Capital: A Critique of Political Economy, Vol. II. The Process of Circulation of Capital
By Karl Marx
One of Econlib’s aims is to put online the most significant works in the history of economic thought, and there can be no doubting the significance of Marx’s influence on both economic theory in the late 19th century and on the creation of Marxist states in the 20th century. From the time of the emergence of modern socialism in the 1840s (especially in France and Germany), free market economists have criticised socialist theory and it is thus useful to place that criticism in its intellectual context, namely beside the main work of one of its leading theorists,
Karl Marx.In 1848, when Europe was wracked by a series of revolutions in which both liberals and socialists participated and which both lost out to the forces of conservative monarchism or Bonapartism,
John Stuart Mill published his
Principles of Political Economy. The chapter on Property shows how important Mill thought it was to confront the socialist challenge to classical liberal economic theory. In hindsight it might appear that Mill was too accommodating to socialist criticism, but I would argue that in fact he offered a reasonable framework for comparing the two systems of thought, which the events of the late 20th century have finally brought to a conclusion which was not possible in his lifetime. Mill states in
Book II Chapter I “Of Property” that a fair comparison of the free market and socialism would compare both the ideal of liberalism with that of socialism, as well as the practice of liberalism versus the practice of socialism. In 1848 the ideals of both were becoming better known (and there were some aspects of the ideal of socialism which Mill found intriguing) but the practice of each was still not conclusive. Mill correctly observed that in 1848 no European society had yet created a society fully based upon private property and free exchange and any future socialist experiment on a state-wide basis was many decades in the future. After the experiments in Marxist central planning with the Bolshevik Revolution in 1917, the Chinese Communists in 1949, and numerous other Marxist states in the post-1945 period, there can be no doubt that the reservations Mill had about the practicality of fully-functioning socialism were completely borne out by historical events. What Mill could never have imagined, the slaughter of tens of millions of people in an effort to make socialism work, has ended for good any argument concerning the Marxist form of socialism.Econlib now offers online two important defences of the socialist ideal, Karl Marx’s three volume work on
Capital and the
collection of essays on Fabian socialism edited by George Bernard Shaw. These can be read in the light of the criticism they provoked among defenders of individual liberty and the free market: Eugen Richter’s anti-Marxist
Pictures of the Socialistic Future, Thomas Mackay’s
2 volume collection of essays rebutting Fabian socialism,
Ludwig von Mises post-1917 critique of
Socialism. One should not forget that
Frederic Bastiat was active during the rise of socialism in France during the 1840s and that many of his essays are aimed at rebutting the socialists of his day. The same is true for Gustave de Molinari and the other authors of the
Dictionnaire d’economie politique (1852). Several key articles on communism and socialism from the
Dictionnaire are translated and reprinted in Lalor’s
Cyclopedia.For further reading on Marx’s
Capital see David L. Prychitko’s essay
“The Nature and Significance of Marx’s
Capital: A Critique of Political Economy“.For further readings on socialism see the following entries in the
Concise Encyclopedia of Economics:
Poor Law Commissioners’ Report of 1834,
edited by Nassau W. Senior, et al.
March 1, 2004
Friedrich Engels, ed. Ernest Untermann, trans.
First Pub. Date
Chicago: Charles H. Kerr and Co.
First published in German. Das Kapital, based on the 2nd edition.
The text of this edition is in the public domain. Picture of Marx courtesy of The Warren J. Samuels Portrait Collection at Duke University.
- Preface, by Friedrich Engels
- Translators Note, by Ernest Untermann
- Part I, Chapter 1
- Part I, Chapter 2
- Part I, Chapter 3
- Part I, Chapter 4
- Part I, Chapter 5
- Part I, Chapter 6
- Part II, Chapter 7
- Part II, Chapter 8
- Part II, Chapter 9
- Part II, Chapter 10
- Part II, Chapter 11
- Part II, Chapter 12
- Part II, Chapter 13
- Part II, Chapter 14
- Part II, Chapter 15
- Part II, Chapter 16
- Part II, Chapter 17
- Part III, Chapter 18
- Part III, Chapter 19
- Part III, Chapter 20
- Part III, Chapter 21
We have seen that the entire time of rotation of a given capital is equal to the sum of its time of circulation plus its time of production. It is the period of time from the moment of the advance of capital-value in a definite form to the return of the rotating capital-value in the same form.
The compelling motive of capitalist production is always the creation of value by means of the advanced value, no matter whether this value is advanced in its independent money-form, or in commodities, in which case its value is only ideally independent in the price of the advanced commodities. In both cases this capital- value passes through various forms of existence during its rotation. Its identity with itself is confirmed by the books of the capitalists, or in the ideal form of calculating money.
No matter whether we consider the formula M…M’ or the formula P…P, both forms imply (1) that the advanced value performs the function of capital-value and has created more value; (2) that it has returned to the form in which it began its rotation, having completed its cycle. The creation of more value by means of the advanced value M and the return of capital to this money-form is plainly visible in M…M’. But the same takes place in the second formula. For the starting point of P is the existence of the elements of production, of commodities having a given value. The formula includes the creation of value by means of the advanced
value (C’ and M’) and the return to the original form, for in the second P the advanced value has again the form of the elements of production in which it was originally advanced.
