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 IV


The three diagrams may be formulated in the following manner, using the sign Tc for "total process of circulation":

I. M—C...P...C'—M'
III.Tc...P (C')


If we take all three diagrams together, all premises of the process appear as its effects, as premises produced by itself. Every element appears as a point of departure, transit, and return to the starting point. The total process appears as the unity of the processes of production and circulation. The process of production mediates the process of circulation, and vice versa.


All three cycles have the following point in common: The creation of more value as the compelling motive. Diagram I expresses this by its form. Diagram II begins with P, the process of creating surplus-values. Diagram III begins the cycle with the utilized value and closes with renewed utilized value, even if the movement is repeated on the same scale.


So far as C—M means M—C from the point of view of the buyer, and M—C means C—M from the point of view of the seller, the circulation of capital presents only the features of the ordinary metamorphosis of commodities, subject to the laws relative to the amount of money in circulation, as analyzed in volume I, chap. III, 2. But if we do not cling to this formal aspect, but rather consider the actual connection of the metamorphoses of the various individual capitals, in other words, if we study the interrelation of the cycles of individual capitals as partial movements of the process of reproduction of the total social capital, them the mere change of form between money and commodities does not explain matters.


In a continuously revolving circle, every point is simultaneously a point of departure and point of return. If we interrupt the rotation, not every point of departure is a point of return. We have seen, for instance, that not only does every individual cycle imply the existence of the others, but also that the repetition of one cycle in a certain form necessitates the rotation of this cycle through its other forms. The entire difference thus assumes a formal aspect, it appears as a mere subjective difference made for the convenience of the observer.


In so far as every one of these cycles is studied as a special form of movement through which various individual industrial capitals are passing, their differences have but an individual nature. But in reality every individual industrial capital is contained simultaneously in all three cycles. These three cycles, the forms of reproduction assumed by the three modes of capital, rotate continuously side by side. For instance, one part of capital value which now performs the function of commodity-capital, is transformed into money-capital, but at the same time another part leaves the process of production and enters the circulation as a new commodity-capital. The cycle C'...C' is thus continuously rotating, and so are the two other forms. The reproduction of capital in each one of its forms and stages is just as continuous as the metamorphoses of these forms and their successive transition through the three stages. The entire circulation is thus actually a unit with these three forms.


We assumed in our analysis that the entire volume of capital-value acts either as money-capital, productive capital, or commodity-capital. For instance, we had those 422 pounds sterling first in the role of money-capital, then we transformed them entirely into productive capital, and finally into commodity-capital, into yarn valued at 500 pounds sterling and containing 78 pounds sterling of surplus-value. Here the various stages are so many interruptions. So long as, for instance, those 422 pounds sterling retain the form of money, that is to say until the purchases M—C (L plus Pm) have been made, the entire capital exists only in the form of money-capital and performs its functions. But as soon as it is transformed into productive capital, it performs neither the functions of money-capital nor of commodity-capital. Its entire process of circulation is interrupted, just as on the other hand its entire process of production is interrupted, as soon as it performs any functions in one of its two circulation stages, either as M or as C. From this point of view, the cycle P...P would not only present a periodical renewal of the productive capital, but also the interruption of its function, the process of production, up to the time when the process of circulation is completed. Instead of proceeding continuously, production took place in jumps and was renewed only in periods of uncertain duration, according to whether the two stages of the process of circulation were completed fast or slowly. This would apply, for instance, to a Chinese artisan, who works only for private customers and whose process of production is interrupted, until he receives a new order.


This is true of every individual part of capital in process of circulation, and all parts of capital pass through this circulation in succession. For instance, the 10,000 lbs, of yarn are the weekly product of some spinner. These 10,000 lbs. of yarn leave the sphere of production in their entirety and enter the sphere of circulation. The capital-value contained in them must all be converted into money-capital, and so long as it retains the form of money-capital, it cannot return into the process of production. It must first go into circulation and be reconverted into the elements of productive capital, L plus Pm. The process of rotation of capital is a succession of interruptions, leaving one stage and entering the next, discarding one form and assuming another. Every one of these stages not only cause the next, but also excludes it.


