Frederick Engels: Synopsis of Capital

Frederick Engels
Synopsis of Capital

The Transformation of Money into Capital

1. The general formula for Capital

2. Contradictions in the general formula

3. The buying and selling of labour-power


The circulation of commodities is the starting point of capital. Hence, commodity production, commodity circulation, and the latter's developed form, commerce, are always the historical groundwork from which capital arises. The modern history of capital dates from the creation of modern world trade and the world market in the 16th century. (P.106 [146])

If we consider only the economic forms produced by commodity circulation, we find that its final product is money, and the latter is the first form in which capital appears. Historically, capital invariably confront landed property at first as moneyed wealth, the capital of the merchant and the usurer, and even today all new capital first comes on the stage in the shape of money that by definite processes has to be transformed into capital.

Money-as-money and money-as-capital differ, to being with, only in their form of circulation. Alongside C - M - C, the form M - C - M, buying in order to sell, also occurs. Money that describes this form of circulation in its movement becomes capital, is already capital in itself — i.e., by its destination.

The result of M - C - M is M - M — the indirect exchange of money for money. I buy cotton for 100 pounds sterling and sell it for 110; ultimately, I have exchanged 100 for 110, money for money.

If this process yielded at its outcome the same money-value that was originally put into it — 100 pounds sterling out of 100 — it would be absurd. Yet, whether the merchant realizes 100, 110, or merely 50 for his 100 pounds sterling, his money has described a specific movement quite different from that of commodity circulation, C - M - C. From the examination of the differences in form between this movement and C - M - C, the difference in content will also be found.

The two phases of the process, taken separately, are the same as in C - M - C. But, there is a great difference in the process as a whole. In C - M - C, money constitutes the intermediary, the commodity the starting point and the finish; in this case, the commodity is the intermediary, with money the starting point and the finish. In C - M - C, the money is spent once and for all; in M - C - M, it is merely advanced, it is to be got back again. It flows back to its starting point. Here, therefore, is already a palpable difference between the circulation of money-as-money and money-as-capital.

In C - M - C, money can return to its starting point only through the repetition of the whole process, through the sale of fresh commodities. Hence, the reflux is independent of the process itself. In M - C - M, on the other hand, it is conditioned from the outset by the structure of the process itself, which is incomplete if the return flow fails. (P.110 [149])

The ultimate object of C - M - C is use-value, that of M - C - M exchange-value itself.

In C - M - C, both extremes possess the same definiteness of economic form. Both are commodities, and of equal value. But, at the same time, they are qualitatively different use-values, and the process has social metabolism as its content. In M - C - M, the operation, at first glance, seems tautological, purposeless. To exchange 100 pounds for 100 pounds, and in a roundabout way to boot, seems absurd. One sum of money is distinguishable from another only by its size; M - C - M acquires its meaning, therefore, only through the quantitative difference in the extremes. More money is withdrawn from circulation than has been thrown into it. The cotton bought for 100 is sold, say, for 100 + 10; the process, thus, follows the formula M - C - M', where M' = M + delta-M. [The delta-symbol, actually being a triangle, representing the difference, the change in amount.] This delta-M, this increment, is surplus-value. The value originally advanced not only remains intact in circulation, but adds to itself a surplus-value, expands itself — and this movement converts money into capital.

In C - M - C, they may also be a difference in the value of the extremes, but it is purely accidental in this form of circulation, and C - M - C does not become absurd when the extremes are equivalent — on the contrary, this is rather the necessary conditions for the normal process.

The repetition of C - M - C is regulated by an ultimate object outside itself; consumption, the satisfaction of definite needs. In M - C - M, on the other hand, the beginning and the end are the same — money — and that already makes the movement endless. Granted, M + delta-M differs quantitatively from M, but it, too, is merely a limited sum of money; if it were spent, it would no longer be capital; if it were withdrawn from circulation, it would remain stationary as a hoard. Once the need for expansion of value is given, it sexists for M' as well as for M, and the movement of capital is boundless, because its goal is as much unattained at the end of the process as at the beginning. (Pp.111,112 [149-51]) As the representative of this process, the owner of money becomes a capitalist.

