CONTENTS

PREFACE
by Friedrich Engels

It was no easy task to prepare the second volume of "CAPITAL" for the printer in such a way that it should make a connected and complete work and represent exclusively the ideas of its author, not of its publisher. The great number of available manuscripts, and their fragmentary character, added to the difficulties of this task. At best one single manuscript (No. 4) had been revised throughout and made ready for the printer. And while it treated its subject-matter fully, the greater part had become obsolete through subsequent revision. The bulk of the material was not polished as to language, even if the subject-matter was for the greater part fully worked out. The language was that in which Marx used to make his outlines, that is to say his style was careless, full of colloquial, often rough and humorous, expressions and phrases, interspersed with English and French technical terms, or with whole sentences or pages of English. The thoughts were jotted down as they developed in the brain of the author. Some parts of the argument would be fully treated, others of equal importance only indicated. The material to be used for the illustration of facts would be collected, but barely arranged, much less worked out. At the conclusion of the chapters there would be only a few incoherent sentences as mile-stones of the incomplete deductions, showing the haste of the author in passing on to the next chapter. And finally, there was the well-known handwriting which Marx himself was sometimes unable to decipher.

I have been content to interpret these manuscripts as literally as possible, changing the style only in places where Marx would have changed it himself and interpolating explanatory sentences or connecting statements only where this was indispensable, and where the meaning was so clear that there could be no doubt of the correctness of my interpretation. Sentences which seemed in the least ambiguous were preferably reprinted literally. The passages which I have remodeled or interpolated cover barely ten pages in print, and concern mainly matters of form.

The mere enumeration of the manuscripts left by Marx as a basis for Volume II proves the unparalleled conscientiousness and strict self-criticism which he practiced in his endeavor to fully elaborate his great economic discoveries before he published them. This self-criticism rarely permitted him to adapt his presentation of the subject, in content as well as in form, to his ever widening horizon, which he enlarged by incessant study.

The material for this second volume consists of the following parts: First, a manuscript entitled "A Contribution to the Critique of Political Economy," containing 1472 quarto pages in 23 divisions, written in the time from August, 1861, to June, 1863. It is a continuation of the work of the same title, the first volume of which appeared in Berlin, in 1859. It treats on pages 1-220, and again pages 1159-1472, of the subject analyzed in Volume I of "CAPITAL," beginning with the transformation of money into capital and continuing to the end of the volume, and is the first draft for this subject. Pages 973-1158 deal with capital and profit, rate of profit, merchant's capital and money capital, that is to say with subjects which have been farther developed in the manuscript for Volume III. The questions belonging to Volume II and many of those which are part of Volume III are not arranged by themselves in this manuscript. They are merely treated in passing, especially in the section which makes up the main body of the manuscript, viz.: pages 220-972, entitled "Theories of Surplus Value." This section contains an exhaustive critical history of the main point of political economy, the theory of surplus value, and develops at the same time, in polemic remarks against the position of the predecessors of Marx, most of the points which he has later on discussed individually and in their logical connection in Volume II and III. I reserve for myself the privilege of publishing the critical part of this manuscript, after the elimination of the numerous parts covered by Volumes II and III, in the form of Volume IV. This manuscript, valuable though it is, could not be used in the present edition of Volume II.

The manuscript next following in the order of time is that of Volume III. It was written for the greater part in 1864 and 1865. After this manuscript had been completed in its essential parts, Marx undertook the elaboration of Volume I, which was published in 1867. I am now preparing this manuscript of Volume III for the printer.

The period after the publication of Volume I, which is next in order, is represented by a collection of four manuscripts for Volume II, marked I-IV by Marx himself. Manuscript I (150 pages), presumably written in 1865 or 1867, is the first independent, but more or less fragmentary, elaboration of the questions now contained in Volume II. This manuscript is likewise unsuited for this edition. Manuscript II is partly a compilation of quotations and references to the manuscripts containing Marx's extracts and comments, most of them relating to the first section of Volume II, partly an elaboration of special points, particularly a critique of Adam Smith's statements as to fixed and circulating capital and the source of profits; furthermore, a discussion of the relation of the rate of surplus value to the rate of profit, which belongs in Volume III. The references furnished little that was new, while the elaborations for Volumes II and III were rendered valueless through subsequent revisions and had to be ruled out for the greater part. Manuscript IV is an elaboration, ready for printing, of the first section and the first chapters of the second section of Volume II, and has been used in its proper place. Although it was found that this manuscript had been written earlier than Manuscript II, yet it was far more finished in form and could be used with advantage for the corresponding part of this volume. I had to add only a few supplementary parts of Manuscript II. This last manuscript is the only fairly complete elaboration of Volume II and dates from the year 1870. The notes for the final revision, which I shall mention immediately, say explicitly: "The second elaboration must be used as a basis."

There is another interruption after 1870, due mainly to ill health. Marx employed this time in his customary way, that is to say he studied agronomics, agricultural conditions in America and especially Russia, the money market and banking institutions, and finally natural sciences, such as geology and physiology. Independent mathematical studies also form a large part of the numerous manuscripts of this period. In the beginning of 1877, Marx had recovered sufficiently to resume once more his chosen life's work. The beginning of 1877 is marked by references and notes from the above-named four manuscripts intended for a new elaboration of Volume II, the beginning of which is represented by Manuscript V (56 pages in folio). It comprises the first four chapters and is not very fully worked out. Essential points are treated in foot notes. The material is rather collected than sifted, but it is the last complete presentation of this most important first section. A preliminary attempt to prepare this part for the printer was made in Manuscript VI (after October, 1877, and before July, 1878), embracing 17 quarto pages, the greater part of the first chapter. A second and last attempt was made in Manuscript VII, dated July 2, 1878, and consisting of 7 pages in folio.

About this time Marx seems to have realized that he would never be able to complete the second and third volume in a manner satisfactory to himself, unless a complete revolution in his health took place. Manuscripts V-VIII show traces of hard struggles against depressing physical conditions far too frequently to be ignored. The most difficult part of the first section had been worked over in Manuscript V. The remainder of the first, and the entire second section, with the exception of Chapter 17, presented no great theoretical difficulties. But the third section, dealing with the reproduction and circulation of social capital, seemed to be very much in need of revision. Manuscript II, it must be pointed out, had first treated of this reproduction without regard to the circulation which is instrumental in effecting it, and then taken up the same question with regard to circulation. It was the intention of Marx to eliminate this section and to reconstruct it in such a way that it would conform to his wider grasp of the subject. This gave rise to Manuscript VIII, containing only 70 pages in quarto. A comparison with section III, as printed after deducting the paragraphs inserted out of Manuscript II, shows the amount of matter compressed by Marx into this space.

Manuscript VIII is likewise merely a preliminary presentation of the subject, and its main object was to ascertain and develop the new points of view not set forth in Manuscript II, while those points were ignored about which there was nothing new to say. An essential part of Chapter XVII, Section II, which is more or less relevant to Section III, was at the same time drawn into this discussion and expanded. The logical sequence was frequently interrupted, the treatment of the subject was incomplete in various places, and especially the conclusion was very fragmentary. But Marx expressed as nearly as possible what he intended to say on the subject.

This is the material for Volume II, out of which I was supposed "to make something," as Marx said to his daughter Eleanor shortly before his death. I have interpreted this request in its most literal meaning. So far as this was possible, I have confined my work to a mere selection of the various revised parts. And I always based my work on the last revised manuscript and compared this with the preceding ones. Only the first and third section offered any real difficulties, of more than a technical nature, and these were indeed considerable. I have endeavored to solve them exclusively in the spirit of the author of this work.

For Volume III, the following manuscripts were available, apart from the corresponding sections of the above-named manuscript, entitled "A Contribution to the Critique of Political Economy," from the sections in Manuscript III likewise mentioned above, and from a few occasional notes scattered through various extracts: The folio manuscript of 1864-65, referred to previously, which is about as fully elaborated as Manuscript II of Volume II; furthermore, a manuscript dated 1875 and entitled "The Relation of the Rate of Surplus Value to the Rate of Profit," which treats the subject in mathematical equations. The preparation of Volume III for the printer is proceeding rapidly. So far as I am enabled to judge at present, it will present mainly technical difficulties, with the exception of a few very important sections.

I avail myself of this opportunity to refute a certain charge which has been raised against Marx, first indistinctly and at various intervals, but more recently, after the death of Marx, as a statement of fact by the German state and university socialists. It is claimed that Marx plagiarized the work of Rodbertus. I have already expressed myself on the main issue in my preface to the German edition of Marx's "Poverty of Philosophy" (1885), but I will now produce the most convincing testimony for the refutation of this charge. 1

To my knowledge this charge is made for the first time in R. Meyer's "Emancipationskampf des Vierten Standes" (Struggles for the Emancipation of the Fourth Estate), page 43: "It can be demonstrated that Marx has gathered the greater part of his critique from these publications"—meaning the works of Rodbertus dating back to the last half of the thirties of this century. I may well assume, until such time as will produce further proof, that the "demonstration" of this assertion rests on a statement made by Rodbertus to Mr. Meyer. Furthermore, Rodbertus himself appears on the stage in 1879 and writes to J. Zeller (Zeitschrift für die Gesammte Staatswissenschaft, Tübingen, 1879, page 219), with reference to his work "Zur Erkenntniss Unserer Staatswirthschaftlichen Zustände" (A Contribution to the Understanding of our Political and Economic Conditions), 1842, as follows: "You will find that this line of thought has been very nicely used...by Marx, without, however, giving me credit for it." The publisher of Rodbertus posthumous works, Th. Kozak, repeats his insinuation without further ceremony. (Das Kapital von Rodbertus. Berlin, 1884. Introduction, page XV.) Finally in the "Briefe und Sozialpolitische Aufsatze von Dr. Rodbertus-Jagetzow," (Letters and Essays on Political Economy by Dr. Rodbertus-Jagetzow), published by R. Meyer in 1881, Rodbertus says directly: "To-day I find that I am robbed by Schäffle and Marx without having my name mentioned" (Letter No. 60, page 134). And in another place, the claim of Rodbertus assumes a more definite form: "In my third letter on political economy, I have shown practically in the same way as Marx, only more briefly and clearly, the source of the surplus value of the capitalists." (Letter No. 48, page 111.)

Marx never heard anything definite about any of these charges of plagiarism. In his copy of the "Emancipationskampf" only that part had been opened with a knife which related to the International. The remaining pages were not opened until I cut them myself after his death. The "Zeitschrift" of Tübingen was never read by him. The "Letters," etc., to R. Meyer likewise remained unknown to him, and I did not learn of the passage referring to the "robbery" of which Rodbertus was supposed to be the victim until Mr. Meyer himself called my attention to it. However, Marx was familiar with letter No. 48. Mr. Meyer had been kind enough to present the original to the youngest daughter of Marx. Some of the mysterious whispering about the secret source of his critique and his connection with Rodbertus having reached the ear of Marx, he showed me this letter with the remark that he had at last discovered authentic information as to what Rodbertus claimed for himself; if that was all Rodbertus wanted, he Marx, had no objection, and he could well afford to let Rodbertus enjoy the pleasure of considering his own version the briefer and clearer one. In fact, Marx considered the matter settled by this letter of Rodbertus.

He could so much the more afford this, as I know positively that he was not in the least acquainted with the literary activity of Rodbertus until about 1859, when his own critique of political economy had been completed, not only in its fundamental outlines, but also in its more important details. Marx began his economic studies in Paris, in 1843, starting with the prominent Englishmen and Frenchmen. Of German economists he knew only Rau and List, and he did not want any more of them. Neither Marx nor I heard a word of Rodbertus' existence, until we had to criticise, in the "Neue Rheinische Zeitung," 1848, the speeches he made as the representative of Berlin and as Minister of Commerce. We were both of us so ignorant that we had to ask the Rhenish representatives who this Rodbertus was that had become a Minister so suddenly. But these representatives could not tell us anything about the economic writings of Rodbertus. On the other hand, Marx showed that he knew even then, without the help of Rodbertus, whence came "the surplus value of the capitalists," and he showed furthermore how it was produced, as may be seen in his "Poverty of Philosophy," 1847, and in his lectures on wage labor and capital, delivered in Brussels in 1847, and published in Nos. 264-69 of the "Neue Rheinische Zeitung," 1849. Marx did not learn that an economist Rodbertus existed, until Lassalle called his attention to the fact in 1859, and thereupon Marx looked up the "Third Letter on Political Economy" in the British Museum.

