Capital: A Critique of Political Economy, Vol. II. The Process of Circulation of Capital

Karl Marx
Marx, Karl
Display paragraphs in this book containing:
Friedrich Engels, ed. Ernest Untermann, trans.
First Pub. Date
Chicago: Charles H. Kerr and Co.
Pub. Date
Das Kapital, based on the 2nd edition.

Part I, Chapter II


The rotation of productive capital has the general formula P...C'-M'-C...P. It signifies the periodical renewal of the function of productive capital, in other words its reproduction, or its process of production as a reproductive process generating surplus-value. It is not only production, but a periodical reproduction of surplus-value; it is the function of industrial capital in its productive form, and this function is not performed merely once, but periodically so that the terminal point of one cycle is the starting point of another. A portion of C' may re-enter directly into the same labor process as means of production out of which it came in the form of commodities (for instance, in various branches of investment of industrial capital). This merely does away with the transformation of its value into money proper, or token-money, or else it finds an independent expression merely in calculation. This part of value does not enter into the circulation. Thus it is that values enter into the process of production which do not enter into circulation. The same is also true of that part of C' which is consumed by the capitalist, and which represents surplus-value in the form of means of consumption, in their natural state. But this is inconsiderable for capitalist production. It deserves consideration, if at all, only in agriculture.


Two things are at once apparent in this form.


In the first place, while in the first form, M...M', the process of production, a function of P, interrupts the circulation of money-capital and acts only as a mediator between its two phase M-C and C'-M', it is the entire circulation process of industrial capital, its entire movement within the sphere of circulation, which intervenes here and forms the connecting link between productive capitals, which begin the circulation at one extreme and close it at another, only to make this last extreme the starting point of a new cycle. Circulation proper appears but as an instrument promoting the periodic renewal, and thus the continuous reproduction, of productive capital.


In the second place, the entire circulation assumes a form which is the reverse of that which it has in the circulation of money-capital. While the circulation of money-capital proceeds after the formula M—C—M (M—C. C—M), making exception of the determination of value, it proceeds in the case of productive capital, making the same exception, after the formula C—M—C (C—M. M—C). which is the form of the simple circulation of commodities.

I. Simple Reproduction.


Let us first consider the process C'—M'—C, which takes place between the two extremes P...P.


The starting point of this circulation is the commodity-capital C', equal to C plus c, or equal to P plus c. The function of commodity-capital C'—M' has been considered in the first form of the circulation. It consisted in the realization of the capital-value P, contained in it, which now exists as a part of the commodity C, and likewise in the realization of the surplus-value contained in it, which now exists as a part of the same mass of commodities C and has the value of c. But in the former case, this function formed the second phase of the interrupted circulation and the concluding phase of the entire cycle. In the present case, it forms the second phase of the cycle, but the first phase of the circulation. The first cycle ends with M', and since M' as well as the original M may again open the second cycle as money-capital, it was not necessary for the moment to analyze whether the parts of M', viz., M and m (surplus-value) continue in their course together, or whether each one of them pursues its own course. This would only have been necessary, if we had followed up the first cycle in its renewed course. But in studying the cycles of productive capital, this point must be decided, because the determination of its very first cycle depends on it, and because C'—M' appears in it as the first phase of circulation which has to be supplemented by M—C. It depends on the outcome of this decision, whether our formula represents the simple reproduction, or reproduction on an enlarged scale. The character of the cycle changes according to this decision.


Let us, then, take first the simple reproduction of productive capital, assuming that the conditions are the same as those taken for a basis in the first chapter, and that the commodities are bought and sold at their value. Under these conditions, the entire surplus-value enters into the individual consumption of the capitalist. As soon as the transformation of the commodity-capital C' into money has taken place, that part of the money which represents the capital-value continues in the cycle of industrial capital; the other part, which represents surplus-value in the form of gold, enters into the general circulation of commodities as a circulation of money emanating from the capitalist but taking place outside of the circulation of his individual capital.


In our illustration, we had a commodity-capital C' of 10,000 pounds of yarn, valued at 500 pounds sterling; 422 pounds sterling of this represent the value of productive capital and continue, as the money-form of 8,440 pounds of yarn, the capital circulation begun by C', while the surplus-value of 78 pounds sterling, as the money-form of 1,560 pounds of yarn, the surplus-product, leaves this circulation and describes its own separate course within the general circulation of commodities.



The formula m—c represents a series of purchases by means of money which the capitalist spends either in commodities proper or for personal services to his cherished self or family. These purchases are made piece-meal at various times. Money, therefore, exists temporarily in the form of a supply, or hoard, of money destined for gradual consumption, for money interrupted in its circulation partakes of the nature of a hoard. Its function as a circulating medium, including that of a temporary hoard, does not share in the circulation of capital having the form of money M. This money is not advanced, but spent.


