Industrial capital's turnover is the unity of its production time and its circulation time, so it takes in the whole production process. Commercial capital's turnover is something else. It is really only commodity capital's movement set free to stand on its own; so it presents just the first phase of the commodity's metamorphosis, C–M, as a movement that flows back into itself — the movement of a special capital. M–C, C–M, in the merchant's sense: that is the turnover of commercial capital.
The merchant buys — he turns his money into commodities — then he sells, turning those same commodities back into money, and so on, over and over. Inside circulation, industrial capital's metamorphosis always shows up as C₁–M–C₂. The money freed by selling C₁, the commodity produced, is used to buy C₂, fresh means of production. That is the real exchange of C₁ for C₂, and in it the same money changes hands twice; its movement mediates the exchange of two unlike commodities, C₁ and C₂. With the merchant, in M–C–M′, the opposite happens: the same commodity changes hands twice, and it serves only to bring the money back to him.
If commercial capital is £100, say, and the merchant buys commodities with that £100, then sells those commodities for £110, his capital of £100 has turned over once. How many turnovers he makes in a year depends on how often this movement, M–C–M′, is repeated in the year.
Here we leave entirely out of account the costs that may hide in the gap between his purchase price and his sale price — such costs change nothing at all about the form we are first concerned with.
How many times a given commercial capital turns over is exactly analogous to the repeated circuits of money as a plain means of circulation. A shilling that circulates ten times buys commodities worth ten shillings; in the same way the merchant's same money capital of £100, turning over ten times, buys ten times its value in commodities — it realizes a total commodity capital ten times its value, £1,000.
But there is a difference. When money serves as means of circulation, it is the same coin passing through different hands, performing the same function over and over, so that the speed of circulation stands in for a smaller number of coins. With the merchant it is the same money capital — no matter which coins it is made of, the same money value — that again and again buys and sells commodity capital to the amount of its value, and so again and again returns into the same hand as M + ΔM: it comes back to where it started as value plus surplus-value. This is what marks its turnover as a turnover of capital. All the while it draws more money out of circulation than it puts in. And of course, as commercial capital's turnover speeds up — which is also where, with a developed credit system, money's function as means of payment predominates — the same amount of money circulates faster as well.
When commercial capital turns over again and again, that never expresses anything except that buying and selling are being repeated. Industrial capital's repeated turnover expresses the renewal of the whole reproduction process, in a recurring cycle — consumption included. For commercial capital, though, this only appears as an outside condition. Industrial capital must keep throwing commodities onto the market and drawing them off again, if the rapid turnover of commercial capital is to remain possible; and if reproduction as a whole is slow, the turnover of commercial capital is slow too.
Commercial capital does mediate the turnover of productive capital — but only in so far as it shortens that capital's circulation time. On production time it has no direct effect, and production time is also a barrier to industrial capital's turnover time. That is the first limit to the turnover of commercial capital. Second, quite apart from the barrier set by reproductive consumption, this turnover is finally bounded by how fast and how large total individual consumption is, since the whole portion of commodity capital that enters the consumption fund depends on it.
Leaving aside now, completely, the turnovers that take place within the world of commerce itself — where one merchant keeps selling the same commodity on to the next, a kind of circulation that can look very flourishing in speculative times — commercial capital does two things. First, it shortens the phase C–M for productive capital. Second, under the modern credit system it has a large part of society's total money capital at its disposal, so that it can repeat its purchases before it has definitively sold what it bought earlier. Whether our merchant sells directly to the final consumer, or whether twelve more merchants lie between the two, makes no difference.
The reproduction process has an enormous elasticity; it can always be pushed past whatever barrier it is given, so the merchant meets no barrier in production itself — or only a very elastic one. So, on top of the split between C–M and M–C that the commodity's own nature brings with it, a demand that is active now comes into being as well. Despite the autonomy it has won, the movement of commercial capital is never anything other than the movement of industrial capital, carried on inside the sphere of circulation. But by virtue of that autonomy it moves, within certain limits, independently of the barriers the reproduction process sets, and so drives that process beyond its own barriers. This inner dependence together with outer independence pushes commercial capital to a point where the inner connection has to be restored by force, by means of a crisis.
So it is in a crisis that we see the phenomenon: the trouble does not show itself or break out first in retail trade, which deals with direct consumption, but in the spheres of wholesale trade and of banking, which place society's money capital at the wholesalers' disposal.
The manufacturer may really have sold to the exporter, and the exporter to a buyer abroad; the importer may place his raw materials with the manufacturer, and the manufacturer his products with the wholesaler, and so on. But at some one invisible point the goods lie unsold; or else the stocks of all the producers and middlemen gradually grow too full.
Consumption is usually at flood tide just then — partly because one industrial capitalist sets a row of others in motion, partly because the workers in their employ are fully busy and so have more to spend than usual. The capitalists' own outlay grows with their income as well. And besides that, as we have seen (Volume 2, Part Three), a constant circulation goes on between constant capital and constant capital (even apart from accelerated accumulation), and this is independent of individual consumption only in so far as it never enters into it; yet individual consumption still sets its final limit, because constant capital is never produced for its own sake — it is produced only because the branches whose products do enter individual consumption need more of it.