We have seen previously: “If production be capitalistic in form, so, too, will be reproduction. Just as in the former the labor-process figures but as a means towards the self-expansion of capital, so in the latter it figures but as a means of reproducing as capital, i.e., as self-expanding value, the value advanced.” (Vol. I, chap. XXIII, p. 620.)
The three formulæ (1) M…M’, (II) P…P, and (III) C’…C’, present the following distinctions: In formula II, P…P, the renewal of the process by the process of reproduction is expressed as a reality, while it is only implied as a probability in formula I. But both of these formulæ differ from III by the fact that in them the advanced capital-value, either in the form of money or of material elements of production, is the starting and returning point. In M…M’, the return to M’ means M plus m. If the process is renewed on the same scale, M is again the starting point and m does not enter into it, but shows merely that M performed the function of capital and created surplus-value m, which it threw off. In the formula P…P, capital-value P advanced in the form of means of production is likewise the starting point. This form includes the creation of more value. If simple reproduction takes place, the same capitalist renews the same process in the same form P. If accumulation takes place, then P’ (equal in magnitude of value to M’ and C’) reopens the cycle as an expanded capital-value. But it begins with the advanced capital-value in its original form, although it is of greater value than before. In form III, on the other hand, capital-value does not begin the process as an advance, but as an expanded value, as the aggregate wealth existing in the form of commodities, of which the advanced value is but a part. This last form is important for the third part of this volume, in which the movement of the individual capitals is discussed in connection with the movements of the aggregate social capital. But it is not available for the discussion of the turn-over of capital,
which always begins with the advance of capital-value in the forms of money or commodities, and which always requires the return of the rotating capital-value to the form in which it had been advanced. Of these cycles I and II, the former is serviceable in the study of the influence of the turn-over on the formation of surplus-value, the latter in the study of its influence on the formation of the product.
Economists have not distinguished the different relations of the turn-over of capital to its cycles any more than they have distinguished between these cycles. They generally consider the formula M…M, because it dominates the individual capitalist and serves for a basis of his calculations, even if money is the starting point of this cycle only in the form of calculating money. Others start out from the outlay of capital in the form of elements of production and follow the cycle to the point of return, without alluding to the form of the returns, be they commodities or money. For instance, “the economic cycle,…the whole course of production, from the time that outlays are made till returns are received. In agriculture, seed time is its commencement, and harvesting its ending.” S. P. Newman, Elements of Political Economy, Andover and New York, p. 81. Others begin with C’, the third form. Says Th. Chalmers, in his work on “Political Economy,” 2nd Ed., London, 1832, p. 84 and following, in substance: The world of the productive traffic may be regarded as rotating in a cycle, which we will call the economic cycle. Each cycle is completed, whenever the business, after passing through its successive transactions, returns to its starting point. The beginning may be made at the point where the capitalist gets his receipts, which return his capital. From this point, the capitalist proceeds once more to hire his laborers and parcel out to them their subsistence, or rather the means to purchase it with wages. They manufacture for him the articles which are his specialty. And the capitalist then takes his articles to the market and brings the cycle of this one series of transactions to a close by selling and receiving in the price of his commodities a return for his entire investment of capital.
As soon as the entire capital-value invested by some individual capitalist in any one branch of production has completed the cycle of its movements, it finds itself once more in the form in which it started and is ready to repeat the same process. It must repeat this process, if value is to perpetuate itself as capital-value and create more value. The individual cycle is but a fragment in the life of capital, it is a period which is continually repeated. At the end of the period M…M’ capital has once more the form of money-capital, which passes anew through that series of metamorphoses in which its process of reproduction, or self-expansion, is included. At the end of the period P…P, capital has resumed the form of elements of production, which are the requirement for a renewal of its cycle. The rotation of capital, considered as a periodical process, not as an individual event, constitutes its turn-over. The duration of this turn-over is determined by the sum of its time of production plus its time of circulation. This sum constitutes the time of turn-over. It measures the passing of time while the entire capital-value goes through the period of its cycle until it reaches the next one. It counts the periods in the life of capital, or, the time of the renewal, repetition, of the process of self-expansion, which is the process of production, of the same capital-value.
Apart from the individual adventures which may accelerate or retard the time of turn-over of individual capitals, this time is different according to the different spheres of investment of capitals.
Just as the working day is the natural unit for the function of labor-power, so the year is the natural unit for the periods of turn-over of rotating capital. The natural basis of this unit is found in the fact that the most important crops of the temperate zone, which is the mother country of capitalist production, are annual products.
If we designate the year as the unit of the time of turn-over by T, the time of turn-over of a given capital by t, and the number of its turn-overs by n, then n = T/t. If, for instance, the time of turn-over t is 3 months, then n is equal to 12/3, or 4: in other words, capital is turned over
four times per year. If t is equal to 18 months, then n = 12/18 = 2/3, capital completes only two-thirds of its turn-over in one year. If its time of turn-over is several years, it is computed in multiples of one year.
From the point of view of the capitalist, the time of turn-over is the time for which he must advance his capital in order to create value with it and have it returned in its original form.
Before we can study the influence of the turn-over on the processes of production and self-expansion, we must take a look at two new forms which accrue to capital from the process of circulation and influence the form of its turn-over.