But continuity is the characteristic mark of capitalist production, conditioned on its technical basis, although not absolutely attainable. Let us see, then, what passes in reality. While the 10,000 lbs. of yarn appear on the market as commodity-capital and are transformed into money (regardless of whether it is a paying, purchasing, or calculating medium), new cotton, coal, etc., take the place of the yarn in the process of production, having been reconverted from the form of money and commodities into that of productive capital and performing its functions. At the time when these 10,000 lbs. of yarn are converted into money, the preceding 10,000 lbs. are going through the second stage of circulation and are reconverted from money into the elements of productive capital. All parts of capital pass successively through the process of rotation and are simultaneously in its different stages. The industrial capital thus exists simultaneously in all the successive stages of its rotation and in the various forms corresponding to its functions. That part of industrial capital, which is for the first time converted from commodity-capital into money, begins the cycle C'...C', while industrial capital as a rotating body of aggregates, has passed through it. One hand advances money, the other receives it. The inauguration of the cycle M...M' at one place coincides with its return to the starting point of another. The same is true of productive capital.


The actual rotation of industrial capital in its continuity is therefore not alone the unity of the processes of production and circulation, but also the unity of its three cycles. But it can be such a unity only, if every individual part of capital can go successively through the various stages of the rotation, pass from one phase and from one functional form to another, so that the industrial capital, being the aggregate of all these parts, is found simultaneously in its various phases and functions and describes all three cycle at the same time. The succession of these parts is conditioned on their simultaneous existence side by side, that is to say, on the division of capital. In a systematized manufacture, the product is as much ubiquitous in the various stages of its process of formation, as it is in the transition from one phase of production to another. As the individual industrial capital has a definite volume which does not merely depend on the means of the capitalist and which has a minimum magnitude for every branch of production, it follows that its division must proceed according to definite proportions. The magnitude of the available capital determines the volume of the process of production, and this, again, determines the size of the commodity-capital and money-capital which perform their functions simultaneously with the process of production. The simultaneous functions, which enable the production to proceed continuously, are only due to the rotation of the various parts of capital which pass successively through their different stages. The simultaneousness is merely the result of the succession. For if the rotation of one phase, for instance of C'—M', is interrupted for one of the parts of capital, if the commodity cannot be sold, then the cycle of this part is broken and the reproduction of its elements of production cannot take place; the succeeding parts, which come out of the process of production in the shape of C', find the conversion of their function blocked by their predecessors. If this is continued for some time, production is restricted and the entire process arrested. Every stop of the succession carries disorder into the simultaneousness of the cycles, every obstruction of one stage causes more or less obstruction in the entire rotation, not only of the obstructed part of capital, but of the total individual capital.


The next form, in which the process presents itself, is that of a succession of phases, so that the transition of capital into a new phase is conditioned on its departure from another. Every special cycle has therefore one of the functional forms of capital for its point of departure or return. On the other hand, the aggregate process is indeed the unity of its three cycles, which are the different forms in which the continuity of the process expresses itself: The total rotation appears as its own specific cycle to every functional form of capital, and every one of these cycles contributes to the continuity of the process. The rotation of one functional form requires that of the others. This is the inevitable requirement for the aggregate process of production, especially for the social capital, that it is at the same time a process of reproduction, and thus a rotation of each one of its elements. Different aliquot parts of capital pass successively through the various stages and functional forms. By this means, every functional form passes simultaneously with the others through its own cycles, although other parts of capital are continuously presented by each form. One part of capital, continually changing, continually reproduced, exists as a commodity-capital which is converted into money; another as money-capital converted into productive capital; and a third as productive capital converted into commodity-capital. The continuous existence of all three forms is brought about by the rotation of the aggregate cycle through these three phases.


Capital as a whole, then, exists simultaneously side by side in its different phases. But every part passes continuously and successively from one phase and functional from into the next one and performs a function in all of them. Its forms are fluid and their simultaneousness is brought about by their succession. Every form follows and precedes another, so that the return of one capital part to a certain form is conditioned on the return of another part to some other form. Every part describes continuously its own cycle, but it is always another part which assumes a certain form, and these special cycles are simultaneous and successive parts of the aggregate rotation.


