Turnover of industrial capital, commercial and bank credit: modern Unoist approach 2. Turnover of the industrial capital

2. Turnover of the industrial capital  

2.1 Premises of Turnover in Marx’s Capital

Marx analyzed turnover as consisting of production and circulation. He sometimes discussed shortening the total turnover time by reducing the circulation period (e.g., Marx 1973, 659; Marx 1978, Chapter 14). After introducing the concept of continuous production through added capital in Chapter 15 of Capital Volume II, the focus shifted to how circulation length affects the amount of capital that must be advanced and the volume of idle money (Marx 1978, 358).　

In Chapter 15, Marx made several assumptions to clarify the nature of industrial capital, differs from the general formula for capital, M-C-M’. We regroup the ten assumptions in Saros 2008 (195) as follows.  

A. Basic assumption on turnover. 

A-1. Production is continuous (Marx 1978, 334)

A-2. No fixed capital is assumed (Marx 1978, 354)

A-3. All production time is working time (Marx 1978, 334)

A-4. Surplus value is set aside (Marx 1978, 334)

A-5. The same amount of capital is advanced weekly (Marx 1978, 334)

These assumptions help simplify the analysis. "Continuous" production refers not only to uninterrupted production but also to production at the same scale. Assuming no fixed capital means that the replacement period of fixed capital is excluded. The same scale of production must continue “on the given basis of fixed capital” (Marx 1978, 335). Hiroshi Hidaka rightly noted that although fixed capital is assumed away, it plays a hidden role in driving production, as it compels continuous operation (Hidaka 1977)

The assumption about using the capitalist’s own capital relates to the connection between turnover length and the amount of capital advanced.

B. Assuming away credit 

B-1. Money is gold（Marx 1978, 213）

B-2. No credit relations exist (Marx 1978, 336)

B-3. In the first turnover period, production is funded entirely by the capitalist’s own capital (Marx 1978, 336)

Marx allowed for relaxing these assumptions when analyzing credit (ibid., 357).

C. On the circulation, especially the sales

C-1 Normal business conditions are assumed（Marx 1978, 109, 335）

C-2 Circulation time consists only of selling; there is no buying time（Marx 1978, 326）

Fluctuations in turnover time are mainly due to variations in selling time. The assumption of “normal business conditions” enables the use of average circulation time.

2.2 Literature in Japan on turnover

Although Marx examined several numerical examples in Chapter 15, Japanese Marxian economists from around 1950 clarified three main methods (Tanaka 1996):

– Interrupted production method 

– Unilateral continuous production method

– Overlapping (parallel) continuous production method 

Assume that 100 units of money are injected into production each week for six consecutive weeks, and products worth 600 are sold all at once after a three-week circulation period.

A. The interrupted production method 

In the interrupted production method, production stops and resumes only after the products are sold.

The composition of productive capital, money capital, and commodity capital changes over time as follows:  

Marx noted such an interrupt production in the circuit of P…P and referred to Chinese handicraftsman (Marx 1978, 181-182) In this method, the fixed capital remains idle for circulation. 

B. The unilateral continuous production method

In the unilateral continuous production method, two production processes alternate so that production is not interrupted during circulation. circulation.

We can rewrite the above figure as follows.

　  

The composition of the three kinds of capital again changes over time.

Money is injected into production successively, whereas sales occur in a single stroke, leaving some money temporarily idle due to the timing gap (Marx 1978, 334, Lapavitsas 2017, 157). Marx primarily considered this method. However, Japanese Marxian economists have proposed a continuous method in which no money remains idle.  

C. Overlapping (parallel) continuous production method

In the overlapping (parallel) continuous production method, the capitalist arranges several processes in a staggered manner so that a new production process begins every week. Specifically, the total sales revenue of 600 in each period is divided among six production processes, with 100 injected into each. 

In this way, what would otherwise be a single, one-stroke circulation is transformed into a successive one, leaving no money idle. The composition of the three kinds of capital again changes over time as follows:

 

Nevertheless, c reveals that the capitalist cannot manage this process completely. Idle money arises in different forms within production and circulation, each with distinct characteristics. These differences will be discussed in Section 2.4. Before that, however, the next section examines the effect of shortening circulation under continuous production.

