Suppose we have a circulating capital of £2,500. Of this, £2,000 is constant capital (materials for production) and £500 — one fifth — is variable capital, advanced in wages.

Let the turnover period be 5 weeks: 4 weeks of working period and 1 week of circulation period. Capital I — the part tied up during the working period — is then £2,000: £1,600 constant and £400 variable. Capital II — held ready for the circulation period — is £500: £400 constant and £100 variable. Every working week, a capital of £500 is laid out. In a year of 50 weeks, this produces an annual output worth 50 × £500 = £25,000. The £2,000 of Capital I, constantly employed in one working period, therefore turns over 12½ times: 12½ × £2,000 = £25,000. Of this £25,000, four fifths — £20,000 — is constant capital laid out in means of production, and one fifth — £5,000 — is variable capital laid out in wages. The whole capital of £2,500, by contrast, turns over 25,000 ÷ 2,500 = 10 times.

The variable circulating capital spent in production can go back to work only once the product whose value it reproduced has been sold — turned from commodity-capital into money-capital — so that it can again be laid out in wages. The same holds for the constant circulating capital, the materials: its value likewise reappears as a portion of the product's value. What these two parts — the variable and the constant portions of circulating capital — have in common, and what sets both apart from fixed capital, is not simply that the value they pass on to the product circulates by way of commodity-capital. A part of the product's value, and so of the commodity-capital that circulates as it is sold, always consists of the wear and tear of fixed capital: the value fixed capital has transferred to the product during production. The difference is this: fixed capital goes on functioning in its old physical shape across a longer or shorter cycle of turnovers of circulating capital (constant plus variable circulating capital together), whereas each single turnover requires that the whole of the circulating capital which left the sphere of production as commodity-capital be replaced. The first phase of circulation, selling the commodity for money, is common to both fluid constant and fluid variable capital. Only in the second phase do they part ways: the money into which the commodity has been reconverted is turned partly into a stock of materials again — circulating constant capital, different portions being reconverted sooner or later as their purchase falls due, but eventually the whole of it — and partly held back as a money-fund, to be paid out gradually in wages for the labour-power taken on in production: circulating variable capital. Either way, the whole replacement each time comes from the same source, the turnover of capital, its passage from product to commodity to money. This is why the previous chapter dealt with the turnover of circulating capital, constant and variable together, without yet bringing fixed capital into the picture.

For the question now before us, we need to go one step further and treat the variable part of circulating capital as if it were the whole of the circulating capital — that is, we set aside, for now, the constant circulating capital that turns over alongside it.

£2,500 has been advanced, and the annual product is worth £25,000. But the variable part of the circulating capital is £500, so the variable capital contained in that £25,000 is 25,000 ÷ 5 = £5,000. Dividing £5,000 by £500 gives a turnover number of 10 — exactly as for the whole capital of £2,500.

This average calculation — dividing the value of the annual product by the value of the capital advanced, rather than by the value of the part of that capital constantly employed in one working period (here not £400 but £500, not Capital I but Capital I plus Capital II) — is, for our present purpose of tracking the production of surplus-value, entirely exact. We shall see later that from another point of view it is not quite exact, since this kind of average calculation never fully is: it serves the capitalist's practical purposes well enough, but it does not capture every real circumstance of the turnover accurately or fully.

So far we have left aside a part of the value of the commodity-capital — the surplus-value contained in it, produced during the process of production and built into the product. This is what we now turn to.

Suppose the £100 of variable capital laid out each week produces a surplus-value of 100%, that is, £100. Then the £500 of variable capital laid out over the five-week turnover period produces a surplus-value of £500 — meaning half of the working day consists of surplus labour.

If £500 of variable capital produces £500 of surplus-value, then £5,000 produces a surplus-value of 10 × £500 = £5,000. But the variable capital advanced is only £500. Call the ratio of the whole mass of surplus-value produced during the year to the sum of variable capital advanced the annual rate of surplus-value. Here it is 5,000 ÷ 500 = 1,000%. Looking more closely at this rate, it turns out to equal the rate of surplus-value that the advanced variable capital produces in a single turnover period, multiplied by the number of times the variable capital turns over — which is the same as the number of turnovers of the whole circulating capital.

The variable capital advanced in one turnover period is here £500, and the surplus-value produced in it is likewise £500. The rate of surplus-value for one turnover period is therefore 500s ÷ 500v = 100%. Multiply this 100% by 10, the number of turnovers in the year, and we get 5,000s ÷ 500v = 1,000%.

That is the annual rate of surplus-value. But the mass of surplus-value obtained during any given turnover period is a different thing: it equals the value of the variable capital advanced for that period — here £500 — multiplied by the rate of surplus-value, here 500 × 100/100 = £500. If the capital advanced were instead £1,500 at the same rate of surplus-value, the mass of surplus-value would be 1,500 × 100/100 = £1,500.

Call Capital A the variable capital of £500 that turns over ten times a year, produces £5,000 of surplus-value within the year, and so has an annual rate of surplus-value of 1,000%.

Now suppose a different variable capital, B, of £5,000, is advanced for a whole year — here, for 50 weeks — and so turns over only once a year. Suppose further that at the end of the year the product is paid for on the very day it is finished, so that the money-capital it turns into flows back that same day. The circulation period is then zero, and the turnover period equals the working period: one year. As before, £100 of variable capital is at work each week, so £5,000 over 50 weeks. Let the rate of surplus-value again be 100%: at the same length of working day, half of it is surplus labour. Taking any five weeks, the variable capital applied is £500, the rate of surplus-value 100%, and so the mass of surplus-value produced over those five weeks is £500. The mass of labour-power exploited here, and its degree of exploitation, are — by our assumption — exactly the same as for Capital A.

