Understanding Capital Volume II, John Fox, 1985

Chapter 17: The Circulation of Surplus-Value

"Indeed, paradoxical as it may appear at first sight, it is the capitalist class itself that throws the money into circula tion which serves for the realisation of the surplus-value incorporated in the commodities." (p. 338 [409])

Marx's discussion of the circulation of surplus-value is wide ranging. Although most of the chapter is devoted to demystification of the role of money in the process of reproduction, Marx touches as well upon the use of surplus-value in "original" investment, the credit system, the struggle between workers and capitalists over wages, and the capitalization of surplus-value. His treatment of simple and extended reproduction serves to introduce the topic of the last part of Volume II.

Marx begins by noting that if the turnover of capital is sufficiently rapid, surplus-value realized from early turnover periods may furnish part of the "original" capital advanced for maintenance and repair, thus decreasing the capitalist's initial investment. Moreover, the development of the credit system permits a capitalist to borrow part of the originally advanced capital from other capitalists, through intermediaries such as bankers. This borrowed capital consists of surplus-value accumulated by these other capitalists and represents latent money capital to them.

Under simple reproduction, all of surplus-value is spent as revenue by capitalists for their individual consumption. That portion of the annual product representing the value of labor-power and constant capital is reinvested, the scale of-production therefore remaining unchanged. Under these circumstances, the quantity of money required for circulating the annual product is also unchanged. Because part of the money commodity wears away (here metallic money is assumed), however, this portion must be reproduced each year. For simplicity, Marx supposes that precious metals are produced within the country under consideration, although the acquisition of precious metals in foreign trade does not fundamentally change the situation: part of the annual product of one country is exchanged for money produced in another country.

In Chapter 1, Marx briefly considered the special form of the circuit of money capital in the production of the money commodity:
M--C . . . P . . . M'. Here, the outcome of the process of production is not commodity capital which must be exchanged for money, but money itself; and one component of the product consists, as always, of surplus-value.

Under simple reproduction, capitalists producing precious metals cast their product into circulation, purchasing new means of production and labor-power, and spending for their personal consumption that portion of the product representing surplus-value. In the process, money worn away in circulation is replaced in kind. Thus, the origin of the money required to circulate the annual product of society, including the annually produced surplus-value, is not mysterious: metallic money is the product of a particular sphere of production, operating on a capitalist basis.

In value terms, however, the following problem presents itself: an individual capitalist (or the capitalist class as a whole) invests a specific amount of money capital in means of production and labor-power. This sate capitalist (or the capitalist class) at the end of the turnover period receives a greater amount of money than was initially invested, because the product sold includes surplus-value along with the value of advanced capital. Where does the additional money required for the circulation of surplus-value come from? In real terms, we already know that money is produced by the precious metals industry. But who places that money on the market in an act of exchange? The money cannot come from the working class, because its supply of money is spent for subsistence, and originates in the outlay of variable capital for wages by the capitalist class. Nor can it come from the money paid for means of production, because this is the outlay of the capitalist class that circulates constant capital.

The money that circulates, surplus-value originates in the capitalist's expenditures for personal consumption. Under simple reproduction, what the capitalist spends for consumption is precisely equal to surplus-value produced. In other words, as producers, the capitalist class advances variable and constant capital to circulation; as consumers, the same class spends surplus-value in circulation. As producers, capitalists productively consume means of production and labor-power (and indirectly provide for the personal consumption of the working class by providing the latter with wages); as consumers, capitalists personally consume subsistence and luxury goods. The nature of these relationships among production, consumption, and circulation is taken up in detail in Marx's consideration of the reproduction of the aggregate social capital, the subject of the concluding part of Volume II of Capital.

Marx frequently argues against the conception that the portion of the annual product of society going to the working class is immutable. Under simple reproduction, an increase in wages, hence a decrease in surplus-value, is reflected in increased consumption by the working class and decreased personal consumption on the part of capitalists. The size of the annual product and the volume of money required to circulate it are unchanged; the division of newly created value is, however, altered in favor of the working class.
The increased demand for subsistence goods that results from a rise in wages may produce a temporary increase in the price of these goods. But the simultaneous decrease in demand for, and price of, luxury goods will ultimately result in a shift of capital to subsistence goods producing industries, and a restoration of price equilibrium.

Likewise, the argument that a rise in wages is simply reflected in increased prices does not bear scrutiny, for if capitalists had the ability to increase prices arbitrarily without regard to value relations, and supply and demand, they would certainly do so, whether wages rise or not. At bottom, economic arguments against the possibility of real wage increases simply serve the political interests of the bourgeoisie.

Extended reproduction presents no new analytic difficulties, at least for the issues raised in this chapter. Under extended reproduction, in a particular year, we have simply a different division of the year's product: part of what under simple reproduction was spent by the capitalist class for its personal consumption, now is invested in new elements of capital. As the social product expands from year to year, a greater quantity of money is required for its circulation. This money may either be produced locally or acquired through foreign trade. Alternatively, mechanisms such as the credit system serve to decrease the need for metallic money, thus reducing the portion of society's product that covers the costs of circulation.