We have assumed that the advanced total capital always passed entirely from one of its phases into the other. In this case, we, therefore, assume that the mass of commodities produced by P represents the total value of the productive capital P, or 422 pounds sterling plus 78 pounds sterling of surplus-value created in the process of production. In our illustration, which deals with an easily analyzed commodity, the surplus-value exists in the form of 1,560 pounds of yarn; if computed on the basis of one pound of yarn, it would exist in the form of 2.496 ounces. But if the commodity were, for instance, a machine valued at 500 pounds sterling and representing the same division of values, one part of the value of this machine would indeed be represented by 78 pounds sterling of surplus-value, but these 78 pounds sterling would exist only in the machine as a whole. This machine cannot be divided into capital-value and surplus-value without breaking it to pieces and thus destroying, with its use-value, also its exchange-value. For this reason the two parts of value can be represented only ideally as portions of a mass of commodities, not as independent elements of the commodity C', such as we are able to distinguish in each pound of yarn in the 10,000 pounds of our illustration. In the case of the machine, the total commodity representing the commodity-capital must be sold before m can enter into its independent circulation. On the other hand, when the capitalist has sold 8,440 pounds of yarn, the sale of the remaining 1,560 pounds of yarn would represent an entirely separate circulation of the surplus-value in the form of c (1,560 pounds of yarn)—m (78 pounds sterling) equal to c (articles of consumption). But the elements of value of each individual portion of yarn in the 10,000 pounds may be individually separated and valuated the same as the total quantity of yarn. Just as the entire 10,000 pounds of yarn may be divided into the value of the constant capital c (7,440 pounds of yarn worth 372 pounds sterling), variable capital v (1,000 pounds of yarn worth 50 pounds sterling, and surplus-value s (1,560 pounds of yarn worth 78 pounds sterling), so every pound of yarn may be divided into c (11.904 ounces of yarn worth 8.929 d.), v (1.600 ounces of yarn worth 1.200 d.), and s (2.496 ounces of yarn worth 1.872 d.). The capitalist might also sell various portions of the 10,000 pounds of yarn successively and consume the different portions of surplus-value contained in them in the same way, thus realizing gradually the sum of c plus v. But this operation likewise requires the final sale of the entire lot, so that the value of c plus v would be made good by the sale of 8,440 pounds of yarn (vol. I, chap IX, 2).


However that may be, by the movement C'—M', both the capital-value and surplus-value contained in C' secure a separate existence in separate sums of money. In both cases, M and m are actually transformed values, which had originally only an ideal existence in C as prices of commodities.


The formula c—m—c represents the simple circulation of commodities, the first phase of which, c—m, is included in the circulation of the commodity-capital C'—M', in short, included in the cycle of capital; while its supplementary phase m—c falls outside of this cycle and is a separate process in the general circulation of commodities. The circulation of C and c, of capital-value and surplus-value, is differentiated after the transformation of C' into M'. Hence it follows:


First, by the realization on the commodity-capital in the process C'—M', or C'—(M+m), the courses of capital-value and surplus-value, which are united so long as they are both embodied in the same mass of commodities in C'—M', are separated, for both of them henceforth appear in two independent sums of money.


Second, after this separation has taken place, m being spent as the income of the capitalist, while M continues its way as a functional form of capital-value in a course determined by this cycle, the movement C'—M' in connection with the subsequent movements M—C and m—c, may be represented in the form of two different circulations, viz.: C—M—C and c—m—c, and both of these, so far as their general form is concerned, belong to the general circulation of commodities.


By the way, in the case of commodities which cannot be cut up into their constituent parts, it is a matter of practice to isolate their different portions of value and surplus-value ideally. In the building-business of London, for instance, which is carried on mainly on credit, the contractor receives advances in proportion to the different stages in which the construction of a house proceeds. None of these stages is a house, but only an actually existing fraction of the growing house; in spite of its actuality, each stage is but an ideal portion of the entire house, but it is real enough to serve as security for an additional advance. (See on this point chapter XII, vol. II.)


Third, if the movement of capital-value and surplus-value, which proceeds unitedly so long as they are in the form of C and M, is separated only in part (so that a portion of the surplus-value is not spent as income), or is not separated at all, a change takes place in the capital-value itself within its own cycle, before it is completed. In our illustration the value of the productive capital was equal to 422 pounds sterling. If it continues its cycle M-C, for instance as 480 pounds sterling or 500 pounds sterling, then it goes through the further stages of its cycle with an increase of 58 pounds sterling or 78 pounds sterling over its original value. This change may also go hand in hand with a change in the proportion of its component parts.


C'—M', the second stage of the circulation and the final stage of cycle I (M...M'), is the second stage in our cycle and the first in the circulation of commodities. So far as the circulation is concerned, this stage must be supplemented by M'—C'. But C'—M' has not only passed the process of utilization (in this case the function of P, the first stage), but has also realized as its result the commodity C'. The process of utilization of capital, and the realization on the commodities which are its product, are therefore completed in C'—M'.


We have started out with simple reproduction and assumed that m—c separates entirely from M—C. Since both circulations, c—m—c as well as C—M—C, belong to the circulation of commodities, so far as their general form is concerned (and do not show, for this reason, any difference in the value of their extremes), it is easy to conceive of the process of capitalist production, after the manner of vulgar economy, as a mere production of commodities, of use-value destined for consumption of some sort, which the capitalist produces for no other purpose than that of getting in their place commodities with different use-values, or exchanging them, as vulgar economy erroneously states.