This can all run along quietly for a while, spurred on by demand that is expected to come, and in these branches business goes very briskly for merchants and industrialists alike. The crisis sets in as soon as the returns of the merchants who sell far away (or whose stocks have piled up at home as well) come in so slowly and so thinly that the banks press for payment, or the bills drawn against the goods they bought fall due before any resale has taken place. Forced sales then begin — sales to raise money to pay. And with that the crash is here; the seeming prosperity is over at a stroke.
The turnover of commercial capital is even more superficial and irrational than this, since one and the same commercial capital can mediate the turnovers of very different productive capitals, at once or one after another.
But the turnover of commercial capital can mediate more than the turnovers of various industrial capitals: it can also mediate the opposite phase of the commodity capital's metamorphosis. The merchant, say, buys linen from the manufacturer and sells it to the bleacher. Here the turnover of one and the same commercial capital — in fact the same C–M, the linen's realization — stands for two opposite phases belonging to two different industrial capitals. In so far as the merchant sells at all for productive consumption, his C–M always stands for one industrial capital's M–C, and his M–C for another's C–M.
This chapter sets K aside — the costs of circulation, meaning the extra part of his capital that the merchant puts up over and above the money he lays out buying the goods. Once those are set aside, ΔK goes with them: the extra profit he makes on that extra capital. Nothing loose is going on here; this is the mathematically exact and strictly logical way to proceed, when what has to be seen is how the profit and the turnover of commercial capital work on prices.
Suppose a pound of sugar has a production price of £1. With £100 the merchant could then buy 100 pounds. If that is what he buys and sells over the year, and the average rate of profit for the year is 15 per cent, he would add £15 to his £100 and 3 shillings to every £1, which is the production price of a single pound. He would then sell the pound at £1 3s. If instead the production price of a pound of sugar fell to 1 shilling, the merchant would buy 2,000 pounds with his £100, and he would sell each pound at 1s. 1⅘d. Either way, the year's profit on the £100 he has laid out in the sugar trade would come to £15, exactly as before. It is only that in one case he has to sell 100 pounds and in the other 2,000.
Whether a production price is high or low makes no difference to the rate of profit. But it does have a great deal — everything, in fact — to do with one thing: how big the aliquot part of each pound's sale price is, the exact fraction of that price which resolves into commercial profit. That fraction is the addition the merchant makes to the price on a given quantity of commodity (the product). When a commodity's production price is low, the sum the merchant lays out for it — for a given mass of it — is low too, and so, at a given rate of profit, is the profit he makes on that given quantity of cheap commodity. Put the same thing another way: with a given capital, say £100, he can buy a large mass of this cheap commodity, and the total profit of £15 he makes on that £100 is then spread in small fractions over every single portion of that mass. And the other way round when the price is high. All of this depends entirely on how productive the industrial capital is whose commodities he deals in.
Setting aside the cases where a merchant is a monopolist and has production monopolized as well — as the Dutch East India Company did in its day — there is nothing more absurd than the notion now going about that the merchant can choose whether to sell a lot of goods at a small profit on each, or a few goods at a big profit on each. Two things set limits on what he can sell for. One is the production price of the commodity, and he has no say over that. The other is the average rate of profit, over which he has just as little say. The one thing he does get to decide — though how much capital he has at his disposal, and other circumstances, have a part in it too — is whether to deal in dear goods or in cheap ones. So how he conducts himself turns entirely on how far the capitalist mode of production has developed, and not on what he pleases. The same company, purely commercial and holding a monopoly of production, could imagine it was still carrying on, under conditions that had completely changed, a way of doing business that fitted at most the first beginnings of capitalist production.
What keeps that popular prejudice alive — a prejudice which, like every wrong idea about profit and the rest, springs from looking at trade and nothing but trade, and from the preconceptions the trade itself breeds — is a set of circumstances, among them the following.
First: goings-on in competition. But these touch only how commercial profit is divided up among the individual merchants, the people who hold a share in the total commercial capital; as when one seller undercuts the rest to push them out of the trade.
Second: even now an economist as eminent as Professor Roscher can sit in Leipzig and persuade himself that it was 'good sense and humanity' that moved sale prices, and not a mode of production turned upside down.
Third: when production prices fall because labour has grown more productive, and sale prices fall with them, demand often climbs even faster than supply, and market prices climb with it, so that sale prices bring in more than the average profit.
Fourth: a merchant may lower his sale price — which is nothing but a lowering of the customary profit he adds on to the price — so as to turn over a larger capital faster in his business. All of this is a matter that concerns only the competition among the merchants themselves.
It has been shown already in Volume 1 that commodity prices, high or low, settle neither how much surplus-value a given capital produces nor the rate of surplus-value — even though, depending on how much commodity a given amount of labour turns out, what each single commodity sells for is bigger or smaller, and with it the surplus-value part of that price. The prices of any given quantity of commodities are fixed, in so far as they match values, by the whole amount of labour objectified in them. Where only a little labour is objectified in a lot of commodity, the single commodity is cheap and the surplus-value sitting inside it is small.
How the labour that a commodity embodies splits into paid and unpaid labour — and so how much of that price stands for surplus-value — has nothing to do with that total amount of labour, and therefore nothing to do with the commodity's price. The rate of surplus-value, though, turns not on how big the surplus-value in a single commodity's price is in absolute terms, but on how big it is against the wages that same commodity's labour was paid. So the rate can be high even when each single commodity carries only a little surplus-value in absolute terms. And how much surplus-value each single commodity carries in absolute terms depends first of all on the productivity of labour, and only in the second place on how that labour divides into paid and unpaid.
