The additional money capital required for an expanded scale of production

Many writers argue that the programmes of expansion characteristic of the boom are impossible without an additional sum of money; that additional credit creates the boom or makes it possible. But the capitalist mechanism and its cyclical fluctuations are governed by quite different forces. I have already shown that production can be extended even if the level of prices remains constant or falls.

Nevertheless assuming a given velocity of circulation of money, additional money is required to extend the scale of production. But this is for quite different reasons than those adduced by supporters of the credit theory. We know from Marx’s description of the reproduction process that both the individual and the total social capital must split into three portions if the process of reproduction is to have any continuity. Apart from productive and commodity capital, one portion must stay in circulation in the form of money capital. The size of this money capital is historically variable. Even if it grows absolutely it declines in proportion to the total volume of sales transactions.

At any given point of time however, it is a given magnitude which can be calculated according to the law of circulation. If production is expanded then, other things being equal, the mass of money capital also has to be expanded. What is the source of this additional money capital required for expansions in the scale of reproduction?

In Chapter 15 of Capital Volume Two Marx showed how through the very mechanism of the turnover money capital is always periodically set free. While one portion of capital is tied up in production during the working period another portion is in active circulation. If the working period were equal to the circulation period the money flowing back out of circulation would be constantly redeployed in each successive working period, and vice versa, so that in this case no part of the capital successively advanced would be set free. However in all cases where the circulation period and the working period are not equal ‘a portion of the total circulating capital is set free continually and periodically at the close of each working period’ (Marx, 1956, p. 283). As the case of equality is only exceptional it follows that ‘for the aggregate social capital, so far as its circulating part is concerned, the release of capital must be the rule’ (p. 284). Thus a ‘very considerable portion of the social circulating capital, which is turned over several times a year, will therefore exist in the form of released capital during the annual turnover cycle which is set free ... the magnitude of this capital set free will grow with the scale of production the magnitude of the released capital grows with the volume of the labour process or with the scale of production’ (p. 284).

Engels thought that Marx had attached ‘unwarranted importance to a circumstance, which, in my opinion, has actually little significance. I refer to what he calls the “release” of money capital’ (1956, p. 288). This assessment of Engels appears to me to be completely off the mark. Through his analysis Marx did not merely show that large masses of money capital are periodically set free through the very mechanism of the turnover. He also explicitly refers to the fact that due to the curtailment of the periods of turnover as well as to technical changes in production and circulation - as we have seen, carried through chiefly in periods of depression — a ‘portion of the capital value advanced becomes superfluous for the operation of the entire process of social reproduction ... while the scale of production and prices remain the same’ (p. 287). This superfluous part ‘enters the money market and forms an additional portion of the capitals functioning here’ (p. 287). It follows that after every period of depression a new disposable capital stands available. This setting free of a part of the money capital also affects the valorisation of the total capital; it increases the rate of profit in the sense that the same surplus value is calculated on a reduced total capital. The setting free of a part of the money capital is thus a further means of surmounting the crisis. Marx thus shows that despite the assumption of equilibrium:

a plethora of money capital may arise ... in the sense that a definite portion of the capital value advanced becomes superfluous for the operation of the entire process of social reproduction ... and is therefore eliminated in the form of money capital -. a plethora brought about by the mere contraction of the period of turnover, while the scale of production and prices remain the same. (p. 287)

The reduction in the turnover period generates an additional mass of money capital which is used to expand the scale of reproduction further whenever a period of boom is beginning. Marx has this function in mind when he states that the ‘money capital thus released by the mere mechanism of the turnover movement ... must play an important role as soon as the credit system develops and must at the same time form one of the latter’s foundations’ (p. 286).