Capital Vol. III Part IV
Conversion of Commodity-Capital and Money-Capital into Commercial Capital and Money-Dealing Capital (Merchant's Capital)

Chapter 17. Commercial Profit

We have seen in Book II that the pure functions of capital in the sphere of Circulation — the operations which the industrial capitalist must perform, first, to realise the value of his commodities, and second, to reconvert this value into elements of production, operations effecting the metamorphosis of commodity-capital, C' — M — C, hence the acts of selling and buying-produce neither value nor surplus-value. It was rather seen that the time required for this purpose, objectively in regard to commodities and subjectively in regard to the capitalist, sets the limit to the production of value and surplus-value. What is true of the metamorphosis of commodity-capital in general, is, of course, not in the least altered by the fact that a part of it may assume the shape of commercial capital, or that the operations, effecting the metamorphosis of commodity-capital, appear as the special concern of a special group of capitalists, or as the exclusive function of a portion of the money-capital. If selling and buying commodities — and that is what the metamorphosis of commodity-capital C' — M — C amounts to — by industrial capitalists themselves are not operations which create value or surplus-value, they will certainly not create either of these when carried out by persons other than the industrial capitalists. Furthermore, if that portion of the total social capital, which must continually be on hand as money-capital, in order that the process of reproduction is not interrupted by the process of circulation and proceeds continuously — if this money-capital creates neither value nor surplus-value, it cannot acquire the properties of creating them by being continually thrown into circulation by some section of capitalists other than the industrial capitalists, to perform the same function. We have already indicated to what extent merchant's capital may be indirectly productive, and we shall later discuss this point at greater length.

Commercial capital, therefore — stripped of all heterogeneous functions, such as storing, expressing, transporting, distributing, retailing, which may be connected with it, and confined to its true function of buying in order to sell — creates neither value nor surplus-value, but acts as middleman in their realisation and thereby simultaneously in the actual exchange of commodities, i.e., in their transfer from hand to hand, in the social metabolism. Nevertheless, since the circulation phase of industrial capital is just as much a phase of the reproduction process as production is, the capital operating independently in the process of circulation must yield the average annual profit just as well as capital operating in the various branches of production. Should merchant's capital yield a higher percentage of average profit than industrial capital, then a portion of the latter would transform itself into merchant's capital. Should it yield a lower average profit, then the converse would result. A portion of the merchant's capital would then be transformed into industrial capital. No species of capital changes its purpose, or function, with greater ease than merchant's capital.

Since merchant's capital does not itself produce surplus-value, it is evident that the surplus-value which it pockets in the form of average profit must be a portion of the surplus-value produced by the total productive capital. But now the question arises: How does merchant's capital attract its share of the surplus-value or profit produced by the productive capital?

It is just an illusion that commercial profit is a mere addition to, or a nominal rise of, the prices of commodities in excess of their value.

It is plain that the merchant can draw his profit only out of the price of the commodities he sells, and plainer still that the profit he makes in selling his commodities must be equal to the difference between his purchase price and his selling price, i.e., equal to the excess of the latter over the former.

It is possible that additional costs (costs of circulation) may enter into the commodities after their purchase and before their sale, and it is also possible that this may not happen. If such costs should occur, it is plain that the excess of the selling price over the purchase price would not be all profit. To simplify the analysis, we shall assume at this point that no such costs occur.

For the industrial capitalist the difference between the selling price and the purchase price of his commodities is equal to the difference between their price of production and their cost-price, or, from the standpoint of the total social capital, equal to the difference between the value of the commodities and their cost-price for the capitalists, which again comes down to the difference between the total quantity of labour and the quantity of paid labour incorporated in them. Before the commodities bought by the industrial capitalist are thrown back on the market as saleable commodities, they pass through the process of production, in which alone the portion of their price to be realised as profit is created. But it is different with the merchant. The commodities are in his hands only so long as they are in the process of circulation. He merely continues their sale, the realisation of their price which was begun by the productive capitalist, and therefore does not cause them to pass through any intermediate process in which they could again absorb surplus-value. While the industrial capitalist merely realises the previously produced surplus-value, or profit, in the process of circulation, the merchant has not only to realise his profit during and through circulation, but must first make it. There appears to be no other way of doing this outside of selling the commodities bought by him from the industrial capitalist at their prices of production, or, from the standpoint of the total commodity-capital, at their values in excess of their prices of production, making a nominal extra charge to their prices, hence, selling them, from the standpoint of the total commodity-capital, above their value, and pocketing this excess of their nominal value over their real value; in short, selling them for more than they are worth.

This method of adding an extra charge is easy to grasp. For instance, one yard of linen costs 2s. If I want to make a 10% profit in reselling it, I must add 1/10 to the price, hence sell the yard at 2s. 2 2/5 d. The difference between its actual price of production and its selling price is then = 2 2/5d., and this represents a profit of 10% on 2s. This amounts to my selling the yard to the buyer at a price which is in reality the price of 1 1/10 yard. Or, what amounts to the same, it is as though I sold to the buyer only 10/11 of a yard for 2s. and kept 1/11 of a yard for myself. In fact I can buy back 1/11 of a yard for 2 2/5d. at the price of 2s. 2 2/5d. per yard. This would, therefore, be just a roundabout way of sharing in the surplus-value and surplus-product by a nominal rise in the price of commodities.

