Second. The commodities entering into the process of cir- culation (including the means of existence necessary for the reproduction of the labor-power of the laborer, who receives variable capital in the form of wages), regardless of their origin and of the social form of the productive process by which they were created, entertain the relation of commodity- capital, in the form of merchandise or merchant's capital, toward industrial capital. Merchant's capital, by its very nature, includes commodities of all modes of production.
Capitalist production does not only imply production on a large scale, but also necessarily sale on a large scale, in other words, sale to the dealer, not to the individual con- sumer. Of course, so far as a consumer is himself a produc- tive consumer, an industrial capitalist, whose industrial capi- tal produces means of production for some other branch of industry, a direct sale of one industrial capitalist's product to many other capitalists takes place (orders, etc). To this extent, every industrial capitalist is a direct seller and his own dealer, also, when he sells to the merchant.
Trading in commodities as a function of merchant's capi- tal is the premise of capitalist production and develops more and more in the course of development of this mode of pro- duction. Therefore we use it occasionally for the illustra- tion of various aspects of the process of capitalist circula- tion; but in the general analysis of this process, we assume that commodities are sold directly without the intervention of the merchant, because this intervention obscures various points of the movement.
See, for instance, Sismondi, who presents the matter some- what naively, in the following words: "Commerce employs considerable capital, which at first sight does not seem to be a part of that capital whose movements we have just de- Diagrams of the Process of Circulation. 127 scribed. The value of the cloth in the stores of the cloth- merchant seems at first to be entirely foreign to that part of the annual production which the rich give to the poor as wages in order to make them work. However, this capital has simply replaced the other of which we have spoken. For the purpose of clearly understanding the progress of wealth, we have begun with its creation and followed its movements to their conclusion. "We have then seen that the capital employed in manufacture, for instance in the manu- facture of cloth, was always the same; and when it was ex- changed for the income of the consumer, it was merely divided into two parts; one of them serving as revenue for the capitalist in the form of the product, the other serving as revenue to the laborers in the form of wages while they were manufacturing new cloth.
But it was soon found that it would be to the advantage of all to replace the different parts of this capital one by another and, if 10,000 dollars were sufficient for the entire circula- tion between the manufacturer and the consumer, to divide them equally between the manufacturer, the wholesale dealer, and the retail merchant. The first then did the same work with only one-third of this capital which he had formerly done with the entire capital, because, as soon as his work of manufacturing was completed, he found that the merchant bought from him much more readily than he could have found the consumer. On the other hand, the capital of the wholesale dealer was much sooner replaced by that of the retail merchant...The difference between the sums ad- vanced for wages and the purchase price paid by the last con- sumer was considered the profit of those capitals. It was divided between the manufacturer, the wholesale dealer, and the retail merchant, from the moment that they had divided their functions, and the work accomplished was the same, although it had required three persons and three parts of capital instead of one (Nouveaux Principes, I, pages 159, 160). All the merchants contributed indirectly to produc- tion; for having consumption for its object, production cannot be regarded as completed, until the product is placed into the reach of the consumer (Ibidem, page 157)."
128 Capital.
We operate in the discussion of the general forms of the rotation, in short in the entire second volume, with money as metallic money, to the exclusion of symbolic money, of mere tokens of value, which are the specialties of certain states, and of credit-money, which is not yet developed. In the first place, this is the historical order; credit-money plays only a very minor role, or none at all, during the first epoch of capitalist production. In the second place, the necessity of this order is demonstrated theoretically by the fact, that everything which Tooke and others have hitherto produced of a critical nature in regard to the circulation of credit- money was compelled to hark back to the question, what would be the aspect of the matter if nothing but metal-money were in circulation. But it must not be forgotten, that metal-money may serve as a purchase medium and as a pay- ing medium. For the sake of simplicity, we consider it in this second volume generally only in its first functional form.
