“Firstly, the purely commercial operations. It does not take more time to deal with large figures than with small ones. It takes ten times as much time to make 10 purchases at £100 each as it does to make one purchase at £1,000. It takes ten times as much correspondence, paper, and postage, to correspond with 10 small merchants as it does with one large merchant. The clearly defined division of labour in a commercial office, in which one keeps the books, another looks after money matters, a third has charge of correspondence, one buys, another sells, a third travels, etc., saves immense quantities of labour-time, so that the number of workers employed in wholesale commerce are in no way related to the comparative size of the establishment. This is so, because in commerce much more than in industry the same function requires the same labour-time, whether performed on a large or a small scale. This is the reason why concentration appears earlier historically in the merchant's business than in the industrial workshop. Further, regarding outlays in constant capital. One hundred small offices cost incomparably more than one large office, 100 small warehouses more than a large one, etc. The costs of transport, which enter the accounts of a commercial establishment at least as costs to be advanced, grow with the fragmentation.” (p 295)
These economies of scale for the merchant capital are also the basis for understanding how the variable capital employed by the merchant capital produces for it a surplus value.
“Suppose B is the entire merchant's capital directly applied in buying and selling commodities, and b the corresponding variable capital paid out in wages to the commercial employees. Then B + b is smaller than the total merchant's capital, B, would be if every merchant had to get along without assistants, hence would invest nothing in b. However, we have not yet overcome the difficulty.
The selling price of the commodities must suffice 1) to pay the average profit on B + b. This is explained if only by the fact that B + b is generally a reduction of the original B, representing a smaller merchant's capital than would be required without b. But this selling price must suffice 2) to cover not only the additional profit on b, but to replace also the paid wages, the merchant's variable capital = b.” (p 295)
In order for the merchant capital to make a profit, out of the employment of its workers, therefore, it must be able to sell commodities at a price that not only covers the capital it must advance to buy these commodities, from industrial capital, plus its other costs (B), but also the costs of employing these workers (b). In fact, it must sell them at prices which not only cover these costs, but also return the average profit.
The prices at which it can sell those commodities are determined by their prices of production, aside from temporary fluctuations. Whether or not it can make a profit then is really down to its cost, and as described, its costs relative to its revenue will be a function of its scale of operation. Operating on a larger scale, and employing wage workers ensures that the capital laid out, B + b, is smaller than the original B (without wage workers) relative to the value of commodities sold, and, therefore, the profit realised. But, how much profit then still depends on how much must be paid in wages, and whether this payment of wages should be considered as expenses to be recovered in the price.
“The crux of the matter is, indeed, to find the limits (mathematically speaking) of b. Let us first accurately define the problem. Let B stand for capital invested directly in buying and selling commodities, K for the constant capital (actual handling costs) consumed in this function, and b for the variable capital invested by the merchant.” (p 296)
B is simply the purchase price of the commodities paid by the merchant. As seen earlier, he buys them from the industrial capitalist at a price that gives the industrialist the average rate of profit, but which is itself below the value of the commodities. The merchant sells them at their value, and thereby makes a profit.
If we take the constant capital, K, if the industrial capitalist sold their own commodities, they would also have to invest capital for the same purpose. But, again as set earlier, the economies of scale, of the merchant, means that the amount they set out is proportionately smaller. As was the case referred to earlier, of the grain producer, whose constant capital, in the form of a silo, adds no new value to the grain, but whose cost must be recovered in the price of the grain, so the cost of the constant capital used in the circulation process adds no new value, but must be recovered in the prices charged by the merchants.
“This portion, nonetheless, must be continually recovered in the price of the commodity, or, what amounts to the same, a corresponding portion of the commodity must be continually expended in this form, or, from the standpoint of the total capital of society, must be continually reproduced in this form.” (p 296)
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