This is the actual condition of things. And now let us see what there is to the content of Rodbertus which Marx is charged with appropriating by "robbery." Says Rodbertus: "In my third letter on political economy, I have shown practically in the same way as Marx, only more briefly and clearly, the source of the surplus-value of the capitalists." This, then, is the disputed point: The theory of surplus value. And indeed, it would be difficult to say what else there is in Rodbertus which Marx might have found worth appropriating. Rodbertus here claims to be the real originator of the theory of surplus-value of which Marx is supposed to have robbed him.

And what has this third letter on political economy to say in regard to the origin of surplus-value? Simply this: That the "rent," as he terms the sum of ground rent and profit, does not consist of an "addition to the value" of a commodity, but is obtained "by means of a deduction of value from the wages of labor, in other words, the wages represent only a part of the value of a certain product," and provided that labor is sufficiently productive, wages need not be "equal to the natural exchange value of the product of labor in order to leave enough of it for the replacing of capital and for rent." We are not informed, however, what sort of a "natural exchange value" of a product it is that leaves nothing for the "replacing" of capital, or in other words, I suppose, for the replacing of raw material and the wear and tear of tools.

I am happy to say that we are enabled to ascertain what impression was produced on Marx by this stupendous discovery of Rodbertus. In the manuscript entitled "A Contribution to the Critique of Political Economy," Section X, pages 445 and following, we find, "A deviation. Mr. Rodbertus. A new theory of ground rent." This is the only point of view from which Marx there looks upon the third letter on political economy. The Rodbertian theory of surplus value is dismissed with the ironical remark: "Mr. Rodbertus first analyzes what happens in a country where property in land and property in capital are not separated, and then he arrives at the important discovery that rent—meaning the entire surplus-value—is only equal to the unpaid labor or to the quantity of products in which it is embodied."

Now it is a fact, that capitalist humanity has been producing surplus-value for several hundred years, and has in the course of this time also arrived at the point where people began to ponder over the origin of surplus-value. The first explanation for this phenomenon grew out of the practice of commerce and was to the effect that surplus-value arose by raising the value of the product. This idea was current among the mercantilists. But James Steuart already saw that in that case the one would lose what the other would gain. Nevertheless, this idea persists for a long time after him, especially in the heads of the "socialists." But it is crowded out of classical science by Adam Smith.

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

Marx comments on this passage in the above-named manuscript, entitled, "A Contribution, etc.," page 253: "Adam Smith, then, regards surplus-value, that is to say the surplus labor, the surplus of labor performed and embodied in its product over and above the paid labor, over and above that labor which has received its equivalent in wages, as the general category, and profit and ground rent merely as its ramifications."

Adam Smith says, furthermore, Vol. I, Chap. VIII: "As soon as land becomes private property, the landlord demands a share of almost all the produce which the laborer can either raise or collect from it. His rent makes the first deduction from the produce of labor which is employed upon land. It seldom happens that the person who tills the ground has wherewithal to maintain himself till he reaps the harvest. His maintenance is generally advanced to him from the stock of a master, the farmer who employs him, and who would have no interest to employ him, unless he was to share in the produce of his labor, or unless his stock was to be replaced by him with a profit. This profit makes a second deduction from the produce of the labor which is employed upon land. The produce of almost all other labor is liable to the like deduction of profit. In all arts and manufactures the greater part of the workmen stand in need of a master to advance them the materials for their work, and their wages and maintenance till it be completed. He shares in the produce of their labor, or in the value which it adds to the materials upon which it is bestowed; and in this share consists his profit."

The comment of Marx on this passage (on page 256 of his manuscript) is as follows: "Here Adam Smith declares in so many words that ground rent and profit of capital are simply deductions from the product of the laborer, or from the value of his product, and equal to the additional labor expended on the raw material. But this deduction, as Adam Smith himself has previously explained, can consist only of that part of labor which the laborer expends over and above the quantity of work which pays for his wages and furnishes the equivalent of wages; in other words, this deduction consists of the surplus labor, the unpaid part of his labor."

It is therefore evident that even Adam Smith knew "the source of the surplus-value of the capitalists," and furthermore also that of the surplus-value of the landlords. Marx acknowledged this as early as 1861, while Rodbertus and the swarming mass of his admirers, who grew like mush-rooms under the warm summer showers of state socialism, seem to have forgotten all about that.

"Nevertheless," continues Marx, "Smith did not separate surplus-value proper as a separate category from the special form which it assumes in profit and ground rent. Hence there is much error and incompleteness in his investigation, and still more in that of Ricardo." This statement literally fits Rodbertus. His "rent" is simply the sum of ground rent plus profit. He builds up an entirely erroneous theory of ground rent, and he takes surplus-value without any critical reservation just as his predecessors hand it over to him. On the other hand, Marx's surplus-value represents the general form of the sum of values appropriated without any equivalent return by the owners of the means of production, and this form is then seen to transform itself into profit and ground rent by very particular laws which Marx was the first to discover. These laws are traced in Volume III. We shall see there how many intermediate links are required for the passage from an understanding of surplus-value in general to that of its transformation into profits and ground rent; in other words, for the understanding of the laws of the distribution of surplus-value within the capitalist class.

Ricardo goes considerably farther than Adam Smith. He bases his conception of surplus-value on a new theory of value which is contained in the germ in Adam Smith, but which is generally forgotten when it comes to applying it. This theory of value became the starting point of all subsequent economic science. Ricardo starts out with the determination of the value of commodities by the quantity of labor embodied in them, and from this premise he derives his theory of the distribution, between laborers and capitalists, of the quantity of value added by labor to the raw materials, this value being divided into wages and profit (meaning surplus-value). He shows that the value of the commodities remains the same, no matter what may be the proportion of these two parts, and he claims that this law has only a few exceptions. He even formulates a few fundamental laws relative to the mutual relations of wages and surplus-value (the latter considered by him as profit), although his statements are too general (see Marx, CAPITAL, Vol. I, Chap. XVII, 1), and he shows that ground rent is a quantity realized under certain conditions over and above profit. Rodbertus did not improve on Ricardo in any of these respects. He either remained unfamiliar with the internal contradictions which caused the downfall of the Ricardian theory and school, or they misled him into utopian demands instead of enabling him to solve economic problems (see his "Zur Erkenntniss, etc.," page 130).

But the Ricardian theory of value and surplus-value did not have to wait for Rodbertus' "Zur Erkenntniss" in order to be utilized for socialist purposes. On page 609 of the second edition of the German original of "CAPITAL," Vol. I, we find the following quotation: "The possessors of surplus produce or capital." This quotation is taken from a pamphlet entitled "The Source and Remedy of the National Difficulties. A Letter to Lord John Russell. London, 1821." In this pamphlet, the importance of which should have been recognized on account of the terms surplus produce or capital, and which Marx saved from being forgotten, we read the following statements:

"Whatever may be due to the capitalist" (from the capitalist standpoint) "he can never appropriate more than the surplus labor of the laborer, for the laborer must live" (page 23). As for the way in which the laborer lives and for the quantity of the surplus value appropriated by the capitalist, these are very relative things.—"If capital does not decrease in value in proportion as it increases in volume, the capitalist will squeeze out of the laborer the product of every hour of labor above the minimum on which the laborer can live...the capitalist can ultimately say to the laborer: You shall not eat bread, for you can live on beets and potatoes; and this is what we have to come to" (page 24). "If the laborer can be reduced to living on potatoes, instead of bread, it is undoubtedly true that more can be gotten out of his labor; that is to say, if, in order to live on bread, he was compelled, for his own subsistence and that of his family, to keep for himself the labor of Monday and Tuesday, he will, when living on potatoes, keep only half of Monday's labor for himself; and the other half of Monday, and all of Tuesday, are set free, either for the benefit of the state or for the capitalist." (Page 26.) "It is admitted that the sums of interest paid to the capitalist, either in the form of rent, money-interest, or commercial profit, are paid from the labor of others." (Page 23.) Here we have the same idea of "rent" which Rodbertus has, only the writer says "interest" instead of rent.

Marx makes the following comment (manuscript of "A Contribution, etc.," page 852): "The little known pamphlet—published at a time when the 'incredible cobbler' MacCulloch began to be talked about—represents an essential advance over Ricardo. It directly designates surplus-value or 'profit' in the language of Ricardo (sometimes surplus produce), or interest, as the author of this pamphlet calls it, as surplus labor, which the laborer performs gratuitously, which he performs in excess of that quantity of labor required for the reproduction of his labor-power, the equivalent of his wages. It was no more important to reduce value down to labor than it is to reduce surplus-value, represented by surplus-produce, to surplus-labor. This had already been stated by Adam Smith, and forms a main factor in the analysis of Ricardo. But neither of them said so anywhere clearly and frankly in such a way that it could not be misunderstood." We read furthermore, on page 859 of this manuscript: "Moreover, the author is limited by the economic theories which he finds at hand and which he accepts. Just as the confounding of surplus-value and profit misleads Ricardo into irreconcilable contradictions, so this author fares by baptizing surplus-value with the name of 'interest of capital.' It is true, he advances beyond Ricardo by reducing all surplus-value to surplus-labor. And furthermore, in calling surplus-value 'interest of capital,' he emphasizes that he is referring by this term to the general form of surplus-labor as distinguished from its special forms, rent, money interest, and commercial profit. But yet he chooses the name of one of these special forms, interest, at the same time for the general form. And this causes his relapse into the economic slang."

This last passage fits Rodbertus just as if it were made to order for him. He, too, is limited by the economic categories which he finds at hand. He, too, applies the name of one of the minor categories to surplus-value, and he makes it quite indefinite at that by calling it "rent." The result of these two mistakes is that he relapses into the economic slang, that he makes no attempt to follow up his advance over Ricardo by a critical analysis, and that he is misled into using his imperfect theory, even before it has gotten rid of its egg-shells, as a basis for a utopia which is in every respect too late. The above-named pamphlet appeared in 1821 and anticipated completely Rodbertus "rent" of 1842.

This pamphlet is but the farthest outpost of an entire literature which the Ricardian theories of value and surplus-value directed against capitalist production in the interest of the proletariat, fighting the bourgeoisie with its own weapons. The entire communism of Owen, so far as it plays a role in economics and politics, is based on Ricardo. Apart from him, there are still numerous other writers, some of whom Marx quoted as early as 1847 in his "POVERTY OF PHILOSOPHY" against Proudhon, such as Edmonds, Thompson, Hodgskin, etc., etc., "and four more pages of et cetera." I select from among this large number of writings the following by a random choice: "An Inquiry into the Principles of the Distribution of Wealth, Most Conducive to Human Happiness, by William Thompson; a new edition. London, 1850." This work, written in 1822, first appeared in 1827. It likewise regards the wealth appropriated by the non-producing classes as a deduction from the product of the laborer, and uses pretty strong terms in referring to it. The author says that the ceaseless endeavor of that which we call society consisted in inducing, by fraud or persuasion, by intimidation or compulsion, the productive laborer to perform his labors in return for the minimum of his own product. He asks why the laborer should not be entitled to the full product of his labor. He declares that the compensations, which the capitalists filch from the productive laborer under the name of ground rent or profit, are claimed in return for the use of land or other things. According to him, all physical substances, by means of which the propertiless productive laborer who has no other means of existence but the capacity of producing things, can make use of his faculties, are in the possession of others with opposite material interests, the consent of these is required in order that the laborer may find work; under these circumstances, he says, it depends on the good will of the capitalists how much of the fruit of his own labor the laborer shall receive. And he speaks of "these defalcations" and of their relation to the unpaid product, whether this is called taxes, profit, or theft, etc.

I must admit that I do not write these lines without a certain mortification. I will not make so much of the fact that the anti-capitalist literature of England of the 20's and 30's is so little known in Germany, in spite of the fact that Marx referred to it even in his "POVERTY OF PHILOSOPHY," and quoted from it, as for instance that pamphlet of 1821, or Ravenstone, Hodgskin, etc., in Volume I of "CAPITAL." But it is a proof of the degradation into which official political economy has fallen, that not only the vulgar economist, who clings desperately to the coat tails of Rodbertus and really has not learned anything, but also the duly installed professor, who boasts of his wisdom, have forgotten their classical economy to such an extent that they seriously charge Marx with having robbed Rodbertus of things which may be found even in Adam Smith and Ricardo.

