Cf. Sismondi, who presents the matter somewhat naively:
In the discussion of the general forms of the circuit and in the
 entire second book in general, we take money to mean metallic money, with
 the exception of symbolic money, mere tokens of value, which are designed
 for specific use in certain states, and of credit-money, which is not yet
 developed. In the first place, this is the historical order; credit-production
 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 of a critical
 nature which Tooke and others hitherto expounded in regard to the circulation
 of credit-money compelled them to hark back again and again to the question
 of 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 purchasing medium and also as a paying medium. For the sake of simplicity,
 we consider it in this second book generally only in its first functional
 form.
The process of circulation of industrial capital, which is only
 a part of its individual circuit, is determined by the general laws previously
 set forth (Buch I, Kap. III), [English edition: Ch. III. — Ed.]
 in so far as it is only a series of acts within the general circulation
 of commodities. The greater the velocity of the currency of money, the
 more rapidly therefore every individual capital passes through the series
 of its commodity or money metamorphoses, the more numerous are the industrial
 capitals (or individual capitals in the form of commodity-capitals) started
 circulating successively by a given mass of money, for example £500.
 The more the money functions as a paying medium, the more therefore —
 for instance in the replacement of some commodity-capital by its means
 of production — nothing but balances have to be squared, and the shorter
 the periods of time when payments fall due, as for instance in paying wages,
 the less money a given mass of capital-value therefore requires for its
 circulation. On the other hand, assuming that the velocity of the circulation
 and all other conditions remain the same, the amount of money required
 to circulate as money-capital is determined by the sum of the prices of
 the commodities (price multiplied by the volume of commodities), or, if
 the quantity and value of the commodities are fixed, by the value of the
 money itself.
But the laws of the general circulation of commodities are valid
 only when capital’s circulation process consists of a series of simple
 acts of circulation; they do not apply when the latter constitute functionally
 determined sections of the circuit of individual industrial capitals.
In order to make this plain, it is best to study the process of
 circulation in its uninterrupted interconnection, such as it appears in
 the following two forms:
C — M on the part of the owner of a commodity means M — C on the
 part of its buyer; the first metamorphosis of the commodity appearing in
 the form of M; the opposite applies to M — C. What has been shown concerning
 the intertwining of the metamorphosis of a certain commodity in one stage
 with that of another in another stage applies to the circulation of capital
 so far as the capitalist functions as a buyer and seller of commodities,
 and his capital on that account functions in the form of money opposed
 to the commodities of another. But this intertwining is not to be identified
 with the intertwining of the metamorphoses of capitals.
In the first place M — C (MP), as we have seen, may represent
 an intermingling of the metamorphoses of different individual capitals.
 For instance the commodity-capital of the spinning-mill owner, yarn is
 partly replaced by coal. One part of his capital exists in the form of
 money and is converted into the form of commodities, while the capital
 of the capitalist producer of coal is in the form of commodities and is
 therefore converted into the form of money; the same act of circulation
 represents in this case opposite metamorphoses of two industrial capitals
 (in different branches of production), hence an intertwining of the series
 of metamorphoses of these capitals. But as we have seen the MP into which
 M is transformed need not be commodity-capital in the categorical sense,
 i.e., need not be a functional form of industrial capital, need not be
 produced by a capitalist. It is always M — C on one side and C — M on the
 other, but not always an intermingling of metamorphoses of capitals. Furthermore
 M — L, the purchase of labour-power, is never an intermingling of metamorphoses
 of capitals, for labour-power, though the commodity of the labourer, 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 converted
 commodity-capital; it may be the realisation in money of the commodity
 labour-power (wages), or of the product of some independent labourer, slave,
 serf, or community.
In the second place however it is not at all required for the
 discharge of the functionally determined role played by every metamorphosis
 occurring within the process of circulation of some individual capital
 that this metamorphosis should represent the corresponding opposite metamorphosis
 in the circuit of the other capital, provided we assume that the entire
 production of the world-market is carried on capitalistically. For instance
 in the circuit P ... P, the M which converts C' into money may be to the
 buyer only the realisation in money of his surplus-value (if the commodity
 is an article of consumption); 
 or in M' — C'<LMP
 (where therefore already accumulated capital enters) M' may, as far as
 the vendor of MP is concerned, enter into the circulation of his capital
 only to replace his advanced capital or it may not re-enter at all by being
 diverted into revenue expenditure.
Therefore the manner in which the various component parts of the aggregate
 social capital, of which the individual capitals are but constituents functioning
 independently, mutually replace one another in the process of circulation
 — in regard to capital as well as surplus-value — is not ascertained
 from the simple intertwinings of the metamorphoses in the circulation of
 commodities — intertwinings which the acts of capital circulation have
 in common with all other circulation of commodities. That requires a different
 method of investigation. Hitherto one has been satisfied with uttering
 phrases which upon closer analysis are found to contain nothing but indefinite
 ideas borrowed from the intertwining of metamorphoses common to all commodity
 circulation.
Natural economy, money-economy, and credit-economy have therefore
 been placed in opposition to one another as being the three characteristic
 economic forms of movement in social production.
In the first place these three forms do not represent equivalent
 phases of development. The so-called credit-economy is merely a form of
 the money-economy, since both terms express functions or modes of exchange
 among the producers themselves. In developed capitalist production, the
 money-economy appears only as the basis of the credit-economy. The money-economy
 and credit-economy thus correspond only to different stages in the development
 of capitalist production, but they are by no means independent forms of
 exchange vis-à-vis natural economy. With the same justification
 one might contrapose as equivalents the very different forms of natural
 economy to those two economies.
In the second place, since it is not the economy, i.e., the process
 of production itself that is emphasised as the distinguishing mark of the
 two categories, money-economy and credit-economy, but rather the mode of
 exchange — corresponding to that economy — between the various agents
 of production, or producers, the same should apply to the first category.
 Hence exchange economy instead of natural economy. A completely isolated
 natural economy, such as the Inca state of Peru, would not come under any
 of these categories.
In the third place the money-economy is common to all commodity
 production and the product appears as a commodity in the most varied organisms
 of social production. Consequently what characterises capitalist production
 would then be only the extent to which the product is created as an article
 of commerce, as a commodity, and hence the extent also to which its own
 constituent elements must enter again as articles of commerce, as commodities,
 into the economy from which it emerges.
As a matter of fact capitalist production is commodity production
 as the general form of production. But it is so and becomes so more and
 more in the course of its development only because labour itself appears
 here as a commodity, because the labourer sells his labour, that is, the
 function of his labour-power, and our assumption is that he sells it at
 its value, determined by its cost of reproduction. To the extent that labour
 becomes wage-labour, the producer becomes an industrial capitalist. For
 this reason capitalist production (and hence also commodity production)
 does not reach its full scope until the direct agricultural producer becomes
 a wage-labourer. In the relation of capitalist and wage-labourer, the money-relation,
 the relation between the buyer and the seller, becomes a relation inherent
 in production. But this relation has its foundation in the social character
 of production, not in the mode of exchange. The latter conversely emanates
 from the former. It is, however, quite in keeping with the bourgeois horizon,
 everyone being engrossed in the transaction of shady business, not to see
 in the character of the mode of production the basis of the mode of exchange
 corresponding to it, but vice versa.[7]
The rate at which the capitalist makes the value of his capital
 expand is the greater, the greater the difference between his supply and
 his demand, i.e., the greater the excess of the commodity-value he supplies
 over the commodity-value he demands. His aim is not to equalize his supply
 and demand, but to make the inequality between them, the excess of his
 supply over his demand, as great as possible.
What is true of the individual capitalist applies to the capitalist
 class.
In so far as the capitalist merely personifies industrial capital,
 his own demand is confined to means of production and labour-power. In
 point of value, his demand for MP is smaller than his advanced capital;
 he buys means of production of a smaller value than that of his capital,
 and therefore of a still smaller value than that of the commodity-capital
 which he supplies.
As regards his demand for labour-power, it is determined in point
 of value by the relation of his variable capital to his total capital,
 hence equals v : C. In capitalist production this demand thereby grows smaller
 than his demand for means of production. His purchases of MP steadily rise
 above his purchases of L.
It still remains for us, incidentally, to investigate the problem
 of turnover. Let the total capital of the capitalist be £5,000, of
 which £4,000 is fixed and £1,000 circulating capital; let this
 1,000 be composed of 800c plus 200v, as assumed above.
 His circulating capital must be turned over five times a year for his total
 capital to turn over once. His commodity-product is then equal to £6,000,
 i.e., £1,000 more than his advanced capital, which results in the
 same ratio of surplus-value as above:
5,000 C : 1,000(c + v) : 20s
Suppose his fixed capital has to be renewed in 10 years. So the
 capitalist pays every year one-tenth, or £400, into a sinking fund
 and thus has only a value of £3,600 of fixed capital left plus £400
 in money. If the repairs are necessary and do not exceed the average, they
 represent nothing but capital invested later. We may look at the matter
 the same as if he had allowed for the cost of repairs beforehand, when
 calculating the value of his investment capital, so far as this enters
 into the annual commodity-product, so that it is included in the one-tenth
 sinking fund payment. (If his need for repairs is below average he is so
 much money to the good, and the reverse if above. But this evens out for
 the entire class of capitalists engaged in the same branch of industry.)
 At any rate, although his annual demand still remains £5,000, equal
 to the original capital-value he advanced (assuming his total capital is
 turned over once a year), this demand increases with regard to the circulating
 part of the capital, while it steadily decreases with regard to its fixed
 part.
We now come to reproduction. Let us assume that the capitalist
 consumes the entire surplus-value m and reconverts only capital C of the
 original magnitude into productive capital. Then the demand of the capitalist
 is equal in value to his supply; but this does not refer to the movement
 of his capital. As a capitalist he exercises a demand for only four-fifths
 of his supply (in terms of value). He consumes one-fifth as a non-capitalist,
 not in his function as capitalist but for his private requirements or pleasures.
His calculation, expressed in percentages, is then
 as follows:
But such an assumption is impossible also technically. The capitalist
 must not only form a reserve capital to cushion price fluctuations and
 enable him to wait for favorable buying and selling conditions. He must
 accumulate capital in order to extend his production and build technical
 progress into his productive organism.
In order to accumulate capital he must first withdraw in money-form
 from circulation a part of the surplus-value which he obtained from that
 circulation, 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 the formation of the hoard continues, it does not increase the demand
 of the capitalist. The money is immobilised. It does not withdraw from
 the commodity-market any equivalent in commodities for the money equivalent
 withdrawn from it for commodities supplied.
Credit is not considered here. And credit includes for example
 deposits by the capitalist of accumulating money in a bank on current account
 paying interest.
The time of production naturally comprises the period of the labour-process, but is not comprised in it. It will be remembered first of all that a part of the constant capital exists in the form of instruments of labour, such as machinery, buildings, etc., which serve the same constantly repeated labour-processes until they are worn out. Periodical interruptions of the labour-process, by night for instance, interrupt the functioning of these instruments of labour, but not their stay at the place of production. They belong to this place when they are in function as well as when they are not. On the other hand the capitalist must have a definite supply of raw material and auxiliary material in readiness, in order that the process of production may take place for a longer or shorter time on a previously determined scale, without being dependent on the accidents of daily supply from the market. This supply of raw material, etc., is productively consumed only by degrees. There is, therefore, a difference between its time of production [9] and its time of functioning. The time of production of the means of production in general comprises, therefore, 1) the time during which they function as means of production, hence serve in the productive process; 2) the stops during which the process of production, and thus the functioning of the means of production embodied in it, are interrupted; 3) the time during which they are held in readiness as prerequisites of that process, hence already represent productive capital but have not yet entered into the process of production.
The difference so far considered has in each case been the difference between the time which the productive capital stays in the sphere of production and that it stays in the process of production. But the process of production may itself be responsible for interruptions of the labour-process, and hence of the labour-time — intervals during which the subject of labour is exposed to the action of physical processes without the further intervention of human labour. The process of production, and thus the functioning of the means of production, continue in this case, although the labour-process, and thus the functioning of the means of production as instruments of labour, have been interrupted. This applies, for instance, to the grain, after it has been sown, the wine fermenting in the cellar, the labour-material of many factories, such as tanneries, where the material is exposed to the action of chemical processes. The time of production is here longer than the labour-time. The difference between the two consists in an excess of the production time over the labour-time. This excess always arises from the latent existence of productive capital in the sphere of production without functioning in the process of production itself or from its functioning in the productive process without taking part in the labour-process.
That part of the latent productive capital is held in readiness only as a requisite for the productive process, such as cotton, coal, etc., in a spinning-mill, acts as a creator of neither products nor value. It is fallow capital, although its fallowness is essential for the uninterrupted flow of the process of production. The buildings, apparatus, etc., necessary for the storage of the productive supply (latent capital) are conditions of the productive process and therefore constitute component parts of the advanced productive capital. They perform their function as conservators of the productive components in the preliminary stage. Inasmuch as labour-processes are necessary in this stage, they add to the cost of raw material, etc., but are productive labour and productive surplus-value, because a part of this labour, like of all other wage-labour, is not paid for. The normal interruptions of the entire process of production, the intermissions during which the productive capital does not function, create neither value nor surplus-value. Hence the desire to the work going at night, too. (Buch I, Kap. VIII, 4.) [English edition: Ch. X, 4. — Ed.]
The intervals in the labour-time which the subject of labour must endure in the process of production itself create neither value nor surplus-value. But they advance the product, form a part of its life, a process through which it must pass. The value of the apparatus, etc., is transferred to the product in proportion to the entire time during which they perform their function; the product is brought to this stage by labour itself, and the employment of these apparatus is as much a condition of production as is the reduction to dust of a part of the cotton which does not enter into the product but nevertheless transfers its value to the product. The other part of the latent capital, such as buildings, machinery, etc., the instruments of labour whose functioning is interrupted only by the regular pauses of the productive process — irregular interruptions caused by the restriction of production, crises, etc., are total losses — adds value without entering into the creation of the product. The total value which this part of capital adds to the product is determined by its average durability; it loses value, because it loses its use-value, both during the time that it performs its functions as well as during that in which it does not.
Finally the value of the constant part of capital, which continues in the productive process although the labour-process is interrupted, re-appears in the result of the productive process. Labour itself has here placed the means of production in conditions under which they pass of themselves through certain natural processes, the result of which is a definite useful effect or a change in the form of their use-value. Labour always transfers the value of the means of production to the product, in so far as it really consumes them in a suitable manner, as means of production. And it does not change the matter whether labour has to bear continually on its subject by means of the instruments of labour in order to produce this effect or whether it merely needs to give the first impulse by providing the means of production with conditions under which they undergo the intended alteration of themselves, in consequence of natural processes, without the further assistance of labour.
Whatever may be the reason for the excess of production time over the labour-time — whether the circumstance that means of production constitute only latent productive capital and hence are still in a stage preliminary to the actual productive process or that their own functioning is interrupted within the process of production by its pauses or finally that the process of production itself necessitates interruptions of the labour-process — in none of these cases do the means of production function as absorbers of labour. And if they do not absorb labour, they do not absorb surplus-labour, either. Hence there is no expansion of the value of productive capital so long as it stays in that part of its production time which exceeds the labour-time, no matter how inseparable from these pauses the carrying on of the process of self-expansion may be. It is plain that the more the production time and labour-time cover each other the greater is the productivity and self-expansion of a given productive capital in a given space of time. Hence the tendency of the capitalist production to reduce the excess of the production time over the labour-time as much as possible. But while the time of production of a certain capital may differ from its labour-time, it always comprises the latter, and this excess is itself a condition of the process of production. The time of production, then, is always that time in which a capital produces use-values and expands, hence functions as productive capital, although it includes time in which it is either latent or produces without expanding its value.
Within the sphere of circulation, capital abides as commodity-capital and money-capital. Its two processes of circulation consist in its transformation from the commodity-form into that of money and from the money-form into that of commodities. The circumstance that the transformation of commodities into money is here at the same time a realisation of the surplus-value embodied in the commodities, and that the transformation of money into commodities is at the same time a conversion or reconversion of capital-value into the form of its elements of production does not in the least alter the fact that these processes, as processes of circulation, are processes of the simple metamorphosis of commodities.
Time of circulation and time of production mutually exclude each other. During its time of circulation capital does not perform the functions of productive capital and therefore produces neither commodities nor surplus-value. If we study the circuit in its simplest form, as when the entire capital-value passes in one bulk from one phase into another, it becomes palpably evident that the process of production and therefore also the self-expansion of capital-value are interrupted so long as its time of circulation lasts, and that the renewal of the process of production will proceed at a faster or a slower pace depending on the length of the circulation time. But if on the contrary the various parts of capital pass through the circuit one after another, so that the circuit of the entire capital-value is accomplished successively in the circuits of its various component parts, then it is evident that the longer its aliquot parts stay in the sphere of circulation the smaller must be the part functioning in the sphere of production. The expansion and contraction of the time of circulation operate therefore as negative limits to the contraction or expansion of the time of production or of the extent to which a capital of a given size functions as productive capital. The more the metamorphoses of circulation of a certain capital are only ideal, i.e., the more the time of circulation is equal to zero, or approaches zero, the more does capital function, the more does its productivity and the self-expansion of its value increase. For instance, if a capitalist executes an order by the terms of which he receives payment on delivery of the product, and if this payment is made in his own means of production, the time of circulation approaches zero.
A capital’s time of circulation therefore limits, generally speaking, its time of production and hence its process of generating surplus-value. And it limits this process in proportion to its own duration. This duration may considerably increase or decrease and hence may restrict capital’s time of production in a widely varying degree. But Political Economy sees only what is apparent, namely the effect of the time of circulation on capital’s process of the creation of surplus-value in general. It takes this negative effect for a positive one, because its consequences are positive. It clings the more tightly to this appearance since it seems to furnish proof that capital possesses a mystic source of self-expansion independent of its process of production and hence of the exploitation of labour, a spring which flows to it from the sphere of circulation. We shall see later that even scientific Political Economy has been deceived by this appearance of things. Various phenomena, it will turn out, give color to this semblance: 1) The capitalist method of calculating profit, in which the negative cause figures a positive one, since with capitals in different spheres of investment, where only the time of circulation are different, a longer time of circulation tends to bring about an increase in prices, in short, serves as one of the causes of equalising profits. 2) The time of circulation is but a phase of the time of turnover; the latter however includes the time of production or reproduction. What is really due to the latter seems to be due to the time of circulation. 3) The conversion of commodities into variable capital (wages) is necessitated by their previous conversion into money. In the accumulation of capital, the conversion into additional variable capital therefore takes place in the sphere of circulation, or during the time of circulation. Consequently it seems that the accumulation thus achieved is owed to the latter.
There is a difference between C — M and M — C which has nothing to do with the difference in forms of commodities and money but arises from the capitalist character of production. Intrinsically both C — M and M — C are mere conversions of given values from one form into another. But C' — M' is at the same time a realisation of the surplus-value contained in C'. M — C however is not. Hence selling is more important than buying. Under normal conditions M — C is an act necessary for the self-expansion of the value expressed in M, but it is not a realisation of surplus-value; it is the introduction to its production, not an afterword.
[Since we have assumed that commodities are bought and sold at
 their values, these acts constitute merely the conversion of a certain
 value from one form into another, from the commodity-form into the money-form
 or from the money-form into the commodity-form — a change in the state
 of being. If commodities are sold at their values, then the magnitudes
 of value in the hands of the buyer and seller remain unchanged. Only the
 form of existence of value is changed. If the commodities are not sold
 at their values, then the sum of the converted values remains unchanged;
 the plus on one side is a minus on the other.
Of course the dimensions assumed by the conversion of commodities
 in the hands of the capitalists cannot transform this labour — which does
 not create any value — into labour productive of value. Nor can the miracle
 of this transubstantiation be accomplished by a transposition, i.e., by
 the industrial capitalist making this "work of combustion" the exclusive
 business of third persons, who are paid by them, instead of performing
 it themselves. This third persons will of course not tender their labour-power
 to the capitalist out of sheer love for them. It is a matter of indifference
 to the rent collector of a real-estate owner or the messenger of a bank
 that their labour does not add one iota or tittle to the value of either
 the rent or the gold pieces carried to another bank by the bagful.][10]
To the capitalist who has others working for him, buying and selling
 becomes a primary function. Since he appropriates the product of many on
 a large social scale, he must sell it on the same scale and then reconvert
 it from money into elements of production. Now as before neither the time
 of purchase nor of sale creates any value. The function of merchant’s capital
 gives rise to an illusion. But without going into this at length here this
 much is plain from the start: If by a division of labour a function, unproductive
 in itself although a necessary element of reproduction, is transformed
 from an incidental occupation of many into an exclusive occupation of a few,
 into their special business, the nature of this function itself is not
 changed. One merchant (here considered a mere agent attending to the change of form of commodities, a mere buyer and seller) may by his operations
 shorten the time of purchase and sale for many producers. In such case
 he should be regarded as a machine which reduces useless expenditure of
 energy or helps to set production time free.[11]
At all events the time consumed for this purpose constitutes one
 of the costs of circulation which adds nothing to the converted values.
 It is the cost of converting them from the commodity-form into the money-form.
 The capitalist producer of commodities acting as an agent of circulation
 differs from the direct producer of commodities only in the fact that he
 buys and sells on a larger scale and therefore his function as such agent
 assumes greater dimensions. And if the volume of his business compels or
 enables him to buy (hire) circulation agents of his own to serve as wage-labourers,
 the nature of the case is not changed thereby. A certain amount of labour-power
 and labour-time must be expended in the process of circulation (so far
 as it is merely a change of form). But this now appears as an additional
 investment of capital. A part of the variable capital must be laid out
 in the purchase of this labour-power functioning only in circulation. This
 advance capital creates neither product nor value. It reduces pro tanto
 
 the dimensions in which the advanced capital functions productively. It
 is as though one part of the product were transformed into a machine which
 buys and sells the rest of the product. This machine brings about a reduction
 of the product. It does not participate in the productive process, although
 it can diminish the labour-power, etc., spent on circulation. It constitutes
 merely a part of the costs of circulation.
Division of labour and assumption of independence do not make
 a function one that creates products and value if it was not so intrinsically,
 hence before it became independent. If a capitalist invests his capital
 anew, he must invest a part of it in hiring a book-keeper, etc., and in
 the wherewithal of book-keeping. If his capital is already functioning,
 is engaged in the process of its own constant reproduction, he must continually
 reconvert a part of his product into a book-keeper, clerks, and the like,
 by transforming that part into money. That part of his capital is withdrawn
 from the process of production and belongs in the costs of circulation,
 deductions from the total yield (including the labour-power itself that
 is expended exclusively for this function).
But there is a certain difference between the costs incidental
 to book-keeping, or the unproductive expenditure of labour-time on the
 one hand and those of mere buying and selling time on the other. The latter
 arise only from the definite social form of the process of production,
 from the fact that it is the process of production of commodities. Book-keeping,
 as the control and ideal synthesis of the process, becomes the more necessary
 the more the process assumes a social scale and loses its purely individual
 character. It is therefore more necessary in capitalist production than
 in the scattered production of handicraft and peasant economy, more necessary
 in collective production than in capitalist production. But the costs of
 book-keeping drop as production becomes concentrated and book-keeping becomes
 social.
We are concerned here only with the general character of the costs
 of circulation, which arise out of the metamorphosis of forms alone. It
 is superfluous to discuss here all their forms in detail. But how forms
 which belong in the sphere of pure changes of the form of value and hence
 originate from the particular social form of the process of production,
 forms which in the case of the individual commodity-producer are only transient,
 barely perceptible elements, run alongside his productive functions or
 become intertwined with them — how these can strike the eye as the huge
 costs of circulation can be seen from just the money taken in and paid
 out when these operations have become independent and concentrated on a
 large scale as the exclusive function of banks, etc., or of cashiers in
 individual businesses. But it must be firmly borne in mind that these costs
 of circulation are not changed in character by their change in appearance.
The abidance of the commodity-capital as a commodity-supply in
 the market requires buildings, stores, storage places, warehouses, in other
 words, an expenditure of constant capital; furthermore the payment of labour-power
 for placing the commodities in storage. Besides, commodities spoil and
 are exposed to the injurious influences of the elements. Additional capital
 must be invested, partly in instruments of labour, in material form, and
 partly in labour-power to protect the commodities against the above.[14]
Thus the existence of capital in its form of commodity-capital
 and hence of commodity-supply gives rise to costs which must be classed
 as costs of circulation, since they do not come within the sphere of production.
 These costs of circulation differ from those mentioned under I by the fact
 that they enter to a certain extent into the value of the commodities,
 i.e., they increase the prices of commodities. At all events the capital
 and labour-power which serve the need of preserving and storing the commodity-supply
 are withdrawn from the direct process of production. On the other hand
 the capitals thus employed, including labour-power as a constituent of
 capital, must be replaced out of the social product. Their expenditure
 has therefore the effect of diminishing the productive power of labour,
 so that a greater amount of capital and labour is required to obtain a
 particular useful effect. They are unproductive costs.
As the costs of circulation necessitated by the formation of a
 commodity-supply are due merely to the time required for the conversion
 of existing values from the commodity-form into the money-form, hence merely
 to the particular social form of the production process (i.e., are due
 only to the fact that the product is brought forth as a commodity and must
 therefore undergo the transformation into money), these costs completely
 share the character of the circulation costs enumerated under I. On the
 other hand the value of the commodities is here preserved or increased
 only because the use-value, the product itself, is placed in definite material
 conditions which cost capital outlay and is subjected to operations which
 bring additional labour to bear on the use-values. However the computation
 of the values of commodities, the book-keeping incidental to this process,
 the transactions of purchase and sale, do not affect the use-value in which
 the commodity-value exists. They have to do only with the form of the commodity-value.
 Although in the case submitted [i.e., Corbet’s calculations given in Footnote
 14. — Ed.] the costs of forming a supply (which is here done involuntarily) arise only from a delay in the change of form and from its necessity, still
 these costs differ from those mentioned under I, in that their purpose
 is not a change in the form of the value, but the preservation of the value
 existing in the commodity as a product, a utility, and which cannot be
 preserved in any other way than by preserving the product, the use-value,
 itself. The use-value is neither raised nor increased here; on the contrary,
 it diminishes. But its diminution is restricted and it is preserved. Neither
 is the advanced value contained in the commodity increased here; but new
 labour, materialised and living, is added.
We have now to investigate furthermore to what extent these costs
 arise from the peculiar nature of commodity production in general and from
 commodity production in its general, absolute form, i.e., capitalist commodity
 production; and to what extent on the other hand they are common to all
 social production and merely assume a special shape, a special form of
 appearance, in capitalist production.
Adam Smith entertained the splendid notion that the formation
 of a supply was a phenomenon peculiar to capitalist production.[15] More recent economists, for instance Lalor, insist on the contrary that it declines with the development of capitalist production. [See: J. Lalor,
 Money and Morals: A Book for the Times, London, 1852, pp. 43-44. — Ed.] Sismondi even regards it as one of the drawbacks of the latter. [See: J.C.L. Sismonde de Sismondi, Etudes sur l’èconomie politique, Tome I. Bruxelles, 1837, p. 49, etc. — Ed.]
As a matter of fact, supplies exist in three forms: in the form
 of productive capital, in the form a fund for individual consumption, and
 in the form of a commodity-supply or commodity-capital. The supply in one
 form decreases relatively when it increases in another, although its quantity
 may increase absolutely in all three forms simultaneously.
It is plain from the outset that wherever production is carried
 on for the direct satisfaction of the needs of the producer and only to
 a minor extent for exchange or sale, hence where the social product does
 not assume the form of commodities at all or only to a rather small degree,
 the supply in the form of commodities, or commodity-supply, forms only
 a small and insignificant part of wealth. But here the consumption-fund
 is relatively large, especially that of the means of subsistence proper.
 One need but take a look at old-fashioned peasant economy. There the overwhelming
 part of the product is transformed directly into supplies of means of production
 or means of subsistence, without becoming supplies of commodities, for
 the very reason that it remains in the hands of its owner. It does not
 assume the form of a commodity-supply and for this reason Adam Smith declares
 that there is no supply in societies based on this mode of production.
 He confuses the form of the supply with the supply itself and believes
 that society hitherto lived from hand to mouth or trusted to the hap of
 the morrow.[16] This is a naive misunderstanding.
This depends on various conditions, all of which practically amount
 to a demand for greater rapidity, regularity, and reliability in furnishing
 the necessary amount of raw material, so that no interruption will ever
 occur. The less these conditions are complied with, hence the less rapid,
 regular and reliable the supplies, the greater must be the latent part
 of the productive capital, that is to say, the supply of raw material,
 etc., in the hands of the producer waiting to be worked up. These conditions
 are inversely proportional to the degree of development of capitalist production,
 and hence of the productive power of social labour. The same applies therefore
 to the supply in this form.
With the development of capitalist production, the scale of production
 is determined less and less by the direct demand for the product and more
 and more by the amount of capital available in the hands of the individual
 capitalist, by the urge of self-expansion inherent in his capital and by
 the need of continuity and expansion of the process of production. Thus
 in each particular branch of production there is a necessary increase in
 the mass of products available in the market in the shape of commodities,
 i.e., in search of buyers. The amount of capital fixed for a shorter or
 longer period in the form of commodity-capital grows. Hence the commodity-supply
 also grows.
Finally the majority of the members of society are transformed
 into wage-labourers, into people who live from hand to mouth, who receive
 their wages weekly and spend them daily, who therefore must have their
 means of subsistence made available to them in the shape of a supply. Although
 the separate elements of this supply may be in continuous flow, a part
 of them must always stagnate in order that the supply as a whole may remain
 in a state of flux.
All these characteristics have their origin in the form of production
 and in the incident change of form which the product must undergo in the
 process of circulation.
Whatever may be the social form of the products-supply, its preservation
 requires outlays for buildings, vessels, etc., which are facilities for
 storing the product; also for means of production and labour, more or less
 of which must be expended, according to the nature of the product, in order
 to combat injurious influences. The more concentrated socially the supply
 is, the smaller relatively are the costs. These outlays always constitute
 a part of the social labour, in either materialised or living form — hence
 in the capitalist form outlays of capital — which do not enter into the
 formation of the product itself and thus are deductions from the product.
 They are necessary, these unproductive expenses of social wealth. They
 are the costs of preserving the social product regardless of whether its
 existence as an element of the commodity-supply stems merely from the social
 form of production, hence from the commodity-form and its necessary change
 of form, or whether we regard the commodity-supply merely as a special
 form of the supply of products, which is common to all societies, although
 not in the form of a commodity-supply that form of products-supply
 belonging in the process of circulation.
It may now be asked to what extent these costs enhance the value
 of commodities.
If the capitalist has converted the capital advanced by him in the form of means of production and labour-power into a product, into a definite quantity of commodities ready for sale, and these commodities remain in stock unsold, then we have a case of not only the stagnation of the process of self-expansion of his capital-value during this period. The costs of preserving this supply in buildings, of additional labour,
 etc., mean a positive loss. The buyer he would ultimately find would laugh
 in his face if he were to say to him: “I could not sell my goods for six
 months, and their preservation during that period did not only keep so
 and so much of my capital idle, but also cost me so and so much extra expense.”
 “Tant pis pour vous!” the buyer would say. “Right here alongside of you is another seller whose wares were completed only the day before
 yesterday. Your articles are shop-worn and probably more or less damaged
 by the ravages of time. Therefore you will have to sell cheaper than your
 competitor.”
The conditions under which a commodity exists are not in the
 least affected by whether its producer is the real producer or a capitalist
 producer, hence actually only a representative of the real producer. He
 has to turn his product into money. The expenses incurred by him because
 of the fixation of the product in the form of commodities are a part of
 his individual speculations with which the buyer of the commodities has
 no concern. The latter does not pay him for the time of circulation of
 his commodities. Even when the capitalist keeps his goods intentionally
 off the market, in times of an actual or anticipated revolution of values,
 it depends on the advent of this revolution of values, on the correctness
 or incorrectness of his speculation, whether he will recover his additional
 costs or not. But the revolution in values does not ensue in consequence
 of his additional costs. Hence in so far as the formation of a supply entails
 a stagnation of circulation, the expense incurred thereby does not add
 to the value of the commodities. On the other hand there cannot be any
 supply without a stay in the sphere of circulation, without capital staying
 for a longer or shorter time in its commodity-form; hence no supply without
 stagnation of circulation, just as no money can circulate without the formation
 of a money-reserve. Hence no commodity circulation without commodity-supply.
 If the capitalist does not come face to face with this necessity in C' — M',
 he will encounter it in M — C; if not with regard to his own commodity-capital,
 then with regard to that of other capitalists, who produce means of production
 for him and means of subsistence for his labourers.
Whether the formation of a supply is voluntary or involuntary,
 that is to say, whether the commodity-producer keeps a supply intentionally
 or whether his products form a supply in consequence of the sales resistance
 offered by the conditions of the process of circulation itself cannot effect
 the matter essentially, it would seem. But for the solution of this problem
 it is useful to know what distinguishes voluntary from involuntary supply
 formation. Involuntary formation arises from, or is identical with, a stagnation
 of the circulation which is independent of the knowledge of the commodity-producer
 and thwarts his will. And what characterises the voluntary formation of
 a supply? In both instances the seller seeks to get rid of his commodity
 as fast as ever. He always offers his product for sale as a commodity.
 If he were to withdraw it from sale, it would be only a potential (δυνάμει), not
 an actual (έναγεία) element of the commodity-supply. To him the commodity as such is as much a depository of exchange-value as ever and as such can act only by and after stripping off its commodity-form and assuming the money-form.
It must be remembered that C' — M' may have been transacted for
 the producer of C, even if C is still in the market. If the producer were
 to keep his own commodities in stock until they are sold to the ultimate
 consumer, he would have to set two capitals in motion, one as the producer
 of the commodities and one as a merchant. As far as the commodity itself
 is concerned, whether we look upon it as an individual commodity or as
 a component part of social capital, it is immaterial whether the costs
 of forming the supply must be borne by its producer or by a series of merchants
 from A to Z.
Since the commodity-supply is nothing but the commodity-form of
 the product which at a particular level of social production would exist
 either as a productive supply (latent production fund) or as a consumption-fund
 (reserve of means of consumption) if it did not exist as a commodity-supply,
 the expenses required for its preservation, that is, the costs of supply
 formation — i.e., materialised or living labour spent for this purpose
 — are merely expenses incurred for maintaining either the social fund
 for production or the social fund for consumption. The increase in the
 value of commodities caused by them distributes these costs simply pro
 rata over the different commodities, since the costs differ with different
 kinds of commodities. And the costs of supply formation are as much as
 ever deductions from the social wealth, although they constitute one of
 the conditions of its existence.
The costs of supply formation consist: 1) of a quantitative diminution
 of the mass of the products (for instance in the case of a flour supply;
 2) of a deterioration of quality; 3) of the materialised and living labour
 required for the preservation of the supply.
Within the circuit of capital and the metamorphosis of commodities,
 which forms a part of the circuit, an interchange of matter takes place
 in social labour. This interchange of matter may necessitate a change of
 location of products, their real motion from one place to another. Still,
 circulation of commodities can take place without physical motion by them,
 and there can be transportation of products without circulation of commodities,
 and even without a direct exchange of products. A house sold by A to B
 does not wander from one place to another, although it circulates as a
 commodity. Movable commodity-values, such as cotton or pig iron, may lie
 in the same storage dump at a time when they are passing through dozens
 of circulation processes, are bought and resold by speculators.[17]
 
