’s calibre can still imagine, in Leipzig, that it was reasons of ‘good sense and humanity’ that produced the change in sale prices, and that this was not the result of a revolution in the actual mode of production.*
Thirdly, if production prices fall as a result of increases in the productivity of labour, and if sale prices therefore fall as well, then demand often rises still more quickly than supply, and with it market prices, so that the sale prices yield more than the average profit.
Fourthly, a merchant may reduce the sale price (and this means nothing but a reduction in the standard profit that he adds to the price), in order to turn over a larger capital more quickly in his business.
All these are matters that pertain simply to competition among the merchants themselves.
We have already shown in Volume 1 * how a high or low level of commodity prices determines neither the mass of surplus-value that a given capital produces nor the rate of surplus-value; even though according to the relative quantity of commodities that a given amount of labour produces, the price of the individual commodity will be higher or lower, and therefore also the surplus-value component of this price. The unit prices of commodities are determined, in so far as they correspond to values, by the total quantity of labour objectified in these units. If only a little labour is objectified in many commodities, the price of the individual commodity will be low and so will be the surplus-value contained in it. But how the labour embodied in a commodity is divided into paid and unpaid labour, and what proportion of this price thus represents surplus-value, has nothing to do with this total amount of labour, i.e. with the price of the commodity. The rate of surplus-value does not depend on the absolute size of the surplus-value, but rather on its relative size, its relationship to the wages that went into the commodity in question. Hence the rate can be high even though the absolute amount of surplus-value in each individual commodity is small. This absolute amount of surplus-value in each individual commodity depends in the first place on the productivity of labour and only secondly on its division between paid and unpaid.
As far as the commercial sale price is concerned, the production price is a given external assumption.
The high level of commercial commodity prices at an earlier period was due (1) to the high level of production prices, i.e. the low productivity of labour; (2) to the absence of a general rate of profit, since commercial capital drew a far higher proportion of the surplus-value than would accrue to it in conditions of general mobility of capital. The cessation of this situation, therefore, is in both respects the result of the development of the capitalist mode of production.
Turnovers of commercial capital are longer or shorter in various branches of trade, and the number of turnovers in the year thus more or less. Within the same branch of trade, the turnover is quicker or slower in different phases of the economic cycle. There is however an average number of turnovers, which is discovered by experience.
We have already seen how the turnover of commercial capital differs from that of industrial capital. This follows from its very nature; one individual phase in the turnover of industrial capital appears as the complete turnover for an independently functioning commercial capital or even for a part of it. It stands also in a different relationship to the determination of profit and price.
As far as industrial capital is concerned, its turnover expresses on the one hand the periodicity of reproduction and depends therefore on the amount of commodities that are put on the market in a certain period of time. On the other hand, the circulation time also forms a limit, even if an extendable one, which may have a more or less constricting effect on the formation of value and surplus-value through its effect on the scale of the production process. Thus the turnover exerts its determining function on the mass of surplus-value annually produced, and hence on the formation of the general rate of profit, not as a positive factor but rather as a constricting one. The average rate of profit, on the other hand, is a given magnitude as far as commercial capital is concerned. Commercial capital does not have a direct effect on the creation of profit or surplus-value and it enters as a determining element into the formation of the general rate of profit only in so far as it draws its dividends from the mass of profit that industrial capital produces, according to the proportion that it forms in the total capital.