This is realisation of commercial profit by raising the price of commodities, as it appears at first glance. And, indeed, this whole notion that profit originates from a nominal rise in the price of commodities, or from their sale above their value, springs from the observations of commercial capital.

But it is quickly apparent on closer inspection that this is mere illusion. Assuming capitalist production to be predominant, commercial profit cannot be realised in this manner. (It is here always a question of averages, not of isolated cases.) Why do we assume that the merchant can realise a profit of no more than, say, 10% on his commodities by selling them 10% above their price of production? Because we assume that the producer of these commodities, the industrial capitalist (who appears as "the producer" before the outside world, being the personification of industrial capital), had sold them to the dealer at their prices of production. If the purchase price of commodities paid by the dealer is equal to their price of production, or, in the last instance, equal to their value, so that the price of production or, in the last instance, the value, represent the merchant's cost-price, then, indeed, the excess of his selling price over his purchase price — and this difference alone is the source of his profit — must be an excess of their commercial price over their price of production, so that in the final analysis the merchant sells all commodities above their values. But why was it assumed that the industrial capitalist sells his commodities to the merchant at their prices of production? Or rather, what was taken for granted in that assumption? It was that merchant's capital did not go into forming the general rate of profit (we are dealing with it as yet only in its capacity of commercial capital). We proceeded necessarily from this premise in discussing the general rate of profit, first, because merchant's capital as such did not exist for us at the time, and, second, because average profit, and hence the general rate of profit, had first to be developed as a levelling of profits or surplus-values actually produced by the industrial capitals in the different spheres of production. But in the case of merchant's capital we are dealing with a capital which shares in the profit without participating in its production. Hence, it is now necessary to supplement our earlier exposition.

Suppose, the total industrial capital advanced in the course of the year = 720c + 180v = 900 (say million ), and that s' = 100%. The product therefore = 720c + 180v + 180s. Let us call this product or the produced commodity-capital, C, whose value, or price of production (since both are identical for the totality of commodities) = 1,080, and the rate of profit for the total social capital of 900 = 20%. These 20% are, according to our earlier analyses, the average rate of profit, since the surplus-value is not calculated here on this or that capital of any particular composition, but on the total industrial capital of average composition. Thus, C = 1,080, and the rate of profit = 20%. Let us now assume, however, that aside from these 900 of industrial capital, there are still 100 of merchant's capital, which shares in the profit pro rata to its magnitude just as the former. According to our assumption, it is 1/10 of the total capital of 1,000. Therefore, it participates to the extent of 1/10 in the total surplus-value of 180, and thus secures a profit of 18%. Actually, then, the profit to be distributed among the other 1/10 of the total capital is only = 162, or on the capital of 900 likewise = 18%. Hence, the price at which C is sold by the owners of the industrial capital of 900 to the merchants = 720c + 180v + 162s = 1,062. If the dealer then adds the average profit of 18% to his capital of 100, he sells the commodities at 1,062 + 18 = 1,080, i.e., at their price of production, or, from the standpoint of the total commodity-capital, at their value, although he makes his profit only during and through the circulation process, and only from an excess of his selling price over his purchase price. Yet he does not sell the commodities above their value, or above their price of production, precisely because he has bought them from the industrial capitalist below their value, or below their price of production.

Thus, merchant's capital enters the formation of the general rate of profit as a determinant pro rata to its part in the total capital. Hence, if we say in the given case that the average rate of profit = 18%, it would = 20%, if it were not that 1/10 of the total capital was merchant's capital and the general rate of profit thereby lowered by 1/10. This leads to a closer and more comprehensive definition of the price of production. By price of production we mean, just as before, the price of a commodity = its costs (the value of the constant + variable capital contained in it) + the average profit. But this average profit is now determined differently. It is determined by the total profit produced by the total productive capital; but not as calculated on the total productive capital alone, so that if this = 900, as assumed above, and the profit = 180, then the average rate of profit = 180/900 = 20%. But, rather, as calculated on the total productive + merchant's capital, so that with 900 productive and 100 merchant's capital, the average rate of profit = 180/1,000 = 18%. The price of production is, therefore = k (the costs) + 18, instead of k + 20. The share of the total profit falling to merchant's capital is thus included in the average rate of profit. The actual value, or price of production, of the total commodity-capital is therefore = k + p + m (where m is commercial profit). The price of production, or the price at which the industrial capitalist as such sells his commodities, is thus smaller than the actual price of production of the commodity; or in terms of all commodities taken together, the prices at which the class of industrial capitalists sell their commodities are lower than their value. Hence, in the above case, 900 (costs) + 18% on 900, or 900 + 162= 1,062. It follows, then, that in selling a commodity at 118 for which he paid 100 the merchant does, indeed, add 18% to the price. But since this commodity, for which he paid 100, is really worth 118, he does not sell it above its value. We shall henceforth use the term price of production in this, its more precise, sense. It is evident, therefore, that the profit of the industrial capitalist equals the excess of the price of production of the commodity over its cost-price, and that commercial profit, as distinct from this industrial profit, equals the excess of the selling price over the price of production of the commodity which, for the merchant, is its purchase price; but that the actual price of the commodity = its price of production + the commercial profit. Just as industrial capital realises only such profits as already exist in the value of commodities as surplus-value, so merchant's capital realises profits only because the entire surplus-value, or profit, has not as yet been fully realised in the price charged for the commodities by the industrial capitalist.[1] The merchant's selling price thus exceeds the purchase price not because the former exceeds the total value, but because the latter is below this value.

