Capital Turnover: A Circular-Flow Process

B. Capital Turnover: A Circular-Flow Process

In a discussion of capital “turnover,” Marx raises a troublesome question relating to the basic doctrine: “does not a moment of value determination come in here which is independent of labour, a moment which does not directly take its origin from labour but from circulation itself ?” (MECW 28: 443). He proceeds by working

B. Capital Turnover: A Circular-Flow Process 269 at a broad level of aggregation avoiding inter-capital complexities: “The discus-

sion . . . must not be diverted by the introduction of many capitals” (440). On this basis he reduces the economic structure to one of four “moments”: “The moments are: (I) The real process of production and its duration. (II) Conversion of the product into money. Duration of this operation. (III) Conversion of the money into the appropriate proportions of raw material, means of labour and labour, in short into the elements of capital as productive capital. (IV) The exchange of a

part of capital for the living labour capacity . . . ” (444). 1 His concern in the present context was moment II, in effect, the final-sale stage: “The difference in capital turnover, as it is posited in II, since it depends neither on greater difficulty in the exchange with labour, nor on delays resulting from the non-simultaneous presence of raw material and means of labour in circulation, nor on the different duration of the production process, could only be due to greater difficulties in valorisation”

(445). 2 Marx points out that this stage “coincides here, where we are considering capital in general, with what we have said about devaluation as a concomitant of valorisation,” by which he refers to the period between the embodiment of labor – its creation of “exchange value” – and final sale (see 329–30).

Marx illustrates the problem at hand by reference to an apparently mundane issue, the treatment of transport labor in an international-trade context and its ability to generate surplus, which has broad implications: “The first question which now arises is this: according to the principles we have so far established, can a surplus value be extracted from the transport costs . . . is it possible that surplus labour is embodied in the transport costs, and that capital can extract surplus value from them? The question may be simply answered by another question: what is the necessary labour or the value in which it is objectified?” (445–6). Marx proceeds by treating transport labor in all respects in the same manner as direct or “immediate” labor, applying notably the principle of surplus as unpaid labor hours – where the realization of surplus value thus perceived “depends on the wealth of the country to which he exports the product and on the need for it, i.e. on the use value which the product has in that country. . . . It is the same as in direct production, and the original surplus value on the transported product can only derive from the fact that a part of the transport time worked by the workers is not paid for, because it is surplus time, time over and above that which is necessary for them to live”

1 On “moment” IV, see Chapter 8, p. 250. As for moment I, that “coincide[d] with the conditions of valorisation in general,” i.e., the general issue of value creation; whereas III “can only be

considered when we are dealing not with capital in general but with many capitals. Moment

IV belongs to the section on wages, etc.” (MECW 28: 444). 2 One notes the exclusion of the “different duration of the production process,” a matter

involving capital “lying fallow” as in wine maturation, discussed in Chapter 8, p. 256. The excluded obstacles Marx refers to are also alluded to thus: “The reconversion of money into . . . conditions of production presupposes their availability. It constitutes the various markets in which the producer encounters them as commodities – in the hands of the merchant – mar- kets (alongside the labour market) which are essentially different from the markets for direct individual, final consumption” (MECW 28: 459).

1857–1858 II: Value “Realization”

(446). 3 That Marx made much of the contrast between direct production and transportation evidently reflected a concern that “spatial movement” 4 seemed to undermine his perspective on the generation of surplus value. Yet in the end he insisted that the same principles applied.

Now Marx included within “productive labor” – in his technical sense of the term – not only transport workers, but “[a]ll the labour which is required to put the finished product into circulation. . . . Likewise all labour required as condition for the process of production (such as e.g. costs incurred to ensure the security of the

exchange, etc.)” (448). 5 Other instances include costs relating to contracting and the holding of inventory (458). In sum, “The spatial condition, the conveyance of the product to the market, belongs, economically considered, to the process of production itself. The product is not really finished until it is on the mar- ket. The movement by which it gets there, represents a part of its costs of production. . . . [C]irculation appears as a moment not merely of the production process in general, but of the direct production process as well.” 6