In each single week, the £100 of variable capital at work produces £100 of surplus-value, so over 50 weeks the £5,000 of capital applied (50 × £100) produces £5,000 of surplus-value. The mass of surplus-value produced over the year is the same as before, £5,000 — but the annual rate of surplus-value is quite different. It equals the surplus-value produced during the year divided by the variable capital advanced: 5,000s ÷ 5,000v = 100%, whereas for Capital A it was 1,000%.

With Capital A as with Capital B, we laid out £100 of variable capital each week; the degree of valorization, the rate of surplus-value, is the same in both, 100%; the size of the variable capital is the same, £100. The same mass of labour-power is exploited, and the size and degree of that exploitation are the same in both cases; the working days are equal, and equally divided between necessary labour and surplus labour. The sum of variable capital applied over the year is the same size, £5,000, sets the same mass of labour in motion, and draws the same mass of surplus-value, £5,000, out of the labour-power that the two equal capitals set in motion. And yet the annual rate of surplus-value of A and of B differs by 900%.

This phenomenon certainly looks as though the rate of surplus-value depended not only on the mass and degree of exploitation of the labour-power that variable capital sets in motion, but also on some inexplicable influence arising out of the circulation process. And indeed it has been read that way: not in this pure form, but in its more complicated and more hidden form — that of the annual rate of profit — this appearance threw the Ricardian school into complete disarray from the early 1820s on.

The strange thing about this phenomenon disappears the moment we put capital A and capital B under exactly the same circumstances — not just apparently the same, but really the same. That only happens if variable capital B is spent, over the same stretch of time, in its whole amount, on paying for labour-power — just as capital A is.

Capital B's £5,000 is laid out over 5 weeks — £1,000 a week — which for the full year comes to an outlay of £50,000. Under our assumption, the surplus-value is also £50,000. The turned-over capital, £50,000, divided by the advanced capital, £5,000, gives 10 turnovers. The rate of surplus-value is 5,000s/5,000v = 100%; multiplied by the 10 turnovers, that gives an annual rate of surplus-value of 50,000s/5,000v = 10/1 = 1,000%. So now the annual rates of surplus-value for A and B are equal — both 1,000%. But the amounts of surplus-value are not: £50,000 for B, £5,000 for A. Those amounts now stand in the same ratio as the advanced capitals of B and A, that is 5,000 : 500, or 10 : 1. But then capital B has also set ten times as much labour-power in motion in the same time as capital A.

It is only the capital actually applied in the labour process that produces surplus-value, and it is only for that capital that all the laws governing surplus-value hold — including the law that, at a given rate, the amount of surplus-value is fixed by the relative size of the variable capital.

The labour process itself is measured by time. Given a fixed length of working day — as here, where we are making every circumstance between capital A and capital B the same, so as to bring the difference in the annual rate of surplus-value into clear view — the working week consists of a set number of working days. Or we can treat any working period, say the five-week one used here, as a single working day of, for instance, 300 hours, if the working day is 10 hours and the week has 6 working days. But we also have to multiply that figure by the number of workers employed together at the same time, each day, in the same labour process. If that number were, say, 10, the weekly total would be 60 × 10 = 600 hours, and a five-week working period would come to 600 × 5 = 3,000 hours. So variable capitals of equal size are applied — at an equal rate of surplus-value and an equal length of working day — when equal masses of labour-power (one labour-power of the same price, multiplied by the same number) are set in motion at the same point in time.

Let's return to our original examples. In both A and B, equal variable capitals — £100 a week — are applied during every week of the year. So the applied variable capitals, the ones really functioning in the labour process, are equal. But the advanced variable capitals are quite unequal. Under A, £500 is advanced for each 5-week stretch, of which £100 is applied every week. Under B, £5,000 has to be advanced for the first five-week period, but only £100 a week is applied — £500 over the 5 weeks, that is, just 1/10 of the advanced capital. In the second five-week period, £4,500 has to be advanced, but again only £500 is applied, and so on. The variable capital advanced for a given period of time only turns into applied — that is, really functioning and effective — variable capital to the extent that it actually enters the stretches of that period filled by the labour process, and really functions there. In the meantime, while part of it is advanced only to be applied in a later stretch, that part is as good as non-existent for the labour process, and so has no influence at all on the formation of either value or surplus-value. Take capital A's £500. It is advanced for 5 weeks, but only £100 of it goes into the labour process each week, one week at a time. In the first week, 1/5 of it is applied; the other 4/5 is advanced without being applied — though it still has to be held ready, and so still counts as advanced, for the labour processes of the 4 weeks still to come.

Whatever makes the relation between advanced and applied variable capital differ affects the production of surplus-value — at a given rate of surplus-value — in only one way: by changing the quantity of variable capital that can actually be applied within a given stretch of time, whether 1 week, 5 weeks, or however long. Advanced variable capital only functions as variable capital for as long as, and to the extent that, it is actually applied — not for the time it sits in readiness, advanced but not yet applied. Every circumstance that makes advanced and applied variable capital differ comes down, in the end, to a difference in turnover periods — fixed by a difference in the working period, or the circulation period, or both. The law of surplus-value production is this: at an equal rate of surplus-value, equal masses of functioning variable capital produce equal masses of surplus-value. So if capitals A and B apply equal masses of variable capital, in equal stretches of time, at an equal rate of surplus-value, they must produce equal masses of surplus-value in those same stretches of time — no matter how different the ratio of this applied variable capital is, in a given period, to the variable capital advanced over that same period, and no matter how different, therefore, the ratio of the resulting surplus-value turns out to be once measured not against the applied but against the whole advanced variable capital. That difference in ratio, far from contradicting the laws we've worked out for the production of surplus-value, actually confirms them. It is an unavoidable consequence of those very laws.

