Capital Volume II

Chapter 14: The Time of Circulation

All circumstances considered so far which distinguish the periods of turnover of different capitals invested in different branches of industry and hence also the periods for which capital must be advanced, originate in the process of production itself, such as the difference between fixed and circulating capital, the difference in the working periods, etc. But the time of turnover of capital is equal to the sum of its production time plus its circulation, or rotation, time. It is therefore a matter of course that a difference in the time of circulation causes a difference in the time of turnover and hence in the length of the period of turnover. This becomes more evident either on comparing two different investments of capital in which all circumstances modifying the turnover are equal except the time of circulation, or on selecting a given capital with a given proportion of fixed and circulating capital, a given working period, etc., with only the times of circulation varying, hypothetically.

One of the sections of the time of circulation — relatively the most decisive — consists of the time of selling, the period during which capital exists in the state of commodity-capital. The time of circulation, and hence the period of turnover in general, are long or short depending on the relative length of this selling time. An additional outlay of capital may become necessary as a result of expenses of storage, etc. It is clear at the very start that the time required for the sale of finished goods may differ considerably for the individual capitalists in one and the same branch of industry. Hence it may differ not only for the aggregate capitals invested in the various branches of industry, but also for the various independent capitals, which are in fact merely parts of the aggregate capital invested in the same sphere of production but which have made themselves independent. Other circumstances remaining equal, the period of selling will vary for the same individual capital with the general fluctuations of the market or with its fluctuations in that particular line of business. We shall not dwell on this point any longer. We merely state this simple fact: All circumstances which in general give rise to differences in the periods of turnover of the capitals invested in different branches of industry bring in their train differences also in the turnover of the various individual capitals operating in the same business, provided these circumstances operate individually (for instance, if one capitalist has an opportunity to sell more rapidly than his competitor, if one employs more methods shortening the working periods than the other, etc.)

One cause which acts permanently in differentiating the times of selling, and thus the periods of turnover in general, is the distance of the market in which a commodity is sold from its place of production. During the entire trip to the market, capital finds itself fettered in the state of commodity-capital. If goods are made to order, up to the time of delivery; if they are not made to order, there must be added to the time of the trip to the market the time during which the goods are in the market waiting to be sold. The improvement of the means of communication and transportation cuts down absolutely the wandering period of the commodities but does not eliminate the relative difference in the time of circulation of different commodity-capitals arising from their peregrinations, nor that of different portions of the same commodity-capital which migrate to different markets. For instance the improved sailing vessels and steamships, which shorten travelling, do so equally for near and distant ports. The relative difference remains, although often diminished. But the relative difference may be shifted about by the development of the means of transportation and communication in a way that does not correspond to the geographical distances. For instance a railway which leads from a place of production to an inland centre of population may relatively or absolutely lengthen the distance to a nearer inland point not connected by rail, as compared to the one which geographically is more remote. In the same way the same circumstances may alter the relative distance of places of production from the larger markets, which explains the deterioration of old and the rise of new centres of production because of changes in communication and transportation facilities. (To this must be added the circumstances that long hauls are relatively cheaper than short ones.) Moreover with the development of transport facilities not only is the velocity of movement in space accelerated and thereby the geographic distance shortened in terms of time. Not only is there a development of the mass of communication facilities so that for instance many vessels sail simultaneously for the same port, or several trains travel simultaneously on different railways between the same two points, but freight vessels may clear on consecutive days of the same week from Liverpool for New York, or goods trains may start at different hours of the same day from Manchester to London. True, the absolute velocity — hence this part of the time of circulation — is not altered by this latter circumstance, a certain definite capacity of the means of transportation being given. But successive shipments of commodities can start their passage at shorter intervals of time and thus reach the market one after another without accumulating in large quantities as potential commodity-capital before actual shipment. Hence the return of capital likewise is distributed over shorter successive periods of time, so that a part is continually transformed into money-capital, while the other circulates as commodity-capital. By spreading the return over several successive periods the total time of circulation and hence also the turnover are abridged. The first to increase is the frequency with which the means of transportation function, for instance the number of railway trains, as existing places of production produce more, become greater centres of production. The development tends in the direction of the already existing market, that is to say, towards the great centres of production and population, towards ports of exports, etc. On the other hand these particularly great traffic facilities and the resultant acceleration of the capital turnover (since it is conditional on the time of circulation) give rise to quicker concentration of both the centres of production and the markets. Along with this concentration of masses of men and capital thus accelerated at certain points, there is the concentration of these masses of capital in the hands of a few. Simultaneously one may note again a shifting and relocation of places of production and of markets as a result of the changes in their relative positions caused by the transformations in transport facilities. A place of production which once had a special advantage by being located on some highway or canal may now find itself relegated to a single side-track, which runs trains only at a relatively long intervals, while another place, which formerly was remote from the main arteries of traffic, may now be situated at the junction of several railways. This second locality is on the upgrade, the former on the downgrade. Changes in the means of transportation thus engender local differences in the time of circulation of commodities, in the opportunity to buy, sell, etc., or an already existing local differentiation is distributed differently. The importance of this circumstance for the turnover of capital is evidenced by the wrangling of the commercial and industrial representatives of the various localities with the railway managements. (See for instance the above-quoted Bluebook of the Railway Committee. [See p. 154 of this book. — Ed.] )

All branches of production which by the nature of their product are dependent mainly on local consumption, such as breweries, are therefore developed to the greatest extent in the principal centres of population. The more rapid turnover of capital compensates here in part for the circumstance that a number of conditions of production, building lots, etc., are more expensive.