Merchant's capital, therefore, participates in levelling surplus-value to average profit, although it does not take part in its production. Thus, the general rate of profit contains a deduction from surplus-value due to merchant's capital, hence a deduction from the profit of industrial capital.

It follows from the foregoing:

1) The larger the merchant's capital in proportion to the industrial capital, the smaller the rate of industrial profit, and vice versa.

2) It was demonstrated in the first part that the rate of profit is always lower than the rate of the actual surplus-value, i.e., it always understates the intensity of exploitation, as in the above case, 720c + 180v + 180s, the rate of surplus-value of 100% and a rate of profit of only 20%. And the difference becomes still greater, inasmuch as the average rate of profit appears smaller again, dropping from 20% to 18%, if the share falling to merchant's capital is also taken into account. The average rate of profit of the direct capitalist exploiter, therefore, expresses a rate of profit smaller than it actually is.

Assuming all other circumstances remaining the same, the relative volume of merchant's capital (with the exception of the small dealer who represents a hybrid form) is in inverse proportion to the velocity of its turnover, hence in inverse proportion to the energy of the process of reproduction in general. In the course of scientific analysis, the formation of a general rate of profit appears to result from industrial capitals and their competition, and is only later corrected, supplemented, and modified by the intervention of merchant's capital. In the course of its historical development, however, the process is really reversed. It is the commercial capital which first determines the prices of commodities more or less in accordance with their values, and it is the sphere of circulation, the sphere that promotes the process of reproduction, in which a general rate of profit initially takes shape. It is originally the commercial profit which determines the industrial profit. Not until the capitalist mode of production has asserted itself and the producer himself has become merchant, is commercial profit reduced to that aliquot part of the total surplus-value falling to the share of merchant's capital as an aliquot part of the total capital engaged in the social process of reproduction.

It was seen in the supplementary equalisation of profit through the intervention of merchant's capital that no additional element entered the value of commodities with the merchant's advanced money-capital, and that the extra charge to the price, whereby the merchant makes his profit, was merely equal to that portion of the value of the commodities, which productive capital had not calculated in the price of production, i.e., had left out. The case of this money-capital is similar to that of the industrial capitalist's fixed capital, since it is not consumed and its value, therefore, does not make up an element of the value of commodity. It is in the purchase price of commodity-capital that the merchant replaces its price of production = M, in money. His own selling price, as previously shown, is = M + DM, where DM stands for the addition to the price of commodities determined by the general rate of profit. Once he sells the commodities, his original money-capital, which he advanced for their purchase, returns to him together with this DM. We see once more that his money-capital is nothing but the industrial capitalist's commodity-capital transformed into money-capital, which affects the magnitude of the value of this commodity-capital no more than would a direct sale of the latter to the ultimate consumer, instead of to the merchant. It, actually, merely anticipates the payment of the consumer. However, this is correct only on the condition hitherto assumed, that the merchant has no overhead expenses, or that aside from the money-capital which he must advance to buy commodities from the producer he need not advance any other capital, circulating or fixed, in the process of commodity metamorphosis., the process of buying and selling. But this is not so in reality, as we have seen in the analysis of the costs of circulation (Book II, Chap. VI). These costs of circulation are partly expenses which the merchant has to reclaim from other agents of circulation, and partly expenses arising directly from his specific business.

No matter what the nature of these costs of circulation — whether they arise from the purely commercial nature of the merchant's establishment as such and hence belong to the merchant's specific costs of circulation, or represent items which are charges for subsequent processes of production added in the process of circulation, such as expressage, transport, storage, etc. — they always require of the merchant, aside from his money-capital, advanced to the purchase of commodities, some additional capital for the purchase and payment of such means of circulation. As much of this element of cost as consists of circulating capital passes wholly as an additional element into the selling price of the commodities; and as much of it as consists of fixed capital only to the extent of its wear and tear. But only as an element which forms a nominal value, even if as the purely commercial costs of circulation, it does not add any real value to the commodities. But whether fixed or circulating, this entire additional capital participates in forming the general rate of profit.