Consider the first five-week stretch of production for capital B. By the end of the 5th week, £500 has been applied and used up. The value-product is £1,000, so 500s/500v = 100% — exactly as with capital A. That capital A's surplus-value is realized together with its advanced capital, while B's is not, is nothing to us here — for now we are dealing only with the production of surplus-value and its relation to the variable capital advanced during that production. But if instead we work out the ratio of B's surplus-value not to the part of the £5,000 advanced capital that was applied and used up in producing it, but to that whole £5,000 advanced capital, we get 500s/5,000v = 1/10 = 10%. So 10% for B against 100% for A — ten times less. Suppose someone objected: this difference in the rate of surplus-value, for equally large capitals that have set an equal quantity of labour in motion — labour splitting equally into paid and unpaid — contradicts the laws of surplus-value production. The answer would be simple, and would follow just from looking at the actual facts. For A, the figure expresses the real rate of surplus-value: the ratio of the surplus-value produced over 5 weeks by a variable capital of £500 to that same £500. For B, by contrast, the figure is worked out in a way that has nothing to do with either the production of surplus-value or the way its rate is properly determined. The £500 of surplus-value produced by a variable capital of £500 is not being measured against the £500 of variable capital advanced during its production, but against a capital of £5,000 — nine-tenths of which, £4,500, has nothing at all to do with producing this £500 of surplus-value. That £4,500 only comes to function gradually, over the following 45 weeks; it simply does not exist yet for the production carried out in these first 5 weeks, which is all that is at issue here. On this reckoning, the difference in the rate of surplus-value between A and B is no problem at all.

Now let's compare the annual rates of surplus-value for capitals B and A. For capital B we have 5,000s/5,000v = 100%; for capital A, 5,000s/500v = 1,000%. But the ratio between the two rates of surplus-value is the same as before. There we had:

Rate of surplus-value of capital B to rate of surplus-value of capital A: 10% to 100%. Now we have:

Annual rate of surplus-value of capital B to annual rate of surplus-value of capital A: 100% to 1,000%. But 10% to 100% is the same ratio as 100% to 1,000% — the same proportion as before.

But now the problem has flipped around. Capital B's annual rate — 5,000s/5,000v = 100% — shows no deviation at all, not even the appearance of one, from the laws we already know about the production of surplus-value and its corresponding rate. £5,000 was advanced over the year and productively consumed, and it produced £5,000 of surplus-value. So the rate of surplus-value is that same fraction: 5,000s/5,000v = 100%. The annual rate matches the real rate of surplus-value exactly. This time, then, it is not capital B but capital A that presents the anomaly that needs explaining.

Here we have the rate of surplus-value 5,000s/500v = 1,000%. But where, in the first case, £500 of surplus-value — the product of 5 weeks — was measured against an advanced capital of £5,000, nine-tenths of which had no part in producing it, now £5,000 of surplus-value is measured against £500 of variable capital — just 1/10 of the variable capital that actually went into producing that £5,000. That £5,000 of surplus-value is the product of a variable capital of £5,000 productively consumed over 50 weeks, not of a capital of £500 used up in a single five-week period. In the first case, the surplus-value produced over 5 weeks was measured against a capital advanced for 50 weeks — ten times bigger than what was used up during those 5 weeks. Now, the surplus-value produced over 50 weeks is measured against a capital advanced for only 5 weeks — ten times smaller than what was used up during those 50 weeks.

Capital A of £500 is never advanced for longer than 5 weeks. By the end of those 5 weeks it has flowed back, and it can start the same process over again — ten times over the course of the year, through ten turnovers. Two things follow from this.

First: the capital advanced under A is only five times bigger than the part of it constantly at work in production during one week. Capital B is different — it turns over only once every 50 weeks, so it has to be advanced for the whole 50 weeks, and it is fifty times bigger than the part of it that can be constantly at work in any one week. So turnover changes the relationship between the capital that has to be advanced for the year's production and the capital that is constantly applicable to some fixed stretch of production — say, a week. This gives us the first case where the surplus-value made in 5 weeks is not measured against the capital applied during those same 5 weeks, but against the capital applied over 50 weeks — ten times as much.

Second: capital A's turnover period of 5 weeks is only 1/10 of the year, so the year holds ten such periods, in each of which the same £500 of capital A is applied all over again. The capital applied over the year equals the capital advanced for one 5-week period, multiplied by the number of turnover periods in the year: 500 × 10 = £5,000. The capital advanced over the year is 5,000 ÷ 10 = £500. In other words: although the same £500 keeps getting applied again and again, never more than that same £500 is advanced in any 5-week stretch. Capital B, by contrast, also applies and advances only £500 for any given 5 weeks — but because its turnover period is 50 weeks, the capital applied over the year equals what had to be advanced for a full 50 weeks, not just 5.

But given a fixed rate of surplus-value, the yearly mass of surplus-value produced depends on the capital applied during the year, not on the capital advanced during the year. So the once-turning £5,000 capital produces no more surplus-value in a year than the ten-times-turning £500 capital — it is only as large as it is because the capital that turns over once a year is itself ten times bigger than the capital that turns over ten times a year.