This holds all the more for the commercial sale price: the production price comes to him from outside, already fixed.
Commercial prices ran high in earlier times for two reasons. First, production prices themselves stood high — that is, labour was unproductive. Second, there was no general rate of profit: commercial capital pulled in a far bigger quota of the surplus-value than it would have got if capital had been able to move about freely. That state of things came to an end on both counts, and the ending was itself an outcome of the development of the capitalist mode of production.
Commercial capital turns over more slowly or more quickly from one branch of trade to another, so a year brings a larger or smaller number of turnovers. Inside a single branch, turnover is faster in some parts of the economic cycle and slower in others. Experience, all the same, finds a middle figure for how many times a year it turns over.
We have already seen that commercial capital's turnover is a different thing from industrial capital's. That follows from the nature of the matter: a single stage in industrial capital's turnover shows up as the whole turnover of a commercial capital that stands on its own — or at least of a part of one. Its turnover also stands in a different relation to how profit and price are determined.
With industrial capital, turnover does two things at once. On one side, it gives the rhythm of reproduction: how much goods go onto the market in a given stretch of time depends on it. On the other side, the circulation time is a limit — a stretchy one — that holds back how much value and surplus-value can be formed, more or less, because it bears on how big the production process is. Turnover therefore has a determining part in the mass of surplus-value produced each year, and so in how the general rate of profit is formed — not by adding anything, but by constricting.
Commercial capital is a different matter. For it, the average rate of profit is simply given. It has no direct share in producing profit or surplus-value, and it counts towards the general rate of profit in only one way: it takes its dividend out of the profit mass that industrial capital produces, in proportion to the share it makes up of the total capital.
The more turnovers an industrial capital makes, under the conditions worked out in Volume 2, Part Two, the greater the mass of profit it forms. It is true that once a general rate of profit is established, the total profit gets shared out among the individual capitals — not in the ratio in which they directly take part in producing it, but by the aliquot parts they make up of the whole, that is, by how big they are. But that changes nothing in the essence of the matter. The more turnovers the total industrial capital makes, the greater the mass of profit, the mass of surplus-value produced each year, and hence — the other circumstances staying the same — the higher the rate of profit.
Commercial capital is different. Here the profit rate comes to it as a fixed quantity, set on one side by how much profit industrial capital produces, and on the other by the relative size of the total commercial capital — by how it stands in quantity to all the capital put forward in production and circulation. True, the number of its turnovers does have a determining effect on its relation to the total capital, that is, on the relative size of the commercial capital needed for circulation. For one thing is clear: the faster it turns over, the smaller the amount of commercial capital that has to be there at all. But how big a share of the total capital it makes up follows from how big it is in absolute terms, other things equal.
If the total capital is £10,000 and the commercial capital is one-tenth of it, that comes to £1,000; if the total capital is £1,000, then a tenth of that is £100. Here its absolute size is different in the two cases while its relative size stays the same — it differs with the size of the total capital. But here we take its relative size as given: a tenth of the total capital, say. Yet that relative size is itself settled by turnover in turn. With a fast turnover its absolute size might be £1,000 in the first case and £100 in the second, so its relative size is one-tenth. Slow the turnover down, and its absolute size might be £2,000 in the first case and £200 in the second. Its relative size would then have grown from a tenth to a fifth of the whole capital. Whatever shortens commercial capital's average turnover — better transport, for instance — cuts its absolute size down in proportion, and so raises the general rate of profit. And the other way round.
Compared with earlier conditions, developed capitalist production affects commercial capital in two opposite ways at once. The same amount of goods is turned over with a smaller mass of commercial capital actually doing the work; and because commercial capital turns over faster, and because the reproduction process itself runs faster, which is what that rests on, commercial capital shrinks in relation to industrial capital. On the other side, as capitalist production develops, everything is produced as a commodity, so the whole product goes into the hands of the agents of circulation. And under earlier modes of production, which produced on a small scale, most producers sold what they made straight to the consumer, or worked to order — apart from what they ate and used themselves without buying it, and the services done in kind. So although under earlier modes of production commercial capital is greater in proportion to the commodity capital it turns over, it is, first, smaller in absolute terms, because a far smaller share of everything made is produced as a commodity, has to enter circulation as commodity capital and end up with the merchants — smaller, because the commodity capital is smaller. But at the same time it is relatively greater, and not only because its turnover is slower and because of the mass of goods it turns over. It is also greater because the price of that mass of goods, and so the commercial capital that must be put up for it, is greater, since labour is less productive than under capitalist production — so the same value appears in a smaller mass of goods.
Second: capitalist production turns out a bigger mass of commodities in the first place — though the value of that mass is lower, and this has to be taken into account. Beyond that, the same amount of product — corn, say — now takes the form of more commodities: more and more of it goes into trade. The result is a growth not only in commercial capital but in every other kind of capital laid out in circulation — in shipping, railways, telegraph lines and the like.
Third — and working this out belongs under 'Competition among Capitals' — commercial capital that is not functioning, or only half functioning, grows as capitalist production advances: with the ease of slipping into retail trade, with speculation, and with the surplus of capital that has been set free.
Now suppose the size of commercial capital relative to the whole capital is given. Then the fact that turnovers differ from one branch of trade to another affects neither the total profit that falls to commercial capital nor the general rate of profit. What fixes the merchant's profit is not how much commodity capital he turns over; it is the size of the money capital he puts up to mediate that turnover.