But what is there that is new about Marx's statements on surplus-value? How is it that Marx's theory of surplus-value struck home like a thunderbolt out of a clear sky, in all modern countries, while the theories of all his socialist predecessors, including Rodbertus, remained ineffective?

The history of chemistry offers an illustration which explains this:

Until late in the 18th century, the phlogistic theory was accepted. It assumed that in the process of burning, a certain hypothetical substance, an absolute combustible, named phlogiston, separated from the burning bodies. This theory sufficed for the explanation of most of the chemical phenomena then known, although it had to be considerably twisted in some cases. But in 1774, Priestley discovered a certain kind of air which was so pure, or so free from phlogiston, that common air seemed adulterated in comparison to it. He called it "dephlogisticized air." Shortly after him, Scheele obtained the same kind of air in Sweden, and demonstrated its existence in the atmosphere. He also found that this air disappeared, whenever some body was burned in it or in the open air, and therefore he called it "fire-air." "From these facts he drew the conclusion that the combination arising from the union of phlogiston with one of the elements of the atmosphere" (that is to say by combustion) "was nothing but fire or heat which escaped through the glass." 2

Priestley and Scheele had produced oxygen, without knowing what they had discovered. They remained "limited by the phlogistic categories which they found at hand." The element, which was destined to abolish all phlogistic ideas and to revolutionize chemistry, remained barren in their hands. But Priestley had immediately communicated his discovery to Lavoisier in Paris, and Lavoisier, by means of this discovery, now analyzed the entire phlogistic chemistry and came to the conclusion that this new air was a new chemical element, that it was not the mysterious phlogiston which departed from a burning body, but that this new element combined with the burning body. Thus he placed chemistry, which had so long stood on its head, squarely on its feet. And although he did not obtain the oxygen simultaneously and independently of the other two scientists, as he claimed later on, he nevertheless is the real discoverer of oxygen as compared to the others who had produced it without knowing what they had found.

Marx stands in the same relation to his predecessors in the theory of surplus-value that Lavoisier maintains to Priestley and Scheele. The existence of those parts of the value of products, which we now call surplus-value, had been ascertained long before Marx. It had also been stated with more or less precision that it consisted of that part of the laborer's product for which its appropriator does not give any equivalent. But there the economists halted. Some of them, for instance the classical bourgeois economists investigated, perhaps, the proportion in which the product of labor was divided among the laborer and the owner of the means of production. Others, the socialists, declared that this division was unjust and looked for utopian means of abolishing this injustice. They remained limited by the economic categories which they found at hand.

Now Marx appeared. And he took an entirely opposite view from all his predecessors. What they had regarded as a solution, he considered a problem. He saw that he had to deal neither with dephlogisticized air, nor with fire-air, but with oxygen. He understood that it was not simply a matter of stating an economic fact, or of pointing out the conflict of this fact with "eternal justice and true morals," but of explaining a fact which was destined to revolutionize the entire political economy, and which offered a key for the understanding of the entire capitalist production, provided you knew how to use it. With this fact for a starting point Marx analyzed all the economic categories which he found at hand, just as Lavoisier had analyzed the categories of the phlogistic chemistry which he found at hand. In order to understand what surplus-value is, Marx had to find out what value is. Therefore he had above all to analyze critically the Ricardian theory of value. Marx also analyzed labor as to its capacity for producing value, and he was the first to ascertain what kind of labor it was that produced value, and why it did so, and by what means it accomplished this. He found that value was nothing but crystallized labor of this kind, and this is a point which Rodbertus never grasped to his dying day. Marx then analyzed the relation of commodities to money and demonstrated how, and why, thanks to the immanent character of value, commodities and the exchange of commodities must produce the opposition of money and commodities. His theory of money, founded on this basis, is the first exhaustive treatment of this subject, and it is tacitly accepted everywhere. He analyzed the transformation of money into capital and demonstrated that this transformation is based on the purchase and sale of labor-power. By substituting labor-power, as a value-producing quality, for labor he solved with one stroke one of the difficulties which caused the downfall of the Ricardian school, viz.: the impossibility of harmonizing the mutual exchange of capital and labor with the Ricardian law of determining value by labor. By ascertaining the distinction between constant and variable capital, he was enabled to trace the process of the formation of surplus-value in its details and thus to explain it, a feat which none of his predecessors had accomplished. In other words, he found a distinction inside of capital itself with which neither Rodbertus nor the capitalist economists know what to do, but which nevertheless furnished a key for the solution of the most complicated economic problems, as is proved by this Volume II and will be proved still more by Volume III. He furthermore analyzed surplus-value and found its two forms, absolute and relative surplus-value. And he showed that both of them had played a different, and each time a decisive role, in the historical development of capitalist production. On the basis of this surplus-value he developed the first rational theory of wages which we have, and drew for the first time an outline of the history of capitalist accumulation and a sketch of its historical tendencies.

And Rodbertus? After he has read all that, he regards it as "an assault on society," and finds that he has said much more briefly and clearly by what means surplus-value is originated, and finally declares that all this does indeed apply to "the present form of capital," that is to say to capital as it exists historically, but not to the "conception of capital," that is to say, not to the utopian idea which Rodbertus has of capital. He is just like old Priestley, who stood by phlogiston to the end and refused to have anything to do with oxygen. There is only this difference: Priestley had actually produced oxygen, while Rodbertus had merely rediscovered a common-place in his surplus-value, or rather his "rent;" and Marx declined to act like Lavoisier and to claim that he was the first to discover the fact of the existence of surplus-value.

The other economic feats of Rodbertus were performed on about the same plane. His elaboration of surplus-value into a utopia has already been inadvertently criticized by Marx in his "POVERTY OF PHILOSOPHY." What may be said about this point in other respects, I have said in my preface to the German edition of that work. Rodbertus' explanation of commercial crises out of the underconsumption of the working class has been stated before him by Sismondi in his "Nouveaux Principes de l'Economie Politique," liv. IV, ch. IV. 3 However, Sismondi always had the world-market in mind, while the horizon of Rodbertus does not extend beyond Prussia. His speculations as to whether wages are derived from capital or from income belong to the domain of scholasticism and are definitely settled by the third part of this second volume of "CAPITAL." His theory of rent has remained his exclusive property and may rest in peace, until the manuscript of Marx criticising it will be published. Finally his suggestions for the emancipation of the old Prussian landlords from the oppression of capital are entirely utopian; for they avoid the only practical question, which has to be solved, viz.: How can the old Prussian landlord have a yearly income of, say, 20,000 marks and a yearly expense of, say, 30,000 marks, without running into debt?

The Ricardian school failed about the year 1830, being unable to solve the riddle of surplus-value. And what was impossible for this school, remained still more insoluble for its successor, vulgar economy. The two points which caused its failure were these:

1. Labor is the measure of value. However, actual labor in its exchange with capital has a lower value than labor embodied in the commodities for which actual labor is exchanged. Wages, the value of a definite quantity of actual labor, are always lower than the value of the commodity produced by this same quantity of labor and in which it is embodied. The question is indeed insoluble, if put in this form. It has been correctly formulated by Marx and then answered. It is not labor which has any value. As an activity which creates values it can no more have any special value in itself than gravity can have any special weight, heat any special temperature, electricity any special strength of current. It is not labor which is bought and sold as a commodity, but labor-power. As soon as labor-power becomes a commodity, its value is determined by the labor embodied in this commodity as a social product. This value is equal to the social labor required for the production and reproduction of this commodity. Hence the purchase and sale of labor-power on the basis of this value does not contradict the economic law of value.

2. According to the Ricardian law of value, two capitals employing the same and equally paid labor, all other conditions being equal, produce the same value and surplus-value, or profit, in the same time. But if they employ unequal quantities of actual labor, they cannot produce equal surplus-values, or, as the Ricardians say, equal profits. Now in reality, the exact opposite takes place. As a matter of fact, equal capitals, regardless of the quantity of actual labor employed by them, produce equal average profits in equal times. Here we have, therefore, a clash with the law of value, which had been noticed by Ricardo himself, but which his school was unable to reconcile. Rodbertus likewise could not but note this contradiction. But instead of solving it, he made it a starting point of his utopia (Zur Erkenntniss, etc.). Marx had solved this contradiction even in his manuscript for his "CRITIQUE OF POLITICAL ECOMONY." According to the plan of "CAPITAL," this solution will be made public in Volume III. Several months will pass before this can be published. Hence those economists, who claim to have discovered that Rodbertus is the secret source and the superior predecessor of Marx, have now an opportunity to demonstrate what the economics of Rodbertus can accomplish. If they can show in which way an equal average rate of profit can and must come about, not only without a violation of the law of value, but by means of it, I am willing to discuss the matter further with them. In the meantime, they had better make haste. The brilliant analyses of this Volume II and its entirely new conclusions on an almost untilled ground are but the initial statements preparing the way for the contents of Volume III, which develops the final conclusions of Marx's analysis of the social process of reproduction on a capitalist basis. When this Volume III will appear, little mention will be made of a certain economist called Rodbertus.

The second and third volumes of "CAPITAL" were to be dedicated, as Marx stated repeatedly, to his wife.

FRIEDRICH ENGELS.
London, on Marx's birthday,
May 5, 1885.

The present second edition is, in the main, a faithful reprint of the first. Typographical errors have been corrected, a few inconsistencies of style eliminated, and a few short passages containing repetitions struck out.

The third volume, which presented quite unforeseen difficulties, is likewise almost ready for the printer. If my health holds out, it will be ready for the press this fall.

FRIEDRICH ENGELS.
London,
July 15, 1893.

TRANSLATOR'S NOTE.

The conditions and the location of the place in which I translated volumes II and III of this work made it impossible for me to get access to the original works of the authors quoted by Marx. I was compelled, under these circumstances, to retranslate many quotations from English authors from the German translation, without an opportunity to compare my retranslated version with the English original. But whatever may be the difference in the wording of the originals and of my retranslation from the German, it does not affect the substance of the quotations in the least. The meaning of the originals will be found to be the same as that of my retranslation. The interpretation given by Marx to the various quotations from other authors, and the conclusions drawn by him from them, are not altered in the least by any deviation, which my translation may show from the original texts. If any one should be inclined to turn these statements of mine to any controversial advantage, he should remember that he cannot use them against Marx, but only against me.

ERNEST UNTERMANN.

Volume II.
The Process of Circulation of Capital.

Book II.
The Circulation of Capital.

PART I
The Metamorphoses of Capital and Their Cycles.

Part I, Chapter I
THE CIRCULATION OF MONEY-CAPITAL.

The circulation process 4 of capital takes place in three stages, which, according to the presentation of the matter in Volume I, form the following series:

First stage: The capitalist appears as a buyer on the commodity and labor market; his money is transformed into commodities, or it goes through the circulation process M-C.

Second stage: Productive consumption of the purchased commodities by the capitalist. He acts in the capacity of a capitalist producer of commodities; his capital passes through the process of production. The result is a commodity of more value than that of the elements composing it.

Third stage: The capitalist returns to the market as a seller; his commodities are exchanged for money, or they pass through the circulation process C-M.

Hence the formula for the circulation process of money capital is: M-C...P...C'-M', the dots indicating the points where the process of circulation was interrupted, and C' and M' designating C and M increased by surplus value.

The first and third stages were discussed in Volume I only in so far as it was required for an understanding of the second stage, the process of production of capital. For this reason, the various forms which capital assumes in its different stages, and which it either retains or discards in the repetition of the circulation process, were not considered. These forms are now the first objects of our study.

In order to conceive of these forms in their purest state, we must first of all abstract from all factors which have nothing to do directly with the discarding or adopting of any of these forms. It is therefore taken for granted at this point that the commodities are sold at their value and that this takes place under the same conditions throughout. Abstraction is likewise made of any changes of value which might occur during the process of circulation.

I. First Stage. M-C. 5

M-C represents the exchange of a sum of money for a sum of commodities; the purchaser exchanges his money for commodities, the sellers exchange their commodities for money. It is not so much the form of this act of exchange which renders it simultaneously a part of the general circulation of commodities and a definite organic section in the independent circulation of some individual capital, as its substance, that is to say the specific use-values of the commodities which are exchanged for money. These commodities represent on the one hand means of production, on the other labor-power, and these objective and personal factors in the production of commodities must naturally correspond in their peculiarities to the special kind of articles to be manufactured. If we call labor-power L, and the means of production Pm, the sum of commodities to be purchased is C=L+Pm, or more briefly C lf0445-02-0032-i0001.gif . M-C, considered as to its substance, is therefore represented by M-C lf0445-02-0032-i0002.gif , that is to say M-C is composed of M-L and M-Pm. The sum of money M is separated into two parts, one of which buys labor-power, the other means of production. These two series of purchases belong to entirely different markets, the one to the commodity-market proper, the other to the labor-market.