The variable capital turned over during the year — that is, the part of the year's product, or of the year's outlay, equal to it — is the variable capital actually applied, actually productively consumed, over the year. It follows that if the variable capital turned over yearly under A and the variable capital turned over yearly under B are equal in size, and both are applied under the same conditions of valorization — so that the rate of surplus-value is the same for both — then the yearly mass of surplus-value produced must also be the same for both. And since the applied masses of capital are the same, so is the annual rate of surplus-value, so far as it is expressed as: yearly mass of surplus-value produced, divided by yearly turned-over variable capital. Put generally: whatever the relative size of the variable capitals turned over, the rate at which they produce surplus-value over the year is fixed by the rate of surplus-value at which the respective capitals worked over average periods — say, a weekly or even a daily average.

This is the one and only consequence that follows from the laws governing the production of surplus-value and the determination of its rate.

Let's look further at what the ratio — yearly turned-over capital divided by advanced capital (counting, as before, only the variable capital) — actually expresses. Dividing the two gives the number of times the capital advanced in a year turns over.

For capital A: £5,000 yearly turned-over capital divided by £500 advanced capital. For capital B: £5,000 yearly turned-over capital divided by £5,000 advanced capital.

In both ratios, the numerator is the advanced capital multiplied by the number of turnovers: for A, 500 × 10; for B, 5,000 × 1. Or, equivalently, multiplied by the inverse of the turnover time, measured against the year. A's turnover time is 1/10 of a year, so its inverse is 10/1 of a year: 500 × 10/1 = 5,000. For B: 5,000 × 1/1 = 5,000. The denominator is the turned-over capital multiplied by the inverse of the number of turnovers: for A, 5,000 × 1/10; for B, 5,000 × 1/1.

The respective masses of labour — paid and unpaid together — set in motion by the two yearly turned-over variable capitals are equal here, because the turned-over capitals themselves are equal, and their rate of valorization is equal too.

The ratio between the variable capital turned over yearly and the variable capital advanced tells us two things. First, it shows the relationship between the capital that has to be advanced and the variable capital applied within one particular working period. Take the turnover number as 10, as under A, with the year counted at 50 weeks: the turnover time is then 5 weeks. Variable capital has to be advanced for those 5 weeks, and the capital advanced for 5 weeks must be five times as large as the variable capital applied in a single week. In other words, only 1/5 of the advanced capital — here, £500 — can be applied in the course of one week. Capital B is different: its turnover number is 1/1, so its turnover time is a full year, 50 weeks. The ratio of its advanced capital to what it applies weekly is therefore 50 to 1. If B worked the way A does, it would have to lay out £1,000 a week instead of £100. Second, it follows that B has to apply a capital ten times larger — £5,000 — than A does, in order to set the same mass of variable capital in motion, and so — at a given rate of surplus-value — the same mass of labour, paid and unpaid, and so produce the same mass of surplus-value over the year. The real rate of surplus-value expresses nothing more than the ratio between the variable capital applied in a given stretch of time and the surplus-value produced in that same stretch — or the mass of unpaid labour that the variable capital applied during that stretch sets in motion. It has absolutely nothing to do with the part of the variable capital that is advanced during a time when it is not being applied, and so it has just as little to do with the relationship — modified and made different for different capitals by their turnover period — between the portion of a capital advanced during a given stretch of time and the portion of it applied during that same stretch.

It follows, rather, from what has already been developed, that the annual rate of surplus-value coincides with the real rate — the rate that expresses the actual degree of exploitation of labour — in one case only: when the advanced capital turns over just once a year. Then the advanced capital equals the capital turned over during the year, so the ratio of the surplus-value produced during the year to the capital applied to produce it coincides with, and is identical to, the ratio of the surplus-value produced during the year to the capital advanced during the year.

Formula A: the annual rate of surplus-value equals the mass of surplus-value produced during the year, divided by the advanced variable capital. But the mass of surplus-value produced during the year equals the real rate of surplus-value multiplied by the variable capital applied to produce it. And the capital applied to produce the year's mass of surplus-value equals the advanced capital multiplied by the number of its turnovers — call that number n. Formula A therefore turns into:

Formula B: the annual rate of surplus-value equals the real rate of surplus-value, multiplied by the advanced variable capital, multiplied by n, divided by the advanced variable capital.

For capital B, for example: 100% × 5,000 × 1 ÷ 5,000, which comes to 100%. Only when n = 1 — that is, only when the advanced variable capital turns over just once a year, and so equals the capital applied or turned over during the year — is the annual rate of surplus-value equal to the real rate of surplus-value.

Let S' stand for the annual rate of surplus-value, s' for the real rate of surplus-value, v for the advanced variable capital, and n for the number of turnovers. Then: S' = s'vn ÷ v = s'n. So S' = s'n, and it equals s' only when n = 1, giving S' = s' × 1 = s'.

It follows further that the annual rate of surplus-value is always S' = s'n — that is, it equals the real rate of surplus-value produced in one turnover period by the variable capital consumed during that period, multiplied by the number of times this variable capital turns over during the year. Or, what comes to the same thing, multiplied by the inverse of its turnover time, measured with the year as the unit. (If the variable capital turns over ten times a year, its turnover time is 1/10 of a year, and the inverse of that turnover time is 10.)

It follows further: S' = s' when n = 1. S' is greater than s' when n is greater than 1 — that is, when the advanced capital turns over more than once a year, or the turned-over capital is larger than the advanced capital.

Finally, S' is smaller than s' when n is smaller than 1 — that is, when the capital turned over during the year is only a part of the advanced capital, so that the turnover period lasts longer than a year.