C' appears from the very outset as commodity-capital, and the purpose of the entire process, the accumulation of wealth, does not exclude an increasing consumption on the part of the capitalist in proportion as his surplus-value (and thus his capital) increases; on the contrary, it promotes such an increasing consumption.


Indeed, in the circulation of the income of the capitalist, the produced commodity c, or the ideal fraction of the commodity C corresponding to it, serves merely for its transformation, first into money, and from money into a number of other commodities required for individual consumption. But we must not, at this point, overlook the trifling circumstance that c is that part of the commodity-value which did not cost the capitalist anything, since it is the embodiment of surplus-labor and steps originally on the stage as a part of the commodity-capital C'. This c is, by the varying nature of its existence, bound to the cycle of circulating capital-value, and if this cycle is clogged, or otherwise disturbed, not only the consumption of c is restricted or entirely arrested, but also the disposal of that series of commodities which are to take the place of c. The same is true in the case that the movement C'—M' is a failure, or that only a part of C' is sold.


We have seen that c—m—c, as representing the circulation of the revenue of the capitalist, enters into the circulation of capital only so long as c is a part of the value of C', of the commodity-capital; but that, as soon as it materializes in the form of m—c, that is to say, as soon as it completes the entire cycle c—m—c, it does not enter into the movements of the capital advanced by the capitalist, although this advance is its cause. It is connected with the movements of capital only in so far as the existence of capital presupposes the existence of the capitalist, and this is conditioned on the consumption of surplus-value by the capitalist.


Within the general circulation, C', for instance yarn, passes only as a commodity; but as an element in the circulation of capital it performs the function of commodity-capital, and capital-value alternately assumes and discards this form. After the sale of the yarn to a merchant, it has passed out of the circulation of the capital which produced it, but nevertheless, as a commodity, it moves always in the cycle of the general circulation. The circulation of one and the same mass of commodities continues, although it may have ceased to be an element in the independent cycle of the capital of the manufacturer. Hence the actual and final metamorphosis of the mass of commodities thrown into circulation by the capitalist by means of C—M, their final elimination in consumption, may be separated in space and time from that metamorphosis in which this same mass of commodities performs the function of commodity-capital. The same metamorphosis which has been completed in the circulation of capital still remains to be accomplished in the sphere of the general circulation.


This state of things is not changed by the transfer of this yarn to the cycle of some other industrial capital. The general circulation comprises as much the interrelations of the various independent fractions of social capital, in other words, the totality of the individual capitals, as the circulation of those values which are not thrown on the market as capital, but enter into individual consumption.


The different relations in the cycle of capital, according to whether it is a part of the general circulation, or forms certain links in the independent cycles of capital, may be further understood when we consider the circulation of M', or of M plus m. M as money-capital, continues the cycle of capital. On the other hand m, spent as revenue in the act m—c, enters into the general circulation, but is eliminated from the cycle of capital. Only that part enters the capital cycle which performs the function of additional money-capital. In c—m—c, money serves only as coin, and the purpose of this circulation is the individual consumption of the capitalist. It is significant for the idiocy of vulgar economy that it pretends to regard this circulation, which does not enter into the circulation of capital but is merely the circulation of that part of the surplus-product which is consumed as revenue, as the characteristic cycle of capital.


In its second phase, M—C, the capital-value M (which is equal to P, the value of the productive capital that at this point re-opens the cycle of industrial capital) is again present, delivered of its surplus-value. Therefore it has once more the same magnitude which it had in the first stage of the cycle of money-capital, M—C. In spite of the different place at which we now find it, the function of money-capital, into which form the commodity-capital has now been transformed, is the same: Transformation into Pm and L, into means of production and labor-power.


Simultaneously with c—m, capital-value in the function of commodity-capital (C'—M') has also gone through the phase C—M, and enters now into the supplementary phase M—C. Its complete circulation is, therefore, C—M—C Pm.


First: Money-capital M appeared in cycle I (M...M') as the original form in which capital-value is advanced; it appears at the very outset as a part of that sum of money into which commodity-capital transformed itself in the first phase of circulation, C'—M'. It is from the beginning the transformation of P by means of the sale of commodities into the money-form. Money-capital exists here as that form of capital-value which is neither its original nor its final one, since the phase M—C, which supplements the phase C—M, can only be completed by again discarding the money-form. Therefore, that part of M—C which is at the same time M—L appears now no longer as a mere advance of money in the purchase of labor-power, but also as an advance by means of which the same 1,000 pounds of yarn, valued at 50 pounds, which form a part of the commodity-value created by labor-power, are given to the laborer in the form of money. The money thus advanced to the laborer is merely a transformed equivalent of a fraction of the value of the commodities produced by himself. And for this very reason, the act M—C, so far as it means M—L, is by no means simply a replacement of a commodity in the form of money by a commodity in the form of a use-value, but it includes other elements which are in a way independent of the general circulation of commodities.