Say the general rate of profit for the year is 15 per cent, and the merchant puts up £100. Let his capital turn over once in the year, and he sells his goods at £115. Let it turn over five times, and he sells goods bought for £100 five times over at £103 — so in the course of the year, goods bought for £500 go for £515. Yet over the year he still makes £15 of profit on the £100 he advanced. If it were otherwise, then the more turnovers commercial capital made, the greater the profit it would bring in next to industrial capital — and that clashes with the law of the general rate of profit.
So how often commercial capital turns over, in this branch of trade and that, does bear directly on the commercial prices of commodities. How big the commercial price supplement is — the aliquot part of a given capital's commercial profit that lands on the production price of each single commodity — depends on the number of turnovers the other way round: the more turnovers, the smaller it is, and the faster the turnover, the smaller too.
Take a commercial capital that turns over five times in the year: on goods of a given value it puts only a fifth of the addition that a second commercial capital, able to turn over just once in the year, puts on goods of the same value.
What it comes to, when sale prices shift with the average time capitals take to turn over in different branches of trade, is this: one and the same profit mass — which, given the size of the commercial capital, is fixed by the general annual rate of profit, and so fixed independently of what this capital's trading operations happen to be — gets spread differently over equal masses of commodities, in proportion to the speed of turnover. At five turnovers a year, for instance, 15/5 = 3 per cent goes onto the price of the goods; at one turnover a year, 15 per cent.
One and the same rate of commercial profit, in this branch and that, thus drives sale prices up by quite different percentages, measured against the value of the goods — depending on how their turnover times compare.
With industrial capital, by contrast, how long the turnover takes leaves the value of any single commodity produced quite untouched — though it does change how much value and surplus-value a given capital turns out in a given stretch of time, because it changes how much labour gets exploited. This is hidden, to be sure, and seems to be otherwise as soon as you fix on production prices — but only because, by the laws set out earlier, the production prices of different commodities fall away from their values. Take the whole production process together, and the total mass of commodities that industrial capital turns out, and the general law is confirmed straight away.
Following out how turnover time shapes value formation in industrial capital leads back to the general law, the ground political economy stands on: that labour-time is what fixes the value of a commodity. But how the turnovers of commercial capital bear on commercial prices throws up appearances which, unless the intermediate links are analysed at great length, seem to take a purely arbitrary fixing of prices for granted — as if prices were set simply because capital had decided how much profit it means to make in the year. In particular, through this effect of turnover, it seems as though circulation on its own fixed what goods cost, within limits and independently of how they were produced.
Every shallow and distorted view of how reproduction as a whole works is taken from looking at commercial capital, and from the notions its peculiar movements stir up in the heads of the agents of circulation.
If, as the reader has found to his cost, working out the real inner connections of capitalist production is a very tangled job and a very long one; if it is science's job to trace the visible surface movement back to the movement underneath — then it follows of itself that the heads of the people who run production and circulation must fill with ideas about the laws of production: ideas that diverge completely from those laws and are only the conscious form of the surface movement. A merchant's ideas, a stock-market speculator's, a banker's, are necessarily quite upside-down. The manufacturers' ideas are falsified too — by the circulation acts their capital has to pass through, and by the general rate of profit being equalized.
Competition, necessarily, plays a quite upside-down role in these heads as well. Once value and surplus-value have their limits set, it is easy enough to grasp how competition among capitals turns values into production prices, and further into commercial prices, and surplus-value into average profit. But with no such limits, there is simply no seeing why competition should bring the general rate of profit down to one figure rather than another — to 15 per cent rather than 1,500 per cent. At most it can bring the rate down to some level. But there is absolutely nothing in competition that sets that level itself.
Standing where commercial capital stands, then, turnover itself appears to determine price. On the other hand, the speed of an industrial capital's turnover, to the extent that it lets that capital exploit more or less labour, sets a limit and a determinant for the profit mass, and so for the general rate of profit too — but commercial capital meets the rate of profit as something given from outside, and the thread linking it back to the making of surplus-value is entirely cut. With the same organic composition and everything else unchanged, an industrial capital that turns over four times in the year instead of twice makes twice the surplus-value, and so twice the profit; you can see this plainly whenever, and as long as, that capital has a monopoly on a better method of production, which lets it speed up its turnover like that. In the different branches of trade, the varying turnover times show themselves the other way round: the profit made on the turnover of a given commodity capital stands in inverse proportion to the number of turnovers of the money capital that turns those commodity capitals over. 'Small profits and quick returns' strikes the shopkeeper in particular as a principle he follows on principle.
It goes without saying, besides, that in any branch of trade this law of commercial capital's turnovers — leaving aside the faster and slower turnovers that offset one another — holds only for the turnover that the whole commercial capital in the branch makes on average. Suppose A and B work the same branch: A's capital may turn over more often, or less often, than the average; then the others turn over less, or more. That makes no difference to the turnover of the whole mass of commercial capital invested in the branch. But it is decisively important for the individual merchant or retailer. In that case he makes a surplus profit, much as industrial capitalists earn surplus profits by producing under better-than-average conditions. If competition forces the pace, he can undercut his fellows without dropping below the average profit. And if the conditions that let him turn over faster are themselves things he can buy — where his shop stands, say — he can pay an extra rent for them; part of his surplus profit turns into ground-rent.