2.3 Relationship between Circulation Time and Initial Capital Requirement

Now, consider a case where circulation time shortens from three to two weeks. Under the assumption of continuous production, the fluctuations of the three kinds of capital are shown below. 

The number of turnovers within the same time period remains unchanged in both the 2-week and 3-week circulation cases. However, when circulation is shorter, the required amount of initial capital is lower (Marx 1978, 358). If we consider profit, profit rates would increase.

Thus, even if circulation time is shortened, total production is unchanged under continuous production. The idea that shortening circulation automatically leads to a higher periodic profit rate is somewhat misleading.

There is some literature on the adjustment of the periodic profit rate defined by Marx (Moseley 2017, Marx 2017,. De Marco 2023)

For example, Passarella and Baron (2015, p.1418) define a periodic profit rate, taking into account both the organic composition and the “temporal composition” of capital. They denote ri′ as the periodic profit rate (distinct from the profit rate in a single turnover, r) of the ith industry and express it as:

This equation appears to calculate the profit rate, adjusted for both the organic and temporal compositions of capital. However, under continuous production, the length of circulation relative to production time mainly affects the amount of initial capital required. We can therefore rewrite the expression for ri'​ as:

2.4 Difference between two types of idle money from production and circulation

As discussed in Section 2.2, if the capitalist can arrange production and circulation perfectly, no money remains idle. However, a closer look reveals the emergence of idle money.

Let us consider the simplest case, where both production time and circulation time are five weeks (Marx 1978, p. 337). In addition to this assumption, suppose that both production and circulation proceed successively. If the capitalist can make a complete arrangement, no money remains idle. The composition of the three forms of capital then changes over time as follows:

A. Idle money from production

Suppose circulation proceeds evenly, but in production different amounts of money—100, 50, 100, 150, and 100—are injected each week. Except for the initial stages, we can draw three types of capital (money, productive, and commodity) as follows:

Although Idle money appears, it is technically determined and predictable.        

B. Idle money from circulation

Now suppose that money is injected into production evenly, but weekly sales fluctuate randomly—for example, following a normal distribution. In the figure below, weekly sales follow a normal distribution with a mean of 100 and a standard deviation of 60.

Even if the average sales volume per period can be calculated, some variance always remains. When sales are faster than average (e.g., weeks 6–9 and 22–28 in the figure), idle money increases. In contrast, when sales are slower than average (e.g., weeks 3–5, 10, and 12–20), money runs short. In the example above, the maximum shortfall is about 200. To continue production smoothly, the capitalist must prepare an additional 200 units of capital in advance. The composition of the three types of capital can be drawn as follows: 

C. Brief Summary on the two types of money reserve

money capital is a kind of capital that is temporarily standing still in the form of money. It is also called other names: The fixed capital forces the capitalist to hold some reserve money to continue production. This type of reserve is called “turnover reserve” (Lapavitsas 2017, 137,165), transaction reserves or microeconomic function of circulation hoards (Saros 2008).

It should be noted that there are different types of reserve money. The first type arises predictably from successive production processes. The second type arises from unpredictable fluctuations in sales. Besides these, there are other forms of reserve money, such as funds set aside for future accumulation.

Many English-language studies on capital turnover focus on the long-term declining trend of circulation time and reserve requirements (De Marco 2022, Passarella and Baron 2015). In contrast, Unoist scholars usually focus on the uncertainty and unpredictability of circulation (Yamaguchi 1985, Lapavitsas 2017, 149, 165).

If an individual industrial capitalist tries to deal with this uncertainty of circulation on their own, they must hold a large amount of idle money. However, they may attempt to make use of their temporarily excessive idle funds, which gives rise to commercial credit between industrial capitalists.

Reference 

De Marco, G. (2022) Marx’s general rate of profit: How turnover time, accumulation and rate of surplus value affect the formation of prices of production. Review of Political Economy 34(3): 375–397.

De Marco, Guido Turnover Time and Marx's Decomposition of Profit Adjustment in the Process of Equalization.

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