Let's dwell for a moment on this last case.

We keep all the assumptions of our earlier example, except that now the turnover period is stretched to 55 weeks. The labour process still needs £100 of variable capital a week, so £5,500 for the whole turnover period, and it still produces £100 of surplus-value a week — so the real rate of surplus-value, s', is 100%, as before. The turnover number n here is 50/55, or 10/11, because the turnover time is 1 + 1/10 of a year (counting the year at 50 weeks), which is 11/10 of a year.

S' = 100% × 5,500 × 10/11 ÷ 5,500 = 100 × 10/11 = 1,000/11 = 90 10/11% — smaller than 100%. And that makes sense: if the annual rate of surplus-value really were 100%, then £5,500 of variable capital would have to produce £5,500 of surplus-value in one year, but it actually takes 11/10 of a year to do that. Over the year itself, the £5,500 of variable capital produces only £5,000 of surplus-value, so the annual rate of surplus-value is 5,000 ÷ 5,500 = 10/11 = 90 10/11%.

The annual rate of surplus-value — the comparison between the surplus-value produced during the year and the variable capital advanced altogether, as opposed to the variable capital turned over during the year — is therefore not merely subjective. The real movement of capital itself produces this comparison. For the owner of capital A, by the end of the year his advanced variable capital has flowed back to him — £500 — plus £5,000 of surplus-value besides. It is not the mass of capital he has applied during the year, but what periodically flows back to him, that expresses the size of his advanced capital. Whether, at year's end, that capital exists partly as productive stock and partly as commodity-capital or money-capital, and in what proportion it is divided between them, has nothing to do with the question at hand. For the owner of capital B, £5,000 has flowed back — his advanced capital — plus £5,000 of surplus-value. For the owner of capital C, the one just considered, with £5,500: £5,000 of surplus-value has been produced during the year (£5,000 laid out, at a rate of surplus-value of 100%), but his advanced capital has not yet flowed back to him, and neither has the surplus-value he produced.

S' = s'n expresses that the rate of surplus-value valid, during one turnover period, for the variable capital applied is:

the mass of surplus-value produced during one turnover period, divided by the variable capital applied during one turnover period — and this is to be multiplied by the number of turnover periods, or reproduction periods, of the advanced variable capital: the number of times it renews its circuit.

We already saw, in Volume 1, Chapter IV (The Transformation of Money into Capital) and again in Volume 1, Chapter XXI (Simple Reproduction), that capital-value in general is advanced, not spent: this value, after passing through the various phases of its circuit, comes back again to its starting point, and comes back enriched by surplus-value. That is what marks it out as advanced. The time that passes between its starting point and its point of return is the time for which it is advanced. The whole circuit the capital-value runs through, measured by the time from its advance to its reflux, makes up its turnover, and the length of that turnover is a turnover period. Once this period is over and the circuit complete, the same capital-value can begin the same circuit again — valorizing itself again, producing surplus-value again. If the variable capital, as under A, turns over ten times a year, then over the course of the year, with the very same capital advance, the mass of surplus-value that corresponds to one turnover period is produced ten times over.

One has to get clear on the nature of this advance from the standpoint of capitalist society as a whole.

Capital A, which turns over ten times during the year, is advanced ten times during the year: it is advanced afresh for each new turnover period. But at the same time, A never advances more than that same capital-value of £500 during the year, and in fact never has more than £500 at its disposal for the production process we are looking at. As soon as this £500 completes one circuit, A sets it going through the same circuit again — just as capital, by its very nature, keeps its character as capital precisely by always functioning as capital in repeated production processes. And it is never advanced for longer than 5 weeks: if the turnover takes longer, £500 is not enough; if it takes less time, part of it becomes surplus to what's needed. So it is not ten capitals of £500 that are advanced, but one capital of £500 that is advanced ten times, one after another. The annual rate of surplus-value is therefore not reckoned on a capital of £500 advanced ten times over, or on £5,000 — it is reckoned on one capital of £500, advanced once. This is exactly like a single thaler that circulates ten times: it always represents only that one thaler in circulation, even though it performs the function of ten thalers. But in whatever hand it happens to be in after each change of hands, it remains, as before, the same identical value of 1 thaler.

In the same way, capital A shows — at each reflux, and again at its reflux at the end of the year — that its owner is always operating with the very same capital-value of £500. So only £500 ever flows back into his hands each time. His advanced capital is therefore never more than £500. It is this advanced capital of £500, then, that forms the denominator of the fraction expressing the annual rate of surplus-value. We had the formula for this above: S' = s'vn ÷ v = s'n. Since the real rate of surplus-value, s', equals s ÷ v — the mass of surplus-value divided by the variable capital that produced it — we can substitute s ÷ v for s' in s'n, and get the other formula: S' = sn ÷ v.

But through its tenfold turnover — and so through the tenfold renewal of its advance — the capital of £500 performs the function of a ten-times-larger capital, a capital of £5,000. It is exactly like 500 thaler-pieces that circulate ten times in a year performing the same function as 5,000 thaler-pieces that circulate only once.

Whatever the social form of the process of production, it has to be continuous, or must periodically run through the same stages afresh... Looked at in its constant connection, in the steady flow of its renewal, every social process of production is at the same time a process of reproduction... As a periodic increment of the capital-value, or a periodic fruit of the capital, surplus-value takes on the form of a revenue springing from the capital.

