Understanding Capital Volume II, John Fox, 1985

Chapter 4: The Three Formulas of the Circuit

"Capital as self-expanding value embraces not only class relations, a society of a definite character resting on the existence of labor in the form of wage-labor. It is a movement, a circuit-describing process going through various stages, which itself comprises three different forms of the circuit-describing process. Therefore it can be understood only as motion, not as a thing at rest." (p. 108 [p. 185])

In this chapter, Marx consolidates and partially extends the argument of the previous three chapters. He begins by noting that the circuit of capital represents the unity of circulation and production, but not this unity alone. The circuit of industrial capital represents in addition the unity of the three forms of capital and of their circuits.

We have already seen that the circuit of capital takes place partially in the sphere of circulation (where money is exchanged for the elements of productive capital, and where commodity capital is exchanged for money), and partially in the sphere of production (where productive capital functions to create commodity capital). The totality of an industrial capital is, however, at any given moment partially in all three forms: part in money form, ready to be exchanged for labor-power and means of production; part as functioning productive capital; and part as commodity products to be placed on the market.

Moreover, the circuit of capital is a process that unfolds over time. Marx argues that this dynamic aspect of capitalism is crucial to an understanding of the nature of capitalist society. As a formal matter, the idea of expansion of value during the circuit of capital (as a consequence of the production of surplus-value) implies a comparison over time: comparison of the value of advanced capital with the value of the product. Here Marx invokes the distinction between value (embodied labor time) and exchange-value (the manifestation of value in the proportions in which commodities exchange for one another on the market) to refute the misconception that non-contemporaneous comparisons of value are impossible. While it is indeed the case that advanced capital and the commodity product cannot exchange for one another, because they exist at different points in time, it is still sensible to compare their values. Indeed, changes in value of specific commodities that occur during the circuit of capital (as a consequence, e.g., of changes in productivity or in other conditions of production) can cause the process of reproduction to function abnormally. For example, if the value of means of production falls after the capitalist has purchased them, the value of the commodity product is depreciated.

We have seen how a consideration of the circuit of industrial capital entails an examination of the relations among different capitals, relations which are reflected in the exchange of products as commodities. Not all exchange on the part of an individual capital, however, relates that capital to other capitals. Although a capitalist acquires means of production as commodities, these commodities are not necessarily the product of other capitals: they may originate from non-capitalist modes of production. Indeed, it is in large part through the market that capitalism is ultimately able to transform pre-capitalist modes of production.

Furthermore, even when capitalist production is generalized, not all exchanges are exchanges between capitals. Labor-power purchased by the industrial capitalist is not produced by a capitalist production process. Likewise, when commodity capital is sold to consumers, be they workers or capitalists, the buyers are not functioning in the role of capital. The totality of circulation, therefore, represents more than the market interrelations among different capitals, although it includes these interrelations. Circulation in the aggregate is, as we have pointed out, the topic of the third part of Volume II.

Marx restates this point in a different form by examining the balance of supply and demand for an individual capital. Commodity capital C', representing supply, has three value components: constant capital, c, whose value is transferred to the product in the process of production; variable capital, v, whose value is recreated in production during necessary labor time; and surplus-value, s, created during surplus labor time. The value of constant capital, c, also represents demand for means of production purchased as commodities on the market. Variable capital, v, is acquired in the form of wages by workers, and is spent by them for subsistence goods. Variable capital, therefore, also represents demand for commodities. Surplus-value, s, is spent by the capitalist partially for new productive capital, and partially for the capitalist's consumption. To the extent that surplus-value is hoarded, however, rather than immediately spent, there, is an excess of supply over demand, at least from the perspective of the individual capital under consideration.

As Engels notes, the end of this chapter (pp. 120-123 [196-199]) is drawn from source material separate from that used for the rest of the chapter. In this passage Marx makes reference to concepts -such as fixed capital -- that are not explained until later in Volume II.