 What really does move here is the title of ownership in goods, not the
 goods themselves. On the other hand, transportation played a prominent
 role in the land of the Incas, although the social product neither circulated
 as a commodity nor was distributed by means of barter.
Consequently, although the transportation industry when based
 on capitalist production appears as a cause of circulation costs, this
 special form of appearance does not alter the matter in the least.
Quantities of products are not increased by transportation. Nor,
 with a few exceptions, is the possible alteration of their natural qualities,
 brought about by transportation, an intentional useful effect; it is rather
 an unavoidable evil. But the use-value of things is materialised only in
 their consumption, and their consumption may necessitate a change of location
 of these things, hence may require an additional process of production,
 in the transport industry. The productive capital invested in this industry
 imparts value to the transported products, partly by transferring value
 from the means of transportation, partly by adding value through the labour
 performed in transport. This last-named increment of value consists, as
 it does in all capitalist production, of a replacement of wages and of
 surplus-value.
Within each process of production, a great role is played by the
 change of location of the subject of labour and the required instruments
 of labour and labour-power — such as cotton trucked from the carding to
 the spinning room or coal hoisted from the shaft to the surface. The transition
 of the finished product as finished goods from one independent place of
 production to another located at a distance shows the same phenomenon,
 only on a larger scale. The transport of products from one productive establishment
 to another is furthermore followed by the passage of the finished products
 from the sphere of production to that of consumption. The product is not
 ready for consumption until it has completed these movements.
As was shown above, the general law of commodity production holds:
 The productivity of labour is inversely proportional to the value created
 by it. This is true of the transport industry as well as of any other.
 The smaller the amount of dead and living labour required for the transportation
 of commodities over a certain distance, the greater the productive power
 of labour, and vice versa.[18]
The absolute magnitude of the value which transportation adds
 to the commodities stands in inverse proportion to the productive power
 of the transport industry and in direct proportion to the distance traveled,
 other conditions remaining the same.
The relative part of the value added to the prices of commodities by the
 costs of transportation, other conditions remaining the same, is directly
 proportional to their cubic content and weight, and inversely proportional
 to their value. But there are many modifying factors. Transportation requires,
 for instance, more or less important precautionary measures, and therefore
 more or less expenditure of labour and instruments of labour, depending
 on how fragile, perishable, explosive, etc., the articles are. Here the
 railway kings show greater ingenuity in the invention of fantastic species
 than do botanists and zoologists. The classification of goods on English
 railways, for example, fills volumes and, in principle, rests on the general
 tendency to transform the diversified natural properties of goods into
 just as many ills of transportation and routine pretexts for fraudulent
 charges.
The fact that furthermore the part of the value added to an article by
 the costs of transportation is inversely proportional to its value furnishes
 special grounds to the railway kings to tax articles in direct proportion
 to their values. The complaints of the industrialists and merchants on
 this score are found on every page of the testimony given in the report
 quoted.
The capitalist mode of production reduces the costs of transportation
 of the individual commodity by the development of the means of transportation
 and communication, as well as by concentration — increasing scale — of
 transportation. It increases that part of the living and materialised social
 labour which is expended in the transport of commodities, firstly by converting
 the great majority of all products into commodities, secondly, by substituting
 distant for local markets.
The circulation, i.e., the actual locomotion of commodities in
 space, resolves itself into the transport of commodities. The transport
 industry forms on the one hand an independent branch of production and
 thus a separate sphere of investment of productive capital. On the other
 hand its distinguishing feature is that it appears as a continuation of
 a process of production within the process of circulation and for
 the process of circulation.
The compelling motive of capitalist production is always the creation of surplus-value by means of the advanced value, no matter whether this value is advanced in its independent form, i.e., in the money-form, or in commodities, in which case its value-form possesses only ideal independence in the price of the advanced commodities. In both cases this capital-value passes through various forms of existence during its circular movement. Its identity with itself is fixed in the books of the capitalists, or in the form of money of account.
Whether we take the form of M ... M' or the form P ... P, the implication is (1) that the advanced value performs the function of capital-value and has created surplus-value; (2) that after completing its process it has returned to the form in which it began it. The self-expansion of the advanced value M and at the same time the return of capital to this form (the money-form) is plainly visible in M ... M'. But the same takes place in the second form. For the starting-point of P is the existence of the elements of production, of commodities having a given value. The form includes the self-expansion of this value (C' and M') and the return to the original form, for in the second P the advanced value has again the form of the elements of production in which it was originally advanced.
We have seen previously: “If production be capitalistic in form, so, too, will be reproduction. Just as in the former the labour-process figures but as a means towards the self-expansion of capital, so in the latter it figures but as a means of reproducing as capital — i.e., as self-expanding value — the value advanced.” (Buch I, Kap. XXI, S. 588.) [English edition: Ch. XXIII, p. 566. — Ed.]
Economists have little distinguished between the different forms of circuits, nor have they examined them individually with relation to the turnover of capital. They generally consider the form M ... M', because it dominates the individual capitalist and aids him in his calculations, even if money is the starting-point only in the shape of money of account. Others start with outlays in the form of elements of production to the point when returns are received, without alluding at all to the form of the returns, whether made in commodities or money. For instance,
Others begin with C' (the third form): Says Th. Chalmers, in his work On Political Economy, 2nd ed., Glasgow, 1832, p. 85 et seq.:
As soon as the entire capital-value invested by some individual capitalist in any branch of production whatever has described its circuit, it finds itself once more in its initial form and can now repeat the same process. It must repeat it, if the value is to perpetuate itself as a capital-value and to create surplus-value. An individual circuit is but a constantly repeated section in the life of a capital; hence a period. At the end of the period M ... M' capital has once more the form of money-capital, which passes anew through that series of changes of form in which its process of reproduction, or self-expansion, is included. At the end of the period P ... P capital resumes the form of elements of production, which are the prerequisites for a renewal of its circuit. A circuit performed by a capital and meant to be a periodical process, not an individual act, is called its turnover. The duration of this turnover is determined by the sum of its time of production and its time of circulation. This time total constitutes the time of turnover of the capital. It measures the interval of time between one circuit period of the entire capital-value and the next, the periodicity in the process of life of capital or, if you like, the time of the renewal, the repetition, of the process of self-expansion, or production, of one and the same capital-value.
Apart from the individual adventures which may accelerate or shorten the time of turnover of certain capitals, this time differs in the different spheres of investment. Just as the working day is the natural unit for measuring the function of labour-power, so the year is the natural unit for measuring the turnovers of functioning capital. The natural basis of this unit is the circumstance that the most important crops of the temperate zone, which is the mother country of capitalist production, are annual products. If we designate the year as the unit of measure of the turnover time by T, the time of turnover of a given capital by t, and the number of its turnovers by n, then n = T/t. If, for instance, the time of turnover t is 3 months, then n is equal to 12/3, or 4; capital is turned over four times per year. If t = 18 months, then n = 12/18 = ⅔, or capital completes only two-thirds of its turnover in one year. If its time of turnover is several years, it is computed in multiples of one year.
From the point of view of the capitalist, the time of turnover of his capital is the time for which he must advance his capital in order to create surplus-value with it and receive it back in its original shape.
Before examining more closely the influence of the turnover on the processes of production and self-expansion, we must investigate two new forms which accrue to capital from the process of circulation and affect the form of its turnover.
This, then, is the peculiarity of this part of constant capital, of the labour instruments proper:
This portion of the capital-value fixed in the instrument of labour circulates as well as any other. We have seen in general that all capital-value is constantly in circulation, and that in this sense all capital is circulating capital. But the circulation of the portion of capital which we are now studying is peculiar. In the first place it does not circulate in its use-form, but it is merely its value that circulates, and this takes place gradually, piecemeal, in proportion as it passes from it to the product, which circulates as a commodity. During the entire period of its functioning, a part of its value always remain fixed in it, independently of the commodities which it helps to produce. It is this peculiarity which gives to this portion of constant capital the form of fixed capital. All the other material parts of capital advanced in the process of production form by way of contrast the circulating, or fluid, capital.
Some means of production do not enter materially into the product. Such are auxiliary materials, which are consumed by the instruments of labour themselves in the performance of their functions, like coal consumed by a steam-engine; or which merely assist in the operation, like gas for lighting, etc. It is only their value which forms a part of the value of the products. The product circulates in its own circulation the value of these means of production. This feature they have in common with fixed capital. But they are entirely consumed in every labour-process which they enter and must therefore be wholly replaced by new means of production of the same kind in every new labour-process. They do not preserve their independent use-form while performing their function. Hence while they function no portion of capital-value remains fixed in their old use-form, their bodily form, either. The circumstance that this portion of the auxiliary materials does not pass bodily into the product but enters into the value of the product only according to its own value, as a portion of that value, and what hangs together with this, namely, that the function of these substances is strictly confined to the sphere of production, has misled economists like Ramsay (who at the same time got fixed capital mixed up with constant capital) to classify them as fixed capital. [Karl Marx, Theorien über den Mehrwert (Vierter Band des Kapitals), 3. Teil, Berlin, 1962, SS. 323-25. — Ed.]
That part of the means of production which bodily enters into the product, i.e., raw materials, etc., thus assumes in part forms which enable it later to enter into individual consumption as articles of use. The instruments of labour properly so called, the material vehicles of the fixed capital, are consumed only productively and cannot enter into individual consumption, because they do not enter into the product, or the use-value, which they held to create but retain their independent form with reference to it until they are completely worn out. The means of transportation are an exception to this rule. The useful effect which they produce during the performance of their productive function, hence during their stay in the sphere of production, the change of location, passes simultaneously into the individual use in the same way in which he pays for the use of other articles of consumption. We have seen [Karl Marx, Capital, Vol. I, pp. 181-82. — Ed.] that for instance in chemical manufacture raw and auxiliary materials blend. The same applies to instruments of labour and auxiliary and raw materials. Similarly in agriculture the substances added for the improvement of the soil pass partly into the plants raised and help to form the product. On the other hand their effect is distributed over a lengthy period, say four or five years. A portion of them therefore passes bodily into the product and thus transfers its value to the product while the other portion remains fixed in its old use-form and retains its value. It persists as a means of production and consequently keeps the form of fixed capital. As a beast of toil an ox is fixed capital. If he is eaten, he no longer functions as an instrument of labour, nor as fixed capital either.
What determines that a portion of the capital-value invested in means of production is endowed with the character of fixed capital is exclusively the peculiar manner in which this value circulates. This specific manner of circulation arises from the specific manner in which the instrument of labour transmits its value to the product, or in which it behaves as a creator of values during the process of production. This manner again arises from the special way in which the instruments of labour function in the labour-process.
We know that a use-value which emerges as a product from one labour-process enters into another as a means of production. [Karl Marx, Capital, Vol. I, p. 181. — Ed.] It is only the functioning of a product as an instrument of labour in the process of production that makes it fixed capital. But when it itself only just emerges from a process, it is by no means fixed capital. For instance a machine, as a product or commodity of the machine-manufacturer, belongs to his commodity-capital. It does not become fixed capital until it is employed productively in the hands of its purchaser, the capitalist.
All other circumstances being equal, the degree of fixity increases with the durability of the instrument of labour. It is this durability that determines the magnitude of the difference between the capital-value fixed in instruments of labour and that part of its value which it yields to the product in repeated labour-processes. The slower this value is yielded — and value is given up by the instrument of labour in every repetition of the labour-process — the larger is the fixed capital and the greater the difference between the capital employed in the process of production and the capital consumed in it. As soon as this difference has disappeared the instrument of labour has outlived its usefulness and has lost with its use-value also its value. It has ceased to be the depository of value. Since an instrument of labour, like every other material carrier of constant capital, parts with value to the product only to the extent that together with its use-value it loses its value, it is evident that the more slowly its use-value is lost, the longer it lasts in the process of production, the longer is the period in which constant capital-value remains fixed in it.
If a means of production which is not an instrument of labour strictly speaking, such as auxiliary substances, raw material, partly finished articles, etc., behaves with regard to value yield and hence manner of circulation of its value in the same way as the instruments of labour, then it is likewise a material depository, a form of existence, of fixed capital. This is the case with the above-mentioned improvements of the soil, which add to it chemical substances whose influence is distributed over several periods of production or years. Here a portion of the value continues to exist alongside the product, in its independent form or in the form of fixed capital, while the other portion of the value has been delivered to the product and therefore circulates with it. In this case it is not alone a portion of the value of the fixed capital which enters into the product, but also the use-value, the substance, in which this portion of value exists.
Apart from the fundamental mistake — the mixing up of the categories “fixed” and “circulating capital” with the categories “constant” and “variable capital” — the confusion of the economists hitherto in the definitions of concepts is based first of all on the following points:
One turns certain properties materially inherent in instruments of labour into direct properties of fixed capital; for instance physical immobility, say, of a house. However it is always easy to prove in such case that other instruments of labour, which as such are likewise fixed capital, possess the opposite property: for instance physical mobility, say, of a ship.
Or one confuses the economic definiteness of form which arises from the circulation of value with an objective property; as if objects which in themselves are not capital at all but rather become so only under definite social conditions could in themselves and in their very nature be capital in some definite form, fixed or circulating. We have seen (Buch I, Kap. V) [English edition: Ch. VII. — Ed.] that the means of production in every labour-process, regardless of the social conditions in which it takes place, are divided into instruments of labour and subjects of labour. But both of them become capital only under the capitalist mode of production, when they become “productive capital,” as shown in the preceding part. Thus the distinction between instruments of labour and subject of labour, which is grounded on the nature of the labour-process, is reflected in a new form: the distinction between fixed capital and circulating capital. It is only then that a thing which performs the function of an instrument of labour becomes fixed capital. If owing to its material properties it can function also in other capacities than that of instrument of labour, it may be fixed capital or not, depending on the specific function it performs. Cattle as beasts of toil are fixed capital; as beef cattle they are raw material which finally enters into circulation as a product; hence they are circulating, not fixed capital.
The mere fixation of a means of production for a considerable length of time in repeated labour-processes, which however are connected, continuous, and therefore form a production period — i.e., the entire time of production required to finish a certain product — obliges the capitalist, just as fixed capital does, to make his advances for a longer or shorter term, but this does not make his capital fixed capital. Seeds for instance are not fixed capital, but only raw material which is held for about a year in the process of production. All capital is held in the process of production so long as it functions as productive capital, and so are therefore all elements of productive capital, whatever their material forms, their functions and the modes of circulation of their values. Whether this period of fixation lasts a long or a short time — a matter depending on the kind of process of production involved or the useful effect aimed at — this does not effect the distinction between fixed and circulating capital.[20]
A part of the instruments of labour, which includes the general instruments of labour, is either localised as soon as it enters the process of production as an instrument of labour, i.e., is prepared for its productive function, such as for instance machinery, or is produced from the outset in its immovable, localised form, such as improvements of the soil, factory buildings, blast furnaces, canals, railways, etc. The constant attachment of the instrument of labour to the process of production in which it is to function is here also due to its physical mode of existence. On the other hand an instrument of labour may physically change continually from place to place, may move about, and nevertheless be constantly in the process of production; for instance a locomotive, a ship, beasts of burden, etc. Neither does immobility in the one case bestow upon it the character of fixed capital, nor does mobility in the other case deprive it of this character. But the fact that some instruments of labour are localised, attached to the soil by their roots, assigns to this portion of fixed capital a peculiar role in the economy of nations. They cannot be sent abroad, cannot circulate as commodities in the world-market. Title to this fixed capital may change, it may be bought and sold, and to this extent may circulate ideally. These titles of ownership may even circulate in foreign markets, for instance in the form of stocks. But a change of the persons owning this class of fixed capital does not alter the relation of the immovable, materially fixed part of the national wealth to its immovable part.[21]
The remaining elements of productive capital consist partly of those elements of constant capital which exist as auxiliary and raw materials, partly of variable capital invested in labour-power.
The analysis of the labour-process and of the process of producing surplus-value (Buch I, Kap. V) [English edition: Ch. VII. — Ed.] showed that these different components behave quite differently as creators of products and as creators of values. The value of that part of constant capital which consists of auxiliary and raw materials — the same as of that part which consists of instruments of labour — re-appears in the value of the product as only transferred value, while labour-power adds an equivalent of its value to the product by means of the labour-process, in other words, actually reproduces its value. Furthermore, one part of the auxiliary substances — fuel, lighting gas, etc. — is consumed in the process of labour without entering bodily into the product, while the other part of them enters bodily into the product and forms its material substance. But all these differences are immaterial so far as the circulation and therefore the mode of turnover is concerned. Since auxiliary and raw materials are entirely consumed in the creation of the product, they transfer their value entirely to the product. Hence this value is circulated in its entirety by the product, transforms itself into money and from money back into the elements of production of the commodity. Its turnover is not interrupted, as is that of fixed capital, but passes uninterruptedly through the entire circuit of its forms, so that these elements of productive capital are continually renewed in kind.
As for the variable component of productive capital, which is invested in labour-power, be it noted that labour-power is purchased for a definite period of time. As soon as the capitalist has bought it and embodied it in the process of production, it forms a component part of his capital, its variable component. Labour-power acts daily during the period of time in which it adds to the product not only its own value for the whole day but also a surplus-value in excess of it. We shall not consider this surplus-value for the present. After labour-power has been bought and it has performed its function, say for a week, its purchase must be constantly renewed within the customary intervals of time. The equivalent of its value, which the labour-power adds to the product during its functioning and which is transformed into money in consequence of the circulation of the product, must continually be reconverted from money into labour-power or continually pass through the complete circuit of its forms, that is, must be turned over, if the circuit of continuous production is not to be interrupted.
Hence that part of the value of the productive capital which has been advanced for labour-power is entirely transferred to the product (we constantly leave the question of surplus-value out of consideration here), passes with it through the two metamorphoses belonging in the sphere of circulation and always remains incorporated in the process of production by virtue of this continuous renewal. Hence, however different otherwise may be the relation between labour-power, so far as the creation of value is concerned, and the component parts of constant capital which do not constitute fixed capital, this kind of turnover of its value labour-power shares with them, in contradistinction to fixed capital. These components of the productive capital — the parts of its value invested in labour-power and in means of production which do not constitute fixed capital — by reason of their common turnover characteristics confront the fixed capital as circulating or fluent capital.
The value of the circulating capital — in labour-power and means of production — is advanced only for the time during which the product is in process of production, in accordance with the scale of production determined by the volume of the fixed capital. This value enters entirely into the product, is therefore fully returned by its sale from the sphere of circulation, and can be advanced anew. The labour-power and means of production, in which the circulating component of capital exists, are withdrawn from circulation to the extent required for the creation and sale of the finished product, but they must be continually replaced and renewed by purchasing them back, by reconverting them from the money-form into the elements of production. They are withdrawn from the market in smaller quantities at a time than the elements of fixed capital, but they must be withdrawn again from it so much the more frequently and the advance of capital invested in them must be renewed at shorter intervals. This constant renewal is effected by the continuous conversion of the product which circulates their entire value. And finally, they pass through the entire circuit of metamorphoses, not only so far as their value is concerned but also their material form. They are perpetually reconverted from commodities into the elements of production of the same commodities.
Together with its own value, labour-power always adds to the product surplus-value, the embodiment of unpaid labour. This is continuously circulated by the finished product and converted into money just as are other elements of its value. But here, where we are primarily concerned with the turnover of capital-value, and not with that of the surplus-value occurring at the same time, we dismiss the latter for the present.
From the foregoing one may conclude the following:
2. The turnover of the fixed component part of capital, and therefore also the time of turnover necessary for it, comprises several turnovers of the circulating constituents of capital. In the time during which the fixed capital turns over once, the circulating capital turns over several times. One of the component parts of the value of the productive capital acquires the definiteness of form of fixed capital only in case the means of production in which it exists is not wholly worn out in the time required for the fabrication of the product and its expulsion from the process of production as a commodity. One part of its value must remain tied up in the form of the still preserved old use-form, while the other part is circulated by the finished product, and this circulation on the contrary simultaneously circulates the entire value of the fluent component parts of the capital.
3. The value-part of the productive capital, the part invested in fixed capital, is advanced in one lump sum for the entire period of employment of that part of the means of production of which the fixed capital consists. Hence this value is thrown into the circulation by the capitalist all at one time. But it is withdrawn again from the circulation only piecemeal and gradually by realising the parts of value which the fixed capital adds piecemeal to the commodities. On the other hand the means of production themselves, in which a component part of the productive capital becomes fixed, are withdrawn from the circulation all at one time to be embodied in the process of production for the entire period in which they function. But they do not require for this period any replacement by new samples of the same kind, do not require reproduction. They continue for a longer or shorter period to contribute to the creation of the commodities thrown into circulation without withdrawing from circulation the elements of their own renewal. Hence they do not require from the capitalist a renewal of his advance during this period. Finally the capital-value invested in fixed capital does not pass bodily through the circuit of its forms, during the functioning period of the means of production in which this capital-value exists, but only as concerns its value, and even this it does only parts and gradually. In other words, a portion of its value is continually circulated and converted into money as a part of the value of the commodities, without being reconverted from money into its original bodily form. This reconversion of money into the bodily form of the means of production does not take place until the end of its functioning period, when the means of production has been completely consumed.
4. The elements of circulating capital are as permanently fixed in the process of production — if it is to be uninterrupted — as the elements of fixed capital. But the elements of circulating capital thus fixed are continually renewed in kind (the means of production by new products of the same kind, labour-power by constantly renewed purchases) while in the case of the elements of fixed capital neither they themselves are renewed nor need their purchases be renewed so long as they continue to exist. There are always raw and auxiliary materials in the process of production, but always new products of the same kind, after the old elements have been consumed in the creation of the finished product. Labour-power likewise always exists in the process of production, but only by means of ever new purchases, frequently involving changes of persons. But the same identical buildings, machines, etc., continue to function, during repeated turnovers of the circulating capital, in the same repeated processes of production.
Originally in the construction of modern railways it was the prevailing opinion, nursed by the most prominent practical engineers, that a railway would last a century and that the wear and tear of the rails was so imperceptible that it could be ignored for all financial and other practical purposes; 100 to 150 years was supposed to be the life of good rails. But it was soon found that the life of a rail, which naturally depends on the speed of the locomotives, the weight and number of trains, the diameter of the rails, and on a multitude of other attendant circumstances, did not exceed an average of 20 years. In some railway terminals, great traffic centres, the rails even wear out every year. About 1867 began the introduction of steel rails, which cost about twice as much as iron rails but which last more than twice as long. The life-time of wooden sleepers was from 12 to 15 years. It was also ascertained with regard to the rolling stock that freight cars wear out faster than passenger cars. The life of a locomotive was estimated in 1867 to be about 10 to 12 years.
The wear and tear is first of all a result of use. As a rule “the wear of the rails is proportionate to the number of trains.” (R.C., No. 17645.)[22] With increased speed the wear and tear of a railway increased in a higher ratio than the square of the speed; that is to say, if you doubled the speed of the engine, you more than quadrupled the cost of wear and tear of the road. (R.C., No. 17046.)
Wear and tear is furthermore caused by the action of natural forces. For instance sleepers suffer not only from actual wear but also from rot.
Finally, here as everywhere else in modern industry, the moral depreciation plays a role. After the lapse of ten years, one can generally buy the same number of cars and locomotives for £30,000 that would previously have cost £40,000. Depreciation in the rolling stock must be set at 25 per cent of the market price even when there is no depreciation whatever in its use-values. (Lardner, Railway Economy.)
(Because now there are better forms for such bridges.)
The instruments of labour are largely modified all the time by the progress of industry. Hence they are not replaced in their original, but in their modified form. On the one hand the mass of the fixed capital invested in a certain bodily form and endowed in that form with a certain average life constitutes one reason for the only gradual pace of the introduction of new machinery, etc., and therefore an obstacle to the rapid general introduction of improved instruments of labour. On the other hand competition compels the replacement of the old instruments of labour by new ones before the expiration of their natural life, especially when decisive changes occur. Such premature renewals of factory equipment on a rather large social scale are mainly enforced by catastrophes or crises.
By wear and tear (moral depreciation excepted) is meant that part of value which the fixed capital, on being used, gradually transmits to the product, in proportion to its average loss of use-value.
This wear and tear takes place partly in such a way that the fixed capital has a certain average durability. It is advanced for this entire period in one sum. After the termination of this period it must be totally replaced. So far as living instruments of labour are concerned, for instance horses, their reproduction is timed by nature itself. Their average lifetime as instruments of labour is determined by laws of nature. As soon as this term has expired they must be replaced by new ones. A horse cannot be replaced piecemeal; it must be replaced by another horse.
Other elements of fixed capital permit of a periodical or partial renewal. In this instance partial or periodical replacement must be distinguished from gradual extension of the business.
The fixed capital consists in part of homogeneous constituents which do not however last the same length of time but are renewed piecemeal at various intervals. This is true for instance of the rails and railway stations, which must be replaced more often than those of the remainder of the trackage. It also applies to the sleepers, which on the Belgian railways had to be renewed in the forties at the rate of 8 per cent annually, according to Lardner, so that all the sleepers were renewed in the course of 12½ years. Hence we have here the following situation: a certain sum is advanced for a certain kind of fixed capital for say ten years. This expenditure is made at one time. But a definite part of this fixed capital, the value of which has entered into the value of the product and been converted with it into money, is replaced in kind every year, while the remainder continues to exist in its original body form. It is this advance in one sum and the only partial reproduction in bodily form which distinguish this capital, as fixed, from circulating capital.
Other pieces of the fixed capital consist of heterogeneous components, which wear out in unequal periods of time and must so be replaced. This applies particularly to machines. What we have just said concerning the different durabilities of different constituent parts of a fixed capital applies in this case to the durability of different component parts of any machine figuring as a piece of this fixed capital.
With regard to the gradual extension of the business in the course of the partial renewal, we make the following remarks: Although, as we have seen, the fixed capital continues to perform its functions in the process of production in kind, a part of its value, proportionate to the average wear and tear, has circulated with the product, has been converted into money, and forms an element in the money reserve fund intended for the replacement of the capital pending its reproduction in kind. This part of the value of the fixed capital transformed into money may serve to extend the business or to make improvements in the machinery which will increase the efficiency of the latter. Thus reproduction takes place in larger or smaller periods of time, and this is, from the standpoint of society, reproduction on an enlarged scale — extensive if the means of production is extended; intensive if the means of production is made more effective. This reproduction on an extended scale does not result from accumulation — transformation of surplus-value into capital — but from the reconversion of the value which has branched off, detached itself in the form of money from the body of the fixed capital into new additional or at least more effective fixed capital of the same kind. Of course it depends partly on the specific nature of the business, to what extent and in what proportions it is capable of such gradual addition, hence also in what amount a reserve fund must be collected to be reinvested in this way, and what period of time this requires. To what extent furthermore improvements in the details of existing machinery can be made, depends of course on the nature of these improvements and the construction of the machine itself. How well this point is considered at the very outset in the construction of railways is shown by Adams:
This depends largely on the available space. In the case of some buildings additional storeys may be built; in the case of others lateral extension, hence more land, is required. Within capitalist production there is on the one side much waste of material, on the other much impracticable lateral extension of this sort (partly to the injury of the labour-power) in the gradual expansion of the business, because nothing is undertaken according to a social plan, but everything depends on the infinitely different conditions, means, etc., with which the individual capitalist operates. This results in a great waste of the productive forces.
This piecemeal reinvestment of the money reserve fund (i.e., of that part of the fixed capital which has been reconverted into money) is easiest in agriculture. A field of production of a given area is here capable of the greatest possible gradual absorption of capital. The same applies to where there is natural reproduction as in cattle breeding.
Fixed capital entails special maintenance costs. A part of this maintenance is provided by the labour-process itself; fixed capital spoils, if it is not employed in the labour-process (Buch I, Kap. VI, S. 196 and Kap. XIII, S. 423, [English edition: Ch. VIII and XV. — Ed.] on wear and tear of machinery when not in use). The English law therefore explicitly treats it as waste, if rented lands are not cultivated according to the custom of the land. (W. A. Holdsworth, Barrister at Law, The Law of Landlord and Tenant, London, 1857, p. 96.)
This maintenance resulting from use in the labour-process is a free gift inherent in the nature of living labour. Moreover the preservative power of labour is of a two-fold character. On the one hand it preserves the value of the materials of labour by transferring it to the product, on the other hand it preserves the value of the instruments of labour without transferring this value to the product, by preserving their use-value through their activity in the process of production.
The actual repairs or patchwork require expenditures of capital and labour which are not contained in the originally advanced capital and cannot therefore be replaced and covered, at least not always, by the gradual replacement of the value of the fixed capital. For instance if the value of the fixed capital is £10,000 and its total life of 10 years, then these £10,000, having been entirely converted into money after the lapse of ten years, will replace only the value of the capital originally invested, but they do not replace the capital, or labour, added in the meantime for repairs. This is an additional component part of the value, which is not advanced all at one time but whenever a need for it arises, and the various times for advancing it are in the very nature of things accidental. All fixed capital demands such subsequent, dosed out, additional outlay of capital for instruments of labour and labour-power.
The damage which separate parts of the machinery, etc., may incur is naturally accidental and so are therefore the repairs involved. Nevertheless two kinds of repairs are to be distinguished in the general mass, which are of a more or less fixed character and fall within various periods of the life of fixed capital. These are the ailments of childhood and the far more numerous ailments of the post-middle durability period. A machine for instance may be commissioned in ever so perfect a condition, still actual use will reveal shortcomings which must be remedied by subsequent labour. On the other hand the more a machine passes beyond the mid-durability point, the more therefore the normal wear and tear has accumulated and the more the material of which it consists has been worn out and become decrepit, the more numerous and considerable will be the repairs required to keep it going for the remainder of its average durability. It is the same with an old man, who incurs more medical expenses to keep from dying prematurely than a young and strong man. So in spite of its accidental character repair work is unevenly distributed over the various periods of life of fixed capital.
From the foregoing and from the generally accidental character of repair work on machines its follows:
In one respect the actual expenditure of labour-power and instruments of labour on repairs is accidental, like the circumstances which necessitate these repairs; the amount of the repairs needed is unevenly distributed over the different periods of fixed capital’s life. In other respects it is taken for granted in estimating the average life of fixed capital that it is constantly kept in good working order, partly by cleaning (including the cleaning of the premises), partly by repairs as often as required. The transfer of value through wear and tear of fixed capital is calculated on its average life, but this average life itself is based on the assumption that the additional capital required for maintenance purposes is continually advanced.
But then it is also evident that the value added by this extra expenditure of capital and labour cannot enter into the price of the commodities concerned at the same time as it is incurred. For example, a manufacturer of yarn cannot sell his yarn dearer this week than last, merely because one of his wheels broke or a belt tore this week. The general costs of spinning have not been changed in any way by this accident in some individual factory. Here, as in all determinations of value, the average decides. Experience shows the average occurrence of such accidents and the average volume of the maintenance and repair work necessary during the average life of the fixed capital invested in a given branch of business. This average expense is distributed over the average life and added to the price of the product in corresponding aliquot parts; hence it is replaced by means of its sale.
The additional capital which is thus replaced belongs to the circulating capital, although the manner of its expenditure is irregular. As it is of paramount importance to remedy every damage to machinery immediately, every comparatively large factory employs in addition to the regular factory force special personnel — engineers, carpenters, mechanics, locksmiths, etc. Their wages are a part of the variable capital and the value of their labour is distributed over the product. On the other hand the expenses for means of production are calculated on the basis of the above-mentioned average, according to which they form continually a part of the value of the product, although they are actually advanced in irregular periods and therefore enter into the product or the fixed capital in irregular periods. This capital, expended in repairs properly so called, is in many respects a capital sui generis, which can be classed neither as circulating nor as fixed capital, but belongs with greater justification to the former, since it figures among the running expenses.
The manner of book-keeping does not of course change in any way the actual state of affairs booked. But it is important to note that customarily many lines of business figure the costs of repairs together with the actual wear and tear of the fixed capital in the following manner: Let the advanced fixed capital be £10,000 and its durability 15 years. The annual wear and tear is then £666⅔. But the depreciation is calculated on a durability of only ten years; in other words, £1,000 are added annually to the price of the produced commodities for wear and tear of the fixed capital, instead of £666⅔. Thus £333⅓ are reserved for repairs, etc. (The figures 10 and 15 are chosen only by way of illustration.) This amount is spent on an average for repairs, so that the fixed capital may last 15 years. Such a calculation naturally does not prevent the fixed capital and the additional capital spent on repairs from belonging to different categories. On the strength of this mode of calculation it was assumed for instance that the lowest cost estimate for the maintenance and replacement of steamships was 15 per cent annually the time of reproduction being therefore 6⅔ years. In the sixties, the English government indemnified the Peninsular and Oriental Co. at the annual rate of 16 percent, corresponding to a reproduction time of 6¼ years. On railways the average life of a locomotive is 10 years, but the depreciation, counting in repairs is taken as 12½ per cent, which brings down its durability to 8 years. In the case of passenger and goods cars, the estimate is 9 per cent, or a durability of 11 1/9 years.
Legislation has everywhere drawn a distinction, in leases of houses and other objects which represent fixed capital to their owners and are leased as such, between normal depreciation, which is the result of time, the action of the elements, and normal wear on the one hand and on the other those occasional repairs which are required from time to time for maintenance during the normal life of the house and during its normal use. As a rule, the former are borne by the owner, the latter by the tenant. Repairs are further divided into ordinary and substantial ones. The last-named are partly a renewal of the fixed capital in its bodily form, and they fall likewise on the shoulders of the owner, unless the lease explicitly states the contrary. Take for instance the English law:
Entirely different from the replacement of wear and tear and from the work of maintenance and repair is insurance, which relates to destruction caused by extraordinary phenomena of nature, fire, flood, etc. This must be made good out of the surplus-value and is a deduction from it. Or, considered from the point of view of society as a whole, there must be continuous over-production, that is, production on a larger scale than is necessary for the simple replacement and reproduction of the existing wealth, quite apart from the increase in population, so as to be in possession of the means of production required to compensate for the extraordinary destruction caused by accidents and natural forces.
In point of fact only the smallest part of the capital needed for replacement consists of the money reserve fund. The most substantial part consists in the extension of the scale of production itself, which partly is actual expansion and partly belongs to the normal volume of production in those branches of industry which produce the fixed capital. For instance a machine factory must arrange things so that the factories of its customers can annually be extended and that a number of them will always stand in need of total or partial reproduction.
On determining the wear and tear as well as the costs of repairs, according to the social average, great disparity necessarily appears, even in the case of capital investments of equal size, operating otherwise under equal conditions and in the same branch of industry. In practice a machine, etc., lasts with one capitalist longer than the average period, while with another it does not last so long. With the one the costs of repairs are above, with the other below average, etc. But the addition to the price of the commodities resulting from wear and tear and from costs of repairs is the same and is determined by the average. The one therefore gets more out of this additional price than he really added, the other less. This circumstance as well as all others which result in different gains for different capitalists in the same line of business with the same degree of exploitation of labour-power tends to enhance the difficulty of understanding the true nature of surplus-value.
The line between repairs proper and replacement, between costs of maintenance and costs of renewal, is rather flexible. Hence the eternal dispute, for instance in railroading, whether certain expenses are for repairs or for replacement, whether they must be defrayed from current expenditures or from the original stock. A transfer of expenses for repairs to capital account instead of revenue account is the familiar method by which railway boards of directors artificially inflate their dividends. However, experience has already furnished the most important clues for this. According to Lardner, the subsequent labour required during the early life of a railway for example
The separation of the replacement and maintenance of fixed capital become practically impossible and purposeless in agriculture, at least when not operated by steam. According to Kirchhof (Handbuch der landwirthschaftlichen Betriebslehre, Dresden, 1852, p. 137),
In the case of the rolling stock of a railway, repairs and replacement cannot be separated at all.
The same with coaches:
This process, which Lardner here describes relative to a railway, does not fit the case of an individual factory, but may well serve as an illustration of continuous, partial reproduction of fixed capital intermingled with repairs within an entire branch of industry or even within the aggregate production considered on a social scale.
Here is proof of the lengths to which adroit boards of directors may go in manipulating the terms repairs and replacement for the purpose of extracting dividends. According to the above-quoted paper read by R. P. Williams, various English railway companies wrote off the following sums from the revenue account, as averages over a number of years, for repairs and maintenance of the permanent way and buildings (per English mile of track annually).
In certain cases the wear and tear, and therefore its replacement, is practically infinitesimal so that nothing but costs of repairs have to be charged. Lardner’s statements below relative to works of art in railroading apply in general to all such durable structures as docks, canals, iron and stone bridges, etc.
This applies to all similar structures of secular duration, in which cases therefore the capital advanced need not be gradually replaced commensurate with their wear and tear, but only the annual average costs of maintenance and repair need be transferred to the prices of the product.
Although, as we have seen, a greater part of the money returning for the replacement of the wear and tear of the fixed capital is annually, or even in shorter intervals, reconverted into its bodily form, nevertheless every single capitalist requires a sinking fund for that part of his fixed capital which falls due for reproduction only after a lapse of years but must then be entirely replaced. A considerable component part of the fixed capital precludes gradual reproduction because of its peculiar properties. Besides, in cases where the reproduction takes place piecemeal in such a way that at short intervals new stock is added to the depreciated old stock, a previous accumulation of money of a greater or smaller amount, depending on the specific character of the branch of industry, is necessary before the replacement can be effected. Not just any sum of money will suffice for this purpose; a definite amount is needed.
If we study this question on the assumption of simple circulation of money, without regard to the credit system, of which we shall treat later, [The capitalist credit system is treated in parts IV and V of the third volume of Capital. — Ed.] then the mechanism of this movement is as follows: It was shown (Buch I, Kap. III, 3a) [English edition: Volume I, Ch. III, 3a, — Ed.] that the proportion in which the aggregate mass of money is distributed over a hoard and means of circulation varies steadily, if one part of the money available in society constantly lies fallow as a hoard, while another performs the functions of a medium of circulation or of an immediate reserve fund of the directly circulating money. Now in our case money that must be accumulated as a hoard in the hands of a relatively big capitalist in rather large amounts is thrown all at once into circulation on the purchase of the fixed capital. It then divides again in society into medium of circulation and hoard. By means of the sinking fund, in which the value of the fixed capital flows back to its starting-point in proportion to its wear and tear, a part of the circulating money again forms a hoard, for a longer or shorter period, in the hands of the same capitalist whose hoard had, upon the purchase of the fixed capital, been transformed into a medium of circulation and passed away from him. It is a continually changing distribution of the hoard which exists in society and alternately functions as a medium of circulation and then is separated again, as a hoard, from the mass of the circulating money. With the development of the credit system, which necessarily runs parallel with the development of modern industry and capitalist production, this money no longer serves as a hoard but as capital; however not in the hands of its owner but of other capitalists at whose disposal it has been placed.
The circulating capital entering into the process of production
 transfers its entire value to the product and must therefore be continually
 replaced in kind by the sale of the product, if the process of production
 is to proceed without interruption. The fixed capital entering into the
 process of production transfers only a part of its value (the wear and
 tear) to the product and despite this wear and tear continues functioning
 in the process of production. Therefore it need not be replaced in kind
 until the lapse of intervals of various duration, at any rate not as frequently
 as the circulating capital. This necessity of replacement, the reproduction
 term, is not only quantitatively different for the various constituent
 parts of fixed capital, but, as we have seen, a part of the perennial fixed
 capital, that which lasts longer, may be replaced annually or at shorter
 intervals and added in kind to the old fixed capital. In the case of fixed
 capital of different properties the replacement can take place only all
 at once at the end of its period of durability.
It is therefore necessary to reduce the specific turnovers of
 the various parts of fixed capital to a homogeneous form of turnover, so
 that they will remain different only quantitatively, namely, according
 to duration of turnover.
The qualitative identity does not come about if we take as our
 starting-point P ... P, the form of the continuous process of production.
 For definite elements of P must be constantly replaced in kind while others
 need not. However the form M ... M' undoubtedly yields this identity of
 turnover. Take for instance a machine worth £10,000, which lasts
 ten years of which one-tenth, or £1,000, is annually reconverted
 into money. These £1,000 have been converted in the course of one
 year from money-capital into productive capital and commodity-capital,
 and then reconverted from this into money-capital. They have returned to
 their original form, the money-form, just like the circulating capital,
 if we study the latter in this form, and it is immaterial whether this
 money-capital of £1,000 is once more converted at the end of the
 year into the bodily form of a machine or not. In calculating the aggregate
 turnover of the advanced productive capital we therefore fix all its elements
 in the money-form, so that the return to that form concludes the turnover.
 We assume that value is always advanced in money, even in the continuous
 process of production, where this money-form of value is only that of money
 of account. Thus we can compute the average.
Suppose the fixed capital is £80,000 and its period of reproduction
 10 years, so that £8,000 of it annually return to their money-form,
 or it completes one-tenth of its turnover. Suppose further the circulating
 capital is £20,000, and its turnover is completed five times per
 year. The total capital would then be £100,000. The turned-over fixed
 capital is £8,000, the turned-over circulating capital five times
 £20,000, or £100,000. Then the capital turned over during one
 year is £108,000, or £8,000 more than the advanced capital.
 1 + 2/25 of the capital have been turned over.
In the illustration under No. 3, then, the sums assumedly returned
 into the hands of the capitalist at the end of one year are (a) a sum of
 value amounting to £20,000 which he invests again in the circulating
 constituents of the capital, and (b) a sum of £8,000 which has been
 set free by wear and tear from the value of the advanced fixed capital;
 simultaneously this same fixed capital remains in the process of production,
 but with the reduced value of £72,000 instead of £80,000. The
 process of production therefore would have to be continued for nine years
 more, before the advanced fixed capital outlived its term and ceased to
 function as a creator of products and values, so that it would have to
 be replaced. The advanced capital-value, then, has to pass through a cycle
 of turnovers, in the present case a cycle of ten annual ones, and this
 cycle is determined by the life, hence the reproduction or turnover time
 of the applied fixed capital.
As the magnitude of the value and the durability of the applied
 fixed capital develop with the development of the capitalist mode of production,
 the lifetime of industry and of industrial capital lengthens in each particular
 field of investment to a period of many years, say of ten years on an average.
 Whereas the development of fixed capital extends the length of this life
 on the one hand it is shortened on the other by the continuous revolution
 in the means of production, which likewise incessantly gains momentum with
 the development of the capitalist mode of production. This involves a change
 in the means of production and the necessity of their constant replacement,
 on account of moral depreciation, long before they expire physically. One
 may assume that in the essential branches of modern industry this life-cycle
 now averages ten years. However we are not concerned here with the exact
 figure. This much is evident: the cycle of interconnected turnovers embracing
 a number of years, in which capital is held fast by its fixed constituent
 part, furnishes a material basis for the periodic crises. During this cycle
 business undergoes successive periods of depression, medium activity, precipitancy,
 crisis. True, periods in which capital is invested differ greatly and far
 from coincide in time. But a crisis always forms the starting-point of
 large new investments. Therefore, from the point of view of society as
 a whole, more or less, a new material basis for the next turnover cycle.[22a]
The same Scrope says in the same passage:
Scrope confuses here the difference in the flow of certain parts
 of the circulating capital, brought about for the individual capitalist
 by terms of payment and conditions of credit, with the difference in the
 turnovers due to the nature of capital. He says that wages must be paid
 weekly out of the weekly receipts from paid sales or bills. It must be
 noted here in the first place that certain differences occur relative to
 wages themselves, depending on the length of the term of payment, that
 is, the length of time for which the labourer must give credit to the capitalist,
 whether wages are payable every week, month, three months, six months,
 etc. In this case, the law expounded before, holds good, to the effect
 that “the quantity of the means of payment required for all periodical
 payments” (hence of the money-capital to be advanced at one time) “is in
 inverse [This is evidently a slip of the pen, the proportion being direct
 and not inverse. — Ed.] proportion to the length of their periods.”
 (Buch I, Kap. III, 3b, Seite 124.) [English edition: Ch. III, 3b, p. 141.
 — Ed.]
The credit system, to which Scrope here refers, as well as commercial
 capital, modifies the turnover for the individual capitalist. On a social
 scale it modifies the turnover only in so far as it does not accelerate
 merely production but also consumption.
The difference between these two kinds of advances does not arise until advanced money has been transformed into the elements of productive capital. It is a difference that exists solely within productive capital. It therefore never occurs to Quesnay to classify money either among the original or the annual advances. As advances for production, i.e., as productive capital, both of them stand opposed to money as well as the commodities existing in the market. Furthermore the difference between these two elements of productive capital is correctly reduced in Quesnay to the different manner in which they enter into the value of the finished product, hence to the different manner in which their values are circulated together with those of the products, and hence to the different manner of their replacement or their reproduction, the value of the one being wholly replaced annually, that of the other partly and at longer intervals.[23]
The only progress made by Adam Smith is the generalisation of the categories. With him it no longer applies to one special form of capital, the farmer’s capital, but to every form of productive capital. Hence it follows as a matter of course that the distinction derived from agriculture between an annual turnover and one of two or more years’ duration is superseded by the general distinction into different periods of turnover, one turnover of the fixed capital always comprising more than one turnover of the circulating capital, regardless of the periods of turnover of the circulating capital, whether they be annual, more than annual, or less than annual. Thus in Adam Smith the avances annuelles transform themselves into circulating capital, and the avances primitives into fixed capital. But his progress is confined to this generalisation of the categories. His implementation is far inferior to that of Quesnay.
The crudely empirical manner in which Smith broaches the investigation engenders at the very outset a lack of clarity:
Adam Smith immediately continues:
He continues:
Or does he mean to say that capital employed in order to produce goods and to sell these at a profit must be sold after its transformation into goods and by means of the sale must in the first place pass from the possession of the seller into that of the buyer, and in the second place change from its bodily form, goods, into its money-form, so that it is of no use to its owner so long as it either remains in his possession or continues in the same shape? In that case, the whole thing amounts to this: The capital-value that formerly functioned in the form of productive capital, in a form peculiar to the process of production, now functions as commodity-capital and money-capital, in forms peculiar to the process of circulation, where it is no longer either fixed or circulating capital. And this applies equally to those elements of value which are added by raw and auxiliary material, i.e., by circulating capital, and to those which are added by the wear and tear of instruments of labour hence by fixed capital. We do not get any nearer to the difference between fixed and circulating capital in this way.
Further:
That by circulating capital Adam Smith means here nothing but capital of circulation, i.e., capital-value in the forms pertaining to the process of circulation (commodity capital and money-capital) is shown by his singularly ill-chosen illustration. He selects for this purpose a kind of capital which does not belong at all in the process of production, but whose abode is exclusively the sphere of circulation, which consists solely of capital of circulation — merchant’s capital.
How absurd it is to start out with an illustration in which capital does not figure altogether as productive capital is stated right afterwards by him himself:
But how a profit is to come into existence by changes of form of money and commodities, by a mere transmutation of value from one of these forms into another, is more than anyone can tell. And an explanation becomes absolutely impossible because he starts out here with merchants’ capital, which moves only in the sphere of circulation. We shall return to this later. Let us first hear what he has to say about fixed capital. [Vol. II, pp. 254-55.]
But Adam Smith suddenly changes the entire basis of his classification, and contradicts the text with which he had opened the entire investigation a few lines previously. This refers particularly to the statement: “There are two different ways in which a capital may be employed so as to yield a revenue or a profit to its employer,” [Vol. II, p. 254] namely, as circulating or as fixed capital. According to that these are therefore different methods of employing different capitals independent of one another, such as capitals that can be employed either in industry or in agriculture. And then we read [Vol. II, p. 255]:
In the illustrations Smith gives he designates the “instruments of trade” as fixed capital, and the portion of capital laid out in wages and raw materials, including auxiliary materials, as circulating capital (“repaid with a profit by the price of the work”).
And so he starts out, in the first place, from the various constituents of the labour-process, from labour-power (labour) and raw materials on the one hand, and instruments of labour on the other. But these are constituents of capital, because a sum of value which is to function as capital is invested in them. To this extent they are material elements, modes of existence of productive capital, that is to say, of capital functioning in the process of production. But why is one of these parts called fixed? Because
It is the same with labour-power. A part of the productive capital must be continually fixed in it, and it is the same identical labour-powers, just as it is the same machines, that are everywhere employed for a certain length of time by the same capitalist. The difference between labour-power and machines in this case is not that the machines are bought once and for all (which is not so when they are paid for in instalments), while the labourer is not. The difference is rather that the labour expended by the labourer enters wholly into the value of the product, while the value of the machines enters only piecemeal.
Smith confuses different definitions when he says of circulating capital as opposed to fixed:
Quesnay, on the other hand, had derived these differences from the process of reproduction and its necessities. In order that this process may be continuous, the value of the annual advances must annually be replaced in full out of the value of the annual product, while the value of the investment capital need be replaced only piecemeal, so that it requires complete replacement and therefore complete reproduction only in a period of, say, ten years (by a new material of the same kind). Consequently Adam Smith falls far below Quesnay.
So there is therefore absolutely nothing left to Adam Smith for a definition of fixed capital except that it is instruments of labour which do not change their shape in the process of production and continue to serve in production until they are worn out, as opposed to the products in the formation of which they assist. He forgets that all elements of productive capital continually confront in their bodily form (as instruments of labour, materials, and labour-power) the product and the product circulating as a commodity, and that the difference between the part consisting of materials and labour-power and that consisting of instruments of labour is only this: with regard to labour-power, that it is always purchased afresh (not bought for the time it lasts, as are the instruments of labour); with regard to the materials, that it is not the same identical materials that function in the labour-process throughout, but always new materials of the same kind. At the same time the false impression is created that the value of the fixed capital does not participate in the circulation, although of course Adam Smith previously explained the wear and tear of fixed capital as a part of the price of the product.
In opposing circulating capital to fixed, no emphasis is placed on the fact that this opposition exists solely because it is that constituent part of productive capital which must be wholly replaced out of the value of the product and must therefore fully share in its metamorphoses, while this is not so in the case of the fixed capital. Instead the circulating capital is jumbled together with those forms which capital assumes on passing from the sphere of production to that of circulation, as commodity-capital and money-capital. But both forms, commodity-capital as well as money-capital, are carriers of the value of both the fixed and the circulating component parts of productive capital. Both of them are capital of circulation, as distinguished from productive capital, but not circulating (fluent) capital as distinguished from fixed capital.
Finally, owing to the wholly erroneous explanation that profit is made by fixed capital staying in the process of production, and by circulating capital leaving it and being circulated, and also on account of the identity of form assumed in the turnover by the variable capital and the circulating constituent of the constant capital, their essential difference in the process of self-expansion and of the formation of surplus-value is hidden, so that the entire secret of capitalist production is obscured still more. The common designation "circulating capital" abolishes this essential difference. Political Economy subsequently went still farther by holding fast not to the antithesis between variable and constant capital but to the antithesis between fixed and circulating capital as the essential and sole delimitation.
