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Capital: A Critique of Political Economy, Vol. II. The Process of Circulation of Capital; Marx, Karl
16 paragraphs found.
Preface, by Friedrich Engels

He says in "Wealth of Nations," Vol. I, Ch. VI: "As soon as stock has accumulated in the hands of particular persons, some of them will naturally employ it in setting to work industrious people, whom they will supply with materials and subsistence, in order to make a profit by the sale of their work, or, by what their labor adds to the value of the materials.... The value which the workmen add to the materials, therefore, resolves itself in this case into two parts, of which the one pays their wages, the other the profits of their employer upon the whole stock of materials and wages which he advanced." And a little farther on he says: "As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.... The laborer...must give up to the landlord a portion of what his labor either collects or produces. This portion, or what comes to the same thing, the price of this portion, constitutes the rent of land."

Part I, Chapter 2

As soon as C' has been sold for money, it may re-enter into the material elements of the labor process, and thus of the reproductive process. Whether C' is bought by the final consumer or by a merchant, does not alter the case. The quantity of commodities produced by capitalist production depends on the scale of production and on the continual necessity for expansion following from this production. It does not depend on a predestined circle of supply and demand, nor on certain wants to be supplied. Production on a large scale can have no other buyer, apart from other industrial capitalists, than the wholesale merchant. Within certain limits, the process of reproduction may take place on the same or on an increased scale, although the commodities taken out of it may not have gone into individual or productive consumption. The consumption of commodities is not included in the cycle of the capital which produced them. For instance, as soon as the yarn has been sold, the cycle of the capital-value contained in the yarn may begin anew, regardless of what may become of the sold yarn. So long as the product is sold, everything is going its regular course from the standpoint of the capitalist producer. The cycle of his capital-value is not interrupted. And if this process is expanded—including an increased productive consumption of the means of production—this reproduction of capital may be accompanied by an increased individual consumption (demand) on the part of the laborers, since this individual consumption is initiated and mediated by productive consumption. Thus the production of surplus-value, and with it the individual consumption of the capitalist, may increase, the entire process of reproduction may be in a flourishing condition, and yet a large part of the commodities may have entered into consumption only apparently, while in reality they may still remain unsold in the hands of dealers, in other words, they may still be actually in the market. Now one stream of commodities follows another, and finally it becomes obvious that the previous stream had been only apparently absorbed by consumption. The commodity-capitals compete with one another for a place on the market. The succeeding ones, in order to be able to sell, do so below price. The former streams have not yet been utilized, when the payment for them is due. Their owners must declare their insolvency, or they sell at any price in order to fulfill their obligations. This sale has nothing whatever to do with the actual condition of the demand. It is merely a question of a demand for payment, of the pressing necessity of transforming commodities into money. Then a crisis comes. It becomes noticeable, not in the direct decrease of consumptive demand, not in the demand for individual consumption, but in the decrease of exchanges of capital for capital, of the reproductive process of capital.

Part I, Chapter 4

The capitalist throws less value in the form of money into the circulation than he draws out of it, because he throws into it more value in the form of commodities than he had withdrawn from it. To the extent that he is simply a personification of capital, an industrial capitalist, his supply of commodity-value is always larger than his demand for that value. The equality of his supply and demand in this respect would indicate that his capital had not produced any surplus-value; it would not have performed the functions of productive capital; the productive capital would have been converted into commodity-capital which would not be impregnated with surplus-value; it would not have drawn any surplus-value in commodity-form out of labor-power during the process of production, it would not have performed any capital-functions at all. The capitalist must indeed "sell dearer than he has bought," but he succeeds only in doing so, because the capitalist process of production enables him to transform the cheaper commodity, which contains less value, into a dearer commodity with increased value. He sells dearer, not because he gets more than the value of his commodity, but because his commodity contains a greater value than that contained in the natural elements of its production.


The rate at which value is added to the capital of the capitalist increases in proportion to the difference between his supply and his demand, that is to say in proportion as the surplus of the commodities which he places on the market exceeds the value of the commodities which he has taken from it. His aim is not to equalize his supply and demand, but to make the difference between them as much as possible in favor of his supply.


Inasmuch as the laborer generally converts his wages into means of existence, and for the overwhelmingly larger part necessities of life, the demand of the capitalist for labor-power is indirectly also a demand for the articles of consumption assimilated by the working class. But this demand is equal to v and not one atom greater. If the laborer saves a part of his wages—we do not consider any questions of credit at all—he converts a part of his wages into a hoard and does not perform the functions of a purchaser to that extent. The limit of the maximum demand of the capitalist is C, equal to c plus v, but his supply for the market is c plus v plus s. If the composition of his commodity-capital is 80c+20v+20s, his demand is equal to 80c+20v, or one fifth smaller in value than his supply. His demand as compared to his supply decreases in proportion as the percentage of the mass of surplus-value produced by him (his rate of profit) increases. Although the demand of the capitalist for labor-power, and thus indirectly for necessities of life, decreases continually compared to his demand for means of production in the further development of production, it must not be forgotten that day by day his demand for Pm is always smaller than his capital. His demand for means of production must, therefore, be always smaller in value than the commodity-product of the capitalist who, working with a capital of equal value and conditions like his, furnishes him with those means of production. It does not alter the case, if many capitalists instead of one furnish him with means of production. Take it that his capital is 1,000 pounds sterling, and its constant part 800 pounds sterling; then his demand on all the capitalists supplying him is equal in value to 800 pounds sterling. Together they supply for each 1,000 pounds sterling means of production valued at 1,200 pounds sterling, assuming that the rate of profit is the same for all of them, regardless of the rate at which they share in the 1,000 and of the proportion which the share of each one may represent in his total capital. The demand of the buying capitalist covers only two-thirds of the supply of the sellers, while his total demand equals only four-fifths of the value of his own supply to the market.


