Merchant and money-lenders’ capital preceded industrial capital in history. Under the capitalist mode of production these forms of capital lose their previous independent role; their functions are reduced to serving industrial capital. Consequently, under capitalism, merchant capital and interest-bearing capital are essentially different from what they were in their pre-capitalist forms.
Industrial capital, as already stated, assumes in the course of its rotation three successive forms: money capital, industrial capital and commodity capital, which have different functions. These functional forms of industrial capital come to stand apart from each other at a certain level of its development. From industrial capital employed in production there is separated off merchant capital, in the shape of the capital of the merchant, and loan capital in the shape of bank capital. Within the capitalist class three groups are formed, all sharing in the appropriation of surplus-value: manufacturers, merchants and bankers.
Merchant capital is capital employed in the sphere of commodity circulation. In this sphere no surplus-value is created. Whence, then, does the merchant’s profit arise? If the capitalist manufacturer himself were to undertake the realisation of his commodities, he would have to spend part of his capital on equipping commercial establishments, hiring salesmen, and other expenses connected with trade. In order to do this he would have to increase the amount of capital advanced or else, with the same amount of capital advanced, to reduce the scale of production.
And in either case his profit would fall. The manufacturer prefers to sell his commodities to a middleman-a merchant capitalist, who as his special task undertakes the selling of goods, the forwarding of them to the consumer. This specialisation of merchant capital in the function of commodity circulation enables the time and expense connected with circulation to be reduced. Merchant capital, in serving the process of realisation of the commodities of many industrial capitalists, thereby reduces the part of social capital which is diverted from production to the circulation process. Thanks to having transferred the task of realising his commodities to the merchant, the industrial capitalist speeds up the turnover of his capital and this leads to an increase in his profits. This enables the manufacturer in his own interests to surrender to the merchant a certain share of the surplus-value, which constitutes the merchant capitalist’s profit. Merchants’ profit is a part of the surplusvalue, which the manufacturer surrenders to the merchant in return for realising his commodities.
The realisation of commodities is effected by merchant capital by means of exploiting commercial employees. The labour of these wageworkers who are engaged in realising commodities, i.e., in transforming commodities into money and money into commodities, creates neither value nor surplus-value, but it enables the merchant capitalist to appropriate part of the surplus-value created in production.".
“Just as the unpaid labour of the labourer of the productive capital creates surplus-value for it in a direct way, sot:, unpaid labour of the commercial wage-workers secures, share of this surplus-value for the merchant’s capital." (Marx, Capital, Kerr edition, vol. III, p.346.)
The working day of commercial employees, like that of workers engaged in production, breaks down into two parts: during the necessary time they effect the realisation of that part of the surplus-value created in the sphere of production which replaces the capitalists’ outlay on the hiring of their labour-power, and during the surplus time they work gratis for the capitalists, enabling them to appropriate merchants’ profit.
Consequently the workers in the sphere of trade are subjected to exploitation on the part of the merchant capitalists just as the workers who produce commodities are subjected to exploitation by the manufacturers.
If he is to realise a certain mass of commodities, the merchant must advance for a certain period a capital of appropriate amount. He tries to obtain as large profits as possible on this, capital. If the rate of merchants’ profit turns out to be less than the average rate of profit, the business of merchant becomes unprofitable, and merchants transfer their capital to industry, agriculture or some other branch of the economy.
Conversely, a high rate of merchants’ profit attracts industrial capital into commerce. Competition between the capitalists leads to the level of merchants’ profit being determined by the average rate of profit, the average profit being formed in relation to all capital, including that which operates in the sphere of circulation.
Thus, not only the capital of industrial capitalists but also merchant capital takes part in the process of evening-out the rate of profit, as a result of which both industrial and merchant capitalists receive the average rate of profit in proportion to the amount of capital expended by them. It follows that the industrial capitalists do not realise all the profit created in industry but only that part of it which constitutes the average profit on the capital which they have invested. The merchant capitalists sell commodities at their price of production, which includes the average profit both of the industrialist and of the merchant. Because of this it is possible for them to realise the average profit on the capital they have invested out of the difference between their buying and selling prices..
In the form of merchants’ profit the true source of the increase of capital is still more closely hidden than it is in the form of industrial profit. The merchant’s capital plays no part in production. The formula for the movement of merchant capital is: M-C-M. Here the stage of productive capital is missing and the link with production outwardly seems broken. A misleading appearance is created that profit is arising from trade itself by way of additions to the price and the selling of commodities above their price of production. What in fact happens, as has been shown, is the opposite: the manufacturer sells the commodity to the merchant below the price of production, surrendering to him part of his profit.