Aside from this qualitative division of the sum of commodities into which M is transformed, the formula M-C lf0445-02-0032-i0001.gif also represents a very characteristic quantitative relation.

We know that the value, or price, of labor-power is paid to its owner, who offers it for sale as a commodity, in the form of wages, that is to say it is the price of a sum of labor containing surplus-value. For instance, if the daily value of labor-power is equal to the product of five hours' labor valued at three shillings, this sum figures in the contract between the buyer and seller of labor power as the price, or wages, for say, ten hours of labor time. If such a contract is made, for instance, with 50 laborers, they are supposed to work 500 hours per day for their purchaser, and one-half of this time, or 250 hours equal to 25 days of labor of 10 hours each, represent nothing but surplus-value. The quantity and the volume of the commodities to be purchased must be sufficient for the utilization of this labor-power.

M-C lf0445-02-0032-i0001.gif , then, does not merely express the qualitative relation represented by the exchange of a certain sum of money, say 422 pounds sterling, for a corresponding sum of means of production and labor-power, but also a quantitative relation between certain parts of that same money spent for the labor-power L and the means of production Pm. This relation is determined at the outset by the quantity of surplus-labor to be expended by a certain number of laborers.

If, for instance, a certain manufacturer pays a weekly wage of 50 pounds sterling to 50 laborers, he must spend 372 pounds sterling for means of production, if this is the value of the means of production which a weekly labor of 3,000 hours, 1,500 of which are surplus-labor, transforms into factory products.

It is immaterial for the point under discussion, how much additional value in the form of means of production is required in the various lines of industry by the utilization of surplus-labor. We merely emphasize the fact that the amount of money M spent for means of production in the exchange M-Pm must buy a proportional quantity of them. The quantity of means of production must suffice for the absorption of the amount of labor which is to transform them into products. If the means of production were insufficient, the surplus-labor available for the purchaser would not be utilized, and he could not dispose of it. On the other hand, if there were more means of production than available labor, they would not be saturated with labor and would not be transformed into products.

As soon as the process M-C lf0445-02-0032-i0001.gif has been completed, the purchaser has more than simply the means of production and labor-power required for the manufacture of some useful article. He has also at his disposal a greater supply of labor-power, or a greater quantity of labor, than is necessary for the reproduction of the value of this labor-power, and he has at the same time the means of production required for the materialization of this quantity of labor. In other words, he has at his disposal the elements required for the production of articles of a greater value than these elements, he has a mass of commodities containing surplus-value. The value advanced by him in the form of money has then assumed a natural form in which it can be incarnated as a value generating more value. In brief, value exists then in the form of productive capital which has the faculty of creating value and surplus-value. Let us call capital in this form P.

Now the value of P is equal to that of L+Pm, it is equal to M exchanged for L and Pm. M is the same capital-value as P, only it has a different form of existence, it is capital value in the form of money—money-capital.

M-C lf0445-02-0032-i0001.gif , or the more general formula M-C, a sum of purchases of commodities, a process within the general circulation of commodities, is therefore at the same time, seeing that it is a stage in the independent circulation of capital, a process of transforming capital-value from its money form into its productive form. It is the transformation of money-capital into productive capital. In the diagram of the circulation which we are here discussing, money appears as the first bearer of capital-value, and money-capital therefore represents the form in which capital is advanced.

Money in the form of money-capital finds itself employed in the functions of a medium of exchange, in the present case it performs the service of a general purchasing medium and general paying medium. The last-named service is required inasmuch as labor-power, though first bought is not paid until it has been utilized. If the means of production are not found ready on the market, but have to be ordered, money in the process M-Pm likewise serves as a paying medium. These functions are not due to the fact that money-capital is capital, but that it is money.

On the other hand, money-capital, or capital-value in the form of money, cannot perform any other service but that of money. This service appears as a function of capital simply because it plays a certain role in the movements of capital. The stage in which this function is performed is interrelated with other stages of the circulation of money-capital. Take, for instance, the case with which we are here dealing. Money is here exchanged for commodities which represent the natural form of productive capital, and this form contains in the germ the phenomena of the process of capitalist production.

A part of the money performing the function of money-capital in the process M-C lf0445-02-0032-i0001.gif assumes, in the course of this circulation, a function in which it loses its capital character but preserves its money character. The circulation of money-capital M is divided into the stages M-Pm and M-L, into the purchase of means of production and of labor-power.

Let us consider the last-named stage by itself. M-L is the purchase of labor-power by the capitalist. It is also the sale of labor-power, or we may say of labor, since we have assumed the existence of wages, by the laborer who owns it. What is M-C, or in this case M-L, from the standpoint of the buyer, is here, as in every other transaction of this kind, C-M from the standpoint of the seller, L-M from the standpoint of the laborer. It is the sale of labor-power by the laborer. This is the first stage of circulation, or the first metamorphosis, of commodities (Vol. I, Chap. III, Sect. 2a). It is for the seller of labor-power a transformation of his commodity into the money-form. The laborer spends the money so obtained gradually for a number of commodities required for the satisfaction of his needs, for articles of consumption. The complete circulation of his commodity therefore appears as L-M-C, that is to say first as L-M, or C-M, second as M-C, which is the general form of the simple circulation of commodities, C-M-C. Money is in this case merely a passing circulation-medium, a mere mediator in the exchange of one commodity for another.

M-L is the typical stage of the transformation of money-capital into productive capital. It is the essential condition for the transformation of value advanced in the form of money into capital, that is to say into a value producing surplus-value. M-Pm is necessary only for the purpose of realizing the quantity of labor bought in the process M-L. This process was discussed from this point of view in Vol. I, Part II, under the head of "Transformation of Money into Capital." But at this point, we shall have to consider it also from another side, relating especially to money-capital as a form of capital.

M-L is regarded as a general characteristic of the capitalist mode of production. But in this case we are doing so, not so much because the purchase of labor-power represents a contract which stipulates the delivery of a certain quantity of labor-power for the reproduction of the price of labor-power, or of wages, not so much for the reason that it means the delivery of surplus-labor which is the fundamental condition for the capitalization of the value advanced, or for the production of surplus-value; but we do so rather on account of its money form, because wages in the form of money buy labor-power, and this is the characteristic mark of the money system.

Nor is it the irrational feature of the money form which we shall note as the characteristic part. We shall overlook the irrationalities. The irrationality consists in the fact that labor itself as a value-creating element cannot have any value which could be expressed in its price, and that, therefore, a certain quantity of labor cannot have any equivalent in a certain quantity of money. But we know that wages are but a disguised form in which, for instance, the price of one day's labor-power is seen to be the price of the quantity of labor materialized by this labor-power in one day. The value produced by this labor-power in six hours of labor is then expressed as the value of twelve hours of its labor.

M-L is regarded as the characteristic signature of the so-called money system, because labor there appears as the commodity of its owner, and money as the buyer. In other words, it is the money relation in the sale and purchase of human activity which is considered. It is a fact, however, that money appears at an early stage as a buyer of so-called services, without the transformation of M into money-capital, and without any change in the general character of the economic system.

It makes no difference to money into what sort of commodities it is transformed. It is the general equivalent of all commodities, which show by their prices that they represent in an abstract way a certain sum of money and anticipate their exchange for money. They do not assume the form in which they may be translated into use-values for their owners, until they change places with money. Once that labor power has come into the market as the commodity of its owner, to be sold for wages in return for labor, its sale and purchase is no more startling than the sale and purchase of any other commodity. The peculiar characteristic is not that the commodity labor-power is salable, but that labor-power appears in the shape of a commodity.

By means of M-C lf0445-02-0032-i0001.gif , that is to say by the transformation of money-capital into productive capital, the capitalist accomplishes the combination of the objective and personal factors of production so far as they consist of commodities. If money is transformed into productive capital for the first time, or if it performs for the first time the function of money-capital for its owner, he must begin by buying means of production, such as buildings, machinery, etc., before he buys any labor-power. For as soon as labor-power passes into his control, he must have means of production for it, in order to utilize it.

This is the capitalist's point of view.

The laborer, on the other hand, looks at this question in the following light: The productive application of his labor-power is not possible, until he has sold it and brought it into contact with means of production. Before its sale, it exists in a state of separation from the means of production which it requires for its materialization. So long as it remains in this state, it cannot be used either for the production of use-values for its owner, or for the production of commodities, by the sale of which he might live. But from the moment that it is brought into touch with means of production, it forms part of the productive capital of its purchaser, the same as the means of production.

It is true, that in the act M-L the owner of money and the owner of labor-power enter into the relation of buyer and seller, of money-owner and commodity-owner. To this extent they enter into a money relation. But at the same time the buyer also appears in the role of an owner of means of production, which are the material conditions for the productive expenditure of labor-power on the part of its owner. The means of production, then, meet the owner of labor-power in the form of the property of another. On the other hand, the seller of labor meets its buyer in the form of the labor-power of another and it must pass into the buyer's possession, it must become a part of his capital, in order that it may become productive capital. The class relation between the capitalist and the wage laborer is therefore established from the moment that they meet in the act M-L, which signifies L-M from the standpoint of the laborer. It is indeed a sale and a purchase, a money relation, but it is a sale and a purchase in which the buyer is a capitalist and the seller a wage-laborer. And this relation arises out of the fact that the conditions required for the materialization of labor-power, viz.: means of subsistence and means of production, are separated from the owner of labor-power and are the property of another.

We are not here concerned in the origin of this separation. It is a fact, as soon as the act M-L can be performed. The thing which interests us here is that M-L does not become a function of money-capital for the sole reason that it is a means of paying for a useful human activity or service. The function of money as a paying medium is not the main object of our attention. Money can be expended in this form only because labor-power finds itself separated from its means of production, including the means of subsistence required for its reproduction; because this separation can be overcome only by the sale of the labor-power to the owner of the means of production; because the materialization of labor-power, which is by no means limited to the quantity of labor required for the reproduction of its own price, is likewise in the control of its buyer. The capital relation during the process of production arises only because it is inherent in the process of circulation based on the different economic conditions, the class distinctions between the buyer and the seller of labor-power. It is not money which by its nature creates this relation; it is rather the existence of this relation which permits of the transformation of a mere money-function into a capital-function.

In the conception of money-capital, so far as it relates to the special function which we are discussing, two errors run parallel to one another or cross each other. In the first place, the functions performed by capital-value in its capacity of money-capital, which are due to its money form, are erroneously derived from its character as capital. But they are due only to the money form of capital-value. In the second and reverse case, the specific nature of the money-function, which renders it simultaneously a capital-function, is attributed to its money nature. Money is here confounded with capital, while the specific nature of the money-function is conditioned on social relations such as are indicated by the act M-L, and these conditions do not exist in the mere circulation of commodities and money.

The sale and purchase of slaves is formally also a sale and purchase of commodities. But money cannot perform this function without the existence of slavery. If slavery exists, then money can be invested in the purchase of slaves. On the other hand, the mere possession of money cannot make slavery possible.

In order that the sale of his labor-power by the laborer, in the form of the sale of labor for wages, may take place as a result of social conditions which make it the basis of the production of commodities, in order that it may not be an isolated instance, so that money-capital may perform, on a social scale, the function in the process M-C lf0445-02-0032-i0001.gif , definite historical processes are required, by which the original connection of the means of production with labor-power is dissolved. These processes must have resulted in opposing the mass of the people, the laborers, as propertiless to the idle owners of the means of production. It makes no difference in this case, whether the connection between the labor-power and the means of production before its dissolution was such that the laborer belonged to the means of production and was a part of them, or whether he was their owner.

The fact which lies back of the process M-C lf0445-02-0032-i0001.gif is distribution; not distribution in the ordinary meaning of a distribution of articles of consumption, but the distribution of the elements of production themselves. These consist of the objective things which are concentrated on one side, and labor-power which is isolated on the other.

The means of production, the objective things of productive capital, must therefore stand opposed to the laborer as capital, before the process M-L can become a universal, social one.

