Kapital vol. 3 part 1 chapter 6: The Effect of Price Fluctuations

Part 1 Chapter 6

(This post is part of an ongoing project: a close reading of volume 3 of Kapital, one post per chapter. I hope that others who are tackling this book for the first time might find my summaries and thoughts useful. I also hope that others might leave their own thoughts, criticisms, help, etc. here so that this blog might become a good collective resource for those brave souls who take on Vol. 3.)

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The Effect of Price Fluctuations

1. Fluctuations in the Price of Raw Materials, and their Direct Effects on the Rate of Profit

We begin with a repetition of the observation from the previous chapter that changes in prices of raw materials change the cost-price and therefore the rate of profit. (Marx is mostly referring to raw materials that form the circulating part of constant capital, not fixed capital, though later he can’t help but move briefly into this topic.) Higher cost-price means lower rate of profit and vice versa. Thus the cost of transport, the efficiency of world trade and the tariff system all play an important role in the way they effect raw material prices and profit rates.

Since raw materials pass directly into the product while fixed capital’s value is transfered a little at a time over the life of the fixed capital this means that price fluctuations in raw materials have more of a direct effect on prices and profit rates than fluctuations in fixed capital costs. As prices of commodities fluctuate so the demand for them fluctuates, causing expansions and contractions in the supply of the commodity on the market.

Marx, giving us a sneak preview into the soon-to-come explanation of prices-of-production, mentions here that these fluctuations of price would not be quite so extreme in a situation of average profit rates and prices of production. We are still assuming that commodities trade at their values. But if they traded at their prices of production instead, the formation of average profit rates would slightly soften this fluctuation in price caused by the fluctuation of raw material prices.

The increasing productivity of labor means that the same amount of workers produce more product per hour. This increasing productivity requires an increase in the raw materials. If workers are making twice as many shoes as before they need twice as much leather, rubber and thread. Thus the price of the commodity contains less and less labor, and less and less fixed capital value but more and more raw material value. Marx refers to this fall in the value added, per commodity, by labor and fixed capital as a “falling tendency” only counter-balanced by a decrease in the price of raw materials.

Marx ends this first section by noting (I think I am understanding this correctly) that when raw material prices grow inordinately high this causes manufacturers to make better use of waste product. We may see a similar process in our lifetime if prices in oil continue to fluctuate in ways the disrupt production.


Appreciation or depreciation of capital refer to changes in the value of any of the factors of production after they have been purchased due to general changes in the economy. For instance, after purchasing a 100 barrels of crude oil the market price of oil might go up due to, say, a new war in the Middle East. What does this appreciation in the already purchased raw material inputs mean for the capitalist who has already purchased this oil? Or a capitalist may spend millions of dollars on a new, state-of-the-art, factory that makes cars only to find out that ten years later foreign car companies have invested in even more state-of-the-art factories at lower prices. How does this depreciation of fixed capital effect the profit rate? Marx intends to tell us in this chapter.

He also intends to tells us about the tie-up and release of capital by which he means this: In order for reproduction to occur a capitalist must devote a certain portion of the price of his products to reinvesting back into constant and variable capital. If he sells a football for $10 he can’t spend that entire $10 on booze and comic books. A certain portion of that $10 is “tied-up” in variable and constant capital. Now, if the price the food goes down and wages fall, or if the prices of raw materials fall this means that some of this previously tied-up capital is “released”. The capitalist can then choose to spend all of this released capital on loose-living and luxury goods or to reinvest in expanding production.

At the beginning of the chapter Marx notes that a full understanding of these factors, appreciation, depreciation, tie-up and release, really requires an analysis of the credit system and the world market. These are topics Marx was reserving for much later in his argument. Unfortunately he never got to them.

Now you may be thinking, “Didn’t we just spend a really long time investigating the effects of changes in the prices of constant and variable capital on the profit rate?” Yes we did. All of those prior investigations assumed that changes in prices happened between production periods, as if capitalists bought inputs at the beginning of the week, turned them into commodities which they sold at the end of the week, and then stepped into the market on Monday to encounter a whole new set of prices. In reality, at any given time parts of the total capital are in the market looking to buy or sell goods while other parts are in production making goods. This is why we need to look at appreciation and depreciation separately from our previous analysis. Remember that the law of value is the law whereby the production is regulated indirectly through market exchange. We produce with an eye on exchange. But we don’t know the full value of our product until we realize it in exchange. While one thing is happening in the private sphere of production quite another might be happening in exchange. Values are constantly changing as changes in productivity, circulation, and politics (tarifs, wars, etc.) effect the socially necessary labor time, socially necessary turnover time, monopoly pricing, scarcity rents, etc. (When we add the credit system to the mix an entirely new aspect of price fluctuations are introduced into the picture.)