Industrial capital's turnover is the unity of its production time and its circulation time, so it takes in the whole production process. Commercial capital's turnover is something else. It is really only commodity capital's movement set free to stand on its own; so it presents just the first phase of the commodity's metamorphosis, C–M, as a movement that flows back into itself — the movement of a special capital. M–C, C–M, in the merchant's sense: that is the turnover of commercial capital.
The merchant buys — he turns his money into commodities — then he sells, turning those same commodities back into money, and so on, over and over. Inside circulation, industrial capital's metamorphosis always shows up as C₁–M–C₂. The money freed by selling C₁, the commodity produced, is used to buy C₂, fresh means of production. That is the real exchange of C₁ for C₂, and in it the same money changes hands twice; its movement mediates the exchange of two unlike commodities, C₁ and C₂. With the merchant, in M–C–M′, the opposite happens: the same commodity changes hands twice, and it serves only to bring the money back to him.
If commercial capital is £100, say, and the merchant buys commodities with that £100, then sells those commodities for £110, his capital of £100 has turned over once. How many turnovers he makes in a year depends on how often this movement, M–C–M′, is repeated in the year.
Here we leave entirely out of account the costs that may hide in the gap between his purchase price and his sale price — such costs change nothing at all about the form we are first concerned with.
How many times a given commercial capital turns over is exactly analogous to the repeated circuits of money as a plain means of circulation. A shilling that circulates ten times buys commodities worth ten shillings; in the same way the merchant's same money capital of £100, turning over ten times, buys ten times its value in commodities — it realizes a total commodity capital ten times its value, £1,000.
But there is a difference. When money serves as means of circulation, it is the same coin passing through different hands, performing the same function over and over, so that the speed of circulation stands in for a smaller number of coins. With the merchant it is the same money capital — no matter which coins it is made of, the same money value — that again and again buys and sells commodity capital to the amount of its value, and so again and again returns into the same hand as M + ΔM: it comes back to where it started as value plus surplus-value. This is what marks its turnover as a turnover of capital. All the while it draws more money out of circulation than it puts in. And of course, as commercial capital's turnover speeds up — which is also where, with a developed credit system, money's function as means of payment predominates — the same amount of money circulates faster as well.
When commercial capital turns over again and again, that never expresses anything except that buying and selling are being repeated. Industrial capital's repeated turnover expresses the renewal of the whole reproduction process, in a recurring cycle — consumption included. For commercial capital, though, this only appears as an outside condition. Industrial capital must keep throwing commodities onto the market and drawing them off again, if the rapid turnover of commercial capital is to remain possible; and if reproduction as a whole is slow, the turnover of commercial capital is slow too.
Commercial capital does mediate the turnover of productive capital — but only in so far as it shortens that capital's circulation time. On production time it has no direct effect, and production time is also a barrier to industrial capital's turnover time. That is the first limit to the turnover of commercial capital. Second, quite apart from the barrier set by reproductive consumption, this turnover is finally bounded by how fast and how large total individual consumption is, since the whole portion of commodity capital that enters the consumption fund depends on it.
Leaving aside now, completely, the turnovers that take place within the world of commerce itself — where one merchant keeps selling the same commodity on to the next, a kind of circulation that can look very flourishing in speculative times — commercial capital does two things. First, it shortens the phase C–M for productive capital. Second, under the modern credit system it has a large part of society's total money capital at its disposal, so that it can repeat its purchases before it has definitively sold what it bought earlier. Whether our merchant sells directly to the final consumer, or whether twelve more merchants lie between the two, makes no difference.
The reproduction process has an enormous elasticity; it can always be pushed past whatever barrier it is given, so the merchant meets no barrier in production itself — or only a very elastic one. So, on top of the split between C–M and M–C that the commodity's own nature brings with it, a demand that is active now comes into being as well. Despite the autonomy it has won, the movement of commercial capital is never anything other than the movement of industrial capital, carried on inside the sphere of circulation. But by virtue of that autonomy it moves, within certain limits, independently of the barriers the reproduction process sets, and so drives that process beyond its own barriers. This inner dependence together with outer independence pushes commercial capital to a point where the inner connection has to be restored by force, by means of a crisis.
So it is in a crisis that we see the phenomenon: the trouble does not show itself or break out first in retail trade, which deals with direct consumption, but in the spheres of wholesale trade and of banking, which place society's money capital at the wholesalers' disposal.
The manufacturer may really have sold to the exporter, and the exporter to a buyer abroad; the importer may place his raw materials with the manufacturer, and the manufacturer his products with the wholesaler, and so on. But at some one invisible point the goods lie unsold; or else the stocks of all the producers and middlemen gradually grow too full.
Consumption is usually at flood tide just then — partly because one industrial capitalist sets a row of others in motion, partly because the workers in their employ are fully busy and so have more to spend than usual. The capitalists' own outlay grows with their income as well. And besides that, as we have seen (Volume 2, Part Three), a constant circulation goes on between constant capital and constant capital (even apart from accelerated accumulation), and this is independent of individual consumption only in so far as it never enters into it; yet individual consumption still sets its final limit, because constant capital is never produced for its own sake — it is produced only because the branches whose products do enter individual consumption need more of it.