The continuity of the aggregate process is realized only by the unity of the three cycles, and would be impossible with the above-mentioned interruptions. The social capital always has this continuity and its process always rests on the unity of the three cycles.


The continuity of the reproduction is more or less interrupted so far as the individual capitals are concerned. In the first place, the masses of value are frequently distributed at various periods and in unequal portions over the various stages and functional forms. In the second place, these portions may be differently distributed, according to the character of the commodity, which is to be produced. In the third place, the continuity, may be more or less interrupted in those branches of production, which are dependent on the seasons, either on account of natural causes, such as agriculture, fishing, etc., or on account of conventional circumstance such as the so-called season-work. The process proceeds most regularly and uniformly in the factories and in mining. But this difference of the various branches of production does not cause any difference in the general forms of the process of rotation.


Capital, as a value creating more value, is not merely conditioned on class-relations, on a definite social system resting on the existence of labor in the form of wage-labor. It is also a movement, a rotation through various stages, comprising three different cycles. Therefore it can be understood only as a thing in motion, not as a thing at rest. Those who look upon the self-development of value as a mere abstraction forget that the movement of industrial capital is the realization of this abstraction. Value here passes through various forms in which it maintains itself and at the same time increases its value. As we are here concerned in the form of this movement, we shall not take into consideration the revolutions, which capital-value may undergo during its rotation. But it is clear that capitalist production can only exist and endure, in spite of the revolutions of capital-value, so long as this value creates more value, that is to say, so long as it goes through its cycles as a self-developing value, or so long as the revolutions in value can be overcome and balanced in some way. The movements of capital appear as the actions of some individual industrial capitalist who performs the functions of a buyer of labor-power, a seller of commodities, and an owner of productive capital, and who brings about the process of rotation by his activity. If social capital-value experiences a revolution in value, it may happen, that the capital of the individual capitalist succumbs and fails, because it cannot adapt itself to the conditions of this conversion of values. To the extent that such revolutions in value become acute and frequent, the automatic nature of self-developing value makes itself felt with the force of elementary powers against the foresight and calculations of the individual capitalist, the course of normal production becomes subject to abnormal speculation, and the existence of individual capitals is endangered. These periodical revolutions in value, therefore, prove that which they are alleged to refute, namely, the independent nature of value in the form of capital and its increasing independence in the course of its development.


This succession of the metamorphoses of rotating capital includes the continuous comparison of the changes of value brought about by rotation with the original magnitude of capital. When the growing independence of value as compared to the power of creating value, of labor-power, has been inaugurated by the act M—L (purchase of labor-power) and is realized during the process of production as an exploitation of labor-power, this rise of independence on the part of value does not re-appear in that cycle, in which money, commodities, and elements of production are merely passing forms of rotating capital value, and in which the former magnitude of value compares itself to the present changed value of capital.


"Value," says Bailey, in opposition to the idea of the growing independence of value characteristic of capitalist production, which he regards as an illusion of certain economists, "value is a relation between contemporary commodities, because such only admit of being exchanged with each other." This criticism is directed against the comparison of commodity-values of different periods of time, which amounts to the comparison of the expenditure of productive labor required for the manufacture of equal commodities at different periods, once that the value of money for every period has been fixed. His opposition is due to his general misunderstanding, for he thinks that exchange-value is value itself, that the form of value is identical with the volume of value; so that values of commodities cannot be compared, so long as they do not perform active service as exchange value and are not actually exchanged for each other. He has not the least inkling of the fact that value performs only the functions of capital, in so far as it remains identical with itself and is compared with itself in those different phases of its rotation, which are not at all contemporary, but succeed one another.