If the price of cotton goes up then the prices of commodities that contain cotton go up. If I own a t-shirt factory and have already bought a year’s worth of cotton I will actually benefit from the appreciation of my raw materials. I can sell t-shirts at the new market price caused by the increased price of cotton. Because I bought my cotton at the lower, pre-appreciation, price I can pocket the difference as profit. The appreciation of my stock of cotton actually offsets the fall in profit usually caused by a rise in constant capital values. But if all the competing t-shirt making firms have also purchased a year’s worth of cotton the existence of cheaper cotton in our stock piles will press the price of t-shirts below this new appreciated price. The opposite process takes place if cotton prices fall.

This all make for some confusing results. If my capital looses value through depreciation this can still mean that my profit rate goes up since the profit rate is the excess of surplus value above the value of total capital. If my capital gains in value my profit rate my go down for the same reasons.

A discussion of appreciation and depreciation of fixed capital can’t happen without a theory of ground rent so this will have to wait till later in the book. But Marx makes some remarks about machinery here. If the use-value of machinery is quickly going out of date, this causes machines to loose their value- to depreciate- before the labor contained in them can be fully transferred into commodity form. To take my previous example of the US auto-industry, if I build a fancy new Ford factory in 1940 in Detroit and the Japanese build a much fancier and cheaper factory 15 years later this makes my machines depreciate. I can’t sell my cars at prices that will allow me to recoup my investments in fixed capital. I have to sell at the lower market price set by the Japanese. (Or I can resort to tariffs, lay-offs, attacks on unions, “buy American” campaigns, right-wing populism, etc.) Marx calls this “moral depreciation”. This means that when new machinery comes on-line there is often an urgent need to get the most product out of them before they depreciate. In Marx’ time this meant the prolongation of the working day in order to work the machine as much as possible before it became obsolete. We see similar logic today with the use of night-shifts and overtime in factories. (Slightly related is the desperate urgency to get the most profit out of intellectual property before the monopoly rents associated with it disappear.) This all means that the newest entrants into the market are often not the ones that profit from a new technology. They often go out of business because they can’t compete with new competitors. This devalues their fixed capital. The winners buy up this devalued capital at bargain-basement prices which allows them to have a huge profit margin.

Here, in a few paragraphs Marx lays out the part of the picture of the accumulation cycle that characterizes capitalist crisis. It is the coupling of this picture with the Falling Rate of Profit which allows us to see the way the “counter-vailing influences” against a falling profit rate play out in real time. We saw a few chapters back that the falling profit caused by an increase in organic composition can be offset by a falling price of constant capital. Here Marx shows how this works in a world in which huge amounts of investment go into fixed capital. When fixed capital prices fall we get moral depreciation which means a falling rate of profit which can only be reconciled by crisis and devaluation. This line of argument fits quite well with the description of the US economy in the last 70 years, especially the auto-industry. Marxists like Andrew Kliman, David McNally, Allen Freeman, David Harvey and others point to this moral depreciation of fixed capital as a key element in explaining the current crisis. It is this phenomena that Robert Brenner mistakes for competition in his competition-centered account of crisis in “The Economics of Global Turbulence.”


“There is still variable capital to be considered. ”

Obviously- if the means of subsistence appreciate then wages must go up and surplus value falls. The opposite happens with depreciation.

If a capitalist is used to reinvesting so much a week in wages and the wage begins to fall this will then free up some of that variable capital. Some of the variable capital is “released” and become surplus value. This can be used for new golf clubs or vacations to Buenos Aires or it can be reinvested in production. This makes it possible to expand production by hiring more workers to exploit. The opposite happens with an appreciation of wages. More capital is “tied up” in variable capital which means that if production is to continue at the same scale money must be taken out of the surplus value and spent on variable capital. The rate of surplus value and rate of profit falls.

Marx makes the distinction in this section between the effects of this appreciation or depreciation on newly invested capital or previously invested capital. If depreciation effects a newly invested capital all this does is to change the rate of surplus value and profit. If it effects a previously invested capital this depreciation releases variable capital for new investments.