This can all run along quietly for a while, spurred on by demand that is expected to come, and in these branches business goes very briskly for merchants and industrialists alike. The crisis sets in as soon as the returns of the merchants who sell far away (or whose stocks have piled up at home as well) come in so slowly and so thinly that the banks press for payment, or the bills drawn against the goods they bought fall due before any resale has taken place. Forced sales then begin — sales to raise money to pay. And with that the crash is here; the seeming prosperity is over at a stroke.
The turnover of commercial capital is even more superficial and irrational than this, since one and the same commercial capital can mediate the turnovers of very different productive capitals, at once or one after another.
But the turnover of commercial capital can mediate more than the turnovers of various industrial capitals: it can also mediate the opposite phase of the commodity capital's metamorphosis. The merchant, say, buys linen from the manufacturer and sells it to the bleacher. Here the turnover of one and the same commercial capital — in fact the same C–M, the linen's realization — stands for two opposite phases belonging to two different industrial capitals. In so far as the merchant sells at all for productive consumption, his C–M always stands for one industrial capital's M–C, and his M–C for another's C–M.
This chapter sets K aside — the costs of circulation, meaning the extra part of his capital that the merchant puts up over and above the money he lays out buying the goods. Once those are set aside, ΔK goes with them: the extra profit he makes on that extra capital. Nothing loose is going on here; this is the mathematically exact and strictly logical way to proceed, when what has to be seen is how the profit and the turnover of commercial capital work on prices.
Suppose a pound of sugar has a production price of £1. With £100 the merchant could then buy 100 pounds. If that is what he buys and sells over the year, and the average rate of profit for the year is 15 per cent, he would add £15 to his £100 and 3 shillings to every £1, which is the production price of a single pound. He would then sell the pound at £1 3s. If instead the production price of a pound of sugar fell to 1 shilling, the merchant would buy 2,000 pounds with his £100, and he would sell each pound at 1s. 1⅘d. Either way, the year's profit on the £100 he has laid out in the sugar trade would come to £15, exactly as before. It is only that in one case he has to sell 100 pounds and in the other 2,000.
Whether a production price is high or low makes no difference to the rate of profit. But it does have a great deal — everything, in fact — to do with one thing: how big the aliquot part of each pound's sale price is, the exact fraction of that price which resolves into commercial profit. That fraction is the addition the merchant makes to the price on a given quantity of commodity (the product). When a commodity's production price is low, the sum the merchant lays out for it — for a given mass of it — is low too, and so, at a given rate of profit, is the profit he makes on that given quantity of cheap commodity. Put the same thing another way: with a given capital, say £100, he can buy a large mass of this cheap commodity, and the total profit of £15 he makes on that £100 is then spread in small fractions over every single portion of that mass. And the other way round when the price is high. All of this depends entirely on how productive the industrial capital is whose commodities he deals in.
Setting aside the cases where a merchant is a monopolist and has production monopolized as well — as the Dutch East India Company did in its day — there is nothing more absurd than the notion now going about that the merchant can choose whether to sell a lot of goods at a small profit on each, or a few goods at a big profit on each. Two things set limits on what he can sell for. One is the production price of the commodity, and he has no say over that. The other is the average rate of profit, over which he has just as little say. The one thing he does get to decide — though how much capital he has at his disposal, and other circumstances, have a part in it too — is whether to deal in dear goods or in cheap ones. So how he conducts himself turns entirely on how far the capitalist mode of production has developed, and not on what he pleases. The same company, purely commercial and holding a monopoly of production, could imagine it was still carrying on, under conditions that had completely changed, a way of doing business that fitted at most the first beginnings of capitalist production.
What keeps that popular prejudice alive — a prejudice which, like every wrong idea about profit and the rest, springs from looking at trade and nothing but trade, and from the preconceptions the trade itself breeds — is a set of circumstances, among them the following.
First: goings-on in competition. But these touch only how commercial profit is divided up among the individual merchants, the people who hold a share in the total commercial capital; as when one seller undercuts the rest to push them out of the trade.
Second: even now an economist as eminent as Professor Roscher can sit in Leipzig and persuade himself that it was 'good sense and humanity' that moved sale prices, and not a mode of production turned upside down.
Third: when production prices fall because labour has grown more productive, and sale prices fall with them, demand often climbs even faster than supply, and market prices climb with it, so that sale prices bring in more than the average profit.
Fourth: a merchant may lower his sale price — which is nothing but a lowering of the customary profit he adds on to the price — so as to turn over a larger capital faster in his business. All of this is a matter that concerns only the competition among the merchants themselves.
It has been shown already in Volume 1 that commodity prices, high or low, settle neither how much surplus-value a given capital produces nor the rate of surplus-value — even though, depending on how much commodity a given amount of labour turns out, what each single commodity sells for is bigger or smaller, and with it the surplus-value part of that price. The prices of any given quantity of commodities are fixed, in so far as they match values, by the whole amount of labour objectified in them. Where only a little labour is objectified in a lot of commodity, the single commodity is cheap and the surplus-value sitting inside it is small.
How the labour that a commodity embodies splits into paid and unpaid labour — and so how much of that price stands for surplus-value — has nothing to do with that total amount of labour, and therefore nothing to do with the commodity's price. The rate of surplus-value, though, turns not on how big the surplus-value in a single commodity's price is in absolute terms, but on how big it is against the wages that same commodity's labour was paid. So the rate can be high even when each single commodity carries only a little surplus-value in absolute terms. And how much surplus-value each single commodity carries in absolute terms depends first of all on the productivity of labour, and only in the second place on how that labour divides into paid and unpaid.