In order to study the formula of this rotation in its purity, it is not sufficient to assume that the commodities are sold at their value, but that this takes place under conditions which are otherwise equal. Take, for instance, the cycle P...P and make abstraction of all technical revolutions within the process of production, by which the productive capital of a certain individual capitalist might be depreciated; make abstraction furthermore of all reactions, which a change in the elements of value of productive capital might cause in the value of the existing commodity-capital, which might be increased or lowered, if a stock of it were kept on hand. Take it also, that C', or 10,000 lbs. of yarn, have been sold at their value of 500 pounds sterling; 8,440 lbs., equal to 422 pounds sterling, reproduce the capital-value contained in C'. But if the prices of cotton, coal, etc., have increased (we do not consider mere fluctuations in price), these 422 pounds sterling may not suffice for the full reproduction of the elements of productive capital; in that case, additional money-capital is required and money-value is tied up. The opposite takes place, if those prices fall, and money-capital is set free. The process takes a normal course only so long as the values remain constant; it proceeds practically normal, so long as the disturbances during the repetition of the process balance one another. But to the extent that these disturbances increase in volume, the industrial capitalist must have at his disposal a greater money-capital, in order to tide himself over the period of compensation; and as the scale of each individual process of production and thus the minimum size of the capital to be advanced increase in the process of capitalist production, we have here another circumstance to add to those others which transform the functions of the industrial capitalist more and more into a monopoly of great money-capitalists, who may be individuals or associations.


We remark incidentally that a difference in the form of M—M' on one side, and of P...P and C'...C' on the other appears, if a change in the value of the elements of production occurs.


In the cycle M...M', the formula of newly invested capital, which for the first time appears in the role of money-capital, a fall in the value of elements of production, such as raw materials, auxiliary materials, etc., will require a smaller investment of money-capital than would have been necessary before this fall for the purpose of starting a business of a definite size, because the scale of the process of production depends on the mass and volume of the means of production (provided the productivity remains unchanged), which a given quantity of labor-power can assimilate; but it does not depend on the value of these means of production nor on that of the labor-power (the latter has an influence only on the creation of more value). Take the opposite case. If the value of the elements of production of certain commodities is increased, which are required as elements of a certain productive capital, then more money-capital is required for the establishment of a business of definite proportions. In both cases it is only the quantity of the money-capital required for investment which is affected. In the former case, money-capital is set free, in the latter it is tied up, provided the advent of new industrial capitals proceeds normally in a given branch of production.


The cycles P...P and C'...C' assume the character of M...M' only to the extent that the movement of P and C' is at the same time accumulation, so that additional m, money, is converted into money-capital. Apart from this case, they are differently affected than M...M' by a change of value of the elements of production; here, too, we do not take into consideration the reaction of such changes in value on those parts of capitals which are engaged in the process of production. It is not the original investment, which is here directly affected, not a capital engaged in its first rotation, but one in a process of reproduction; in other words, C'...C, the reconversion of commodity-capital into its elements of production, so far as they are composed of commodities. In a reduction of value (or price), three cases are possible: The process of reproduction is continued on the same scale; in that case a part of the available money-capital is set free and money-capital is accumulated, although no actual accumulation (production on an enlarged scale), or the transformation of m (surplus-value) into funds for accumulation initiating and accompanying it, has previously taken place. Or, the process of reproduction is renewed on a more enlarged scale than would have been ordinarily the case, provided the technical proportions admit it. Or, finally, a larger stock of raw materials, etc., is laid in.


The opposite takes place if the value of the elements of reproduction of a commodity-capital increases. In that case, reproduction does not take place on its normal scale (work is done in a shorter time, for instance); or additional money-capital must be employed in order to maintain the old scale (money-capital is tied up); or the money-fund of the accumulation, if available, is entirely or partially employed for the enlargement of the process of reproduction to its old scale. This is also tying up money-capital, only the additional money-capital does not come from the outside, from the money-market, but out of the pockets of the industrial capitalist himself.


However, there may be modifying circumstances in P...P and C'...C'. If our cotton spinner has a large stock of cotton (a large proportion of his productive capital in the form of a stock of cotton), a part of his productive capital is depreciated by a fall in the price of cotton; but if this price has risen, this part of his productive capital is enhanced in value. On the other hand, if he had tied up a large part of his capital in the form of commodity-capital, for instance in cotton yarn, a part of his commodity capital or for that matter of any of his rotating capital, is depreciated by a fall in the price of cotton, or enhanced by a rise in that price. Finally take the process C'—M—C If C'—M, the realization on the commodity-capital, has taken place before a change in the value of the elements of C, then capital is affected only in the way indicated in the first case, that is to say, in the second act of circulation, M—C but if such a change has occurred before the realization of C'—M, then, other conditions remaining equal, a fall in the price of the cotton causes a corresponding fall in the price of yarn, and a rise in the price of cotton a rise in the price of yarn. The effect on the various individual capitals in the same branch of production may differ widely according to the circumstances in which they find themselves. Money-capital may also be set free or tied up by differences in the duration of the process of circulation, in other words, by the pace of the circulation. But this belongs in the discussion of the periods of turn-over. At this point, we are only interested in the real difference arising from changes of values in the elements of productive capital between M...M' and the other two cycles of the process of rotation.