Take capital A, working in ten five-week turnover periods. In the first turnover period, £500 of variable capital is advanced — that is, £100 is converted into labour-power every week, so that by the end of the first turnover period £500 has been laid out on labour-power. This £500, originally part of the total capital advanced, has stopped being capital. It has been paid away as wages. The workers, in turn, pay it away buying their means of subsistence — they consume £500 worth of it. So a mass of commodities to that value has been used up (whatever the worker manages to save, as money or otherwise, is likewise not capital). For the worker this mass of commodities is consumed unproductively, except so far as it keeps his labour-power in working order — labour-power being an indispensable instrument for the capitalist. But, second, for the capitalist this same £500 has been converted into labour-power of the same value (or price). The capitalist consumes that labour-power productively, in the labour process. By the end of the five weeks a value-product of £1,000 exists. Half of it, £500, is the reproduced value of the variable capital laid out in paying for labour-power. The other half, £500, is newly produced surplus-value. But the five weeks' worth of labour-power into which part of the capital was converted has itself been spent, used up — even though used up productively. The labour done yesterday is not the same labour being done today. Its value, plus the surplus-value it created, now exists as the value of a thing distinct from the labour-power itself: the product. Because the product is turned into money, though, the portion of its value equal to the value of the variable capital advanced can be converted back into labour-power again, and so function once more as variable capital. Whether the same workers — the same bearers of that labour-power — are employed with this capital-value, now not only reproduced but reconverted into money form, makes no difference. The capitalist could just as well employ new workers in the second turnover period instead of the old ones.

So over the ten five-week turnover periods, a capital of £5,000 — not £500 — is successively laid out in wages, and the workers in turn spend that wage on means of subsistence. The £5,000 of capital advanced this way is used up. It no longer exists. On the other side, labour-power to the value of £5,000, not £500, is successively built into the process of production over that time, and it reproduces not only its own value of £5,000 but produces, on top, a surplus-value of £5,000. The £500 of variable capital advanced in the second turnover period is not the identical £500 advanced in the first turnover period. That £500 is used up, paid away as wages. But it has been replaced by a new £500 of variable capital, which was produced in commodity form in the first turnover period and reconverted into money form. So this new £500 of money capital is the money form of the mass of commodities newly produced in the first turnover period. The fact that an identical sum of £500 turns up again in the capitalist's hands — that is, apart from the surplus-value, exactly as much money capital as he originally advanced — conceals the fact that he is operating with a newly produced capital. (As for the other value-components of the commodity capital, which replace the constant parts of the capital, their value is not newly produced — only the form in which that value exists has changed.) Take the third turnover period. Here it is obvious that the £500 advanced for the third time is not an old capital but a newly produced one, since it is the money form of the mass of commodities produced in the second turnover period, not the first — more exactly, of the part of that mass whose value equals the value of the variable capital advanced. The mass of commodities produced in the first turnover period has been sold. The part of its value equal to the variable part of the capital advanced was converted into the new labour-power of the second turnover period, and produced a new mass of commodities, which was in turn sold, and a part of whose value forms the £500 of capital advanced in the third turnover period.

And so it goes for all ten turnover periods. Throughout them, every five weeks, newly produced masses of commodities are thrown onto the market — commodities whose value, so far as it replaces variable capital, is likewise newly produced, not merely reappearing, as happens with the constant circulating part of the capital — so as to keep drawing fresh labour-power into the process of production.

So what the tenfold turnover of the £500 variable capital advanced achieves is not that this same £500 gets productively consumed ten times over, or that a variable capital sufficient for five weeks can be made to last fifty weeks. Rather, 10 × £500 of variable capital is applied over the fifty weeks, and the £500 of capital is only ever enough for five weeks — at the end of each five weeks it has to be replaced by a newly produced £500 of capital. This holds equally for capital A and capital B. But here the difference between them begins.

By the end of the first five-week period, both B and A have advanced and spent £500 of variable capital. For both B and A, its value has been converted into labour-power and has been replaced by the part of the newly created value of the product that equals the value of the £500 variable capital advanced. For both B and A, the labour-power has not only replaced the value of the £500 variable capital spent with a new value of the same amount, but has added a surplus-value — on the assumption, of the same size.

But with B, the value-product that replaces the variable capital advanced and adds a surplus-value to it is not in the form in which it can function again as productive capital, or rather as variable capital. With A it is in that form. And right up to the end of the year, B holds the variable capital spent in the first five weeks, and then successively in each further five weeks — even though it has been replaced by newly produced value plus surplus-value — not in the form in which it can function again as productive, or rather variable, capital. Its value has indeed been replaced by a new value, and so renewed, but its value-form — here the absolute value-form, its money form — has not been renewed.

For the second five-week period — and so on for each further five weeks through the year — a further £500 must therefore be on hand, just as for the first period. So, credit relations aside, £5,000 must be on hand at the start of the year, as latent money capital advanced, even though it is only actually spent and converted into labour-power gradually, over the course of the year.

With A, by contrast, because the circuit — the turnover of the capital advanced — is complete, the value-replacement is already, after the first five weeks are up, in the form in which it can set new labour-power in motion for five weeks: in its original money form.