M' appears as a changed form of C', which is itself a product of a previous function of P, of the process of production. The entire sum of money M is therefore a money-expression of past labor. In our illustration, 10,000 pounds of yarn (worth 500 pounds sterling), are the product of the spinning process. Of this quantity, 7,440 pounds represent the advanced constant capital c (worth 372 pounds sterling); 1,000 pounds represent the advanced variable capital v (worth 50 pounds sterling); and 1,560 pounds represent the surplus-value s (worth 78 pounds sterling). If in M', only the original capital of 422 pounds sterling is again advanced, other conditions remaining the same, then the laborer receives next week, in M—L, only a part of the 10,000 pounds of yarn produced in this week (the money-value of 1,000 pounds of yarn). As a result of C—M, money is always the expression of past labor. If the supplementary act M—C takes place at once on the commodity-market and M is given in return for commodities existing in this market, then this act is again a transformation of past labor from the money-form into the commodity-form. But M—C differs in the matter of time from C—M. True, these two acts may exceptionally take place at the same time, for instance when the capitalist who performs the act M—C and the other capitalist for whom this act signifies C—M mutually ship their commodities at the same time and M is used only to square the balance. The difference in time between the performance of C—M and M—C may be considerable or insignificant. Although M, as the result of C—M, represents past labor, it may, in the act M—C, represent the changed form of commodities which are not as yet on the market, but will be thrown upon it in the future, since M—C need not take place until C has been produced anew M may also stand for commodities which are produced simultaneously with the C whose money-expression M is; for instance, in the movement M—C (purchase of means of production), coal may be bought before it has been mined. In so far as m represents an accumulation of money which is not spent as revenue, it may stand for cotton which will not be produced until next year. The same holds good of the revenue of the capitalist represented by m—c. It also applies to wages, in this case to L equal to 50 pounds sterling; this money is not only the money-form of the past labor of the laborers, but at the same time a draft on simultaneously performed labor or on future labor. The laborer may buy for his wages a coat which will not be made until next week. This applies especially to the vast number of necessary means of subsistence which must be consumed almost as soon as they have been produced, to prevent their being spoiled. Thus the laborer receives in the money which represents his wages the changed form of his own future labor or that of others. By means of a part of the laborer's past labor, the capitalist gives him a draft on his own future labor. It is the laborer's simultaneous or future labor which represents the not yet existing supply that will pay for his past labor. In this case, the idea of the formation of a supply disappears altogether.


Second: In the circulation C—M—C the same money changes places twice; the capitalist first receives it as a seller and gives it away as a buyer; the transformation of commodities into the money-form serves only for the purpose of retransforming it from money into commodities; the money-form of capital, its existence as money-capital, is therefore only a passing factor in this movement; or, so far as the movement proceeds, money-capital appears only as a circulating medium when it serves to buy things; on the other hand, money-capital performs the function of a paying medium when capitalists buy mutually from one another and square only the balance of their accounts.


Third: The function of money-capital, whether it is a mere circulating medium or a paying medium, mediates only the renewal of C by L and Pm, that is to say, the renewal of the commodities produced by productive capital, such as yarn (after deducting the surplus-value used as revenue), out of its constituent elements, in other words, the retransformation of capital-value from its commodity-form into the elements constituting this commodity. In the last analysis, the function of money-capital mediates only the retransformation of commodity-capital into productive capital.


In order that the cycle may be completed normally, C' must be sold at its value and completely. Furthermore, C—M—C does not signify merely the replacing of one commodity by another, but also the replacing of the same relative values. We assume that this takes place here. As a matter of fact, however, the values of the means of production vary; it is precisely capitalist production which has for its characteristic a continuous change of value-relations, and this is conditioned on the ever changing productivity of labor, which is another characteristic of capitalist production. This change in the value of the factors of production will be discussed later on, and we merely refer to it here. The transformation of the elements of production into commodity-products, of P into C', takes place in the sphere of production, while their retransformation from C' into P takes place in the sphere of circulation; it is accomplished by way of the simple metamorphosis of commodities, but its content is a phase in the process of reproduction, regarded as a whole. C—M—C, considered as a form of the circulation of capital, includes a change of substance due to this function. The process C—M—C requires that C should be identical with the elements of production of the quantity of commodities C', and that these elements maintain their relative proportions toward one another. It is, therefore, understood that the commodities are not only bought at their value, but also that they do not undergo any change of value during their circulation. Otherwise this process cannot run normally.


In M...M', the factor M represents the original form of capital-value, which is discarded only to be resumed. In P...C'—M'—C...P, the factor M represents a form which is only assumed in this process and which is discarded before this process is over with. The money-form appears here only as a passing independent form of capital-value. Capital is just as anxious to assume this form in C' as it is to discard it in M' after barely assuming it, in order to again transform itself into productive capital. So long as it remains in the money-form, it does not perform the function of capital and does not, therefore, generate new values; it then lies fallow. M serves here as a circulating medium, but as a circulating medium of capital. The semblance of independence, which the money-form of capital-value possesses in the first form of the circulation of money-capital, disappears in this second form, which, therefore, is the negation of the first form and reduces it to a concrete form. If the second metamorphosis M—C meets with any obstacles—for instance, if there are no means of production in the market—the uninterrupted flow of the process of reproduction is arrested, quite as much as it is when capital in the form of commodity-capital is held fast. But there is this difference: It can remain longer in the money-form than in that of commodities. It does not cease to be money, if it does not perform the functions of money-capital; but it does cease to be a commodity, or even a use-value, if it is interrupted too long in its functions of commodity-capital. Furthermore, it is capable in its money-form, of assuming another form instead of its original one of productive capital, while it does not change places at all if held in the form of C'.