This holds all the more for the commercial sale price: the production price comes to him from outside, already fixed.
Commercial prices ran high in earlier times for two reasons. First, production prices themselves stood high — that is, labour was unproductive. Second, there was no general rate of profit: commercial capital pulled in a far bigger quota of the surplus-value than it would have got if capital had been able to move about freely. That state of things came to an end on both counts, and the ending was itself an outcome of the development of the capitalist mode of production.
Commercial capital turns over more slowly or more quickly from one branch of trade to another, so a year brings a larger or smaller number of turnovers. Inside a single branch, turnover is faster in some parts of the economic cycle and slower in others. Experience, all the same, finds a middle figure for how many times a year it turns over.
We have already seen that commercial capital's turnover is a different thing from industrial capital's. That follows from the nature of the matter: a single stage in industrial capital's turnover shows up as the whole turnover of a commercial capital that stands on its own — or at least of a part of one. Its turnover also stands in a different relation to how profit and price are determined.
With industrial capital, turnover does two things at once. On one side, it gives the rhythm of reproduction: how much goods go onto the market in a given stretch of time depends on it. On the other side, the circulation time is a limit — a stretchy one — that holds back how much value and surplus-value can be formed, more or less, because it bears on how big the production process is. Turnover therefore has a determining part in the mass of surplus-value produced each year, and so in how the general rate of profit is formed — not by adding anything, but by constricting.
Commercial capital is a different matter. For it, the average rate of profit is simply given. It has no direct share in producing profit or surplus-value, and it counts towards the general rate of profit in only one way: it takes its dividend out of the profit mass that industrial capital produces, in proportion to the share it makes up of the total capital.
The more turnovers an industrial capital makes, under the conditions worked out in Volume 2, Part Two, the greater the mass of profit it forms. It is true that once a general rate of profit is established, the total profit gets shared out among the individual capitals — not in the ratio in which they directly take part in producing it, but by the aliquot parts they make up of the whole, that is, by how big they are. But that changes nothing in the essence of the matter. The more turnovers the total industrial capital makes, the greater the mass of profit, the mass of surplus-value produced each year, and hence — the other circumstances staying the same — the higher the rate of profit.
Commercial capital is different. Here the profit rate comes to it as a fixed quantity, set on one side by how much profit industrial capital produces, and on the other by the relative size of the total commercial capital — by how it stands in quantity to all the capital put forward in production and circulation. True, the number of its turnovers does have a determining effect on its relation to the total capital, that is, on the relative size of the commercial capital needed for circulation. For one thing is clear: the faster it turns over, the smaller the amount of commercial capital that has to be there at all. But how big a share of the total capital it makes up follows from how big it is in absolute terms, other things equal.
If the total capital is £10,000 and the commercial capital is one-tenth of it, that comes to £1,000; if the total capital is £1,000, then a tenth of that is £100. Here its absolute size is different in the two cases while its relative size stays the same — it differs with the size of the total capital. But here we take its relative size as given: a tenth of the total capital, say. Yet that relative size is itself settled by turnover in turn. With a fast turnover its absolute size might be £1,000 in the first case and £100 in the second, so its relative size is one-tenth. Slow the turnover down, and its absolute size might be £2,000 in the first case and £200 in the second. Its relative size would then have grown from a tenth to a fifth of the whole capital. Whatever shortens commercial capital's average turnover — better transport, for instance — cuts its absolute size down in proportion, and so raises the general rate of profit. And the other way round.
Compared with earlier conditions, developed capitalist production affects commercial capital in two opposite ways at once. The same amount of goods is turned over with a smaller mass of commercial capital actually doing the work; and because commercial capital turns over faster, and because the reproduction process itself runs faster, which is what that rests on, commercial capital shrinks in relation to industrial capital. On the other side, as capitalist production develops, everything is produced as a commodity, so the whole product goes into the hands of the agents of circulation. And under earlier modes of production, which produced on a small scale, most producers sold what they made straight to the consumer, or worked to order — apart from what they ate and used themselves without buying it, and the services done in kind. So although under earlier modes of production commercial capital is greater in proportion to the commodity capital it turns over, it is, first, smaller in absolute terms, because a far smaller share of everything made is produced as a commodity, has to enter circulation as commodity capital and end up with the merchants — smaller, because the commodity capital is smaller. But at the same time it is relatively greater, and not only because its turnover is slower and because of the mass of goods it turns over. It is also greater because the price of that mass of goods, and so the commercial capital that must be put up for it, is greater, since labour is less productive than under capitalist production — so the same value appears in a smaller mass of goods.
Second: capitalist production turns out a bigger mass of commodities in the first place — though the value of that mass is lower, and this has to be taken into account. Beyond that, the same amount of product — corn, say — now takes the form of more commodities: more and more of it goes into trade. The result is a growth not only in commercial capital but in every other kind of capital laid out in circulation — in shipping, railways, telegraph lines and the like.
Third — and working this out belongs under 'Competition among Capitals' — commercial capital that is not functioning, or only half functioning, grows as capitalist production advances: with the ease of slipping into retail trade, with speculation, and with the surplus of capital that has been set free.
Now suppose the size of commercial capital relative to the whole capital is given. Then the fact that turnovers differ from one branch of trade to another affects neither the total profit that falls to commercial capital nor the general rate of profit. What fixes the merchant's profit is not how much commodity capital he turns over; it is the size of the money capital he puts up to mediate that turnover.