Whereas on the one hand the improvement of the means of transportation and communication brought about by the progress of capitalist production reduces the time of circulation of particular quantities of commodities, the same progress and the opportunities created by the development of transport and communication facilities make it imperative, conversely, to work for ever more remote markets, in a word — for the world-market. The mass of commodities in transit for distant places grows enormously, and with it therefore grows, both absolutely and relatively, that part of social capital which remains continually for long periods in the stage of commodity-capital, within the time of circulation. There is a simultaneous growth of that portion of social wealth which, instead of serving as direct means of production, is invested in means of transportation and communication and in the fixed and circulating capital required for their operation.

The mere relative length of the transit of the commodities from their place of production to their market produces a difference not only in the first part of the circulation time, the selling time, but also in its second part, the reconversion of the money into the elements of the productive capital, the buying time. Suppose a commodity is shipped to India. This requires, say, four months. Let us assume that the selling time is equal to zero, i.e., the commodities are made to order and are paid for on delivery to the agent of the producer. The return of the money (no matter in what form) requires another four months. Thus it takes altogether eight months before a capital can again function as productive capital, renew the same operation. The differences in the turnover thus occasioned form one of the material bases of the various terms of credit, just as overseas commerce in general, for instance in Venice and Genoa, is one of the sources of the credit system, properly speaking.

“The crisis of 1847 enabled the banking and mercantile community of that time to reduce the India and China usance” (time allowed for the currency of bills of exchange between there and Europe) “from ten months’ date to six months’ sight, and the lapse of twenty years with all the accelerations of speed and establishment of telegraphs ... renders necessary ... a further reduction” from six months’ sight to four months’ date as a first step to four months’ sight. “The voyage of a sailing vessel via the Cape from Calcutta to London is on the average under 90 days. A usance of four months’ sight would be equal to a currency of say 150 days. The present usance of six months’ sight is equal to a currency of say 210 days.” (London Economist, June 16, 1866.)

On the other hand:

“The Brazilian usance remains at two and three months’ sight, bills from Antwerp are drawn” (on London) “at three months’ date, and even Manchester and Bradford draw upon London at three months and longer dates. By tacit consent, a fair opportunity is afforded to the merchant of realising the proceeds of his merchandise, not indeed before, but within a reasonable time of, the bills drawn against it falling due. In this view, the present usance for Indian bills cannot be considered excessive. Indian produce for the most part being sold in London with three months’ prompt, and allowing for loss of time in effecting sales, cannot be realised much within five months, while another period of five months will have previously elapsed (on an average) between the time of purchase in India and of delivery in the English warehouse. We have here a period of ten months, whereas the bill drawn against the goods does not live beyond seven months.” (Ibid., June 30, 1866.)

“On July 2, 1866, five big London banks dealing mainly with India and China, and the Paris Comptoir d'Escompte, gave notice that from the 1st January, 1867, their branches and agencies in the East will only buy and sell bills of exchange at a term not exceeding four months’ sight.” (Ibid., July 7, 1866.)

However this reduction miscarried and had to be abandoned. (Since then the Suez Canal has revolutionized all this.)

It is a matter of course that with the longer time of commodity circulation the risk of a change of prices in the market increases, since the period in which price changes can take place is lengthened.

Differences in the time of circulation, partly individual between the various separate capitals of the same branch of business, partly between different branches of business according to the different usances, when payment is not made in spot cash, arise from the different terms of payment in buying and selling. We shall not dwell any longer here on this point which is of importance to the credit system.

Differences in the turnover time arise also from the size of contracts for the delivery of goods, and their size grows with the extent and scale of capitalist production. A contract of delivery, being a transaction between buyer and seller, is an operation pertaining to the market, the sphere of circulation. The differences in the time of turnover arising here stem therefore from the sphere of circulation, but react immediately on the sphere of production, and do so apart from all terms of payment and conditions of credit, hence also in the case of cash payment. For instance coal, cotton, yarn, etc., are discrete products. Every day supplies its quantum of finished product. But if the master-spinner or the mine-owner accepts contracts for the delivery of such large quantities of products as require, say, a period of four or six weeks of consecutive working-days, then this is quite the same, so far as the time of advancement of capital is concerned, as if a continuous working period of four or six weeks had been introduced in this labour-process. It is of course assumed here that the entire quantity ordered is to be delivered in one bulk, or at least is paid for only after total delivery. Individually considered, every day has thus furnished its definite quantum of finished product. But this finished quantum is only a part of the quantity contracted for. While in this case the portion finished so far is no longer in the process of production, still it lies in the warehouse as potential capital only.