C'—M'—C includes processes of circulation only for C', and they are phases in its reproduction, but the actual reproduction of C, into which C' is transformed, is necessary for the completion of C'—M'—C. This, however, is conditioned on a process of reproduction which lies outside of the process of reproduction of the individual capital represented by C'.


In the first form, M—C Pm prepares only the first transformation of money-capital into productive capital; in the second form, it prepares the retransformation of commodity-capital into productive capital; that is to say, so far as the investment of industrial capital remains the same, the commodity-capital is retransformed into the same elements of production out of which it originated. Here as well as in the first form, the process of production is in a preparatory stage, but it is a return to it and its renewal, it is for the purpose of repeating the process of self-utilization.


It must be noted, once more, that M—L is not merely the exchange of commodities, but the purchase of a commodity L, which is to serve for the production of surplus-value, just as M—Pm is a process which is indispensable for the same end.


When M—C has been completed, M has been retransformed into productive capital P, and the cycle begins anew.


The elaborated form of P...C'—M'—C...P is


The transformation of money-capital into productive capital is the purchase of commodities for the purpose of producing commodities. Consumption falls within the cycle of capital only in so far as it is productive consumption; its premise is that surplus-value is produced by means of the commodities so consumed. And this is quite different from a production, even though it be a production of commodities, which has for its end the existence of the producer. A replacing of one commodity by another for the purpose of producing surplus-value is a different matter than the exchange of products which is perfected merely by means of money. But some economists use this sort of exchange as a proof that there can be no overproduction.


Apart from the productive consumption of M, which is transformed into L and Pm, this cycle contains the first phase M—L, which signifies, from the standpoint of the laborer L—M, or C—M. In the laborer's circulation, L—M—C, which includes his individual consumption, only the first factor falls within the cycle of capital by means of L—M. The second act, M—C, does not fall within the circulation of individual capital, although it is conditioned on it. But the continuous existence of the laboring class is necessary for the capitalist class, and this requires the individual consumption of the laborer, made possible by M—C.


The act C'—M' requires only that C' be transformed into money, that it be sold, in order that capital-value may continue its cycles and surplus-value be consumed by the capitalist. Of course, C' is bought only because the article is a use-value and serviceable for individual or productive consumption. But if C' continues to circulate, for instance, in the hand of the merchant who has bought the yarn, this does not interfere with the continuation of the cycle of individual capital which produced the yarn and sold it to the merchant. The entire process proceeds uninterruptedly and simultaneously with the individual consumption of the capitalist and the laborer. This point is important in a discussion of commercial crises.


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.


If the commodities Pm and L, into which M is transformed in the performance of its function of money-capital, in its capacity as capital-value destined for retransformation into productive capital, if, I say, those commodities are to be bought or paid at different dates, so that M—C represents a series of successive purchases or payments, then a part of M performs the act M—C, while another part persists in the form of money, and does not serve in the performance of simultaneous or successive acts M—C, until the conditions of this process itself demand it. This part of M is temporarily withheld from circulation, in order to perform its function at the proper moment. This storing of M for a certain time is a function conditioned on its circulation and intended for circulation. Its existence as a fund for purchase and payment, the suspension of its movement, the condition of its interrupted circulation, are conditions in which money performs one of its functions as money-capital. I say money-capital; for in this case the money remaining temporarily at rest is itself a part of money-capital M (of M'—m equal to M), of that part of commodity-capital which is equal to P, of that value of productive capital from which the cycle proceeds. On the other hand, all money withdrawn from circulation has the form of a hoard. In the form of a hoard, money is thus likewise a function of money-capital, just as the function of money in M—C as a medium of purchase or payment becomes a function of money-capital. For capital-value here exists in the form of money, the money-form is a condition of industrial capital in one of its stages, prescribed by the interrelations of processes within the cycle. At the same time it is here once more obvious, that money-capital performs no other functions than those of money within the cycle of industrial capital, and that these functions assume the significance of capital functions only by virtue of their interrelations with the other stages of this cycle.


The representation of M' as a relation of m to M, as a capital relation, is not so much a function of money-capital, as of commodity-capital C', which in its turn, as a relation of c to C, expresses but the result of the process of production, of the self-utilization of capital which took place in it.


If the movement of the process of circulation meets with obstacles, so that M must suspend its function M—C on account of external conditions, such as the condition of the market, etc., and if it therefore remains for a shorter or longer time in its money-form, then we have once more money in the form of a hoard which it may also assume in the simple circulation of commodities, as soon as the transition from C—M to M—C is interrupted by external conditions. It is an involuntary formation of a hoard. In the present case, money has the form of fallow, latent, money-capital. But we will not discuss this point any further for the present.