If, in commodity circulation, the exchange-value attains at most a form independent of the use-value of commodities, it suddenly manifests itself here as a substance in process, endowed with motion of its own, for which commodity and money are mere forms. More than that, as original value, it is differentiated from itself as surplus-value. It becomes money in process, and as such, capital. (P.116 [154])

M - C - M' appears, indeed, to be a form peculiar to merchant's capital alone. BUt, industrial capital, too, is money which is converted into commodities, and by the latter's sale reconverted into more money. Acts that take place between purchase and sale, outside the sphere of circulation, effect no change in this. Lastly, in interest-bearing capital, the process appears as M - M' without any intermediary, value that is, as it were, greater than itself. (P.117 [155])


The form of circulation by which money becomes capital contradicts all previous laws bearing on the nature of commodities, of value, of money and of circulation itself. Can the purely formal differences of inverted order of succession cause this?

What is more, this inversion exists only for one of the three transacting persons. As a capitalist, I buy commodities from A and sell them to B. A and B appear merely as simple buyers and sellers of commodities. In both cases, I confront them merely as a simple owner of money or owner of commodities, confronting one as buyer or money, the other as seller or commodity, but neither of them as a capitalist or a representative of something that is more than money or commodity. For A, the transaction began with a sale; for B, it ended with a purchase, hence, just as in commodity circulation. Moreover, if I base the right to surplus-value upon the simple sequence, A could sell to B directly and the chance of surplus-value would be eliminated.

Assume that A and B buy commodities from each other directly. As far as use-value is concerned, both may profit; A may even produce more of his commodity than B could produce in the same time, and vice versa, whereby both would profit again. But otherwise with exchange-value. Here, equal values are exchanged for each other, even if money, as the medium of circulation, intervenes. (P.119 [156-58])

Abstractly considered, only a change in form of the commodity takes places in simple commodity circulation, if we except the substitution of one use-value for another. So far, as it involves only a change in form of its exchange-value, it involves the exchange of equivalents, if the phenomenon proceeds in a pure form. Commodities can, indeed, be sold at prices differing from their values, but this would mean a violation of the law of commodity exchange. In its pure form, it is an exchange of equivalents, hence no medium for enriching oneself. (P.120 [158-59])

Hence, the error of all endeavors to derive surplus-value from commodity circulation. Condillac (P.121 [159]), Newman (P.122 [160]).

But let us assume that the exchange does not take place in a pure form, that non-equivalents are exchanged. Let us assume that each seller sells his commodity at 10 per cent above its value. everything remains the same; what each one gains as a seller, he loses in turn as a buyer. Just as if the value of money had changed by 10 per cent. Likewise, if the buyers bought everything at 10 per cent below value. (P.123 [160-61], Torrens.)

The assumption that surplus-value arises from a rise in prices presupposes that a class exists which buys and does not sell — i.e., consumers and does not produce, which constantly receives money gratis. To sell commodities above their value to this class means merely to get back, by cheating, part of the money given away gratis. (Asia Minor and Rome.) Yet, the seller always remains the cheated one and cannot grow richer, cannot form surplus-value thereby.

Let us take the case of cheating. A sells to B wine worth 40 pounds sterling in exchange for grain worth 50. A has gained 10. But A and B together have only 90. A has 50 and B only 40; value has been transferred but not created. The capitalist class, as a whole, in any country, cannot cheat itself. (P.126 [162-63])

Hence: if equivalents are exchanged, no surplus-value results; and if non-equivalents are exchanged, still no surplus-value results. Commodity circulation creates no new value.

That is why the oldest and most popular forms of capital — merchant capital and usurers' capital — are not considered here. If the expansion of merchant capital is not to be explained by mere cheating, many intermediate factors, lacking here as yet, are required. Even more so for usurers', and interest-bearing, capital. It will later be seen that both are derived forms, and why they occur historically before modern capital.