In the section of circulation indicated by M—C at a period of developed and prevailing capitalist modes of production, a large portion of the commodities composing Pm, means of production, will be rotating commodity-capital of some one else. From the standpoint of the seller, therefore, the transaction is C'—M', the transformation of commodity-capital into money-capital. But this does not apply absolutely. In the opposite case, in those sections of its process of rotation, where industrial capital performs either the functions of money or of commodities, the cycle of industrial capital, whether as money-capital or as commodity-capital, crosses the circulation of commodities of the most varied social modes of production, so far as they produce commodities. No matter whether a commodity is the product of slavery, of peasants (Chinese, Indian ryots), of communes (Dutch East Indies), or of state enterprise (such as existed in former epochs of Russian history on the basis of serfdom), or of half savage hunting tribes, etc., commodities and money of such modes of production, when coming in contact with commodities and money representing industrial capital, enter as much into its rotation as into that of surplus-values embodied in the commodity-capital, provided the surplus-value is spent as revenue. They enter into both of the cycles of circulation of commodity-capital. The character of the process of production from which they emanate is immaterial. They perform the function of commodities on the market, and enter into the cycles of industrial capital as well as into those of the surplus-value carried by it. It is the universal character of the commodities, the world character of the market, which distinguishes the process of rotation of the industrial capital. What is true of foreign commodities, is also true of foreign money. Just as commodity-capital has only the character of commodities in contact with foreign money, so this money has only the character of money in contact with commodity-capital. Money here performs the functions of world-money.


However, two points must be noted here.


First. As soon as the transaction M—Pm is completed, the commodities (Pm) cease to be such and become one of the modes of existence of industrial capital in its function of productive capital. Henceforth their origin is obliterated. They exist only as forms of industrial capital and are embodied in it. But it still remains necessary to reproduce them, if their places are to be filled, and to this extent the capitalist mode of production is conditioned on other modes of production outside of its own stage of development. But it is the tendency of capitalist production to transform all production as much as possible into a production of commodities. The mainspring, by which this is accomplished, is the implication of other modes of production into the circulation process of capitalist production. And developed commodity-production is capitalist production. The intervention of industrial capital promotes this transformation everywhere, and simultaneously with it also the transformation of all direct producers into wage laborers.


Second. The commodities entering into the process of circulation (including the means of existence necessary for the reproduction of the labor-power of the laborer, who receives variable capital in the form of wages), regardless of their origin and of the social form of the productive process by which they were created, entertain the relation of commodity-capital, in the form of merchandise or merchant's capital, toward industrial capital. Merchant's capital, by its very nature, includes commodities of all modes of production.


Capitalist production does not only imply production on a large scale, but also necessarily sale on a large scale, in other words, sale to the dealer, not to the individual consumer. Of course, so far as a consumer is himself a productive consumer, an industrial capitalist, whose industrial capital produces means of production for some other branch of industry, a direct sale of one industrial capitalist's product to many other capitalists takes place (orders, etc). To this extent, every industrial capitalist is a direct seller and his own dealer, also, when he sells to the merchant.


Trading in commodities as a function of merchant's capital is the premise of capitalist production and develops more and more in the course of development of this mode of production. Therefore we use it occasionally for the illustration of various aspects of the process of capitalist circulation; but in the general analysis of this process, we assume that commodities are sold directly without the intervention of the merchant, because this intervention obscures various points of the movement.