The purely commercial costs of circulation (hence, excluding costs of expressage, shipping, storage, etc.) resolve themselves into costs required to realise the value of commodities, to transform it from commodities into money, or from money into commodities, to effect their exchange. We leave entirely out of consideration all possible processes of production which may continue in the process of circulation, and from which the merchant's business can be altogether separated; as, in fact, the actual transport industry and expressage may be, and are, industrial branches entirely distinct from commercial; and purchaseable and saleable commodities may be stored in docks or in other public premises, with the resultant cost of storage being charged to the merchant by third persons inasmuch as he has to advance it. All this takes place in actual wholesale commerce, where merchant's capital appears in its purest form, unmixed with other functions. The express company owner, the railway director, and the shipowner, are not "merchants." The costs which we consider here are those of buying and selling. We have already remarked earlier that these resolve themselves into accounting, book-keeping, marketing, correspondence, etc. The constant capital required for this purpose consists of offices, paper, postage, etc. The other costs break up into variable capital advanced for the employment of mercantile wage-workers. (Expressage, transport costs, advances for customs duties, etc., may partly be considered as being advanced by the merchant in purchasing commodities and thus enter the purchase price as far as he is concerned.)

All these costs are not incurred in producing the use-value of commodities, but in realising their value. They are pure costs of circulation. They do not enter into the immediate process of production, but since they are part of the process of circulation they are also part of the total process of reproduction.

The only portion of these costs of interest to us at this point is that advanced as variable capital. (The following questions should also be analysed: First, how does the law that only necessary labour enters the value of commodities operate in the process of circulation? Second, how does accumulation obtain in merchant's capital? Third, how does merchant's capital function in the actual aggregate reproduction process of society?)

These costs arise due to the product having the economic form of a commodity.

If the labour-time which the industrial capitalists themselves lose while directly selling commodities to one another — hence, speaking objectively, the circulation time of the commodities — does not add value to these commodities, it is evident that this labour-time does not change its nature in the least by falling to the merchant instead of the industrial capitalist. The conversion of commodities (products) into money, and of money into commodities (means of production) is a necessary function of industrial capital and, therefore, a necessary operation of the capitalist — who is actually but personified capital endowed with a consciousness of its own and a will. But these functions neither create value, nor produce surplus-value. By performing these operations and carrying on the functions of capital in the sphere of circulation after the productive capitalist has ceased to be involved the merchant merely takes the place of the industrial capitalist. The labour-time required in these operations is devoted to certain necessary operations of the reproduction process of capital, but yields no additional value. If the merchant did not perform these operations (hence, did not expend the labour-time entailed), he would not be applying his capital as a circulation agent of industrial capital; he would not then be continuing the interrupted function of the industrial capitalist, and consequently could not participate as a capitalist pro rata to his advanced capital, in the mass of profit produced by industrial capitalists. In order to share in the mass of surplus-value, to expand the value of his advance as capital, the commercial capitalist need not employ wage-workers. If his business and capital are small, he may be the only worker in it. He is paid with that portion of the profit which falls to him through the difference between the purchase price paid by him for commodities and their actual price of production.

But, on the other hand, the profit realised by the merchant on a small amount of advanced capital may be no larger, or may even be smaller, than the wages of one of the better-paid skilled wage-workers. In fact, he brushes shoulders with many direct commercial agents of the productive capitalist, such as buyers, sellers, travellers, who enjoy the same or a higher income either in the form of wages, or in the form of a share in the profit (percentages, bonuses) made from each sale. In the first case, the merchant pockets the mercantile profit as an independent capitalist; in the other, the salesman, the industrial capitalist's wage-labourer, receives a portion of the profit either in the form of wages, or as a proportional share in the profit of the industrial capitalist, whose direct agent he is, while his employer pockets both the industrial and the commercial profit. But in all these cases, although his income may appear to the circulation agent as an ordinary wage, as payment for work performed, and although, where it does not so appear, the profit may be no larger than the wage of a better-paid labourer, his income is derived solely from the mercantile profit. This follows from his labour not being labour which produces value.

The lengthening of the act of circulation represents for the industrial capitalist 1) a personal loss of time, since it prevents him from performing in person his function as manager of the productive process; 2) a longer stay of his product in money- or commodity-form, in the circulation process, hence in a process where it does not expand value and where the direct production process is interrupted. If this process is not to be interrupted, production must either be curtailed, or more money-capital must be advanced to maintain the process of production on the same scale. This means that each time either a smaller profit is made on the capital hitherto invested, or that additional money-capital must be advanced to make the previous profit. All this remains unchanged when the merchant takes the place of the industrial capitalist. Instead of the industrial capitalist devoting more time to the process of circulation, it is the merchant who is so engaged; instead of the industrial capitalist it is the merchant who advances additional capital for circulation; or, what amounts to the same thing, instead of a large portion of the industrial capital being continually diverted into the process of circulation, it is the merchant's capital which is wholly tied up in it; and instead of making a smaller profit, the industrial capitalist must yield a portion of his profit wholly to the merchant. So long as merchant's capital remains within the bounds in which it is necessary, the only difference is that this division of the functions of capital reduces the time exclusively used up in the process of circulation, that less additional capital is advanced for this purpose, and that the loss in total profit, represented by mercantile profit, is smaller than it would otherwise have been. If in the above example, 720c + 180v + 180s, assisted by a merchant's capital of 100, produces a profit of 162, or 18%, for the industrial capitalist, hence implying a deduction of 18, then, but for this independent merchant's capital, the additional capital required would probably be 200, and we should have a total advance by the industrial capitalist of 1,100 instead of 900, which, based upon a surplus-value of 180, would yield a rate of profit of only 16 4/11%.

