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Turnover of industrial capital, commercial and bank credit: modern Unoist approach 3. Commercial credit
3. Commercial Credit
3.1 Reason for the Emergence of Commercial Credit
Now, we remove the assumption that no credit
relations exist. The simplest form of credit is commercial credit between
industrial capitals. When a buyer faces a shortage of money and a seller has
abundant funds, the seller can sell products on credit. The buyer can thus save
additional capital. This can be explained in two ways: Frist, when their sales
are temporarily delayed, industrial capitalists can purchase materials on
credit to maintain production. Second, if they can buy on credit whenever
necessary, they can reallocate part of their reserves to expand production. (Itoh
and Lapavitsas 1999, pp. 89–90).
In contrast, the seller can charge a markup
on credit sales. It should be noted that selling on credit does not shorten the
circulation time. The seller providing credit must advance additional capital
to continue their own production until the buyer makes payment. If the seller
discounts the bill with a bank (Marx 1991, p.615), they change from a credit
giver to a credit receiver.
3.2 Profit transfer in the commercial credit between two
capitals
Since the credit price increases by a
markup on credit sales, part of the buyer’s profit is transferred to the
seller. This transfer has been largely overlooked in literature.
Macroeconomists, such as MTC and post-Keynesians, cancel out firm-to-firm
relations. Economists focusing on production prices, such as Sraffians, ignore
differences in circulation that exist within the same industry. Traditional
Unoist scholars regarded markups on commercial credit only as a primitive form
of interest and did not discuss them in detail.
Yamaguchi analyzed the transfer of a
portion of profit through the delegation of circulation functions (Yamaguchi
1998, 70). Later, Obata discussed profit transfer between commercial and
industrial capitals using a simple equation (Obata 2009). Following his
approach, this paper examines profit transfer in commercial credit in this
section, and in bank credit in the next section. The mathematical expressions
in Sections 3 and 4 are a concise summary and further development of Iwata 2021a.
Suppose that the output of sector B is the input for sector A. Ai denotes an individual firm (i = 1, 2, …) and Bi denotes an individual firm (i = 1, 2, …). Assume that firm A1 in sector A faces a monetary shortage, while firm B1 in sector B has excess funds. B1 can sell their product to A1 on credit with a markup on the credit sale.
We denote the variables as follows:
PB: cash price of products B
α: markup on credit sale
Pk: cost price of B
PA: sale price of A
CA: Advanced capital of the normal firm in sector A, including
productive and circulation capital
CB: Advanced capital of the normal
firm in sector B, including productive and circulation capital
Q: quantity of purchases and sales (we use
the same symbol Q by adjusting units at each stage)
The variables Pk, PB,
and PA are determined as production prices. One features of
commercial credit is this relatively closed relation between two capitals, A1
and B1:αis represents a deviation from the production price PB
only within this bilateral relation.
We denote β, the share of commercial credit
used by A1, as:
β=
First, on the production price system, assume that the profit rates of A1 and B1 are equal, without commercial credit,
Next, assume that A1’s lack of reserve funds and B1’s excess reserve funds are equal to the same amount Y.Capitals A and B compete to maximize their respective profit rates
via the markup. Finally, the following equality holds:
When the two profit rates are equal under
commercial credit, the following holds:
The interest rate
The equation assumes that the maturity
period of the bill coincides with the period used for calculating interest
(e.g., one year). The parameter
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