We have seen on previous occasions that capitalist production, once it is established, does not only reproduce in its further development this separation, but extends its scope more and more, until it becomes the prevailing social condition. However, there is still another side to this question. In order that capital may be able to arise and take control of production, a definite stage in the development of commerce must precede. This includes the circulation of commodities, and therefore also the production of commodities; for no articles can enter circulation in the form of commodities, unless they are manufactured for sale, and intended for commerce. But the production of commodities does not become the normal mode of production, until it finds as its basis the capitalist system of production.

The Russian landowners, who are compelled to carry on agriculture by the help of wage-laborers instead of serfs, since the so-called emancipation of the serfs, complain about two things. They wail in the first place about the lack of money-capital. They say, for instance, that large sums must be paid to wage-laborers, before the crops can be sold, and there is a dearth of ready cash. Capital in the form of money must always be available for the payment of wages, before production on a capitalist scale can be carried on. But the landowners may take hope. In due time the industrial capitalist will have at his disposal, not alone his own money, but also that of others.

The second complaint is more characteristic. It is to the effect that even if money is available, there are not enough laborers at hand at any time. The reason is that the Russian farm laborer, owing to the communal property in land, has not been fully separated from his means of production, and hence is not yet a "free wage-worker" in the full capitalist meaning of the word. But the existence of "free" wage-workers is the indispensable condition for the realization of the act M-C, the exchange of money for commodities, the transformation of money-capital into productive capital.

As a matter of course, the formula M-C...P...C' -M' does not represent the normal form of the circulation of money-capital, until capitalist production is fully developed, because it is conditioned on the existence of a social class of wage-laborers. We have seen that capitalist production does not only create commodities and surplus-values, but also gives rise to an ever growing class of wage-laborers, either by propagation or by the transformation of independent producers into proletarians.

Since the first condition for the realization of the act M-C...P...C' -M' is the permanent existence of a class of wage-workers, capital in the form of productive capital and the circulation of productive capital must precede it.

II. Second Stage. Functions of Productive Capital.

The circulation of capital which we have here considered begins with the act of circulation represented by the formula M-C, the transformation of money into commodities, or purchase. Circulation must therefore be supplemented by the reverse metamorphosis C-M, the transformation of commodities into money, or sale. But the immediate result of M-C lf0445-02-0032-i0001.gif is the interruption of the circulation of the capital advanced in the form of money. By the transformation of money-capital into productive capital the value of capital has assumed a natural form in which it cannot continue to circulate, but must enter into consumption, more accurately into productive consumption.

The application of labor-power, labor, can not be carried into effect anywhere but in the labor process. The capitalist cannot sell the laborer along with the commodities, because the wage-worker is not a chattel slave and the capitalist does not buy anything from the laborer but the privilege of utilizing the labor-power purchased in the person of the laborer for a certain time. On the other hand, the capitalist cannot use this labor-power in any other way than by using it up in transforming, by its help, means of production into commodities. The result of the first stage of the circulation of money-capital is therefore its entrance into the second stage, that of productive capital.

This movement is represented by the formula M-C lf0445-02-0032-i0001.gif , P, in which the dots indicate the place where the circulation of capital is interrupted, while its rotation continues, since it passes from the sphere of the circulation of commodities into that of production. The first stage, the transformation of money-capital into productive capital, is therefore merely the harbinger of the second, the productive stage of capital.

The act M lf0445-02-0032-i0001.gif presupposes that the person performing it not only has at his or her disposal values of some useful form, but also that he or she has them in the form of money. And the act consists precisely in giving away money. A man can, therefore, remain the owner of money only on the condition, that the giving away of money at the same time implies a return of money. But money can return only through the sale of commodities. Hence the above formula assumes the owner of money to be a producer of commodities.

Now let us look at the formula M-L. The wage worker lives only by the sale of his labor-power. The preservation of this power, equivalent to the self-preservation of the laborer, requires a daily consumption. Hence the payment of wages must be continually repeated at short intervals, in order that the wage laborer may be able to repeat acts L-M or C-M-C, by means of which he is enabled to purchase the articles required for his self-preservation. For this reason the capitalist must stand opposed to the wage worker in the capacity of a money-capitalist, and his capital must be money-capital. On the other hand, if the wage laborers, the mass of direct producers, are to perform the act L-M-C, the means of subsistence required for it must be present in the form of purchasable commodities. This state of affairs necessitates a high degree of development of the circulation of products in the form of commodities, and this again must be preceded by a corresponding extension of the production of commodities. As soon as production by means of wage labor has become universal, the production of commodities must be the typical form of production. If this mode of production is general, it carries in its wake an ever increasing division of labor, that is to say an ever growing differentiation in the special nature of the products which are manufactured in the form of commodities by the various capitalists, an ever greater division of supplementary processes of production into independent specialties. To the extent that M-L develops, M-Pm also develops, that is to say the production of means of production to that extent differentiates from the production of commodities with those means. The means of production then stand opposed as commodities to every producer of commodities and he must buy those means in order to be able to carry on his special line of commodity production. They are derived from branches of production which are entirely divorced from his own and enter into his own branch as commodities which he must buy. The objective materials of commodity production assume more and more the character of products of other commodity manufacturers which he must purchase. And to the same extent the capitalist must become a money-capitalist, in the same ratio his capital must assume the functions of money-capital.

On the other hand, the same conditions which are the cause of the fundamental constitution of capitalist production, especially the existence of a class of wage laborers, also demand the transition of all commodity production into the capitalist mode of commodity production. In proportion as the capitalist mode of production develops, it has a disintegrating effect on all older forms of production, which were mainly adjusted to the individual needs and transformed only the surplus over and above those needs into commodities. Capitalist production makes of the sale of products the main incentive, without at first apparently affecting the mode of production itself. Such was, for instance, the first effect of capitalist world commerce on such nations as the Chinese, Indians, Arabs, etc. But wherever it takes root, there it destroys all forms of commodity production which are either based on the self-employment of the producers, or merely on the sale of the surplus product. The production of commodities is first made general and then transformed by degrees into the capitalist mode of commodity production. 6

Whatever may be the social form of production, laborers and means of production always remain its main elements. But either of these factors can become effective only when they unite. The special manner in which this union is accomplished distinguishes the different economic epochs from one another. In the present case, the separation of the so-called free laborer from his means of production is the starting point, and we have observed the way and the conditions in which these two elements are united in the hands of the capitalist, as the productive mode of existence of his capital. The actual process which combines the personal and objective materials of commodity production under these conditions, the process of production, thus becomes in its turn a function of capital, a capitalist process of production, the nature of which has been fully analyzed in the first volume of this work. Every process of commodity production at the same time becomes a process of exploiting labor-power. But it is not until the capitalist production of commodities is established that this mode of exploitation becomes universal and typical, and revolutionizes in the course of its historical development, through the organization of the labor process and the enormous improvement of technique, the entire economic structure of society, in a manner eclipsing all former epochs.

The means of production and labor-power in so far as they are forms of existence of advanced capital values, are distinguished by the different roles assumed by them in the production of value, hence also of surplus-value, and known under the names of constant and variable capital. As different parts of productive capital they are further-more distinguished by the fact that the means of production in the possession of the capitalist remain his capital even outside of the process of production, while labor-power exists in the form of individual capital only within this process. While labor-power is a commodity only in the hands of its seller, the wage worker, it becomes capital only in the hands of its buyer, the capitalist who uses it temporarily. And the means of production do not become objective parts of productive capital, until labor-power, the personal form of productive capital, is embodied in them. Human labor-power is originally no more capital than are the means of production. They assume this specific social character only under definite historically developed conditions, and the same character is impregnated upon precious metals, and still more upon money, by the same circumstances.

Productive capital, in performing its functions, consumes its own component parts for the purpose of transforming them into a mass of products of a higher value. Seeing that labor-power acts likewise merely as an organ of productive capital, the surplus-value produced by its surplus-labor over and above the value of its component elements is also gathered by capital. The surplus-labor of labor-power is the inexpensive labor of capital and thus forms surplus-value for the capitalist, a value which costs him no equivalent return. The product is, therefore, not only a commodity, but a commodity pregnant with surplus-value. Its value is equal to P+S, that is to say equal to the value of the productive capital consumed in its manufacture plus the surplus-value S created by it. Assuming that this product were represented by 10,000 pounds of yarn, let us say that means of production valued at 372 pounds sterling and labor-power valued at 50 pounds sterling were consumed in the production of this quantity of yarn. During the process of spinning, the spinners transferred the value of the means of production to the amount of 372 pounds sterling to the yarn, and at the same time they created, by means of their labor-power, new values to the amount of 128 pounds sterling. The 10,000 pounds of yarn therefore represent a value of 500 pounds sterling.

III. Third Stage. C'-M'.

Commodities become commodity-capital by springing into existence as a direct result of commodity-production, embodying in a new form the capital values already utilized. If the production of commodities were carried on as capitalist production in all spheres of society, all commodities would be elements of commodity-capital from the outset, whether they would be composed of crude iron, Brussels laces, sulphuric acid, or cigars. The problem as to what class of commodities is destined by its nature to rank as capital and what class to serve as general commodities, is one of the self-prepared ills of the scholastic economists.

In the form of commodities, capital has to perform the functions of commodities. The articles of which commodity capital is composed are produced for sale and must be exchanged for money, must go through the process C-M.

The commodities of the capitalist may consist of 10,000 pounds of yarn. If 372 pounds sterling represent the value of the means of production consumed in the spinning process, and new values to the amount of 128 pounds sterling have been created, the yarn has a value of 500 pounds sterling, which is expressed in its price of the same amount. This price is realized by the sale C-M. What is it that makes of this simple process of all commodity circulation at the same time a capital function? It is not any change that takes place inside of it. Neither the use-value of the product has been changed, for it passes into the hands of the buyer as an object of use, nor has anything been altered in its exchange-value, for this value has not experienced any change of magnitude, but only of form. It first existed as yarn, while now it exists as money. Thus a plain distinction is evident between the first stage C-M, and the last stage C'-M'. There the advanced money serves as money-capital, because it is transformed, by means of the circulation of commodities, into articles of a specific use-value. Here, on the other hand, the commodities can only serve as capital, since they brought this character with them from the process of production before their circulation began. During the spinning process, the spinners created new values to the amount of 128 pounds sterling in the shape of yarn. Of this sum, say 50 pounds sterling are regarded by the capitalist merely as an equivalent for wages advanced for labor-power, while 78 pounds sterling—representing an exploitation of 156 per cent—are his surplus-value.

The value of the 10,000 pounds of yarn therefore embodies first the value of the consumed productive capital P, which consists of a constant capital of 372 pounds sterling and a variable capital of 50 pounds sterling, their sum being 422 pounds sterling, equal to 8,440 pounds of yarn. Now the value of the productive capital P is equal to C, the value of the elements constituting it which the capitalist found to be in the hands of their sellers in the stage M-C. In the second place, the value of the yarn embodies a surplus-value of 78 pounds sterling, equal to 1,560 pounds of yarn. C as an expression of the value of 10,000 pounds of yarn is therefore equal to C plus surplus C, or C plus an increment of C worth 78 pounds sterling, which we shall call c, since it exists in the same commodity form as that now assumed by the original value C. The value of the 10,000 pounds of yarn, equal to 500 pounds sterling, is therefore represented by the formula C+c=C'. What changes C, the value of the 10,000 pounds of yarn, into C' is not its absolute value of 500 pounds sterling, for it is determined, the same as C standing for the expression of the value of any other sum of commodities, by the quantity of labor embodied in it. It is rather its relative value, its value as compared to that of the productive capital P consumed in its production, which is the essential thing. This value is contained in it plus the surplus-value created through the productive capital. Its value exceeds that of the capital by the surplus-value c. The 10,000 pounds of yarn are the bearers of the consumed capital value increased by this surplus-value, and they are so by virtue of the capitalist process of production. C' expresses the relation of the value of the commodities to that of the capital advanced in its production, in other words the composition of the value of the commodities, of capital value and surplus-value. The 10,000 pounds of yarn represent a commodity-capital C' only because they are an altered form of the productive capital P, and this relation exists originally by virtue of the circulation of this individual capital, it applies primarily to the capitalist who produced the yarn by the help of his capital. It is, so to say, an internal, not an external relation which makes a commodity capital of the 10,000 pounds of yarn in their capacity of representatives of value. They are bearing the imprint of capital not in the absolute magnitude of their value, but in its relative magnitude, in the proportion of their value to that of productive capital embodied in them before they became commodities. If, then, these 10,000 pounds of yarn are sold at their value of 500 pounds sterling, this act of circulation, considered by itself, is identical with C-M, a mere transformation of the same value from the form of a commodity into that of money. But as a special stage in the circulation of a certain individual capital, the same act is also a realization of the capital value, embodied in the commodity, to the amount of 422 pounds sterling plus the surplus-value, likewise embodied in it, of 78 pounds sterling. That is to say, it also represents C'-M', the transformation of the commodity-capital from its commodity form into that of money. 7

The function of C' is now that of all commodities, viz.: to transform itself into money, to be sold, to go through the circulation stage C-M. So long as the capital utilized so far remains in the form of commodity-capital and stays on the market, the process of production rests. The commodity-capital serves then neither as a creator of value nor of products. In proportion to the degree of speed with which capital throws off the commodity-form and assumes that of money, in other words, in proportion to the rapidity of the sale, the same capital-value will serve in widely different degrees as a creator of products or of values, and the scale of reproduction will be extended or abridged. It has been shown in Volume I that the effectiveness of any given capital is conditioned on factors in the productive process which are to a certain extent independent of the magnitude of its own value. Here we see that the process of circulation sets in motion new factors which are independent of the value of the capital, its effectiveness, its expansion or contraction.