This turn-over does not change anything in the proportion of the total demand of the capitalist to his total supply. The former remains one-fifth smaller than the latter.


We now come to the question of reproduction. Take it that the capitalist consumes the entire surplus-value composed of money m and reconverts only the original capital-value C into productive capital. Then the demand of the capitalist is equal to his supply; but this does not refer to the movements of his capital. As a capitalist, his demand is only for four-fifths of value of his supply. He consumes one-fifth as a non-capitalist; he consumes it, not in the performance of his function as capitalist, but for his private requirements or pleasure.


His calculation, expressed in percentages, stands as follows:

Demand as capitalist...100, supply120.
Demand as man of the world20, supply0.

Total demand...120, supply120.
Part I, Chapter 6

With the development of capitalist production, the scale of production becomes less and less dependent on the immediate demand for the product and falls more and more under the determining influence of the amount of capital available in the hands of the individual capitalist, of the instinct for the creation of more value inherent in capital, of the need for the continuity and expansion of its processes of production. This necessarily increases the mass of products required in each branch of production in the shape of commodities. The amount of capital fixed for a longer or shorter period in the form of commodity-capital grows proportionately. In short, the commodity-supply increases.


The commodity-supply must have a certain size, in order to satisfy the demand during a given period. The continual extension of the circle of buyers is one of the factors in the calculation. For instance, in order to last to a certain day, a part of the commodities on the market must retain the form of commodities while the remainder continue in flow and are converted into money. The part which is delayed while the rest keep moving decreases continually, to the extent that the size of the entire supply decreases, until it is all sold. The delay of the commodities is thus calculated on as a necessary requirement of their sale. The size of the supply must be larger than the average sale or the average extent of the demand. Otherwise the excess over this average could not be satisfied. At the same time, the supply must be continually renewed, because it is continually dissolved. This renewal cannot come from anywhere in the last instance than from production, from a new supply of commodities. Whether this comes from abroad or not, does not alter the case. The renewal depends on the periods required by the commodities for their reproduction. The commodity-supply must last during these periods. The fact that it does not remain in the hands of the original producer, but passes through various stores from the wholesaler to the retailer, changes merely the aspect, not the nature of the thing. From the point of view of society, a part of capital still retains the form of a commodity-supply, so long as the commodities have not been consumed productively or individually. The producer tries to keep a supply corresponding to his average demand, in order to be somewhat independent of the process of production and to insure for himself a steady circle of customers. Corresponding to the periods of production, terms of sale are formed and the commodities form a supply for a longer or shorter time, until they can be replaced by new commodities of the same kind. The continuity and regularity of the process of circulation, and therefore of the process of reproduction, which includes the circulation, is safeguarded only by the formation of a supply.

Instead of a supply arising from the conversion of the product into a commodity, and of the supply of articles of consumption into commodities, as Adam Smith thinks, this transformation, on the contrary, causes violent crises in the economy of the producer during the transition from production for use to production for sale. In India, for instance, the custom of storing up large quantities of grain in years of superfluity, when little could be gotten for it, was observed until very recent times. (Return. Bengal and Orissa Famine. H. of C., 1867, I, page 230, Nr.74.) The sudden increase in the demand for cotton, jute, etc., led in many parts of India to a restriction of rice culture, a rise in the price of rice, and a sale of old supplies of the producers. Then followed the unexampled export of rice to Australia, Madagascar, etc., in 1864-66. This accounts for the acute character of the famine of 1866, which cost the lives of more than a million inhabitants in the district of Orissa alone (1. c. 174, 175, 213, 214, and III. Papers relating to the Famine in Behar, pages 32, 33, where the "drain of the old stock" is emphasized as one of the causes of the famine).—From Manuscript II.
Part II, Chapter 13