The process of circulation of industrial capital, which is only a part of its individual process of rotation, is determined by the general laws outlined in volume I, chapter III, in so far as it is a series of transactions within the general circula- tion of commodities. The same mass of money, for instance 500 pounds sterling, starts successively so many more indus- trial capitals or eventually individual capitals in the form of commodity-capitals) in circulation, the greater the velo- city of rotation of money is, and the more rapidly therefore every individual capital passes through the metamorphoses of commodities or money. One and the same volume of cap- ital-value therefore requires so much less money for its cir- culation, the more this money performs the functions of a paying medium; the more, for instance, in the reproduction of some commodity-capital by its corresponding means of production, nothing but balances have to be squared; and the shorter the time of the payments is, for instance in pay- ing wages. On the other hand, assuming that the velocity of the circulation and all other conditions remain the same, the volume of money required for the circulation of money- capital is determined by the sum of the prices of commodities (price multiplied by the volume of commodities), or, Diagrams of the Process of Circulation. 129 if tne volume and value of the commodities are given, by the value of money itself.
But the laws of the general circulation of commodities apply only to the extent that the process of circulation of capital consists of a series of simple transactions in circula- tion; they do not apply to the extent that such transactions are definite functional sections in the rotation of individual industrial capitals.
In order to make this plain, it is best to study the process of circulation in its uninterrupted and connected form, such as it appears in the following two formulas: (C (M-C^m..P..C III)CV— M'l As a series of transaction, in circulation, the process of circulation, whether in the form of C — M — C or of M — C — M, represents merely the two opposite lines of metamorphoses of commodities, and every individual metamorphosis in its turn includes its opposite on the part of the commodity or money in the hands of another.
C — M on the part of the owner of some commodity means M — C on the part of its buyer; the first metamorphosis of the commodity in C — M is the second metamorphosis of the commodity appearing in the form of M; the opposite applies to M — C. The statements concerning the intermingling of the metamorphosis of a certain commodity in one stage with that of another in another stage apply to the circula- tion of capital to the extent that the capitalist performs the functions of a buyer and seller of commodities, so that his capital in the form of money meets the commodities of another, or in the form of commodities the money of another. But this intermingling is not identical with the intermingling of the metamorphoses of capitals.
In the first place, M — C'Pm), as we have seen, may repre- sent an intermingling of the metamorphoses of different 130 Capital.
individual capitals. For instance, the commodity-capital of the cotton-spinner, yarn, is partly replaced by coal. One part of his capital is in the form of money and is trans- formed into commodities, while the capital of the capitalist producer of coal exists in the form of commodities and is therefore transformed into money; the same transaction of circulation in this case represents opposite metamor- phoses of two industrial capitals in different departments of production, the series of metamorphoses of these capitals intermingles in it. But we have also seen, that the Pm into which M is transformed need not be commodity-capital in the strictest sense, that is to say need not be a functional form of industrial capital, need not be produced by a capi- talist. It is always a question of M — C on one side, and C — M on the other, but not always of intermingling meta- morphoses of capitals. Furthermore M — L, the purchase of labor-power, never intermingles with any metamorphoses of capital, for labor-power, though a commodity from the point of view of the laborer, does not become capital until it is sold to the capitalist. On the other hand, in the process C — M', it is not necessary that M' should represent trans- formed commodity-capital; it may be the money-equivalent of labor-power (wages), or of the product of some independ- ent laborer, some slave, serf, or some commune.
In the second place, a definite functional role played by every metamorphosis of some individual capital within the process of circulation, need not represent a corresponding opposite metamorphosis in the rotation of the other capital, provided we assume that the entire production of the world- market is carried on capitalistically. For instance, in the cycle P...P, the M' which pays for C may be merely the money-form of the surplus-value of the buyer, in case that the commodity is an article for consumption; or, in M' — C \ pm where accumulated capital is concerned, it may simply replace the advanced capital of the seller of Pm, or it may not return into the rotation of his capital at all by being side-tracked into expenditures as revenue.