If the industrial capitalist who acts as his own merchant advances not only the additional capital to buy new commodities before his product in the process of circulation has been reconverted into money, but also capital (office expenses and wages for commercial employees) to realise the value of his commodity-capital, or, in other words, for the process of circulation, then these supplements form additional capital, but do not create surplus-value. They must be made good out of the value of the commodities, because a portion of the value of these commodities must be reconverted into these circulation costs. But no additional surplus-value is created thereby. So far as this concerns the total capital of society, it means in fact that a portion of it must be set aside for secondary operations which are no part of the self-expansion process, and that this portion of the social capital must be continually reproduced for this purpose. This reduces the rate of profit for the individual capitalist and for the entire class of industrial capitalists, an effect arising from every new investment of additional capital whenever such capital is required to set in motion the same mass of variable capital.

In so far as these additional costs connected with the business of circulation are transferred from the industrial to the commercial capitalist, there takes place a similar reduction in the rate of profit, but to a lesser degree and in a different way. It now develops that the merchant advances more capital than would be necessary if these costs did not exist, and that the profit on this additional capital increases the amount of the commercial profit, so that more of the merchant's capital joins industrial capital in levelling the average rate of profit and thereby the average profit falls. If in our above example an additional capital of 50 is advanced besides the merchant's capital of 100 to cover the costs in question, then the total surplus-value of 180 is distributed with respect to a productive capital of 900 plus a merchant's capital of 150, together = 1,050. The average rate of profit, therefore, sinks to 17 1/7% The industrial capitalist sells his commodities to the merchant at 900 + 154 2/7 = 1,0542 1/7, and the merchant sells them at 1,130 (1,080 + 50 for costs which he must recover). Moreover, it must be admitted that the division between merchant's and industrial capital is accompanied by a centralisation of the commercial expenses and, consequently, by their reduction.

The question now arises: What about the commercial wage-workers employed by the commercial capitalist, here the merchant?

In one respect, such a commercial employee is a wage-worker like any other. In the first place, his labour-power is bought with the variable capital of the merchant, not with money expended as revenue, and consequently it is not bought for private service, but for the purpose of expanding the value of the capital advanced for it. In the second place, the value of his labour-power, and thus his wages, are determined as those of other wage-workers, i.e., by the cost of production and reproduction of his specific labour-power, not by the product of his labour.

However, we must make the same distinction between him and the wage-workers directly employed by industrial capital which exists between industrial capital and merchant's capital, and thus between the industrial capitalist and the merchant. Since the merchant, as a mere agent of circulation, produces neither value nor surplus-value (for the additional value which he adds to the commodities through his expenses resolves itself into an addition of previously existing values, although the question here poses itself, how he preserves this value of his constant capital?) it follows that the mercantile workers employed by him in these same functions cannot directly create surplus-value for him. Here, as in the case of productive labourers, we assume that wages are determined by the value of the labour-power, and that, hence, the merchant does not enrich himself by depressing wages, so that he does not enter into his cost account an advance for labour which he has paid only in part; in other words, that he does not enrich himself through cheating his clerks, etc.

The difficulty as concerns mercantile wage-workers is by no means to explain how they produce direct profits for their employer without creating any direct surplus-value (of which profit is but a transmuted form). This question has, indeed, already been solved in the general analysis of commercial profits. Just as industrial capital makes profit by selling labour embodied and realised in commodities, for which it has not paid any equivalent, so merchant's capital derives profit from not paying in full to productive capital for all the unpaid labour contained in the commodities (in commodities, in so far as capital invested in their production functions as an aliquot part of the total industrial capital), and by demanding payment for this unpaid portion still contained in the commodities when making a sale. The relation of merchant's capital to surplus-value is different from that of industrial capital. The latter produces surplus-value by directly appropriating the unpaid labour of others. The former appropriates a portion of this surplus-value by having this portion transferred from industrial capital to itself.

It is only through its function of realising values that merchant's capital acts as capital in the process of reproduction, and hence draws on the surplus-value produced by the total capital. The mass of the individual merchant's profits depends on the mass of capital that he can apply in this process, and he can apply so much more of it in buying and selling, the more the unpaid labour of his clerks. The very function, by virtue of which the merchant's money becomes capital, is largely done through his employees. The unpaid labour of these clerks, while it does not create surplus-value, enables him to appropriate surplus-value, which, in effect, amounts to the same thing with respect to his capital. It is, therefore, a source of profit for him. Otherwise commerce could never be conducted on a large scale, capitalistically.

Just as the labourer's unpaid labour directly creates surplus-value for productive capital, so the unpaid labour of the commercial wage-worker secures a share of this surplus-value for merchant's capital.