The greater the number of turnovers made by an industrial capital, under the conditions developed in Volume 2, Part Two, the greater is the mass of profit that it forms. Now it is true that the establishment of a general rate of profit means that this total profit is divided among the various capitals not according to the ratio in which they directly participate in its production, but rather according to the aliquot parts that they form in the total capital, i.e. in proportion to their size. But this does not alter the essence of the question. If the number of turnovers of an industrial capital is greater, so is the mass of profit, the mass of surplus-value annually produced, and hence, with other circumstances remaining the same, also the rate of profit. It is different with commercial capital. Here the rate of profit is a given magnitude, determined on the one hand by the mass of profit that industrial capital produces and on the other by the relative size of the overall commercial capital, by its quantitative proportion in the total capital advanced in the production and circulation process. The number of its turnovers, however, has a determining effect on its relationship to the total capital, or the relative size of the commercial capital needed for circulation, in that it is evident that the absolute size of the commercial capital required stands in inverse proportion to the speed of its turnover; its relative magnitude, however, or the share that it forms in the total capital, is given by its absolute magnitude, all other circumstances remaining the same. Say that the total capital is £10,000; then, if the commercial capital is one-tenth of this, it is £1,000; if the total capital is £1,000, then one-tenth of this is £100. In this respect its absolute magnitude varies although its relative magnitude remains the same, varying with the magnitude of the total capital. Here, however, we take its relative magnitude as given, say one-tenth of the total capital. And this relative magnitude is itself determined in turn by the turnover. Given a rapid turnover, its absolute size may be £1,000, for example, in the first case, £100 in the second case, so that its relative size is one-tenth. With a slower turnover, its absolute size may be £2,000 in the first case and £200 in the second. Its relative magnitude would have grown from one-tenth of the total capital to one-fifth. Circumstances that shorten the average turnover of commercial capital, such as the development of means of transport, for example, reduce in the same proportion the absolute magnitude of this commercial capital and hence raise the general rate of profit. And vice versa. The developed capitalist mode of production, compared with earlier conditions, has a double effect on commercial capital; the same amount of commodities are turned over with a smaller amount of actually functioning commodity capital; while on account of the more rapid turnover of this commercial capital and the greater speed of the reproduction process on which it depends, the ratio of commercial capital to industrial capital is reduced. On the other hand, with the development of the capitalist mode of production all production becomes commodity production, and hence the whole of the product comes into the hands of agents of circulation, in which connection it may also be added that in an earlier mode of production, under which production was carried out on a smaller scale, quite apart from the mass of products that were directly consumed in kind by the producers themselves and the mass of services that were performed in kind too, a very large proportion of the producers sold their commodities directly to their consumers or worked to their personal orders. Thus even though commercial capital is larger in earlier modes of production in proportion to the commodity capital it turns over:
(1) It is smaller in absolute terms, because an incomparably smaller part of the entire product is produced as a commodity, has to go into circulation as commodity capital, and comes into the hands of merchants; it is smaller, because the commodity capital is smaller. But it is at the same time relatively greater, and not only on account of the slower rate of its turnover and in proportion to the mass of commodities that it turns over. It is also greater because the price of this mass of commodities, and also therefore the commercial capital that has to be advanced for it, is greater as a result of the lower productivity of labour compared with capitalist production, so that the same value is expressed in a smaller amount of commodities.
(2) Not only is a greater mass of commodities produced on the basis of the capitalist mode of production (in which connection the reduced value of this mass of commodities must be taken into account), but the same mass of products, e.g. of corn, forms a greater mass of commodities; i.e. more and more of it comes into commerce. The result of this, moreover, is that not only does the mass of commercial capital grow, but so too does that of all the capital invested in circulation, e.g. in shipping, railways, telegraphs, etc.
(3) However, and this is an aspect to be discussed when we come to ‘Competition among Capitals’, * non-functioning or only semi-functioning commercial capital also grows with the progress of the capitalist mode of production, with the increased ease of entry into the retail trade, with speculation and a surplus of unoccupied capital.
However, taking the magnitude of the commercial capital in relation to the total capital as given, the variations in turnover between various branches of commerce do not affect the total profit that accrues to the commercial capital, nor do they affect the general rate of profit. The merchant’s profit is determined not by the mass of commodity capital he turns over, but rather by the amount of money capital he advances in order to mediate this turnover. If the general annual rate of profit is 15 per cent and the merchant advances £100, then, if his capital turns over once a year, he will sell his commodities at £115. If his capital turns over five times a year, he will sell a commodity capital with a purchase price of £100 five times a year at a price of £103, and in the whole year therefore a commodity capital of £500 at £515. This gives him, as before, an annual profit of £15 on the capital of £100 he has advanced. If this were not the case, commercial capital would yield a far higher profit than industrial capital in relation to the number of its turnovers, and this would contradict the law of the general rate of profit.
The number of turnovers of commercial capital in various branches of commerce thus has a direct effect on the commercial prices of commodities. The level of the commercial price supplement, that is to say the aliquot part of the commercial profit on a given capital that is added to the production price of the individual commodity, stands in inverse proportion to the number of turnovers or the speed of turnover of the commercial capital in the particular line of business in question. If a commercial capital turns over five times a year, it adds to the same value of commodity capital only a fifth the increase that another commercial capital, able to turn over only once a year, adds to a commodity capital of equal value.
The way that sale prices are affected by the average turnover time of capitals in various branches of commerce can be reduced to the principle that, according to the velocity of this turnover, the same mass of profit that is determined by the general annual profit rate for a given amount of commercial capital – determined independently, that is, of the particular character of this capital’s commercial operations – is differently distributed over commodity masses of the same value, adding for example 15/5 = 3 per cent when it turns over five times a year, as against 15 per cent when it turns over only once.