Merchant capital not only takes part in realising the surplus-value created in production, it also subjects the working people to additional exploitation as consumers. Striving to obtain additional profit, the merchant capitalists inflate prices by all means available, extensively practise the giving of short weight and short measure to customers, and sell poor-quality and adulterated goods.
One of the sources of merchants’ profit is the exploitation of petty commodity producers by merchant capital. Merchant capitalists compel peasants and craftsmen to sell them the products of their labours at low prices and at the same time the latter buy from the merchant capitalists tools, equipment, raw material, etc., at high prices. The share taken by commercial middlemen of the retail price of agricultural products in the, U.S.A. rose between 1913 and 1934 from 54 per cent to 63 per cent.
All this leads to enhanced impoverishment of the working people and still further sharpens the contradictions of capitalism.
The process of capitalist circulation of commodities demands, a certain outlay for expenses. These expenses, connected with the maintenance of the sphere of circulation, are the costs of circulation.
Two kinds of capitalist costs incurred in the sphere of trade must be distinguished one from the other: first, net costs of circulation which are directly connected with the processes of purchase and sale of goods and derive from the peculiarities of the capitalist system; and, second, costs arising from the extension of the production-process into the sphere of circulation.
The predominant and continually growing share of the costs of circulation in capitalist trade is taken by the net costs. To the net costs of circulation belong the expenses connected with the transformation of commodities into money and money into commodities. To this category belong the expenses arising from competition and speculation, from advertising, the greater part of the expenditure on the wages of commercial employees, on the keeping of accounts, correspondence, the upkeep of commercial offices, etc. Net costs of circulation, as Marx showed do not add one jot of value to the commodity. They constitute a direct deduction from the total sum of values produced in society, and are covered by the capitalists from the total mass of surplus-value produced by the labour of the working class. The increase in the net costs of circulation testifies to the growth of waste under capitalism." .
In the U.S.A. recorded expenses on advertisement alone amounted in 1934 to 1.6 milliard dollars, in 1940 to 2.1 milliard and in 1953 to 7.8 milliard..
With the development of capitalism and the growing difficulties of realising commodities, a colossal trading apparatus with manifold links is built up. Before they reach the hands of the consumer, commodities pass through the hands of a whole army of merchants, speculators, retailers and agents.
To the category of costs connected with the extension of the production process into the sphere of circulation belong expenses which are socially necessary and do not depend on the peculiarities of the capitalist system-on the finishing, transport and packing of goods. Every product is available to the consumer only when it has been delivered to him. The costs of finishing, transport and packing of goods correspondingly increase the cost of production of commodities. The labour which the workers expend in this work transfers to the commodities the value of the means of production expended and adds new value to the value of the commodity.
The anarchy of capitalist production and crises, the competitive struggle and speculation, bring about the piling up of extraordinary stocks of commodities and lengthen and distort their channels of movement, which leads to huge unproductive expenditure being incurred. In the overwhelming majority of cases capitalist advertisement is connected to a greater or less extent with swindling the customer and gives rise to superfluous and expensive packing of goods. This means that an ever larger part of the expenses for transport, storage and packing of commodities are transformed into net costs caused by capitalist competition and anarchy of production. The rise in the level of the costs of circulation is one of the indices of intensified parasitism in bourgeois society. The cost of capitalist trade weigh heavily upon the working people as consumers. .
In the U.S.A. costs of circulation amounted in 1929 to 31 per cent and in 1935 to 32.8 per cent of the total amount of retail trade. In the capitalist countries of Europe the costs of circulation amount to approximately a third of the total retail turnover.
As capitalist production and circulation develop, the forms of trade, wholesale and retail, also develop. Wholesale trade is trade between manufacturers and trading concerns, while retail trade is the sale of commodities directly to the population.
In trade, as in industry, concentration and centralisation of capital goes on. Small and medium capitalists are squeezed out by large-scale ones both in wholesale and in retail trade. In retail trade the concentration of capital takes place principally in the form of the settingup of large stores, both universal a specialised. Universal stores carry on trade in all kinds of goods, specialised shops trade only in one kind of goods, e.g., footwear, or clothing.
The production of identical commodities permits merchants to carry on wholesale trade by means of samples. Mass homogeneous goods such as cotton, flax-fibre, metals b ferrous and non-ferrous, rubber, grain, sugar, coffee, etc., are bought and sold in accordance with fixed standards and samples on the commodity exchanges.
A commodity exchange is a special kind of market, where trade in uniform commodities in bulk is carried on and the supply of and demand for these commodities is concentrated on the scale of entire countriesoften even on the scale of the capitalist world market.