The difficulty lies here: Since the merchant's labour-time and labour do not create value, although they secure for him a share of already produced surplus-value, how does the matter stand with the variable capital which he lays out in purchasing commercial labour-power? Is this variable capital to be included in the cost outlays of the advanced merchant's capital? If not, this appears to conflict with the law of equalisation of the rate of profit; what capitalist would advance 150 if he could charge only 100 to advanced capital? If so, it seems to conflict with the nature of merchant's capital, since this kind of capital does not act as capital by setting in motion the labour of others, as industrial capital does, but rather by doing its own work, i.e., performing the functions of buying and selling, this being precisely the means and the reason why it receives a portion of the surplus-value produced by the industrial capital.

(We must therefore analyse the following points: the merchant's variable capital; the law of necessary labour in the sphere of circulation; how the merchant's labour maintains the value of his constant capital; the part played by merchant's capital in the process of reproduction as a whole; and, finally, the duplication in commodity-capital and money-capital, on the one hand, and in commercial capital and money-dealing capital on the other.)

If every merchant had only as much capital as he himself were able to turn over by his own labour, there would be infinite fragmentation of merchant's capital. This fragmentation would increase in the same proportion as productive capital raised production and operated with greater masses in the forward march of the capitalist mode of production. Hence, an increasing disproportion of the two. Capital in the sphere of circulation would become decentralised in the same proportion as it became centralised in the sphere of production. The purely commercial business of the industrial capitalist, and thus his purely commercial expenses, would expand infinitely thereby, for he would have to deal with, say, 1,000 merchants, instead of 100. Thus, the advantages of independently operating merchant's capital would largely be lost. And not the purely commercial expenses alone, but also the other costs of circulation, such as sorting, expressage, etc., would grow. This, as far as the industrial capital is concerned. Now let us consider merchant's capital. Firstly, the purely commercial operations. It does not take more time to deal with large figures than with small ones. It takes ten times as much time to make 10 purchases at 100 each as it does to make one purchase at 1,000. It takes ten times as much correspondence, paper, and postage, to correspond with 10 small merchants as it does with one large merchant. The clearly defined division of labour in a commercial office, in which one keeps the books, another looks after money matters, a third has charge of correspondence, one buys, another sells, a third travels, etc., saves immense quantities of labour-time, so that the number of workers employed in wholesale commerce are in no way related to the comparative size of the establishment. This is so, because in commerce much more than in industry the same function requires the same labour-time, whether performed on a large or a small scale. This is the reason why concentration appears earlier historically in the merchant's business than in the industrial workshop. Further, regarding outlays in constant capital. One hundred small offices cost incomparably more than one large office, 100 small warehouses more than a large one, etc. The costs of transport, which enter the accounts of a commercial establishment at least as costs to be advanced, grow with the fragmentation.

The industrial capitalist would have to lay out more in labour and in circulation costs in the commercial part of his business. The same merchant's capital, when divided among many small capitalists, would, owing to this fragmentation, require more labourers to perform its functions, and more merchant's capital would, furthermore, be needed to turn over the same commodity-capital.

Suppose B is the entire merchant's capital directly applied in buying and selling commodities, and b the corresponding variable capital paid out in wages to the commercial employees. Then B + b is smaller than the total merchant's capital, B, would be if every merchant had to get along without assistants, hence would invest nothing in b. However, we have not yet overcome the difficulty.

The selling price of the commodities must suffice 1) to pay the average profit on B + b. This is explained if only by the fact that B + b is generally a reduction of the original B, representing a smaller merchant's capital than would be required without b. But this selling price must suffice 2) to cover not only the additional profit on b, but to replace also the paid wages, the merchant's variable capital = b. This last consideration gives rise to the difficulty. Does b represent a new constituent of the price, or is it merely a part of the profit made by means of B + b, which appears as wages only so far as the mercantile wage-worker is concerned, and as concerns the merchant simply replaces variable capital? In the latter case, the merchant's profit on his advanced capital B + b would just equal the profit due to B by virtue of the general rate, plus b, which he pays out in the form of wages, but which does not itself yield a profit.

The crux of the matter is, indeed, to find the limits (mathematically speaking) of b. Let us first accurately define the problem. Let B stand for capital invested directly in buying and selling commodities, K for the constant capital (actual handling costs) consumed in this function, and b for the variable capital invested by the merchant.

Recovering B offers no difficulties at all. For the merchant it is simply the realised purchase price, and the price of production for the manufacturer. It is the price paid by the merchant, and in reselling he recovers B as part of his selling price; in addition to this B, he makes a profit on B, as previously explained. For example, let the commodity cost 100. Suppose the profit is 10%. In that case, the commodity is sold at 110. The commodity previously cost 100, and the merchant's capital of 100 merely adds 10 to it.