Now let us take up the second stage of the time of circulation, the buying time, or that period in which capital is reconverted from the money-form into the elements of productive capital. During this period it must persist for a shorter or longer time in its condition of money-capital, hence a certain portion of the total capital advanced must all the time be in the condition of money-capital, although this portion consists of constantly changing elements. For instance, of the total capital advanced in a certain business, n times £100 must be available in the form of money-capital, so that, while all the constituent parts of these n times £100 are continually converted into productive capital, this sum is nevertheless just as continually replenished by the influx from the circulation, from the realised commodity-capital. A definite part of the advanced capital-value is therefore continually in the condition of money-capital, i.e., a form not pertaining to its sphere of production but its sphere of circulation.

We have already seen that the prolongation of the time for which capital is fettered in the form of commodity-capital on account of the distance of the market results in direct delay of the return of the money and consequently also the transformation of the capital from money-capital into productive capital.

We have furthermore seen (Chapter VI) with reference to the purchase of commodities, that the time of buying, the greater or smaller distance from the main sources of the raw material, makes it necessary to purchase raw material for a longer period and have it available in the form of a productive supply, of latent or potential productive capital; that in consequence it increases the amount of capital to be advanced at one time, and the time for which it must be advanced, if the scale of production remains otherwise the same.

A similar effect is produced in various branches of business by the more or less prolonged periods in which rather large quantities of raw material are thrown on the market. In London for example great auction sales of wool take place every three months, and the wool market is controlled by them. The cotton market on the other hand is on the whole restocked continuously, if not uniformly, from harvest to harvest. Such periods determine the principal dates when these raw materials are bought. Their effect is particularly great on speculative purchases necessitating advances for longer or shorter periods for these elements of production, just as the nature of the produced commodities acts on the speculative, intentional withholding of a product for a longer or shorter term in the form of potential commodity-capital.

“The agriculturist must also be a speculator to a certain extent and therefore hold back the sale of his products if prevailing conditions so suggest...”

Here follow a few general rules.

“...However in the sale of the products, it all depends mainly on the person, the product itself, and the locality. Anyone who, besides being skilful and lucky (!), is provided with sufficient working capital will not be blamed if for once he keeps his grain crop stored as long as a year when prices are unusually low. On the other hand a man who lacks working capital or is altogether devoid (!) of speculative spirit will try to get the current average prices and will be compelled to sell as soon and as often as opportunity presents itself. It will almost always mean a loss to keep wool stored longer than a year, while corn and oil seed may be stored for several years without detriment to their properties and high quality. Products generally subject to severe fluctuation at short intervals, for instance oil seed, hops, teasel and the like, may be stored to good advantage during years in which the selling price is far below the price of production. It is least permissible to postpone the sale of articles whose preservation involves daily expense, such as fatted cattle, or which are perishable, such as fruit, potatoes, etc. In various localities a certain product fetches its lowest average price in certain seasons, its highest in others. Thus, in some parts the average price of corn is lower around St. Martin’s Day than between Christmas and Easter. Furthermore some products sell well in certain localities only at certain times, as is the case with wool in the wool markets of those localities where the wool trade at other times is dull, etc.” (Kirchhof, p. 302.)

In the study of the second half of the time of circulation, during which the money is reconverted into the elements of productive capital, it is not only this transformation, taken by itself, that should be given consideration, not only the time within which the money returns, according to the distance of the market in which the product is sold. What must also be considered, and primarily so, is the amount of that part of the advanced capital which is always to be available in the form of money, in the condition of money-capital.

Apart from all speculation, the volume of the purchases of those commodities which must always be available as a productive supply depends on the times of the renewal of this supply, hence on circumstances which in their turn are dependent on market conditions and which therefore are different for different raw materials. In these cases money must be advanced from time to time in rather large quantities and in lump sums. It returns more or less rapidly, but always in instalments, according to the turnover of capital. One portion of it, namely the part reconverted into wages, is just as continually expended again at short intervals. But another portion, namely that which is to be reconverted into raw material, etc., must be accumulated for rather long periods, as a reserve fund for either buying or paying. Therefore it exists in the form of money-capital, although the volume in which it exists as such, changes.

We shall see in the next chapter that other circumstances arising either from the process of production or that of circulation make it necessary for a certain portion of the advanced capital to be available in the form of money. In general it must be noted that the economists are very prone to forget not only that a part of the capital required in a business passes successively through the three stages of money-capital, productive capital, and commodity-capital, but also that different portions of it continuously and simultaneously possess these forms, although the relative magnitudes of these portions vary all the time. It is especially the part always available as money-capital that is forgotten by the economists, although precisely this circumstance is highly essential for an understanding of bourgeois economy and consequently makes its importance felt as such also in practice.