After Adam Smith has designated fixed and circulating capital as two particular ways of investing capital, each of which yields a profit by itself, he says:
Adam Smith then gives the following illustration:
Whether the seed is directly deducted from the product as a part of it or the entire product is sold and a part of its value converted in the purchase of another man’s seed — in either case it is mere replacement that takes place and no profit is made by this replacement. In the one case the seed enters into circulation as a commodity together with the remainder of the product; in the other it figures only in book-keeping as a component part of the value of the advanced capital. But in both cases it remains a circulating constituent of the productive capital. The seed is entirely consumed to get the product ready, and it must be entirely replaced out of the product to make reproduction possible.
“Hence raw material and auxiliary substances lose the characteristic form with which they are clothed on entering the labour-process. It is otherwise with the instruments of labour. Tools, machines, workshops, and vessels, are of use in the labour-process, only so long as they retain their original shape, and are ready each morning to renew the process, with their shape unchanged. And just as during their lifetime, that is to say, during the continued labour-process in which they serve, they retain their shape independent of the product, so too, they do after their death. The corpses of machines, tools, workshops, etc., are always separate and distinct from the product they helped to turn out.” (Buch I, Kap. VI, S. 192.) [English edition: Volume I, Ch. VIII, p. 203. — Ed.]
These different ways in which means of production are consumed to form the product, some of them preserving their independent shape vis-à-vis the product, others changing or losing it entirely — this difference pertaining to the labour-process as such and therefore just as well to the labour-processes aimed at satisfying merely one’s own needs, e.g., the needs of the patriarchal family, without any exchange, without production of commodities — are falsified by Adam Smith. He does so 1) by introducing here the totally irrelevant definition of profit, claiming that some of the means of production yield a profit to their owner by preserving their form, while the others do so by losing it; 2) by jumbling together the alterations of a part of the elements of production in the labour-process with the change of form (purchase and sale) that is characteristic of the exchange of products, of commodity circulation, and which at the same time includes a change in the ownership of the circulating commodities.
The turnover presupposes reproduction effected by circulation, hence by the sale of the product, by its conversion into money and its reconversion from money into its elements of production. But since a part of the capitalist producer’s own product serves him directly as means of production, he appears as a seller of it to himself, and that is how the matter figures in his books. In that case this part of the reproduction is not brought about by circulation but proceeds directly. However the part of the product thus serving again as means of production replaces circulating, not fixed capital, since 1) its value passes wholly into the product, and 2) it itself has been wholly replaced in kind by a new specimen out of the new product.
Adam Smith tells us now what circulating and fixed capital consist of. He enumerates the things, the material elements, which form fixed, and those which form circulating capital, as if this definiteness were inherent in these things materially, by nature, and did not rather spring from their definite function within the capitalist process of production. And yet in the same chapter (Book II, Chapter I) he makes the remark that although a certain thing, e.g., a dwelling, which is reserved as "stock" for "immediate consumption,"
Things form constituent parts of the circulating or fixed capital, depending on what function they perform in the labour-process. A head of cattle for instance, as labouring cattle (instrument of labour), represents the material mode of existence of fixed capital, while as cattle for fattening (raw material) it is a constituent part of the farmer’s circulating capital. On the other hand the same thing may now function as a constituent part of productive capital and now belong to the fund for direct consumption. A house for instance when performing the function of a workshop, is a fixed component part of productive capital; when serving as a dwelling it is in no wise a form of capital. The same instruments of labour may in many cases serve either as means of production or as means of consumption.
It was one of the errors following from Adam Smith’s idea that the property of being fixed or circulating capital was conceived as inherent in the things themselves. The mere analysis of the labour-process (Buch I, Kap. V) [ English edition: Volume I, Ch. VII. — Ed.] shows that the definitions of instruments of labour, materials of labour, and product change according to the various roles played by one and the same thing in the process. The definitions of fixed and non-fixed capital are based in their turn on the definite roles played by these elements in the labour-process, and therefore also in the value formation process.
In the second place, on enumerating the things fixed and circulating capitals consist of, it becomes fully apparent that Smith lumps together the distinction — valid and making sense only with regard to productive capital (capital in its productive form) — between the fixed and circulating components of the same, with the distinction between productive capital and those forms which pertain to capital in its process of circulation, viz., commodity-capital and money-capital. He says in the same passage (pp. 187 and 188):
The fact that Smith at the same time speaks of the merchant shows his confusion. Once the producer sells his product to the merchant, it no longer constitutes any form of his capital. From the point of view of society, it is indeed still commodity-capital, although in other hands than those of its producer; but for the very reason that it is a commodity-capital it is neither fixed nor circulating capital.
In every kind of production not meant for the satisfaction of the producer’s direct needs, the product must circulate as a commodity, i.e., it must be sold, not in order to make a profit on it, but that the producer may be able to live at all. Under capitalist production, there is to be added the circumstance that when a commodity is sold the surplus-value embodied in it is also realised. The product emerges as a commodity from the process of production and is therefore neither a fixed nor a circulating element of this process.
Incidentally, Smith here argues against himself. The finished products, whatever their material form or their use-value, their useful effect, are all commodity-capital here, hence capital in a form characteristic of the process of circulation. Being in this form, they are not constituent parts of any productive capital their owner may have. This does not in the least prevent them from becoming, right after their sale, in the hands of their purchaser, constituent parts of productive capital, either fixed or circulating. Here it is evident that things which for a certain time appear in the market as commodity-capital, as opposed to productive capital, may or may not function as circulating or fixed constituents of productive capital after they have been removed from the market.
The product of the cotton spinner, yarn, is the commodity-form of his capital, is commodity-capital as far as he is concerned. It cannot function again as a constituent part of his productive capital, neither as material of labour nor as an instrument of labour. But in the hands of the weaver who buys it it is incorporated in the productive capital of the latter as one of its circulating constituent parts. For the spinner, however, the yarn is the depository of the value of part of his fixed as well as circulating capital (apart from the surplus-value). In the same way a machine, the product of a machine-manufacturer, is the commodity-form of his capital, is commodity-capital to him. And so long as it stays in this form it is neither circulating nor fixed capital. But if sold to a manufacturer for use it becomes a fixed component part of a productive capital. Even if by virtue of its use-form the product can partly re-enter as means of production into the process from which it originated, e.g., coal into coal production, precisely that part of the output of coal which is intended for sale represents neither circulating nor fixed capital but commodity-capital.
On the other hand a product, due to its use-form, may be wholly incapable of forming any element of productive capital, either as material of labour or as an instrument of labour. For instance any means of subsistence. Nevertheless it is commodity-capital for its producer, is the carrier of the value of his fixed as well as circulating capital; and of the one or the other according to whether the capital employed in its production has to be replaced in whole or in part, has transferred its value to the product in whole or in part.
With Smith, in No. 3, the raw material (material not worked up, semi-finished products, auxiliary substances) does not figure on the one hand as a component part embodied in the productive capital, but actually only as a special kind of use-values of which the social product can at all consist, as a special kind of commodities existing alongside the other material constituent parts, means of subsistence, etc., enumerated under Nos. 2 and 4. On the other hand these materials are indeed cited as incorporated in the productive capital and therefore as elements of it in the hands of the producer. The confusion is evidenced by the fact that they are partly conceived as functioning in the hands of the producer (“in the hands of the growers, the manufacturers, etc.”), and partly in the hands of merchants (“mercers, drapers, timber-merchants”), where they are merely commodity-capital, not component parts of productive capital.
Indeed, Adam Smith wholly forgets here, in enumerating the elements of circulating capital, the distinction — applying only to the productive capital — between fixed and circulating capital. He rather places commodity-capital and money-capital, i.e., the two forms of capital typical of the process of circulation, in opposition to the productive capital, but that quite unconsciously.
Finally, it is a striking fact that Adam Smith forgets to mention labour-power when counting off the constituent parts of circulating capital. There are two reasons for this.
We have just seen that, apart from money-capital, circulating capital is only another name for commodity-capital. But to the extent that labour-power circulates in the market, it is not capital, no form of commodity-capital. It is not capital at all; the labourer is not a capitalist, although he brings a commodity to market, namely his own skin. Not until labour-power has been sold, been incorporated in the process of production, hence not until it has ceased to circulate as a commodity, does it become a constituent of productive capital — variable capital as the source of surplus-value, a circulating component part of productive capital with reference to the turnover of the capital-value invested in it. Since Smith here confuses the circulating capital with commodity-capital, he cannot bring labour-power under the head of circulating capital. Hence the variable capital here appears in the form of the commodities the labourer buys with his wages, viz., means of subsistence. In this form the capital-value invested in wages is supposed to belong to circulating capital. That which is incorporated in the process of production is labour-power, the labourer himself, not the means of subsistence wherewith the labourer maintains himself. True, we have seen (Buch I, Kap. XXI) [English edition: Volume I, Ch. XXIII. — Ed.] that from the point of view of society the reproduction of the labourer himself by means of his individual consumption is likewise part of the process of reproduction of social capital. But this does not apply to the individual, isolated process of production which we are studying here. The “acquired and useful abilities” (p. 187) which Smith mentions under the head of fixed capital are on the contrary component parts of circulating capital, since they are “abilities” of the wage-labourer and he has sold his labour together with its “abilities.”
It is a great mistake on the part of Adam Smith to divide the entire social wealth into 1) a fund for immediate consumption, 2) fixed capital, and 3) circulating capital. According to the above, wealth would have to be divided into 1) a consumption-fund which does not form any part of functioning social capital although parts of it can continually function as capital; and 2) capital. Accordingly one part of the wealth functions as capital, the other as non-capital, or consumption-fund. And here appears the absolute necessity that all capital be either fixed or circulating somewhat like the natural necessity that a mammal be male or female. But we have seen that the antithesis between fixed and circulating capital applies solely to the elements of productive capital, that consequently there is besides these a considerable amount of capital — commodity-capital and money-capital — exists in a form in which it can be neither fixed nor circulating.
Inasmuch as under capitalist production the entire mass of social products circulates in the market as commodity-capital, with the exception of that part of the products which is directly used up again by the individual capitalist producers in its bodily form as means of production without being sold or bought, it is evident that not only the fixed and circulating elements of productive capital, but likewise all the elements of the consumption-fund are derived from the commodity-capital. This is tantamount to saying that on the basis of capitalist production both means of production and articles of consumption first appear as commodity-capital, even though they are intended for later use as means of production or articles of consumption, just as labour-power itself is found in the market as a commodity, although not as commodity-capital.
This accounts for the following new confusion in Adam Smith. He says:
Considered socially it is true that the part of the commodity-capital which consists of products that can serve only as instruments of labour must — unless they have been produced to no purpose, cannot be sold — sooner or later function as instruments of labour, i.e., with capitalist production as their basis, they must, whenever they cease to be commodities, form real, as before they formed prospective, elements of the fixed part of the social productive capital.
But there is a distinction here, arising from the bodily form of the product.
A spinning machine for instance has no use-values, unless it is used for spinning, unless therefore it functions as an element of production and consequently, from the point of view of the capitalist, as a fixed component part of a productive capital. But a spinning machine is movable. It may be exported from the country in which it was produced and sold abroad directly or indirectly for raw materials, etc., or for champagne. In that case it has functioned only as a commodity-capital in the country in which it was produced, but never as fixed capital, not even after its sale.
Products however which are localised by being anchored in the soil, and can therefore be used only locally, such as factory buildings, railways, bridges, tunnels, docks, etc., soil improvements, etc., cannot be exported bodily, neck and crop. They are not movable. They are either useless, or as soon as they have been sold must function as fixed capital in the country that produced them. To their capitalist producer, who builds factories or improves land for speculative sale, these things are forms of his commodity-capital, or, according to Adam Smith, forms of circulating capital. But viewed socially these things — if they are not to be useless — must ultimately function as fixed capital in that very country, in some local process of production. From this it does not follow in the least that immovables are in themselves fixed capital. They may belong, as dwelling houses, etc., to the consumption-fund, and in that case they are not part whatever of the social capital, although they constitute an element of the social wealth of which capital is only a part. The producer of these things, to speak in the language of Adam Smith, makes a profit by their sale. And so they are circulating capital! Their practical utiliser, their ultimate purchaser, can use them only by applying them in the process of production, and so they are fixed capital!
Titles to property, for instance railway shares, may change hands every day, and their owner may make a profit by their sale even in foreign countries, so that titles to property are exportable, although the railway itself is not. Nevertheless these things must either lie fallow in the very country in which they are localised, or function as a fixed component of some productive capital. In the same way manufacturer A may make a profit by selling his factory to manufacturer B, but this does not prevent the factory from functioning as fixed capital the same as before.
Therefore, while the locally fixed instruments of labour, which cannot be detached from the soil, will nevertheless, in all probability, have to function as commodity-capital for their producer and not constitute any elements of his fixed capital (which is made up as far as he is concerned of the instruments of labour he needs for the construction of buildings, railways, etc.), one should not by any means draw the contrary conclusion that fixed capital necessarily consists of immovables. A ship and a locomotive are effective only through their motion; yet they function, not for him who produced them, but for him who applies them as fixed capital. On the other hand things which are most decidedly fixed in the process of production, live and die in it and never leave it any more after once entering it, are circulating component parts of the productive capital. Such are for instance the coal consumed to drive the machine in the process of production, the gas used to light the factory, etc. They are circulating capital not because they bodily leave the process of production together with the product and circulate as commodities, but because their value enters wholly into that of the commodity which they help to produce and which therefore must be entirely replaced out of the proceeds of the sale of the commodity.
In the passage last quoted from Adam Smith, notice must also be taken of the following phrase:
Adam Smith classifies the means of subsistence of labourers as circulating capital in contradistinction to fixed capital:
By thus establishing the definition of circulating capital as being the determinant of the capital value laid out for labour-power — this physiocratic definition without the premise of the physiocrats — Adam Smith fortunately killed among his followers the understanding that that part of capital which is spent on labour-power is variable capital. The more profound and correct ideas developed by him elsewhere did not prevail, but this blunder of his did. Indeed, other writers after him went even further. They were not content to make it the decisive definition of the part of capital invested in labour-power to be circulating as opposed to fixed capital; they made it the essential definition of circulating capital to be invested in labour-power to be circulating as opposed to fixed capital; they made it the essential definition of circulating capital to be invested in means of subsistence for labourers. Naturally associated with this is the doctrine that the labour-fund, [Karl Marx, Capital, Vol. I, pp. 609-11. — Ed.] consisting of the necessary means of subsistence, is of a definite magnitude, which on the one hand physically limits the share of the labourers in the social product, but on the other has to be fully expended in the purchase of labour-power.
But the original lack of clarity is apparent at the outset in the following immaterial juxtaposition:
First: The differences in the degree of durability of fixed capital and the difference arising from capital being composed of constant and variable capital are conceived as being of equal significance. But the last-named difference determines the difference in the production of surplus-value; the first named on the other hand, so far as the process of self-expansion is concerned, refers only to the manner in which a particular value is transferred from a means of production to the product; so far as the process of circulation is concerned, this difference refers only to the period of the renewal of the expended capital, or, from another point of view, to the time for which it has been advanced. If instead of seeing through the internal machinery of the capitalist process of production one considers merely the accomplished phenomena, then these distinctions actually coincide. In the distribution of the social surplus-value among the various capitals invested in different branches of industry, the differences in the different periods of time for which capital is advanced (for instance the various degrees of durability of fixed capital) and the different organic compositions of capital (and therefore also the different circulations of constant and variable capital) contribute equally toward an equalisation of the general rate of profit and the conversion of values into prices of production.
Secondly: From the point of view of the process of circulation, we have on one side the instruments of labour — fixed capital, on the other the material of labour and wages — circulating capital. But from the point of view of the process of labour and self-expansion, we have on the one side means of production (instruments of labour and material of labour) — constant capital; on the other, labour-power — variable capital. It is wholly immaterial for the organic composition of capital (Buch I, Kap. XXIII, 2, p. 647) [English edition, Volume I, Ch. XXV, 2, pp. 622-23. — Ed.] whether a specified quantity of value of constant capital consists of many instruments of labour and little material of labour or of much material of labour and few instruments of labour, while everything depends on the ratio of the capital laid out in means of production to that laid out in labour-power. Vice versa: from the point of view of the process of circulation, of the distinction between fixed and circulating capital, it is just as immaterial in what proportions a particular quantity of value circulating capital divides into material of labour and wages. From one of these points of view the material of labour is classed in the same category with the instruments of labour, as opposed to the capital-value laid out in labour-power; from the other view-point the part of capital laid out in labour-power ranges with that laid out in material of labour, as opposed to that laid out in instruments of labour.
For this reason the part of the capital-value laid out in material of labour (raw and auxiliary materials) does not appear on either side in Ricardo. It disappears entirely; for it will not do to class it with fixed capital, because its mode of circulation coincides entirely with that of the part of capital laid out in labour-power. And on the other hand it should not be placed alongside circulating capital, because in that event the identification of the antithesis of fixed and circulating capital with that of constant and variable capital, which had been handed down by Adam Smith and is tacitly retained, would abolish itself. Ricardo has too much logical instinct not to feel this, and for this reason that part of capital vanishes entirely from his sight.
It is to be noted at this point that the capitalist, to use the jargon of Political Economy, advances the capital laid out in wages for various periods of time, according to whether he pays these wages weekly, monthly, or quarterly. But as a matter of fact the reverse takes place. It is the labourer who advances his labour to the capitalist for a week, a month, or three months, according to whether he is paid by the week, by the month, or every three months. If the capitalist bought labour-power instead of paying for it, in other words, if he paid the labourer his wages in advance for a day, a week, a month, or a quarter, he would be justified in claiming that he advanced wages for those periods. But since he pays after the labour has lasted for days, weeks, or months, instead of buying it and paying for the time which it is to last, the whole thing amounts to a capitalist quid pro quo, and the advance which the labour gives to the capitalist in labour is turned into an advance of money given to the labourer by the capitalist. It does not alter the case in the least that the capitalist gets back the product itself or its value (together with the surplus-value embodied in it) from circulation, or realises it, only after a relatively long or short period of time, according to the different periods required for its manufacture or for its circulation. The seller of a commodity does not care a rap what its buyer is going to do with it. The capitalist does not get a machine cheaper because he must advance its entire value at one shot, while this value returns to him only gradually and piecemeal from circulation; nor does he pay more for cotton because its value enters entirely into the value of the product into which it is made and is therefore replaced fully and at one time by the sale of the product.
Let us return to Ricardo.
It is therefore understandable why bourgeois Political Economy instinctively clung to Adam Smith’s confusion of the categories “constant and variable capital” with the categories “fixed and circulating,” and repeated it parrotlike, without criticism, from generation to generation for a century. The part of capital laid out for wages is no longer in the least distinguished by bourgeois Political Economy from the part of capital laid out for raw materials, and differs only formally from constant capital — on the point of whether it is circulated piecemeal or in one lump by the product. Thereby the basis for an understanding of the real movement of capitalist production, and hence of capitalist exploitation, is buried at one stroke. It is but a question of the reappearance of advanced values.
In Ricardo the uncritical adoption of the Smithian confusion is more disturbing not only than in the later apologists, in whom the confusion of ideas is rather something not disturbing, but than in Adam Smith himself, because Ricardo, in contrast to the latter, is more consistent and incisive in his analysis of value and surplus-value, and indeed upholds the esoteric Adam Smith against the exoteric Adam Smith.
Among the physiocrats there is no such confusion. The distinction between avances annuelles and avances primitives refers only to the different periods of reproduction of the different component of capital, especially of agricultural capital, while their views on the production of surplus-value form a part of their theory that is independent of these distinctions, a part they hold up as the strong point of the theory. The formation of surplus-value is not explained as originating from capital as such, but is attributed to one particular sphere of the production of capital, agriculture.
Secondly. The essential point in the definition of variable capital — and therefore for the conversion of any sum of values into capital — is that the capitalist exchanges a definite, given (and in this sense constant) magnitude of value for value-creating power, a magnitude of value for the production, self-expansion, of value. Whether the capitalist pays the labourer in money or in means of subsistence does not affect this basic definition. It only alters the mode of existence of the value advanced by the capitalist which in one case exists in the form of money for which the labourer buys himself his means of subsistence in the market, in the other case in the form of means of subsistence which he consumes directly. Developed capitalist production rests indeed on the assumption that the labourer is paid in money, just as in general it presupposes the process of production brought about by the process of circulation, hence presupposes the monetary system. But the creation of surplus-value — and consequently the capitalisation of the advanced sum of values — has its source neither in the money-form of wages nor in the form of wages paid in kind, nor in the capital laid out in the purchase of labour-power. It arises out of the exchange of value for value-creating power, out of the conversion of a constant into a variable magnitude.
The greater or smaller fixity of the instruments of labour depends on their degree of durability, hence on a physical property. Other circumstances being equal, they will wear out sooner or later, will therefore function a longer or a shorter time as fixed capital, according to their durability. But it is by no means solely on account of this physical property of durability that they function as fixed capital. The raw material in metal factories is just as durable as the machines used in manufacturing, and more durable than many component parts of these machines, such as leather and wood. Nevertheless the metal serving as raw materials forms a part of the circulating capital, while the instrument of labour, although probably built of the same metal, is a part of the fixed capital when in use. Consequently it is not because of the material, physical nature, nor the relatively great or small speed with which it wears out that a metal is put now in the category of fixed, now in that of circulating capital. This distinction is rather due to the role played by it in the process of production, being a subject of labour in one case and an instrument of labour in the other.
The function of an instrument of labour in the process of production requires that on the average it should serve for a longer or shorter period in ever renewed labour-processes. Its very function therefore prescribes that the stuff of which it is composed should be more or less durable. But it is not the durability of the material of which it is fabricated that by itself makes it fixed capital. The same stuff, when raw material, becomes circulating capital, and among economists who confuse the distinction between commodity-capital and productive capital with the distinction between circulating and fixed capital, the same stuff, the same machine, is circulating capital as product and fixed capital as instrument of labour.
Although it is not the durability of the material of which it is fabricated that makes an instrument of labour fixed capital, nevertheless its role as such an instrument requires that it should be composed of relatively durable material. The durability of its material is therefore a condition of its function as an instrument of labour, and consequently the material basis of the mode of circulation which renders it fixed capital. Other things being equal, the higher or lower degree of wear and tear of the stuff it is made of impresses upon it in a higher or lower degree the stamp of fixedness, is therefore very closely interwoven with the quality of being fixed capital.
If the part of capital laid out in labour-power is considered exclusively from the point of view of circulating capital, hence in contrast with fixed capital, and if consequently the distinctions between constant and variable capital are lumped with those between fixed and circulating capital, then it is natural — supposing that material reality of the instrument of labour forms an essential basis of its character of fixed capital — to derive its character of circulating capital, in contrast with the fixed capital, from the material reality of the capital invested in labour-power, and then again to determine the circulating capital with the aid of the material reality of the variable capital.
But if, on the contrary, the secondary definition of the circulating capital, which it shares with a part of the constant capital (raw and auxiliary materials), is made the essential definition of the part of capital laid out in labour-power, to wit, that the value laid out in it is transferred in full to the product in whose creation it is consumed, and not gradually and piecemeal as in the case of the fixed capital, and that consequently it must be replaced in full by the sale of the product — then the part of the capital laid out in wages must likewise consist, materially, not of active labour-power but of the material elements which the labourer buys with his wages, i.e., it must consist of that part of the social commodity-capital which passes into the consumption of the labourer, viz., of means of subsistence. In that case the fixed capital consists of the more slowly perishable instruments of labour which therefore have to be replaced more slowly, and the capital laid out in labour-power consists of the means of subsistence, which must be replaced more rapidly.
However, the border-line between greater or lesser perishableness is very vague and indistinct.
The difference, as stated by Ricardo, is this:
Once the part of capital invested in labour differs from that invested in instruments of labour only by its period of reproduction and hence its term of circulation, and once one part consists of means of subsistence and the other of instruments of labour so that those differ from these only in being more rapidly perishable, there being various degrees of durability within the first group itself, all differentia specifica between capital invested in labour-power and capital invested in means of production is naturally obliterated.
This wholly contradicts Ricardo’s doctrine of value, likewise his theory of profit, which is in fact a theory of surplus-value. In general he considers the distinction between fixed and circulating capital only to the extent that different proportions of both of them in equally large capitals invested in different branches of production influence the law of value, particularly the extent to which an increase or decrease of wages in consequence of these conditions affects prices. But even within this restricted investigation he commits the gravest errors on account of his confusing fixed and circulating with constant and variable capital. Indeed, he starts his analysis on an entirely wrong basis. In the first place, in so far as the part of the capital-value laid out in labour-power has to be classified under the head of circulating capital, the definitions of circulating capital itself are wrongly developed, particularly the circumstances which place the part of capital laid out in labour under this head. In the second place there is a confusion of the definition according to which the part of capital invested in labour is variable capital with the definition according to which it is circulating capital, as opposed to fixed capital.
It is evident at the outset that the definition of capital invested in labour-power as circulating or fluent capital is a secondary one, obliterating its differentia specifica in the process of production. For in this definition, on the one hand, the capitals invested in labour are of the same importance as those invested in raw material, etc. A classification which identifies a part of the constant capital with the variable capital does not deal with the differentia specifica of variable capital in opposition to constant capital. On the other hand the parts of capital laid out in labour are indeed opposed to those invested in instruments of labour, but not in the least with reference to the fact that these parts enter into the production of value in quite different ways, but with reference to the fact that both transfer their value to the product, but in different periods of time.
In all of these cases the point at issue is how a given value, laid out in the process of production of commodities, whether it be wages, the price of raw materials, or that of instruments of labour, is transferred to the product, hence is circulated by the product, and returned to its starting-point by the sale of the product, or is replaced. The only difference lies here in the “how,” in the particular manner of the transfer, and therefore also of the circulation of this value.
Whether the price of labour-power previously stipulated by contract in each individual case is paid in money or means of subsistence does not alter in any way its character of being a fixed price. However it is evident in the case of wages paid in money that the money itself does not pass into the process of production in the way that the value as well as the material of the means of production do. But if on the other hand the means of subsistence which the labourer buys with his wages are directly classed in the same category, alongside raw materials, etc., as the material form of circulating capital and are opposed to the instruments of labour, then the matter assumes a different aspect. If the value of these things, of the means of production, is transferred to the product in the labour-process, the value of those other things, the means of subsistence, reappears in the labour-power that consumes them and is likewise transferred to the product by the functioning of this power. In both these cases it is equally a question of the mere reappearance, in the product, of the values advanced during production. (The physiocrats took this seriously and therefore denied that industrial labour created surplus-value.) Thus the previously quoted [Karl Marx, Capital, Vol. I, p. 207, Note 3. — Ed.] passage from Wayland.
Furthermore this brings to completion the fetishism peculiar to bourgeois Political Economy, the fetishism which metamorphoses the social, economic character impressed on things in the process of social production into a natural character stemming from the material nature of those things. For instance, “instruments of labour are fixed capital,” is a scholastic definition, which leads to contradictions and confusion. Just as was demonstrated in the case of the labour-process (Buch I, Kap. V), [English edition: Ch. VII. — Ed.] that it depends wholly on the role which the material components play in a particular labour-process, on their function — whether they function as instruments of labour, material of labour, or products — so instruments of labour are fixed capital only if the process of production is really a capitalist process of production and the means of production are therefore really capital and possess economic definiteness, the social character of capital. And in the second place, they are fixed capital only if they transfer their value to the product in a particular way. If not, they remain instruments of labour without being fixed capital. In the same way if auxiliary materials like manure give up value in the same peculiar manner as the greater part of the instruments of labour, they become fixed capital although they are not instruments of labour. It is not a question here of definitions, which things must be made to fit. We are dealing here with definite functions which must be expressed in definite categories.
If to be capital laid out in wages is considered one of the qualities of means of subsistence as such under all circumstances, then it will also be a quality of this “circulating” capital “to support labour.” (Ricardo, p. 25.) If the means of subsistence were not “capital” they would not support labour-power; whereas it is precisely their quality of capital that endows them with the faculty of supporting capital by foreign labour.
If means of subsistence as such are circulating capital — after the latter had been converted into wages — it follows further that the magnitude of wages depends on the ratio of the number of labourers to the given amount of circulating capital — a favourite economic proposition — while as a matter of fact the quantity of means of subsistence withdrawn from the market by the labourer, and the quantity of means of subsistence available for the consumption of the capitalist, depend on the ratio of the surplus-value to the price of labour.
Ricardo, like Barton, [29a] everywhere confounds the relation of variable to constant capital with that of circulating to fixed capital. We shall see later to what extent this vitiates his investigation of the rate of profit. [Karl Marx, Capital, Vol. III, Ch. I-III. — Ed.]
Ricardo furthermore identifies the differences which arise in the turnover from other causes than the distinction between fixed and circulating capital with this distinction:
The confusion created by Adam Smith has brought about the following results:
These differences in the duration of the productive act can be observed not alone between different spheres of production, but also within one and the same sphere of production, depending on the amount of product to be turned out. An ordinary dwelling house is built in less time than a large factory and therefore requires fewer continuous labour-processes. While the building of a locomotive takes three months, that of an armoured man-of-war requires one year or more. It takes nearly a year to produce grain and several years to raise big cattle, while timber-growing needs from twelve to one hundred years. A few months will suffice for a country road, while a railway is a job of years. An ordinary carpet is made in about a week, but a Gobelin takes years, etc. Hence the time consumed in the performance of the productive act varies infinitely.
The difference in the duration of the productive act must evidently give rise to a difference in the velocity of the turnover, if invested capitals are equal, in other words, must make a difference in the time for which a certain capital is advanced. Assume that a spinning-mill and a locomotive works employ the same amount of capital, that the ratio of their constant to their variable capital is the same, likewise the proportion between the fixed and circulating parts of the capitals, and that lastly their working-day is of equal length and its division into necessary and surplus-labour the same. In order to eliminate, furthermore, all the circumstances arising out of the process of circulation and having no bearing on the present case, let us suppose that both the yarn and the locomotive are made to order and will be paid on delivery of the finished product. At the end of the week, on delivery of the finished yarn, the spinning-mill owner recovers his outlay for circulating capital (leaving the surplus-value out of consideration), likewise the fixed capital’s wear and tear incorporated in the value of the yarn. He can therefore repeat the same circuit anew with the same capital. It has completed its turnover. The locomotive manufacturer on the other hand must lay out ever new capital for wages and raw material every week for three months in succession, and it is only after three months, after the delivery of the locomotive, that the circulating capital, meanwhile gradually laid out in one and the same productive act for the manufacture of one and the same commodity, once more exists in a form in which it can renew its circuit. The wear and tear of his machinery during these three months is likewise replaced only now. The expenditure of the one is made for one week, that of the other is the weekly expenditure multiplied by twelve. All other circumstances being assumed as equal, the one must have twelve times as much circulating capital at his disposal as the other.
It is however immaterial here that the capitals advanced weekly are equal. Whatever the amount of the advanced capital, it is advanced for only one week in the one case and for twelve weeks in the other, and the above periods must respectively elapse before it can be used for a new operation, before the same operation can be repeated with it, or a different one inaugurated.
The difference in the velocity of the turnover, or in the length of time for which the individual capital must be advanced before the same capital-value can be employed in a new labour- or self-expansion process, arises here from the following circumstances:
Granted the manufacture of a locomotive or of any other machine requires 100 working-days. So far as the labourers employed in the manufacture of yarn or the building of locomotives are concerned, 100 working-days constitute in either case a discontinuous (discrete) magnitude, consisting, according to our assumption, of 100 consecutive separate ten-hour labour-processes. But so far as the product — the machine — is concerned, these 100 working-days form a continuous magnitude, a working-day of 1,000 working-hours, one single connected act of production. I call such a working-day which is composed of a more or less numerous succession of connected working days a working period. When we speak of a working-day we mean the length of working time during which the labourer must daily spend his labour-power, must work day by day. But when we speak of a working period we mean the number of connected working-days required in a certain branch of industry for the manufacture of a finished product. In this case the product of every working-day is but a partial one, which is further worked upon from day to day and only at the end of the longer or shorter working period receives its finished form, is a finished use-value.
Interruptions, disturbances of the process of social production, in consequence for instance of crises, have therefore very different effects on labour-products of a discrete nature and on those that require for their production a prolonged connected period. In the one case all that happens is that today’s production of a certain quantity of yarn, coal, etc., is not followed by tomorrow’s new production of yarn, coal, etc. Not so in the case of ships, buildings, railways, etc. Here it is not only the day’s work but an entire connected act of production that is interrupted. If the job is not continued, the means of production and labour already consumed in its production are wasted. Even if it is resumed, a deterioration has inevitably set in in the meantime.
For the entire length of the working period, the part of the value daily transferred to the product by the fixed capital accumulates in layers, as it were, until the product is finished. And here the difference between fixed and circulating capital is revealed at the same time in its practical significance. Fixed capital is advanced in the process of production for a comparatively long period; it need not be renewed until after the expiration of perhaps a period of several years. Whether a steam-engine transfers its value daily piecemeal to some yarn, the product of a discrete labour-process, or for three months to a locomotive, the product of a continuous act of production, is immaterial as far as laying out the capital required for the purchase of the steam-engine is concerned. In the one case its value flows back in small doses, for instance weekly, in the other case in larger quantities, for instance quarterly. But in either case the renewal of the steam-engine may take place only after twenty years. So long as every individual period within which the value of the steam-engine is returned piecemeal by the sale of the product is shorter than the lifetime of the engine itself, the latter continues to function in the process of production for several working periods.
It is different with the circulating components of the advanced capital. The labour-power bought for a definite week is expended in the course of the same week and is materialised in the product. It must be paid for at the end of the week. And this investment of capital in labour-power is repeated every week during the three months; yet the expenditure of this part of the capital during the week does not enable the capitalist to settle for the purchase of the labour the following week. Every week additional capital must be expended to pay for labour-power, and, leaving aside the question of credit, the capitalist must be able to lay out wages for three months, even if he pays them only in weekly doses. It is the same with the other portion of circulating capital, the raw and auxiliary materials. One layer of labour after another is piled up on the product. It is not alone the value of the expended labour-power that is continually being transferred to the product during the labour-process, but also surplus-value. This product, however, is unfinished, it has not yet the form of a finished commodity, hence it cannot yet circulate. This applies likewise to the capital-value transferred in layers from the raw and auxiliary materials to the product.
Depending on the length of the working period exacted by the specific nature of the product or by the useful effect to be achieved in its manufacture, a continuous additional investment of circulating capital (wages and raw and auxiliary materials) is required, no part of which is in a form capable of circulation and hence of promoting a renewal of the same operation. Every part is on the contrary held fast successively in the sphere of production as a component of the nascent product, tied up in the form of productive capital. Now, the time of turnover is equal to the sum of the time of production and the time of circulation of the capital. Hence a prolongation of the time of production reduces the velocity of the turnover quite as much as a prolongation of the time of circulation. In the present case however the following two points must be noted:
Firstly: The prolonged stay in the sphere of production. The capital advanced for instance for labour, raw material, etc., during the first week, as well as the portions of value transferred to the product by the fixed capital, are held fast in the sphere of production for the entire term of three months, and, being incorporated in an only nascent, still unfinished product, cannot pass into circulation as commodities.
Secondly: Since the working period required for the performance of the productive act lasts three months, and forms in fact only one connected labour-process, a new dose of circulating capital must be continually added week after week to the preceding amount. The total of the successively advanced additional capital grows therefore with the length of the working period.
At the less developed stages of capitalist production, undertakings requiring a long working period, and hence a large investment of capital for a long time, such as the building of roads, canals, etc., especially when they can be carried out only on a large scale, are either not carried out on a capitalist basis at all, but rather at communal or state expense (in earlier times generally by forced labour, so far as the labour-power was concerned). Or objects whose production requires a lengthy working period are fabricated only for the smallest part by recourse to the private means of the capitalist himself. For instance, in the building of a house, the private person for whom it is built makes a number of partial advance payments to the building contractor. He therefore actually pays for the house piecemeal, in proportion as the productive process progresses. But in the advanced capitalist era, when on the one hand huge capitals are concentrated in the hands of single individuals, while on the other the associated capitalist (joint-stock companies) appears side by side with the individual capitalist and a credit system has simultaneously been developed, a capitalist building contractor builds only in exceptional cases on the order of private individuals. His business nowadays is to build whole rows of houses and entire sections of cities for the market, just as it is the business of individual capitalists to build railways as contractors.
The execution of enterprises requiring working periods of considerable length and operations on a large scale does not fall fully within the province of capitalist production until the concentration of capital becomes very pronounced, and the development of the credit system offers to the capitalist, on the other hand, the convenient expedient of advancing and thus risking other people’s capital instead of his own. It goes without saying that whether the capital advanced in production belongs to him who uses it or does not has no effect on the velocity or time of turnover.
Conditions such as cooperation, division of labour, application of machinery, which augment the product of the individual working-day, shorten at the same time the working period of connected acts of production. Thus machinery shortens the building time of houses, bridges, etc.; mowers and threshers reduce the working period required to transform ripe grain into the finished product. Greater speed due to improved shipbuilding cuts the turnover time of capital invested in shipping. But improvements that shorten the working period and thereby the time during which circulating capital must be advanced generally go hand in hand with an increased outlay of fixed capital.
On the other hand the working period in certain branches of production may be diminished by the mere extension of cooperation. The completion of a railway is expedited by setting afoot huge armies of labourer and thus tackling the job in many spots at once. The time of turnover is lessened in that case by an increase of the advanced capital. More means of production and more labour-power must be united under the command of the capitalist.
Whereas the shortening of the working period is thus mostly connected with an increase of the capital advanced for this abbreviated time — the shorter the term of advance the greater the capital advanced — it must here be recalled that regardless of the existing amount of social capital, the essential point is the degree in which the means of production and subsistence, or the disposal of them, are scattered or concentrated in the hands of individual capitalists, in other words, the degree of concentration of capitals already attained. Inasmuch as credit promotes, accelerates and enhances the concentration of capital in one hand, it contributes to the shortening of the working period and thus of the turnover time.
In branches of production in which the working period, whether continuous or discontinuous, is prescribed by definite natural conditions, no shortening by the above-mentioned means can take place. Says W. Walter Good, in his Political, Agricultural, and Commercial Fallacies (London, 1866, p. 325):
The part of the value transferred in layers by the fixed capital to the product accumulates, and the return of this part is delayed, in proportion to the length of the working period and thus also of the period of time required for the completion of the commodity capable of circulation. But this delay does not cause a renewed outlay of fixed capital. The machine continues to function in the process of production, whether the replacement of its wear and tear in the form of money returns slowly or rapidly. It is different with the circulating capital. Not only must capital be tied up for a rather long time, in proportion to the length of the working period, but new capital must be continually advanced in the shape of wages, and raw and auxiliary materials. A delayed return has therefore a different effect on each. No matter whether the return is rapid or slow, the fixed capital continues to function. But the circulating capital becomes unable to perform its functions, if the return is delayed, if it is tied up in the form of unsold, or unfinished and as yet unsaleable products, and if no additional capital is at hand for its renewal in kind.
It is here not a question of interruptions of the labour-process necessitated by natural limitations of the labour-power itself, although we have seen to what extent the mere circumstance that fixed capital — factory buildings, machinery, etc. — lies idle during pauses in the labour-process, [See: Karl Marx, Capital, Vol. I, pp. 256-63. — Ed.] became one of the motives for an unnatural prolongation of the labour-process and for day-and-night work. We are dealing here rather with interruptions independent of the length of the labour-process, brought about by the very nature of the product and its fabrication, during which the subject of labour is for a longer or shorter time subjected to natural processes, must undergo physical, chemical and physiological changes, during which the labour-process is entirely or partially suspended.
For instance grape after being pressed must ferment awhile and then rest for some time in order to reach a certain degree of perfection. In many branches of industry the product must pass through a drying process, for instance in pottery, or be exposed to certain conditions in order to change its chemical properties, as for instance in bleaching. Winter grain needs about nine months to mature. Between the time of sowing and harvesting the labour-process is almost entirely suspended. In timber-raising, after the sowing and the incidental preliminary work are completed, the seed requires about 100 years to be transformed into a finished product and during all that time it stands in comparatively very little need of the action of labour.
In all these cases additional labour is drawn on only occasionally during a large portion of the time of production. The condition described in the previous chapter, where additional capital and labour must be supplied to the capital already tied up in the process of production, obtains here only with longer or shorter intervals.
A peculiar illustration of the divergence of the production time from the working time is furnished by the American manufacture of shoe-lasts. In this case a considerable portion of the unproductive costs arises from having to hold the timber at least eighteen months before it is dry enough to work, so as to prevent subsequent warping. During this time the wood does not pass through any other labour-process. The period of turnover of the invested capital is therefore not determined solely by the time required for the manufacture of the lasts but also by the time during which it lies unproductive in the shape of drying wood. It stays 18 months in the process of production before it can enter into the labour-process proper. This example shows at the same time that the times of turnover of different parts of the aggregate circulating capital may differ in consequence of conditions which do not arise within the sphere of circulation but owe their origin to the production process.
The difference between production time and working time becomes especially apparent in agriculture. In our moderate climates the land bears grain once a year. Shortening or lengthening the period of production (for winter grain it averages nine months) itself depends on the alternation of good and bad seasons, and for this reason cannot be accurately determined and controlled beforehand as in industry proper. Only such by-products as milk, cheese, etc., can steadily be produced and sold in comparatively short periods. On the other hand, working time data are as follows:
In agriculture we have a combination of both the longer working period and the great difference between working time and production time. Hodgskin rightly remarks:
The following passage in the above quotation from Kirchhof in particularly worthy of note:
The same applies to stock raising. A part of the herd (supply of cattle) remains in the process of production, while another part is sold annually as a product. In this case only a part of the capital is turned over every year, just as in the case of fixed capital: machinery, working cattle, etc. although this capital is a capital fixed in the process of production for a long time, and thus prolongs the turnover of the total capital, it is not a fixed capital in the strict definition of the term.
What is here called a supply — a certain amount of standing timber or livestock — exists relatively in the process of production (simultaneously as instruments of labour and material of labour); in accordance with the natural conditions of its reproduction under proper management, a considerable part of this supply must always be available in this form.
A similar influence on the turnover is exerted by another kind of supply, which is productive capital only potentially, but which owing to the nature of this economy, must be accumulated in more or less considerable quantities and hence advanced for purposes of production for a long term, although it enters into the actual process of production only gradually. In this class belongs for instance manure before it is hauled to the field, furthermore grain, hay, etc., and such supplies of means of subsistence as are employed in the production of cattle.
We shall see later (Volume III), what senseless theories MacCulloch, James Mill, etc., arrived at as a result of the attempt to identify the production time diverging from working time with the latter, an attempt which in turn is due to a misapplication of the theory of value.
The turnover cycle which we considered above is determined by the durability of the fixed capital advanced for the process of production. Since this cycle extends over a number of years it comprises a series of either annual turnovers of fixed capital or of turnovers repeated during the year.
In agriculture such a cycle of turnovers arises out of the system of crop rotation.
One of the sections of the time of circulation — relatively the most decisive — consists of the time of selling, the period during which capital exists in the state of commodity-capital. The time of circulation, and hence the period of turnover in general, are long or short depending on the relative length of this selling time. An additional outlay of capital may become necessary as a result of expenses of storage, etc. It is clear at the very start that the time required for the sale of finished goods may differ considerably for the individual capitalists in one and the same branch of industry. Hence it may differ not only for the aggregate capitals invested in the various branches of industry, but also for the various independent capitals, which are in fact merely parts of the aggregate capital invested in the same sphere of production but which have made themselves independent. Other circumstances remaining equal, the period of selling will vary for the same individual capital with the general fluctuations of the market or with its fluctuations in that particular line of business. We shall not dwell on this point any longer. We merely state this simple fact: All circumstances which in general give rise to differences in the periods of turnover of the capitals invested in different branches of industry bring in their train differences also in the turnover of the various individual capitals operating in the same business, provided these circumstances operate individually (for instance, if one capitalist has an opportunity to sell more rapidly than his competitor, if one employs more methods shortening the working periods than the other, etc.)
All branches of production which by the nature of their product are dependent mainly on local consumption, such as breweries, are therefore developed to the greatest extent in the principal centres of population. The more rapid turnover of capital compensates here in part for the circumstance that a number of conditions of production, building lots, etc., are more expensive.
Whereas on the one hand the improvement of the means of transportation and communication brought about by the progress of capitalist production reduces the time of circulation of particular quantities of commodities, the same progress and the opportunities created by the development of transport and communication facilities make it imperative, conversely, to work for ever more remote markets, in a word — for the world-market. The mass of commodities in transit for distant places grows enormously, and with it therefore grows, both absolutely and relatively, that part of social capital which remains continually for long periods in the stage of commodity-capital, within the time of circulation. There is a simultaneous growth of that portion of social wealth which, instead of serving as direct means of production, is invested in means of transportation and communication and in the fixed and circulating capital required for their operation.
The mere relative length of the transit of the commodities from their place of production to their market produces a difference not only in the first part of the circulation time, the selling time, but also in its second part, the reconversion of the money into the elements of the productive capital, the buying time. Suppose a commodity is shipped to India. This requires, say, four months. Let us assume that the selling time is equal to zero, i.e., the commodities are made to order and are paid for on delivery to the agent of the producer. The return of the money (no matter in what form) requires another four months. Thus it takes altogether eight months before a capital can again function as productive capital, renew the same operation. The differences in the turnover thus occasioned form one of the material bases of the various terms of credit, just as overseas commerce in general, for instance in Venice and Genoa, is one of the sources of the credit system, properly speaking.
It is a matter of course that with the longer time of commodity circulation the risk of a change of prices in the market increases, since the period in which price changes can take place is lengthened.
Differences in the time of circulation, partly individual between the various separate capitals of the same branch of business, partly between different branches of business according to the different usances, when payment is not made in spot cash, arise from the different terms of payment in buying and selling. We shall not dwell any longer here on this point which is of importance to the credit system.
Differences in the turnover time arise also from the size of contracts for the delivery of goods, and their size grows with the extent and scale of capitalist production. A contract of delivery, being a transaction between buyer and seller, is an operation pertaining to the market, the sphere of circulation. The differences in the time of turnover arising here stem therefore from the sphere of circulation, but react immediately on the sphere of production, and do so apart from all terms of payment and conditions of credit, hence also in the case of cash payment. For instance coal, cotton, yarn, etc., are discrete products. Every day supplies its quantum of finished product. But if the master-spinner or the mine-owner accepts contracts for the delivery of such large quantities of products as require, say, a period of four or six weeks of consecutive working-days, then this is quite the same, so far as the time of advancement of capital is concerned, as if a continuous working period of four or six weeks had been introduced in this labour-process. It is of course assumed here that the entire quantity ordered is to be delivered in one bulk, or at least is paid for only after total delivery. Individually considered, every day has thus furnished its definite quantum of finished product. But this finished quantum is only a part of the quantity contracted for. While in this case the portion finished so far is no longer in the process of production, still it lies in the warehouse as potential capital only.
Now let us take up the second stage of the time of circulation, the buying time, or that period in which capital is reconverted from the money-form into the elements of productive capital. During this period it must persist for a shorter or longer time in its condition of money-capital, hence a certain portion of the total capital advanced must all the time be in the condition of money-capital, although this portion consists of constantly changing elements. For instance, of the total capital advanced in a certain business, n times £100 must be available in the form of money-capital, so that, while all the constituent parts of these n times £100 are continually converted into productive capital, this sum is nevertheless just as continually replenished by the influx from the circulation, from the realised commodity-capital. A definite part of the advanced capital-value is therefore continually in the condition of money-capital, i.e., a form not pertaining to its sphere of production but its sphere of circulation.
We have already seen that the prolongation of the time for which capital is fettered in the form of commodity-capital on account of the distance of the market results in direct delay of the return of the money and consequently also the transformation of the capital from money-capital into productive capital.
We have furthermore seen (Chapter VI) with reference to the purchase of commodities, that the time of buying, the greater or smaller distance from the main sources of the raw material, makes it necessary to purchase raw material for a longer period and have it available in the form of a productive supply, of latent or potential productive capital; that in consequence it increases the amount of capital to be advanced at one time, and the time for which it must be advanced, if the scale of production remains otherwise the same.
A similar effect is produced in various branches of business by the more or less prolonged periods in which rather large quantities of raw material are thrown on the market. In London for example great auction sales of wool take place every three months, and the wool market is controlled by them. The cotton market on the other hand is on the whole restocked continuously, if not uniformly, from harvest to harvest. Such periods determine the principal dates when these raw materials are bought. Their effect is particularly great on speculative purchases necessitating advances for longer or shorter periods for these elements of production, just as the nature of the produced commodities acts on the speculative, intentional withholding of a product for a longer or shorter term in the form of potential commodity-capital.
Apart from all speculation, the volume of the purchases of those commodities which must always be available as a productive supply depends on the times of the renewal of this supply, hence on circumstances which in their turn are dependent on market conditions and which therefore are different for different raw materials. In these cases money must be advanced from time to time in rather large quantities and in lump sums. It returns more or less rapidly, but always in instalments, according to the turnover of capital. One portion of it, namely the part reconverted into wages, is just as continually expended again at short intervals. But another portion, namely that which is to be reconverted into raw material, etc., must be accumulated for rather long periods, as a reserve fund for either buying or paying. Therefore it exists in the form of money-capital, although the volume in which it exists as such, changes.
We shall see in the next chapter that other circumstances arising either from the process of production or that of circulation make it necessary for a certain portion of the advanced capital to be available in the form of money. In general it must be noted that the economists are very prone to forget not only that a part of the capital required in a business passes successively through the three stages of money-capital, productive capital, and commodity-capital, but also that different portions of it continuously and simultaneously possess these forms, although the relative magnitudes of these portions vary all the time. It is especially the part always available as money-capital that is forgotten by the economists, although precisely this circumstance is highly essential for an understanding of bourgeois economy and consequently makes its importance felt as such also in practice.