This shows that the manner in which the different com- ponent parts of the aggregate social capital, of which individ- ual capitals are merely components performing independent Diagrams of the Process of Circulation. 131 functions, mutually replace one another in the process of circulation (in regard to capital as well as surplus-value), is not apparent from the simple intermingling of the meta- morphoses in the circulation of commodities. Such inter- mingling occurs in the transactions of capital circulation as it does in all other circulation of commodities, but it requires a different method of analysis. Hitherto nothing but gen- eral phrases have been employed by economists for his pur- pose, and if we test those phrases, they contain nothing but indefinite ideas borrowed from the intermingling of meta- morphoses common to all circulations of commodities.
One of the most obvious peculiarities of the process of rota- tion of industrial capital, and therefore of capitalist produc- tion, is the fact that on the one side, the component elements of productive capital are derived from the commodity-mar- ket, are continually renewed out of it, and are sold as com- modities; that, on the other side, the product of the labor- process comes forth from it as a commodity and must be continually sold over and over as a commodity. Com- pare, for instance, a modern tenant of Lower Scotland with an old-fashioned small farmer on the continent. The form- er sells his entire product and has therefore to reproduce all its elements, even his seeds, by means of the market; the latter consumes the greater part of his product directly, buys and sells as little as possible, fashions tools, clothing, etc., so far as possible himself.
Such comparisons have led to the classification of produc- tion into natural economy, the money-system, and the credit-system, as being the three characteristic stages of economy in the development of social production.
But in the first place, these three forms do not represent any equivalent phases of development. The so-called credit- system is itself merely a modification of the money-system, so far as both terms express transactions between the pro- ducers themselves. In the developed capitalist production, the money-system appears only as the basis of the credit- system. The money-system and credit-system thus corre- 132 Capital spond only to different stages in the development of capital- ist production, but they are by no means independent modes of economy as compared to natural economy. With the same justification, one might place the various forms of natural economy as equivalents by the side of those two sys- tems.
In the second place, it is not the process of production itself which is emphasized as the distinguishing mark of the two systems of that classification, the money-system, the credit-system, but rather the mode of transaction between the various producers under those systems. Then the same should apply to the natural economy, which should in that case be classified as the exchange-system. A completely rounded system of natural economy, such as the state of the Inkas in Peru, would not fall under any of these classifica- tions.
.In the third place, the money-system is common to all production of commodities, and the product appears as a commodity in the most varied organisms of social produc- tion. The characteristic mark of capitalist production would then be only the extent to which the product is manu- factured for purposes of trade, as a commodity, and the extent to which its own elements of formation enter as com- modities into the economy which creates that product.
It is true, that capitalist production has for its general form the production of commodities. But it is so and be- comes more so in its development, only because labor itself here appears as a commodity, because the laborer sells labor, that is to say the function of his labor-power, and our assumption is that he sells it at a value determined by \U cost of reproduction. To the extent that labor becomes wage-labor, the producer becomes an industrial capitalist. For this reason capitalist production (and the production of commodities) does not reach its full scope, until the agricul- tural laborer becomes a wage-laborer. In the relation of cap- italist and wage-laborer, the relation between the buyer and the seller, the money-relation, becomes an imminent relation of production. And this relation has its foundation in the social character of production, not of circulation. The char- acter of the circulation rather depends on that of production.
Diagrams of the Process of Circulation. 133 It is, however, quite characteristic of the bourgeois horizon, which is entirely bounded by the craze for making money, not to see in the character of the mode of production the basis of the corresponding mode of circulation, but vice versa.7 The capitalist throws less value in the form of money into the circulation than he draws out of it, because he throws into it more value in the form of commodities than he had withdrawn from it. To the extent that he is simply a per- sonification of capital, an industrial capitalist, his supply of commodity-value is always larger than his demand for that value. The equality of his supply and demand in this respect would indicate that his capital had not produced any surplus-value; it would not have performed the func- tions of productive capital; the productive capital would have been converted into commodity-capital which would not be impregnated with surplus-value; it would not have drawn any surplus-value in commodity-form out of labor- power during the process of production, it would not have performed any capital-functions at all. The capitalist must indeed "sell dearer than he has bought," but he succeeds only in doing so, because the capitalist process of production enables him to transform the cheaper commodity, which con- tains less value, into a dearer commodity with increased value. He sells dearer, not because he gets more than the value of his commodity, but because his commodity contains a greater value than that contained in the natural elements of its production.