In the last resort, Marx reduces all circulation-related costs to a time dimension: “ . . . it depends on the speed of circulation, on the time taken by it, how many products can be produced in a given period of time, how often capital can valorise itself in a given period of time, how often it can reproduce and multiply its value in that time” (461). And he is eloquent indeed regarding the high significance of means to “annihilate space by time” in capitalist systems, in contrast with “the case of production directed towards immediate use, and exchanging only the surplus, [where] the costs of circulation are incurred only in relation to that surplus, not to the main product” (448). For “[t]he more production comes to be based on exchange value, and thus on exchange, the more important for production do the physical conditions of exchange become – the means of communication and trans- port. By its very nature, capital strives to go beyond every spatial limitation. Hence the creation of the physical conditions of exchange – of the means of communica- tion and transport – becomes a necessity for it to an incomparably greater degree: space must be annihilated by time.” Again: “ . . . while capital must strive on the one hand to tear down every local barrier to traffic, i.e. to exchange, and to conquer

3 Marx takes the opportunity to preclude inefficiency; thus the employer “cannot stretch the time used for transporting [the product] beyond the time actually required. If he did so, he

would throw labour time away, not valorise it, i.e. he would not objectify it in a use value” (MECW 28: 446). 4 The issue actually extends to mining: “Whether I extract metals from the mines or take com- modities to the places where they are consumed, both equally represent a spatial movement” (MECW 28: 446–7). 5 On the general issue of “productive” labor, see Chapter 8, p. 237 and note 20. 6 Technically speaking – Marx points out – a “product” only becomes a “commodity” when it is put on the market – an uncertain market be it noted; accordingly: “working to order, i.e. supply which corresponds to a previously stated demand, is not a general or dominant situation, does not correspond to large-scale industry, and in no way arises as a condition [of the production process] from the nature of capital” (MECW 28: 458).

B. Capital Turnover: A Circular-Flow Process 271 the whole world as its market, it strives on the other hand to annihilate space by

means of time, i.e. to reduce to a minimum the time required for the movement [of products] from one place to another” (463). And “[t]he more capital has been developed, and the greater therefore the expansion of the market in which it cir- culates, which constitutes the spatial path of its circulation, the more it goes on to strive for an even greater spatial expansion of the market and for a more complete annihilation of space by means of time.”

Marx in fact represents circulation “as an essential process of capital. The process of production cannot be recommenced until the commodity has been transformed into money. The uninterrupted continuity of that process, the unhindered and fluent transition of value from one form into the other, or from one phase of the process into the other, appears as a basic condition for production based on capital to a much greater degree than for all earlier forms of production” (459). Marx’s goes yet further by representing the interconnected “production” and “circulation” processes in terms of circular flow where consumption is not “a final act” but “a moment of production, i.e., of the process of positing value” – alluding to realization of value – and where capital is best conceived as “capital circulant” in the sense of “value-in-process”: “The transition from one moment to the other appears as a particular process, but each of these processes is the transition into the other. In this way capital is posited as value-in-process, which is capital in every one of the moments. It is therefore posited as capital circulant; in each of the moments it is capital and circulating from one determination to the other. The point of return is simultaneously the point of departure and vice versa – i.e. the capitalist. All capital is originally capital circulant, both produced by and producing circulation, tracing its orbit as its own” (460). 7

We now come to a radical allowance arising from the discussion of the speed of circulation – radical in the light of the formal theory of surplus value. For immediately after concluding that “it depends on the speed of circulation, on the time taken by it, how many products can be produced in a given period of time, how often capital can valorise itself in a given period of time, how often it can reproduce and multiply its value in that time” (above, p. 270), Marx adds: “Thus there really does enter here a moment of value determination which does not arise from the direct relation of labour to capital” (461–2). He then recoils from this extraordinarily “non-Marxian” conclusion by restating the matter such that circulation “while not creating values” – “for this lies exclusively in the sphere of labour” – “does to a certain degree, determine the mass of values which can be created”: “Though circulation does not give rise to a moment of value determination

7 This perspective touches on the “permanence” of capital perceived as a value, Marx citing Sismondi: “Capital permanent value multiplying itself, which no longer becomes extinct. This

value detaches itself from the commodity which has produced it; equivalent to a metaphysical, insubstantial quality always in the possession of the same cultivator” (e.g.) “for whom it assumes various forms” [Sismondi 1827 1: 88–9;1951 1:92] (MECW 28: 461).