The mass of commodities C', being the embodiment of the consumed capital, must furthermore pass in its entire volume through the metamorphosis C'-M'. The quantity sold is here the main determinant. The individual commodity figures only as an integral part of the total mass. The 500 pounds sterling are embodied in 10,000 pounds of yarn. If the capitalist succeeds in selling only 7,440 pounds of yarn at their value of 372 pounds sterling, he has recovered only the value of his constant capital, the value expended by him for means of production. If he sells 8,440 pounds of yarn, he recovers only the value of his total capital. He must sell more, in order to obtain some surplus-value, and he must sell the entire 10,000 pounds in order to get the entire surplus-value of 78 pounds sterling (1,560 pounds of yarn). In 500 pounds sterling he receives merely an equivalent for the commodity sold. His transaction within the process of circulation is simply C-M. If he had paid his laborers 64 pounds sterling instead of 50 pounds sterling, his surplus-value would be only 64 pounds sterling instead of 78, and the degree of exploitation would have been only 100 per cent instead of 150. But the value of the yarn would remain the same; only the relation of its component parts would be changed. The circulation-act C-M would still represent the sale of 10,000 pounds of yarn for 500 pounds sterling, which is their value.

C' is equal to C+c (or 422 plus 78 pounds st.). C equals the value of P, the productive capital, and this equals the value of M, the money advanced in the act M-C, the purchase of the elements of production, amounting to 422 pounds sterling in our example. If the mass of commodities is sold at its value, then C equals 422 pounds sterling, and c, the value of the surplus product of 1,560 pounds of yarn, equals 78 pounds sterling. If we call c, expressed in money, m, then C'-M'=(C+c)-(M+m), and the cycle M-C...P...C'-M', in its expanded form, is represented by M-C lf0445-02-0032-i0001.gif ...P...(C+c)-(M+m).

In the first stage, the capitalist takes articles of use out of the commodity-market proper and the labor-market. And in the third stage he throws commodities back, but only into one market, the commodity-market proper. But the fact that he extracts from the market, by means of his commodities, a greater value than he threw upon it originally, is due only to the circumstance that he throws more commodity-values back upon it than he first drew out of it. He threw the value M into it and drew out of it the equivalent C; he throws the value C+c back into it, and draws out of it the equivalent M+m.

M was in our example equal to the value of 8,440 pounds of yarn. But he throws 10,000 pounds of yarn into the market, he returns a greater value than he drew out of it. On the other hand, he threw this increased value into it only by virtue of the fact that he obtained a surplus-value through the exploitation of labor-power (this value being expressed by an aliquot part of the product). The mass of commodities becomes a commodity-capital only by virtue of this process, it is the impersonation of the used-up capital value only through it. By the act C'-M' the advanced capital-value is recovered as well as the surplus-value. The realization of both coincides with that series of sales, or with that one sale, of the entire mass of commodities, which is expressed by C'-M'. But this same act of circulation is different for capital-value and surplus-value, because it expresses for each one of these two values a different stage of their circulation, a different section of the series of metamorphoses through which each of them passes in its circulation. The surplus-value c did not come into the world until the process of production began. It appeared for the first time on the commodity-market in the form of commodities. This is its first form of circulation, hence the act c-m is its first circulation act, or its first metamorphosis, which remains to be supplemented by the reverse circulation, or the opposite metamorphosis, M-c. 8

It is different with the circulation which the capital-value C performs in the same circulation act C'-M', and which constitutes for it the circulation act C-M, in which C is equal to P, the M originally advanced. It opened its circulation in the form of M, money-capital, and returns through the act C-M to the same form. In other words, it has now passed through the two opposite stages of the circulation, first M-C, second C-M, and finds itself once more in the form in which it can begin its cycle anew. What constitutes for surplus-value the first transformation of the commodity-form into that of money, constitutes for capital-value its return, or retransformation, into its original money-form.

By means of M-C lf0445-02-0032-i0001.gif , money-capital is transformed into an equivalent mass of commodities, L and Pm. These commodities no longer perform the function of commodities, of articles of sale. Their value now exists in the hands of the capitalist who bought them, they represent the value of his productive capital P. And in the function P, productive consumption, they are transformed into commodities substantially different from the means of production, into yarn, in which their value is not only preserved but increased, rising from 422 pounds sterling to 500 pounds sterling. By means of this metamorphosis, the commodities taken from the market in the first stage, M-C, are replaced by commodities of a different substance and value, which now perform the function of commodities, being exchanged for money and sold. The process of production, therefore, appears to us as an interruption of the process of circulation of capital-value, since up to production it has passed only through the phase M-C. It passes through the second and concluding phase, C-M, after C has been altered in substance and value. But so far as capital-value, considered by itself, is concerned, it has merely gone through a transformation of its use-form in the process of production. It existed in the form of 422 pounds sterling's worth of L and Pm, while now it exists in the form of 8,440 pounds of yarn valued at 422 pounds sterling. If we consider merely the two circulation phases of capital-value, apart from its surplus-value, we find that it passes through the stages M-C and C-M, in which the second C represents a different use-value, but the same exchange-value as the first C. And the process M-C-M is, therefore, a cycle which requires the return of the value advanced in money to its money-form, because the commodity here changes places twice and in the opposite direction, the first change being from the money to the commodity-form, the second from the commodity to the money-form. Capital-value is retransformed into money.

The same circulation act C'-M', which constituted the second and concluding metamorphosis, a return to the money-form, for capital-value, represents for the surplus-value simultaneously embodied in the commodity-capital, and realized by its exchange for money, its first metamorphosis, its transformation from the commodity to the money-form, C-M, its first circulation phase.

We have, then, two observations to make. First, the final return of capital-value to its original money-form is a function of commodity-capital. Second, this function includes the first transformation of surplus-value from its original commodity-form to that of money. The money-form, then, plays a double role here. On the one hand, it is a return of a value, originally advanced in money, to its old form, a return to that form of value which opened the process. On the other hand, it is the first metamorphosis of a value which originally enters the circulation in the form of a commodity. If the commodities composing the commodity-capital are sold at their value, as we assume, then C plus c is transformed into M plus m, its equivalent. The sold commodity-capital now exists in the hands of the capitalist in the form of M plus m (422 pounds sterling plus 78 pounds sterling, equal to 500 pounds sterling). Capital-value and surplus-value are now present in the form of money, the form of the general equivalent.

At the conclusion of the process, capital-value has resumed the form in which it entered, and can now open a new cycle of the same kind, in the form of money-capital, and go through it. Just because the opening and concluding form of this process is that of money-capital, M, we call this form of the circulation process the circulation of money-capital. It is not the form, but merely the magnitude of the advanced value which is changed in the end.

M plus m is a sum of money of a definite magnitude, in this case 500 pounds sterling. As a result of the circulation of capital, of the sale of commodity-capital, this sum of money contains the capital-value and the surplus-value. And these values are now no longer organically connected, as they were in the yarn, they are now arranged side by side. Their sale has given both of them an independent money form; 211-250th of this money represent the capital value of 422 pounds sterling, and 39-250th constitute the surplus-value of 78 pounds sterling. This separation of capital-value and surplus-value, which results from the sale of the commodity-capital, has not only the formal meaning to which we shall refer presently. It becomes important in the process of the reproduction of capital, according to whether m is entirely, or partially, or not at all, lumped together with M, that is to say according to whether or not it continues to perform the functions of capital-value. Both m and M may also pass through widely different cycles of circulation.

In M', capital has returned to its original form M, to its money-form. But it then has a form, in which it is materialized capital.

There is in the first place a difference of quantity. It was M, 422 pounds sterling. It is now M', 500 pounds sterling, and this difference is expressed by the quantitatively different points M...M' of the cycle, the movement of which is indicated by the dots. M' is greater than M, and M'-M is equal to the surplus-value s. But as a result of this cycle M...M' it is only M' which exists now; it is the product which marks the close of the process of formation of money-capital. M' now exists independently of the movement which it started. This movement is completed, and M' exists in its place.

But M', being M plus m, or in this case 500 pounds sterling, composed of 422 pounds sterling advanced capital plus an increment of 78 pounds sterling, represents at the same time a qualitative relation. It is true that this qualitative relation does not exist outside of the quantitative relation of the parts of one and the same sum. M, the advanced capital, which is now once more present in its original form (422 pounds sterling), exists as the realization of capital. It has not only preserved itself, but also realized its own capital-form, distinguished from m (78 pounds sterling), to which it stands in the relation of creator, m being its fruit, an increment born by it. It has realized its capital-form, because it is a value which has created more value. M' exists as a capital relation. M no longer appears as mere money, but it is explicitly used as money-capital, as a value which has utilized itself by creating a higher value than itself. M acts as capital by virtue of its relation to another part of M', which it has created. Thus M' appears as a sum of values expressing the capital relation, being differentiated into functionally different parts.

But this expresses only a result, without showing the intermediate process which caused it.

Parts of value as such are not qualitatively different from one another, except in so far as they are values of different articles, of concrete things, embodied in different use-values. They are values of different commodities, and this difference is not due to their character as exchange-values. In money, all differences of commodities are extinguished, because it is an equivalent form common to all of them. A sum of money of 500 pounds sterling consists of equal elements of one pounds sterling each. Since the intermediate links of descent are extinguished in the simple form of this sum of money. and all traces of the specific differences of the individual parts of capital in the productive process have disappeared, there exists only the mental distinction between the main sum of 422 pounds sterling, which was the capital advanced, and a surplus sum of 78 pounds sterling.

Or, again, let M' be equal to 110 pounds sterling, of which 100 may be equal to the main sum M and 10 equal to the surplus-value s. There is an absolute homogeneity, an absence of distinctions, between the two constituent parts of the sum of 110 pounds sterling. Any 10 pounds of this sum always constitute 1-11th of the sum of 110 pounds regardless of the fact that they are also 1-10th of the advanced main sum of 100 pounds, or the excess of 10 pounds above it. Main sum and surplus sum (capital and surplus-value), may simply be expressed as fractional parts of the total sum. In our illustration, 10-11th form the main sum, and 1-11th the surplus sum. Materialized capital, at the end of its cycle, therefore appears as an undifferentiated expression, the money expression, of the capital relation.

True, this applies also to C' (C plus c). But there is this difference, that C', of which C and c are also proportional parts of the same homogeneous mass of commodities, indicates its origin P, the immediate product of which it is, while in M', a form derived immediately from circulation, the direct relation to P is obliterated.

The undifferentiated distinction between the main sum and the surplus sum, which are contained in M', so far as this expresses the result of the movement M...M', disappears as soon as it performs its active function of money-capital and is not preserved as a fixed expression of materialized industrial capital. The circulation of money-capital can never begin with M' (although M' now performs the function of M). It can begin only with M, that is to say, it can never begin as an expression of the capital relation, but only as an advance of capital-value. As soon as the 500 pounds sterling are once more advanced as capital, in order to be again utilized, they constitute a point of departure, not one of conclusion. Instead of a capital of 422 pounds sterling, a capital of 500 pounds sterling is now advanced. It is more money than before, more capital-value, but the relation between its two constituent parts has disappeared. In fact, a sum of 500 pounds sterling might have served instead of the 422 pounds sterling as the original capital.