Take the commodity-capital which is the product of a working period of, say, nine weeks. Let us, for the time being, leave aside that portion of the value of the product which is added to it by the average wear and tear of the fixed capital, and also the surplus-value added to the product during the process of production. The value of this product is then equal to that of the circulating capital, advanced for its production, i.e., of the wages and the raw and auxiliary materials consumed in its production. Let this value be £900, so that the weekly outlay is £100. The period of production, which here coincides with the working period, is therefore nine weeks. It is immaterial whether it is assumed that this is the working period of a continuous product, or whether it is a continuous working period for a discrete product, so long as the quantity of discrete product brought to market at one time costs nine weeks’ labour. Let the time of circulation be three weeks. Then the entire period of turnover is twelve weeks. At the end of nine weeks the advanced productive capital is converted into commodity-capital, but now it stays for three weeks in the period of circulation. The new period of production therefore cannot start before the beginning of the thirteenth week, and production would be at a standstill for three weeks, or for a quarter of the entire period of turnover. It again does not make any difference whether it is assumed that it takes so long on an average to sell the product, or that this length of time is bound up with the remoteness of the market or the terms of payment for the goods sold. Production would be standing still for three weeks every three months, making it four times three, or twelve weeks in a year, which means three months, or one-quarter, of the annual period of turnover. Hence, if production is to be continuous and carried along the same scale week after week, there is only this alternative:
Either the scale of production must be reduced, so that the £900 suffice to keep the work going both during the working period and the time of circulation of the first turnover, is then commenced with the tenth week, before the first period of turnover is completed, for the period of turnover is twelve weeks, and the working period nine weeks. A sum of £900 distributed over twelve weeks makes £75 per week. It is evident in the first place that such a reduced scale of business presupposes changed dimensions of the fixed capital and therefore, on the whole, a curtailment of the business. In the second place, it is questionable whether such a reduction can take place at all, for in each business there exists, commensurate with the development of its production, a normal minimum of invested capital essential to maintain its capacity to complete. This normal minimum grows steadily with the advance of capitalist production, and hence it is not fixed. There are numerous intermediate grades between the normal minimum existing at any particular time and the ever increasing normal maximum, a medium which permits of many different scales of capital investment. Within the limits of this medium reductions may take place, their lowest limit being the prevailing normal minimum.
When there is a hitch in production, when the markets are overstocked, and when raw materials rise in price, etc., the normal outlay of circulating capital is restricted — once the pattern of the fixed capital has been set — by cutting down working time to, say, one half. On the other hand, in times of prosperity, the pattern of the fixed capital given, there is an abnormal expansion of the circulating capital, partly through the extension of working time and partly through its intensification. In businesses which have, from the outset, to reckon with such fluctuations, the situation is relieved partly by recourse to the above measures and partly by employing simultaneously a greater number of labourers, in combination with the application of reserve fixed capital, such as reserve locomotives on railways, etc. However, such abnormal fluctuations are not considered here, where we assume normal conditions.
In order to make production continuous, therefore, the expenditure of the same circulating capital is here distributed over a longer period, over twelve weeks instead of nine. In every section of time there consequently functions a reduced productive capital. The circulating portion of the productive capital is reduced from 100 to 75, or one-quarter. The total amount by which the productive capital functioning for a working period of nine weeks is reduced equals 9 times 25, or £225, or one-quarter of £900. But the ratio of the time of circulation to that of turnover is likewise three-twelfths, or one-quarter. It follows therefore: circulation of the productive capital transformed into commodity-capital, if it is rather to be carried on simultaneously and continuously week after week, and if no special circulating capital is available for this purpose, it can be done only by curtailing productive operations, by reducing the circulating component of the functioning productive capital. The portion of circulating capital thus set free for production during the time of circulation is to the total advanced circulating capital as the time of circulation is to the period of turnover. This applies, as has already been stated, only to branches of production in which the labour-process is carried on in the same scale week after week, where therefore no varying amounts of capital are to be invested in different working periods, as for instance in agriculture.
If on the other hand we assume that the nature of the business excludes a reduction of the scale of production, and thus of the circulating capital to be advanced each week, then continuity of production can be secured only by additional circulating capital, in the above-named case of £300. During the twelve-week turnover period, £1,200 are successively invested, and £300 is one-quarter of this sum as three weeks is of twelve. At the end of the working time of nine weeks the capital-value of £900 has been converted from the form of productive into that of commodity-capital. Its working period is concluded, but it cannot be re-opened with the same capital. During the three weeks in which it stays in the sphere of circulation, functioning as commodity-capital, it is in the same state, so far as the process of production is concerned, as if it did not exist at all. We rule out in the present case all credit relations and take for granted that the capitalist operates only with his own money. But during the time the capital advanced for the first working period, having completed its process of production, stays three weeks in the process of circulation, there functions an additional capital investment of £300, so that the continuity of production is not broken.
Now, the following must be noted in this connection:
Firstly: The working period of the capital of £900 first advanced is completed at the close of nine weeks and it does not return until after three weeks are up, that is to say, at the beginning of the thirteenth week. But a new working period is immediately begun with the additional capital of £300. By this means continuity of production is maintained.
Secondly: The functions of the original capital of £900 and of the capital of £300 newly added at the close of the first nine-week working period, inaugurating the second working period after the conclusion of the first without any interruption, are, or at least could be, clearly distinguished in the first period of turnover, while they cross each other each other in the course of the second period of turnover.
Let us make this matter plainer.
First period of turnover of 12 weeks. First working period of 9 weeks; the turnover of the capital advanced for this is completed at the beginning of the 13th week. During the last 3 weeks the additional capital of £300 functions, opening the second working period of 9 weeks.
Second period of turnover. At the beginning of the 13th week, £900 have returned and are able to begin a new turnover. But the second working period has already been opened in the 10th week by the additional £300. At the start of the 13th week, thanks to this, one-third of the working period is already over and £300 has been converted from productive capital into product. Since only 6 weeks more are required for the completion of the second working period, only two-thirds of the returned capital of £900, or only £600, can enter into the productive process of the second working period. £300 of the original £900 are set free to play the same role which the additional capital of £300 played in the first working period. At the close of the 6th week of the second period of turnover the second working period is up. The capital of £900 advanced in it returns after 3 weeks, or at the end of the 9th week of the second, 12-week period of turnover. During the 3 weeks of its period of circulation, the freed capital of £300 comes into action. This begins the third working period of a capital of 900 in the 7th week of the second period of turnover, or the 19th week of the year.
Third period of turnover. At the close of the 9th week of the second period of turnover there is a new reflux of £900. But the third working period has already commenced in the 7th week of the previous period of turnover and 6 weeks have already elapsed. The third working period, then, lasts only another 3 weeks. Hence only £300 of the returned £900 enter into the productive process. The fourth working period fills out the remaining 9 weeks of this period of turnover and thus the 37th week of the year begins simultaneously the fourth period of turnover and the fifth working period.
In order to simplify the calculation in this case let us assume a working period of 5 weeks and a period of circulation of 5 weeks, making a turnover period of 10 weeks. Figure the year as composed of fifty weeks and the capital outlay per week as £100. A working period then requires a circulating capital of £500 and the time of circulation an additional capital of £500. The working periods and times of turnover then are as follows:
Now let us take a third illustration: Working period 6 weeks time of circulation 3 weeks, weekly advance during labour-process £100.
1st working period: 1st-6th week. At the end of the 6th week a commodity-capital of £600, returned at the end of the 9th week.
2nd working period: 7th-12th week. During the 7th-9th week £300 of additional capital is advanced. At the end of the 9th week, return of £600. Of this, £300 are advanced during the 10th-12th week. At the end of the 12th week therefore £300 are free and £600 are in the form of commodity-capital, returnable at the end of the 15th week.
3rd working period: 13th-18th week. During the 13th-15th week, advance of above £300, then reflux of £600, of which 300 are advanced for the 16th-18th week. At the end of the 18th week, £300 are free in money-form, £600 on hand as commodity-capital which returns at the end of the 21st week. (See the more detailed presentation of this case under II, below.)
A comparison of these three illustrations shows, first, that a successive release of capital I of £500 and of additional capital II of likewise £500 takes place only in the second illustration, so that these two portions of capital move separately and apart from each other. But this is so only because we have made the very exceptional assumption that the working period and the time of circulation form two equal halves of the turnover period. In all other cases, whatever the difference between the two constituents of the period of turnover, the movements of the two capitals cross each other, as in illustrations I and III, beginning with the second period of turnover. The additional capital II, with a portion of capital I, then forms the capital functioning in the second turnover period, while the remainder of capital I is set free to perform the original function of capital II. The capital operating during the circulation time of the commodity-capital is not identical, in this case, with the capital II originally advanced for this purpose, but it is of the same value and forms the same aliquot part of the total capital advanced.
Secondly: The capital which functioned during the working period lies idle during the time of circulation. In the second illustration the capital functions during the 5 weeks of the working period and lies idle during the 5 weeks of the circulation period. Therefore the entire time during which capital I lies idle here amounts to one half of the year. It is the additional capital II that appears during this time having, in the case before us, also in its turn lain idle half a year. But the additional capital required to ensure the continuity of production during the time of circulation is not determined by the aggregated amount, or sum total, of the times of circulation during the year, but only by the ratio of the time of circulation to the period of turnover. (We assume, of course, that all the turnovers take place under the same conditions.) For this reason £500 of additional capital, and not £2,500, are required in the second illustration. This is simply due to the fact that the additional capital enters just as well into the turnover as the capital originally advanced, and that it therefore makes up its magnitude just as the other by the number of its turnovers.
Thirdly: The circumstances here considered are not affected by whether the time of production is longer than the working time or not. True, the aggregate of the periods of turnover is prolonged thereby, but this extension does not necessitate any additional capital for the labour-process. The additional capital serves merely the purpose of filling the gaps in the labour-process that arise on account of the time of circulation. Hence it is there simply to protect production against interruptions, originating in the time of circulation. Interruptions arising from the specific conditions of production are to be eliminated in another way, which need not be discussed at this point. There are however establishments in which work is carried on only intermittently, to order, so that there may be intervals between the working periods. In such cases, the need for additional capital is pro tanto eliminated. On the other hand in most cases of seasonal work there is a certain limit for the time of reflux. The same work cannot be renewed next year with the same capital, if the circulation time of this capital has not, in the meantime, run out. On the other hand the time of circulation may also be shorter than the interval between two periods of production. In that event the capital lies fallow, unless it is meanwhile employed otherwise.
Fourthly: The capital advanced for a certain working period — for instance the £600 in the third illustration — is invested partly in raw and auxiliary materials, in a productive supply for the working period, in constant circulating capital, and partly in variable circulating capital, in the payment of labour itself. The portion laid out in constant circulating capital, may not exist for the same length of time in the form of a productive supply; the raw material for instance may not be on hand for the entire working period, coal may be procured only every two weeks. However, as credit is still out of the question here, this portion of capital, in so far as it is not available in the form of a productive supply, must be kept on hand in the form of money so that it can be converted into a productive supply as and when needed. This does not alter the magnitude of the constant circulating capital-value advanced for 6 weeks. On the other hand — regardless of the money-supply for unforeseen expenses, the reserve fund proper for the elimination of disturbances — wages are paid in shorter intervals, mostly weekly. Therefore unless the capitalist compels the labourer to advance his labour for a longer time, the capital required for wages must be on hand in the form of money. During the reflux of the capital a portion must therefore be retained in money-form for the payment of the labour, while the remaining portion may be converted into productive supply.
The additional capital is divided exactly like the original. But it is distinguished from capital I by the fact that (apart from credit relations) in order to be available for its own working period it must advanced during the entire duration of the first working period of capital I, into which it does not enter. During this time it can already be converted, at least in part, into constant circulating capital, having been advanced for the entire period of turnover. To what extent it assumes this form or persists in the form of additional money-capital until this conversion becomes necessary, will depend partly on the special conditions of production of definite lines of business, partly on local conditions, partly on the price fluctuations of raw material, etc. If social capital is viewed in its entirety, a more or less considerable part of this additional capital will always be for a rather long time in the state of money-capital. But as for that portion of capital II which is to be advanced for wages, it is always converted only gradually into labour-power, as small working periods expire and are paid for. This portion of capital II, then, is available in the form of money-capital during the entire working period, until by its conversion into labour-power it take part in the function of productive capital.
Consequently, the accession of the additional capital required for the transformation of the circulation time of capital I into time of production, increases not only the magnitude of the advanced capital and the length of time for which the aggregate capital must necessarily be advanced, but also, and specifically so, that portion of the advanced capital which exists as money-supply, which hence exists in the state of money-capital and has the form of potential money-capital.
The same thing also takes place — as far as it concerns both the advance in the form of a productive supply and in that of a money-supply — when the separation of capital into two parts made necessary by the time of circulation, namely into capital for the first working period and replacement capital for the time of circulation, is not caused by the increase of the capital laid out but by a decrease of the scale of production. The amount of capital tied up in the money-form grows here still more in relation to the scale of production.
What is achieved in general by this separation of capital into an originally productive and an additional capital is a continuous succession of the working periods, the constant function of an equal portion of the advanced capital as productive capital.
Let us look at the second illustration. The capital continuously employed in the process of production amounts to £500. As the working period is 5 weeks it operates ten times during 50 weeks (taken as a year). Hence its product, apart from surplus-value, is 10 times £500, or £5,000. From the standpoint of a capital working directly and uninterruptedly in the process of production — a capital-value of £500 — the time of circulation seems to be brought to nought. The period of turnover coincides with the working period, and the time of circulation is assumed to be equal to zero.
But if the capital of £500 were regularly interrupted in its productive activity by a 5-week circulation time, so that it would again become capable of production only after the close of the entire 10-week turnover period, we should have 5 turnovers of ten weeks each in the 50 weeks of the year. These would comprise five 5-week periods of production, or a sum of 25 productive weeks with a total product worth 5 times £500 or £2,500, and five 5-week periods of circulation, or a total circulation time of likewise 25 weeks. If we say in this case that the capital of £500 has been turned over 5 times in the year, it will be clear and obvious that during half of each period of turnover this capital of £500 did not function at all as a production capital and that, all in all, it performed its functions only during one half of the year, but did not function at all during the other half.
In our illustration the replacement capital of £500 appears on the scene during those five periods of circulation and the turnover is thus expanded from £2,500 to £5,000. But now the advanced capital is £1,000 instead of £500. 5,000 divided by 1,000 is 5. Hence, there are five turnovers instead of ten. And that is just the way people figure. But when it is said that the capital of £1,000 has been turned over five times during the year, the recollection of the time of circulation disappears from the hollow skulls of the capitalists and a confused idea is formed that this capital has served continuously in the production process during the five successive turnovers. But if we say that the capital of £1,000 has been turned over five times this includes both the time of circulation and the time of production. Indeed, if £1,000 had really been continuously active in the process of production, the product would, according to our assumptions, have to be £10,000 instead of £5,000. But in order to have £1,000 continuously in the process of production, £2,000 would have to be advanced. The economists, who as a general rule have nothing clear to say in reference to the mechanism of the turnover, always overlook this main point, to wit, that only a part of the industrial capital can actually be engaged in the process of production if production is to proceed uninterruptedly. While one part is in the period of production, another must always be in the period of circulation. Or in other words, one part can perform the function of productive capital only on condition that another part is withdrawn from production proper in the form of commodity- or money-capital. In overlooking this, the significance and role of money-capital is entirely ignored.
We have now to ascertain what differences in the turnover arise if the two sections of the period of turnover, the working period and the circulation period, are equal, or if the working period is greater or smaller than the circulation period, and, furthermore, what effect this has on the tie-up of capital in the form of money-capital.
We assume the capital advanced weekly to be in all cases £100, and the period of turnover 9 weeks, so that the capital to be advanced in each period of turnover is £900.
The two capitals (capital I advanced for the first working period, and supplemental capital II, which functions during the circulation period of capital I) relieve one another in their movements without crossing. With the exception of the first period, either of the two capitals is therefore advanced only for its own period of turnover. Let the period of turnover be 9 weeks, as indicated in the following illustrations, so that the working period and the circulation period are each 4½ weeks. Then we have the following annual diagram.
Let us consider capital I and capital II as two capitals wholly independent of one another. They are entirely independent in their movements; these movements complement one another merely because their working and circulating periods directly relieve one another. They may be regarded as two totally independent capitals belonging to different capitalists.
By the end of the 51st week, which we regard here as the end of the year, £150 of capital II have been advanced to the production of an unfinished lot of goods. Another part of it exists in the form of circulating constant capital — raw materials, etc. — i.e., in a form in which it can function as productive capital in the production process. But a third part of it exists in the form of money, at least the amount of the wages for the remainder of the working period (3 weeks), which is not paid, however, until the end of each week. Now, although at the beginning of a new year, hence of a new turnover cycle, this portion of the capital is not in the form of productive capital but in that of money-capital, in which it cannot take part in the process of production, at the opening of the new turnover circulating variable capital, i.e., living labour-power, is nevertheless active in the process of production. This is due to the fact that labour-power is not paid until the end of the week, although bought at the beginning of the working period, say, per week, and so consumed. Money serves here as a means of payment. For this reason it is still as money in the hands of the capitalist, on the one hand, while, on the other hand, labour-power, the commodity into which money is being transformed, is already active in the process of production, so that the same capital-value appears here doubly.
If we look merely at the working periods,
On the other hand, if we consider the periods of turnover, there has been turned over:
It is to be noted that if capitals I and II were independent of each other they would nevertheless form merely different independent portions of the social capital advanced in the same sphere of production. Hence if the social capital within this sphere of production were composed solely of I and II, the same calculation would apply to the turnover of the social capital in this sphere as applies here to the constituent parts I and II of the same private capital. Going further, every portion of the entire social capital invested in any particular sphere of production may be so calculated. But in the last analysis, the number of turnovers made by the entire social capital is equal to the sum of the capitals turned over in the various spheres of production divided by the sum of the capitals advanced in those spheres.
It must further be noted that just as capitals I and II in the same private business have here strictly speaking different turnover years (the cycle of turnover of capital II beginning 4½ weeks later than that of capital I, so that the year of I ends 4½ weeks earlier than that of II), so the various private capitals in the same sphere of production begin their operations at totally different periods and therefore conclude their turnover years at different times of the year. The same calculation of averages that we employed above for I and II suffices also here to bring down the turnover years of the various independent portions of the social capital to one uniform turnover year.
But this does not alter the fact that, as before, 1) the number of working periods of the total capital advanced is equal to the sum of the value of the annual product of both advanced portions of capital divided by the total capital advanced, and 2) the number of turnovers made by the total capital is equal to the sum of the two amounts turned over divided by the sum of the two advanced capitals. Here too we must consider both portions of capital as if they performed turnover movements entirely independent of each other.
Thus, we assume once more, that £100 are to be advanced weekly to the labour-process. Let the working period last 6 weeks, requiring therefore every time an advance of £600 (capital I). Let the time of circulation be 3 weeks, so that the period of turnover is 9 weeks, as before. Let capital II of £300 step in during the three-week circulation period of capital I. Considering both capitals as independent of each other, we find the schedule of the annual turnover to be as follows:
In reality, capital II has no working and circulating periods separate and distinct from those of capital I. The working period is 6 weeks, the circulation period 3 weeks. Since capital II amounts to only £300, it can suffice only for a part of the working period. This is indeed the case. At the end of the 6th week a product valued at £600 passes into circulation and returns in money-form at the close of the 9th week. Then, at the opening of the 7th week, capital II begins its activity, and covers the requirements of the next working period, the 7th to 9th week. But according to our assumption the working period is only half up at the end of the 9th week. Hence capital I of £600 having just returned, at the beginning of the 10th week, once more enters into operation and with its £300 supplies the advances needed for the 10th to 12th week. This disposes of the second working period. A product value of £600 is in circulation and will return at the close of the 15th week. At the same time, £300, the amount of the original capital II, are set free and are able to function in the first half of the following working period, that is to say, in the 13th to 15th week. After the lapse of these weeks the £600 return; £300 of them suffice for the remainder of the working period, and £300 remain for the following working period.
The thing therefore works as follows:
In the present example we assumed a case in which the working time was ⅔ and the circulation time ⅓ of the period of turnover, i.e., the working time was a simple multiple of the circulation time. The question now is whether capital is likewise set free, in the way shown above, when this assumption is not made.
Let us assume a working time of 5 weeks, a circulation time of 4 weeks, and a capital advance of £100 per week.
Let us further assume a working period of 7 weeks, with a capital I of £700; a circulation period of 2 weeks, with a capital II of £200.
In that case the first period of turnover lasts from the 1st to the 9th week; its first working period from the 1st to the 7th week, with an advance of £700, its first circulation period from the 8th to the 9th week. End of the 9th week, £700 flow back in money-form.
The second period of turnover, from the 8th to the 16th week, contains the second working period of the 8th to the 14th week. The requirements of the 8th and 9th weeks of this period are covered by capital II. End of the 9th week, the above £700 return. Up to the close of this working period (10th-14th week), £500 of this sum are used up; £200 remain free for the next working period. The second circulation period lasts from the 15th to the 16th week. End of the 16th week £700 return once more. From now on, the same thing is repeated in every working period. The need for capital during the first two weeks is covered by the £200 set free at the close of the preceding working period; at the close of the second week £700 return; but only 5 weeks remain of the working period, so that it can consume only £500; therefore £200 always remain free for the next working period.
We find, then, that in the given case, where the working period has been assumed to be greater than the circulation period, a money-capital will at all events have been set free at the close of each working period, which is of the same magnitude as capital II advanced for the circulation period. In our three illustrations capital II was £300 in the first, £400 in the second, and £200 in third. Accordingly, the capital set free at the close of each working period was £300, £400 and £200 respectively.
The total turnover is as follows:
In all cases investigated it was assumed that both the working period and the circulation period remain the same throughout the year in any of the businesses here examined. This assumption was necessary if we wished to ascertain the influence of the time of circulation on the turnover and advancement of capital. That in reality this assumption is not so unconditionally valid, and that it frequently is not valid at all does not alter the case in the least.
A very considerable portion of the social circulating capital, which is turned over several times a year, will therefore periodically exist in the form of released capital during the annual turnover cycle.
It is furthermore evident that, all other circumstances being equal, the magnitude of the released capital grows with the volume of the labour-process or with the scale of production, hence with the development of capitalist production in general. In the case cited under B, (2), because the total advanced capital increases; in B (1), because with the development of capitalist production the length of the period of circulation grows, hence also the period of turnover in those cases where the working period is less than the period of circulation, and there is no regular ratio between the two periods.
In the first case for instance we had to invest £100 per week. This required £600 for a working period of 6 weeks, £300 for a circulation period of 3 weeks, totalling £900. In that case £300 are released continually. On the other hand if £300 are invested weekly, we have £1,800 for the working period and £900 for the circulation period. Hence £900 for the circulation period. Hence £900 instead of £300 are periodically set free.
Abstractly speaking, it is all the same whether £600 work during 6 times 8, or 48, weeks (product £4,800) or whether the total capital of £900 is expended during 6 weeks in the labour-process and then lies idle during the 3-week period of circulation. In the latter case, it would be working, in the course of the 48 weeks, 5⅓ times 6, or 32 weeks (product 5⅓ times 900, or £4,800), and lie idle for 16 weeks. But, apart from the greater spoilage of the fixed capital during the idle 16 weeks and apart from the appreciation of labour, which must be paid during the entire year, even if employed only during a part of it, such a regular interruption of the process of production is altogether irreconcilable with the operations of modern big industry. This continuity is itself a productive power of labour.
The money-capital thus released by the mere mechanism of the turnover movement (together with that freed by the successive reflux of fixed capital and that required in every labour-process for variable capital) must play an important role as soon as the credit system develops and must at the same time form one of the latter’s foundations.
Let us assume that the time of circulation in our illustration is shortened from 3 to 2 weeks. This is not to be a normal change, but due, say, to prosperous times, shorter terms of payment, etc. The capital of £600, which is laid out during the working period, returns one week earlier than needed. It is therefore released for this week. Furthermore, in the middle of the working period, as before, £300 are released (a portion of those £600), but for 4 weeks instead of 3. There are then, on the money-market £600 for one week and £300 for 4 instead of 3 weeks. As this concerns not one capitalist alone but many and occurs in various periods in different businesses, more available money-capital makes its appearance in the market. If this condition lasts for some time, production will be expanded wherever feasible. Capitalists operating on borrowed money will exercise less demand on the money-market, which eases it as much as increased supply; or finally the sums which have become superfluous for the mechanism are thrown definitely on the money-market.
In consequence of the contraction of the time of circulation from 3 weeks to 2, and consequently of the period of turnover from 9 weeks to 8, one-ninth of the total capital advanced becomes superfluous. The 6-week working period can now be kept going as continuously with £800 as formerly with £900. One portion of the value of the commodity-capital, equal to £100, once it has been reconverted into money, persists therefore in the state of money-capital without performing any more functions as a part of the capital advanced for the process of production. While the scale of production and other conditions, such as prices, etc., remain the same, the sum of value of the advanced capital is reduced from £900 to £800. The remainder of the originally advanced value amounting to £100 is eliminated in the form of money-capital. As such it enters the money-market and forms an additional portion of the capitals functioning here.
This shows the way in which a plethora of money-capital may arise — and not only in the sense that the supply of money-capital is greater than the demand; this is always only a relative plethora, which occurs for instance in the “melancholy period” opening a new cycle after the end of a crisis. But also in the sense that a definite portion of the capital-value advanced becomes superfluous for the operation of the entire process of social reproduction which includes the process of circulation and is therefore eliminated in the form of money-capital — a plethora brought about by the mere contraction of the period of turnover, while the scale of production and prices remain the same. The amount of money in circulation, whether great or small, did not influence it in the least.
Let us assume on the contrary that the period of circulation is prolonged from, say, 3 weeks to 5. In that case at the very next turnover the reflux of the advanced capital takes place 2 weeks too late. The last part of the process of production of this working period cannot be carried on further by the mechanism of the turnover of the advanced capital itself. Should this condition last any length of time, a contraction of the process of production, a reduction of its volume, might take place, just as an extension occurred in the previous case. But in order to continue the process on the same scale, the advanced capital would have to be increased by 2/9, or £200, for the entire term of the prolongation of the circulation period. This additional capital can be obtained only from the money-market. If the lengthening of the period of circulation applies to one or several big branches of business, it may exert pressure on the money-market, unless this effect is paralysed by some counter-effect. In this case it is likewise evident and obvious that this pressure, like that plethora before, had nothing whatever to do with a movement either of prices of the commodities or the mass of existing circulating medium.
[The preparation of this chapter for publication presented no small number of difficulties. Firmly grounded as Marx was in algebra, he did not get the knack of handling figures, particularly commercial arithmetic, although there exists a thick batch of copybooks containing numerous examples of all kinds of commercial computations which he had solved himself. But knowledge of the various methods of calculation and exercise in daily practical commercial arithmetic are by no means the same, and consequently Marx got so tangled up in his computations of turnovers that besides places left uncompleted a number of things were incorrect and contradictory. In the tables reproduced above I have preserved only the simplest and arithmetically correct data. My reason for doing so was mainly the following:
The uncertain results of these painstaking calculations led Marx to attach unwarranted importance to a circumstance, which in my opinion, has actually little significance. I refer to what he calls the “release” of money-capital. The actual state of affairs, based on the above assumptions, is this:
No matter what may be the ratio between the working period and circulation time, hence between capital I and capital II, there is returned to the capitalist, in the form of money, after the end of the first turnover and thereafter at regular intervals equal to the duration of one working period, the capital required for one working period, i.e., a sum equal to capital I.
If the working period is 5 weeks, the circulation time 4 weeks, and capital I £500, then a sum of money equal to £500 returns each time at the end of the 9th, 14th, 19th, 24th, 29th week, etc.
If the working period is 6 weeks, the circulation time 3 weeks, and capital I £600, then £600 return at the end of the 9th, 15th, 21st, 27th, 33rd week, etc.
Finally, if the working period is 4 weeks, the circulation time 5 weeks, and capital I £400, then £400 are returned at the end of the 9th, 13th, 17th, 21st, 25th week, etc.
Whether any, and if so how much, of this returned money is superfluous and thus released for the current working period is immaterial. It is assumed that production continues uninterruptedly on the current scale, and in order that this may come about money must be available and must therefore return, whether “released” or not. If production is interrupted, release stops likewise.
In other words: There is indeed a release of money, a formation therefore of latent, merely potential, capital in the form of money. But it takes place under all circumstances and not only under the special conditions set forth in the text; and it comes about on a larger scale than that assumed in the text. So far as circulating capital I is concerned, the industrial capitalist is in the same situation at the end of each turnover as when he established his business: he has all of it in one bulk, while he can convert it back into productive capital only gradually.
The essential point in the text is the proof that on the one hand a considerable portion of the industrial capital must always be available in the form of money and that on the other hand a still more considerable portion must temporarily assume the form of money. The proof is, if anything, rendered stronger by these additional remarks of mine. — F. E.]
In the second place however one half of the originally advanced capital-value of £900, or £450, which (a) passed successively through the forms of money-capital, productive capital, and commodity-capital, and (b) existed simultaneously and constantly side by side partly in the form of money-capital, partly in that of productive capital, and partly in that of commodity-capital, would be eliminated from the circuit of Business X, and thus come into the money-market as additional money-capital, affecting it as an additional constituent. These released £450 act as money-capital, not because they have become superfluous money for the operation of Business X but because they are a constituent part of the original capital-value, and hence are intended to function further as capital and not to be expended as mere means of circulation. The best method of letting them operate as capital is that of throwing them as money-capital on the money-market. On the other hand the scale of production (apart from fixed capital) might be doubled. In that case a productive process of double the previous volume would be carried on with the same advanced capital of £900.
If on the other hand the prices of the circulation elements of productive capital were to increase by one half, £1500 instead of £100 or £1,350 instead of £900 would be required per week. It would take an additional capital of £450 to carry on the business on the same scale, and this would exert a pro tanto pressure on the money-market, big or small depending on its condition. If all the capital available on this market were then already engaged, there would be increased competition for available capital. If a portion of it were unemployed, it would pro tanto be called into action.
But, in the third place, given a certain scale of production, the turnover velocity and the prices of the elements of the circulating productive capital remaining the same, the price of the products of Business X may rise or fall. If the price of the commodities supplied by Business X falls, the price of its commodity-capital of £600, which it constantly threw into circulation, drops to, say, £500. Hence one-sixth of the value of the advanced capital does not return from the process of circulation. (The surplus-value contained in the commodity-capital is not considered here.) It is lost in that process. But since the value, or price, of the elements of production remains the same, this reflux of £500 suffices only to replace 5/6 of the capital of £600 constantly engaged in the process of production. It would therefore require an additional money-capital of £100 to continue production on the same scale.
Vice versa, if the price of the product of Business X were to rise, then the price of the £600 commodity-capital would be increased, say, to £700. One-seventh of this price, or £100, does not originate in the process of production, is not advanced in this process, but derives from the process of circulation. But only £600 are needed to replace the elements of production. Hence, the release of £100.
It does not fall within the scope of the investigation hitherto made to ascertain why, in the first case, the period of turnover is shortened or lengthened, and why in the second case the prices of raw materials and labour, and in the third, the prices of the products supplied, rise or fall.
But the following does belong in it:
Business X supplies, just as before, the same six weeks’ product of the same value of £600, and as work continues year in year out without interruption, it supplies in 51 weeks the same quantity of products, valued at £5,100. There is, then, no change so far as the quantity and price of the product thrown into circulation by this business are concerned, nor in the times when it throws its product on the market. But £100 are eliminated because due to the contraction of the circulation period the requirements of the process are satisfied with only £800 instead of the former £900. The £100 eliminated capital exist in the form of money-capital. But they do not by any means represent that portion of the advanced capital which would have to function constantly in the form of money-capital. Let us assume that 4/5, or £480, of the advanced circulating capital I of £600 are constantly invested in productive materials and 1/5, or £120, in wages. Then the weekly investment in materials of production would be £80 and in wages £20. Capital II, amounting to £300, should then also be divided into 4/5, or £240, for materials of production and 1/5, or £60, for wages. The capital invested in wages must always be advanced in the form of money. As soon as the commodity-product, worth £600, has been reconverted into the money-form, or sold, £480 of it can be transformed into materials of production (productive supply), but £120 retain their money-form in order to serve for the payment of wages for six weeks. These £120 are the minimum of the returning capital of £600 which must always be renewed and replaced in the form of money-capital and therefore must always be kept on hand as that portion of the advanced capital which functions in the form of money.
Now, if £100 of the £300 periodically released for three weeks, and likewise divisible into £240 for productive supply and £60 for wages, is entirely eliminated, completely thrust out of the turnover mechanism, in the form of money-capital by shortening the circulation time, where does the money for this money-capital of £100 come from? Only one-fifth of this amount consists of money-capital periodically set free within the turnovers. But four-fifths, or £80, are already replaced by an additional productive supply of the same value. In what manner is this additional productive supply converted into money, and where does the money for this conversion come from?
If the abridged period of circulation has become a fact, then only £400 of the above £600, instead of £480, are reconverted into productive supply. The remainder, £80, is retained in its money-form and constitutes, together with the above £20 for wages, the £100 of eliminated capital. Although these £100 come from the sphere of circulation through the sale of the £600 worth of commodity-capital and are now withdrawn from it by not being reinvested in wages and elements of production, it must not be forgotten that, being in the money-form, they are once more in that form in which they were originally thrown into circulation. In the beginning £900 were invested in productive supply and wages. Now only £800 are necessary to carry out the same productive process. The £100 thus released in money now form a new, employment-seeking money-capital, a new constituent part of the money-market. True, they have already previously been periodically in the form of released money-capital and of additional productive capital, but these latent states were themselves the requisites for the execution of the process of production, because they were the requisites for its continuity. Now they are no longer needed for that purpose and for this reason form new money-capital and a constituent part of the money-market, although they by no means form either an additional element of the available social money-supply (for they existed at the beginning of the business and were thrown by it into the circulation), or a newly accumulated hoard.
These £100 are now in actual fact withdrawn from circulation inasmuch as they are a part of the advanced money-capital that is no longer employed in the same business. But this withdrawal is possible only because the conversion of the commodity-capital into money, and of this money into productive capital, C' — M — C, is accelerated by one week, so that the circulation of the money operating in this process is likewise hastened. They have been withdrawn from it because they are no longer needed for the turnover of capital X.
It has been assumed here that the advanced capital belongs to him who employs it. Had he borrowed it nothing would be changed. With the shortening of the time of circulation he would have to borrow only £800 instead of £900. The £100, if returned to the lender, would as before form £100 of new money-capital, only in the hands of Y instead of X. Should capitalist X receive £480 worth of materials of production on credit, so that he has to advance only £210 in money for wages out of his own pocket, he would now have to procure £80 worth of materials less on credit and this sum would constitute superfluous commodity-capital for the capitalist granting the credit, while capitalist X would have eliminated £20 in money.
The additional supply for production is now reduced by one-third. It consisted of £240 constituting four-fifths of £300, the additional capital II, but now it is only £160, i.e., additional supply for 2 instead of 3 weeks. It is now renewed every 2 weeks instead of every 3, but only for 2 instead of 3 weeks. The purchases, for instance in the cotton market, are thus more frequent and smaller. The same amount of cotton is withdrawn from the market, for the quantity of the product remains the same. But the withdrawals are distributed differently in time, extending over a longer period. Supposing that it is a question of 3 months or 2. If the annual consumption of cotton amounts to 1,200 bales, the sales in the first case will be:
But in the second case:
Hitherto we presupposed that the contraction of the time of circulation in Business X was due to the fact that X sold his articles quicker, received his money for them sooner, or, in the event of credit, was given shorter terms of payment. The contraction was therefore attributed to a quicker sale of the commodities, to a quicker transformation of commodity-capital into money-capital, C' — M, the first phase of the process of circulation. But it might also derive from the second phase, M — C, and hence from a simultaneous change, be it in the working period or in the time of circulation of capitals Y, Z, etc., which supply capitalist X with the productive elements of his circulating capital.
For instance if cotton, coal, etc., with the old methods of transport, are three weeks in transit from their place of production or storage to the place of production of capitalist X, then X’s productive supply must last at least for three weeks, until the arrival of new supplies. So long as cotton and coal are in transit, they cannot serve as means of production. They are then rather a subject of labour for the transport industry and the capital employed in it; they are also commodity-capital in the process of circulation for the producer of coal or the dealer in cotton. Suppose improvements in transport reduce the transit to two weeks. Then the productive supply can be changed from a three-weekly into a fortnightly supply. This releases the additional advanced capital £80 set aside for this purpose and likewise the £20 for wages, because the turned-over capital of £600 returns one week sooner.
On the other hand if for instance the working period of the capital which supplies the raw materials is cut down (examples of which were given in the preceding chapters), so that the possibility arises of renewing the supply of raw materials in less time, then the productive supply may be reduced and the interval between periods of renewal shortened.
If, vice versa, the time of circulation, and thus the period of turnover, are prolonged, then it is necessary to advance additional capital. This must come out of the pocket of the capitalist himself if he has any additional capital. But it will then be invested in some form or other as a part of the money-market. To make it available, it must be pried loose from its old form. For instance stocks must be sold, deposits withdrawn, so that in this case too the money-market is indirectly affected. Or he must borrow it. As for that part of the additional capital which is needed for wages, it must under normal conditions always be advanced in the form of money-capital, and for that purpose the capitalist X exerts his share of direct pressure on the money-market. But this is indispensable for the part which must be invested in materials of production only if he must pay for them in cash. If he can get them on credit, this does not have any direct influence on the money-market, because the additional capital is then advanced directly as a productive supply and not in the first instance as money-capital. But if the lender throws the bill of exchange received from X directly on the market, discounts it, etc., this would influence the money-market indirectly, through someone else. If, however, he uses this note to cover a debt not yet due for instance, this additional advanced capital does not affect the money-market either directly or indirectly.
If the materials of production drop to half, they require for the 6-week period only £240 instead of £480, and for the additional capital No. II only £120 instead of £240. Capital I is thus reduced from £600 to £240 plus £120, or £360, and capital II from £300 to £120 plus £60, or £180. The total capital of £900 is therefore reduced to £360 plus £180, or £540. A sum of £360 is therefore released.
This eliminated and now unemployed capital, or money-capital, seeking employment in the money-market, is nothing but a portion of the capital of £900 originally advanced as money-capital, which, due to the fall in the prices of the materials of production, into which it is periodically reconverted, has become superfluous if the business is not to be expanded but carried on in the same scale. If this fall in prices were not due to accidental circumstances (a particularly rich harvest, over-supply, etc.) but to an increase of productive power in the branch of production which furnishes the raw materials, then this money-capital would be an absolute addition to the money-market, and to the capital available in the form of money-capital in general, because it would no longer constitute an integral part of the capital already invested.
If, on the contrary, the price of the product rises, a portion of the capital which was not advanced is taken out of circulation. This is not an organic part of the capital advanced in the process of production and unless production is expanded therefore constitutes money-capital eliminated. As we have assumed that the prices of the elements of the product were given before it was brought to market as commodity-capital, a real change of value might have caused the rise of prices since it acted retroactively, causing a subsequent rise in the price of, say, raw materials. In that event capitalist X would realise a gain on his product circulating as commodity-capital and on his available productive supply. This gain would give him an additional capital, which would now be needed for the continuation of his business with the new and higher prices of the elements of production.
Or the rise of prices is but temporary. What capitalist X then needs by way of additional capital becomes released capital for the other side, insofar as X’s product forms an element of production for other branches of business. What the one has lost the other has gained.
Let the period of turnover be 5 weeks: the working period 4 weeks, the period of circulation 1 week. Then capital I is £2,000, consisting of £1,600 of constant capital and £400 of variable capital; capital II is £500, £400 of which are constant and £100 variable. In every working week a capital of £500 is invested. In a year of 50 weeks an annual product of 50 times 500, or £2,500, is manufactured. Capital I of £2,000, constantly employed in the working period, is therefore turned over 12½ times. 12½ times 2,000 makes £25,000. Of these £25,000 four-fifths, or £20,000, are constant capital laid out in means of production, and one-fifth, or £5,000 is variable capital laid out in wages. The total capital of £25,000 is thus turned over 25,000/2,500, or 10 times.
In the question which we shall now take up, we must go a step farther and proceed with the variable portion of the circulating capital as though it along constituted the circulating capital. In other words, we leave out of consideration the constant circulating capital which is turned over together with it.
A sum of £2,500 has been advanced and the value of the annual product is £25,000. But the variable portion of the circulating capital is £500; therefore the variable capital contained in £25,000 amounts to 25,000 divided by 5, or £5,000. If we divide these £5,000 by £500, we find the number of turnovers is 10, just as it is in the case of the total capital of £2,500.
Here, where it is only a question of the production of surplus-value, it is absolutely correct to make this average calculation, according to which the value of the annual product is divided by the value of the advanced capital and not by the value of that portion of this capital which is employed constantly in one working period (thus, in the present case not by 400 but by 500, not by capital I but by capital I plus capital II). We shall see later that, from another point of view, the calculation is not quite exact, just as this average calculation generally is not quite exact. That is to say, it serves well enough for the practical purposes of the capitalist, but it does not express exactly or properly all the real circumstances of the turnover.
We have hitherto ignored one part of the value of the commodity-capital, namely the surplus-value contained in it, which was produced during the process of production and incorporated in the product. To this we have now to direct our attention.
Suppose the variable capital of £100 invested weekly produces a surplus-value of 100%, or £100, then the variable capital of £500 invested over a 5-week turnover period produces £500 of surplus-value, i.e., one half of the working day consists of surplus-labour.
If £500 of variable capital produce a surplus-value of £500, then £5,000 produce ten times £500, or £5,000 in surplus-value. But the advanced variable capital amounts to £500. The ratio of the total surplus-value produced during one year to the sum of value of the advanced variable capital is what we call the annual rate of surplus-value. In the case at hand it is 5,000 to 500 or 1,000%. If we analyse this rate more closely, we find that it is equal to the rate of surplus-value produced by the advanced variable capital during one period of turnover, multiplied by the number of turnovers of the variable capital (which coincides with the number of turnovers of the entire circulating capital).
The variable capital advanced in the case before us for one period of turnover is £500. The surplus-value produced during this period is likewise £500. The rate of surplus-value for one period of turnover is therefore 500s/500v or 100%. This 100%, multiplied by 10, the number of turnovers in one year, makes 5,000s/500v, or 1,000%.
That refers to the annual rate of surplus-value. As for the amount of surplus-value obtained during a specified period of turnover, it is equal to the value of the variable capital advanced during this period, of £500 in the present case, multiplied by the rate of surplus-value, in the present case therefore 500 times 100/100, or 500 times 1, or £500. If the advanced variable capital were £1,500, then with the same rate of the surplus-value the amount of surplus-value would be 1,500 times 100/100, or £1,500.
We shall apply the term capital A to the variable capital of £500, which is turned over ten times per year, producing an annual surplus-value of £5,000 for which, therefore, the yearly rate of surplus-value is 1,000%.
Now let us assume that another variable capital, B, of £5,000, is advanced for one whole year (i.e., here for 50 weeks), so that it is turned over only once a year. We assume furthermore that at the end of the year the product is paid for on the same day that it is finished, so that the money-capital, into which it is converted, returns on the same day. The circulation period is then zero, the period of turnover equals the working period, namely, one year. As in the preceding case there is to be found in the labour-process each week a variable capital of £100, or of £5,000 in 50 weeks. Let the rate of surplus-value be the same, or 100%, i.e., let one half of the working-day of the same length consist of surplus-labour. If we consider 5 weeks, the invested variable capital is £500, the rate of surplus-value 100% and therefore the amount of surplus-value produced in 5 weeks £500. The quantity of labour-power here exploited, and the intensity of its exploitation, are assumed to be exactly the same as those of capital A.
Each week the invested variable capital of £100 produces a surplus-value of £100, hence in 50 weeks the invested capital of 50 × 100 = £5,000 produces a surplus-value of £5,000. The amount of surplus-value produced annually is the same as in the previous case, £5,000, but the yearly rate of surplus-value is entirely different. It is equal to the surplus-value produced in one year divided by the advanced variable capital: 5,000s/5,000v, or 100%, while in the case of capital A it was 1,000%.
In the case of both capitals A and B, we have invested a variable capital of £100 a week. The degree of self-expansion, or the rate of surplus-value, is likewise the same, 100%, and so is the magnitude of the variable capital, £100. The same quantity of labour-power is exploited, the volume and degree of exploitation are equal in both cases, the working-days are the same and equally divided into necessary labour and surplus-labour. The amount of variable capital employed in the course of the year is £5,000 in either case; it sets the same amount of labour in motion, and extracts the same amount of surplus-value, £5,000, from the labour-power set in motion by these two equal capitals. Nevertheless there is a difference of 900% in the annual rate of surplus-value of the two capitals A and B.
This phenomenon creates the impression, at all events, that the rate of surplus-value depends not only on the quantity and intensity of exploitation of the labour-power set in motion by the variable capital, but besides on inexplicable influences arising from the process of circulation. And it has indeed been so interpreted, and has — if not in this its pure form, then at least in its more complicated and disguised form, that of the annual rate of profit — completely routed the Ricardian school since the beginning of the twenties.
The strangeness of this phenomenon disappears at once when we place capitals A and B in exactly the same conditions, not only seemingly but actually. These equal conditions exist only when the variable capital B in its entire volume is expended for the payment of labour-power in the same period of time as capital A.
In that case the £5,000 of capital B are invested for 5 weeks, £1,000 per week makes an investment of £50,000 per year. The surplus-value is then likewise £50,000, according to our premises. The turned-over capital of £50,000 divided by the advanced capital of £5,000 makes the number of turnovers 10. The rate of surplus-value, 5,000s/5,000v, or 100%, multiplied by the number of turnovers, 10, makes the annual rate of surplus-value 50,000s/5,000v, or 10/1, or 1,000%. Now the annual rate of surplus-value are alike for A and B, namely 1,000%, but the amounts of the surplus-value are £50,000 in the case of B, and £5,000 in the case of A. The amounts of the surplus-value produced are now in the same proportion to one another as the advanced capital-values B and A, to wit: 5,000:500 = 10:1. But capital B has set in motion ten times as much labour-power as capital A within the same time.
Only the capital actually employed in the labour-power produces surplus-value and to it apply all laws relating to surplus-value, including therefore the law according to which the quantity of surplus-value, its rate being given, is determined by the relative magnitude of the variable capital. [See Karl Marx, Capital, Ch. XI. — Ed.]
The labour-process itself is measured by time. If the length of the working-day is given (as here, where we assume all conditions relating to A and B to be equal, in order to elucidate the difference in the annual rate of surplus-value), the working week consists of a definite number of working-days. Or we may consider any working period, for instance this working period of 5 weeks, as one single working-day of, say, 300 hours, if the working-day has 10 hours and the week 6 days. We must further multiply this number by the number of labourers who are employed conjointly every day simultaneously in the same labour-process. If that number is taken as 10, there will be 60 times 10 or 600 hours in one week, and a working period of 5 weeks would have 600 times 5, or 3,000 hours. The rate of surplus-value and the length of the working-day being the same, variable capitals of equal magnitude are therefore employed, if equal quantities of labour-power (a labour-power of the same price multiplied by the number of labourers) are set in motion in the same time.
Let us now return to our original examples. In both cases, A and B, equal variable capitals of £100 per week are invested every week throughout the year. The invested variable capitals actually functioning in the labour-process are therefore equal, but the advanced variable capitals are very unequal. In the case of A, £500 are advanced for every 5 weeks, of which £100 are employed every week. In the case of B, £5,000 must be advanced for the first 5-week period, of which only £100 per week, or £500 in 5 weeks, or one-tenth of the advanced capital, is employed. In the second 5-week period £4,500 must be advanced, but only £500 of this is employed, etc. The variable capital advanced for a definite period of time is converted into employed, hence actually functioning and operative variable capital only to the extent that it really steps into the sections of that period of time taken up by the labour-process, to the extent that it really functions in the labour-process. In the intermediate time, in which a portion of it is advanced in order to be employed later, this portion is practically non-existent for the labour-process and has therefore no influence on the formation of either value or surplus-value. Take for instance capital A, of £500. It is advanced for 5 weeks, but every week only £100 enter successively into the labour-process. In the first week one-fifth of this capital is employed; four-fifths are advanced without being employed, although they must be in stock, and therefore advanced, for the labour-processes of the following 4 weeks.
The circumstances which differentiate the relation between the advanced and the employed variable capital affect the production of surplus-value — the rate of surplus-value being given — only to the extent, and only by reason of the fact that they differentiate the quantity of variable capital which can be really employed in a stated period of time, for instance in one week, 5 weeks, etc. The advanced variable capital functions as variable capital only to the extent and only during the time that it is actually employed, and not during the time in which it remains in stock, is advanced, without being employed. But all the circumstances which differentiate the relation between the advanced and the employed variable capital come down to the difference of the periods of turnover (determined by the difference of either the working period, or the circulation period, or both). The law of production of surplus-value states that equal quantities of functioning variable capital produce equal quantities of surplus-value if the rate of surplus-value is the same. If then, equal quantities of variable capital are employed by the capitals A and B in equal periods of time with equal rates of surplus-value, they must generate equal quantities of surplus-value in equal periods of time, no matter how different the ratio of this variable capital employed during a definite period of time to the variable capital advanced during the same time, and no matter therefore how different the ratio of the quantities of surplus-value produced, not to the employed but to the advanced variable capital in general. The difference of this ratio, far from contradicting the laws of the production of surplus-value that have been demonstrated, rather corroborates them and is one of their inevitable consequences.
Let us now compare the annual rates of surplus-value for capitals B and A. For capital B it is 500s/500v = 100%; for capital A it is 5,000s/500v = 1,000%. But the ratio of the rates of surplus-value is the same as before. There we had
(Rate of Surplus-Value of Capital B) / (Rate of Surplus-Value of Capital A)
= 10% / 100%
Now we have
(Annual Rate of Surplus-Value of Capital B) / (Annual Rate of Surplus-Value of Capital A)
= 100% / 1,000%
But now the problem has changed. The annual rate of capital B, 5,000s/5,000v = 100%, offers not the slightest deviation — not even the semblance of a deviation — from the laws of production known to us and of the rate of surplus-value corresponding to this production. During the year 5,000v have been advanced and productively consumed, and they have produced 5,000s. The rate of surplus-value therefore equals the above fraction, 5,000s/5,000v = 100%. The annual rate agrees with the actual rate of surplus-value. In this case it is therefore not capital B but capital A which presents the anomaly that has to be explained.
We have here the rate of surplus-value 5,000s/500v = 1,000%. But while in the first case 500s, the product of 5 weeks, was calculated for an advanced capital of £5,000, nine-tenths of which were not employed by its production, we have now 5,000s calculated for 500v, i.e., for only one-tenth of the variable capital actually employed in the production of 5,000s; for the 5,000s are the product of a variable capital of £5,000 productively consumed during 50 weeks, not that of a capital of £500 consumed in one single period of 5 weeks. In the first case the surplus-value produced in 5 weeks had been calculated for a capital advanced for 50 weeks, a capital ten times as large as the one consumed during the 5 weeks. Now the surplus-value produced in 50 weeks is calculated for a capital advanced for 5 weeks, a capital ten times smaller than the one consumed in 50 weeks.
Capital A, of £500, is never advanced for more than 5 weeks. At the end of this time it returns and can renew the same process in the course of the year ten times, as it makes ten turnovers. Two conclusions follow from this:
Firstly: The capital advanced in the case of A is only five times larger than that portion of capital which is constantly employed in the productive process of one week. On the other hand capital B which is turned over only once in 50 weeks and must therefore be advanced for 50 weeks, is fifty times larger than that one of its portions which can constantly be employed for one week. The turnover therefore modifies the relation between the capital advanced during the year for the process of production and the capital constantly employable for a definite period of production, say, a week. Here we have, then, the first case, in which the surplus-value of 5 weeks is not calculated for the capital employed during these 5 weeks, but for a capital ten times larger, employed for 50 weeks.
Secondly: The 5-week period of turnover of capital A comprises only one-tenth of the year, so that one year contains ten such turnover periods, in which capital A of £500 is successively re-invested. The employed capital is here equal to the capital advanced for 5 weeks, multiplied by the number of periods of turnover per year. The capital employed during the year is 500 times 10, or £5,000. The capital advanced during the year is 5,000/10, or £500. Indeed, although the £500 are always re-employed, the sum advanced every 5 weeks never exceeds these same £500. On the other hand in case of capital B only £500 are employed during 5 weeks and advanced for these 5 weeks. But as the period of turnover in this case is 50 weeks, the capital employed in one year is equal to the capital advanced for 50 weeks and not to that advanced for every 5 weeks. The annually produced quantity of surplus-value, given the rate of surplus-value, is however commensurate with the capital employed during the year, not with the capital advanced during the year. Hence it is not larger for this capital of £5,000, which is turned over once a year, than it is for the capital of £500, which is turned over ten times a year. And it is so big only because the capital turned over once a year is itself ten times larger than the capital turned over ten times a year.
The variable capital turned over during one year — hence the portion of the annual product, or of the annual expenditure equal to that portion — is the variable capital actually employed, productively consumed, during that year. It follows therefore that if the variable capital A turned over annually and the variable capital B turned over annually are equal and the employed under equal conditions of self-expansion, so that the rate of surplus-value is the same for both of them, then the quantity of surplus-value produced annually must likewise be the same for both of them. Hence the rate of surplus-value calculated for a year must also be the same, since the amounts of capital employed are the same, so far as the rate is expressed by (quantity of surplus-value produced annually) / (variable capital turned over annually). Or, expressed generally: Whatever the relative magnitude of the turned-over variable capitals, the rate of the surplus-value produced by them in the course of the year is determined by the rate of surplus-value at which the respective capitals have worked in average periods (say, the average of a week or day).
This is the only consequence of the laws of production of surplus-value and of the determination of the rate of surplus-value.
Let us see further what is expressed by the ratio
(Capital turned over annually) / (capital advanced)
In the case of capital A we have:
(£5,000 of capital turned over annually) / (£500 of capital advanced)
(£5,000 of capital turned over annually) / (£5,000 of capital advanced)
The respective quantities of labour (the sum of the paid and unpaid labour), which are set in motion by the two variable capitals turned over annually, are equal in this case, because the turned-over capitals themselves are equal and their rates of self-expansion are likewise equal.
The ratio of variable capital turned over annually to the variable capital advanced indicates 1) the ratio of the capital to be advanced to the variable capital employed during a definite working period. If the number of turnovers is 10, as in the case of A, and the year assumed to have 50 weeks, then the period of turnover is 5 weeks. For these 5 weeks variable capital must be advanced and the capital advanced for 5 weeks must be 5 times as large as the variable capital employed during one week. That is to say, only one-fifth of the advanced capital (in this case £500) can be employed in the course of one week. On the other hand, in the case of capital B, where the number of turnovers is 1/1, the time of turnover is 1 year, or 50 weeks. The ratio of the advanced capital to the capital employed weekly is therefore 50 : 1. If matters were the same for B as they are for A, then B would have to invest £1,000 per week instead of £100. 2) It follows that B has employed ten times as much capital (£5,000) as A to set in motion the same quantity of variable capital and hence — the rate of surplus-value being given — of labour (paid and unpaid), and thus to produce also the same quantity of surplus-value during the year. The real rate of surplus-value expresses nothing but the ratio of the variable capital employed during a definite period to the surplus-value produced in the same time; or the quantity of unpaid labour set in motion by the variable capital employed during this time. It has absolutely nothing to do with that portion of the variable capital which is advanced during the time in which it is not employed. Hence it has likewise nothing to do with the ratio between that portion of capital which is advanced during a definite period of time and that portion which is employed during the same period of time — a ratio that is modified and differentiated for different capitals by the turnover period.
It follows rather from what has been set forth above that the annual rate of surplus-value coincides only in one single case with the real rate of surplus-value which expresses the degree of exploitation of labour; namely in the case when the advanced capital is turned over only once a year and the capital advanced is thus equal to the capital turned over in the course of the year, when therefore the ratio of the quantity of the surplus-value produced during the year to the capital employed during the year in this production coincides and is identical with the ratio of the quantity of surplus-value produced during the year to the capital advanced during the year.
A) The annual rate of surplus-value is equal to the
(quantity of surplus-value produced during the year) / (variable capital advanced)
B) The annual rate of surplus-value is equal to the
(real rate of surplus-value × variable capital advanced × n) / (variable capital advanced)
Only when n is equal to 1, that is, when the variable capital advanced is turned over only once a year, and hence equal to the capital employed or turned over during a year, the annual rate of surplus-value is equal to its real rate.
Let us call the annual rate of surplus-value S', the real rate of surplus-value s', the advanced variable capital v, the number of turnovers n. Then S' = s'vn/v = s'n. In other words, S' is equal to s'n, and it is equal to s' only when n = 1, and hence S' = s' times 1, or s'.
It follows furthermore that the annual rate of surplus-value is always equal to s'n, i.e., to the real rate of surplus-value produced in one period of turnover by the variable capital consumed during that period, multiplied by the number of turnovers of this variable capital during one year, or (what amounts to the same) multiplied by its inverted time of turnover calculated for one year. (If the variable capital is turnover over ten times per year, then its time of turnover is 1/10 of a year; its inverted time of turnover therefore 10/1 or 10.)
It follows furthermore that S' = s' when n is equal to 1. S' is greater than s' when n is greater than 1; i.e., when the advanced capital is turned over more than once a year or the turned-over capital is greater than the capital advanced.
Finally, S' is smaller than s' when n is smaller than 1, that is, when the capital turned over during the year is only a part of the advanced capital, so that the period of turnover is longer than one year.
Let us dwell a moment on this last case.
We retain all the premises of our former illustration, except that the period of turnover is lengthened to 55 weeks. The labour-process requires a variable capital of £100 per week, hence £5,500 for the period of turnover, and produces every week 100s; s' is therefore 100%, as before. The number of turnovers, n, is here 50/55 or 10/11, because the time of turnover is 1 plus 1/10 of the year (of 50 weeks), or 11/10 years.
S' = 100% × 5,500 × 10/11 / 5,500 = 100 × 10/11 = 1000/11 = 90 10/11%. It is therefore smaller than 100%.
Indeed, if the annual rate of surplus-value were 100%, then during the year 5,500v would produce 5,500s, whereas 10/11 years are required for that. The 5,500v produce only 5,000s during one year, therefore the annual rate of surplus-value is 5,000s/5,500v, or 10/11 or 90 10/11%.
The annual rate of surplus-value, or the comparison between the surplus-value produced during one year and the variable capital advanced in general (as distinguished from the variable capital turned over during the year), is therefore not merely subjective comparison; the actual movement of the capital itself gives rise to this contraposition. So far as the owner of capital A is concerned, his advanced variable capital of £500 has returned to him at the end of the year, and £5,000 of surplus-value in addition. It is not the quantity of capital employed by him during the year, but the quantity returning to him periodically that expresses the magnitude of his advanced capital. It is immaterial for the present issue whether at the end of the year the capital exists partly as a productive supply, or partly as money- or commodity-capital, and in what proportions it may have been divided into these different parts. So far as the owner of capital B is concerned, £5,000, his advanced capital, has returned to him besides £5,000 in surplus-value. For the owner of capital C (the last considered, worth £5,500) surplus-value to the amount of £5,000 has been produced during the year (£5,000 invested and rate of surplus-value 100%), but his advanced capital has not yet returned to him, nor has his produced surplus-value.
S' = s'n indicates that the rate of surplus-value valid for the variable capital employed during one period of turnover, to wit,
(quantity of s produced in one turnover period) / (variable capital employed in one turnover period)
We have already seen (Buch I, Kap. IV [English edition: Part II. — Ed.]) (The Transformation of Money into Capital), and furthermore (Buch I, Kap. XXI [English edition: Ch. XXIII. — Ed.]) (Simple Reproduction), that the capital-value is in general advanced, not expended, as this value, having passed through the various phases of its circuit, returns to its point of departure, and at that enriched by surplus-value. This characterises it as advanced. The time that elapses from the moment of its departure to the moment of its return is the time for which it was advanced. The entire circular movement described by capital-value, measured by the time from its advance to its return, constitutes its turnover, and the duration of this turnover is a period of turnover. When this period has expired and the circuit is completed, the same capital-value can renew the same circuit, can therefore expand anew, can create surplus-value. If the variable capital is turned over ten times in one year, as in the case of capital A, then the same advance of capital begets in the course of one year ten times the quantity of surplus-value that corresponds to one period of turnover.
One must get a clear conception of the nature of this advance from the standpoint of capitalist society.
Capital A, which is annually turned over ten times, is advanced ten times during one year. It is advanced anew for every new period of turnover. But at the same time, during the year A never advances more than this same capital-value of £500 and in actual fact never disposes of more than these £500 for the productive process examined by us. As soon as these £500 have completed one circuit A makes them start anew the same circuit; by its very nature capital preserves its character of capital only because it always functions as capital in successive production processes. It is, moreover, never advanced for more than five weeks. Should the turnover last longer, it proves inadequate. Should the turnover be curtailed, a part becomes superfluous. Not ten capitals of £500 are advanced, but one capital of £500 is advanced ten times at successive intervals. The annual rate of surplus-value is therefore not calculated for ten advances of a capital of £500 or for £5,000, but for one advance of a capital of £500. It is the same as if one shilling circulates ten times and yet never represents more than one single shilling in circulation, although it performs the function of 10 shillings. But in the pocket which holds it after each change of hands it retains the same identical value of one shilling as before.
In the same way capital A indicates at each successive return, and likewise on its return at the end of the year, that its owner has operated always with the same capital-value of £500. Hence only £500 return to him each time. His advanced capital is therefore never more than £500. Hence the advanced capital of £500 forms the denominator of the fraction which expresses the annual rate of surplus-value. We had for it the above formula S' = s'vn/v = s'n. Since the real rate of surplus-value, s', equals s/v, the quantity of surplus-value divided by the variable capital which produced it, we may substitute s/v for the value of s' in s'n, and get the other formula S' = sn/v.
But by its ten-fold turnover and thus the ten-fold renewal of its advance, the capital of £500 performs the function of a ten times larger capital, of a capital of £5,000, just as 500 shillings which circulate ten times per year perform the same function as 5,000 shillings which circulate only once.
In the case of capital A we have 10 five-week turnover periods. In the first period of turnover £500 of variable capital are advanced; i.e., £100 are weekly converted into labour-power, so that £500 are spent on labour-power at the end of the first turnover period. These £500, originally a part of the total capital advanced, have ceased to be capital. They are paid out in wages. The labourers in their turn pay them out in the purchase of means of subsistence, consuming means of subsistence worth £500. A quantity of commodities of that value is therefore annihilated; (what the labourer may save up in money, etc., is not capital either). As far as concerns the labourer, this quantity of commodities has been consumed unproductively, except inasmuch as it preserves the efficacy of his labour-power, an instrument indispensable to the capitalist.
In the second place however these £500 have been transformed, for the capitalist, into labour-power of the same value (or price). Labour-power is consumed by him productively in the labour-process. At the end of 5 weeks a product valued at £1,000 has been created. Half of this, £500, is the reproduced value of the variable capital expended in payment of labour-power. The other half, £500, is newly produced surplus-value. But the 5-weekly labour-power, through exchange for which a portion of the capital was converted into variable capital, is likewise expended, consumed, although productively. The labour which was active yesterday is not the same that is active today. Its value plus that of surplus-value created by it exists now as the value of a thing distinct from labour-power, to wit, of a product. But by converting the product into money, that portion of its value which is equal to the value of variable capital advanced can once more be exchanged for labour-power and thus again function as variable capital. The fact that the same workmen, i.e., the same bearers of labour-power, are given employment not only by the reproduced capital-value but also by that which has been reconverted into the form is immaterial. It is possible for the capitalist to hire different workmen for the second period of turnover.
In actual fact therefore a capital of £5,000, and not of £500, is expended successively in wages during the ten periods of turnover of 5 weeks each, and these wages will again be spent by the labourers to buy means of subsistence. The capital of £5,000 so advanced is consumed. It ceases to exist. On the other hand labour-power worth £5,000, not £500, is incorporated successively in the productive process and reproduces not only its own value of £5,000, but produces over and above that a surplus-value of £5,000. The variable capital of £500 advanced during the second period of turnover is not the identical capital of £500 that had been advanced during the first period of turnover. That has been consumed, spent in wages. But it is replaced by new variable capital of £500, which was produced in the first period of turnover in the form of commodities, and reconverted into money. This new money-capital of £500 is therefore the money-form of the quantity of commodities newly produced in the first period of turnover. The fact that an identical sum of money, £500, is again in the hands of the capitalist, i.e., apart from the surplus-value, precisely as much money-capital as he had originally advanced, conceals the circumstance that he is operating with newly produced capital. (As for the other constituents of value of the commodity-capital, which replace the constant parts of capital, their value is not newly produced, but only the form is changed in which this value exists.)
Let us take the third period of turnover. Here it is evident that the capital of £500, advanced for a third time, is not an old but a newly produced capital, for it is the money-form of the quantity of commodities produced in the second, not the first, period of turnover, i.e., of that portion of this quantity of commodities whose value is equal to that of the advanced variable capital. The quantity of commodities produced in the first period of turnover is sold. A part of its value equal to the variable portion of the value of the advanced capital was transformed into the new labour-power of the second period of turnover; it produced a new quantity of commodities, which were sold in their turn and a portion of whose value constitutes the capital of £500 advanced in the third turnover period.
And so forth during the ten periods of turnover. In the course of these, newly produced quantities of commodities (whose value, inasmuch as it replaces variable capital, is also newly produced, and does not merely re-appear as in the case of the constant circulating part of the capital) are thrown upon the market every 5 weeks, in order to incorporate ever new labour-power in the process of production.
Therefore what is accomplished by the ten-fold turnover of the advanced variable capital of £500 is not that this capital of £500 can be productively consumed ten times, or that a variable capital lasting for 5 weeks can be employed for 50 weeks. Rather, ten times £500 of variable capital is employed in the 50 weeks, and the capital of £500 always lasts only for 5 weeks and must be replaced at the end of the 5 weeks by a newly produced capital of £500. This applies equally to capitals A and B. But at this point the difference begins.
At the end of the first period of 5 weeks a variable capital of £500 has been advanced and expended by B as well as A. Both A and B have converted its value into labour-power and replaced it by that portion of the value of the product newly created by this labour-power which is equal to the value of the advanced variable capital of £500. For both B and A the labour-power has not only replaced the value of the expended variable capital of £500 by a new value of the same amount, but also added a surplus-value which, according to our assumption, is of the same magnitude.
But in the case of B the value-product, which replaces the advanced variable capital and adds to it a surplus-value, is not in the form in which it can function anew as productive, or variable, capital. It is in such a form in the case of A. And up to the end of the year B does not possess the variable capital expended in the first 5 and every subsequent 5 weeks (although it has been replaced by newly produced value plus surplus-value) in the form in which it can again function as productive, or variable, capital. True, its value is replaced by new value, hence renewed, but the form of its value (in this case the absolute form of value, its money-form) is not renewed.
For the second period of 5 weeks (and thus for every succeeding 5 weeks of the year) another £500 must again be available, the same as for the first period. Hence, regardless of credit conditions, £5,000 must be available at the beginning of the year as a latent advanced money-capital, although they are really expended, turned into labour-power, only gradually, in the course of the year.
But because in the case of A the circuit, the turnover of the advanced capital, is consummated, the replacement value after the lapse of the first 5 weeks is already in the form in which it can set new labour-power in motion for a term of 5 weeks — in its original form, the money-form.
In cases of both A and B new labour-power is consumed in the second 5-week period and a new capital of £500 is spent in payment of this labour-power. The means of subsistence of the labourers, paid with the first £500, are gone; at all events their value has vanished from the hands of the capitalist. With the second £500 new labour-power is bought, new means of subsistence withdrawn from the market. In short, it is a new capital of £500 that is being expended, not the old. But in the case of A this new capital of £500 is the money-form of the newly produced substitute for the value of the formerly expended £500, while in the case of B, this substitute is in a form in which it cannot function as variable capital. It is there, but not in the form of variable capital. For the continuation of the process of production for the next 5 weeks an additional capital of £500 must therefore be available and advanced in the here indispensable form of money. Thus, during 50 weeks, both A and B expend an equal amount of variable capital, pay for and consume an equal quantity of labour-power. Only, B must pay for it with an advanced capital equal to its total value of £5,000, while A pays for it successively with the ever renewed money-form of the value-substitute, produced every 5 weeks, for the capital of £500 advanced for every 5 weeks, i.e., never more than that advanced for the first 5 weeks, viz., £500. These £500 last for the entire year. It is therefore clear that, the degree of exploitation of labour and the real rate of surplus-value being the same, the annual rates (of surplus-value) of A and B must be inversely proportional to the magnitudes of the variable money-capitals which have to be advanced in order to set in motion the same amount of labour-power during the year.
A: 5,000s/500v = 1,000%; B: 5,000s/5,000v = 100%.
But 500v : 5,000v = 1 : 10 = 100% : 1,000%.
The conversion, sooner or later, of the value-substitute into money, and thus into the form in which variable capital is advanced, is obviously an immaterial circumstance, so far as the production of surplus-value itself is concerned. This production depends on the magnitude of variable capital employed and the degree of exploitation of labour. But that circumstance modifies the magnitude of the money-capital which must be advanced in order to set a definite quantum of labour-power in motion during the year, and therefore it determines the annual rate of surplus-value.
The shorter the period of turnover of capital — the shorter therefore the intervals at which it is reproduced throughout the year — the quicker is the variable portion of the capital, originally advanced by the capitalist in the form of money, transformed into the money-form of the value (including, besides, surplus-value) created by the labourer to replace this variable capital; the shorter is the time for which the capitalist must advance money out of his own funds, and the smaller is the capital advanced by him in general in proportion to the given scale of production; and the greater comparatively is the quantity of surplus-value which he extracts during the year with a given rate of surplus-value, because he can buy the labourer so much more frequently with the money-form of the value created by that labourer and can so much more frequently set his labour into motion again.
If the scale of production is given, the absolute magnitude of the advanced variable money-capital (and of the circulating capital in general) decreased proportionately to the decrease of the turnover period, while the annual rate of surplus-value increases. If the magnitude of the advanced capital is given, the scale of production grows; hence, if the rate of surplus-value is given, the absolute quantity of surplus-value created in one period of turnover likewise grows, simultaneously with the rise in the annual rate of surplus-value effected by the shortening of the periods of reproduction. It generally follows from the foregoing investigation that the different lengths of the turnover periods make it necessary for money-capital to be advanced in very different amounts in order to set in motion the same quantity of productive circulating capital and the same quantity of labour with the same degree of exploitation of labour.
Inasmuch as the length, great or small, of the period of turnover depends on the working period proper, that is, the period necessary to get the product ready for the market, it is based on the existing material conditions of production specific for the various investments of capital. In agriculture they assume more of the character of natural conditions of production, in manufacture and the greater part of the mining industry they vary with the social development of the process of production itself.
Inasmuch as the length of the working period depends on the size of the supply (the quantitative volume in which the product is generally thrown upon the market as commodities), it is conventional in character. But the convention itself has its material basis in the scale of production, and is therefore accidental only when examined singly.
Finally, inasmuch as the length of the turnover period hinges on that of the period of circulation, it is partly dependent on the incessant change of market conditions, the greater or lesser ease of selling, and the resultant necessity of disposing of part of the product in nearer or remoter markets. Apart from the volume of the demand in general, the movement of prices is here of cardinal importance since sales are intentionally restricted when prices are falling, while production proceeds; vice versa, production and sales keep pace when prices are rising or sales can be made in advance. But we must consider the actual distance of the place of production from the market as the real material basis.
For instance English cotton goods or yarn are sold to India. Suppose the exporter himself pays the English cotton manufacturer (the exporter does so willingly only if the money-market is strong. But when the manufacturer himself replaces his money-capital by some credit transaction, things are not so good). The exporter sells his cotton goods later in the Indian market, from where his advanced capital is remitted to him. Up to this remittance the case runs the very same course as when the length of the working period necessitated the advance of new money-capital to maintain the production process on a given scale. The money-capital with which the manufacturer pays his labourers and renews the other elements of his circulating capital is not the money-form of the yarn produced by him. This cannot be the case until the value of this yarn has returned to England in the form of money or products. It is additional money-capital as before. The only difference is that instead of the manufacturer, it is advanced by the merchant, who in turn may well have obtained it by means of credit operations. Similarly, before this money is thrown on the market, or simultaneously with this, no additional product has been put on the English market that could be bought with this money and would enter the sphere of productive or individual consumption. If this situation continues for a rather long period of time and on a rather large scale, it must have the same effect as the previously mentioned prolongation of the working period.
Now it may be that in India the yarn is again sold on credit. With this credit products are bought in India and sent as return shipment to England or drafts remitted for this amount. If this condition is protracted, the Indian money-market comes under pressure and the reaction on England may here produce a crisis. This crisis, in its turn, even if connected with bullion export to India, calls forth a new crisis in that country on account of the bankruptcy of English firms and their Indian branches, which had received credit from Indian banks. Thus a crisis occurs simultaneously in the market in which the balance of trade is favourable, as well as in the one in which it is unfavourable. This phenomenon may be still more complicated. Assume for instance that England has sent silver bullion to India but India’s English creditors are not urgently collecting their debts in that country, and India will soon after have to ship its silver bullion back to England.
It is possible that the export trade to India and the import trade from India may approximately balance each other, although the volume of the import trade (except under special circumstances, such as a scarcity of cotton, etc.) is determined and stimulated by the export trade. The balance of trade between England and India may seem equilibrated or may disclose slight oscillations in either direction. But as soon as the crisis breaks out in England it turns out that unsold cotton goods are stored in India (hence have not been transformed from commodity-capital into money-capital — an over-production to this extent), and that on the other hand there are stored up in England unsold supplies of Indian goods, and moreover, a great portion of the sold and consumed supplies is not yet paid. Hence what appears as a crisis on the money-market is in reality an expression of abnormal conditions in the very process of production and reproduction.
But there are furthermore necessarily differences in the capitalisation of surplus-value, in accumulation, and also in the quantity of surplus-value produced during the year, while the rate of surplus-value remains the same.
To begin with, we note that capital A (in the illustration of the preceding chapter) has a current periodical revenue, so that with the exception of the period of turnover inaugurating the business, it pays for its own consumption within the year out of its production of surplus-value, and need not cover it by advances out of its own funds. But the latter has to be done in the case of B. While it produces as much surplus-value in the same intervals of time as A, the surplus-value is not realised and therefore cannot be consumed either productively or individually. So far as individual consumption is concerned, the surplus-value is anticipated. Funds for that purpose must be advanced.
One portion of the productive capital, which it is difficult to classify namely the additional capital required for the repair and maintenance of the fixed capital, is now likewise seen in a new light.
In the case of A this portion of capital is not advanced — in full or for the greater part — at the beginning of production. It need not be available or even in existence. It comes out of the business itself by a direct transformation of surplus-value into capital, i.e., by its direct employment as capital. A part of the surplus-value which is not only periodically generated but also realised during the year can defray the expenditures that must be incurred for repairs, etc. A portion of the capital needed to carry on the business on its original scale is thus produced in the course of business by the business itself by means of capitalising part of the surplus-value. This is impossible for capital B. The portion of capital in question must in his case form a part of the capital originally advanced. In both cases this portion will figure in the books of the capitalists as an advanced capital, which it really is, since according to our assumption it forms a part of the productive capital required for maintaining the business on a certain scale. But it makes all the difference in the world out of which funds it is advanced. In the case of B it is really a part of the capital to be originally advanced or held available. In the case of A on the other hand it is a part of the surplus-value used as capital. This last case shows that not only the accumulated capital but also a portion of the originally advanced capital may simply be capitalised surplus-value.
As soon as the development of credit interferes, the relation between originally advanced capital and capitalised surplus-value becomes still more complicated. For instance from not having sufficient capital of his own at the very outset for this purpose, A borrows from banker C a portion of the productive capital with which he starts in business or continues it during the year. Banker C lends him a sum of money which consists only of surplus-value deposited with the banker by capitalists D, E, F, etc. As far as A is concerned there is as yet no question of accumulated capital. But with regard to D, E, F, etc., A is, in fact, nothing but an agent capitalising surplus-value appropriated by them.
We have seen (Buch I, Kap. XXII) [English edition: Ch. XXIV. — Ed.] that accumulation, the conversion of surplus-value into capital, is essentially a process of reproduction on a progressively increasing scale, whether this expansion is expressed extensively in the form of an addition of new factories to the old, or intensively by the enlargement of the existing scale of operation.
The expansion of the scale of production may proceed in small portions, a part of the surplus-value being used for improvements which either simply increase the productive power of the labour employed or permit at the same time of its more intensive exploitation. Or, where the working-day is not legally limited, an additional expenditure of circulating capital (in materials of production and wages) suffices to enhance the production scale without an expansion of the fixed capital, whose daily time of employment is thus merely lengthened, while its period of turnover is correspondingly shortened. Or the capitalised surplus-value may, under favourable market conditions, permit of speculation in raw materials, operations for which the capital originally advanced would not have been sufficient, etc.
However it is clear that in cases where the greater number of periods of turnover brings with it a more frequent realisation of surplus-value during the year, there will be periods in which there can be neither a prolongation of the working-day nor an introduction of improvements in details; on the other hand a proportional expansion of the whole business, partly by expanding its entire plant, the buildings for example, partly by enlarging the cultivated areas in agriculture, is possible only within certain more or less narrow limits and, besides, requires such a volume of additional capital as can be supplied only by several years’ accumulation of surplus-value.
Along with the real accumulation or conversion of surplus-value into productive capital (and a corresponding reproduction on an extended scale), there is, then, an accumulation of money, a raking together of a portion of the surplus-value in the form of latent money-capital, which is not intended to function as additional active capital until later, when it swells to a certain volume.
That is how the matter looks from the standpoint of the individual capitalist. But simultaneously with the development of capitalist production the credit system also develops. The money-capital which the capitalist cannot as yet employ in his own business is employed by others, who pay him interest for its use. It serves him as money-capital in its specific meaning, as a kind of capital distinguished from productive capital. But it serves as capital in another’s hands. It is plain that with the more frequent realisation of surplus-value and the rising scale on which it is produced, there is an increase in the proportion of new money-capital or money as capital thrown upon the money-market and then absorbed — at least the greater part of it — by extended production.
The simplest form in which the additional latent money-capital may be represented is that of a hoard. It may be that this hoard is additional gold or silver secured directly or indirectly in exchange with countries producing precious metals. And only in this manner does the hoarded money in a country grow absolutely. On the other hand it may be — and is so in the majority of cases — that this hoard is nothing but money which has been withdrawn from circulation at home and has assumed the form of a hoard in the hands of individual capitalists. It is furthermore possibly that this latent money-capital consists only of tokens of value — we still ignore credit-money at this point — or of mere claims of capitalists (titles) against third persons conferred by legal documents. In all such cases, whatever may be the form of existence of this additional money-capital, it represents, so far as it is capital in spe, nothing but additional and reserved legal titles of capitalists to future annual additional social production.
There is either reproduction on a simple scale.
Or there is capitalisation of surplus-value, accumulation.
The circumstance that the value of the product consists in part of surplus-value and in part of that portion of value which is formed by the variable capital reproduced in the product plus the constant capital consumed by it, does not alter anything whatever either in the quantity or in the value of the total product, which constantly steps into circulation as commodity-capital and is just as constantly withdrawn from it, in order to be productively or individually consumed, i.e., to serve as means of production or consumption. If constant capital is left aside, only the distribution of the annual product between the labourers and the capitalists is affected thereby.
Even if simple reproduction is assumed, a portion of the surplus-value must therefore always exist in the form of money and not of products, because otherwise it could not be converted for purposes of consumption from money into products. This conversion of the surplus-value from its original commodity-form into money must be further analysed at this place. In order to simplify the matter, we shall presuppose the most elementary form of the problem, namely the exclusive circulation of metal coin, of money which is a real equivalent.
According to the laws of the simple circulation of commodities (developed in Buch I, Kap. III), [English edition: Volume I, Ch. III. — Ed.] the mass of the metal coin existing in a country must not only be sufficient to circulate the commodities, but must also suffice to meet the currency fluctuations, which arise partly from fluctuations in the velocity of the circulation, partly from a change in the prices of commodities, partly from the various and varying proportions in which the money functions as a medium of payment or as a medium of circulation proper. The proportion in which the existing quantity of money is split into a hoard and money in circulation varies continually, but the total quantity of money is always equal to the sum of the money hoarded and the money circulating. This quantity of money (quantity of precious metal) is a gradually accumulated hoard of society. Since a portion of this hoard is consumed by wear and tear, it must be replaced annually, the same as any other product. This takes place in reality by a direct or indirect exchange of a part of the annual product of a particular country for the product of countries producing gold and silver. However, this international character of the transaction conceals its simple course. In order to reduce the problem to its simplest and most lucid expression, it must be assumed that the production of gold and silver takes place in that particular country itself, that therefore the production of gold and silver constitutes a part of the total social production within every country.
Apart from the gold and silver produced for articles of luxury, the minimum of their annual production must be equal to the wear of metal coin annually occasioned by the circulation of money. Furthermore, if the sum of the values of the annually produced and circulating quantity of commodities increases, the annual production of gold and silver must likewise increase, inasmuch as the increased sum of values of the circulating commodities and the quantity of money required for their circulation (and the corresponding formation of a hoard) are not made good by a greater velocity of money currency and a more comprehensive function of money as a medium of payment, i.e., by a greater mutual balancing of purchases and sales without the intervention of actual money.
A portion of the social labour-power and a portion of the social means of production must therefore be expended annually in the production of gold and silver.
The capitalists who are engaged in the production of gold and silver and who, according to our assumption of simple reproduction, carry on their production only within the bounds of the annual average wear and tear and the annual average consumption of gold and silver entailed thereby throw their surplus-value — which they consume annually, according to our assumption, without capitalising any of it — directly into circulation in the money-form, which is its natural form; unlike the other branches of production, where it is the converted form of the product.
Furthermore, as far as wages are concerned — the money-form in which the variable capital is advanced — they are also not replaced by the sale of the product, by its conversion into money, but by a product itself whose natural form is from the outset that of money.
Finally the same applies also to that portion of the product of precious metals which is equal to the value of the periodically consumed constant capital, both the constant circulating and constant fixed capital consumed during the year.
Let us consider the circuit, or turnover, of the capital invested in the production of precious metals first in the form of M — C ... P ... M'. Since C in M — C consists not only of labour-power and means of production but also of fixed capital, only a part of whose value is consumed in P, it is evident that M', the product, is a sum of money equal to the variable capital laid out in wages plus the circulating constant capital laid out in means of production plus a portion of the value equivalent to the worn-out fixed capital plus the surplus-value. If the sum were smaller, the general value of gold remaining the same, then the mine would be unproductive or, if this got to be generally the case, the value of gold compared with the value of commodities that remains unchanged would subsequently rise; i.e., the prices of commodities would fall, so that henceforth the amount of money laid out in M — C would be smaller.
If we consider at first only the circulating portion of capital advanced in M, the starting-point of M — C ... P ... M', we find that a certain sum of money is advanced, thrown into circulation for the payment of labour-power and the purchase of materials of production. But this sum is not withdrawn from circulation by the circuit of this capital, in order to be thrown into it anew. The product is money even in its bodily form; there is no need therefore of transforming it into money by means of exchange, by a process of circulation. It passes from the process of production into the sphere of circulation, not in the form of commodity-capital which has to be reconverted in money-capital, but as money-capital which is to be reconverted into productive capital, i.e., which is to buy fresh labour-power and materials of production. The money-form of the circulating capital consumed in labour-power and means of production is replaced, not by the sale of the product, but by the bodily form of the product itself; hence, not by once more withdrawing its value from circulation in money-form, but by additional newly produced money.
Let us suppose that this circulating capital is £500, the period of turnover 5 weeks, the working period 4 weeks, the period of circulation only 1 week. From the outset, money for 5 weeks must be partly advanced for a productive supply, and partly be ready to be paid out gradually in wages. At the beginning of the 6th week, £400 will have returned and £100 will have been released. This is constantly repeated. Here, as in previous cases, £100 will always be found in released form during a certain time of the turnover. But they consist of additional, newly produced, money, the same as the other £400. We have in this case 10 turnovers per year and the annual product is £5,000 in gold. (The period of circulation is not constituted, in this case, by the time required for the conversion of commodities into money, but by that required for the conversion of money into the elements of production.)
In the case of every other capital of £500 turned over under the same conditions, the ever renewed money-form is the converted form of the commodity-capital produced and thrown into circulation every 4 weeks and which by its sale — that is to say, by a periodical withdrawal of the quantity of money it represented when it originally entered into the process — assumes this money-form anew over and over again. Here, on the contrary, in every turnover period a new additional £500 in money is thrown from the process of production itself into circulation, in order to withdraw from it continually materials of production and labour-power. This money thrown into circulation is not withdrawn from it again by the circuit which this capital describes, but is rather increased by quantities of gold constantly produced anew.
Let us look at the variable portion of this circulating capital, and assume that it is, as before, £100. Then these £100 would be sufficient in the ordinary production of these commodities, with 10 turnovers, to pay continually for the labour-power. Here, in the production of gold, the same amount is sufficient. But the £100 of the reflux, with which the labour-power is paid every 5 weeks, are not a converted form of its product but a portion of this ever renewed product itself. The producer of gold pays his labourers directly with a portion of the gold they themselves produced. The £1,000 thus expended annually in labour-power and thrown by the labourers into circulation do not return therefore via this circulation to their starting-point.
Furthermore, so far as the fixed capital is concerned, it requires the investment of a comparatively large money-capital on the original establishment of the business, and this capital is thus thrown into circulation. Like all fixed capital it returns only piecemeal in the course of years. But it returns as a direct portion of the product, of the gold, not by the sale of the product and its consequent conversion into money. In other words, it gradually assumes its money-form not by a withdrawal of money from the circulation but by an accumulation of a corresponding portion of the product. The money-capital so restored is not a quantity of money gradually withdrawn from the circulation to compensate for the sum originally thrown into it for the fixed capital. It is an additional sum of money.
Finally, as concerns the surplus-value, it is likewise equal to a certain portion of the new gold product, which is thrown into the circulation in every new period of turnover in order to be unproductively expended, according to our assumption, on means of subsistence and articles of luxury.
But according to our assumption, the entire annual production of gold — which continually withdraws labour-power and materials of production, but no money, from the market, while continuously adding fresh quantities of money to it — merely replaces the money worn out during the year, hence only keeps intact the quantity of social money which exists constantly, although in varying portions, in the two forms of hoarded money and money in circulation.
According to the law of the circulation of commodities, the quantity of money must be equal to the amount of money required for circulation plus a certain amount held in the form of a hoard, which increases or decreases as the circulation contracts or expands, and serves especially for the formation of the requisite reserve funds of means of payment. What must be paid in money in so far as there is no balancing of accounts — is the value of the commodities. The fact that a portion of this value consists of surplus-value, that is to say, did not cost the seller of the commodities anything, does not alter the matter in any way. Let us suppose that the producers are all independent owners of their means of production, so that circulation takes place between the immediate producers themselves. Apart from the constant portion of their capital, their annual value-product might then be divided into two parts, analogous with capitalist conditions: Part a, replacing only the necessary means of subsistence, and part b, consumed partly in articles of luxury, partly for an expansion of production. Part a then represents the variable capital, part b the surplus-value. But this division would remain without influence on the magnitude of the sum of money required for the circulation of their total product. Other circumstances remaining equal, the value of the circulating mass of commodities would be the same, and thus also the amount of money required for that value. They would also have to have the same money-reserves if the turnover periods are equally divided, i.e., the same portion of their capital would always have to be held in the form of money, because their production, according to our assumption, would be commodity production, the same as before. Hence the fact that a portion of the value of the commodities consists of surplus-value would change absolutely nothing in the quantity of the money required for the running of the business.
An opponent of Tooke, who clings to the formula M — C — M', asks him how the capitalist manages always to withdraw more money from circulation than he throws into it. Mind you! The question at issue here is not the formation of surplus-value. This, the only secret, is a matter of course from the capitalist standpoint. The sum of values employed would not be capital if it did not enrich itself by means of surplus-value. But as it is capital by assumption, surplus-value is taken for granted.
The question, then, is not where the surplus-value comes from but whence the money comes into which it is turned.
But in bourgeois economics, the existence of surplus-value is self-understood. It is therefore not only assumed but also connected with the further assumption that a part of the mass of commodities thrown into circulation is a surplus-product, hence representing a value which the capitalist did not throw into circulation as part of his capital; that, consequently, with his product the capitalist throws into circulation a surplus over and above his capital, and that he withdraws this surplus from it.
The commodity-capital, which the capitalist throws into circulation, has a greater value (it is not explained and remains obscure where this comes from, but the above Political Economy considers it a fact) than the productive capital which he withdrew from circulation in the form of labour-power plus means of production. On the basis of this assumption it is evident why not only capitalist A, but also B, C, D, etc., are always able to withdraw more value from circulation by the exchange of their commodities than the value of the capital originally and repeatedly advanced by them. A, B, C, D, and the rest continuously throw a greater commodity-value into circulation in the form of commodity-capital — this operation is as many-sided as the various independently functioning capitals — than they withdraw from it in the form of productive capital. Hence they have constantly to divide among themselves a sum of values (i.e., everyone, on his part, has to withdraw from circulation a productive capital) equal to the sum of values of the productive capitals they respectively advanced; and just as constantly they have to divide among themselves a sum of values which they all, from all sides, throw into circulation in the form of commodities representing the respective excesses of the commodity-values above the values of their elements of production.
But the commodity-capital must be turned into money before its reconversion into productive capital and before the surplus-value contained in it is spent. Where does the money for this purpose come from? This question seems difficult at the first glance and neither Tooke nor any one else has answered it so far.
Let the circulating capital of £500 advanced in the form of money-capital, whatever its period of turnover, now stand for the total circulating capital of society, that is, of the capitalist class. Let the surplus-value be £100. How can the entire capitalist class manage to draw continually £600 out of circulation, when it continually throws only £500 into it?
After the money-capital of £500 has been converted into productive capital, the latter transforms itself within the process of production into commodities worth £600 and there are in circulation not only commodities valued at £500, equal to the money-capital originally advanced, but also a newly produced surplus-value of £100.
This additional surplus-value of £100 is thrown into circulation in the form of commodities. No doubt about that. But such an operation does not by any means furnish the additional money for the circulation of this additional commodity-value.
It will not do to obviate this difficulty by plausible subterfuges.
For instance: So far as the constant circulating capital is concerned, it is obvious that not all invest it simultaneously. While capitalist A sells his commodities, so that his advanced capital assumes the form of money, there is on the other hand the available money-capital of the buyer B which assumes the form of his means of production — precisely what A is producing. By the same act through which A restores the money-form to his produced commodity-capital, B returns his capital to its productive form, transforms it from money-form into means of production and labour-power; the same amount of money functions in the two-sided process as in every simple purchase C — M. On the other hand when A reconverts his money into means of production, he buys from C, and this man pays B with it, etc., and thus the transaction would be explained. But:
None of the laws established with reference to the quantity of the circulating money in the circulation of commodities (Buch I, Kap. III), [English edition: Volume I, Ch. III. — Ed.] are changed in any way by the capitalist character of the process of production.
Hence, when one says that the circulating capital of society to be advanced in the form of money amounts to £500, one has already taken into account that this is on the one hand the sum simultaneously advanced, and that on the other hand it sets in motion more productive capital than £500 because it serves alternately as the money-form of various productive capitals. This manner of explanation, then, assumes the money, whose existence it is called upon to explain, as already existing.
It might be further said: Capitalist A produces articles which capitalist B consumes individually, unproductively. B’s money therefore turns A’s commodity-capital into money and thus the same sum of money serves to realise B’s surplus-value and A’s circulating constant capital. But in that case the question that still awaits solution is assumed still more directly to have been solved, namely: where does B get the money that makes up his revenue? How did he himself realise this portion of the surplus-value of his product?
It might also be said that the part of the circulating variable capital which A steadily advances to his labourers returns to him steadily from the circulation, and only a varying part of it always stays with him for the payment of wages. But a certain time elapses between the expenditure and the reflux, and meanwhile the money paid out for wages might, among other uses, serve for the realisation of surplus-value.
But we know in the first place that the longer this time the greater must be the supply of money which capitalist A must keep constantly in petto. In the second place the labourer spends the money, buys commodities for it and thus converts into money pro tanto the surplus-value contained in them. Consequently the same money that is advanced in the form of variable capital serves pro tanto also the purpose of turning surplus-value into money. Without penetrating any further into the question at this point, let this suffice: the consumption of the entire capitalist class and its retainers keeps step with that of the working-class; hence simultaneously with the money thrown into circulation by the labourers the capitalists too must throw money into it, in order to spend their surplus-value as revenue. Hence money must be withdrawn from circulation for it. This explanation would serve merely to reduce, but not eliminate, the quantity of money required.
Finally, it might be said: A large amount of money is constantly thrown into circulation when fixed capital is first invested, and it is recovered from the circulation only gradually, piecemeal, after a lapse of years, by him who threw it into circulation. Cannot this sum suffice to convert the surplus-value into money?
The answer to this must be that perhaps the sum of £500 (which includes hoard formation for needed reserve funds) implies its employment as fixed capital, if not by him who threw it into circulation, then by somebody else. Besides, it is already assumed in regard to the amount expended for the procurement of products serving as fixed capital that the surplus-value contained in them is also paid, and the question is precisely where this money comes from.
The general reply has already been given: If a mass of commodities worth x times £1,000 has to circulate, it changes absolutely nothing in the quantity of the money required for this circulation whether the value of this mass of commodities has been produced capitalistically or not. The problem itself therefore does not exist. All other conditions being given, such as velocity of the currency of money, etc., a definite sum of money is required in order to circulate commodities worth x times £1,000 quite independently of how much or how little of this value falls to the share of the direct producers of these commodities. So far as any problem exists here, it coincides with the general problem: Where does the money required for the circulation of the commodities of a country come from?
However, from the point of view of capitalist production, the semblance of a special problem does indeed exist. In the present case it is the capitalist who appears as the point of departure, who throws money into circulation. The money which the labourer expends for the payment of his means of subsistence existed previously as the money-form of the variable capital and was therefore thrown originally into circulation by the capitalist as a means of buying or paying for the labour-power. The capitalist furthermore throws into circulation the money which constitutes originally the money-form of his constant, fixed and circulating, capital; he expends it as a means of purchase or payment for instruments of labour and materials of production. But beyond this the capitalist no longer appears as the starting-point of the quantity of money in circulation. Now, there are only two points of departure: the capitalist and the labourer. All third categories of persons must either receive money for their services from these two classes or, to the extent that they receive it without any services in return, they are joint owners of the surplus-value in the form of rent, interest, etc. That the surplus-value does not all stay in the pocket of the industrial capitalist but must be shared by him with other persons, has nothing to do with the present question. The question is how he turns his surplus-value into money, not how the proceeds are later divided. For our purposes the capitalist may as well still be regarded as the sole owner of the surplus-value. As for the labourer, it has already been said that he is but the secondary, while the capitalist is the primary, starting-point of the money thrown by the labourer into circulation. The money first advanced as variable capital is going through its second circulation when the labourer spends it to pay for means of subsistence.
The capitalist class remains consequently the sole point of departure of the circulation of money. If they need £400 for the payment of means of production and £100 for the payment of labour-power, they throw £500 into circulation. But the surplus-value incorporated in the product, with a rate of surplus-value incorporated in the product, with a rate of surplus-value of 100%, is equal in value to £100. How can they continually draw £600 out of circulation, when they continually throw only £500 into it? Nothing comes from nothing. The capitalist class as a whole cannot draw out of circulation what was not previously thrown into it.
We disregard here the fact that the sum of £400 may suffice, when turned over ten times, to circulate means of production valued at £4,000 and labour-power valued at £1,000, and that the other £100 may likewise suffice for the circulation of £1,000 worth of surplus-value. The ratio of the sum of money to the value of commodities circulated by it is immaterial here. The problem remains the same. Unless the same pieces of money circulate several times, a capital of £5,000 must be thrown into circulation, and £1,000 is required to convert the surplus-value into money. The question is where this money comes from, whether it is £1,000 or £100. In any event it is in excess of the money-capital thrown into the circulation.
Indeed, paradoxical as it may appear at first sight, it is the capitalist class itself that throws the money into circulation which serves for the realisation of the surplus-value incorporated in the commodities. But, nota bene, it does not throw it into circulation as advanced money, hence not as capital. It spends it as a means of purchase for its individual consumption. The money is not therefore advanced by the capitalist class, although it is the point of departure of its circulation.
If his capital were turned over more frequently a year, it would not alter this state of affairs, but would affect the length of time, and hence the amount which he would have to throw into circulation for his individual consumption over and above his advanced money-capital.
This money is not thrown into circulation by the capitalist as capital. But it is a decided trait of the capitalist to be able to live on means in his possession until surplus-value begins to return.
In the present case we assumed that the sum of money which the capitalist throws into circulation to pay for his individual consumption until the first returns of his capital is exactly equal to the surplus-value which he produced and hence must turn into money. This is obviously an arbitrary assumption so far as the individual capitalist is concerned. But it must be correct when applied to the entire capitalist class as simple reproduction is assumed. It only expresses the same thing as the assumption; namely, that the entire surplus-value, and it alone — hence no fraction of the original capital stock — is consumed unproductively.
It had been previously assumed that the total production of precious metals (taken to be equal to £500) sufficed only for the replacement of the wear and tear of the money.
The capitalists producing gold possess their entire product in gold — that portion which replaces constant capital as well as that which replaces variable capital, and also that consisting of surplus-value. A portion of the social surplus-value therefore consists of gold, and not of a product which is turned into gold only in the process of circulation. It consists from the outset of gold and is thrown into circulation in order to draw products out of it. The same applies here to wages to variable capital, and to the replacement of the advanced constant capital. Hence, whereas one part of the capitalist class throws into circulation commodities greater in value (greater by the amount of the surplus-value) than the money-capital advanced by them, another part of the capitalists throws into circulation money of greater value (greater by the amount of surplus-value) than that of the commodities which they constantly withdraw from circulation for the production of gold. Whereas one part of the capitalists constantly pumps more money out of the circulation than it pours into it, the part that produces gold constantly pumps more money into it than it takes out in means of production.
Although a part of this product of £500 in gold is surplus-value of the gold-producers, the entire sum is, nonetheless, intended only to replace the money necessary for the circulation of commodities. It is immaterial for this purpose how much of this gold turns into money the surplus-value incorporated in the commodities, and how much of it their other value constituents.
However, that portion of surplus-value which does not exist in other commodities but alongside of them in the form of money, consists of a portion of the annually produced gold only to the extent that a portion of the annual production of gold circulates for the realisation of the surplus-value. The other portion of money, which is continually in the hands of the capitalist class in varying portions, as the money-form of their surplus-value, is not an element of the annually produced gold, but of the mass of money previously accumulated in the country.
According to our assumption the annual production of gold, £500, just covers the annual wear of money. If we keep in mind only these £500 and ignore that portion of the annually produced mass of commodities which is circulated by means of previously accumulated money, the surplus-value produced in commodity-form will find in the circulation process money for its conversion into money for the simple reason that on the other side surplus-value is annually produced in the form of gold. The same applies to the other parts of the gold product of £500 which replace the advanced money-capital.
Now, two things are to be noted here.
In the first place, it follows that the surplus-value spent by the capitalists as money, as well as the variable and other productive capital advanced by them in money, is actually the product of labourers, namely of the labourers engaged in the production of gold. They produce anew not only that portion of the gold product which is “advanced” to them as wages but also that portion of the gold product in which the surplus-value of the capitalist gold-producers is directly represented. Finally, as for that portion of the gold product which replaces only the constant capital-value advanced for its production, it re-appears in the form of money (or product in general) only through the annual work of the labourers. When the business started, it was originally expended by the capitalist in the form of money, which was not newly produced but formed a part of the circulating mass of social money. But to the extent that it is replaced by a new product, by additional gold, it is the annual product of the labourer. The advance on the part of the capitalist appears here, too, merely as a form which owes its existence to the fact that the labourer is neither the owner of his own means of production nor able to command, during production, the means of subsistence produced by other labourers.
In the second place however, as far as concerns that mass of money which exists independently of his annual replacement of £500, partly in the form of a hoard and partly in the form of circulating money, things must be, or rather must have been originally with it just as they are annually with regard to these £500. We shall return to this point at the close of this sub-section. [See: pp. 347-48 of this book. — Ed.] But before then we wish to make a few additional remarks.
If we furthermore assume other circumstances as remaining equal — including the length, intensity, and productivity of the working-day — but a different division of the value of the product between wages and surplus-value, so that either the former rises and the latter falls, or vice versa, the mass of the circulating money is not affected thereby. This change can take place without any expansion or contraction of the money currency. Let us consider particularly the case in which there is a general rise in wages, so that, under the assumptions made, there will be a general fall in the rate of surplus-value, but besides this, also according to our assumption, there will be no change in the value of the circulating mass of commodities. In this case there naturally is an increase in the money-capital which must be advanced as variable capital, hence in the amount of money which performs this function. But the surplus-value, and therefore also the amount of money required for its realisation, decreases by exactly the same amount by which the amount of money required for the function of variable capital increases. The amount of money required for the realisation of the commodity-value is not affected thereby, any more than this commodity-value itself. The cost price of the commodity rises for the individual capitalist but its social price of production remains unchanged. What is changed is the proportion in which, apart from the constant part of the value, the price of production of commodities is divided into wages and profit.
But, it is argued, a greater outlay of variable money-capital (the value of the money is, of course, considered constant) implies a larger amount of money in the hands of the labourers. This causes a greater demand for commodities on the part of the labourers. This, in turn, leads to a rise in the price of commodities.—Or it is said: If wages rise, the capitalists raise the prices of their commodities.—In either case, the general rise in wages causes a rise in commodity prices. Hence a greater amount of money is needed for the circulation of the commodities, no matter how the rise in prices is explained.