See, for instance, Sismondi, who presents the matter somewhat naively, in the following words: "Commerce employs considerable capital, which at first sight does not seem to be a part of that capital whose movements we have just described. The value of the cloth in the stores of the cloth-merchant seems at first to be entirely foreign to that part of the annual production which the rich give to the poor' as wages in order to make them work. However, this capital has simply replaced the other of which we have spoken. For the purpose of clearly understanding the progress of wealth, we have begun with its creation and followed its movements to their conclusion. We have then seen that the capital employed in manufacture, for instance in the manufacture of cloth, was always the same; and when it was exchanged for the income of the consumer, it was merely divided into two part; one of them serving as revenue for the capitalist in the form of the product, the other serving as revenue to the laborers in the form the wages while they were manufacturing new cloth.


But it was soon found that it would be to the advantage of all to replace the different parts of this capital one by another and, if 10,000 dollars were sufficient for the entire circulation between the manufacturer and the consumer, to divide them equally between the manufacturer, the wholesale dealer, and the retail merchant. The first then did the same work with only one-third of this capital which he had formerly done with the entire capital, because, as soon as his work of manufacturing was completed, he found that the merchant bought from him much more readily than he could have found the consumer. On the other hand, the capital of the wholesale dealer was much sooner replaced by that of the retail merchant.... The difference between the sums advanced for wages and the purchase price paid by the last consumer was considered the profit of those capitals. It was divided between the manufacturer, the wholesale dealer, and the retail merchant, from the moment that they had divided their functions, and the work accomplished was the same, although it had required three persons and three parts of capital instead of one (Nouveaux Principes, I, pages 159, 160). All the merchants contributed indirectly to production; for having consumption for its object, production cannot be regarded as completed, until the product is placed into the reach of the consumer (Ibidem, page 157)."


We operate in the discussion of the general forms of the rotation, in short in the entire second volume, with money as metallic money, to the exclusion of symbolic money, of mere tokens of value, which are the specialties of certain states, and of credit-money, which is not yet developed. In the first place, this is the historical order; credit-money plays only a very minor role, or none at all, during the first epoch of capitalist production. In the second place, the necessity of this order is demonstrated theoretically by the fact, that everything which Tooke and others have hitherto produced of a critical nature in regard to the circulation of credit-money was compelled to hard back to the question, what would be the aspect of the matter if nothing but metal-money were in circulation. But it must not be forgotten, that metal-money may serve as a purchase medium and as a paying medium. For the sake of simplicity, we consider it in this second volume generally only in its first functional form.


The process of circulation of industrial capital, which is only a part of its individual process of rotation, is determined by the general laws outlined in volume I, chapter III, in so far as it is a series of transactions within the general circulation of commodities. The same mass of money, for instance 500 pounds sterling, starts successively so many more industrial capitals or eventually individual capitals in the form of commodity-capitals) in circulation, the greater the velocity of rotation of money is, and the more rapidly therefore every individual capital passes through the metamorphoses of commodities or money. One and the same volume of capital-value therefore requires so much less money for its circulation, the more this money performs the functions of a paying medium; the more, for instance, in the reproduction of some commodity-capital by its corresponding means of production, nothing but balances have to be squared; and the shorter the time of the payments is, for instance in paying wages. On the other hand, assuming that the velocity of the circulation and all other conditions remain the same, the volume of money required for the circulation of money-capital is determined by the sum of the prices of commodities (price multiplied by the volume of commodities), or, if the volume and value of the commodities are given, by the value of money itself.


But the laws of the general circulation of commodities apply only to the extent that the process of circulation of capital consists of a series of simple transactions in circulation; they do not apply to the extent that such transactions are definite functional sections in the rotation of individual industrial capitals.


In order to make this plain, it is best to study the process of circulation in its uninterrupted and connected form, such as it appears in the following two formulas:



As a series of transaction, in circulation, the process of circulation, whether in the form of C—M—C or of M—C—M, represents merely the two opposite lines of metamorphoses of commodities, and every individual metamorphosis in its turn includes its opposite on the part of the commodity or money in the hands of another.


C—M on the part of the owner of some commodity means M—C on the part of its buyer; the first metamorphosis of the commodity in C—M is the second metamorphosis of the commodity appearing in the form of M; the opposite applies to M—C. The statements concerning the intermingling of the metamorphosis of a certain commodity in one stage with that of another in another stage apply to the circulation of capital to the extent that the capitalist performs the functions of a buyer and seller of commodities, so that his capital in the form of money meets the commodities of another, or in the form of commodities the money of another. But this intermingling is not identical with the intermingling of the metamorphoses of capitals.