In both cases, the suspension of money-capital in the form of money is the result of an interruption of its movements, no matter whether this is advantageous or harmful, voluntary or involuntary, in accord with its functions or contrary to them.

II. Accumulation and Reproduction On An Enlarged Scale.


Since the proportions of the expansion of the productive process are not arbitrary, but determined by technical conditions, the produced surplus-value, though intended for capitalization, frequently does not attain a size sufficient for its function as additional capital, for its entrance into the cycle of circulating capital-value, until several cycles have been repeated so that it must be accumulated until that time. Surplus-value thus assures the rigid form of a hoard and is, then, latent capital. It is latent, because it cannot function as capital so long as it persists in the money-form.*10 The formation of a hoard thus appears as a phenomenon included in the process of capitalist accumulation, accompanying it, but nevertheless essentially different from it. For the process of reproduction is not expanded by latent capital. On the contrary, latent money-capital is here formed, because the capitalist producer cannot at once expand the scale of his production. If he sells his surplus-product to a producer of gold or silver, or, what amounts to the same thing, to a merchant who imports additional gold or silver from foreign countries for a part of the national surplus-product, then his latent money-capital forms an increment of the national gold or silver hoard. In all other cases, the surplus-value, for instance the 78 pounds sterling, which were a circulating medium in the hand of the purchaser, have only assumed the form of a hoard in the hands of the capitalist. In other words, a different repartition of the national gold or silver hoard has taken place, that is all.


If the money serves in the transactions of our capitalist as a means of payment, in such a way that the commodities are to be paid for by the buyer on long or short terms, then the surplus-product intended for capitalization is not transformed into money, but into creditor's claims, into titles of ownership of a certain equivalent, which the buyer may either have in his possession, or which he may expect to possess. It does not enter into the reproductive process of the cycle any more than money which is invested in interest-bearing papers, although it may enter into the cycles of other individual industrial capitals.


The entire character of capitalist production is determined by the utilization of the advanced capital-value, that is to say, in the first instance by the production of as much surplus-value as possible; in the second place, by the production of capital, in other words, by the transformation of surplus-value into capital (see vol. I, chap. XXIV). But, as we have seen in volume I, the further development makes it a necessity for every individual capitalist to accumulate, or to produce on an enlarged scale, in order to produce more and more surplus-value, and this appears as a personal motive of the capitalist for his own enrichment. The preservation of his capital is conditioned on its continuous enlargement. But we do not revert any further to our previous analysis.


We considered first simple reproduction, and we assumed that the entire surplus-value was spent as revenue. But in reality and under normal conditions, only a part of the surplus-value can be spent as revenue, and another part must be capitalized. And it is quite immaterial, whether a certain surplus-value, produced within a certain period, is entirely consumed or entirely capitalized. In the average movement—and the general formula cannot represent any other—both cases occur. But in order not to complicate the formula, it is better to assume that the entire surplus-value is accumulated. The formula P...C'—M'—C'...P stands for productive capital, which is reproduced on an enlarged scale and with enlarged values, and which begins its second cycle as enlarged productive capital, or, what amounts to the same, which renews its first cycle. As soon as this second cycle is begun, we have once more P as a starting point; only P is a larger productive capital than the first P was. Hence, if the second cycle begins with M' in the formula M—M', this M' functions as M, as an advanced capital of a definite size. It is a larger money-capital than the one with which the first cycle was opened; but all relations to its growth by the capitalization of surplus-value have disappeared, as soon as it appears in the function of advanced money-capital. This origin is extinguished in its form of money-capital which begins its cycle. This also applies to P', as soon as it becomes the starting point of a new cycle.


If we compare P...P' with M...M', or with the first cycle, we find that they have not the same significance. M...M', taken by itself as an individual cycle, expresses only that M, money-capital, or industrial capital in its cycle as money-capital, is money generating more money, value generating more value, in other words, producing surplus-value. But in the cycle of P, the process of utilization is completed as soon as the first stage, the process of production, is over with, and after going through the second stage (the first stage of the circulation), C'—M', the capital-value plus surplus-value exists already as materialized money-capital, as M', which appeared as the last extreme in the first cycle. The fact that surplus-value has been produced is registered in the first considered formula P...P by c—m—c (see expanded formula previously given). This, in its second stage, falls outside of the circulation of capital and represents the circulation of surplus-value as revenue. In this form, where the entire movement is represented by P...P and where there is no difference in value between the two extremes, the utilization of the advanced value, or the production of surplus-value, is represented in the same way as in M...M', only the act C'—M', which appears as the last stage in M—M', and as the second stage of the cycle, appears as the first stage of the circulation P...P.


In P...P', the term P' does not express the fact that surplus-value has been produced, but that the produced surplus-value has been capitalized, that capital has been accumulated, and that P' as distinguished from P consists of the original capital-value plus the value of capital accumulated by its movements.


