Understanding Capital Volume II, John Fox, 1985


Chapter 15: Effect of the Time of Turnover
on the Magnitude of Advanced Capital

"The economists, who as a general rule have nothing clear to say in reference to the mechanism of the turnover, always overlook this main point, to wit, that only a part' of the industrial capital can actually be engaged in the process of production if production is to proceed uninterruptedly. While one part is in the period of production, another must always be in the period of circulation." (p. 270 [342])

In this chapter, Marx demonstrates that: (1) because the turnover of capital includes a period of circulation, an additional advance of circulating capital is required for production to continue during the time of circulation; and (2) during its turnover, circulating capital frequently exists in money form, waiting to be exchanged for labor-power, raw materials, and auxiliary materials. As Engels notes near the end of the chapter (pp. 287-289 [359-360]), Marx's detailed examination of the process of turnover is needlessly complex, and, indeed, often obscures the fundamental points that Marx wishes to make. We shall describe the essential aspects of the process.

Suppose that the time of production of a particular capital is five weeks, and that each week $100 of circulating capital must be advanced for production (to purchase labor-power, raw and auxiliary materials). If the time of circulation were zero, a circulating capital of $500 would be required by the capitalist. For each week of the time of circulation, an additional $100 is required so that production may continue.

If the period of circulation is equal to that of production (five weeks), then an additional $500 is required, and the process of turnover may be diagramed as in Figure 4.

Figure 4. Periods of Circulation and Production Equal

Over the first 10 weeks, a circulating capital of $1000 is advanced; at the end of the tenth week, and every five weeks thereafter, $500 returns from the sphere of circulation, permitting production to continue without an additional outlay of capital.

The situation is fundamentally unchanged if the periods of production and circulation are of unequal lengths. Suppose, for example, that $100 of circulating capital is required per week, that the period of production is five weeks, and that the time of circulation is four weeks. The process of turnover is shown in Figure 5.

Figure 5. Production Period Longer Than Circulation Period

An initial investment of circulating capital of $900 is made over the first nine weeks; at the end of the ninth week, and every five weeks thereafter, $500 returns from the sphere of circulation, permitting production to continue.


Similar results obtain if the period of circulation exceeds the time of production. Again suppose that $100 circulating capital is required each week, but that the period of production is four weeks and that of circulation five weeks, as shown in Figure 6.

Figure 6. Production Period Shorter Than Circulation Period

Here, an initial investment of $900 circulating capital is needed; at the end of the ninth week and every four weeks thereafter, $400 returns from circulation.

In each of these cases, the money returning from circulation covers the investment of circulating capital required for the next production period; this is sensible since the returning money is just the converted form of the circulating capital advanced for an earlier production period. The returning money capital remains for a longer or shorter time in money form while it is gradually exchanged for new elements of circulating productive capital.

Because Marx is interested in examining the turnover of circulating capital here, he ignores fixed capital and surplus-value. Of course, when the commodity product of a production period is sold, the capitalist realizes surplus-value and wear and tear of fixed capital along with the value of circulating capital embodied in the product.

At the end of the chapter, Marx considers the effects of several sorts of changes on the turnover of circulating capital. To summarize briefly: if the period of circulation is curtailed, a smaller amount of circulating capital is required to keep production continuous. The money capital thus "freed" may be employed to increase the scale of production, or may be invested elsewhere. If, alternatively, the time of circulation increases, an additional investment of circulating capital is required if the scale of production is not to decrease.
If the price of raw or auxiliary materials changes, the amount of money required for circulating capital changes as a consequence. Thus, a decrease in the price of materials frees capital for other employment, while an increase in material prices requires additional investment.

The effect of a change in price of the commodity product depends both on the direction of the change and upon its cause. A fall in price results in a loss to the capitalist and a rise in price results in a gain. Whether the money lost must be covered by additional investment (in the case of a rise in price, whether the money gained is needed to continue production on its previous scale) is dependent upon whether the change in price reflects a permanent condition or a temporary market fluctuation. For example, if the gain realized as a consequence of an increase in price is due to permanently increased raw material costs, the money gained is needed to cover these increased costs.