The rate at which value is added to the capital of the cap- italist increases in proportion to the difference between his supply and his demand, that is to say in proportion as the surplus of the commodities which he places on the market exceeds the value of the commodities which he has taken from it. His aim is not to equalize his supply and demand, but to make the difference between them as much as possible in favor of his supply.
7 End of Manuscript V. What follows to the end of the chapter is a note found in a Manuscript of 1877 or 1S78 amid extracts from other works.
134 Capital.
What is true of the individual capital, also applies to the capitalist class.
In so far as the capitalist personifies but his industrial capital, his own demand is only for means of production and labor-power. His demand for Pm, expressed in value, is smaller than his advanced capital; he buys means of pro- duction of a value smaller than his capital, and therefore much smaller than the value of the commodity-capital which he takes back to the market.
As regards his demand for labor-power, its value is deter- mined by the proportion of his variable capital to his total capital, as expressed by Vh-C Its proportion in capitalist production decreases continually more than his demand for means of production. His purchases of Pm steadily increase over his purchases of L.
Inasmuch as the laborer generally converts his wages into means of existence, and for the overwhelmingly larger part necessities of life, the demand of the capitalist for labor- power is indirectly also a demand for the articles of consump- tion assimilated by the working class. But this demand is equal to v and not one atom greater. If the laborer saves a part of his wages — we do not consider any questions of credit at all — he converts a part of his wages into a hoard and does not perform the functions of a purchaser to that extent. The limit of the maximum demand of the capitalist is C, equal to c plus v, but his supply for the market is c plus v plus s. If the composition of his commodity-capital is 80c+20v+ 20s, his demand is equal to 80c+20v, or one fifth smaller in value than his supply. His demand as compared to his sup- ply decreases in proportion as the percentage of the mass of surplus-value produced by him (his rate of profit) increases. Although the demand of the capitalist for labor-power, and thus indirectly for necessities of life, decreases continually compared to his demand for means of production in the further development of production, it must not be forgotten that day by day his demand for Pm is always smaller than his capital. His demand for means of production must, therefore, be always smaller in value than the commodity- product of the capitalist who, working with a capital of equal value and conditions like his, furnishes him with those Diagrams of the Process of Circulation. 135 means of production. It does not alter the case, if many- capitalists instead of one furnish him with means of produc- tion. Take it that his capital is 1,000 pounds sterling, and its constant part 800 pounds sterling; then his demand on all the capitalists supplying him is equal in value to 800 pounds sterling. Together they supply for each 1,000 pounds sterling means of production valued at 1,200 pounds sterling, assuming that the rate of profit is the same for all of 'them, regardless of the rate at which they share in the 1,000 and of the proportion which -the share of each one may represent in his total capital. The demand of the buy- ing capitalist covers only 'two-thirds of the supply of the sellers, while his total demand equals only four-fifths of the value of 'his own supply to the market.
It still remains to anticipate the analysis of the problem of turn-over. Let the total capital of the capitalist be 5,000 pounds sterling, of which 4,000 pounds is fixed and 1,000 pounds circulating capital; these 1,000 pounds sterling are composed of 800 c plus 200 v, as assumed before. His circulating capital must be turned over five times per year in order that his fixed capital may be turned over once. His commodity-product is then equal in value to 6,000 pounds sterling, it is valued at 1,000 pounds sterling more than his advanced capital, so that the same proportion of surplus- value is obtained as before: This turn-over does not change anything in the proportion of the total demand of the capitalist to his total supply. The former remains one-fifth smaller than the latter.