M', as the closing link of M...M', and C', as it appears within all these cycles, do not express the movement, but its result, if taken by themselves: they represent the result, in the form of money or commodities of the utilization of capital-value, and capital-value therefore appears as M plus m, or C plus c, as a relation of capital-value to its surplus-value, its offspring. But whether this result appears in the form of M' or C', it is not a function of either money-capital or commodity-capital. As special and different forms corresponding to special functions of industrial capital, money-capital can perform only money functions, and commodity-capital only commodity functions. Their difference is merely that of money and commodity. Industrial capital, in its capacity of productive capital, can likewise consist only of the same elements as those of any other process of labor which creates products: on one side objective means of production, on the other labor-power as the productive element. Just as industrial capital can exist within the process of production only in a composition which corresponds to the requirements of all production, even if it is not capitalist production so it can exist in the sphere of circulation only in the two forms corresponding to it, viz., that of a commodity or of money. Now the sum of the elements of production reveals its character of productive capital at the outside by the fact that the labor-power belongs to another from whom the capitalist purchases it, just as he purchases his means of production from others who own them, so that the process of production itself appears as a productive function of industrial capital. In the same way money and commodities appear as forms of circulation of the same industrial capital, hence their functions as those of the circulation of this capital, which either introduce the function of productive capital or originate from it. The money function and the commodity function become at the same time functions of money-capital and commodity-capital for no other reason than that they enter into relationship with the functional forms through which industrial capital passes in the different stages of its process of circulation. It is, therefore, a mistake to attempt to derive the specific characters of money and commodities, and their specific functions as such, from their capital-character, and it is likewise a mistake to derive the qualities of productive capital from its existence in means of production.


As soon as M' or C' have become fixed in the relation of M plus m, or C plus c, in other words, as soon as they become parts of the relation between capital-value and its offspring surplus-value, they give expression to this relation either in the form of money or of commodities, without changing the nature of the relation itself. This relation is not due to any qualities or functions of either money or commodities as such. In both cases the characteristic quality of capital, that of being a value generating more value, is expressed only as a result. C' is always the product of the function of P, and M' is always merely a form of C' changed in the cycle of industrial capital. As soon as the realized money-capital begins its special function as money-capital anew, it ceases to express the capital-relation conveyed by the formula M' equal to M plus m. After M...M' has been completed and M' begins the cycle anew, it no longer figures as M' but as M, even if the entire capital-value contained in M' is capitalized. The second cycle begins in our case with a money-capital of 500 pounds sterling, instead of 422 pounds in the first cycle. The money-capital, which opens the cycle, is larger by 78 pounds sterling than before; this difference exists in the comparison of one cycle with another, but it does not exist within each cycle. The 500 pounds sterling advanced as money-capital, 78 pounds of which formerly existed as surplus-value, do not play any different role than some other 500 pounds sterling by which another capitalist opens his first cycle. The increased P' opens a new cycle as P, just as P did in the simple reproduction P...P.


In the stage M'—C', the increased magnitude is indicated only by C', but not by L' and PM'. Since C is the sum of L and Pm, the term C' indicates sufficiently that the sum of the L and Pm contained in it is greater than the original P. In the second place, the terms L' and PM' would be incorrect, because we know that the growth of capital implies a change in the relative proportions of the values composing it, and that, with the progressive changing of this proportion, the value of Pm increases, while that of L always decreases relatively, if not absolutely.

III. Accumulation of Money


Whether or not m, the surplus-value transformed into gold, is immediately combined with the circulating capital-value and is thus enabled to enter into the cycle together with the capital M in the magnitude of M', depends on circumstances which are independent of the mere existence of m. If m is to serve as money-capital in a second independent business, to be run by the side of the first, it is evident that it cannot be used for this purpose, unless it is of the minimum size required for it. And if it is intended to use it for the extension of the original business, the condition of the substances composing P and their relative values likewise demand a minimum magnitude for m. All the means of production employed in this business have not only a qualitative, but also a definite quantitative relation toward one another. These proportions of the substances and of their values entering into the productive capital determine the minimum magnitude required for m, in order to be capable of transformation into additional means of production and labor-power, or only into means of production as an addition to the productive capital. For instance, the owner of a spinning loom cannot increase the number of his spindles without at the same time purchasing a corresponding number of carders and preparatory looms, apart from the increased expense for cotton and wages, which such an extension of his business demands. In order to carry this out, the surplus-value must have reached a considerable figure (one pound sterling per spindle is generally assumed for new installations). So long as m does not reach this figure, the cycle of the original capital must be repeated several times, until the sum of the successively produced surplus-values m can take part in the functions of M, in the process M'—C'. Even mere changes of detail, for instance, in the spinning machinery, made for the purpose of making it more productive, require greater expenditures for spinning material, preparatory looms, etc. In the meantime, m is accumulated, and its accumulation is not its own function, but the result of repeated cycles of P...P. Its own function consists in persisting in the form of money, until it has received sufficient additions from the outside by means of successive cycles of utilization of capital to have acquired the minimum magnitude necessary for its active function. Only when it has reached this magnitude, can it actually serve as money-capital and eventually take part in the functions of the active money-capital M as its accumulated part. But until that time it is accumulated and exists only in the form of a hoard in a process of gradual growth. The accumulation of money, the formation of a hoard, appears here as a process which accompanies temporarily the accumulation by which industrial capital expands the scale of its productive action. This is a temporary phenomenon, for so long as the hoard remains in this condition, it does not perform the function of capital, does not take part in the process of utilization, and remains a sum of money which grows only by virtue of the fact that other money, existing without the initiative of the hoard, is thrown into the same safe.