In both A and B, new labour-power is consumed in the second five-week period, and a new capital of £500 is spent paying for it. The means of subsistence the workers bought with the first £500 are gone — in every case, that value has vanished from the capitalist's hands. With the second £500, new labour-power is bought, new means of subsistence are withdrawn from the market. In short, a new £500 of capital is spent, not the old one. But with A, this new £500 is the money form of the newly produced value-replacement of the £500 spent earlier. With B, this value-replacement exists in a form in which it cannot function as variable capital. It is there, but not in the form of variable capital. So an additional £500 of capital, in the money form that is here unavoidable, must be on hand and advanced, to keep the process of production going for the next five weeks. So over fifty weeks, A and B each spend the same amount of variable capital, pay for and use up the same amount of labour-power. But B has to pay for it with a capital advanced equal to its whole value — £5,000. A pays for it successively, through the constantly renewed money form of the value-replacement produced every five weeks for the £500 of capital advanced for those five weeks. So here no larger sum of money capital is ever advanced than for five weeks — that is, never more than the £500 advanced for the first five weeks. This £500 suffices for the whole year. It is therefore clear that, given the same degree of exploitation of labour, the same real rate of surplus-value, the annual rates for A and B must stand in inverse proportion to the sizes of the variable money capitals that had to be advanced in order to set the same mass of labour-power in motion over the year. A: 5,000s ÷ 500v = 1,000%, and B: 5,000s ÷ 5,000v = 100%. But 500v : 5,000v = 1 : 10 = 100% : 1,000%.

The difference arises from the difference in turnover periods — that is, the periods within which the value-replacement of the variable capital applied in a given stretch of time can function again as capital, as new capital. With both B and A, the same value-replacement occurs for the variable capital applied during the same periods. The same increment of surplus-value also occurs during the same periods. But with B, every five weeks there is indeed a value-replacement of £500, plus £500 of surplus-value — yet this value-replacement does not yet form a new capital, because it is not in money form. With A, not only is the old capital-value replaced by a new one, but it is restored to its money form, and so replaced as new, functioning capital.

Whether the value-replacement is converted into money — and so into the form in which the variable capital is advanced — sooner or later is plainly a circumstance quite indifferent to the production of surplus-value itself. That depends on the size of the variable capital applied and the degree of exploitation of labour. But that circumstance does modify the size of the money capital that must be advanced in order to set a given quantity of labour-power in motion over the course of the year, and so it determines the annual rate of surplus-value.

Picture two businesses, A and B, from society's point of view. A worker costs £1 a week, and the working day is 10 hours. At A, as at B, 100 workers are employed all year. £100 a week for 100 workers comes to £500 over 5 weeks, and £5,000 over 50 weeks. Each of them works a 6-day week of 60 hours. So 100 workers do 6,000 hours of labour a week between them, and 300,000 hours over 50 weeks. That labour-power is tied up at A just as it is at B, so society cannot spend it on anything else. To that extent the two cases are socially identical. Further: at A as at B, the 100 workers together draw a yearly wage of £5,000 — £10,000 for the 200 of them — and for that sum they draw means of subsistence out of society's stock. Here too the two cases are still socially the same. And since the workers are paid weekly in both cases, they draw their means of subsistence weekly too, throwing the matching sum of money into circulation every week in both cases. But this is where the difference starts.

First. The money that A's worker throws into circulation is not merely, as it is for B's worker, the money-form of the value of his labour-power — payment, in other words, for work already done. From the second turnover period after the business opens onward, it is the money-form of his own value-product from the first turnover period (the price of his labour-power plus the surplus-value he created), and it is this that pays for his work during the second turnover period. Not so at B. There too the money pays for work the worker has already done, but that work is not paid for out of its own value-product turned into money. That can only start in B's second year, when the worker is paid with the money-form of the value-product he himself created the year before.

The shorter a capital's turnover period — the more often, that is, its cycle of reproduction repeats within the year — the faster the variable part of the capital, first advanced by the capitalist in money form, turns into the money-form of the value-product the worker creates to replace it (a value-product that also contains surplus-value). So the shorter the time for which the capitalist has to advance money out of his own funds, and the smaller the capital he needs to advance at all, for a given scale of production. And, at a given rate of surplus-value, the greater the mass of surplus-value he extracts over the year, because he can that much more often buy the worker's labour anew and set it to work using the money-form of the worker's own value-product.

Given the scale of production, the shorter the turnover period, the smaller the absolute size of the variable money capital that has to be advanced — and of the circulating capital generally — and the higher the annual rate of surplus-value. Given the size of the capital advanced instead, the scale of production grows, so that, at a given rate of surplus-value, the absolute mass of surplus-value produced in one turnover period grows too, alongside the rise in the annual rate that comes from shortening the periods of reproduction. What the whole investigation so far has shown is this: depending on how long the turnover period runs, very different amounts of money capital have to be advanced to set the same mass of productive circulating capital and the same mass of labour in motion, at the same rate of exploitation.