“The release and tie-up of variable capital, just analysed, is the result of a depreciation or appreciation of the elements of variable capital, that is, of the cost of reproducing labour-power.”

But variable capital can be released by changes in productivity as well. If productivity increases make is possible to get the same amount of commodities out of half as many laborers this means a releases of variable capital. However, as we have already seen, this most often goes along with an increased need for raw materials which means a tie-up in constant capital costs. The relative amounts of the release of variable capital and the tie-up of constant capital determine the effect on profit rates.

Usually a tie-up of more constant capital goes along with increasing productivity but it can also correspond to the opposite. In agriculture, if the fertility of land is declining, more and more constant capital will be needed to get the same amount of product from the land. Here declining productivity ties-up more constant capital.

As constant capital in the form of raw materials starts to take on more and more of the day-to-day cost of production, price changes in raw materials have more violent effects on profit rates. Fixed capital costs are long-run costs and don’t depend much on the day to day fluctuations of prices. But raw materials must constantly be replenished and thus can cause endless fluctuations.

This is especially true of raw materials whose production involves natural forces out of the control of man. Agriculture is the chief example here. A bad harvest, a blight, etc. can make agricultural prices fluctuate. The products of nature are not nearly as steady and predictable as the products of purely human labor in other spheres of production. Agricultural production also can’t immediately increase or decrease to meet fluctuations in demand. Production is planned around yearly crop  cycles and can’t be adjusted until the beginning of the next planting season. This means that there can be shortages and gluts of agricultural goods.

Fixed capital tends to grow steadily- or even rapidly. This means that there is always a growing need for raw material inputs. This leads to overproduction of machinery and under-production of agricultural goods. And this means higher prices in the agricultural sphere.

In times of spikes in raw material prices capitalists often band together in associations to stimulate production of raw materials. This is one of many ways capitalists act collectively as a class when they are threatened as a class. But as soon as production returns to normal the capitalists return to open competition on the market and their ideology of “free trade”. Funny how disposable economic liberalism is when the capitalist class is threatened. Funny also how the libertarian/neo-liberal/Austrian argument is always that these trusts and other such associations are an imposition upon a rationally functioning market when it is clear from this and countless other examples that just the opposite is the case: these are attempts by the capitalist class to impose order upon an irrational market. Marx concludes this segment by saying that capitalism is totally irrational from the standpoint of agricultural production. It requires “either the hand of the small farmer living by his own labour or the control of associated producers.” Is it no wonder that today the agricultural industry depends on massive subsidies and tariffs?


The last bit of this section lists examples of the above arguments. There are 1858 factory reports about spindle and looms growing faster than sheep. From the same year Marx quotes reports of the cotton trade not being able to keep up with the increase in self-acting mule spindles and looms. This leads us to the 3rd and final part of the chapter.


This might be painful. I have more or less just summarized the history Marx gives. Why have I done this and should you bother reading it? I don’t know the answer to either question. I think I did it to help me understand the gist of the argument. Feel free to skip all of it. I will make a few remarks at the end in summary.

Preliminary History 1845-60
1845: “Golden Age” of cotton. Cotton prices are low and factories are growing.
1846: Factory capacity has already outpaced cotton production. Cotton prices are rising and factories are working short-time (less than full days) because of shortages. Finished cotton products have saturated the market which means that their prices can’t rise to compensate for the rise in raw material prices.
1847, October: A money panic, shortages continue. I assume that the money panic doesn’t relate to the cotton problem. Marx doesn’t expand much on this.
1849: A recovery happens. Perhaps some of the demand which is stimulating production comes from consignments… (Here we allude to the way credit can displace crisis). Cotton prices have fallen considerably allowing production to continue. This fall in price is not explained in the manuscript (unless I am overlooking something.) As the recovery accelerates large producers start to stockpile cotton supplies, causing anxiety for smaller producers.
1850: Scarcity of cotton resumes and prices rise.
1853 April: Prosperity again.
1853 October: Overproduction of cotton. Depression in the industry.
etc. etc.