Now if we look at K, it is at most as large as, but in fact smaller than, the portion of constant capital which the producer would use up in buying and selling, but then it would form an addition to the constant capital he requires directly in production. This portion, nonetheless, must be continually recovered in the price of the commodity, or, what amounts to the same, a corresponding portion of the commodity must be continually expended in this form, or, from the standpoint of the total capital of society, must be continually reproduced in this form. This portion of the advanced constant capital would have a limiting effect on the rate of profit, just as the entire mass of it directly invested in production. In so far as the industrial capitalist leaves the commercial part of his business to the merchant, he need not advance this part of the capital. The merchant advances it in his stead. In a way, he does this but nominally, since a merchant neither produces, nor reproduces, the constant capital consumed by him (the actual handling costs). Its production appears a separate business, or at least a part of the business, of some industrial capitalists who thus play a role similar to those who supply constant capital to producers of necessities of life. First, therefore, the merchant has this constant capital recovered for him and, secondly, receives his profit on it. Through both of these, therefore, the industrial capitalist's profit is reduced. But owing to economising and concentration which are bound up with division of labour, it shrinks less than it would if he himself had to advance this capital. The reduction in the rate of profit is less, because the capital thus advanced is less.

So far, then, the selling price is made up of B + K + the profit on B + K. This portion of it offers no further difficulties. But now b, the variable capital advanced by the merchant, enters into it.

The resultant selling price is B + K + b + the profit on B + K + the profit on b.

B merely recovers the purchase price and adds nothing to it but the profit on B. K adds the profit on K, and K itself; but K + the profit on K, the part of the circulation costs advanced in the form of constant capital + the corresponding average profit, would be larger in the hands of the industrial capitalist than in the merchant's. The shrinking of the average profit appears in the form of the full average profit calculated after deducting B + K from the advanced industrial capital, with the deduction from the average profit on B + K paid to the merchant, so that this deduction appears as the profit of a specific capital, merchant's capital.

But the situation is different with respect to b + the profit on b, or, in the present case, where the rate of profit is assumed = 10%, with b + 1/10 b. And the real difficulty lies here.

What the merchant buys with b is, according to our assumption, nothing but commercial labour, hence labour required to perform the functions of circulating capital, C — M and M — C. But commercial labour is the labour generally necessary for a capital to operate as merchant's capital, to help convert commodities into money and money into commodities. It is labour which realises, but does not create, values. And only in so far as a capital performs these functions — hence a capitalist performs these operations, or this work with his capital — does it serve as merchant's capital and participate in regulating the general rate of profit, i.e., draw its dividends out of the total profit. But (b + the profit on b) appears to include, first, payment for labour (for it makes no difference whether the industrial capitalist pays the merchant for his own labour, or the labour of the clerks paid by the merchant), and, secondly, the profit on the payment for this labour, which the merchant would have to perform in person. First, merchant's capital gets its b refunded, and, secondly, he makes the profit on it. This arises from the fact, therefore, that, first, it requires payment for the work whereby it operates as merchant's capital, and that, secondly, it demands the profit, because it operates as capital, i.e., because it performs work for which profit is paid to it as functioning capital. This is, therefore, the question to be solved.

Let us assume that B = 100, b = 10, and the rate of profit = 10%. We take it that K = 0, in order to leave out of consideration this element of the purchase price, which does not belong here and has already been accounted for. Hence, the selling price would = B + p + b + p (= B + Bp' + b + bp'; where p stands for the rate of profit) = 100 + 40 + 10 + 1=121.

But if b were not invested by the merchant in wages — since b is paid only for commercial labour, hence labour required, to realise the value of the commodity — capital thrown on the market by industrial capital — the matter would stand as follows: to buy or sell for B = 100, the merchant would devote his time, and we wish to assume that this is the only time at his disposal. The commercial labour represented by b, or 10, if paid for by profit instead of wages, would presuppose another merchant's capital = 100, since at 10% this makes b = 10. This second B = 100 would not additionally go into the price of commodities, but the 10% would. There would, hence, be two operations at 100 = 200, that would buy commodities at 200 + 20 = 220.

Since merchant's capital is absolutely nothing but an individualised form of a portion of industrial capital engaged in the process of circulation, all questions referring to it must be solved by representing the problem primarily in a form; in which the phenomena peculiar to merchant's capital do not yet appear independently, but still in direct connection with industrial capital, as a branch of it. As an office, distinct from a workshop, mercantile capital operates continually in the circulation process. It is here — in the office of the industrial capitalist himself — that we must first analyse the b now under consideration.