The form of a hoard is simply the form of money not in circulation. It is money interrupted in its circulation and stored up in the form of money. As for the process of forming a hoard, it is found in all systems of commodity-production, and it plays a role as an end in itself only in the undeveloped, precapitalist forms of this production. In the present case, the hoard assumes the form of money-capital, and goes through the process of forming a hoard as a temporary corollary of the accumulation of capital, merely because the money here figures as latent money-capital, and because the formation of a hoard as well as the surplus-value hoarded in the form of money represent a functionally prescribed and preliminary stage required for the transformation of surplus-value into capital actually performing its functions. It is this end which gives it the character of latent money-capital. Hence the volume, which it must have acquired before it can take part in the process of capital, is determined in each case by the values of which the productive capital is composed. But so long as it remains in the condition of a hoard, it does not perform the functions of money-capital, but is merely sterile money-capital; its functions have not been interrupted, as in a previous case, but it is as yet incapable of performing them.


We are here discussing the accumulation of money in its original and real form of an actual hoard of money. But it may also exist in the form of mere outstanding money, of credits granted by a capitalist who has sold C'. As concerns its other forms, where this latent money-capital exists in the meantime in the shape of money breeding more money, such as interest-bearing deposits in a bank, in drafts, or in bonds of some sort, these do not fall within the discussion at this point. Surplus-value realized in the form of money then performs special capital-functions outside of that cycle of industrial capital which originated it. In the first place, these functions have nothing to do with that cycle of industrial capital as such, in the second place they represent capital-functions which are to be distinguished from the functions of industrial capital and which are not yet developed at this stage.

IV. Reserve Funds.


In the case which we have just discussed, surplus-value in the form of a hoard represents accumulated funds, a money-form temporarily assumed by the accumulation of capital and to that extent a condition of this accumulation. However, such accumulated funds may also perform special services of a subordinate nature, that is to say they may enter into the circulation-process of capital, even if this process has not assumed the form of P—P', in other words, without an expansion of capitalist reproduction.


If the process C'—M' is prolonged beyond its normal size, so that commodity-capital meets with abnormal obstacles during its transformation into the money-form, or if, after the completion of this transformation, the price of the means of production into which the money-capital is to be transformed has risen above the level occupied by it in the beginning of the cycle, the hoard held as accumulated funds may be used in the place of money-capital, or of a part of such capital. In that case, the accumulated funds of money serve as reserve funds for the purpose of counterbalancing disturbances of the circulation.


When in use as such a reserve fund, accumulated money differs from the fund of purchase or paying media discussed in the cycle P—P'. These media are a part of money-capital performing its functions, they are forms of existence of a part of capital-value in general going through the process of its circulation, and its different parts perform their functions successively at different times. In the continuous process of production, money-capital in reserve is always formed, obligations being incurred today which will not be paid until later, and large quantities of commodities being sold today, while other large quantities are not to be bought until some other day. In these intervals, a part of the circulating capital exists continuously in the form of money. A reserve fund, on the other hand, is not a part of money-capital in the performance of its functions. It is rather a part of capital in a preliminary stage of its accumulation, of surplus-value not yet transformed into active capital.


Of course, it requires no explanation, that the capitalist, when pressed for funds, does not concern himself about the definite functions of the money in his hands. He simply employs whatever money he has for the purpose of keeping the circulation-process of his capital in motion. For instance, in our illustration, M is equal to 422 pounds sterling, M' to 500 pounds sterling. If a part of the capital of 422 pounds sterling exists in the form of money as a fund for paying or buying, it is intended that all of it should enter into circulation, conditions remaining the same, and that it is sufficient for this purpose. The reserve fund, on the other hand, is a part of the 78 pounds sterling of surplus-value. It cannot enter the circulation process of the capital of 422 pounds sterling, unless this circulation takes place under changed conditions; for it is a part of the accumulated funds, and figures here under conditions, where the scale of the reproduction has not been enlarged.


Accumulated money-funds represent latent money-capital, or the transformation of money into money-capital.


The following is the general formula for the cycle of productive capital, combining simple reproduction and reproduction on an enlarged scale:

P...C'—M'. M—C...P (P').


If P equals P, then M in 2) is equal to M'—m; if P equals P', then M in 2) is greater than M'—m, that is to say, m has been completely or partially transformed into money-capital.


The cycle of productive capital is that form, under which classical political economy discusses the rotation process of industrial capital.

Notes for this chapter

The term "latent" is borrowed from the idea of latent heat in physics, which has now been almost replaced by the theory of the transformation of energy. Marx therefore uses in the third part, which is of later date, another term borrowed from the idea of potential energy, viz.: "potential," or, analogous to the virtual velocities of D'Alembert, "virtual capital."—F. E.

Part I, Chapter IV.

End of Notes

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