Reply to the first formulation: in consequence of a rise in wages, the demand of the labourers for the necessities of life will rise particularly. Their demand for articles of luxury will increase to a lesser degree, or a demand will develop for things which formerly did not come within the scope of their consumption. The sudden and large-scale increase in the demand for the indispensable means of subsistence will doubtless raise their prices immediately. The consequence: a greater part of the social capital will be employed in the production of necessities of life and a smaller in the production of luxuries, since these fall in price on account of the decrease in surplus-value and the consequent decrease in the demand of the capitalists for these articles. On the other hand as the labourers themselves buy articles of luxury, the rise in their wages does not promote an increase in the prices of the necessities of life but simply displaces buyers of luxuries. More luxuries than before are consumed by labourers, and relatively fewer by capitalists. Voilà tout. After some oscillations the value of the mass of circulating commodities is the same as before. As for the momentary fluctuations, they will not have any other effect than to throw unemployed money-capital into domestic circulation, capital which hitherto sought employment in speculative deals on the stock-exchange or in foreign countries.
Reply to the second formulation: If it were in the power of the capitalist producers to raise the prices of their commodities at will, they could and would do so without a rise in wages. Wages would never rise if commodity prices fell. The capitalist class would never resist the trades’ unions, if it could always and under all circumstances do what it is now doing by way of exception, under definite, special, so to say local, circumstances, to wit, avail itself of every rise in wages in order to raise prices of commodities much higher yet and thus pocket greater profits.
The assertion that the capitalists can raise the prices of luxuries, because the demand for them decreases (in consequence of the reduced demand of the capitalists whose means of purchasing such articles has decreased) would be a very unique application of the law of supply and demand. Since it is not a mere displacement of luxury buyers, a displacement of capitalists by labourers — and so far as this displacement does occur, the demand of the labourers does not stimulate a rise in the prices of necessities, for the labourers cannot spend that portion of their increased wages for necessities which they spend for luxuries — the prices of luxuries fall in consequence of reduced demand. Capital is therefore withdrawn from the production of luxury articles, until their supply is reduced to dimensions corresponding to their altered role in the process of social production. With their production thus reduced, they rise in price — their value otherwise unchanged — to their normal level. So long as this contraction, or this process of levelling, lasts and the prices of necessities rise, as much capital is supplied to the production of the latter as is withdrawn from other branches of production, until the demand is satisfied. Then the equilibrium is restored and the end of the whole process is that the social capital, and therefore also the money-capital, is divided in a different proportion between the production of the necessities of life and that of luxury articles.
The entire objection is a bugbear set up by the capitalists and their economic sycophants.
The facts which serve as the pretext for this bugbear are of three kinds:
Apart from this, the circuit of money — that is, the return of money to its point of departure — being a phase of the turnover of capital, is a phenomenon entirely differently from, and even the opposite of, the currency of money,[33] which expresses its steady departure from the starting-point by changing hands again and again. (Buch I, S. 94.) [English edition: pp. 114-15. — Ed.] Nevertheless, an accelerated turnover implies eo ipso an accelerated currency.
First concerning the variable capital: If a certain money-capital of, say, £500 is turned over the form of variable capital ten times a year, it is evident that this aliquot part of the quantity of money in circulation circulates ten times its value, or £5,000. It circulates ten times a year between the capitalist and the labourer. The labourer is paid, and pays, ten times a year with the same aliquot part of the circulating quantity of money. If the same variable capital were turned over only once a year, the scale of production remaining the same, there would be only one capital turnover of £5,000.
Furthermore: Let the constant portion of the circulating capital be equal to £1,000. If the capital is turned over ten times, the capitalist sells his commodity, and therefore also the constant circulating portion of its value, ten times a year. The same aliquot part of the circulating quantity of money (equal to £1,000) passes ten times per annum from the hands of its owners into those of the capitalist. This money changes hands ten times. Secondly, the capitalist buys means of production ten times a year. This again makes ten circulations of money from one hand into another. With a sum of money amounting to £1,000, the industrial capitalist sells £10,000 worth of commodities, and again buys £10,000 worth of commodities. By means of 20 circulations of £1,000 in money a commodity-supply of £20,000 is circulated.
Finally, with an acceleration of the turnover, the portion of money with realises the surplus-value also circulates faster.
But, conversely, an acceleration of money-circulation does not necessarily imply a more rapid turnover of capital, and therefore of money; that is, it does not necessarily imply a contraction and more rapid renewal of the reproduction process.
A more rapid circulation of money takes place whenever a larger number of transactions are performed with the same amount of money. This may also take place under the same periods of capital reproduction as a result of changes in the technical facilities for the circulation of money. Furthermore, there may be an increase in the number of transactions in which money circulates without representing actual exchanges of commodities (marginal transactions on the stock-exchange, etc.). On the other hand some circulations of money may be entirely eliminated, as for instance where the agriculturist is himself a landowner, there is no circulation of money between the farmer and the landlord; where the industrial capitalist is himself the owner of the capital, there is no circulation of money between him and the creditors.
The capitalist mode of production — its basis being wage-labour, the payment of the labourer in money, and in general the transformation of payments in kind into money payments — can assume greater dimensions and achieve greater perfection only where there is available in the country a quantity of money sufficient for circulation and the formation of a hoard (reserve fund, etc.) promoted by it. This is the historical premise, although it is not to be taken to mean that first a sufficient hoard is formed and then capitalist production begins. It develops simultaneously with the development of the conditions necessary for it, and one of these conditions is a sufficient supply of precious metals. Hence the increased supply of precious metals since the sixteenth century is an essential element in the history of the development of capitalist production. But so far as the necessary further supply of money material on the basis of capitalist production is concerned, we see surplus-value incorporated in products thrown into circulation without the money required for their conversion into money, on the one hand, and on the other surplus-value in the form of gold without previous transformation of products into money.
The additional commodities to be converted into money find the necessary amount of money at hand, because on the other side additional gold (and silver) intended for conversion into commodities is thrown into circulation, not by means of exchange, but by production itself.
In the first place, as far as the additional money-capital required for the functioning of the increasing productive capital is concerned, that is supplied by the portion of the realised surplus-value thrown into circulation by the capitalists as money-capital, not as the money-form of the revenue. The money is already in the hands of the capitalists. Only its employment is different.
Now however in consequence of the additional productive capital, its product, an additional mass of commodities is thrown into circulation. Together with this additional quantity of commodities, a part of the additional money needed for its realisation is thrown into circulation, inasmuch as the value of this mass of commodities is equal to that of the productive capital consumed in their production. This additional amount of money has been advanced precisely as additional money-capital, and therefore returns to the capitalist through the turnover of his capital. Here the same question as above re-appears. Where does the additional money come from with which to realise the additional surplus-value now contained in the form of commodities?
The general reply is again the same. The sum total of the prices of the circulating commodities has been increased, not because the prices of a given quantity of commodities have risen, but because the mass of commodities now circulating is greater than that of the previously circulating commodities, without it being offset by a fall in prices. The additional money required for the circulation of this greater quantity of commodities of greater value must be secured either by greater economy in the use of the circulating quantity of money — whether by balancing the payments, etc., by measures which accelerate the circulation of the same coins — or by the transformation of money from the form of a hoard into that of a circulating medium. The latter does not only imply that idle money-capital begins to function as a means of purchase or payment, or that money-capital already functioning as a reserve fund while performing this function for its owner, actively circulates for society (as is the case with bank deposits which are continually lent), thus performing a double function. It also implies that the stagnating reserve funds of coins are economised.
“In order that money should flow continuously as coin, coin must constantly coagulate as money. The continual currency of coin depends on its continual stagnation, in greater or smaller quantities, in reserve funds of coin which spring up throughout the sphere of circulation and also necessitate it; the formation, distribution, dissolution, and re-formation of these reserve funds are constantly alternating, their existence constantly disappears, their disappearance constantly exists. Adam Smith expressed this never-ceasing transformation of coin into money and of money into coin by saying that every owner of commodities must always keep in supply, aside from the particular commodity which he sells, a certain quantity of the universal commodity with which he buys. We saw that in the circulation C — M — C the second member M — C splits up constantly into a series of purchases which do not take place at once but at successive intervals of time, so that one part of M is current as coin while the other rests as money. As a matter of fact money is in that case only suspended coin and the separate parts of the current mass of coins continuously appear now in the one form, and now in the other, alternating constantly. This first transformation of the medium of circulation into money represents, therefore, but a technical aspect of money-circulation itself.” (Karl Marx, Zur Kritik der Politischen Oekonomie, 1859, pp. 105, 106.) (“Coin” as distinguished from money is here employed to indicate money in its function of a mere medium of circulation in contrast with its other functions.)
When all these measures do not suffice, additional gold must be produced, or, what amounts to the same, a part of the additional product exchanged, directly or indirectly, for gold — the product of countries in which precious metals are mined.
The entire amount of labour-power and social means of production expended in the annual production of gold and silver intended as instruments of circulation constitutes a bulky item of the faux frais of the capitalist mode of production, of the production of commodities in general. It is an equivalent abstraction from social utilisation of as many additional means of production and consumption as possible, i.e., of real wealth. To the extent that the costs of this expensive machinery of circulation are decreased, the given scale of production or the given degree of its extension remaining constant, the productive power of social labour is eo ipso increased. Hence, so far as the expediencies developing with the credit system have this effect, they increase capitalist wealth directly, either by performing a large portion of the social production and labour-power without any intervention of real money, or by raising the functional capacity of the quantity of money really functioning.
This disposes also of the absurd question whether capitalist production in its present volume would be possible without the credit system (even if regarded only from this point of view), that is, with the circulation of metallic coin alone. Evidently this is not the case. It would rather have encountered barriers in the volume of production of precious metals. On the other hand one must not entertain any fantastic illusions on the productive power of the credit system, so far as it supplies or sets in motion money-capital. A further analysis of this question is out of place here.
Inasmuch as the money so accumulating is additional money, the matter needs no explanation. It can only be a portion of the surplus-gold brought from gold-producing countries. In this connection it must be noted that the home product, in exchange for which this gold is imported, is no longer in the country in question. It has been exported to foreign countries in exchange for gold.
But if we assume that the same amount of money is still in the country as before, then the accumulated and accumulating money has accrued from the circulation. Only its function is changed. It has been converted from money in currency into latent money-capital gradually taking shape.
The money which is accumulated in this case is the money-form of sold commodities, and moreover of that part of their value which constitutes surplus-value for their owner. (The credit system is here assumed to be non-existent.) The capitalist who accumulates this money has sold pro tanto without buying.
If we look upon this process merely as an individual phenomenon, there is nothing to explain. A part of the capitalists keeps a portion of the money realised by the sale of its product without withdrawing products from the market in return. Another part of them on the other hand transforms its money wholly into products, with the exception of the constantly recurring money-capital required for running the business. One portion of the products thrown upon the market as vehicles of surplus-value consists of means of production, or of the real elements of variable capital, the necessary means of subsistence. It can therefore serve immediately for the expansion of production. For it has not been premised in the least that one part of the capitalists accumulates money-capital, while the other consumes its surplus-value entirely, but only that one part does its accumulating in the shape of money, forms latent money-capital, while the other part accumulates genuinely, that is to say, enlarges the scale of production, genuinely expands its productive capital. The available quantity of money remains sufficient for the requirements of circulation, even if, alternately, one part of the capitalists accumulates money, while the other enlarges the scale of production, and vice versa. Moreover, the accumulation of money on one side may proceed even without cash money by the mere accumulation of outstanding claims.
But the difficulty arises when we assume not an individual, but a general accumulation of money-capital on the part of the capitalist class. Apart from this class, according to our assumption — the general and exclusive domination of capitalist production — there is no other class at all except the working-class. All that the working-class buys is equal to the sum total of its wages, equal to the sum total of the variable capital advanced by the entire capitalist class. This money flows back to the capitalist class by the sale of its product to the working-class. Its variable capital thus resumes its money-form. Let the sum total of the variable capital be x times £100, i.e., the sum total of the variable capital employed, not advanced, during the year. The question now under consideration is not affected by how much or how little money, depending on the velocity of the turnover, is needed to advance this variable capital-value during the year. The capitalist class buys with these x times £100 of capital a certain amount of labour-power, or pays wages to a certain number of labourers — first transaction. The labourers buy with this same sum a certain quantity of commodities from the capitalists, whereby the sum of x times £100 flows back into the hands of the capitalists — second transaction. And this is constantly repeated. This amount of x times £100, therefore, can never enable the working-class to buy the part of the product which represents the constant capital, not to mention the part which represents the surplus-value of the capitalist class. With these x times £100 the labourers can never buy more than a part of the value of the social product equal to that part of the value which represents the value of the advanced variable capital.
Apart from the case in which this universal accumulation of money expresses nothing but the distribution of the precious metal additionally introduced, in whatever proportion, among the various individual capitalists, how is the entire capitalist class then supposed to accumulate money?
They would all have to sell a portion of their product without buying anything in return. There is nothing mysterious about the fact that they all have a certain fund of money which they throw into circulation as a medium of circulation for their consumption, and a certain portion of which returns to each one of them from the circulation. But in that case this money-fund exists precisely as a fund for circulation, as a result of the conversion of the surplus-value into money, and does not by any means exist as latent money-capital.
If we view the matter as it takes place in reality, we find that the latent money-capital, which is accumulated for future use, consists:
1) Of deposits in banks; and it is a comparatively trifling sum which is really at the disposal of the bank. Money-capital is accumulated here only nominally. What is actually accumulated is outstanding claims which can be converted into money (if ever) only because a certain balance arises between the money withdrawn and the money deposited. It is only a relatively small sum that the bank holds in its hands in money.
2) Of government securities. These are not capital at all, but merely outstanding claims on the annual product of the nation.
3) Of stocks. Those which are not fakes are titles of ownership of some corporative real capital and drafts on the surplus-value accruing annually from it.
There is no accumulation of money in any of these cases. What appears on the one side as an accumulation of money-capital appears on the other as a continual actual expenditure of money. It is immaterial whether the money is spent by him who owns it, or by others, his debtors.
On the basis of capitalist production the formation of a hoard as such is never an end in itself but the result either of a stagnation of the circulation — larger amounts of money than is generally the case assuming the form of a hoard — or of accumulations necessitated by the turnover; or, finally, the hoard is merely the creation of money-capital existing temporarily in latent form and intended to function as productive capital.
If therefore on the one hand a portion of the surplus-value realised in money is withdrawn from circulation and accumulated as a hoard, another part of the surplus-value is at the same time continually converted into productive capital. With the exception of the distribution of additional precious metals among the members of the capitalist class, accumulations in the form of money never takes place simultaneously at all points.
What is true of the portion of the annual product which represents surplus-value in the form of commodities, is also true of the other portion of it. A certain sum of money is required for its circulation. This sum of money belongs to the capitalist class quite as much as the annually produced quantity of commodities which represents surplus-value. It is originally thrown into circulation by the capitalist class itself. It is constantly redistributed among its members by means of the circulation itself. Just as in the case of circulation of coin in general, a portion of this sum stagnates at ever varying points, while another portion continually circulates. Whether a part of this accumulation is intentional, for the purpose of forming money-capital, or not, does not alter things.
No notice has been taken here of those adventures of circulation in which one capitalist grasps a portion of the surplus-value, or even of the capital, of another, thereby bringing about one-sided accumulation and centralisation of money-capital as well as of productive capital. For instance a part of the snatched surplus-value accumulated by A as money-capital may be a part of the surplus-value of B which does not return to him.
The process of reproduction of capital comprises this direct process of production as well as the two phases of the circulation process proper, i.e., the entire circuit which, as a periodic process — a process which constantly repeats itself in definite periods — constitutes the turnover of capital.
Whether we study the circuit in the form of M ... M' or that of P ... P, the direct process of production P itself always forms but one link in this circuit. In the one form it appears as a promoter of the process of circulation; in the other the process of circulation appears as its promoter. Its continuous renewal, the continuous re-appearance of capital as productive capital, is in either case determined by its transformations in the process of circulation. On the other hand the continuously renewed process of production is the condition of the transformations which the capital undergoes ever anew in the sphere of circulation, of its alternate appearance as money-capital and commodity-capital.
Every individual capital forms, however, but an individualised fraction, a fraction endowed with individual life, as it were, of the aggregate social capital, just as every individual capitalist is but an individual element of the capitalist class. The movement of the social capital consists of the totality of the movements of its individualised fractional parts, the turnovers of the individual capitals. Just as the metamorphosis of the individual commodity is a link in the series of metamorphoses of the commodity-world — the circulation of commodities — so the metamorphosis of the individual capital, its turnover, is a link in the circuit described by social capital.
This total process comprises both the productive consumption (the direct process of production) together with the conversions of form (materially considered, exchanges) which bring it about, and the individual consumption together with the conversions of form or exchanges by which it is brought about. It includes on the one hand the conversion of variable capital into labour-power, and therefore the incorporation of labour-power in the process of capitalist production. Here the labourer acts as the seller of his commodity, labour-power, and the capitalist as its buyer. But on the other hand the sale of the commodities embraces also their purchase by the working-class appears as buyer and the capitalists as sellers of commodities to the labourers.
The circulation of the commodity-capital includes the circulation of surplus-value, hence also the purchases and sales by which the capitalist effect their individual consumption, the consumption of surplus-value.
The circuit of the individual capitals in their aggregate as social capital, hence considered in its totality, comprises not only the circulation of capital but also the general circulation of commodities. The latter can originally consist of only two components: 1) The circuit of capital proper and 2) the circuit of the commodities which enter into individual consumption, consequently of the commodities for which the labourer expends his wages and the capitalist his surplus-value (or a part of it). At any rate, the circuit of capital comprises also the circulation of the surplus-value, since the latter is a part of the commodity capital, and likewise the conversion of the variable capital into labour-power, the payment of wages. But the expenditure of this surplus-value and wages for commodities does not form a link in the circulation of capital, although at least the expenditure of wages is essential for this circulation.
In Volume I the process of capitalist production was analysed as an individual act as well as a process of reproduction: the production of surplus-value and the production of capital itself. The changes of form and substance experienced by capital in the sphere of circulation were assumed without dwelling upon them. It was presupposed that on the one hand the capitalist sells the product at its value and on the other that he finds within the sphere of circulation the objective means of production for restarting or continuing the process. The only act within the sphere of circulation on which we have dwelt was the purchase and sale of labour-power as the fundamental condition of capitalist production.
In the first part of this Book II, the various forms were considered which capital assumes its circular movement, and the various forms of this movement itself. The circulation time must now be added to the working times discussed in Volume I.
In the second Part, the circuit was studied as being periodic, i.e., as a turnover. It was shown on the one hand in what manner the various constituents of capital (fixed and circulating) accomplish the circuit of forms in different periods of time and in different ways; on the other hand the circumstances were examined by which the different lengths of the working period and circulation period are conditioned. The influence was shown which the period of the circuit and the different proportions of its component parts exert upon the dimensions of the production process itself and upon the annual rate of surplus-value. Indeed, while it was the successive forms continually assumed and discarded by capital in its circuit that were studied in Part I, it was shown in Part II how a capital of a given magnitude is simultaneously, though in varying proportions, divided, within this flow and succession of forms, into different forms: productive capital, money-capital, and commodity-capital, so that they not only alternate with one another, but different portions of the total capital-value are constantly side by side and function in these different states. Especially money-capital came forward with distinctive features not shown in Volume I. Certain laws were found according to which diverse large components of a given capital must be continually advanced and renewed — depending on the conditions of the turnover — in the form of money-capital in order to keep a productive capital of a given size constantly functioning.
But in both the first and the second Parts it was always only a question of some individual capital, of the movement of some individualised part of social capital.
However the circuits of the individual capitals intertwine, presuppose and necessitate one another, and form, precisely in this interlacing, the movement of the total social capital. Just as in the simple circulation of commodities the total metamorphosis of a commodity appeared as a link in the series of metamorphoses of the world of commodities, so now the metamorphosis of the individual capital appears as a link in the series of metamorphoses of the social capital. But while simple commodity circulation by no means necessarily comprises the circulation of capital — since it may take place on the basis of non-capitalist production — the circuit of the aggregate social capital, as was noted, comprises also the commodity circulation lying outside the circuit of individual capital, i.e., the circulation of commodities which do not represent capital.
We have now to study the process of circulation (which in its entirety is a form of the process of reproduction) of the individual capitals as components of the aggregate social capital, that is to say, the process of circulation of this aggregate social capital.
In the study of the turnover of the individual capital money-capital revealed two aspects.
In the first place it constitutes the form in which every individual capital appears upon the scene and opens its process as capital. It therefore appears as the primus motor, lending impetus to the entire process.
In the second place, that portion of the advanced capital-value which must be continually advanced and renewed in the form of money differs in its ratio to the productive capital which it sets in motion, i.e., in its ratio to the continuous scale of production, depending on the particular length of the period of turnover and the particular ratio between its two component parts — the working period and the period of circulation. But whatever this ratio may be, the portion of the capital-value in process which can continually function as productive capital is limited in any event by that portion of the advanced capital-value which must always exist beside the productive capital in the form of money. It is here merely a question of the normal turnover, an abstract average. Additional money-capital required to compensate for interruptions of the circulation is excepted.
As to the first point: commodity production presupposes commodity circulation, and commodity circulation presupposes the expression of commodities in money, the circulation of money; the splitting of a commodity into commodity and money is law of the expression of the product as a commodity. Similarly the capitalist production of commodities — whether considered socially or individually — presupposes capital in the form of money, or money-capital, both as the primus motor of every incipient business, and as its continual motor. The circulating capital especially implies that the money-capital acts with constant repetition at short intervals as a motor. The entire advanced capital-value, that is to say, all the elements of capital, consisting of commodities, labour-power, instruments of labour, and materials of production, must be bought over and over again with money. What is true here of the individual capital is also true of the social capital, which functions only in the form of many individual capitals. But as we showed in Volume I, it does not at all follow from this that capital’s field of operation, the scale of production, depends — even on a capitalist basis — for its absolute limits on the amount of functioning money-capital.
Incorporated in capital are elements of production whose expansion within certain limits is independent of the magnitude of the advanced money-capital. Though payment of labour-power be the same, it can be exploited more or less extensively or intensively. If the money-capital is increased with this greater exploitation (that is, if wages are raised), it is not increased proportionately, hence not at all pro tanto.
The productively exploited nature-given materials — the soil, the seas, ores, forests, etc. — which do not constitute elements of capital-value, are more intensively or extensively exploited with a greater exertion of the same amount of labour-power, without an increased advance of money-capital. The real elements of productive capital are thus multiplied without requiring an additional money-capital. But so far as such an addition becomes necessary for additional auxiliary materials, the money-capital in which the capital-value is advanced is not increased proportionately to the augmented effectiveness of the productive capital, hence is pro tanto not at all increased.
The same instruments of labour, and thus the same fixed capital, can be used more effectively by an extension of the time they are daily used and by a greater intensity of employment, without an additional outlay of money for fixed capital. There is, in that case, only a more rapid turnover of the fixed capital, but then the elements of its reproduction are supplied more rapidly.
Apart from the natural substances, it is possible to incorporate in the productive process natural forces, which do not cost anything, to act as agents with more or less heightened effect. The degree of their effectiveness depends on methods and scientific developments which cost the capitalist nothing.
The same is true of the social combination of labour-power in the process of production and of the accumulated skill of the individual labourers. Carey calculates that the landowner never receives enough, because he is not paid for all the capital or labour put into the soil since time immemorial in order to give it its present productivity. (Of course, no mention is made of the productivity of which the soil is robbed.) According to that each individual labourer would have to paid according to the work which it cost the entire human race to evolve a modern mechanic out of a savage. On the contrary one should think that if all the unpaid labour put into the soil and converted into money by the landowner and capitalist is totalled up, all the capital ever invested in this soil has been paid back over and over again with usurious interest, so that society has long ago redeemed landed property over and over again.
True enough, the increase in the productive power of labour, so far as it does not imply an additional investment of capital-value, augments in the first instance only the quantity of the product, not its value, except insofar as it makes it possible to reproduce more constant capital with the same labour and thus to preserve its value. But it forms at the same time new material for capital, hence the basis of increased accumulation of capital.
So far as the organisation of social labour itself, and thus the increase in the social productive power of labour, requires large-scale production and therefore the advance of large quantities of money-capital by individual capitalists, we have shown in Book I [From Manuscript II. — F. E.] that this is accomplished in part by the centralisation of capitals in a few hands, without necessitating an absolute increase in the magnitude of the functioning capital-values, and consequently also in the magnitude of the money-capital in which they are advanced. The magnitude of the individual capitals can increase by centralisation in the hands of a few without a growth of their social sum total. It is only a changed distribution of the individual capitals.
Finally, we have shown in the preceding Part that a shortening of the period of turnover permits of setting in motion either the same productive capital with less money-capital or more productive capital with the same money-capital. [English edition: Vol. I, pp. 624-28, 761-64. — Ed.]
But evidently all this has nothing to do with the question of money-capital itself. It shows only that the advanced capital — a given sum of values consisting in its free form, in its value-form, of a certain sum of money — includes, after its conversion into productive capital, productive powers whose limits are not set by the limits of its value, but which on the contrary may operate within certain bounds with differing degrees of extensiveness or intensiveness. If the prices of the elements of production — the means of production and labour-power — are given, the magnitude of the money-capital required for the purchase of a definite quantity of these elements of production existing as commodities is determined. Or the magnitude of value of the capital to be advanced is determined. But the extent to which this capital acts as a creator of values and products is elastic and variable.
As to the second point: it is self-evident that part of the social labour and means of production which must be annually expended for the production or purchase of money in order to replace worn-off coin is pro tanto a diminution of the volume of social production. But as for the money-value which functions partly as a medium of circulation, partly as a hoard, it is simply there, acquired, present alongside the labour-power, the produced means of production, and the natural sources of wealth. It cannot be regarded as a limit set to these things. By its transformation into elements of production, by its exchange with other nations, the scale of production might be extended. This presupposes, however, that money plays its role of world-money the same as ever.
To set the productive capital in motion requires more or less money-capital, depending on the length of the period of turnover. We have also seen that the division of the period of turnover into working time and circulation time requires an increase of the capital latent or suspended in the form of money.
Inasmuch as the period of turnover is determined by the length of the working period, it is determined, other conditions remaining equal, by the material nature of the process of production, hence not by the specific social character of this process of production. However, on the basis of capitalist production, more extensive operations of comparatively long duration necessitate large advances of money-capital for a rather long time. Production in such spheres depends therefore on the magnitude of the money-capital which the individual capitalist has at his disposal. This barrier is broken down by the credit system and the associations connected with it, e.g., the stock companies. Disturbances in the money-market therefore put such establishments out of business, while these same establishments, in their turn, produce disturbances in the money-market.
On the basis of socialised production the scale must be ascertained on which those operations — which withdraw labour-power and means of production for a long time without supplying any product as a useful effect in the interim — can be carried on without injuring branches of production which not only withdraw labour-power and means of production continually, or several times a year, but also supply means of subsistence and of production. Under socialised as well as capitalist production, the labourers in branches of business with shorter working periods will as before withdraw products only for a short time without giving any products in return; while branches of business with long working periods continually withdraw products for a longer time before they return anything. This circumstance, then, arises from the material character of the particular labour-process, not from its social form. In the case of socialised production the money-capital is eliminated. Society distributes labour-power and means of production to the different branches of production. The producers may, for all it matters, receive paper vouchers entitling them to withdraw from the social supplies of consumer goods a quantity corresponding to their labour-time. These vouchers are not money. They do not circulate.
We see that inasmuch as the need for money-capital originates in the length of the working period, it is conditioned by two things: First, that money in general is the form in which every individual capital (apart from credit) must make its appearance in order to transform itself into productive capital; this follows from the nature of capitalist production and commodity-production in general. Second, the magnitude of the required money advance is due to the circumstance that labour-power and means of production are continually withdrawn from society for a comparatively long time without any return to it, during that period, of products convertible into money. The first condition, that the capital to be advanced must be advanced in the form of money, is not eliminated by the form of this money itself, whether it is metal-money, credit-money, token-money, etc. The second condition is in no way affected by what money-medium or in what form of production labour, means of subsistence, and means of production are withdrawn without the return of some equivalent to the circulation.
The label of a system differs from that of other articles, among other things, by the fact that it cheats not only the buyer but often also the seller. Quesnay himself and his immediate disciples believed in their feudal shop-sign. So do our grammarians even this day and hour. But as a matter of fact the system of the physiocrats is the first systematic conception of capitalist production. The representative of industrial capital — the class of tenants — directs the entire economic movement. Agriculture is carried on capitalistically, that is to say, it is the enterprise of a capitalist farmer on a large scale; the direct cultivator of the soil is the wage-labourer. Production creates not only articles of use but also their value; its compelling motive is the procurement of surplus-value, whose birth-place is the sphere of production, not of circulation. Among the three classes which figure as the vehicles of the social process of reproduction brought about by the circulation, the immediate exploiter of “productive” labour, the producer of surplus-value, [Marx analyses Quesnay’s Tableau Économique in greater detail in his Theories of Surplus-Value (see English edition: Karl Marx, Theories of Surplus-Value [Volume IV of Capital], Part I, Moscow, 1963, pp. 299-333 and 367-69). — Ed.] the capitalist farmer, is distinguished from those who merely appropriate the surplus-value.
The capitalist character of the physiocratic system excited opposition even during its florescence: on the one side it was challenged by Linguet and Mably, on the other by the champions of the small freeholders.
He says furthermore:
Adam Smith says furthermore:
Adam Smith then tells us that one should exclude from the net revenue, i.e., from the revenue in its specific meaning, the entire fixed capital, and also the entire portion of the circulating capital which is required for the maintenance and repair of the fixed capital, and for its renewal, in fact all capital not in a bodily form intended for the consumption-fund.
With regard to the second kind of labourers — who directly produce articles of consumption — Adam Smith’s definitions are not quite exact. For he says that in these kinds of labour, both the price of labour and the product “go to” the stock reserved for immediate consumption,
After Adam Smith has thus entirely excluded the fixed capital from the “net revenue” of a country, he continues:
And so we learn hear that:
Now if Adam Smith had welded together the snatches of thought which forced themselves upon him at first in the study of the reproduction of that which he calls fixed, and now of that which he calls circulating capital, he would have arrived at the following result:
The first constituent part, according to Adam Smith the reproduced portion of the fixed capital of all the individual capitalists employed in this first section, is “totally excluded from making any part of the neat revenue,” either of the individual capitalist or of society. It always functions as capital, never as revenue. To that extent the “fixed capital” of every individual capitalist is in no way different from the fixed capital of society. But the other portions of value of the annual product of society consisting of means of production — portions of value which therefore exist in aliquot parts of this aggregate quantity of means of production — form indeed simultaneously revenues for all agents engaged in this production, wages for the labourers, profits and ground-rents for the capitalists. But they form capital, not revenue, for society, although the annual product of society consists only of the sums of the products of the individual capitalists who belong to that society. By nature they are generally fit to function only as means of production, and even those which, if need be, might be able to function as articles of consumption are intended for service as raw or auxiliary materials of new production. But they serve as such — hence as capital — not in the hands of their producers, but in those of their users, namely:
If Adam Smith had continued his analysis to this point, but little would have been lacking for the solution of the whole problem. He almost hit the nail on the head, for he had already observed that certain value-parts of one kind (means of production) of the commodity-capitals constituting the total annual product of society indeed form revenue for the individual labourers and capitalists engaged in their production, but do not form a constituent part of the revenue of society; while a value-part of the other kind (articles of consumption), although representing capital-value for its individual owners, the capitalists engaged in this sphere of investment, is only a part of the social revenue.
But this much is evident from the foregoing:
First: Although the social capital is only equal to the sum of the individual capitals and for this reason the annual commodity-product (or commodity-capital) of society is equal to the sum of commodity-products of these individual capitals; and although therefore the analysis of the value of the commodities into its component parts, valid for every individual commodity-capital, must also be valid for the commodity-capital of all society — and actually proves valid in the end — the form of appearance which these component parts assume in the aggregate social process of reproduction is different.
Second: Even on the basis of simple reproduction there takes place not merely a production of wages (variable capital) and surplus-value, but direct production of new constant capital-value, although the working-day consists of only two parts, one in which the labourer replaces the variable capital, in fact producing an equivalent for the purchase of his labour-power, and another in which he produces surplus-value (profit, rent, etc.).
The daily labour which is expended in the reproduction of means of production — and whose value is composed of wages and surplus-value — realises itself in new means of production which replace the constant part of capital laid out in the production of articles of consumption.
The main difficulties, the greater part of which has been solved in the preceding text, are not encountered in studying accumulation but simple reproduction. For this reason, Adam Smith (Book II) and Quesnay (Tableau Économique) before him make simple reproduction their starting-point, whenever it is a question of the movement of the annual product of society and its reproduction through circulation.
In manufacture:
After Adam Smith has thus shown that the value of a product in manufacture is equal to v + s (s standing for the profit of the capitalist), he tells us that in agriculture the labourers besides
The dogma that the price of all commodities (hence also of the annual commodity-product) resolves itself into wages plus profit plus ground-rent, assumes even in the intermittent esoteric constituents of Smith’s work the form that the value of every commodity, hence also that of society’s annual commodity-product, is equal to v + s, or equal to the capital-value laid out in labour-power and continually reproduced by the labourers, plus the surplus-value added by the labourers through their work.
This final result of Adam Smith reveals to us at the same time — see further down — the source of his one-sided analysis of the component parts into which the value of a commodity resolves sources of revenue for different classes engaged in production has nothing to do with the determination of the magnitude of each of these component parts and of the sum of their values.
All kinds of quid pro quo’s are jumbled together when Adam Smith says:
We have already seen above that Adam Smith himself later on overthrows his own theory, without however being conscious of his contradictions. But their source is to be found precisely in his scientific premises. The capital converted into labour produces a greater value than its own. How? Says Adam Smith: by the labourers imparting during the process of production to the things on which they work a value which forms not only an equivalent for their own purchase price, but also a surplus-value (profit and rent) apportioned not to them but to their employers. That is all they accomplish, and all they can accomplish. And what is true of the industrial labour of one day is true of the labour set in motion by the entire capitalist class during one year. Hence the aggregate mass of the annual value produced by society can resolve itself only into v + s, into an equivalent by which the labourers replace the capital-value expended for the purchase of their own labour-power, and into an additional value which they must deliver over and above this to their employers. But these two elements of commodity-value form at the same time sources of revenue for the various classes engaged in reproduction: the first is the source of wages, the revenue of the labourers; the second that of surplus-value, a portion of which is retained by the industrial capitalist in the form of profit, while another is given up by him as rent, the revenue of the landlord. Where, then, should another portion of value come from, when the annual value-product contains no other elements than v + s? We are proceeding here from simple reproduction. Since the entire quantity of annual labour resolves itself into labour needed for the reproduction of the capital-value laid out in labour-power, and into labour needed for the creation of surplus-value, where should the labour for the production of a capital-value not laid out in labour-power come from?
The case is as follows:
Now Adam Smith’s first mistake consists in equating the value of the annual product to the newly produced annual value. The latter is only the product of labour of the past year, the former includes besides all elements of value consumed in the making of the annual product, but which were produced in the preceding and partly even earlier years: means of production whose value merely re-appears — which, as far as their value is concerned, have been neither produced nor reproduced by the labour expended in the past year. By this confusion Adam Smith spirits away the constant portion of the value of the annual product. This confusion rests on another error in his fundamental conception: He does not distinguish the two-fold nature of labour itself: of labour which creates value by expending labour-power, and of labour as concrete, useful work, which creates articles of use (use-values). The total quantity of the commodities fabricated annually, in other words, the total annual product is the product of the useful labour active during the past year; it is only due to the fact that socially employed labour was spent in a ramified system of useful kinds of labour that all these commodities exist; it is due to this fact alone that the value of the means of production consumed in the production of commodities and reappearing in a new bodily form is preserved in their total value. The total annual product, then, is the result of the useful labour expended during the year; but only a part of the value of the annual product has been created during the year; this portion is the annual value-product, in which the quantity of labour set in motion during the year is represented.
Hence, if Adam Smith says in the passage just cited:
While we cannot reproach Adam Smith for going in this analysis no farther than all his successors (although a step in the right direction could already be discerned among the physiocrats), he subsequently gets lost in a chaos and this mainly because his “esoteric” conception of the value of commodities in general is constantly contravened by exoteric conceptions, which on the whole prevail with him, and yet his scientific instinct permits the esoteric standpoint to re-appear from time to time.
Now while that portion of the capital advanced by the capitalist, which has been converted by the purchase of labour-power into variable capital, functions in the process of production itself as operative labour-power and by the expenditure of this power is produced anew as a new value, in the form of commodities, i.e., is reproduced — hence a reproduction, or new production, of advanced capital-value — the labourer spends the value, or price, of his sold labour-power on means of subsistence, on means for the reproduction of his labour-power. An amount of money equal to the variable capital forms his income, hence his revenue, which lasts only so long as he can sell his labour-power to the capitalist.
The commodity of the wage-labourer — his labour power — serves as a commodity only to the extent that it is incorporated in the capital of the capitalist, acts as capital; on the other hand the capital expended by the capitalist as money-capital in the purchase of labour-power functions as a revenue in the hands of the seller of labour-power, the wage labourer.
Various processes of circulation and production intermingle here, which Adam Smith does not distinguish.
In all purchases and sales of commodities — so far as only these transactions are under discussion — it is quite immaterial what becomes of the proceeds the seller receives for his commodities, and what becomes of the bought articles of use in the hands of the buyer. Hence, so far as the mere process of circulation is concerned, it is quite immaterial that the labour-power bought by the capitalist reproduces capital-value for him, and that on the other hand the money received by the labourer as the purchase-price of his labour-power constitutes his revenue. The magnitude of value of the labourer’s article of commerce, his labour-power, is not affected either by its forming “revenue” for him or by the fact that the use of this article of commerce by the buyer reproduces capital-value for this buyer.
Since the value of labour-power — i.e., the adequate selling price of this commodity — is determined by the quantity of labour required for its reproduction, and this quantity of labour itself is here determined by that needed for the production of the necessary means of subsistence of the labourer, hence for the maintenance of his existence, the wages become the revenue on which the labourer has to live.
It is entirely wrong, when Adam Smith says (p. 223):
The money which the labourer receives is spent by him in order to preserve his labour-power, or — viewing the capitalist class and the working-class in their totality — in order to preserve for the capitalist the instrument by means of which alone he can remain a capitalist.
But it is this category of “revenue” which is to blame for all the harmful confusion in Adam Smith. The various kinds of revenue form with him the “component parts” of the annually produced, newly created commodity-value, while, vice versa, the two parts into which this commodity-value resolves itself for the capitalist — the equivalent of his variable capital advanced in the form of money when purchasing labour, and the other portion of the value, the surplus- value, which likewise belongs to him but did not cost him anything — form sources of revenue. The equivalent of the variable capital is advanced again for labour-power and to that extent forms a revenue for the labourer in the shape of wages; since the other portion, the surplus-value, does not serve to replace any advance of capital for the capitalist, it may be spent by him in articles of consumption (both necessities and luxuries) or consumed as revenue instead of forming capital-value of any description. Commodity-value itself is the preliminary condition of this revenue and its component parts differ, from the point of view of the capitalist, only to the extent that they constitute either an equivalent for an excess over the variable capital-value advanced by him. Both of them consist of nothing but labour-power expended during the production of commodities, rendered fluent in labour. They consist of outlay, not income or revenue — of outlay of labour.
One point herein is correct: that the matter presents itself differently in the movement of social capital, i.e., of the totality of individual capitals, from the way it presents itself for each individual capital considered separately, hence from the standpoint of each individual capitalist. For the latter the value of commodities resolves itself into 1) a constant element (a fourth one, as Adam Smith says), and 2) the sum of wages and surplus-value, or wages, profit and rent. But from the point of view of society the fourth element of Adam Smith, the constant capital-value, disappears.
The appropriation of surplus-value — a value in excess of the equivalent of the value advanced by the capitalist — although inaugurated by the purchase and sale of labour-power, is an act performed within the process of production itself, and forms an essential element of it.
The introductory act, which constitutes an act of circulation — the purchase and sale of labour-power — itself rests on a distribution of the elements of production which preceded and presupposed the distribution of the social products, namely on the separation of labour-power as a commodity of the labourer from the means of production as the property of non-labourers.
However this appropriation of surplus-value, or this separation of the production of value into a reproduction of advanced value and a production of new value (surplus-value) which does not replace any equivalent, does not alter in any way the substance of value itself or the nature of the production of value. The substance of value is and remains nothing but expended labour-power — labour independent of the specific, useful character of this expenditure. A serf for instance expends his labour-power for six days, labours for six days, and the fact of this expenditure as such is not altered by the circumstance that he may be working three days for himself, on his own field, and three days for his lord, on the field of the latter. Both his voluntary labour for himself and his forced labour for his lord are equally labour; so far as this labour is considered with reference to the values, or to the useful articles created by it, there is no difference in his six days of labour. The difference refers merely to the different conditions by which the expenditure of his labour-power during both halves of his labour-time of six days is called forth. The same applies to the necessary and surplus-labour of the wage-labourer.
The process of production expires in the commodity. The fact that labour-power was expended in its fabrication now appears as a material property of the commodity, as the property of possessing value. The magnitude of this value is measured by the amount of labour expended; the value of a commodity resolves itself into nothing else besides and is not composed of anything else. If I have drawn a straight line of definite length, I have, to start with, “produced” a straight line (true, only symbolically, as I know beforehand) by resort to the art of drawing, which is practised in accordance with certain rules (laws) independent of myself. If I divide this line into three sections (which may correspond to a certain problem), every one of these sections remains a straight line, and the entire line, whose sections they are, does not resolve itself by this division into anything different from a straight line, for instance into some kind of curve. Neither can I divide a line of a given length in such a way that the sum of its parts is greater than the undivided line itself; hence the length of the undivided line is not determined by any arbitrarily fixed lengths of its parts. Vice versa, the relative lengths of these parts are limited from the outset by the size of the line whose parts they are.
In this a commodity produced by a capitalist does not differ in any way from that produced by an independent labourer or by communities of working-people or by slaves. But in the present case the entire product of labour, as well as its entire value, belongs to the capitalist. Like every other producer he has to convert his commodity by sale into money before he can manipulate it further; he must convert it into the form of the universal equivalent.
Let us examine the commodity-product before it is converted into money. It belongs wholly to the capitalist. On the other hand as a useful product of labour, a use-value, it is entirely the product of a past labour-process. Not so its value. One portion of this value is but the value of the means of production expended in the production of this commodity and re-appearing in a new form. This value has not been produced during the process of production of this commodity, for the means of production possessed this value before the process of production, independently of it; they entered into this process as the vehicles of this value; it is only its form of appearance that has been renewed and altered. This portion of the value of the commodity constitutes for the capitalist an equivalent of the portion of the constant capital-value advanced and consumed in the production of the commodity. It existed previously in the form of means of production; it exists now as a component part of the value of the newly produced commodity. As soon as this commodity has been turned into money, the value now existing in the form of money must be reconverted into means of production, into its original form determined by the process of production and its function in it. Nothing is altered in the character of the value of a commodity by the function of this value as capital.
A second portion of the value of a commodity is the value of the labour-power which the wage-worker sells to the capitalist. It is determined, the same as that of the means of production, independently of the process of production into which labour-power is to enter, and it is fixed in an act of circulation, the purchase and sale of labour-power, before the latter enters the process of production. By means of his function — the expenditure of labour-power — the wage-labourer produces a commodity-value equal to the value which the capitalist has to pay him for the use of his labour-power. He gives this value to the capitalist in the form of a commodity and is paid for it by him in money. That this portion of the commodity-value is for the capitalist but an equivalent for the variable capital which he has to advance in wages does not alter in any way the fact that it is a commodity-value newly created during the process of production and consisting of nothing but what surplus-value consists of, namely, past expenditure of labour-power. Nor is this truth affected by the fact that the value of the labour-power paid by the capitalist to the labourer in the form of wages and assumes the form of a revenue for the labourer, and that not only labour-power is continually reproduced thereby but also the class of wage-labourers as such, and thus the basis of the entire capitalist production.
However, the sum of these two portions of value does not comprise the whole of commodity-value. There remains an excess over both of them — the surplus-value. This, like the portion of value which replaces the variable capital advanced in wages, is a value newly created by the labourer during the process of production — congealed labour. But it does not cost the owner of the entire product, the capitalist, anything. This circumstance actually permits the capitalist to consume the surplus-value entirely as revenue, unless he has to surrender parts of it to other participants — such as ground-rent to the landlord, in which case such portions constitute a revenue of such third persons. This same circumstance was the compelling motive that induced our capitalist to engage at all in the manufacture of commodities. But neither his original benevolent intention of snatching surplus-value, nor its subsequent expenditure as revenue by him or others affects the surplus-value as such. They do not impair the fact that it is congealed unpaid labour, nor the magnitude of this surplus-value, which is determined by entirely different conditions.
However, if Adam Smith wanted to occupy himself, as he did, with the role of the various parts of this value in the total process of reproduction, even while he was investigating the value of commodities, it would be evident that while some particular parts function as revenue, others function just as continually as capital — and consequently, according to his logic, should have been designated as constituent parts of the commodity-value, or parts into which this value resolves itself.
Adam Smith identifies the production of commodities in general with capitalist commodity production; the means of production are to him from the outset “capital,” labour is from the outset wage-labour, and therefore
Ramsay makes the following remark against Ricardo:
Say, indeed, settles the matter easy enough. That which is an advance of capital for one, is or was a revenue and net product for another. The difference between the gross and the net product is purely subjective, and
Storch, who likewise accepts Adam Smith’s doctrine in principle, finds however that Say’s practical application of it does not hold water.
Barton, Ramsay, and Cherbuliez attempt to go beyond the formulation of Adam Smith. They founder because they pose the problem one-sidedly from the outset by failing to make clear the distinction between constant and variable capital-value and between fixed and circulating capital.
John Stuart Mill likewise reproduces, with his usual pomposity, the doctrine handed down by Adam Smith to his followers. As a result, the Smithian confusion of thought persists to this hour and his dogma is one of the orthodox articles of faith of Political Economy.
It is evidently the circulation formula
For our present purpose this process of reproduction must be studied
 from the point of view of the replacement of the value as well as the
 substance of the individual component parts of C'. We cannot rest
 content any longer, as we did in the analysis of the value of the product
 of the individual capital, with the assumption that the individual
 capitalist can first convert the component parts of his capital into money
 by the sale of his commodities, and then reconvert them into productive
 capital by renewed purchase of the elements of production in the
 commodity-market. Inasmuch as those elements of production are by
 nature material, they represent as much a constituent of the social
 capital as the individual finished product, which is exchanged for them
 and replaced by them. Contrariwise the movement of that portion of the
 social commodity-product which is consumed by the labourer in
 expending his wages, and by the capitalist in expending his surplus-value,
 not only forms an integral part of the movement of the total
 product but intermingles with the movements of the individual capitals,
 and therefore this process cannot be explained by merely assuming it.
The question that confronts us directly is this: How is the capital
 consumed in production replaced in value out of the annual product and
 how does the movement of this replacement intertwine with the
 consumption of the surplus-value by the capitalists and of the wages by
 the labourers? It is then first a matter of reproduction on a simple scale.
 It is furthermore assumed that products are exchanged at their values
 and also that there is no revolution in the values of the component parts
 of productive capital. The fact that prices diverge from values cannot,
 however, exert any influence on the movements of the social capital. On
 the whole, there is the same exchange of the same quantities of products,
 although the individual capitalists are involved in value-relations no
 longer proportional to their respective advances and to the quantities of
 surplus-value produced singly by every one of them. As for revolutions in
 value, they do not alter anything in the relations between the value-components
 of the total annual product, provided they are universally
 and evenly distributed. To the extent however that they are partially and
 unevenly distributed, they represent disturbances which, in the first
 place, can be understood as such only as far as they are regarded as
 divergences from unchanged value-relations, but in the second place, once there is proof of the law according to which one portion of the value
 of the annual product replaces constant, and another portion variable
 capital, a revolution either in the value of the constant or that of the
 variable capital would not alter anything in this law. It would change
 merely the relative magnitudes of the portions of value which function in
 the one or the other capacity, because other values would have taken
 the places of the original ones.
All the various branches of production pertaining to each of these two
 departments form one single great branch of production, that of the
 means of production in the one case, and that of articles of consumption
 in the other. The aggregate capital employed in each of these two
 branches of production constitutes a separate large department of the
 social capital.
In each department the capital consists of two parts:
The value of the total annual product created with the aid of this
 capital in each of the two departments consists of one portion which
 represents the constant capital c consumed in the process of production
 and only transferred to the product in accordance with its value, and of
 another portion added by the entire labour of the year. This latter portion
 is divided in turn into the replacement of the advanced variable capital v
 and the excess over and above it, which forms the surplus-value s. And
 just as the value of every individual commodity, that of the entire annual
 product of each department consists of c + v + s.
Portion c of the value, representing the constant capital consumed in
 production, does not coincide with the value of the constant capital
 employed in production. True, the materials of production are entirely
 consumed and their values completely transferred to the product. But
 only a portion of the employed fixed capital is wholly consumed and its
 value thus transferred to the product. Another part of the fixed capital,
 such as machines, buildings, etc., continues to exist and function the
 same as before, though depreciated to the extent of the annual wear and
 tear. This persistent portion of the fixed capital does not exist for us,
 when we consider the value of the product. It is a portion of the capital-value,
 which exists independently and alongside of this newly produced
 commodity-value. This was shown previously in the analysis of the value
 of the product of individual capital (Vol. I, Ch. VIII.). However, for the
 present we must leave aside the method of analysis employed there. We
 saw in the study of the value of the product of individual capital that the
 value of which the fixed capital was shorn through wear and tear is
 transferred to the product created during the time of wear, irrespective of
 whether or not any portion of this fixed capital is replaced in kind during
 this time out of the value thus transferred. At this point in the study of
 the total social product and of its value, however, we are compelled, at
 least for the present, to leave out of account that portion of value which
 is transferred from the fixed capital to the annual product by wear and
 tear, unless fixed capital is replaced in kind during the year. In one of
 the following sections of this chapter we shall discuss this point in
 particular.
I. Production of Means of Production:

 Capital. . . . . . . . . . . . . 4,000c + 1,000v = 5,000

 
 Commodity-Product . . . 4,000c + 1,000v, + 1,000s = 6,000,
II. Production of Articles of Consumption:

 
 Capital . . . . . . . . . . . 2,000c + 500v = 2,500

 Commodity-Product . . 2,000c + 500v + 500s = 3,000,
Recapitulation: Total annual commodity-product:

 I. 4,000c + 1,000v + 1,000s = 6,000 means of production

 II. 2,000c + 500v + 500s = 3,000 articles of consumption.
If we were now to examine the transformations necessary on the
 basis of simple reproduction, where the entire surplus-value is
 unproductively consumed, and leave aside for the present the money-circulation
 that brings them about, we should obtain at the outset three
 great points of support.
1) The 500v, representing wages of the labourers, and 500s,
 representing surplus-value of the capitalists, in department II, must be
 spent for articles of consumption. But their value exists in articles of
 consumption worth 1,000, held by the capitalists of department II,
 which replace the advanced 500v and represent the 500s. Consequently the wages and surplus-value of department II are exchanged within this
 department for products of this same department. Thereby articles of
 consumption to the amount of (500v + 500s) II = 1,000, drop out of the total product.
2) The 1,000v plus 1,000s of department I must likewise be spent for articles of consumption; in other words, for products of department II.
 Hence they must be exchanged for the remainder of this product equal
 to the constant capital part, 2,000c. Department II receives in return an
 equal quantity of means of production, the product of I, in which the
 value of 1,000v + 1,000s of I is incorporated. Thereby 2,000 IIc and (1,000v +1,000s) I drop out of the calculation.
3) There still remain 4,000 Ic. These consist of means of production
 which can be used only in department I to replace its consumed
 constant capital, and are therefore disposed of by mutual exchange
 between the individual capitalists of I, just as the (500v + 500s) II by an exchange between the labourers and capitalists, or between the individual capitalists of II.
Let this serve for the moment to facilitate the understanding of what
 follows.
Now, this mutual exchange is accomplished by means of a circulation
 of money, which promotes it just as much as it renders its
 understanding difficult, but which is of decisive importance because the
 variable portion of capital must ever resume the form of money, as
 money-capital converting itself from the form of money into labour-power.
 The variable capital must be advanced in the form of money in
 all branches of production carried on at the entire periphery of society
 simultaneously alongside each other, regardless of whether they belong
 to category I or II. The capitalist buys the labour-power before it enters
 into the process of production, but pays for it only at stipulated times,
 after it has been expended in the production of use-values. He owns,
 together with the remainder of the value of the product, also that portion
 of it which is only an equivalent for the money expended in the payment
 of labour-power, that portion of the value of the product which
 represents variable capital. In this portion of value the labourer has
 already supplied the capitalist with the equivalent of his wages. But it is
 the reconversion of commodities into money, their sale, which restores
 to the capitalist his variable capital in the form of money-capital, which
 he may advance once more for the purchase of labour-power.
In department I, then, the aggregate capitalist has paid £1,000 (I say
 £ solely to indicate that it is value in the form of money), equal to
 1,000v, to the labourers for the value of product I already existing as the
 v-portion, i.e., of the means of production created by them. With these
 £1,000 the labourers buy articles of consumption of the same value
 from capitalists II, thereby converting one half of the constant capital II
 into money; capitalists II, in their turn, buy with these £1,000 means of
 production, valued at 1,000, from capitalists I; thereby, as far as the
 latter are concerned, the variable capital-value equal to 1,000v, which,
 being part of their product, existed in the bodily form of means of
 production, is thus reconverted into money and can now function anew
 in the hands of capitalists I as money-capital, which is transformed into
 labour-power, hence into the most essential element of productive
 capital. In this way their variable capital flows back to them in the form
 of money, as a result of the realisation of some of their commodity-capital.
As for the reconversion of the variable capital of class I into the form
 of money, this capital, after the capitalists of I invested it in wages,
 exists for them first in the form of commodities in which the labourers
 delivered it to them. They paid this capital in the form of money to these
 labourers as the price of their labour-power. To this extent the capitalists
 have paid for that constituent part of the value of their commodity-product
 which is equal to the variable capital expended in the form of
 money. They are, for this reason, the owners of this portion of the
 commodity-product as well. But that part of the working-class which is
 employed by them does not buy the means of production created by it;
 these labourers buy articles of consumption produced by II. Hence the
 variable capital advanced by the capitalists of I in the payment of labour-power
 does not return to them directly. It passes by means of purchases
 made by the labourers into the hands of the capitalist producers of the
 commodities necessary for and within the reach of working folks; in
 other words, it passes into the hands of capitalists II. And not until these
 expend the money in the purchase of means of production does it return
 by this circuitous route into the hands of capitalists I.
 It follows that, on the basis of simple reproduction, the sum of the
 values of v + s of the commodity-capital of I (and therefore a
 corresponding proportional part of the total commodity-product of I)
 must be equal to the constant capital IIc, which is likewise taken as a
 proportional part of the total commodity-product of department II; or
 I(v + s) = IIc.
Category II of the annual production of commodities consists of a
 great variety of branches of production, which may, however, be divided
 into two great sub-divisions by their products.
As far as the first category is concerned it is obvious that the variable
 capital advanced in the production of the commodities belonging in it
 must flow back in money-form directly to that portion of the capitalist
 class II (i.e., the capitalists IIa) who have produced these necessities of
 life. They sell them to their own labourers to the amount of the variable
 capital paid to them in wages. This reflux is direct so far as this entire
 sub-division a of capitalist class I is concerned, no matter how numerous
 the transactions may be between the capitalists of the various pertinent
 branches of industry, by means of which the returning variable capital is
 distributed pro rata. These are processes of circulation, whose means of
 circulation are supplied directly by the money expended by the
 labourers. It is different, however, with sub-division IIb. The entire
 portion of the value produced in this sub-division, IIb(v + s), exists in the
 bodily form of articles of luxury, i.e., articles which the labouring class
 can buy no more than it can buy commodity-value I existing in the form
 of means of production, notwithstanding the fact that both the articles of
 luxury and the means of production are the products of these labourers.
Hence the reflux by which the variable capital advanced in this subdivision
 returns to the capitalist producers in its money-form cannot be
 direct but must be mediated, as in the case of Iv.
Let us assume for instance that v = 500 and s = 500, as they did in
 the case of the entire class II; but that the variable capital and the
 corresponding surplus-value are distributed as follows:
Sub-division a, Necessities of Life: v = 400; s = 400; hence a
 quantity of commodities in consumer necessities of the value of 400 v +
 400s = 800, or IIa (400v + 400s).
Sub-division b, Articles of Luxury: of the value of 100 v + l00 s = 200,
 or IIb (L00v + 100s).
The labourers of IIb have received 100 in money as payment for their
 labour-power, or say £100. With this money they buy articles of
 consumption from capitalists IIa to the same amount. This class of
 capitalists buys with the same money £100 worth of the IIb
 commodities, and in this way the variable capital of capitalists IIb flows
 back to them in the form of money.
In IIa there are available once more 400v in money, in the hands of
 the capitalists, obtained by exchange with their own labourers. Besides,
 a fourth of the part of the product representing surplus-value has been
 transferred to the labourers of IIb, and in exchange IIb (100v) have been
 received in the form of articles of luxury.
Now, assuming that the capitalists of IIa and IIb divide the
 expenditure of their revenue in the same proportion between necessities
 of life and luxuries — three-fifths for necessities for instance and two-fifths
 for luxuries — the capitalists of sub-class IIa will spend three-fifths of
 their revenue from surplus-value, amounting to 400s, or 240, for their
 own products, necessities of life, and two-fifths, or 160, for articles of
 luxury. The capitalists of sub-class IIb will divide their surplus-value of
 100s in the same way: three-fifths, or 60, for necessities, and two-fifths,
 or 40, for articles of luxury, the latter being produced and exchanged in
 their own sub-class.
The 160 in articles of luxury received by (IIa)s pass into the hands of
 the IIa capitalists in the following manner: As we have seen, 100 of the
 (IIa) 400s were exchanged in the form of necessities of life for an equal
 amount of (IIb)v, which exists as articles of luxury, and another 60,
 consisting of necessities of life, for (IIb) 60s, consisting of luxuries. The
 total calculation then stands as follows:
(IIa)s is then divided into 240 for necessities and 160 for luxuries, or
 240 + 160 = 400, (IIa).
(IIb)s is divided into 60 for necessities and 40 for luxuries; 60 + 40
 = 100, (IIb). The last 40 are consumed by this class out of its own
 product (two-fifths of its surplus-value); the 60 in necessities are
 obtained by this class through the exchange of 60 of its surplus-value for
 60, (a).
We have, then, for the entire capitalist class II the following (v plus s
 in sub-division [a] consisting of necessities, in [b] of luxuries):
 IIa (400v + 400s) + IIb (100v + 100s) = 1,000; by this movement there is thus realised: 500v (a + b) [realised in 400v (a) and 100s (a)] + 500s (a + b) [realised in 300s (a) + 100v (b) + 100s (b)] =1,000.
 For a and b, each considered by itself, we obtain the following realisation:
The 2,000 I(v + s) would therefore break up into (800v + 800s) I for a, equal to 1,600 means of production of necessities of life, and (200v + 200s) I for b, equal to 400 means of production of luxuries.
A considerable part of the instruments of labour as such, as well as of the raw and auxiliary materials, etc., is the same for both departments. But so far as the exchange of the various portions of value of the total product I(v + s) is concerned, such a division would be wholly immaterial. Both the above 800v of I and the 200v of I are realised because the wages are spent for articles of consumption 1,000 IIc; hence the money-capital
 advanced for this purpose is distributed evenly on its return
 among the capitalist producers of I, their advanced variable capital is
 replaced pro rata in money. On the other hand, so far as the realisation
 of the 1,000 Is is concerned, the capitalists will here likewise draw
 uniformly (in proportion to the magnitude of their s) 600 IIa and 400 IIb
 in means of consumption out of the entire second half of IIc, equal to
 1,000; consequently those who replace the constant capital of IIa will
 draw.
480 (three-fifths) out of 600c (IIa) and 320 (two-fifths) out of 400c (IIb), a total of 800; those who replace the constant capital of IIb will
 draw.
120 (three-fifths) out of 600c (IIa) and 80 (two-fifths) out of 400c (IIb), which equals 200. Grand total, 1,000.
What is arbitrary here is the ratio of the variable to the constant
 capital of both I and II and so is the identity of this ratio for I and II and
 their sub-divisions. As for this identity, it has been assumed here merely
 for the sake of simplification, and it would not alter in any way the
 conditions of the problem and its solution if we were to assume different
 proportions. However, the necessary result of all this, on the assumption
 of simple reproduction, is the following.
In the exchange established above of (IIb)v for a portion of (IIa)s of the same value, and in the further exchanges between (IIa), and (IIb), it is by no means assumed that either the individual capitalists of IIa and
 IIb or their respective totalities divide their surplus-value in the same
 proportion between necessary articles of consumption and articles of
 luxury. The one may spend more on this consumption, the other more
 on that. On the basis of simple reproduction it is merely assumed that a
 sum of values equal to the entire surplus-value is realised in the
 consumption-fund. The limits are thus given. Within each department
 the one may spend more in a, the other in b. But this may compensate
 itself mutually, so that the capitalist groups of a and b, taken as a
 whole, each participate in the same proportion in both. The value-relations — 
 the proportional shares of the two kinds of producers, a and b
 in the total value of product II — consequently also a definite quantitative
 relation between the branches of production supplying those products — 
 are however necessarily given in each concrete case; only the proportion
 chosen as an illustration is a hypothetical one. It would not alter the
 qualitative aspects if another illustration were selected; only the
 quantitative determinations would be altered. But if on account of any
 circumstances there arises an actual change in the relative magnitude of
 a and b, the conditions of simple reproduction would also change
 accordingly.
Since (IIb)v is realised in an equivalent part of (IIa)s, it follows that in proportion as the luxury part of the annual product grows, as therefore
 an increasing share of the labour-power is absorbed in the production of
 luxuries, the reconversion of the variable capital advanced in (IIb)v
 into money-capital functioning anew as the money-form of the variable
 capital, and thereby the existence and reproduction of the part of the
 working-class employed in IIb — the supply to them of consumer
 necessities — depends upon the prodigality of the capitalist class, upon
 the exchange of a considerable portion of their surplus-value for articles
 of luxury.
Every crisis at once lessens the consumption of luxuries. It retards,
 delays the reconversion of (IIb)v into money-capital, permitting it only
 partially and thus throwing a certain number of the labourers employed
 in the production of luxuries out of work, while on the other hand it thus
 clogs the sale of consumer necessities and reduces it. And this without
 mentioning the unproductive labourers who are dismissed at the same
 time, labourers who receive for their services a portion of the capitalists’
 luxury expense fund (these labourers are themselves pro tanto luxuries),
 and who take part to a very considerable extent in the consumption of
 the necessities of life, etc. The reverse takes place in periods of
 prosperity, particularly during the times of bogus prosperity, in which the
 relative value of money, expressed in commodities, decreases also for
 other reasons (without any actual revolution in values), so that the prices
 of commodities rise independently of their own values. It is not alone the
 consumption of necessities of life which increases. The working-class
 (now actively reinforced by its entire reserve army) also enjoys momentarily
 articles of luxury ordinarily beyond its reach, and those articles
 which at other times constitute for the greater part consumer
 “necessities” only for the capitalist class. This on its part calls forth a
 rise in prices.
It is sheer tautology to say that crises are caused by the scarcity of
 effective consumption, or of effective consumers. The capitalist system
 does not know any other modes of consumption than effective ones,
 except that of sub forma pauperis or of the swindler. That commodities
 are unsaleable means only that no effective purchasers have been found
 for them, i.e., consumers (since commodities are bought in the final
 analysis for productive or individual consumption). But if one were to
 attempt to give this tautology the semblance of a profounder justification
 by saying that the working-class receives too small a portion of its own
 product and the evil would be remedied as soon as it receives a larger
 share of it and its wages increase in consequence, one could only
 remark that crises are always prepared by precisely a period in which
 wages rise generally and the working-class actually gets a larger share of
 that part of the annual product which is intended for consumption. From
 the point of view of these advocates of sound and “simple” (!) common
 sense, such a period should rather remove the crisis. It appears, then,
 that capitalist production comprises conditions independent of good or
 bad will, conditions which permit the working-class to enjoy that relative
 prosperity only momentarily, and at that always only as the harbinger of
 a coming crisis. [Ad notam for possible followers of the Rodbertian theory of crises.—F.E.]
We saw a while ago that the proportion between the production of
 consumer necessities and that of luxuries requires the division of II(v + s)
 between IIa and IIb, and thus of IIc between (IIa)c and (IIb)c. Hence this division affects the character and the quantitative relations of production
 to their very roots, and is an essential determining factor of its general
 structure.
Simple reproduction is essentially directed toward consumption as an
 end, although the grabbing of surplus-value appears as the compelling
 motive of the individual capitalists; but surplus-value, whatever its
 relative magnitude may be, is after all supposed to serve here only for
 the individual consumption of the capitalist.
As simple reproduction is a part, and the most important one at that,
 of all annual reproduction on an extended scale, this motive remains as
 an accompaniment of and contrast to the self-enrichment motive as
 such. In reality the matter is more complicated, because partners in the
 loot — the surplus-value of the capitalist — figure as consumers independent of him.
This disposes of the circulation of IIc, equal to 2,000, which is
 exchanged for I (1,000v + 1,000s).
Leaving aside for the present the 4,000 Ic there still remains the
 circulation of v + s within class II. Now II(v + s) is divided between the
 sub-classes IIa and IIb in the following manner:
The 400v (a) circulates within its own sub-class; the labourers paid
 with it buy from their employers, the capitalists IIa, necessary means of
 subsistence produced by themselves.
Since the capitalists of both sub-classes spend three-fifths of their
 surplus-value in products of IIa (necessities) and two-fifths in products of
 IIb (luxuries), the three-fifths of the surplus-value of a, or 240, are
 consumed within the sub-class IIa itself; likewise, two-fifths of the
 surplus-value of b (produced and existing in the form of articles of
 luxury), within the sub-class IIb.
There remains to be exchanged between IIa and IIb: On the side of
 IIa: 160s;
On the side of IIb: 100v + 60s. These cancel each other. With their 100, received in the form of money wages, the labourers of IIb buy
 necessities of life in that amount from IIa. The IIb capitalists likewise
 buy necessities from IIa to the amount of three-fifths of their surplus-value,
 or 60. The IIa capitalists thus obtain the money required for
 investing, as above assumed, two-fifths of their surplus-value, or 160s,
 in luxuries produced by IIb (100, held by the IIb capitalists as a product
 replacing the wages paid by them, and 60s). The scheme for this is
 therefore:
The direct reflux of the money-capital advanced in variable capital,
 which takes place only in the case of the capitalist department IIa which
 produces necessities of life, is but an expression, modified by special
 conditions, of the previously mentioned general law that money
 advanced to the circulation by producers of commodities returns to them
 in the normal course of commodity circulation. From this it incidentally
 follows that if any money-capitalist at all stands behind the producer of
 commodities and advances to the industrial capitalist money-capital (in
 the strictest meaning of the word, i.e., capital-value in the form of
 money), the real point of reflux for this money is the pocket of this
 money-capitalist. Thus the mass of the circulating money belongs to that
 department of money-capital which is organised and concentrated in the
 form of banks, etc., although the money circulates more or less through
 all hands. The way in which this department advances its capital
 necessitates the continual final reflux to it in the form of money,
 although this is once again brought about by the reconversion of the
 industrial capital into money-capital.
The circulation of commodities always requires two things:
 Commodities which are thrown into circulation and money which is
 likewise thrown into it. “The process of circulation ... does not, like
 direct barter of products, become extinguished upon the use-values
 changing places and hands. The money does not vanish on dropping out
 of the circuit of the metamorphosis of a given commodity. It is
 constantly being precipitated into new places in the arena of circulation
 vacated by other commodities,” etc. (Vol. I, Ch. III.).
For instance in the circulation between IIc and I(v + s) we assumed that II had advanced £500 in money for it. In the innumerable processes of circulation, into which the circulation between large social groups of
 producers resolves itself, representatives of the various groups will at
 various times be the first to appear as buyers, and hence throw money
 into circulation. Quite apart from particular circumstances, this is
 necessitated by the difference, if nothing else, in the periods of
 production, and thus of the turnovers, of the various commodity-capitals.
 So with these £500 II buys from I means of production of the same
 value and I buys from II articles of consumption valued at £500. Hence
 the money flows back to II, but this department does not in any way
 grow richer by this reflux. It had first thrown £500 in money into
 circulation and drew commodities of the same value out of it; then it
 sells £500 worth of commodities and draws the same amount of money
 out of circulation; thus the £500 flow back to it. As a matter of fact, II
 has thrown into circulation £500 in money and £500 in commodities,
 which is equal to £1,000. It draws out of the circulation £500 in
 commodities and £500 in money. The circulation requires for the
 handling of £500 in I commodities and £500 in II commodities only
 £500 in money; hence whoever advanced the money in the purchase of
 commodities from other producers recovers it when selling his own. Consequently
 if I had at first bought commodities from II for £500, and later
 sold to II commodities of the value of £500, these £500 would have
 returned to I instead of to II.
In class I the money invested in wages, i.e., the variable capital
 advanced in the form of money, does not return directly in this form but
 indirectly, by a detour. But in II the £500 of wages return directly from
 the labourers to the capitalists, and this return is always direct in the
 case where purchase and sale take place repeatedly between the same
 persons in such a way that they are acting alternately as buyers and
 sellers of commodities. The capitalist of II pays for the labour-power in
 money; he thereby incorporates labour-power in his capital and assumes
 the role of an industrial capitalist in relation to his labourers as wage-earners,
 but does so only by means of this act of circulation, which is for
 him merely a conversion of money-capital into productive capital.
 Thereupon the labourer, who in the first instance was a seller, a dealer
 in his own labour-power, appears in the second instance as a buyer, a
 possessor of money, in relation to the capitalist, who now acts as a
 seller of commodities. In this way the capitalist recovers the money
 invested by him in wages. As the sale of these commodities does not
 imply cheating, etc., but is an exchange of equivalents in commodities
 and money, it is not a process by which the capitalist enriches himself.
 He does not pay the labourer twice, first in money and then in commodities.
 His money returns to him as soon as the labourer exchanges it
 for his commodities.
However, the money-capital converted into variable capital, i.e., the
 money advanced for wages, plays a prominent role in the circulation of
 money itself, since the labourers must live from hand to mouth and
 cannot give the industrial capitalists credit for any length of time. For
 this reason variable capital must be advanced in the form of money
 simultaneously at innumerable territorially different points in society at
 certain short intervals, such as a week, etc.—in periods of time that
 repeat themselves rather quickly (and the shorter these periods, the
 smaller relatively is the total amount of money thrown at one time into
 circulation through this channel) — whatever the various periods of
 turnover of the capitals in the different branches of industry. In every
 country with a capitalist production the money-capital so advanced
 constitutes a relatively decisive share of the total circulation, the more so
 as the same money, before its reflux to its point of departure, passes
 through the most diverse channels and functions as a medium of
 circulation for countless other businesses.
Now let us consider the circulation between I(v + s) and II from a
 different angle.
Capitalists I advance £1,000 in the payment of wages. With this
 money the labourers buy £1,000 worth of means of subsistence from
 capitalists II. These in turn buy for the same money means of production
 from capitalists I. Capitalists I thus get back their variable capital in the
 form of money, while capitalists II have reconverted one half of their
 constant capital from the form of commodity-capital into that of
 productive capital. Capitalists II advance another £500 in money to get
 means of production from I. The capitalists I spend this money on
 articles of consumption from II. These £500 thus return to capitalists II.
 They advance this amount again in order to reconvert the last quarter of
 their constant capital, converted into commodities, into its productive
 bodily form. This money flows back to I and once more withdraws
 articles of consumption of the same amount from II. Thus the £500
 return to II. The capitalists II are now as before in possession of £500 in
 money and £2,000 in constant capital, the latter having been newly
 converted from the form of commodity-capital into that of productive
 capital. By means of £1,500 a quantity of commodities worth £5,000
 has been circulated. Namely: 1) I pays £1,000 to his labourers for their
 labour-power of the same value; 2) With these same £1,000 the
 labourers buy means of subsistence from II; 3) With the same money II
 buys means of production from I, thereby restoring to I variable capital
 to the amount of £1,000 in the form of money; 4) II buys £500 worth
 of means of production from I; 5) With the same £500 I buys articles of
 consumption from II; 6) With the same £500 II buys means of
 production from I; 7) With the same £500 I buys means of subsistence
 from II. Thus £500 have returned to II, which had thrown them into
 circulation besides its £2,000 in commodities and for which it did not
 withdraw from circulation any equivalent in commodities.
The exchange therefore takes the following course:
In this way the £l.000 have returned to I as the money-form of its
 variable capital.
Total amount of commodity-values exchanged: £5,000.
The £500 advanced by II for the purchase have returned to it.
On the other hand the bodily form into which the variable capital
 existing in the form of money must be transformed, i.e., labour-power,
 has been maintained, reproduced and again made available by
 consumption as the sole article of trade of its owners, which they must
 sell in order to live. The relation of wage-labourers and capitalists has
 likewise been reproduced.
As for the capitalists II, the process is C— M, the transformation of a
 portion of their commodity-product into the money-form, from which it is
 reconverted into the constituents of productive capital, namely into a
 portion of the means of production required by them.
 In the money advance (£500) made by capitalists II for the purchase
 of the other parts of the means of production, the money-form of that
 portion of II which exists as yet in the form of commodities (articles of
 consumption) is anticipated; in the act M — C, in which II buys with M,
 and C is sold by I, the money (II) is converted into a portion of the
 productive capital, while C (I) passes through the act C — M, changes
 into money, which however does not represent any component part of
 capital-value for I, but surplus-value converted into money and expended
 solely for articles of consumption.
In the circuit M — C ... P ... C' — M', the first act, M — C, is that of one capitalist, the last, C' — M' (or part of it), is that of another; whether the
 C, by which M is converted into productive capital, represents a
 component of constant capital, of variable capital, or surplus-value for
 the seller of C (who exchanges this C for money), is wholly immaterial
 for the commodity circulation itself.
Class I, so far as concerns the component v + s of its commodity-product,
 draws more money out of the circulation than it has thrown in.
 In the first place, the £1,000 of variable capital return to it; in the
 second place, it sells means of production worth £500 (see above,
 exchange No. 4); one half of its surplus-value is thus turned into money;
 then (exchange No. 6) it sells once more £500 worth of means of
 production, the second half of its surplus-value, and thus the entire
 surplus-value is withdrawn from circulation in the shape of money.
 Hence in succession: 1) variable capital reconverted into money, equal
 to £1,000; 2) one half of the surplus-value turned into money, equal to
 £500; 3) the other half of the surplus-value, equal to £500; altogether
 1,000v + 1,000s turned into money, equal to £2,000. Although I threw only £1,000 into circulation (aside from those exchanges which promote the reproduction of I and which we shall have to analyse later), it has
 withdrawn double that amount from it. Of course s passes into other
 hands, (II), as soon as it has been converted into money, by being spent
 for articles of consumption. The capitalists of I withdrew only as much in
 money as they threw into it in value in the form of commodities; the fact
 that this value is surplus-value, i.e., that it does not cost the capitalists
 anything, does not alter the value of these commodities in any way; so
 far as the exchange of values in commodity circulation is concerned, that
 fact is of no consequence at all. The existence of surplus-value in money
 is of course transient, the same as all other forms which the advanced
 capital assumes in its metamorphoses. It lasts no longer than the
 interval between the conversion of commodities I into money and the
 subsequent conversion of the money I into commodities II.
If the turnovers had been assumed to be shorter — or, from the point
 of view of the simple circulation of commodities, the circulation of
 money more rapid — even less money would be ample to circulate the
 exchanged commodity-values; the amount is always determined — if the
 number of successive exchanges is given — by the sum of the prices, or
 the sum of values, of the circulating commodities. It is immaterial in
 what proportion this sum of values consists of surplus-value on the one
 hand, and of capital-value on the other.
If the wages of I, in our illustration, were paid four times per year, we
 should have 4 times 250, or 1,000. Hence £250 in money would
 suffice for the circulation Iv — ½ IIc, and for that between the variable capital Iv and the labour-power I. Likewise, if the circulation between I and II were to take place in four turnovers, it would require only £250, or in the aggregate a sum of money, or a money-capital, of £500 for the circulation of commodities amounting to £5,000. In that case the
 surplus-value would be converted into money four times successively,
 one-quarter each time, instead of twice successively, one half each time.
If I instead of II should act as buyer in exchange No. 4 and expend
 £500 for articles of consumption of the same value, II would buy means
 of production with the same £500 in exchange No. 5; 6) I buys articles
 of consumption with the same £500; 7) II buys means of production
 with the same £500 so that the £500 finally return to I, the same as
 before to II. The surplus-value is here converted into money by means of
 the money spent by the capitalist producers themselves for their
 individual consumption. This money represents the anticipated revenue,
 the anticipated receipts from the surplus-value contained in the
 commodities still to be sold. The surplus-value is not converted into
 money by the reflux of the £500; for aside from £1,000 in the form of
 commodities Iv, I threw £500 in money into circulation at the close of exchange No. 4, and this was additional money, so far as we know, and
 not the proceeds from the sale of commodities. If this money flows back
 to I, I merely gets back its additional money, and does not thereby
 convert its surplus-value into money. The conversion of the surplus-value
 I into money takes place only by the sale of the commodities Is, in which
 it is incorporated, and lasts each time only until the money obtained by
 the sale of the commodities is expended anew in the purchase of articles
 of consumption.
With additional money (£500) I buys articles of consumption from II;
 this money was spent by I, which holds its equivalent in II commodities;
 the money returns for the first time by the purchase from I by II of
 commodities to the amount of £500; in other words, it returns as the
 equivalent of the commodities sold by I, but these commodities do not
 cost I anything, they constitute surplus-value for I, and thus the money
 thrown into circulation by this very department turns its own surplus-value
 into money. On buying for the second time (No. 6) I has likewise
 obtained its equivalent in II commodities. Take it, now, that II does not
 buy (No. 7) means of production from I. In that case I would have
 actually paid £1,000 for articles of consumption, thereby consuming its
 entire surplus-value as revenue; namely, 500 in its own I commodities
 (means of production) and 500 in money: on the other hand, it would
 still have £500 in its own commodities (means of production) in stock,
 and would have got rid of £500 in money.
On the contrary II would have reconverted three-fourths of its
 constant capital from the form of commodity-capital into that of
 productive capital; but one-fourth (£500) would be held by it in the form
 of money-capital, actually in the form of idle money, or of money which
 has suspended its function and is held in abeyance. Should this state of
 affairs last for any length of time, II would have to cut down its scale of
 reproduction by one-fourth.
However the 500 in means of production, which I has on its hands,
 are not surplus-value existing in the form of commodities; they occupy
 the place of the £500 advanced in money, which I possessed aside from
 its £1,000 of surplus-value in commodity-form. In the form of money,
 they are always convertible; as commodities they are momentarily
 unsaleable. So much is evident: that simple reproduction — in which
 every element of productive capital must be replaced in both II and I — 
 remains possible in this case only if the 500 golden birds, which I first
 sent flying, return to it.
If a capitalist (we have only industrial capitalists still to deal with
 here, who are the representatives of all others) spends money for articles
 of consumption, he is through with it, it goes the way of all flesh. It can
 flow back to him only if he fishes it out of circulation in exchange for
 commodities, i.e., for his commodity-capital. As the value of his entire
 annual commodity-product (his commodity-capital), so that of every one
 of its elements, i.e., the value of every individual commodity, is divisible,
 as far as he is concerned, into constant capital-value, variable capital-value,
 and surplus-value. The conversion into money of every individual
 commodity (as elements constituting the commodity-product) is
 consequently at the same time such a conversion of a certain portion of
 the surplus-value contained in the entire commodity-product. In this
 case, then, it is literally true that the capitalist himself threw the money
 into circulation — when he spent it on articles of consumption — by which
 his surplus-value is converted into money, or realised. Of course it is not
 a question of the identical coins but of a certain amount of hard cash
 equal to the one (or to a portion of the one) which he had previously
 thrown into circulation to satisfy his personal wants.
In practice this occurs in two ways. If the business has just been
 opened, in the current year, it will take quite a while, at least a few
 months, before the capitalist is able to use any portion of the receipts of
 his business for his personal consumption. But for all that he does not
 suspend his consumption for a single moment. He advances to himself
 (immaterial whether out of his own pocket or by means of credit from
 the pocket of somebody else) money in anticipation of surplus-value still
 to be snatched by him; but in doing so he also advances a circulating
 medium for the realisation of surplus-value to be realised later. If, on the
 contrary, the business has been running regularly for a longer period
 payments and receipts are distributed over different terms throughout
 the year. But one thing continues uninterruptedly, namely, the
 consumption of the capitalist, which anticipates, and whose volume is
 computed on a definite proportion of, the customary or estimated
 revenue. With every portion of commodities sold, a portion of the
 surplus-value to be produced annually is also realised. But if during the
 entire year only as much of the produced commodities is sold as is
 required to replace the constant and variable capital-values contained in
 them, or if prices were to fall to such an extent that only the advanced
 capital-value contained in the entire annual commodity-product should
 be realised on its sale, then the anticipatory character of the expenditure
 of money in expectation of future surplus-value would be clearly
 revealed. If our capitalist fails, his creditors and the court investigate
 whether his anticipated private expenditures were in proper proportion to
 the volume of his business and to the receipt of surplus-value usually or
 normally corresponding to it.
So far as the entire capitalist class is concerned, the proposition that
 it must itself throw into circulation the money required for the realisation
 of its surplus-value (correspondingly also for the circulation of its capital,
 constant and variable) not only fails to appear paradoxical, but stands
 forth as a necessary condition of the entire mechanism. For there are
 here only two classes: the working-class disposing only of its labour-power,
 and the capitalist class, which has a monopoly of the social
 means of production and money. It would rather be a paradox if the
 working-class were to advance in the first instance from its own
 resources the money required for the realisation of the surplus-value
 contained in the commodities. But the individual capitalist makes this
 advance only by acting as a buyer, expending money in the purchase of
 articles of consumption or advancing money in the purchase of elements
 of his productive capital, whether of labour-power or means of
 production. He never parts with his money unless he gets an equivalent
 for it. He advances money to the circulation only in the same way as he
 advances commodities to it. He acts in both instances as the initial point
 of their circulation.
The actual process is obscured by two circumstances:
The difficulty is solved very easily if we remember that the entire commodity-product I in its bodily form consists of means of production, i.e., of the material elements of the constant capital itself. We meet here the same phenomenon which we witnessed before under II, only in a different aspect. In the case of II the entire commodity-product consisted of articles of consumption. Hence one portion of it, measured by the wages plus surplus-value contained in this product, could be consumed by its own producers. Here, in the case of I, the entire product consists of means of production, of buildings, machinery, vessels, raw and auxiliary materials, etc. One portion of them, namely that replacing the constant capital employed in this sphere, can therefore immediately function anew in its bodily form as a component of the productive capital: So far as it goes into circulation, it circulates within class I. In II a part of the commodity-product is individually consumed in kind by its own producers while in I a portion of the product is productively consumed in kind by its capitalist producers.
In the part of the commodity-product I equal to 4,000c the capital-value consumed in this category re-appears, and does so in a bodily form in which it can immediately resume its function of productive constant capital. In II that portion of the commodity-product of 3,000 whose value is equal to the wages plus the surplus-value (equal to 1,000) passes directly into the individual consumption of the capitalists and labourers of II, while on the other hand the constant capital-value of this commodity-product (equal to 2,000) cannot re-enter the productive consumption of the II capitalists but must be replaced by exchange with I.
In I, on the contrary, that portion of its commodity-product of 6,000 whose value is equal to the wages plus the surplus-value (equal to 2,000) does not pass into the individual consumption of its producers, and cannot do so on account of its bodily form. It must first be exchanged with II. Contrariwise the constant portion of the value of this product, equal to 4,000, exists in a bodily form in which — taking the capitalist class I as a whole — it can immediately resume its function of constant capital of that class. In other words, the entire product of department I consists of use-values which, on account of their bodily form, can under a capitalist mode of production serve only as elements of constant capital. Hence one-third (2,000) of this product of 6,000 replaces the constant capital of department II, and the other two thirds the constant capital of department I.
The constant capital I consists of a great number of different groups of capital invested in the various branches of production of means of production, so much in iron works, so much in coal-mines, etc. Every one of these groups of capital, or every one of these social group capitals, is in its turn composed of a larger or smaller number of independently functioning individual capitals. In the first place, the capital of society, for instance 7,500 (which may mean millions, etc.) is composed of various groups of capital; the social capital of 7,500 is divided into separate parts, every one of which is invested in a special branch of production; each portion of the social capital-value invested in some particular branch of production consists, so far as its bodily form is concerned, partly of means of production required in that particular sphere of production, partly of the labour-power needed in that business and trained accordingly, variously modified by division of labour, according to the specific kind of labour to be performed in each individual sphere of production. Each portion of social capital invested in any particular branch of production in its turn consists of the sum of the individual capitals invested in it and functioning independently. This patently applies to both departments, I as well as II.
As for the constant capital-value re-appearing in I in the form of its commodity-product, it re-enters in part as means of production into the particular sphere of production (or even into the individual business) from which it emerges as product; for instance corn into the production of corn, coal into the production of coal, iron in the form of machines into the production of iron, etc.
However since the partial products constituting the constant capital-value I do not return directly to their particular or individual sphere of production, they merely change their place. They pass in their bodily form to some other sphere of production of department I, while the product of other spheres of production of department I replaces them in kind. It is merely a change of place of these products. All of them re-enter as factors replacing constant capital in I, only instead of the same group of I they enter another. Since an exchange takes place here between the individual capitalist of I, it is an exchange of one bodily form of constant capital for another bodily form of constant capital, of one kind of means of production for other kinds of means of production. It is an exchange of the different individual parts of constant capital I among themselves. Products which do not serve directly as means of production in their own sphere are transferred from their place of production to another and thus mutually replace one another. In other words (similarly to what we saw in the case of the surplus-value II), every capitalist I draws from this quantity of commodities, proportionally to his share in the constant capital of 4,000, the means of production required by him. If production were socialised instead of capitalistic, these products of department I would evidently just as regularly be redistributed as means of production to the various branches of this department, for purposes of reproduction, one portion remaining directly in that sphere of production from which it emerged as a product, another passing over to other places of production, thereby giving rise to a constant to-and-fro movement between the various places of production in this department.
On the assumption of simple reproduction the total value of the annually produced articles of consumption is therefore equal to the annual value-product, i.e., equal to the total value produced during the year by social labour, and this must be so, because in simple reproduction this entire value is consumed.
The total social working-day is divided into two parts: 1) Necessary labour which creates in the course of the year a value of 1,500v; 2) surplus-labour, which creates an additional value, or surplus-value, of 1,500s. The sum of these values, 3,000, is equal to the value of the annually produced articles of consumption — 3,000. The total value of the articles of consumption produced during the year is therefore equal to the total value produced by the total social working-day during the year, equal to the value of the social variable capital plus the social surplus-value, equal to the total new product of the year.
But we know that although these two magnitudes of value are equal the total value of commodities II, the articles of consumption, is not produced in this department of social production. They are equal because the constant capital-value re-appearing in II is equal to the value newly produced by I (value of variable capital plus surplus-value); therefore I(v + s) can buy the part of the product of II which represents the constant capital-value for its producers (in department II). This shows, then, why the value of the product of capitalists II, from the point of view of society, may be resolved into v + s although for these capitalists it is divided into c + v + s. This is so only because IIc is here equal to I(v + s), and because these two components of the social product interchange their bodily forms by exchange, so that after this transformation II exists once more in means of production and I(v + s) in articles of consumption.
And it is this circumstance which induced Adam Smith to maintain that the value of the annual product resolves itself into v + s. This is true 1) only for that part of the annual product which consists of articles of consumption; and 2) it is not true in the sense that this total value is produced in II and that the value of its product is equal to the value of the variable capital advanced in II plus the surplus-value produced in II. It is true only in the sense that II(c + v + s) is equal to II(v + s) + I(v + s), or because II is equal to I(v + s).
It follows furthermore:
It must be noted in the first place that no portion of the social working-day, whether in I or in II, serves for the production of the value of the constant capital employed and functioning in these two great spheres of production. They produce only additional value, 2,000 I(v + s) + 1,000 II(v + s), in addition to the value of the constant capital equal to 4,000 Ic + 2,000 IIc. The new value produced in the form of means of production is not yet constant capital. It merely is intended to function as such in the future.
The entire product of II — the articles of consumption — viewed concretely as a use-value, in its bodily form, is a product of the one-third of the social working-day spent by II. It is the product of labour in its concrete form — such as the labour of weaving, baking, etc., performed in this department — the product of this labour, inasmuch as it functions as the subjective element of the labour-process. As to the constant portion of the value of this product II, it re-appears only in a new use-value, in a new bodily form, the form of articles of consumption, while it existed previously in the form of means of production. Its value has been transferred by the labour-process from its old bodily form to its new bodily form. But the value of these two-thirds of the product-value, equal to 2,000, has not been produced in this year’s self-expansion process of II.
The sum of the social product I and II — means of production and articles of consumption — is indeed, viewed from the standpoint of their use-value, in their concrete, bodily form, the product of this year’s labour, but only to the extent that this labour itself is regarded as useful and concrete and not as an expenditure of labour-power, as value-creating labour. And even the first is true only in the sense that the means of production have transformed themselves into new products, into this year’s products solely by dint of the living labour added on to them, operating on them. On the contrary, this year’s labour could not have transformed itself into products without means of production independent of it, without instruments of labour and materials of production.
The entire annual social product here contains three social working-days, each of one year. The value expressed by each one of these working-days is 3,000, so that the value expressed by the total product is equal to 3 × 3,000, or 9,000.
Furthermore the following portions of this working time have elapsed prior to the one-year process of production, the product of which we are now analysing: In department I four-thirds of a working-day (with a product worth 4,000), and in department II two-thirds of a working-day (with a product worth 2,000), making a total of two social working-days with a product worth 6,000. For this reason 4,000 Ic + 2,000 IIc = 6,000c figure as the value of the means of production, or the constant capital-value re-appearing in the total value of the social product. Furthermore one-third of the social working-day of one year newly added in department I is necessary labour, or labour replacing the value of the variable capital of 1,000 I and paying the price of the labour employed by I. In the same way one-sixth of a social working-day in II is necessary labour with a value of 500. Hence 1,000 Iv + 500 IIv = 1,500v, expressing the value of one half of the social working-day, is the value-expression of the first half of the aggregate working-day added this year and consisting of necessary labour.
Finally, in department I one-third of the aggregate working-day, with a product worth 1,000, is surplus-labour, and in department II one-sixth of the working-day, with a product worth 500, is surplus-labour.
Together they constitute the other half of the added aggregate working-day. Hence the total surplus-value produced is equal to l,000 Is + 500 IIs, or 1,500s.
Thus:
The constant capital portion of the value of the social product (c):
Two working-days expended prior to the process of
production; expression of value = 6,000.
Necessary labour (v) expended during the year:
One half of a working-day expended on the annual
production; expression of value 1,500.
Surplus-labour (s) expended during the year:
One half of a working-day expended on the annual
production; expression of value = 1,500.
Value produced by annual labour (v + s) = 3,000.
Total value of product (c + v + s) = 9,000.
The difficulty, then, does not consist in the analysis of the value of the social product itself. It arises in the comparison of the component parts of the value of the social product with its material constituents.
The constant, merely re-appearing portion of value is equal to the value of that part of this product which consists of means of production and is incorporated in that part.
The new value-product of the year, equal to v + s, is equal to the value of that part of this product which consists of articles of consumption and is incorporated in it.
On the other hand the total value of the means of production (I) is equal to the sum of the constant capital-value re-appearing in the form of means of production (I) and in that of articles of consumption (II); in other words, equal to the sum of the constant capital-value re-appearing in the total product of society. This total value is equal in terms of value to four-thirds of a working-day preceding the process of production of I and two-thirds of a working-day preceding the process of production of II, in all equal to two aggregate working-days.
The product of an individual capital, i.e., of every fraction of the social capital endowed with a life of its own and functioning independently, has a bodily form of one kind or another. The only condition is that this product must really have a use-form, a use-value, which gives it the imprint of a member of the world of commodities capable of circulation. It is immaterial and accidental whether or not it can re-enter as a means of production into the same process of production from which it emerged as a product; in other words, whether the portion of its value representing the constant part of the capital has a bodily form in which it can actually function again as constant capital. If not, this portion of the value of the product is reconverted into the form of its material elements of production by means of sale and purchase and thus the constant capital is reproduced in the bodily form capable of functioning.
It is different with the product of the aggregate social capital. All the material elements of reproduction must in their bodily form constitute parts of this product. The consumed constant part of capital can be replaced by the aggregate production only to the extent that the entire constant part of the capital reappearing in the product re-appears in the bodily form of new means of production which can really function as constant capital. Hence, simple reproduction being assumed, the value of that portion of the product which consists of means of production must be equal to the constant portion of the value of social capital.
Furthermore: Considered individually, the capitalist produces in the value of his product by means of the newly added labour only his variable capital plus surplus-value, while the constant part of the value is transferred to the product owing to the concrete character of the newly added labour.
Considered socially that portion of the social working-day which produces means of production, hence adding new value to them as well as transferring to them the value of the means of production consumed in their manufacture, creates nothing but new constant capital intended to replace that consumed in the shape of old means of production in both departments I and II. It creates only product intended for productive consumption. The entire value of this product, then, is only value which can function anew as constant capital, which can only buy back constant capital in its bodily form, and which, for this reason, resolves itself, considered socially, neither into variable capital nor surplus-value. On the other hand that part of the social working-day which produces articles of consumption does not create any portion of the social replacement capital. It creates only products intended, in their bodily form, to realise the value of the variable capital and surplus-value of I and II.
Speaking of the point of view of society, and therefore considering the aggregate product of society, which comprises both the reproduction of social capital and individual consumption, we must not lapse into the manner copied by Proudhon from bourgeois economy and look upon this matter as though a society with a capitalist mode of production, if viewed en bloc, as a totality, would lose this its specific historical and economic character. No, on the contrary. We have, in that case, to deal with the aggregate capitalist. The aggregate capital appears as the capital stock of all individual capitalists combined. This joint-stock company has in common with many other stock companies that everyone knows what he puts in, but not what he will get out of it.
In the second place the constant capital of department I is replaced in kind, partly by exchange among capitalists I, partly by replacement in kind in each individual business.
The phrase that the value of the entire annual product must ultimately be paid by the consumer would be correct only if consumer were taken to comprise two vastly different kinds: individual consumers and productive consumers. However that one portion of the product must be consumed productively means nothing but that it must function as capital and not be consumed as revenue.
If we divide the value of the aggregate product, equal to 9,000, into 6,000c + l,500v + 1,500s and look upon the 3,000(v + s) only in its quality of revenue, then, on the contrary, the variable capital seems to disappear and capital, socially speaking, to consist only of constant capital. For that which appeared originally as 1,500v has resolved itself into a portion of the social revenue, into wages, the revenue of the working-class, and its character of capital has thus vanished. This conclusion is actually drawn by Ramsay. According to him, capital, socially considered, consists only of fixed capital, but by fixed capital be means the constant capital, that quantity of values which consists of means of production, whether these means of production are instruments or materials of labour, such as raw materials, semi-finished products, auxiliary materials, etc. He calls the variable capital circulating capital:
Ramsay defines fixed capital, by which he means constant capital, more closely in the following words:
Here we see once more the calamity Adam Smith brings on by submerging the distinction between constant and variable capital in that between fixed capital and circulating capital. Ramsay’s constant capital consists of instruments of labour, his circulating capital of means of subsistence. Both of them are commodities of a given value. The one can no more create surplus-value than the other.
Take our scheme. We have, after the exchange of the elements hitherto considered between I and II, and within II.
1) 4,000c + 1,000v + 1,000s (the latter 2,000 realised in articles of consumption of IIc) = 6,000.
II) 2,000c (reproduced by exchange with I(v + s) + 500v + 500s = 3,000.
Sum of values = 9,000.
Value newly produced during the year is contained only in v and s. The sum of the value-product of this year is therefore equal to the sum of v + s, or 2,000 I(v + s) + 1,000 II(v + s) = 3,000. All remaining value-parts of the product of this year are merely value transferred from the value of earlier means of production consumed in the annual production. The current annual labour has not produced any value other than that of 3,000. That represents its entire annual value-product.
Now, as we have seen, the 2,000 I(v + s) replace for class II its 2,000 IIc in the bodily form of means of production. Two-thirds of the annual labour, then, expended in category I, have newly produced constant capital II, both its entire value and its bodily form. From the standpoint of society, two-thirds of the labour expended during the year have created new constant capital-value realised in the bodily form appropriate for department II. Thus the greater portion of the annual labour of society has been spent in the production of new constant capital (capital-value existing in the form of means of production) in order to replace the value of the constant capital expended in the production of articles of consumption. What distinguishes capitalist society in this case from the savage is not, as Senior[1] thinks, the privilege and peculiarity of the savage to expend his labour at times in a way that does not procure him any products resolvable (exchangeable) into revenue, i.e., into articles of consumption. No, the distinction consists in the following.
a) Capitalist society employs more of its available annual labour in the production of means of production (ergo, of constant capital) which are not resolvable into revenue in the form of wages or surplus-value, but can function only as capital.
b) When a savage makes bows, arrows, stone hammers, axes, baskets, etc., he knows very well that he did not spend the time so employed in the production of articles of consumption, but that he has thus stocked up the means of production he needs, and nothing else. Furthermore, a savage commits a grave economic sin by his utter indifference to waste of time, and, as Tylor [2] tells us, takes sometimes a whole month to make one arrow.
The current conception whereby some political economists seek to extricate themselves from the theoretical difficulty, i.e., the understanding of the real interconnections — that what is capital to one is revenue to another, and vice versa — is only partially correct and becomes utterly wrong (harbours therefore a complete misunderstanding of the entire process of exchange taking place in annual reproduction, hence also a misunderstanding of the actual basis of the partially correct) as soon as the character of universality is attributed to it.
We now summarise the actual relations on which the partial correctness of this conception rests, and in doing so the wrong conception of these relations will come to the surface.
The variable capital exists at first in the hands of the capitalist as money-capital; and it performs the function of money-capital, by his buying labour-power with it. So long as it persists in his hands in the form of money, it is nothing but a given value existing in the form of money; hence a constant and not a variable magnitude. It is a variable capital only potentially, owing to its convertibility into labour-power. It becomes real variable capital only after divesting itself of its money-form, after being converted into labour-power functioning as a component part of productive capital in the capitalist process.
Money, which first functioned as the money-form of the variable capital for the capitalist, now functions in the hands of the labourer as the money-form of his wages, which he exchanges for means of subsistence; i.e., as the money-form of revenue derived from the constantly repeated sale of his labour-power.
We have here but the simple fact that the money of the buyer, in this case the capitalist, passes from his hands into those of the seller, in this case the seller of labour-power, the labourer. It is not a case of the variable capital functioning in a dual capacity, as capital for the capitalist and as revenue for the labourer. It is the same money which exists first in the hands of the capitalist as the money-form of his variable capital, hence as potential variable capital, and which serves in the hands of the labourer as an equivalent for sold labour-power as soon as the capitalist converts it into labour-power. But the fact that the same money serves another useful purpose in the hands of the seller than in those of the buyer is a phenomenon peculiar to the purchase and sale of all commodities.
Apologetic economists present the matter in a wrong light, as is best seen if we keep our eyes fixed exclusively, without taking for the time being any notice of what follows, on the act of circulation M — L (equal to M — C), the conversion of money into labour-power on the part of the capitalist buyer, which is L — M (equal to C — M), the conversion of the commodity labour-power into money on the part of the seller, the labourer. They say: Here the same money realises two capitals; the buyer — the capitalist — converts his money-capital into living labour-power, which he incorporates in his productive capital; on the other hand the seller, the labourer, converts his commodity, labour-power, into money, which he spends as revenue, and this enables him to keep on reselling his labour-power and thereby to maintain it. His labour-power, then, represents his capital in commodity-form, which yields him a continuous revenue. Labour-power is indeed his property (ever self-renewing, reproductive), not his capital. It is the only commodity which he can and must sell continually in order to live, and which acts as capital (variable) only in the hands of the buyer, the capitalist. The fact that a man is continually compelled to sell his labour-power, i.e., himself, to another man proves, according to those economists, that he is a capitalist, because he constantly has “commodities” (himself) for sale. In that sense a slave is also a capitalist, although he is sold by another once and for all as a commodity; for it is in the nature of this commodity, a labouring slave, that its buyer does not only make it work anew every day, but also provides it with the means of subsistence that enable it to work ever anew. (Compare on this point Sismondi and Say in the letters to Malthus. [3] )
Let us first look at the exchange of Iv for IIc, beginning with the point of view of the labourer.
The collective labourer of I has sold his labour-power to the collective capitalist of I for 1,000; he receives this value in money, paid in the form of wages. With this money he buys from II articles of consumption for the same amount of value. Capitalist II confronts him only as a seller of commodities, and nothing else, even if the labourer buys from his own capitalist, as he does for instance in the exchange of 500 IIv, as we have seen above (Part IV, present chapter). The form of circulation through which his commodity, labour-power, passes, is that of the simple circulation of commodities for the mere satisfaction of needs, for the purpose of consumption: C (labour-power) — M — C (articles of consumption, commodities II). The result of this act of circulation is that the labourer maintains himself as labour-power for capitalist I, and in order to continue maintaining himself as such he must continually renew the process L(C) — M — C. His wages are realised in articles of consumption, they are spent as revenue, and, taking the working-class as a whole, are spent again and again as revenue.
But C — M — C represents here the movement of capital. C, when sold to the labourers, is converted into M, and this M is converted into means of production. It is the reconversion of commodities into the material elements of which this commodity is made. On the other hand just as capitalist II acts vis-à-vis I only as a buyer of commodities, so capitalist I acts only as a seller of commodities vis-à-vis II. I originally bought labour-power worth 1,000 with 1,000 in money intended to function as variable capital. It has therefore received an equivalent for the 1,000v which it expended in money-form. This money now belongs to the labourer who spends it in purchases from II. I cannot get back this money, which thus found its way into the II treasury unless it fishes its way out of it again by the sale of commodities of the same value.
I first had a definite sum of money amounting to 1,000 destined to function as variable capital. The money functions as such by its conversion into labour-power of the same value. But the labourer supplied it as a result of the process of production with a quantity of commodities (means of production) worth 6,000, of which one-sixth, or 1,000, are equivalent to the variable portion of capital advanced in money. The variable capital-value functions no more as variable capital now in its commodity-form than it did before in its form of money. It can do so only after its conversion into living labour-power, and only so long as this labour-power functions in the process of production. As money the variable capital-value was only potential variable capital. But it had a form in which it was directly convertible into labour-power. As a commodity the same variable capital-value is still potential money-value, it is restored to its original money-form only by the sale of the commodities, and therefore by II buying for 1,000 commodities from I. The movement of the circulation is here as follows: 1,000v (money) — labour-power worth 1,000 — 1,000 in commodities (equivalent of the variable capital) — 1,000v (money); hence M — C... C — M (equal to M — L ... C — M). The process of production intervening between C ... C does not itself belong in the sphere of circulation. It does not figure in the mutual exchange of the various elements of the annual reproduction, although this exchange includes the reproduction of all the elements of productive capital, the constant elements as well as the variable element (labour-power). All the participants in this exchange appear either as buyers or sellers or both. The labourers appear only as buyers of commodities, the capitalists alternately as buyers and sellers, and within certain limits either only as buyers of commodities or only as sellers of commodities.
Result: I possesses once more the variable value-constituent of its capital in the form of money, from which alone it is directly convertible into labour-power, i.e., it once more possesses the variable capital-value in the sole form in which it can really be advanced as a variable element of its productive capital. On the other hand the labourer must again act as a seller of commodities, of his labour-power, before he can act again as a buyer of commodities.
So far as the variable capital of category II (500 IIv) is concerned, the process of circulation between the capitalists and labourers of the same class of production takes place directly, since we look upon it as taking place between the collective capitalist II and the collective labourer II.
The collective capitalist II advances 500v for the purchase of labour-power of the same value. In this case the collective capitalist is a buyer, the collective labourer a seller. Thereupon the labourer appears with the proceeds of the sale of his labour-power to act as a buyer of a part of the commodities produced by himself. Here the capitalist is therefore a seller. The labourer has replaced to the capitalist the money paid in the purchase of his labour-power by means of a portion of commodity-capital II produced, namely 500v in commodities. The capitalist now holds in the form of commodities the same v which he had in the form of money before its conversion into labour-power, while the labourer on the other hand has realised the value of his labour-power in money and now, in his turn, realises this money by spending it as his revenue to defray his consumption in the purchase of part of the articles of consumption produced by himself. It is an exchange of the revenue of the labourer in money for a portion of commodities he has himself reproduced, namely 500v of the capitalist. In this way this money returns to capitalist II as the money-form of his variable capital. An equivalent value of revenue in the form of money here replaces variable capital-value in the form of commodities.
The capitalist does not increase his wealth by taking away again the money paid by him to the labourer in the purchase of labour-power when he sells him an equivalent quantity of commodities. He would indeed be paying the labourer twice if he were to pay him first 500 in the purchase of his labour-power, and then in addition give him gratis a quantity of commodities worth 500, which the labourers produced for him. Vice versa, if the labourer were to produce for him nothing but an equivalent in commodities worth 500 for the price of his labour-power of 500, the capitalist would be no better off after the transaction than before. But the labourer has reproduced a product of 3,000. He has preserved the constant portion of the value of the product, i.e., the value of the means of production used up in it to the amount of 2,000 by converting them into a new product. He has furthermore added to this given value a value of 1,000(v + s). (The idea that the capitalist grows richer in the sense that he wins a surplus-value by the reflux of the 500 in money is developed by Destutt de Tracy, as shown in detail in section XIII of this chapter.)
Through the purchase of 500 worth of articles of consumption by labourer II, capitalist II recovers the value of 500 IIv — which he just possessed in commodities — in money, the form in which he advanced it originally. The immediate result of this transaction, as of any other sale of commodities, is the conversion of a given value from the form of commodities into that of money. Nor is there anything special in the reflux thus effected of the money to its point of departure. If capitalist II had bought, with 500 in money, commodities from capitalist I, and then in turn sold to capitalist I commodities to the amount of 500, 500 would have likewise returned to him in money. This sum of 500 in money would merely have served for the circulation of a quantity of commodities (1,000), and according to the general law previously expounded, the money would have returned to the one who put it into circulation for the purpose of exchanging this quantity of commodities.
But the 500 in money which flowed back to capitalist II are at one and the same time renewed potential variable capital in money-form. Why is this so? Money, and therefore money-capital, is potential variable capital only because and to the extent that it is convertible into labour-power. The return of £500 in money to capitalist II is accompanied by the return of labour-power II to the market. The return of both of these at opposite poles — hence also the re-appearance of 500 in money not only as money but also as variable capital in the form of money — is conditional on one and the same process. The money equal to 500 returns to capitalist II because he sold to labourers II articles of consumption amounting to 500, i.e., because the labourer spends his wages to maintain himself and his family and thus his labour-power. In order to be able to live on and act again as a buyer of commodities he must again sell his labour-power. The return of 500 in money to capitalist II is therefore at the same time a return, or an abiding, of the labour-power in the capacity of a commodity purchasable with 500 in money, and thereby a return of 500 in money as potential variable capital.
As for category IIb, which produces articles of luxury, the case with v — (IIb)v — is the same as with Iv. The money, which renews for capitalists IIb their variable capital in the form of money, flows back to them in a round-about way through capitalists IIa. But it nevertheless makes a difference whether the labourers buy their means of subsistence directly from the capitalist producers to whom they sell their labour-power or whether they buy them from capitalists of another category, through whose agency the money returns to the former only by a circuitous route. Since the working-class lives from hand to mouth, it buys as long as it has the means to buy. It is different with the capitalists, as for instance in the exchange of 1,000 IIc for 1,000 Iv. The capitalist does not live from hand to mouth. His compelling motive is the utmost self-expansion of his capital. Now, if circumstances of any description seem to promise greater advantages to capitalist II in case he holds on to his money, or to part of it at least, for a while, instead of immediately renewing his constant capital, then the return of 1,000 IIc (in money) to I is delayed; and so is the restoration of 1,000v to the form of money, and capitalist I can continue his business on the same scale only if he disposes of reserve money; and, generally speaking, reserve capital in the form of money is necessary to be able to work without interruption, regardless of the rapid or slow reflux of the variable capital-value in money.
If the exchange of the various elements of the current annual reproduction is to be investigated, so are the results of the labour of the preceding year, of the labour of the year that has already come to a close. The process of production which resulted in this yearly product lies behind us; it is a thing of the past, incorporated in its product, and so much the more is this the case with the process of circulation, which precedes the process of production or runs parallel with it, the conversion of potential into real variable capital, i.e., the sale and purchase of labour-power. The labour-market is no longer a part of the commodity-market, such as we have here before us. The labourer has here not only already sold his labour-power, but besides the surplus-value also supplied an equivalent of the price of his labour-power in the shape of commodities. He has furthermore pocketed his wages and figures during the exchange only as a buyer of commodities (articles of consumption). On the other hand the annual product must contain all the elements of reproduction, restore all the elements of productive capital, above all its most important element, the variable capital. And we have seen indeed that the result of the exchange in regard to the variable capital is this: By spending his wages and consuming the purchased commodities, the labourer as a buyer of commodities maintains and reproduces his labour-power, this being the only commodity which he has to sell. Just as the money advanced by the capitalist in the purchase of his labour-power returns to him, so labour-power returns to the labour-market in its capacity of a commodity exchangeable for money. The result in the special case of 1,000 Iv is that the capitalists of I hold 1,000v in money and the labourers of I offer them 1,000 in labour-power, so that the entire process of reproduction of I can be renewed. This is one result of the process of exchange.
On the other hand the expenditure of the wages of the labourers of I relieved II of articles of consumption to the amount of 1,000c, thus transforming them from the commodity-form into the money-form. Department II reconverted them into the bodily form of its constant capital by purchasing from I commodities equal to 1,000v and thus restoring to I in money-form the value of its variable capital. The variable capital of I passes through three metamorphoses, which do not appear at all in the exchange of the annual product or do so only suggestively.
During all these transformations capitalist I continually holds the variable capital in his hands; 1) to start with as money-capital; 2) then as an element of his productive capital; 3) still later as a portion of the value of his commodity-capital, hence in the form of commodity-value; 4) finally once more in money which is again confronted by the labour-power for which it can be exchanged. During the labour-process the capitalist is in possession of the variable capital as active value-creating labour-power, but not as a value of a given magnitude. But since he never pays the labourer until his power has acted for a certain length of time, he already has in hand the value created by that power to replace itself plus the surplus-value before he pays him.
As the variable capital always stays in the hands of the capitalist in some form or other, it cannot be claimed in any way that it converts itself into revenue for anyone. On the contrary, 1,000 Iv in commodities converts itself into money by its sale to II half of whose constant capital it replaces in kind.
However it is a momentous fact in the exchange of the annual product that by the expenditure of the wages as revenue there is restored to the form of money-capital in the one case 1,000 IIc, likewise, by this circuitous route, 1,000 Iv and ditto 500 IIv, hence constant and variable capital. (In the case of the variable capital partly by means of a direct and partly by means of an indirect reflux.)
One portion of the value of the constant capital, which consists of
 instruments of labour in the strict meaning of the term (as a distinct
 section of the means of production) is transferred from the instruments
 of labour to the product of labour (the commodity); these instruments of
 labour continue to function as elements of the productive capital, doing
 so in their old bodily form. It is their wear and tear, the depreciation
 gradually experienced by them during their continual functioning for a
 definite period which re-appears as an element of value of the commodities
 produced by means of them, which is transferred from the
 instrument of labour to the product of labour. With regard to the annual
 reproduction therefore only such component parts of fixed capital will
 from the first be given consideration as last longer than a year. If they
 are completely worn out within the year they must be completely
 replaced and renewed by the annual reproduction, and the point at issue
 does not concern them at all. It may happen in the case of machines
 and other more durable forms of fixed capital — and it frequently does
 happen — that certain parts of them must be replaced lock, stock and
 barrel within one year, although the building or machine in its entirety
 lasts much longer. These parts belong in one category with the elements
 of fixed capital which are to be replaced within one year.
Just as simple commodity circulation is in no way identical with a
 bare exchange of products, the conversion of the annual commodity-product
 can in no way resolve itself into a mere unmediated mutual
 exchange of its various components. Money plays a specific role in it,
 which finds expression particularly in the manner in which the value of
 the fixed capital is reproduced. (How different the matter would present
 itself if production were collective and no longer possessed the form of
 commodity production is left to a later analysis.)
Should we now return to our fundamental scheme, we shall get the
 following for class II: 2,000c + 500v + 500s. All the articles of consumption produced in the course of the year are in that case equal in
 value to 3,000; and every one of the different commodity elements in
 the total sum of the commodities is composed, so far as its value is
 concerned, of ⅔c + 1/6v + 1/6s, or, in percentages, 66⅔c + 16⅔v +
 16⅔s. The various kinds of commodities of class II may contain different proportions of constant capital. Likewise the fixed portion of the constant
 capital may be different. The duration of the parts of the fixed capital
 and hence the annual wear and tear, or that portion of value which they
 transfer pro rata to the commodities in the production of which they
 participate, may also differ. But that is immaterial here. As to the
 process of social reproduction, it is only a question of exchange between
 classes II and I. These two classes here confront each other only in their
 social, mass relations. Therefore the proportional magnitude of part c of
 the value of commodity-product II (the only one of consequence in the
 question now being discussed) gives the average proportion if all the
 branches of production classed under II are embraced.
Every kind of commodity (and they are largely the same kinds) whose
 aggregate value is classed under 2,000c + 500v + 500s is therefore equal in value to 66⅔%c + 16⅔%v + 16⅔%s. This applies to every
 100 of the commodities, whether classed under c, v or s.
The commodities in which the 2,000c are incorporated may be
 further divided, in value, into:
 