The commodities which are the subject of the deals made between capitalists on the exchanges do not pass immediately from hand to hand. The deals are usually made for completion at the end of a period: the seller undertakes to supply the buyer with a certain quantity of the commodity at a stated time. For instance, deals are concluded in spring for supplying cotton from the next harvest, when this cotton has not yet been sown. In concluding these exchange deals the seller reckons that the price of the commodity in question will have fallen by the time stated, so that he will benefit by the difference in price; the buyer reckons that prices will rise. Often the sellers on the exchange do not possess the goods they sell and the buyers do not want the goods they buy. Thus commodity exchanges are places where speculative trade is carried on. The speculators buy and sell the ownership of goods with which they have not the slightest connection. Speculation is inseparably linked with the whole structure of capitalist trade, since this trade has for its aim not the satisfaction of society’s wants but the extraction of profit. It is the largescale capitalists, mostly, who make big money in speculative trade. It leads to the ruin of a considerable section of the small and medium entrepreneurs.
In bourgeois countries trade is often conducted on credit or on the instalment plan. This type of trade frequently lead the ordinary consumer being obliged to pay his debts with his goods and chattels, being unable to settle with his creditors in due time. Trade on a credit basis is often used by the capitalists as a means of disposing of inferior goods which are otherwise unsaleable.
As mentioned above, the transition to capitalism was connected with the creation of a world market. Lenin said that capitalism resulted from “widely developed commodity circulation which goes beyond the boundaries of the State. For this reason one cannot imagine a capitalist nation without foreign trade; and there is no such nation." (Lenin, “Development of Capitalism in Russia", Works, Russian edition, vol. III, p.43.)
In the course of the development of commodity circulation, going beyond the limits of national markets, capitalist foreign trade is extended.
The extension of world trade in itself expresses the development of the international division of labour, connected with the growth of the productive forces. For the capitalists, however, foreign trade serves as a means of increasing profits. In their hunt for profit the capitalists are constantly seeking new markets for their goods and sources of raw material. The limitations of the home market resulting from the impoverishment of the masses and the seizure of internal sources of raw material by large-scale capitalists intensifies their striving to establish supremacy in foreign markets..
Foreign trade was really extensively developed only in the capitalist epoch. During one hundred years, from 1800 to 1900, the turnover of world trade grew more than twelve-and-a-half-fold, from 1.5 milliard dollars to 18.9 milliard dollars. During the following three decades it grew more than three-and-a-half-fold and in 1929 attained the figure of 68.6 milliard dollars.
Foreign trade is a source of additional profit for the capitalists of the more developed capitalist countries, since manufactured articles are sold in backward countries at relatively higher prices, while raw material can be purchased there at much lower prices. Foreign trade serves as One of the means of economic enslavement of the backward countries by the developed bourgeois countries, and of the extension of the spheres of influence of the capitalist powers..
Thus, for example, the English East India Company plundered India for more than 250 years (1600-1858). As a result of the rapacious exploitation of the local inhabitants by the East India Company many provinces of India were transformed into wildernesses; the fields were not cultivated, the land became overgrown with scrub and the population died off.
Foreign trade is made up of export, i.e., the sending out of commodities, and import, i.e., the bringing in of commodities. The relationship between the total of the prices of the commodities exported by a particular country and the total of the prices of the commodities imported by it during a certain period, e.g., a year, constitutes the balance of trade. If the export side exceeds the import side, the balance of trade is active, while if the opposite is the case it is passive..
A country which has a passive balance of trade must cover its deficit by drawing upon such sources as stocks of gold, income from transporting the products of other countries, income from capital investments in other countries, and finally, by means of foreign, loans..
The trade balance does not show all the forms of economic: relations which exist between countries. A fuller expression of these relations is given by the balance of payments. The balance of payments is the relationship between the total of all payments received by a particular country from other countries and the total of all payments which this country makes to other countries.
The nature of the economic connections between countries also determines the foreign-trade policy of capitalist States. In the epoch of pre-monopoly capitalism two main types of trade policy took shape: the policy of free trade and the policy of protecting native industry (protectionism), which was carried out mainly by introducing high customs dues on foreign goods.
(1) Merchant capital serves the circulation of industrial capital. Merchants’ profit is part of surplus-value, which their manufacturer yields to the merchant.
(2) The exploitation by merchant capital of its wage-workers enables, it to appropriate part of the surplus-value created in production. Merchant capital exploits the small commodity producers through nonequivalent exchange. The workers and other sections of the working people are exploited by merchant capital as purchasers of consumer goods.
(3) The outlay connected with maintaining the sphere of circulation constitutes the costs of circulation. The costs of circulation are made up of net costs, directly connected with the buying and selling of commodities, and costs which arise from the continuation of the production-process into the sphere of circulation. As capitalist trade develops, unproductive expenditure in the sphere of circulation grows.
(4) Foreign trade arises from an international division of labour. Under capitalism it serves as one of the methods of economic enslavement of industrially less developed countries by more developed industrial capitalist powers.