It is not an active function of money-capital to materialize in the form of M'; this is rather a function of C'. Even in the simple circulation of commodities, first in C-M, then in M-C2, money M does not figure actively until in the second movement, M-C.2 Its embodiment in the form of M is the result of the first act, by virtue of which it becomes a transformation of C.1 The capital relation contained in M', the relation of its constituent parts in the form of capital-value and surplus-value, assumes a functional importance only in so far as the repeated cycle M...M' splits M' into two circulations, one of them a circulation of capital, the other of surplus-value. In this case these two parts perform not only quantitatively, but also qualitatively different functions, M others than m. But considered by itself, M...M' does not include the consumption of the capitalist, but emphatically only the self-utilization and accumulation of money-capital, the latter function expressing itself at the outset as a periodical augmentation of ever renewed advances of money-capital.

Although M' (M plus m) is the undifferentiated form of capital, it is at the same time a materialization of money-capital, it is money which has generated more money. But this is different from the role played by money-capital in the first stage, M-C lf0445-02-0032-i0001.gif . In this first stage, M circulates as money. It assumes the functions of money-capital only because it cannot serve as money unless it assumes the form of money, because it cannot transform itself in any other way into the component parts of P, L and Pm, which stand opposed to it in the form of commodities. In this circulation act it serves as money. But as this act is the first stage in the circulation of capital-value, it is also a function of money-capital, by virtue of the specific use-value of the commodities L and Pm which are bought by it. M', on the other hand, composed of M, the capital-value, and m, the surplus-value created by M, stands for materialized capital-value, expresses the purpose and the outcome, the function of the total process of circulation of capital. The fact that it expresses this outcome in the form of money, of materialized money-capital, is due to the capital-character of money-capital, not to its money-character; for capital opened the process of circulation in the form of an advance of money. Its return to the money-form, as we have seen, is a function of C', not of money-capital. As for the difference between M and M', it is simply m, the money-form of c, the increment of C. For M' is composed of M plus m only because C' was composed of C plus c. In C', this difference and the relation of capital-value to its product, surplus-value, is already present and expressed, before both of them are transformed into M'. And in this form, these two values appear independently side by side and may, therefore, be employed in separate and distinct functions.

M' is the outcome of the materialization of C'. Both M' and C' are different forms of utilized capital-value, one of them the commodity, the other the money-form. Both of them share the quality of being utilized capital-value. Both of them are materialized capital, because capital-value here exists simultaneously with its product, surplus-value, although it is true that this relation is expressed in the undifferentiated form of the proportion of two parts of one and the same sum of money or commodity-value. But as expressions of capital, and in distinction from the surplus-value produced by it, M' and C' are the same and express the same thing, only in different forms. In so far as they represent utilized value, capital acting in its own role, they express the result of the function of productive capital, the only function in which capital-value generates more value. What is common to both of them, is that money-capital as well as commodity-capital are different modes of existence of capital. Their distinctive and specific functions cannot, therefore, be anything else but the difference between the functions of money and of commodities. Commodity-capital, the direct product of the capitalist process of production, indicates its capitalist origin and is, therefore, to that extent more rational and less difficult to understand than money-capital, in which every trace of this process has disappeared. In general, all special use-forms of commodities disappear in money.

It is only when M' itself figures as commodity-capital, when it is the direct outcome of a productive process, instead of being a transformed product of this process, that it loses its bizarre form, that is to say, in the production of money itself. In the production of gold, for instance, the formula would be M-C lf0445-02-0032-i0001.gif ...P...M (M plus m), and M' would here figure as a commodity, because P furnishes more gold than had been advanced for the elements of production contained in the first money-capital M. In this case, the irrational nature of the formula M...M' (M plus m) disappears. Here a part of a certain sum of money appears as the mother of another part of the same sum of money.

IV. The Rotation as a Whole.

We have seen that the process of circulation is interrupted at the end of its first phase, M-C lf0445-02-0032-i0001.gif . by P, which makes the commodities L and Pm parts of the substance and value of productive capital and consumes them. The result of this productive consumption is a new commodity C', which is of different composition and value than the commodities L and Pm. The interrupted process of circulation, C-M, must be completed by M-C. The basis of this second and concluding phase of circulation is C', a commodity of different composition and value than C. The process of circulation therefore appears first as M-C,1 then as C 2-M', the C2 in this second phase representing a greater value and a different use-value than C1, due to the interruption caused by the function of P which is the production of C' from elements of C, embodied in the productive capital P. The first form assumed by capital (vol. I, chap. IV), viz., M-C-M', or extended first M-C,1 second C1-M', shows the same commodity twice. It is the same commodity which is exchanged for money in the first phase and again exchanged for more money in the second phase. In spite of this essential difference, these two modes of circulation share the peculiarity of transforming in their first phase money into commodities, and in the second phase commodities into money, so that the money spent in the first phase returns in the second. On the one hand, both have in common this return of money to its starting point, on the other hand the excess of the returned money over the money first advanced. To this extent, the formula M-C...C'-M' is apparently contained in the general formula M-C-M'.

It follows furthermore that equal quantities of simultaneously existing values are placed in opposition to one another and exchanged in the two metamorphoses of circulation represented by M-C and C'-M'. The change of value is due exclusively to the metamorphosis P, the process of production, which thus appears as a natural metamorphosis of capital, as compared to the merely formal metamorphosis of circulation.

Let us now consider the total movement, M-C...P...C'-M', or its more explicit form, M-C lf0445-02-0032-i0001.gif ...P...C' (C+c) -M' (M+m). Capital here appears as a value which goes through a series of connected metamorphoses conditioned on one another and representing so many phases of the total process. Two of these phases belong to the sphere of circulation, one of them to that of production. In each one of these phases, capital-value has a different form corresponding to a different, special, function. Within this cycle, value does not only maintain itself at the magnitude in which it was originally advanced, but it increases. Finally, in the concluding stage, it returns to the same form which it had at the beginning of the cycle. This total movement constitutes the process of rotation as a whole.

The two forms assumed by capital-value are that of money-capital and commodity-capital. In the stage of production, its form is that of productive capital. The capital which assumes these different forms in the course of its total process of rotation, discards them one after the other, and performs a special function in each one of them, is industrial capital. The term industrial applies to every branch of industry run on a capitalist basis.

Money-capital, commodity-capital, productive capital are not, therefore, terms indicating independent classes of capital, nor are their functions processes of independent and separate branches of industry. They are here used only to indicate special functions of industrial capital, assumed by it seriatim.

The circulation of capital proceeds normally only so long as its various phases flow uninterruptedly one into the other. If capital stops short in its first phase M-C, money-capital assumes the rigid form of a hoard; if it stops in the phase of production, the means of production remain lifeless on one side, while labor-power remains unemployed on the other; and if capital stops short in its last phase C'-M', masses of unsold commodities accumulate and clog the flow of rotation.

At the same time, it is a matter of course that the rotation of capital includes the stopping of capital for a certain length of time in the various sections of its cycle. In each of these sections, industrial capital is poured into a definite mold, being either money-capital, productive capital, or commodity-capital. It does not assume a form in which it may enter a new metamorphosis, until it has gone through the function corresponding to the form preceding the new metamorphosis. In order to make this plain, we have assumed in our illustration, that the capital-value of the mass of commodities created in the phase of production is equal to the total sum of values originally advanced in the form of money, or, in other words, that the entire capital-value advanced in the form of money enters undivided from one stage into the next. Now we have seen (vol. I, chap. IV) that a part of the constant capital, the means of production proper, such as machinery, always serve repeatedly, for a greater or smaller number of times, in the same processes of production, so that they transfer their values piece-meal to the products. We shall see later, to what extent this circumstance modifies the process of rotation of capital. For the present, it suffices to say this: In our illustration, the value of the productive capital of 422 pounds sterling contained only the average wear and tear of buildings, machinery, etc., that is to say only that part of value which they transferred in the transformation of 10,600 pounds of cotton to 10,000 pounds of yarn, which represents the product of one week's spinning, or of 60 hours. In the means of production, into which the advanced constant capital of 372 pounds sterling is transformed, the instruments of labor, buildings, machinery, etc., figure only as would objects which were rented in the market for a weekly rate. But this does not change the problem in any way. We have but to multiply the quantity of yarn produced in one week, or 10,000 pounds of yarn, with the number of weeks contained in a certain number of years, in order to transfer the entire value of the means of production bought and consumed during this period. It is then plain that the advanced money-capital must first be transformed into these means of production, must first have gone through the phase M-C, before it can be used as productive capital, P. And it is likewise plain that, in our illustration, the capital value of 422 pounds sterling, embodied in the yarn during the process of production, cannot become a part of the value of the 10,000 pounds of yarn and enter the circulation phase C'-M', until it has been produced. The yarn cannot be sold, until it has been spun.

In the general formula, the product of P is regarded as a material thing different from the elements of the productive capital, as an object existing apart from the process of production and having a different use-value than the elements of production. And if the fruit of production assumes the form of such an object, it always corresponds to this description, even if a part of it should re-enter production as one of its elements. Grain, for instance, serves as seed for its own reproduction, but the final product is always grain and has a different composition than the elements used in its production, such as labor-power, implements, and fertilizer. But there are certain independent branches of industry, in which the result of the productive process is not a new material product, not a commodity. Among these, only the industries representing communication, such as transportation proper for commodities and human beings, and the transmission of communications, letters, telegrams, etc., are economically important.

A. Cuprov 9 says on this score: "The manufacturer may first produce articles and then look for consumers" (his product, having been completed in the process of production, is transferred to the process of circulation as a separate commodity). "Production and consumption thus appear as two acts distinct from one another in space and time. In the transportation industry, which does not create any new products, but merely transfers men and things, these two acts coincide; its services (change of place) must be consumed at the same time that they are produced. For this reason the distance, within which railroads can find customers, extends at best 50 verst (53 kilometers or about 30 miles) on either side of their tracks."

The result in the transportation of either men or commodities is a change of place. Yarn, for instance, is thus transferred from England, where it was produced, to India.

Now transportation, as an industry, sells this change of location. This utility is inseparably connected with the process of transportation, which is the productive process of transportation. Men and commodities travel by the help of the means of transportation, and this traveling, this change of location, constitutes the production in which these means of transportation are consumed. The utility of transportation can be consumed only in this process of production. It does not exist as a use-value apart from this process, it does not, like other commodities, serve as a commodity which circulates after its process of production. The exchange value of this utility is determined, like that of any other commodity, by the value of the elements of production (labor-power and means of production) plus the surplus-value created by the surplus-labor of the laborers employed in transportation. This utility also entertains the same relations to consumption that all other commodities do. If it is consumed individually, its value is used up in consumption; if it is consumed productively by entering into the process of production of the transported commodities, its value is added to that of the commodity. The formula for the transportation industry would, therefore, be M-C lf0445-02-0062-i0001.gif ...P-M', since it is the process of production itself which is paid for and consumed, not a product distinct and separate from it. This formula has almost the same form as that of the precious metals, only with the difference, that in this case M' represents the changed form of the utility resulting during the process of production, while in the case of the precious metals it represents the natural form of the gold or silver obtained in this process and transferred from it to other stages.

Industrial capital is the only form of existence of capital, in which not only the appropriation of surplus value or surplus product, but also its creation is a function of capital. Therefore it gives to production its capitalist character. Its existence includes that of class antagonisms between capitalists and laborers. To the extent that it assumes control over social production, the technique and social organization of the labor process are revolutionized and with them the economic and historical type of society. The other classes of capital, which appear before industrial capital amid past or declining conditions of social production, are not only subordinated to it and suffer changes in the mechanism of their functions corresponding to it, but move on it as a basis, live and die, stand and fall with this basis. Money-capital and commodity-capital, so far as they still persist as independent branches of industry along with industrial capital, are nothing but modes of existence of different functional forms either assumed or discarded by industrial capital in the sphere of circulation, made independent and developed one-sidedly by the social division of labor.