The office is from the outset always infinitesimally small compared to the industrial workshop. As for the rest, it is clear that as the scale of production is extended, commercial operations required constantly for the circulation of industrial capital, in order to sell the product existing as commodity-capital, to reconvert the money so received into means of production, and to keep account of the whole process, multiply accordingly. Calculation of prices, book-keeping, managing funds, correspondence — all belong under this head. The more developed the scale of production, the greater, even if not proportionately greater, the commercial operations of the industrial capital, and consequently the labour and other costs of circulation involved in realising value and surplus-value. This necessitates the employment of commercial wage-workers who make up the actual office staff. The outlay for these, although made in the form of wages, differs from the variable capital laid out in purchasing productive labour. It increases the outlay of the industrial capitalist, the mass of the capital to be advanced, without directly increasing surplus-value. Because it is an outlay for labour employed solely in realising value already created. Like every other outlay of this kind, it reduces the rate of profit be-cause the advanced capital increases, but not the surplus-value. If surplus-value s remains constant while advanced capital C increases to C + DC, then the rate of profit s/C is replaced by the smaller rate of profit s/C + DC. The industrial capitalist endeavours, therefore, to cut these expenses of circulation down to a minimum, just as his expenses for constant capital. Hence, industrial capital does not maintain the same attitude to its commercial wage-labourers as it does to its productive wage-labourers. The more productive wage-labourers it employs under otherwise equal circumstances, the greater the output, and the greater the surplus-value, or profit. Conversely, however, the larger the scale of production, the greater the quantity of value and surplus-value to be realised, the greater the produced commodity-capital, the greater are the absolute, if not relative, office costs, giving rise to a kind of division of labour. To what extent profit is the precondition for these outlays, is seen, among other things, from the fact that with the increase of commercial salaries, a part of them is frequently paid by a share in the profit. It is in the nature of things that labour consisting merely of intermediate operations connected partly with calculating values, partly with realising them, and partly with reconverting the realised money into means of production, is a labour whose magnitude therefore depends on the quantity of the produced values that have to he realised, and does not act as the cause, like directly productive labour, but rather as an effect, of the respective magnitudes and masses of these values. The same applies to the other costs of circulation. To do much measuring, weighing, packing, and transporting, much must be on hand. The amount of packing, transporting, etc., depends on the quantity of commodities which are the objects of this activity, not vice versa.

The commercial worker produces no surplus-value directly. But the price of his labour is determined by the value of his labour-power, hence by its costs of production, while the application of this labour-power, its exertion, expenditure of energy, and wear and tear, is as in the ease of every other wage-labourer by no means limited by its value. His wage, therefore, is not necessarily proportionate to the mass of profit which he helps the capitalist to realise. What he costs the capitalist and what he brings in for him, are two different things. He creates no direct surplus-value, but adds to the capitalist's income by helping him to reduce the cost of realising surplus-value, inasmuch as he performs partly unpaid labour. The commercial worker, in the strict sense of the term, belongs to the better-paid class of wage-workers — to those whose labour is classed as skilled and stands above average labour. Yet the wage tends to fall, even in relation to average labour, with the advance of the capitalist mode of production. This is due partly to the division of labour in the office, implying a one-sided development of the labour capacity, the cost of which does not fall entirely on the capitalist, since the labourer's skill develops by itself through the exercise of his function, and all the more rapidly as division of labour makes it more one-sided. Secondly, because the necessary training, knowledge of commercial practices, languages, etc., is more and more rapidly, easily, universally and cheaply reproduced with the progress of science and public education the more the capitalist mode of production directs teaching methods, etc., towards practical purposes. The universality of public education enables capitalists to recruit such labourers from classes that formerly had no access to such trades and were accustomed to a lower standard of living. Moreover, this increases supply, and hence competition. With few exceptions, the labour-power of these people is therefore devaluated with the progress of capitalist production. Their wage falls, while their labour capacity increases. The capitalist increases the number of these labourers whenever he has more value and profits to realise. The increase of this labour is always a result, never a cause of more surplus-value.[2]

There is duplication, therefore. On the one hand, the functions as commodity-capital and money-capital (hence further designated as merchant's capital) are general definite forms assumed by industrial capital. On the other hand, specific capitals, and therefore specific groups of capitalists, are exclusively devoted to these functions; and these functions thus develop into specific spheres of self-expansion of capital.

In the case of mercantile capital, the commercial functions and circulation costs are found only in individualised form. That side of industrial capital which is devoted to circulation, continuously exists not only in the shape of commodity-capital and money-capital, but also in the office alongside the workshop. But it becomes independent in the case of mercantile capital. In the latter's case, the office is its only workshop. The portion of capital employed in the form of circulation costs appears much larger in the case of the big merchant than in that of the industrialist, because besides their own offices connected with every industrial workshop, that part of capital which would have to be so applied by the entire class of industrial capitalists is concentrated in the hands of a few merchants, who in carrying out the functions of circulation also provide for the growing expenses incidental to their continuation.

To industrial capital the costs of circulation appear as unproductive expenses, and so they are. To the merchant they appear as a source of his profit, proportional, given the general rate of profit, to their size. The outlay to be made for these circulation costs is, therefore, a productive investment for mercantile capital. And for this reason, the commercial labour which it buys is likewise immediately productive for it.


1. John Bellers [Essays about the Poor, Manufactures, Trade, Plantations, and Immorality, London, 1699, p. 10. — Ed.].

2. How well this forecast of the fate of the commercial proletariat, written in 1865, has stood the test of time can be corroborated by hundreds of German clerks, who are trained in all commercial operations and acquainted with three or four languages, and offer their services in vain in London City at 25 shillings per week, which is far below the wages of a good machinist. A blank of two pages in the manuscript indicates that this point was to have been treated at greater length. For the rest, we refer the reader to Book II (Kap. VI.) ("The Costs of Circulation") [English edition: Vol. II, Ch. VI. — Ed.], where various matters belonging under this head have already been discussed. — F.E.