1857–1858 II: Value “Realization”

itself, for this lies exclusively in the sphere of labour, the speed of circulation does determine the rate at which the process of production can be repeated, and therefore the speed with which values are created. In other words, while not creating values, circulation does, to a certain degree, determine the mass of values which can

be created” (462). 8 This mass will be “the values and surplus values posited by the process of production × the number of times the production process can be repeated in a given period of time.”

How seriously are we to take the insistence that, after all is said and done, circulation does not “create values” but only “the mass of values which can be created” in a given time? We must not allow ourselves to be caught up in the definition of value as labor embodied; we must rather focus on the substantive question whether or not Marx properly justified his position, on his own terms, that though the “speed of circulation” dictates “the rate at which the process of production can be repeated” – and thus new value created – it cannot strictly be said to “create value” even at one remove. Here we shall set aside (following Marx) “non-realization” of exchange value due to overproduction and crisis; our concern is the speed of circulation taking final sale for granted: “When we speak of the speed of the turnover of capital, we presume that only external barriers obstruct the transition from one phase [of circulation] to another, not ones arising from the production process and from circulation itself (as in crises, overproduction, etc.)” (462). Finally, it is presumably understood, in line with what had been previously established, that “the product is not really finished until it is on the market” (above, p. 270), that all labor inputs including those relating to transportation and so forth are counted as part of the production process.

In justifying his position Marx takes refuge in the formal argument that circula- tion time cannot possibly be “a positive value-creating element,” since by reducing circulating time – i.e., increasing the number of circuits made by capital in a year – surplus value is increased:

If labour time appears as the activity which posits value, the circulation time of capital appears as the time of devaluation. . . . [T]he circulation time is therefore not a positive value-creating element. If it were equal to 0, value creation would be at its highest level. If either surplus or necessary labour time = 0, i.e. if necessary labour time absorbed all time, or if production could be carried on without any labour, there would be neither value nor capital, nor value creation. Hence the circulation time determines value only in so far as it appears as a natural barrier for the valorisation of labour time. Thus it is in fact a deduction from surplus labour time, i.e. an increase in necessary labour time (462–3).

8 Storch is cited to similar effect: “The entrepreneur can only recommence production after he has sold the finished product and has used the price in purchasing new mati`eres and new

salaires. Hence, the more promptly circulation brings about these two effects, the more quickly is he in a position to recommence his production, and the greater the quantity of products capital produces in a given period of time” [Storch 1823 1: 411–12] (MECW 28: 467).

C. Obstacles to Value Realization 273 To argue in this manner is, however, to accept that though “the circulation time

determines value only in so far as it appears as a natural barrier for the valorisation of labour time,” changes in circulating time do affect value or at least surplus value. And indeed this formulation seems to have troubled Marx since he sought further to avoid any impression that the capital-circulation process can be said to “produce” value. For “[i]t is a deduction from surplus labour time or an increase of the necessary labour time in relation to surplus labour time. The circulation of capital realises value, as living labour produces value. Circulation time is a barrier only to the realisation of value and to that extent to value creation.” (467). But though this barrier did “not arise from production in general,” it was “specific to production based on capital. Its transcendence – or the struggle against it – therefore belongs to the specific economic development of capital and provides the impulse for the development of its forms in credit, etc.”

For all that, Marx seems to have allowed the essential point by accepting that circulation time as a barrier to value realization is “to that extent,” a barrier to “value creation.” There are further frank affirmations: “It follows from the relationship of circulation time to the production process that the sum of values which is produced, or the total valorisation of capital in a given period of time, is determined not only by the new value which capital creates in the production process, or by the surplus time realised in that process, but also by this surplus time (surplus value) multiplied by the factor which expresses the frequency with which the production process of capital can be repeated in that period” (468). But Marx then rephrases the matter by focusing once again on the time of circulation as a “barrier” to surplus-value creation which retains the formal emphasis on the production process as source of surplus value (468–9).