The cycle M...M' on one side intermingles with the general circulation of commodities, proceeds from it and flows back into it, is a part of it. On the other hand, it is for the individual capitalist an independent movement of his capital value, taking place partly within the general circulation of commodities, partly outside of it, but always preserving its independent character. For in the first place, its two phases taking place in the sphere of circulation, M-C and C'-M', have functionally different characters as functions of capital circulation. In M-C, the commodity C is composed of labor-power and means of production; in C'-M', capital value is realized plus surplus-value. In the second place, the process of production, P, includes productive consumption. In the third place, the return of money to its starting point makes of the cycle M...M' a process of circulation complete in itself.

Every individual capital is therefore, on the one hand, in its two phases M-C and C'-M', an active element in the general circulation of commodities, with which it is connected either as money or as a commodity. Thus it forms a link in the general chain of metamorphoses in the world of commodities. On the other hand, it goes through its own independent circulation within the general circulation. Its independent circulation passes through the sphere of production and returns to its starting point in the same form in which it left that point. Within its own circulation, which includes its natural metamorphosis in the process of production, it changes at the same time its value. It returns not only as the same money-value, but as an increased money-value.

Let us finally consider M-C...P...C'-M' as a special form of the process of circulation of capital, apart from the other forms which we shall analyze later. It is distinguished by the following points:

1. It appears as the circulation of money-capital, because industrial capital in its money form, as money-capital, forms the starting and terminal point of its total process. The formula itself expresses the fact that money is not expended as money at this stage, but advanced as the money-form of capital. It expresses furthermore that exchange-value, not use-value, is the determining aim of this movement. Just because the money-form of this value is its tangible and independent form, the compelling motive of capitalist production, the making of money, is most fittingly expressed by the circulation formula M...M.' The process of production appears merely as an indispensable and intermediate link, as a necessary evil of money-making. All nations with a capitalist mode of production are seized periodically by a feverish attempt to make money without the mediation of the process of production.

2. The stage of production, the function of P, represents an interruption of the two phases of circulation M-C...C'-M', which in their turn represent links in the simple circulation M-C-M'. The process of production appears formally and essentially in circulation as that which is typical of capitalist production, that is to say as a mere means of utilizing previously advanced values. The accumulation of wealth is the purpose of production.

3. Since the series of phases is opened by M-C, the second link of the circulation is C'-M.' In other words, the starting point is M, or the money-capital to be utilized, the terminal point M', or the utilized money-capital M plus m, in which M figures together with its offspring m. This distinguishes the circulation of M from that of the two other cycles P and C', in two ways. On one side, its two extremes are represented by the money-form. And money is the tangible form of value, the value of the product in its independent form, in which every trace of the use-value of the commodities has been extinguished. On the other side, the formula P...P is not necessarily transformed into P...P' (P plus p,) and in the form C-C', no difference in value is visible between the two extremes. It is, therefore, characteristic for the formula M-M' that capital value is its starting point, and utilized capital value its terminal point, so that advanced capital value appears as the means, and utilized capital value as the end of the entire operation. And furthermore, this relation is expressed in the form of money, in the form of independent value, so that money-capital is money generating more money. The generation of surplus-value by value is not only expressed as the Alpha and Omega of the process, but more explicitly in the form of glittering money.

4. Since M', the money-capital realized as a result of C'-M', the supplementary and concluding form of M-C, has absolutely the same form in which it began its first circulation, it can immediately begin the same circulation over again as an increased (accumulated) money-capital, or as M' equal to M plus m. And it is not expressed in the formula M-M' that, in the repetition of the cycle, the circulation of m separates from that of M. Considered in its complete form, the circulation of money capital expresses simply the process of utilization and accumulation. The consumption in it is productive consumption, as shown by the formula M-C lf0445-02-0032-i0001.gif and it is only this which is included in this circulation of individual capital. M-L means L-M, or C-M, on the part of the laborer. It is therefore the first phase of circulation which promotes his individual consumption, thus: L-M-C (means of subsistence). The second phase, M-C, no longer falls within the circulation of individual capital, but it is initiated by individual capital and an indispensable premise for it, since the laborer must above all live and maintain himself by individual consumption, in order to be always on the market for exploitation by the capitalist. But this consumption is here only assumed as the indispensable condition for the productive consumption of labor power by capital, and it is, therefore, considered only in so far as it preserves and reproduces his labor power by means of his individual consumption. But the means of production Pm, the commodities proper which enter into the circulation of capital, are only material feeding the productive consumption. The act L-M promotes the individual consumption of the laborer, the transformation of means of subsistence into flesh and blood. It is true, that the capitalist must also be present, must also live and consume in order to perform the function of a capitalist. To this end, he has, indeed, but to consume in the same way as the laborer, and this is all that is assumed in this form of the circulation process. But it is not formally expressed, since the term M' concludes the formula and indicates that it may at once re-enter on its function of increased money-capital.

In the formula C'-M', the sale of C' is directly indicated; but this sale C'-M' on the part of one is M-C, or the purchase of commodities, on the part of another, and in the last analysis a commodity is bought only for its use-value, in order to enter (leaving intermediate sales out of consideration) into the process of consumption, and this may be either productive or individual consumption, according to the nature of the commodity. But this consumption does not enter into the circulation of individual capital, the product of which is C'. This product is eliminated from this circulation from the moment that it is sold. C' is explicitly produced for consumption by others. For this reason we note that certain spokesmen of the mercantile system (which is based on the formula M-C...P...C'-M') deliver lengthy sermons to the effect that the individual capitalist should consume only in his capacity as a worker, that capitalist nations should let other and less intelligent nations consume their own and other commodities, and that a capitalist nation should devote itself for life to the productive consumption of commodities. These sermons frequently remind us in form and content of analogous ascetic exhortations of the fathers of the church.

The rotation process of capital is therefore a combination of circulation and production, it includes both. In so far as the two phases M-C and C'-M' are processes of circulation, the rotation of capital is a part of the general circulation of commodities. But in so far as they are definite sections performing a peculiar function in the rotation of capital, which combines the spheres of circulation and production, capital goes through its own circulation in the general circulation of commodities. The general circulation of commodities serves capital in its first stage as a means of assuming that form in which it can perform the function of productive capital; in its second stage, it serves to eliminate the commodity function in which capital cannot renew its circulation; at the same time it enables capital to separate its own circulation from that of the surplus-value created by it.

The circulation of money-capital is therefore the most one-sided, and thus the most convincing and typical form of the circulation of industrial capital. Its aim and compelling motive, the utilization of value, the making and accumulation of money, is thus most clearly revealed. Buying in order to sell dearer is its slogan. The first phase M-C also indicates the origin of the elements of productive capital in the commodity market, or more generally, the dependence of the capitalist mode of production on circulation, on commerce. The circulation of money-capital is not merely the production of commodities; it is itself possible only through circulation of commodities and based on it. This is plain from the fact that the term M belongs to circulation and represents the first and most typical form of advanced capital-value. This is not the case in the other two forms of circulation.

The circulation of money-capital always remains the general expression of industrial capital, because it always implies the utilization of the advanced value. In P...P, the money-character of capital is shown only in the price of the elements of production as a value expressed in money-terms for the purpose of calculation and book-keeping.

M...M' becomes a special form of the circulation of industrial capital when new capital is first advanced in the form of money and then returned in the same form, either in passing from one branch of industry to another, or in the case that industrial capital retires from business. This includes the capital function of the surplus-value first advanced in the form of money, and becomes most evident when surplus-value performs a function in some other business than the one in which it originated. M...M' may be the first circulation of a certain capital; it may be the last; it may be regarded as the form of the total social capital; it is that form of capital which is newly invested, either as a recently accumulated capital in the form of money, or as some old capital which is entirely transformed into money for the purpose of transfer from one branch of industry to another.

Being a form always contained in all circulations, money-capital performs this circulation precisely for that part of capital which produces surplus-value, viz., variable capital. The normal form of an advance in wages is payment in money; this process must be renewed in short intervals, because the laborer lives from hand to mouth. In his relation to the laborer, the capitalist must therefore always be a money-capitalist, and his capital must be money-capital. There can be no direct or indirect balancing of accounts in this case, such as we find in the purchase of means of production or in the sale of productive commodities, where the greater part of the money capital really exists in the form of commodities, while the money is mainly used for purposes of calculation and figures in cash only in the balancing of accounts. On the other hand, a part of the surplus-value arising out of variable capital is spent by the capitalist for his individual consumption, which is a part of the retail trade, and this surplus-value is in the last analysis always expended in the form of money. It does not matter how large or small may be this part of surplus-value. Variable capital always appears anew as money-capital invested in wages (M-L) and m as surplus-value which may be expended for the individual consumption of the capitalist. So that M, capital advanced for wages, and m, its increment, are necessarily held and spent in the form of money.

The formula M-C...P...C'-M', with its result M' equal to M plus m, is, in a certain sense, deceptive, owing to the existence of the advanced and surplus-value in the form of the general equivalent, money. The emphasis in this formula is not on the utilization of value, but on the money-form of this process, on the fact that more money-value is finally drawn out of the circulation than had originally been advanced; in other words, the emphasis is on the multiplication of the amount of gold and silver belonging to the capitalist. The so-called monetary system is merely the expression of the abstract formula M-C-M', a movement which takes place exclusively in the circulation. And this system cannot explain the two phases M-C and C-M' in any other way than by declaring that C is sold above its value in the second phase and thus draws more money out of the circulation than was put into it in its purchase. But if M-C...P...C'-M' becomes the exclusive form of circulation, it is the basis of a more highly developed mercantile system, in which not only the circulation of commodities, but also their production, is recognized as a necessary element.

The illusive character of M-C...P...C'-M' and the resulting illusive interpretation always appear, whenever this form is considered as rigid, not as a flowing and ever renewed movement; in other words, they appear whenever this formula is considered not as one section of circulation, but as the exclusive form of circulation. But it itself points toward other forms.

In the first place, this entire circulation is conditioned on the capitalist character of the process of production, and considers it and the specific social conditions created by it as the basis. M-C is equal to M-C lf0445-02-0032-i0001.gif but M-L assumes the existence of the wage laborer, and regards the means of production as parts of productive capital. It assumes, therefore, that the process of labor and of utilization, the process of production, is a function of capital.

In the second place, if M...M' is repeated, the return to the money-form is just as transient as the money-form in the first phase. M-C disappears and makes room for P. The recurrent advance of money-capital and its equally persistent return in the form of money appear merely as passing moments in the general circulation.

In the third place; the repeated formula has this form: M-C...P...C'-M'. M-C...P...C'-M'. M-C...P...etc.

Beginning with the second repetition of the circulation, the cycle P...C'-M'.M-C...P appears, before the second circulation of M is completed, and all other cycles may be considered under the form of P...C'-M-C...P, so that the first phase of the first circulation is merely the passing introduction for the constantly repeated circulation of the productive capital. And this is indeed the case for the first time in the investment of industrial capital in the form of money.

On the other hand, before the second circulation of P is completed, the first circulation, that of the commodity-capital, as shown in the formula C'-M'. M-C...P...C' (or abridged C'...C') has preceded. Thus the first form already contains the other two, and the money-form disappears, so far as it is a general equivalent and not merely an expression of value used for calculation.

Finally, if we consider some newly invested capital going for the first time through the circulation M-C...P...C'-M', then M-C is the introductory phase, the preparation for the first process of production undertaken by this capital. This phase M-C is not considered as existing, but is caused by the requirements of the process of production. But this applies only to this individual capital. The general form of the circulation of industrial capital is the circulation of money-capital, whenever the capitalist mode of production exists and with it the social conditions corresponding to it. It is therefore the capitalist mode of production which is the first condition for the circulation of money-capital, and if it is not assumed for the first phase of a newly invested industrial capital, it is certainly assumed for all others. The continuous movement of this process of production requires the persistent renewal of the cycle P...P. Even the first stage, M-C lf0445-02-0032-i0001.gif , reveals this basic condition. For it requires on one side the existence of the wage-working class. On the other side, that which is M-C for the buyer of means of production, is C'-M' for their seller. Hence C' presupposes the existence of commodity-capital, and thus of commodities as the result of capitalist production, and this implies the function of productive capital.

Part I, Chapter II
THE ROTATION OF PRODUCTIVE CAPITAL.

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.

lf0445-02-0074-e0001.gif

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 lf0445-02-0032-i0001.gif . 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 lf0445-02-0032-i0001.gif 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 lf0445-02-0032-i0001.gif 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 lf0445-02-0085-e0001.gif

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' lf0445-02-0032-i0001.gif ...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' lf0445-02-0032-i0001.gif , 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' lf0445-02-0032-i0001.gif . 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.