Second — and this connects to the first difference — B's worker, like A's, pays for the means of subsistence he buys with the variable capital that has turned into money in his hands. He draws wheat off the market, say, but he also puts back an equivalent in money. But the money B's worker pays with, and withdraws the market's goods for, is not the money-form of a value-product he himself has thrown onto the market during the year — unlike A's worker. So he hands the seller of his food money, but no commodity — no means of production, no means of subsistence — that the seller could go and buy with that money. For A's worker, this is exactly what happens instead. So over the year, the market loses labour-power, the food for that labour-power, and the fixed capital in the form of the tools and materials B uses — and in exchange only a money equivalent is thrown back into the market. But no product is thrown onto the market during the year to replace the physical elements of productive capital that have been withdrawn from it. Think of society not as capitalist but as communist, and the money capital drops out of the picture entirely, along with the disguises it throws over these transactions. What remains is simple: society has to work out in advance how much labour, means of production, and means of subsistence it can devote — without cutting into anything else — to lines of business that, like building a railway, deliver no means of production, no means of subsistence, no useful result at all for a long stretch, a year or more, while still drawing labour, means of production, and means of subsistence out of that year's total output. In capitalist society, by contrast, where social reason only ever asserts itself after the fact, disturbances on this scale can and must keep happening. On one side, pressure builds on the money market — while, conversely, an easy money market is exactly what calls such ventures into being in the first place, which is to say it creates the very conditions that later squeeze the money market. The money market is squeezed because large-scale advances of money capital are needed here, continuously, over a long stretch of time — and that is leaving aside that manufacturers and merchants also divert the money capital their own ordinary business needs into railway speculation and the like, and replace it again by borrowing on the money market. On the other side, pressure builds on society's available productive capital. Since elements of productive capital keep being drawn out of the market while only a money equivalent goes back in, demand backed by money keeps rising without supplying any of that demand itself. Hence rising prices, for food and for raw materials alike. On top of this, swindling becomes routine during such a period, and capital changes hands on a large scale. A crowd of speculators, contractors, engineers, lawyers and the like get rich. They drive up consumer demand in the market, and wages rise alongside. As far as food goes, this does spur agriculture — but since food supply cannot be expanded within a year on the spot, imports rise instead, including imports of coffee, sugar, wine and other exotic goods and luxuries generally. Hence over-importing and speculation in that part of the trade. Meanwhile, in the branches of industry where output can be expanded quickly — manufacturing proper, mining and the like — rising prices trigger a sudden expansion, soon followed by a collapse. The same happens in the labour market: large numbers of the latent reserve of unemployed, and even workers already in jobs, get pulled into the new lines of business. Big undertakings like railways draw a certain quantity of labour out of the market that can really only come from certain branches, agriculture among them, where only strong young men can really be used — and this keeps happening even once the new undertakings have become an established branch of business with its own settled pool of migrant workers. As soon as, say, railway building is running for a while at a larger than average scale, part of the reserve army of the unemployed gets absorbed — the very pressure that had been keeping wages down. Wages then rise generally, even in parts of the labour market that were already well employed. This goes on until the inevitable crash throws the reserve army back onto the market and pushes wages down again to their minimum, and below it.

Insofar as the length of the turnover period depends on the working period itself — the time needed to get the product ready for market — it rests on the physical conditions of production given in each case for the different kinds of investment. Within agriculture these conditions are more like natural conditions of production; in manufacturing and most of extractive industry, they change instead as the production process itself develops socially.

Insofar as the length of the working period depends on the size of deliveries — the quantity in which the product is normally thrown onto the market as a commodity — this is a matter of convention. But that convention itself rests on the scale of production as its material basis, and so, looked at case by case, it is only ever incidental.

Insofar, finally, as the length of the turnover period depends on the length of the circulation period, this is shaped partly by the constant shifting of market conditions — how easy or hard it is to sell — and by the resulting need to throw the product onto a nearer or a more distant market. Setting aside the sheer scale of demand, the movement of prices plays a major part here: when prices are falling, selling is deliberately held back while production carries on; when prices are rising, the opposite happens, and production and sale keep pace, or the product can even be sold in advance. But the real material basis to look to is the actual distance between where the thing is produced and the market where it is sold.

Take English cotton cloth or yarn sold to India. The export merchant pays the English cotton manufacturer for it — though only when the money market is in good shape; once the manufacturer himself starts replacing his money capital through credit, things are already looking shaky. The exporter then sells his cotton goods later, on the Indian market, and it is only from there that his advanced capital is sent back to him. Until that money comes back, the situation is exactly like the case where a long working period forces a new advance of money capital just to keep production going at the same scale. The money capital the manufacturer uses to pay his workers and renew the other elements of his circulating capital is not the money-form of the yarn he has produced — that can only happen once the value of that yarn has flowed back to England, as money or as goods. It is supplementary money capital, just as before. The only difference is that now the merchant advances it instead of the manufacturer — and the merchant himself may in turn get it through credit. And just as before, no supplementary product is thrown onto the English market, before or alongside this money, that could be bought with it and go into productive or personal consumption. If this state of affairs drags on and grows in scale, it has to produce the same effects as the lengthened working period did.

Now suppose the yarn is sold on credit again, once it reaches India. That credit is used to buy goods in India, which are shipped back to England, or a bill of exchange is sent for the amount instead. If this goes on long enough, it puts pressure on the Indian money market, and the knock-on effect back in England can trigger a crisis there. That crisis, even if it comes with an export of precious metals to India, can in turn trigger a fresh crisis in India, because English trading houses go bankrupt, and so do their Indian branches, to whom Indian banks had extended credit. So a crisis breaks out at the same time on both sides of the trade — on the market India buys from, and on the market it sells to. This can get even more tangled: England may have shipped silver bars to India, but if England's creditors in India are now calling in their debts there, India may soon have to ship those same silver bars straight back to England.

It is possible for exports to India and imports from India to roughly balance out — though the imports, apart from special circumstances like unusually high cotton prices, will still be shaped and driven in scale by the exports. The trade balance between England and India can look balanced, or show only mild swings one way or the other. But the moment a crisis breaks out in England, it turns out that unsold cotton goods have been piling up in India — meaning they never turned from commodities into money, which is overproduction on that side — and that in England, not only are there unsold stocks of Indian goods sitting around, but a large part of what has already been sold and used up still has not been paid for. So what appears as a crisis on the money market in fact expresses anomalies in the process of production and reproduction itself.

Third: as for the circulating capital actually employed — variable and constant alike — the length of the turnover period, insofar as it comes from the length of the working period, makes this difference. Where there are several turnovers within the year, one element of the variable or constant circulating capital can be supplied out of its own product — as in coal production, or making clothes. In the other case it cannot, at least not within the year.