Hence, surplus-value cannot originate in circulation. But outside it? Outside it, the commodity owner is the simple producer of his commodity, the value of which depends upon the quantity of his own labour, contained in it, measured according to a definite social law; this value is expressed in money of account — e.g., in a price of 10 pounds. BUt this value is not at the same time a value of 11 pounds; his labour creates values, but not self-expanding values. It can add more value to existing value, but this occurs only through the addition of more labour. Thus, the commodity producer cannot produce surplus-value outside the sphere of circulation, without coming in contact with other commodity owners.

Hence, capital must originate in commodity, yet not in it. (P.128 [165-66])


the transformation of money into capital has to be explained on the basis of the laws inherent to the exchange of commodities, the exchange of equivalents forming the starting point. Our owners of money, as yet the mere chrysalis of a capitalist, has to buy his commodities at their value, to sell them at their value, and yet at the end of this process, to extract more value than he put into it. His development into a butterfly must take in the sphere of circulation and yet not in it. These are the conditions of the problem. Hic Rhodus, hic salta! (P.129 [166])


The change in value of money that is to be converted into capital cannot take place in that money itself, for in buying, it merely realizes the price of the commodity; and on the other hand, as long as it remains money, it does not change the magnitude of its value; and in selling, too, it merely converts the commodity from its bodily form into its money-form. The change must, therefore, take place in the commodity of M - C - M; but not in its exchange-value, since equivalents are exchanged; it can only arise from its use-value as such — that is, from its consumption. For that purpose, a commodity is required whose use-value possess the property of being the source of exchange-value — and this does exist — labour-power. (P.130 [167])

But, for the owner of money to find labour-power in the market as a commodity, it must be sold by its own possessor — that is, it must be free labour-power. Since buyer and seller as contracting parties are both juridically equal persons, labour-power must be sold only temporarily — since in a sale, en bloc, the seller no longer remains the seller, but becomes a commodity himself. But then the owner, instead of being able to sell commodities in which his labour is embodied, must rather be in a position where he has to sell his labour-power itself as a commodity. (P.131 [168-69])

For the conversion of his money into capital, therefore, the owner of money must find in the commodity market the free labourer, free in the double sense that as a free man he can dispose of his labour-power as his commodity, and that, on the other hand, he has no other commodities to sell, has no ties, is free of all things necessary for the realization of his labour-power. (P.132 [168-69])

Parenthetically, the relation between money owner and labour-power owner is not a natural one, or a social one common to all ages, but a historical one, the product of many economic revolutions. So, too, do the economic categories considered up to now bear their historical stamp. To become a commodity, a product must no longer be produced as the immediate means of subsistence. The mass of products can assume commodity-form only within a specific mode of production, the capitalist mode, although commodity production and circulation can take place even where the mass of products never become commodities. Likewise, money can exist in all periods that have attained a certain level of commodity circulation; the specific money-forms, from mere equivalent to world money, presuppose various stages of development; nevertheless, a very slightly developed circulation of commodities can give rise to all of them. Capital, on the other hand, arises only under the above condition, and this one condition comprises a world's history. (P.133 [169-70])

Labour-power has an exchange-value which is determined, like that of all other commodities, by the labour-time required for its production, and hence for its reproduction aa well. The value of labour-power is the value of the means of subsistence necessary for the maintenance of its owner — that is, his maintenance in a state of normal capacity for work. This depends upon climate, natural conditions, etc., and also on the given historical standard of life in each country and for each particular epoch. Moreover, his maintenance includes the means of subsistence for his substitutes — i.e., his children — in order that the race of these peculiar commodity owners may perpetuate itself. Furthermore, for skilled labour, the cost of education. (P.135 [170-72])

The minimum limit of the value of labour-power is the value of the physically indispensable means of subsistence. If the price of labour-power falls to this minimum, it falls below its value, since the latter presupposes normal, not stunted, quality of labour-power. (P.135 [173])

The nature of labour implies that labour-power is consumed only after conclusion of the contract, and, as money is usually the means of payment for such commodities in all countries with the capitalist mode of production, the labour-power is paid for only after it is consumed. everywhere, therefore, the labourer gives credit to the capitalist. (P.137,138 [174])

The process of consuming labour-power is at the same time the process of producing commodities and surplus-value and this consumption takes place outside the sphere of circulation. (P.140 [175-76])