A similar influence on the turn-over is exerted by another kind of supply, which productive capital only potentially, but which owing to the nature of its economy, must be accumulated in a more or less considerable quantity and advanced for purposes of production for a long term, although it is consumed in the actual process of production only gradually. To this class belongs, for instance, manure before it is hauled to the field, furthermore grain, hay, etc., and such supplied of means of subsistence as are employed in the production of cattle. "A considerable part of the productive capital is contained in the supplies of certain industries. But these may lose more or less of their value, if the precautions necessary for their preservation in good condition are not properly observed. Lack of supervision may even result in the total loss of a part of the supplies in the economy. For this reason, a careful inspection of the barns, feed and grain lofts, and cellars, becomes indispensable, the store rooms must always be well closed, kept clear, ventilated, etc. The grain, and other crops held in storage, must be thoroughly turned over from time to time, potatoes and beets must be protected against frost, rain, and fire." (Kirchhof, page 292.) "In calculating one's own requirements, especially for the keeping of cattle, and trying to regulate the distribution according to the nature of the product and its intended use, one must not only take into consideration the covering of one's demand, but also see to it that there is a proportionate reserve for extraordinary cases. If it is then found that the demand cannot be fully covered by one's own production, it becomes necessary to reflect first whether the missing amount cannot be covered by other products (substitutes), or by the cheaper purchase of such in place of the missing ones. For instance, if there should happen to be a lack of hay, this might be covered by root crops and straw. As a general rule, the natural value and market-price of the various crops must be kept in mind in such cases, and dispositions for the consumption must be made accordingly. If, for instance, oats are high, while pease and rye are relatively low, it will pay to substitute pease or rye for a part of the oats fed to horses and to sell the oats thus saved." (Ibidem, page 300.)

Part II, Chapter 15

Let us assume that the time of circulation in our illustration is contracted from 3 weeks to 2. This is not to be a normal change, but due, say, to prosperous times, shortened terms of payment, etc. The capital of 600 p. st., which is expended during the working period, flows back one week earlier than needed, it is therefore released for this week. Furthermore, in the middle of the working period, as before, 300 p. st. are released (a portion of those 600 p. st.), but in this case for 4 weeks instead of 3. There are then on the money market 600 p. st. for one week, and 300 p. st. for 4 weeks instead of 3. As this concerns not one capitalist alone, but many, and occurs at various periods in different businesses, it brings more available money-capital on the market. If this condition last for a long time, production will be expanded, wherever feasible. Capitalists working with borrowed money will bring less demand to bear on the money-market, whereby it is relieved as much as it is by an increased supply. Or, finally, the sums made superfluous by the mechanism are thrown definitely on the money-market.


This shows the way in which a plethora of money may arise—quite apart from the reason that the supply of money may be greater than the demand for it; this eventuality causes always but a relative plethora, which occurs, for instance, in the "melancholy period" opening a new cycle after a commercial crisis. In our case we speak of a plethora in the sense that a definite portion of the capital advanced for the promotion of the entire process of social reproduction, including the process of circulation, becomes superfluous and is, therefore, released in the form of money-capital. This plethora comes about by the mere contraction of the period of turn-over, while the scale of production and prices remain the same. The amount of money in the circulation, whether great or small, did not exert the least influence on this.


We had assumed that prices remained the same and the scale of production remained unaltered, while, on the other hand, the time of circulation was either contracted or expanded. Now let us assume, on the contrary, that the period of turn-over remains the same, likewise the scale of production, while prices change, that is to say, either the prices of the raw materials, auxiliaries, and labor-power rise or fall, or those of the two first-named elements alone. Take it, that the price of raw materials, auxiliaries, and labor-power falls by one half. In that case, the capital to be advanced in our above examples would be 50 instead of 100 p. st. per week, and that for the period of turn-over of 9 weeks, 450 p. st., instead of 900. A sum of 450 p. st. of the advanced capital is released in the form of money-capital, but the process of production continues on the same scale and with the same period of turn-over, and with the same sub-division as before. The quantity of the annual product likewise remains the same, but its value has fallen by one half. This change, which is at the same time accompanied by a change in the demand and supply of money-capital, is due neither to an acceleration of the turn-over, nor to a change in the quantity of money in circulation. On the contrary. A fall in the value, or price, of the elements of productive capital by one half would first have the effect of reducing by one half the capital-value to be advanced for the continuation of the business of X in the same scale, so that only one half of the money would have to be thrown on the market by the business of X, since the business of X advances this capital-value first in the form of money, of money-capital. The amount of money thrown into circulation would have decreased, because the prices of the elements of production had fallen. This would be the first effect.

Part II, Chapter 17

The claim that the capitalists can raise the prices of articles of luxury, because the demand for them decreases (in consequence of the reduced demand of the capitalists whose spending money has decreased) would be a very unique application of the law of supply and demand. The prices of articles of luxury fall in consequence of reduced demand to the extent that capitalist buyers are not replaced by laboring buyers, and so far as this replacement takes effect, the demand of the laborers does not result in a rise of the prices of necessities, for the laborers cannot spend that portion of their increased wages for necessities which they spend for luxuries. Consequently capital is withdrawn from the production of luxuries, until their supply in the market is reduced to the measure which corresponds to their altered role in the process of social production. With their production thus reduced, they rise in price, provided their value is otherwise unchanged, to their normal level. So long as this contraction, or this process of compensation, takes place, there is just as constantly, with rising prices of necessities, a migration of capital into the production of these to the degree that it is withdrawn from the other line of business, until the demand is satisfied. Then the balance is restored, and the end of the whole process is that the social capital, including the money-capital, is divided in a different proportion between the production of necessary means of subsistence and that of luxuries.