Take it that his fixed capital must be reproduced in 10 years. Hence he sinks every year one tenth, or 400 pounds sterling, so that he has only -a value of 3,600 pounds of fixed capital left plus 400 pounds in money. Inasmuch as repairs are necessary which do not exceed the average, they represent nothing but capital invested later. "We may look at the matter from the standpoint that he has allowed for the expenses for repairs when calculating the value of his invest- ment, so far as this enters into the annual commodity-pro- duct, so that they are included in that one tenth of sinking fund. If the repairs cost less than the average he is so much 136 Capital.
money in pocket, and in the reverse case he loses it. At any rate, although his demand, after his total capital has been turned over once a year, still remains at 5,000 pounds sterling which was the value of the original capital advanced, it increases so far as the circulating part of this capital is concerned, while it decreases so far as the fixed part is con- cerned.
We now come to the question of reproduction. Take it that the capitalist consumes the entire surplus-value com- posed of money m and reconverts only the original capital- value C into productive capital. Then the demand of the capitalist is equal to his supply; but this does not refer to the movements of his capital. As a capitalist, his demand is only for four-fifths of the value of his supply. He consumes one-fifth as a non-capitalist; he consumes it, not in the per- formance of his function as capitalist, but for his private re- quirements or pleasure.
His calculation, expressed in percentages, stands as follows: Demand as capitalist 100, supply 120.
Demand as man of the world. 20, supply 0.
Total demand 120, supply 120.
This assumption amounts to a non-existence of capitalist production, and thus the non-existence of the industrial capitalist himself. For capitalism is destroyed in its very foundation, if we assume that its compelling motive is enjoy- ment instead of the accumulation of wealth.
But such an assumption is also technically impossible. The capitalist must not only form a reserve-capital as a pro- tection against fluctuations of value and as a fund enabling him to wait for favorable conditions of the market for sale and purchase; he must also accumulate capital, in order to extend his production and embody the progress of technique in his productive organization.
In order to accumulate capital, he must first withdraw a a part of the surplus-value from circulation which he ob- tained from that circulation in the form of money, and must hoard it until it has increased sufficiently for the extension of his old business or the opening of a side-line. So long as Diagrams of the Process of Circulation. 137 the formation of the hoard continues, it does not increase the demand of the capitalist. The money is then inactive. It does not withdraw from the commodity-market any equivalent in commodities for the money-equivalent which it withdrew for commodities supplied to it.
Credit is not considered here. And credit includes the depositing, on the part of the capitalist, of accumulating money in a bank on payment of interest as shown by a run- ning account.
138 Capital.
CHAPTER V.
THE TIME OF CIRCULATION.8 We have seen that the movement of capital through the sphere of production and the two phases of circulation takes place in a succession of time. The duration of its sojourn in the sphere of production is its time of produc- tion, that of its stay in the sphere of circulation its time of circulation.
The time of production naturally includes the period of the labor-process, but is not comprised in it. We must first remember that a part of the constant capital exists in the form of instruments of production, such as machinery, buildings, etc., which serve for the repeated labor-processes until they are worn out. Periodical interruptions of the la- bor-process by night, etc., interrupt the function of these instruments of production, but not their location on the place of production. They belong to this place when they are not in function as well as when they are. On the other hand, the capitalist must have a definite supply of raw material and auxiliary substances in readiness, in order that the process of production may take place for a longeT or shorter time on a previously determined scale, without being dependent on the accidents of a daily supply from the market. This supply of raw material, etc., is consumed productively by degrees. There is, therefore, a difference between its time of production9 and its time of function. The time of production of the means of production in gen- eral comprises, therefore, first the time during which they serve as means of production by taking part in the produc- tive process; second, the stops during which a certain pro-