1861-64. American Civil War. Cotton Famine. The Greatest Example of an Interruption in the Production Process through Scarcity and Dearness of Raw Material

Here Marx discusses the history of the Cotton Famine in England which was caused by a blockade on American cotton imports in 1861 after the start of the US civil war. There was a huge shortage of cotton just at a time when the market had been over-saturated through overproduction. A severe crisis ensued and huge numbers of workers lost their jobs and had to go on public assistance. Wikipedia has a good, brief history: http://en.wikipedia.org/wiki/Lancashire_Cotton_Famine

1860: The massive expansion of investments in mills and other fixed capital continues while a shortage of cotton begins. (I assume this shortage comes from people hoarding cotton in anticipation of the blockade the following year.) Prices are rising and people are beginning to look for new sources of cotton. There is talk of expanding railroads to India in search of cheaper raw materials. India is already helping absorb the excess production from England. This is still the two-part function of a colony today: absorb excess capital, provide cheap raw materials.
1861: It becomes obvious that manufacturers overproduced in the previous year. It takes several years for the market to absorb all this excess production. Cotton prices are way too high due to the blockade and there is a huge shortage of cotton on the market. Many of the bigger firms stockpiled cotton. The value of  this hoarded cotton appreciated  which averted the usual depreciation of the total capital that we might expect in a crisis.

Manufacturers begin adulterating their cotton products by adding other stuff to the cotton in the spinning process. They weave in flour which increases the weight of the products but, of course, lessens their use-value. These substitute materials are harder to work with and break more and so this lowers the productivity of labor. Hours are decreased, wages start to fall and strikes break out.

1862: Unemployment is high, in some districts as high as 15% with larger numbers working short-time. Many producers are small-scale capitalists and they are hit particularly hard by the crisis. Inferior cotton is being used everywhere which slows down production.
1863: The inferior cotton slows down production thus having a severe effect on wages. The cotton workers are on a piece-rate system. This means that the slower they work the less they earn. Wages sink to almost nothing. Meanwhile workers are being fined for making inferior products.
Unemployment and underemployment sky-rocket. The public relief committees employ workers at poverty wages in public works: street paving, rock breaking, etc. Any worker who complains about the wage is struck from the relief rolls. Marx points out that this drastic devaluing of labor power is a great gift to the capitalist class. Urban development is given a free gift from the industrial reserve army.
1884: The public works employ so many people that is becomes hard to keep wages down. The reserve army of labor dwindles and strikes break out in factories. This will not do for the bourgeois who protest until the Public Works Act is repealed. Though the capitalists class looks to free markets and global trade to eventually bring cotton supplies back to normal and absorb surpluses they don’t advocate the mobility of labor. The bourgeoise work against allowing emigration of workers from the cotton factory districts.

And here the manuscript breaks off…

What can we learn from this history? Obviously it is a great example of many of the themes of the chapter: changing prices of raw materials, appreciation and depreciation, agricultural production cycles not synching up with the rhythm of capital accumulation… I’m sure that in Marx’s time there were diverse opinions as to the cause of the crisis. For many it was probably seen as the result of external political causes. But Marx brilliantly outlines the variety of complicated factors the all weave themselves together. We notice that he begins his story before the blockade caused by the American Civil War. Thus he already establishes a cyclical rhythm of boom and bust caused by over-production and the delay in agricultural production to respond to the market signals being given by the industrial sector. Once the external shock of the cottage shortage is introduced, this boom and bust cycle is taken to an extreme. Not only is Marx able to highlight the way in which this external shock merely amplifies an already existing industrial-agricultural cycle, but he also makes some keen observations about the way in which the capitalist class acts as a class to preserve its class interests in such times of crisis. We might take these themes to heart in our own time. It would be easy to blame the crisis of the 1970’s on the OPEC crisis as many historians do. It would be easy to blame our present crisis just on the sub-prime bubble, or our own oil prices. But the problems caused by these fluctuations in prices only serve to expose much more fundamental rhythms of capitalist accumulation. As in the cotton crisis we can see the capitalist class today acting as a class, through the the state, to preserve itself.

next chapter


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3 Responses to Kapital vol. 3 part 1 chapter 6: The Effect of Price Fluctuations

  1. Pingback: Part 1 chapter 5 Economy in Employment of Constant Capital « Kapitalism101

  2. beebee says:

    Andrew Kliman has a new, very interesting roughly 100-page long paper (first draft) on corporate profitability in the US:

    The Persistent Fall in Profitability Underlying the Current Crisis: New Temporalist Evidence

  3. clive says:

    I kind of don’t get how price fluctuations can affect the rate of profit. For example imagine if cotton became cheaper and clothes manufacturers could make their commodities cheaper, would not compitition ensure that profits go back down to the average rate?

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