In the first place, M—C(Pm), as we have seen, may represent an intermingling of the metamorphoses of different individual capitals. For instance, the commodity-capital of the cotton-spinner, yarn, is partly replaced by coal. One part of his capital is in the form of money and is transformed into commodities, while the capital of the capitalist producer of coal exists in the form of commodities and is therefore transformed into money; the same transaction of circulation in this case represents opposite metamorphoses of two industrial capitals in different departments of production, the series of metamorphoses of these capitals intermingles in it. But we have also seen, that the Pm into which M is transformed need not be commodity-capital in the strictest sense, that is to say need not be a functional form of industrial capital, need not be produced by a capitalist. It is always a question of M—C on one side, and C—M on the other, but not always of intermingling metamorphoses of capitals. Furthermore M—L, the purchase of labor-power, never intermingles with any metamorphoses of capital, for labor-power, though a commodity from the point of view of the laborer, does not become capital until it is sold to the capitalist. On the other hand, in the process C'—M', it is not necessary that M' should represent transformed commodity-capital; it may be the money-equivalent of labor-power (wages), or of the product of some independent laborer, some slave, serf, or some commune.


In the second place, a definite functional role played by every metamorphosis of some individual capital within the process of circulation, need not represent a corresponding opposite metamorphosis in the rotation of the other capital, provided we assume that the entire production of the world-market is carried on capitalistically. For instance, in the cycle P...P, the M' which pays for C' may be merely the money-form of the surplus-value of the buyer, in case that the commodity is an article for consumption; or, in M'—C' where accumulated capital is concerned, it may simply replace the advanced capital of the seller of Pm, or it may not return into the rotation of his capital at all by being side-tracked into expenditures as revenue.


This shows that the manner in which the different component parts of the aggregate social capital, of which individual capitals are merely components performing independent functions, mutually replace one another in the process of circulation (in regard to capital as well as surplus-value), is not apparent from the simple intermingling of the metamorphoses in the circulation of commodities. Such intermingling occurs in the transactions of capital circulation as it does in all other circulation of commodities, but it requires a different method of analysis. Hitherto nothing but general phrases have been employed by economists for his purpose, and if we test those phrases, they contain nothing but indefinite ideas borrowed from the intermingling of metamorphoses common to all circulations of commodities.


One of the most obvious peculiarities of the process of rotation of industrial capital, and therefore of capitalist production, is the fact that on the one side, the component elements of productive capital are derived from the commodity-market, are continually renewed out of it, and are sold as commodities; that, on the other side, the product of the labor-process comes forth from it as a commodity and must be continually sold over and over as a commodity. Compare, for instance, a modern tenant of Lower Scotland with an old-fashioned small farmer on the continent. The former sells his entire product and has therefore to reproduce all its elements, even his seeds, by means of the market; the latter consumes the greater part of his product directly, buys and sells as little as possible, fashions tools, clothing, etc., so far as possible himself.


Such comparisons have led to the classification of production into natural economy, the money-system, and the credit-system, as being the three characteristic stages of economy in the development of social production.


But in the first place, these three forms do not represent any equivalent phases of development. The so-called credit-system is itself merely a modification of the money-system, so far as both terms express transactions between the producers themselves. In the developed capitalist production, the money-system appears only as the basis of the credit-system. The money-system and credit-system thus correspond only to different stages in the development of capitalist production, but they are by no means independent modes of economy as compared to natural economy. With the same justification, one might place the various forms of natural economy as equivalents by the side of those two systems.


In the second place, it is not the process of production itself which is emphasized as the distinguishing mark of the two systems of that classification, the money-system, the credit-system, but rather the mode of transaction between the various producers under those systems. Then the same should apply to the natural economy, which should in that case be classified as the exchange-system. A completely rounded system of natural economy, such as the state of the Inkas in Peru, would not fall under any of these classifications.


In the third place, the money-system is common to all production of commodities, and the product appears as a commodity in the most varied organisms of social production. The characteristic mark of capitalist production would then be only the extent to which the product is manufactured for purposes of trade, as a commodity, and the extent to which its own elements of formation enter as commodities into the economy which creates that product.