Thus the same percentage of commercial profit in different lines of business raises the sale prices of the commodities in question by quite different percentages, calculated on the values of these commodities, in direct proportion to the differences in the turnover times.
As far as industrial capital is concerned, on the other hand, its turnover time has no effect on the value of the individual commodities produced, even though it does affect the mass of the values and surplus-values that a given capital produces in a given time, via the mass of labour exploited. This is concealed and appears as something different when we look at production prices, but that is simply because the production prices of various commodities diverge from their values, according to the laws already developed. Taking the production process as a whole, and the total mass of commodities produced by industrial capital, the general law is immediately confirmed.
Thus, while a closer consideration of the influence of turnover time on value formation in the case of the individual capital leads back to the general law and the basis of political economy, viz. that commodity values are determined by the labour-time they contain, the influence of the turnover of commercial capital on commercial prices exhibits phenomena which, in the absence of a very far-reaching analysis of the intermediate stages of the process, seem to presuppose a purely arbitrary determination of prices, i.e. a determination simply by the fact that capital happens to have made up its mind to make a certain amount of profit per year. It seems in particular, through this influence of the turnover, as if the circulation process as such determines the prices of commodities, and that this is within certain limits independent of the process of production. All superficial and distorted views of the overall reproduction process are derived from consideration of commercial capital and from the notions that its specific movements give rise to in the heads of the agents of circulation.
As the reader will have recognized in dismay, the analysis of the real, inner connections of the capitalist production process is a very intricate thing and a work of great detail; it is one of the tasks of science to reduce the visible and merely apparent movement to the actual inner movement. Accordingly, it will be completely self-evident that, in the heads of the agents of capitalist production and circulation, ideas must necessarily form about the laws of production that diverge completely from these laws and are merely the expression in consciousness of the apparent movement. The ideas of a merchant, a stock-jobber or a banker are necessarily quite upside-down. The ideas of the manufacturers are vitiated by the acts of circulation to which their capital is subjected and by the equalization of the general rate of profit.41 Competition, too, necessarily plays in their minds a completely upside-down role. If the limits of value and surplus-value are given, it is easy to perceive how the competition between capitals transforms values into prices of production and still further into commercial prices, transforming surplus-value into average profit. But without these limits, there is absolutely no way of seeing why competition should reduce the general rate of profit to one limit rather than to another, to 15 per cent instead of 1,500 per cent. It can at most reduce it to one level. But there is absolutely no element in it that can determine this level itself.
From the standpoint of commercial capital, therefore, turnover itself seems to determine price. On the other hand, while the speed of industrial capital’s turnover, in so far as it enables a given capital to exploit more or less labour, has a determining and delimiting effect on the mass of profit, and hence on the general rate of profit as well, commercial capital is faced with the rate of profit as something external to it, and this rate’s inner connection with the formation of surplus-value is completely obliterated. If the same industrial capital, with other circumstances remaining the same, and particularly with the same organic composition, turns over four times a year instead of twice, it produces twice as much surplus-value and thus profit; and this is palpably evident whenever the industrial capital in question possesses the monopoly of an improved mode of production, which permits it this accelerated turnover for as long as this monopoly lasts. The differing turnover time in different branches of commerce, however, does manifest itself inversely, in this way: the profit made on the turnover of a certain commodity capital stands in inverse proportion to the number of turnovers of the money capital that turns over this commodity capital. ‘Small profits and quick returns’, in other words, appears to the shopkeeper as a principle that he follows on principle.
It is readily apparent, of course, that this law applies only to the turnovers of commercial capital in a particular line of business, and, leaving aside the mutually compensatory alternation of quicker and slower turnovers, holds only for the average turnover made by the whole commercial capital applied in this branch. The capital of A, involved in the same branch as B, may make more or less than the average number of turnovers. In this case, the others conversely make less or more. This in no way affects the turnover of the total mass of commodity capital invested in this branch. But it is of decisive importance for the individual merchant or retailer. In such a case he may make a surplus profit, just as industrial capitalists make surplus profits if they produce under more favourable conditions than the average. If competition compels it, he can sell more cheaply than his fellows without reducing his profit below the average. If the conditions that enable him to have a quicker turnover can themselves be purchased, e.g. the location of his sales outlet, he may pay extra rent for this; i.e. a part of his surplus profit is transformed into ground-rent.