Say the general rate of profit for the year is 15 per cent, and the merchant puts up £100. Let his capital turn over once in the year, and he sells his goods at £115. Let it turn over five times, and he sells goods bought for £100 five times over at £103 — so in the course of the year, goods bought for £500 go for £515. Yet over the year he still makes £15 of profit on the £100 he advanced. If it were otherwise, then the more turnovers commercial capital made, the greater the profit it would bring in next to industrial capital — and that clashes with the law of the general rate of profit.
So how often commercial capital turns over, in this branch of trade and that, does bear directly on the commercial prices of commodities. How big the commercial price supplement is — the aliquot part of a given capital's commercial profit that lands on the production price of each single commodity — depends on the number of turnovers the other way round: the more turnovers, the smaller it is, and the faster the turnover, the smaller too.
Take a commercial capital that turns over five times in the year: on goods of a given value it puts only a fifth of the addition that a second commercial capital, able to turn over just once in the year, puts on goods of the same value.
What it comes to, when sale prices shift with the average time capitals take to turn over in different branches of trade, is this: one and the same profit mass — which, given the size of the commercial capital, is fixed by the general annual rate of profit, and so fixed independently of what this capital's trading operations happen to be — gets spread differently over equal masses of commodities, in proportion to the speed of turnover. At five turnovers a year, for instance, 15/5 = 3 per cent goes onto the price of the goods; at one turnover a year, 15 per cent.
One and the same rate of commercial profit, in this branch and that, thus drives sale prices up by quite different percentages, measured against the value of the goods — depending on how their turnover times compare.
With industrial capital, by contrast, how long the turnover takes leaves the value of any single commodity produced quite untouched — though it does change how much value and surplus-value a given capital turns out in a given stretch of time, because it changes how much labour gets exploited. This is hidden, to be sure, and seems to be otherwise as soon as you fix on production prices — but only because, by the laws set out earlier, the production prices of different commodities fall away from their values. Take the whole production process together, and the total mass of commodities that industrial capital turns out, and the general law is confirmed straight away.
Following out how turnover time shapes value formation in industrial capital leads back to the general law, the ground political economy stands on: that labour-time is what fixes the value of a commodity. But how the turnovers of commercial capital bear on commercial prices throws up appearances which, unless the intermediate links are analysed at great length, seem to take a purely arbitrary fixing of prices for granted — as if prices were set simply because capital had decided how much profit it means to make in the year. In particular, through this effect of turnover, it seems as though circulation on its own fixed what goods cost, within limits and independently of how they were produced.
Every shallow and distorted view of how reproduction as a whole works is taken from looking at commercial capital, and from the notions its peculiar movements stir up in the heads of the agents of circulation.
If, as the reader has found to his cost, working out the real inner connections of capitalist production is a very tangled job and a very long one; if it is science's job to trace the visible surface movement back to the movement underneath — then it follows of itself that the heads of the people who run production and circulation must fill with ideas about the laws of production: ideas that diverge completely from those laws and are only the conscious form of the surface movement. A merchant's ideas, a stock-market speculator's, a banker's, are necessarily quite upside-down. The manufacturers' ideas are falsified too — by the circulation acts their capital has to pass through, and by the general rate of profit being equalized.
Competition, necessarily, plays a quite upside-down role in these heads as well. Once value and surplus-value have their limits set, it is easy enough to grasp how competition among capitals turns values into production prices, and further into commercial prices, and surplus-value into average profit. But with no such limits, there is simply no seeing why competition should bring the general rate of profit down to one figure rather than another — to 15 per cent rather than 1,500 per cent. At most it can bring the rate down to some level. But there is absolutely nothing in competition that sets that level itself.
Standing where commercial capital stands, then, turnover itself appears to determine price. On the other hand, the speed of an industrial capital's turnover, to the extent that it lets that capital exploit more or less labour, sets a limit and a determinant for the profit mass, and so for the general rate of profit too — but commercial capital meets the rate of profit as something given from outside, and the thread linking it back to the making of surplus-value is entirely cut. With the same organic composition and everything else unchanged, an industrial capital that turns over four times in the year instead of twice makes twice the surplus-value, and so twice the profit; you can see this plainly whenever, and as long as, that capital has a monopoly on a better method of production, which lets it speed up its turnover like that. In the different branches of trade, the varying turnover times show themselves the other way round: the profit made on the turnover of a given commodity capital stands in inverse proportion to the number of turnovers of the money capital that turns those commodity capitals over. 'Small profits and quick returns' strikes the shopkeeper in particular as a principle he follows on principle.
It goes without saying, besides, that in any branch of trade this law of commercial capital's turnovers — leaving aside the faster and slower turnovers that offset one another — holds only for the turnover that the whole commercial capital in the branch makes on average. Suppose A and B work the same branch: A's capital may turn over more often, or less often, than the average; then the others turn over less, or more. That makes no difference to the turnover of the whole mass of commercial capital invested in the branch. But it is decisively important for the individual merchant or retailer. In that case he makes a surplus profit, much as industrial capitalists earn surplus profits by producing under better-than-average conditions. If competition forces the pace, he can undercut his fellows without dropping below the average profit. And if the conditions that let him turn over faster are themselves things he can buy — where his shop stands, say — he can pay an extra rent for them; part of his surplus profit turns into ground-rent.