It is true, that capitalist production has for its general form the production of commodities. But it is so and becomes more so in its development, only because labor itself here appears as a commodity, because the laborer sells labor, that is to say the function of his labor-power, and our assumption is that he sells it at a value determined by its cost of reproduction. To the extent that labor becomes wage-labor, the producer becomes an industrial capitalist. For this reason capitalist production (and the production of commodities) does not reach its full scope, until the agricultural laborer becomes a wage-laborer. In the relation of capitalist and wage-laborer, the relation between the buyer and the seller, the money-relation, becomes an imminent relation of production. And this relation has its foundation in the social character of production, not of circulation. The character of the circulation rather depends on that of production. It is however, quite characteristic of the bourgeois horizon, which is entirely bounded by the craze for making money, not to see in the character of the mode of production the basis of the corresponding mode of circulation, but vice versa.*11


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.


What is true of the individual capital, also applies to the capitalist class.


In so far as the capitalist personifies but his industrial capital, his own demand is only for means of production and labor-power. His demand for Pm, expressed in value, is smaller than his advanced capital; he buys means of production of a value smaller than his capital, and therefore much smaller than the value of the commodity-capital which he takes back to the market.


As regards his demand for labor-power, its value is determined by the proportion of his variable capital to his total capital, as expressed by V÷C. Its proportion in capitalist production decreases continually more than his demand for means of production. His purchases of Pm steadily increase over his purchases of L.


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.


It still remains to anticipate the analysis of the problem of turn-over. Let the total capital of the capitalist be 5,000 pounds sterling, of which 4,000 pounds is fixed and 1,000 pounds circulating capital; these 1,000 pounds sterling are composed of 800 c plus 200 v, as assumed before. His circulating capital must be turned over five times per year in order that his fixed capital may be turned over once. His commodity-product is then equal in value to 6,000 pounds sterling, it is valued at 1,000 pounds sterling more than his advanced capital, so that the same proportion of surplus-value is obtained as before:

5,000 C÷1,000 s=100(c+v)÷20 s.


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.


Take it that his fixed capital must be reproduced in 10 years. Hence he sinks every year one tenth, or 400 pounds sterling, so that he has only a value of 3,600 pounds of fixed capital left plus 400 pounds in money. Inasmuch as repairs are necessary which do not exceed the average, they represent nothing but capital invested later. We may look at the matter from the standpoint that he has allowed for the expenses for repairs when calculating the value of his investment, so far as this enters into the annual commodity-product, so that they are included in that one tenth of sinking fund. If the repairs cost less than the average he is so much money in pocket, and in the reverse case he loses it. At any rate, although his demand, after his total capital has been turned over once a year, still remains at 5,000 pounds sterling which was the value of the original capital advanced, it increases so far as the circulating part of this capital is concerned, while it decreases so far as the fixed part is concerned.


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, supply 120.
Demand as man of the world 20, supply 0.

Total demand... 120, supply 120.


This assumption amounts to a non-existence of capitalist production, and thus the non-existence of the industrial capitalist himself. For capitalism is destroyed in its very foundation, if we assume that its compelling motive is enjoyment instead of the accumulation of wealth.


But such an assumption is also technically impossible. The capitalist must not only form a reserve-capital as a protection against fluctuations of value and as a fund enabling him to wait for favorable conditions of the market for sale and purchase; he must also accumulate capital, in order to extend his production and embody the progress of technique in his productive organization.


In order to accumulate capital, he must first withdraw a a part of the surplus-value from circulation which he obtained from that circulation in the form of money, and must hoard it until it has increased sufficiently for the extension of his old business or the opening of a side-line. So long as the formation of the hoard continues, it does not increase the demand of the capitalist. The money is then inactive. It does not withdraw from the commodity-market any equivalent in commodities for the money-equivalent which it withdrew for commodities supplied to it.


Credit is not considered here. And credit includes the depositing, on the part of the capitalist, of accumulating money in a bank on payment of interest as shown by a running account.

Notes for this chapter

End of Manuscript V. What follows to the end of the chapter is a note found in a Manuscript of 1877 or 1878 amid extracts from other works.

Part I, Chapter V.

End of Notes

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