Understanding Capital Volume II, John Fox, 1985

Part I

The Metamophoses of Capital and their Circuits

Chapter 1: The Circuit of Money Capital

"The two forms assumed by capital-value at the various stages of its circulation are those of money-capital and commodity-capital. The form pertaining to the stage of production is that of productive capital." (p. 50 [p.133])

As explained in the Introduction, in the second volume of Capital, Marx changes his focus from the process of production to circulation. The first part of this second volume deals with the changes in form (or metamorphoses) of capital, changes that take place both in the sphere of circulation and in the sphere of production. In circulation, capital changes its form through the process of exchange, while in production, capital embodied in means of production and labor-power is materially transformed into new commodities.

What Marx calls the circuit of industrial capital is the totality, or unity, of changes of form taking place in circulation and in production. We shall see that the circuit of capital is, in reality, a continuous or circular process. In his analysis of the circuit of capital, however, Marx chooses to interrupt the continuous process in three distinct ways, and to consider separately the circuits of money capital, productive capital and commodity capital. As will be made clear presently, these three are the distinct forms that industrial capital assumes in the course of its circuit. The first chapter deals with the circuit of money capital.

Although Marx's approach is difficult at points, his separate consideration of the three forms of the circuit of capital serves to emphasize different aspects of the process, as we shall see shortly. More importantly, later in Volume II, Marx uses the different forms of the circuit for different analytic purposes. For instance, Marx employs the circuits of productive and money capital for his discussion of the turnover of capital in Part II, and the circuit of commodity capital for his analysis of social reproduction in Part III. In the course of his argument, Marx demonstrates how failure to distinguish among the forms of capital and among their circuits seriously compromises the analysis of other political economists.

The circuit of money capital begins with the capitalist in possession of a quantity of money, M, that is to be exchanged for the elements of productive capital. The exchange is an act of circulation, M--C: that is, the exchange of money for commodities of equal value. What distinguishes this exchange as part of the circuit of capital (asopposed to other acts of general circulation) is the particular use-values that the capitalist acquires: means of production and labor-power, which together function within the sphere of production as productive capital. Marx, therefore, diagrams the first stage in the circulation of money capital in the following manner: M--C< LMP , where L represents the labor-power and MP the means of production purchased by the capitalist. In this act of circulation, money capital functions as money, because it serves as a means of purchase of means of production, and as a means of payment for labor-power. At the same time, money capital functions as capital because the exchange is part of the circuit of capital, in particular representing the acquisition of the elements of productive capital, which will expand their value in the process of production.

The division of money capital into a portion purchasing means of production (constant capital) and a portion purchasing labor-power (variable capital) is a qualitative division, since different use-values are acquired. It is, moreover, a qualitative division with a quantitative basis: for labor-power, once purchased, is employed as labor, and labor of a given quantity requires means of production of a particular amount to function properly in the process of production.

Each act of circulation maybe regarded from the point of view of the buyer and from the perspective of the seller. From the point of view of the capitalist, M--L is an act of purchase; from the perspective of the laborer, L--M is a sale. Having acquired money (i.e., wages) through the sale of labor-power, the worker exchanges this money for means of subsistence, that is, for other commodities. The circulation of labor-power, therefore, has a circuit of its own, L--M--C, distinct from but related to the circuit of capital. The circuit of capital, moreover, presupposes the class relation between workers and capitalists, and, in particular, the existence of a class of laborers who must sell their labor-power to capital so as to acquire means of subsistence. This class relation and its origin were dealt with in detail in Volume I (Part VIII) of Capital. Marx notes, in the present context, that it is not money that creates the class division of workers and capitalists. On the contrary, it is the existence of this division that makes it possible for money to function as money capital, to purchase labor-power as a commodity.

Once the capitalist has purchased means of production and labor-power, these commodities become the elements of productive capital; that is, they are used in the process of production. The circulation of capital is therefore interrupted by production. Marx represents this interruption in the following manner: M--CM--C< LMP . . . P; where P symbolizes capital functioning within the sphere of production.

The process of production begins with commodities of particular form, means of production and labor-power, and it ends with a commodity of another form, a product. The product embodies the value of the means of production, transferred to it during the process of production. In addition, the product contains newly created value, the embodiment of labor expended in the productive process. Because, under capitalist production, the worker produces surplus-value, value in excess of the value of labor-power, the value of the product is greater than the value of means of production and labor-power comprising productive capital.

Capitalist production is production for exchange -- its product consists of commodities. These commodities are commodity capital because they represent a phase in the circuit of capital, and, more specifically, because they contain the surplus-value yielded by the capitalist process of production. Marx writes the equation C' = C + c, where C represents the portion of commodity capital that is the value equivalent of the money capital (M) that began the circuit, and c represents the portion of commodity capital containing surplus-value.

To realize the value of commodity capital, the capitalist must transform it back into money form by selling it: C'--M'. Capital in the form of commodity capital, therefore, reenters the sphere of circulation. The symbol M' is used because the value realized by the capitalist upon the sale of commodity capital exceeds the money capital originally advanced. This is the case because commodity capital contains surplus-value. The sale of commodity capital, then, represents both the reconversion of original capital-value into money form, C--M, and the realization of surplus-value, c--m.

The complete form of the circuit of money capital may be represented as M--C . . . P . . . C--M', or, in expanded form as M--C< LMP  . . . P . . . (C + c)--(M + m).
Note that the lines (--) symbolize acts of exchange taking place in the sphere of circulation, while the dots ( . . . ) represent the functioning of capital in the sphere of production. During the course of its circuit, industrial capital successively takes on three forms: money capital, productive capital (means of production and labor-power), and commodity capital. The transformation of money capital into productive capital, and that of commodity capital into money capital, take place in the sphere of circulation, through exchange. The conversion of productive capital into commodity capital (and the augmentation of capital-value) takes place in the sphere of production. Marx implicitly distinguishes here between industrial capital, which as productive capital participates in the process of expansion of value, and other types of capital, which have different circuits. The other types of capital (e.g., merchant's capital) are dealt with in Volume III.

The circuit of money capital ends as it began: with money. At the end of the circuit, therefore, the capitalist is in a position to purchase once more the elements of productive capital. Because the money available to the capitalist at the end of the circuit (M') contains surplus-value, the capitalist can expand the process of production, invest the additional capital elsewhere, or employ surplus-value as revenue for personal consumption. These possibilities are taken up in the next chapter and in the third part of the volume.

The continuous, or circular, nature of the circuit of capital is represented in Figure 1.

Figure 1.

When (all or part of) M' is reinvested, the symbol M, representing the advance of money capital, is employed; that is, M' represents money capital that includes realized surplus-value, while M represents money capital advanced to purchase elements of productive capital. M' . M symbolizes this change in role. Marx's analysis of the circuit of money capital conceptually disconnects this circle at M: M--C . . . P . . . C'--M'. By disconnecting the process at P, Marx examines the circuit of productive capital, the subject of the next chapter: P . . . C'--M' . M--C . . . P. Disconnecting the process at C' yields the circuit of commodity capital, treated in Chapter 3: C'--M' . M--C . . . P . . . C'.