 


 
 1) 1,333⅓c + 333⅓v + 333⅓s = 2,000c;

 similarly 500v may be divided into:

 2) 333⅓c + 83⅓v + 83⅓s = 500v;

 and finally 500s may be divided into:

 3) 333⅓c + 83⅓v + 83⅓s = 500s
Now, if we add the c’s in 1), 2), and 3) we get 1,333⅓c + 333⅓c + 333⅓c = 2,000. Furthermore 333⅓v + 83⅓v + 83⅓v = 500.
And the same in the case of s. The addition gives the same total value of
 3,000, as above.
The entire constant capital-value contained in the commodity mass II
 representing a value of 3,000 is therefore comprised in 2,000c, and
 neither 500v nor 500s hold an atom of it. The same is true of v and s respectively.
In other words, the entire share of commodity mass II that represents
 constant capital-value and therefore is reconvertible either into its bodily
 or its money-form, exists in 2,000c. Everything referring to the exchange
 of the constant value of commodities II is therefore confined to the
 movement of 2,000 IIc. And this exchange can be made only with I
 (1,000v + 1,000s).
Similarly, as regards class I, everything that bears in the exchange of
 the constant capital-value of that class is to be confined to a
 consideration of 4,000 Ic.
As this problem offers peculiar difficulties and has hitherto not been
 treated at all by the political economists, we shall examine seriatim all
 possible (at least seemingly possible) solutions, or rather formulations of
 the problem.
In the first place, we have just assumed that II sells commodities of
 the value of 2,000 to I, but buys from it only 1,800 worth. The
 commodity-value 2,000 IIc contains 200 for replacement of wear and
 tear, which must be stored up in the form of money. The value of 2,000
 IIc would thus be divided into 1,800, to be exchanged for means of
 production I, and 200, to replace wear and tear, which are to be kept in
 the form of money (after the sale of the 2,000c to I). Expressed in terms
 of value, 2,000 IIc equals 1,800c + 200c(d), this d standing for déchet.
 [Wear and tear. — Ed.]
We would then have to study


 
 
 Exchange I. 1,000v + 1,000s

 II. 1,800c + 200c(d).
 


 I buys with £1,000, which has gone to the labourers in wages for
 their labour-power, 1,000 IIc of articles of consumption. II buys with the
 same £1,000 means of production 1,000 Iv. Capitalists I thus recover
 their variable capital in the form of money and can employ it next year in
 the purchase of labour power to the same amount, i.e., they can replace
 the variable portion of their productive capital in kind.
Furthermore, II buys with advanced £400 means of production Is,
 and Is buys with the same £400 articles of consumption IIc. The £400 advanced to the circulation by the capitalists of II have thus returned to them, but only as an equivalent for sold commodities. I now buys
 articles of consumption for advanced £400; II buys from I £400 worth
 of means of production, whereupon these £400 flow back to I. So far,
 then, the account is as follows:
I throws into circulation l,000v + 800s in commodities; it furthermore throws into circulation, in money, £1,000 in wages and £400 for exchange with II. After the exchange has been made, I has 1,000v in
 money, 800s exchanged for 800 IIc (articles of consumption) and £400 in money.
II throws into circulation 1,800c in commodities (articles of
 consumption) and £400 in money. On the completion of the exchange it
 has 1,800 in commodities I (means of production) and £400 in money.
There still remain, on the side of I, 200s (in means of production)
 and, on the side of II, 200c(d) (in articles of consumption).
According to our assumption I buys with £200 the articles of
 consumption c (d) of the value of 200. But II holds on to these £200
 since 200 c (d) represent wear and tear, and are not to be immediately
 reconverted into means of production. Therefore 200 Is cannot be sold.
 One-fifth of the surplus-value I to be replaced cannot be realised, or
 converted, from its bodily form of means of production into that of
 articles of consumption.
This not only contradicts our assumption of reproduction on a simple
 scale; it is by itself not a hypothesis which would explain the
 transformation of 200c(d) into money. It means rather that it cannot be
 explained. Since it cannot be demonstrated in what manner 200c(d) can
 be converted into money, it is assumed that I is obliging enough to do
 the conversion just because it is not able to convert its own remainder of
 200s into money. To conceive this as a normal operation of the
 exchange mechanism is tantamount to the notion that £200 fall every
 year from the clouds in order regularly to convert 200c(d) into money.
But the absurdity of such a hypothesis does not strike one at once if
 Is, instead of appearing, as it does in this case, in its primitive mode of
 existence — namely as a component part of the value of means of
 production, hence as a component part of the value of commodities
 which their capitalist producers must convert into money by sale — 
 appears in the hands of the partners of the capitalists, for instance as
 ground-rent in the hands of landowners or as interest in the bands of
 moneylenders. But if that portion of the surplus-value of commodities
 which the industrial capitalist has to yield as ground-rent or interest to
 other co-owners of the surplus-value cannot be realised for a long time
 by the sale of the commodities, then there is also an end to the payment
 of rent and interest, and the landowners or recipients of interest cannot
 therefore serve as dei ex machina to convert at pleasure definite portions
 of the annual reproduction into money by spending rent and interest.
 The same is true of the expenditures of all so-called unproductive
 labourers — government officials, physicians, lawyers, etc., and others
 who as members of the “general public” “serve” the political economists by explaining what they left unexplained.
Nor does it improve matters if instead of direct exchange between I
 and II — between the two major departments of capitalist producers — the
 merchant is drawn in as mediator and helps to overcome all difficulties
 with his “money.” In the present case for instance 200 Is must be definitively disposed of to the industrial capitalists of II. It may pass
 through the hands of a number of merchants, but the last of them will
 find himself, according to the hypothesis, in the same predicament, vis-
 à-vis II, in which the capitalist producers of I were at the outset, i.e.,
 they cannot sell the 200 Is to II. And this stalled purchase sum cannot
 renew the same process with I.
We see here that, aside from our real purpose, it is absolutely
 necessary to view the process of reproduction in its basic form — in
 which obscuring minor circumstances have been eliminated — in order to
 get rid of the false subterfuges which furnish the semblance of
 “scientific” analysis when the process of social reproduction is
 immediately made the subject of the analysis in its complicated concrete
 form.
The law that when reproduction proceeds normally (whether it be on
 a simple or on an extended scale) the money advanced by the capitalist
 producer to the circulation must return to its point of departure (whether
 the money is his own or borrowed) excludes once and for all the
 hypothesis that 200 IIc(d) is converted into money by means of money
 advanced by I.
We assumed hitherto
But the absurdity is only apparent. Class II consists of capitalists
 whose fixed capital is in the most diverse stages of its reproduction. In
 the case of some of them it has arrived at the stage where it must be
 entirely replaced in kind. In the case of the others it is more or less
 remote from that stage. All the members of the latter group have this in
 common, that their fixed capital is not actually reproduced, i.e., is not
 renewed in natura by a new specimen of the same kind, but that its
 value is successively accumulated in money. The first group is in quite
 the same (or almost the same, it does not matter here) position as when
 it started in business, when it came on the market with its money-capital
 in order to convert it into constant (fixed and circulating) capital
 on the one hand and into labour-power, into variable capital, on the
 other. They have once more to advance this money-capital to the
 circulation, i.e., the value of constant fixed capital as well as that of the
 circulating and variable capital.
Hence, if we assume that half of the £400 thrown into circulation by
 capitalist class II for exchange with I comes from those capitalists of II
 who have to renew not only by means of their commodities their means
 of production pertaining to the circulating capital, but also, by means of
 their money, their fixed capital in kind, while the other half of capitalists
 II replaces in kind with its money only the circulating portion of its
 constant capital, but does not renew in kind its fixed capital, then there
 is no contradiction in the statement that these returning £400 (returning
 as soon as I buys articles of consumption for it) are variously distributed
 among these two sections of II. They return to class II, but they do not
 come back into the same hands and are distributed variously within this
 class, passing from one of its sections to another.
One section of II has, besides the part of the means of production
 covered in the long run by its commodities, converted £200 in money
 into new elements of fixed capital in kind. As was the case at the start of
 the business the money thus spent returns to this section from the
 circulation only gradually over a number of years as the wear-and-tear
 portion of the value of the commodities to be produced by this fixed
 capital.
The other section of II however did not get any commodities from I for
 £200. But I pays it with the money which the first section of II spent for
 elements of its fixed capital. The first section of II has its fixed capital-value
 once more in renewed bodily form, while the second section is still
 engaged in accumulating it in money-form for the subsequent
 replacement of its fixed capital in kind.
The basis on which we now have to proceed after the previous
 exchanges is the remainder of the commodities still to be exchanged by
 both sides: 400s on the part of I, and 400c on the part of II. [44] We
 assume that II advances 400 in money for the exchange of these
 commodities amounting to 800. One half of the 400 (equal to 200)
 must be laid out under all circumstances by that section of IIc which has
 accumulated 200 in money as the wear-and-tear value and which has to
 reconvert this money into the bodily form of its fixed capital.
Just as constant capital-value, variable capital-value, and surplus-value — 
 into which the value of commodity-capital II as well as I is
 divisible — may be represented by special proportional shares of
 commodities II and I respectively, so may, within the value of the
 constant capital itself, that portion of the value which is not yet to be
 converted into the bodily form of the fixed capital, but is rather to be
 accumulated for the time being in the form of money. A certain quantity
 of commodities II (in the present case therefore one half of the
 remainder, or 200) is here only a vehicle of this wear-and-tear value,
 which has to be precipitated in money by means of exchange. (The first
 section of capitalists II, which renews fixed capital in kind, may already
 have realised in this way — with the wear-and-tear part of the mass of
 commodities of which here only the rest still figures — a part of its wear-and-tear value, but it still has to realise 200 in money.)
As for the second half (equal to 200) of the £400 thrown into
 circulation by II in this final operation, it buys circulating components of
 constant capital from I. A portion of these £200 may be thrown into
 circulation by both sections of II, or only by the one which does not
 renew its fixed component of value in kind.
With these £400 there is thus extracted from I: 1) commodities
 amounting to £200, consisting only of elements of fixed capital; 2)
 commodities amounting to £200, replacing only natural elements of the
 circulating portion of the constant capital of II. So I has sold its entire
 annual product, so far as it is to be sold to II; but the value of one-fifth of
 it, £400, is now held by I in the form of money. This money however is
 surplus-value converted into money which must be spent as revenue for
 articles of consumption. Thus I buys with its £400 II’s entire
 commodity-value equal to 400; hence this money flows back to II by
 setting its commodities in motion.
We shall now suppose three cases, in which we shall call the section
 of capitalists II which replaces its fixed capital in kind “section 1,” and
 that section which stores up depreciation-value from fixed capital in
 money-form, “section 2.” The three cases are the following: a) that a
 share of the 400 still existing with II as a remnant in the shape of
 commodities must replace certain shares of the circulating parts of the
 constant capital for sections 1 and 2 (say, one half for each); b) that
 section 1 has already sold all its commodities, while section 2 still has
 to sell 400; c) that section 2 has sold all but the 200 which are the
 bearers of the depreciation value.
Then we have the following distributions:
Section 1, then, advanced 300, and section 2 — 100 of the 400 in
 money.
Of these 400 there return however:
To section 1 — 100 i.e., only one-third of the money advanced by it.
 But it has in place of the other ⅔ a renewed fixed capital to the value of
 200. Section l has given money to I for this element of fixed capital to
 the value of 200, but no subsequent commodities. So far as the 200 in
 money are concerned, section 1 confronts department I only as buyer,
 but not later on as seller. This money cannot therefore return to section
 1; otherwise it would have received the elements of fixed capital from I
 as a gift.
With reference to the last third of the money advanced by it, section
 1 first acted as a buyer of circulating constituent parts of its constant
 capital. With the same money I buys from it the remainder of its
 commodities worth 100. This money, then, flows back to it (section 1 of
 department II) because it acts as a vendor of commodities directly after
 having acted as a buyer. If this money did not return, then II (section 1)
 would have given to I, for commodities amounting to 100, first 100 in
 money, and then into the bargain, 100 in commodities, i.e., II would
 have given away its commodities to I as a present.
On the other hand section 2, which laid out 100 in money receives
 back 300 in money: 100 because first as a buyer it threw 100 in money
 into circulation, and receives them back as a seller; 200, because it
 functions only as a seller of commodities to that amount, but not as a
 buyer. Hence the money cannot flow back to I. The fixed capital
 depreciation is thus balanced by the money thrown into circulation by II
 (section 1) in the purchase of elements of fixed capital. But it reaches
 the hands of section 2 not as money of section 1, but as money
 belonging to class I.
Section 1 has sold all of its commodities, but 200 in money are a
 transformed shape of the fixed component part of its constant capital
 which it has to renew in kind. Hence it acts here only as a buyer and
 receives instead of its money commodity I to the same value in natural
 elements of its fixed capital. Section 2 has to throw only £200 into
 circulation, as a maximum (if I does not advance any money for
 commodity-exchange between I and II), since for half of its commodity-value
 it is only a seller to I, not a buyer from I.
There return to section 2 from the circulation £400: 200, because it
 has advanced them as a buyer and receives them back as a seller of
 200 in commodities; 200, because it sells commodities to the value of
 200 to I without obtaining an equivalent in commodities from I.
On this supposition section 2 does not have any advance to make in
 money, because vis-à-vis I it no longer acts at all as buyer but only as
 seller, hence has to wait until someone buys from it.
Section 1 advances £400 in money: 200 for mutual commodity-exchange
 with I, 200 as mere buyer from I. With the last £200 in
 money it purchases the elements of fixed capital.
With £200 in money I buys from section 1 commodities for 200, so
 that the latter thus recovers the £200 in money it had advanced for this
 commodity-exchange. And I buys with the other £200, which it has
 likewise received from section 1, commodities to the value of 200 from
 section 2, whereby the latter’s wear and tear of fixed capital is
 precipitated in the form of money.
The matter is not altered in the least if it is assumed that, in case c),
 class I instead of II (section 1) advances the 200 in money to promote
 the exchange of the existing commodities. If I buys in that event first
 200 in commodities from II, section 2, on the assumption that this
 section has only this commodity remnant left to sell — then the £200 do
 not return to I, since II, section 2, does not act again as buyer. But II,
 section 1, has in that case £200 in money to spend in buying and 200
 in commodities for exchange purposes, thus making a total of 400 for
 trading with I, £200 in money then return to I from II, section 1. If I
 again lays them out in the purchase of 200 in commodities from II,
 section 1, they return to I as soon as II, section 1, takes the second half
 of the 400 in commodities off I’s hands. Section 1 (II) has spent £200
 in money as a mere buyer of elements of fixed capital; they therefore do
 not return to it, but serve to turn the 200c, the commodity remnant of II,
 section 2, into money, while the £200, the money laid out by I for the
 exchange of commodities, return to I via II, section 1, not via II, section
 2. In the place of its commodities of 400 there has returned to it a
 commodity equivalent amounting to 400; the £200 in money advanced
 by it for the exchange of 800 in commodities have likewise returned to
 it. Everything is therefore all right.
Since in II, section 1, 200c in commodities are exchanged for 200 Is (in commodities) and since all the money circulating in this exchange of
 400 in commodities between I and II returns to him who advanced it, I
 or II, this money, being an element of the exchange between I and II, is
 actually not an element of the problem which is troubling us here. Or, to
 present it differently: Supposing in the exchange between 200 Is
 (commodities) and 200 IIc (commodities of II, section 1) the money
 functions as a means of payment, not as a means of purchase and
 therefore also not as a “medium of circulation,” in the strictest sense of
 the words. It is then clear, since the commodities 200 Is and 200 IIc (section 1) are equal in magnitude of value, that means of production
 worth 200 are exchanged for articles of consumption worth 200, that
 money functions here only ideally, and that neither side really has to
 throw any money into the circulation for the payment of any balance.
 Hence the problem presents itself in its pure form only when we strike
 off on both sides, I and II, the commodities 200 Is and their equivalent,
 the commodities 200 IIc (section 1).
After the elimination of these two amounts of commodities of equal
 value (I and II), which balance each other, there is left for exchange a
 remainder in which the problem evinces its pure form, namely,
It is evident here that II, section 1, buys with 200 in money the
 component parts of its fixed capital, 200 Is. The fixed capital of II,
 section 1, is thereby renewed in kind and the surplus-value of I, worth
 200, is converted from the commodity-form (means of production, or,
 more precisely, elements of fixed capital) into the money-form. With
 this money I buys articles of consumption from II, section 2, and the
 result for II is that for section I a fixed component part of its constant
 capital has been renewed in kind, and that for section 2 another
 component part (which compensates for the depreciation of its fixed
 capital) has been precipitated in money-form. And this continues every
 year until this last component part, too, has to be renewed in kind.
The condition precedent is here evidently that this fixed component
 part of constant capital II, which is reconverted into money to the full
 extent of its value and therefore must be renewed in kind each year
 (section 1), should be equal to the annual depreciation of the other fixed
 component part of constant capital II, which continues to function in its
 old bodily form and whose wear and tear, depreciation in value, which it
 transfers to the commodities in whose production it is engaged, is first to
 be compensated in money. Such a balance would seem to be a law of
 reproduction on the same scale. This is equivalent to saying that in class
 I, which puts out the means of production, the proportional division of
 labour must remain unchanged, since it produces on the one hand
 circulating and on the other fixed component parts of the constant
 capital of department II.
Before we analyse this more closely we must see what turn the
 matter takes if the remainder of IIc (1) is not equal to the remainder of IIc (2), and may be larger or smaller. Let us study the two cases one after
 the other.
In this case IIc (1) buys with £200 in money the commodities 200 Is, and I buys with the same money the commodities 200 IIc (2), i.e., that portion of the fixed capital which is to be precipitated in money. This
 portion is thus converted into money. But 20 IIc (1) in money cannot be
 reconverted into fixed capital in kind.
It seems this misfortune can be remedied by setting the remainder of
 Is at 220 instead of at 200, so that only 1,780 instead of 1,800 of the
 2,000 I would be disposed of by former exchange. We should then
 have:
IIc, section 1, buys with £220 in money the 220 Is and I buys then with £200 the 200 IIc (2) in commodities. But now £20 in money remain on the side of I, a portion of surplus-value which it can hold on to only in the form of money, without being able to spend it for articles
 of consumption. The difficulty is thus merely transferred from IIc, section
 1, to Is.
Let us now assume on the other hand that IIc, section 1, is smaller
 than IIc, section 2: then we have the
With £180 in money II (section 1) buys commodities, 180 Is. With
 this money I buys commodities of the same value from II (section 2),
 hence 180 IIc (2). There remain 20 Is unsaleable on one side, and also 20 IIc (2) on the other — commodities worth 40, not convertible into money.
It would not help us to make the remainder of I equal to 180. True,
 no surplus would then be left in 1, but now as before a surplus of 20
 would remain in IIc (section 2), unsaleable, inconvertible into money.
 In the first case, where II (1) is greater than II (2), there remains on
 the side of IIc (1) a surplus in money-form not reconvertible into fixed
 capital; or, if the remainder Is is assumed to be equal to IIc (1), there remains on the side of Is the same surplus in money-form, not
 convertible into articles of consumption.
In the second case, where IIc (1) is smaller than IIc (2), there remains a money deficit on the side of 200 Is and IIc (2), and an equal surplus of commodities on both sides, or, if the remainder of Is is assumed to be equal to IIc (1), there remains a money deficit and a surplus of commodities on the side of IIc (2).
If we assume the remainders of I, always to be equal to IIc (1) — since production is determined by orders and reproduction is not altered in any
 way if one year there is a greater output of fixed component parts and
 the next a greater output of circulating component part of constant
 capitals II and I — then in the first case Is can be reconverted into articles of consumption only if I buys with it a portion of the surplus-value of II
 and II accumulates it in money instead of consuming it; and in the
 second case matters can be remedied only if I spends the money itself,
 an assumption we have already rejected.
If IIc (1) is greater than IIc (2), foreign commodities must be imported to realise the money-surplus in Is. If, conversely, IIc (1) is smaller than IIc (2), commodities II (articles of consumption) will have to be exported to realise the depreciation part of IIc in means of production. Consequently in either case foreign trade is necessary.
Even granted that for a study of reproduction on an unchanging scale
 it is to be supposed that the productivity of all lines of industry, hence
 also the proportional value-relations of their commodities, remain
 constant, the two last-named cases, in which IIc (1) is either greater or
 smaller than IIc (2), will nevertheless always be of interest for production
 on an enlarged scale where these cases may infallibly be encountered.
The opposite case, in which the reproduction of demises of fixed
 capital II in a certain year is less and on the contrary the depreciation
 part greater, needs no further discussion.
There would be a crisis — a crisis of over-production — in spite of
 reproduction on an unchanging scale.
In short, if under simple reproduction and other unchanged
 conditions — particularly under unchanged productive power, total
 volume and intensity of labour — no constant proportion is assumed
 between expiring fixed capital (to be renewed) and fixed capital still
 continuing to function in its old bodily form (merely adding to the
 products value in compensation of its depreciation), then, in the one
 case the mass of circulating component parts to be reproduced would
 remain the same while the mass of fixed component parts to be
 reproduced would be increased. Therefore the total production I would
 have to grow or, even aside from money-relations, there would be a
 deficit in reproduction.
In the other case, if the size of fixed capital II to be reproduced in
 kind should proportionately decrease and hence the component part of
 fixed capital II, which must now be replaced only in money, should
 increase in the same ratio, then the quantity of the circulating
 component parts of constant capital II reproduced by I would remain
 unchanged, while that of the fixed component parts to be reproduced
 would decrease. Hence either decrease in aggregate production of I, or
 surplus (as previously deficit) and surplus that is not to be converted into
 money.
True, the same labour can, in the first case, turn out a greater
 product through increasing productivity, extension or intensity, and the
 deficit could thus be covered in that case. But such a change would not
 take place without a shifting of capital and labour from one line of
 production of I to another, and every such shift would call forth
 momentary disturbances. Furthermore (in so far as extension and
 intensification of labour would mount), I would have for exchange more
 of its own value for less of II’s value. Hence there would be a
 depreciation of the product of I.
The reverse would take place in the second case, where I must curtail
 its production, which implies a crisis for its labourers and capitalists, or
 produce a surplus, which again spells crisis. Such surplus is not an evil
 in itself, but an advantage; however it is an evil under capitalist
 production.
Foreign trade could help out in either case: in the first case in order to
 convert commodities I held in the form of money into articles of
 consumption, and in the second case to dispose of the commodity
 surplus. But since foreign trade does not merely replace certain elements
 (also with regard to value), it only transfers the contradictions to a wider
 sphere and gives them greater latitude.
Once the capitalist form of reproduction is abolished, it is only a
 matter of the volume of the expiring portion — expiring and therefore to
 be reproduced in kind — of fixed capital (the capital which in our
 illustration functions in the production of articles of consumption)
 varying in various successive years. If it is very large in a certain year (in
 excess of the average mortality, as is the case with human beings), then
 it is certainly so much smaller in the next year. The quantity of raw
 materials, semi-finished products, and auxiliary materials required for
 the annual production of the articles of consumption — provided other
 things remain equal — does not decrease in consequence. Hence the
 aggregate production of means of production would have to increase in
 the one case and decrease in the other. This can be remedied only by a
 continuous relative over-production. There must be on the one hand a
 certain quantity of fixed capital produced in excess of that which is
 directly required; on the other hand, and particularly, there must be a
 supply of raw materials, etc., in excess of the direct annual requirements
 (this applies especially to means of subsistence). This sort of over-production
 is tantamount to control by society over the material means
 of its own reproduction. But within capitalist society it is an element of
 anarchy.
This illustration of fixed capital, on the basis of an unchanged scale of
 reproduction, is striking. A disproportion of the production of fixed and
 circulating capital is one of the favourite arguments of the economists in
 explaining crises. That such a disproportion can and must arise even
 when the fixed capital is merely preserved, that it can and must do so
 on the assumption of ideal normal production on the basis of simple
 reproduction of the already functioning social capital is something new
 to them.
According to older data the entire annual production of gold
 amounted to 800,000-900,000 lbs., equal roundly to 1,100 or 1,250
 million marks. But according to Soetbeers it amounted to only
 170,675 kilograms, valued at roundly 476 million marks, based on the
 average for 1871 to 1875. Of this amount Australia supplied roundly
 167, the United States 166, and Russia 93 million marks. The
 remainder is distributed over various countries in amounts of less than
 10 million marks each. During the same period, the annual production
 of silver amounted to somewhat less than 2 million kilograms, valued at
 354½ million marks. Of this amount, Mexico supplied roundly 108, the
 United States 102, South America 67, Germany 26 million, etc.
Among the countries with predominantly capitalist production only
 the United States is a producer of gold and silver. The capitalist
 countries of Europe obtain almost all their gold, and by far the greater
 part of their silver, from Australia, the United States, Mexico, South
 America, and Russia.
But we take it that the gold mines are in a country with capitalist
 production whose annual reproduction we are here analysing, and for
 the following reasons:
Capitalist production does not exist at all without foreign commerce.
 But when one assumes normal annual reproduction on a given scale one
 also assumes that foreign commerce only replaces home products by
 articles of other use or bodily form, without affecting value-relations,
 hence without affecting either the value-relations in which the two
 categories “means of production” and “articles of consumption” mutually exchange, or the relations between constant capital, variable capital, and surplus-value, into which the value of the product of each of these
 categories may be divided. The involvement of foreign commerce in
 analysing the annually reproduced value of products can therefore only
 confuse without contributing any new element of the problem, or of its
 solution. For this reason it must be entirely discarded. And consequently
 gold too is to be treated here as a direct element of annual reproduction
 and not as a commodity element imported from abroad by means of
 exchange.
The production of gold, like that of metals generally, belongs in class
 I, the category which embraces the production of means of production.
 Supposing the annual production of gold is equal to 30 (for
 convenience’s sake; actually the figure is much too high compared to the
 other figures of our scheme). Let this value be divisible into 20c + 5v + 5s; 20c is to be exchanged for other elements of Ic and this is to be studied later; but the 5v + 5s (I) are to be exchanged for elements of IIc, i.e., articles of consumption.
As for the 5v, every gold-producing establishment begins by buying
 labour-power. This is done not with gold produced by this particular
 enterprise, but with a portion of the money-supply in the land. The
 labourers buy with this 5v articles of consumption from II, and that buys
 with this money means of production from I. Let II buy gold from I to the
 amount of 2 as commodity material, etc. (component part of its constant
 capital), then 2v flow back to gold producers I in money which has
 already belonged to the circulation. If II does not buy any more material
 from I, then I buys from II by throwing its gold into circulation as money,
 since gold can buy any commodity. The difference is only that I does not
 act here as a seller, but only as a buyer. Gold miners I can always get rid
 of their commodity; it is always in a directly exchangeable form.
Let us assume that some producer of yarn has paid 5v to his
 labourers, who create for him in return — aside from the surplus-value — a
 yarn product equal to 5. For 5 the labourers buy from IIc, and the latter
 buys yarn from I for 5 in money, and thus 5 flows back in money to the
 spinner of yarn. Now in the case assumed I g (as we shall designate the
 producers of gold) advances to its labourers 5v in money which
 previously belonged to the circulation. The labourers spend it for articles
 of consumption, but only 2 of the 5 return from II to I g. However I g can
 begin the process of reproduction anew, just as well as the producer of
 yarn. For his labourers have supplied him with 5 in gold, 2 of which he
 sold and 3 of which he still has, so that he has but to coin 
 [45] them, or
 turn them into bank-notes to have his entire variable capital again
 directly in his hands in money-form, without the further intervention of
 II.
Even this first process of annual reproduction has wrought a change
 in the quantity of money actually or virtually belonging to the circulation.
 We assumed that IIc bought 2v (I g) as material, and that I g has again laid out 3 — as the money-form of its variable capital — within II. Hence 3 of the mass of money supplied by the new gold production remained
 within II and did not return to I. According to our assumption II has
 satisfied its requirements in gold material. The 3 remain in its hands as
 a gold hoard. Since they cannot constitute any element of its constant
 capital, and since II had previously enough money-capital for the purchase
 of labour-power; since furthermore these additional 3 g, with the
 exception of the depreciation element, have no function to perform
 within IIc, for a portion of which they were exchanged (they could only
 serve to cover the depreciation element pro tanto, if IIc (1) should be smaller than IIc (2), which would be accidental); on the other hand, however, namely with the exception of the depreciation element, the
 entire commodity-product IIc, must be exchanged for means of
 production I(v + s) — this money must be transferred in its entirety from IIc to IIs, no matter whether it exists in necessities of life or articles of luxury, and vice versa corresponding commodity-value must be
 transferred from IIs to IIc. Result: A portion of the surplus-value is stored up as a money-hoard.
In the second year of reproduction, provided the same proportion of
 annually produced gold continues to be used as material, 2 will again
 flow back to I g, and 3 will be replaced in kind, i.e., will be released
 again in II as a hoard, etc.
With reference to the variable capital in general: The capitalist I g,
 like every other capitalist, must continually advance this capital in
 money for the purchase of labour-power. But so far as this v is
 concerned, it is not he but his labourers who have to buy from II. It can
 therefore never happen that he should act as a buyer, throwing gold into
 II without the initiative of II. But to the extent that II buys material from
 him, and must convert constant capital II c into gold material, a portion of
 (I g)v flows back to him from II in the same way that it does to other
 capitalists of I. And so far as this is not the case, he replaces his v in
 gold directly from his product. But to the extent that the v advanced in
 money does not flow back to him from II, a portion of the already
 available means of circulation (received from I and not returned to I) is
 converted in II into a hoard and for that reason a portion of its surplus-value
 is not expended for articles of consumption. Since new gold-mines
 are continually opened or old ones re-opened, a certain portion of the
 money to be laid out by I g in v is always part of the money existing prior
 to the new gold production; it is thrown by I g through its labourers into
 II, and unless it returns from II to I g it forms there an element of hoard
 formation.
But as for (I g)s, I g can always act here as buyer. He throws his s in
 the shape of gold into circulation and withdraws from it in return articles
 of consumption IIc. In II the gold is used in part as material, and thus
 functions as a real element of the constant constituent portion c of the
 productive capital. When this is not the case it becomes once more an
 element of hoard formation as a part of IIs persisting in the form of
 money. We see, then, aside from Ic which we reserve for a later analysis, 
 [46] 
 that even simple reproduction, excluding accumulation
 proper, namely reproduction on an extended scale, necessarily includes
 the storing up, or hoarding, of money. And as this is annually repeated,
 it explains the assumption from which we started in the analysis of
 capitalist production, namely, that at the beginning of the reproduction a
 supply of money corresponding to the exchange of commodities is in the
 hands of capitalist classes I and II. Such an accumulation takes place
 even after deducting the amount of gold being lost through the
 depreciation of money in circulation.
It goes without saying that the more advanced capitalist production,
 the more money is accumulated in all hands, and therefore the smaller
 the quantity annually added to this hoard by the production of new gold,
 although the absolute quantity thus added may be considerable. We
 revert once more in general terms to the objection raised against Tooke;
 how is it possible that every capitalist draws a surplus-value in money
 out of the annual product, i.e., draws more money out of the circulation
 than he throws into it, since in the long run the capitalist class itself
 must be regarded as the source of all the money thrown into circulation?
We reply by summarising the ideas developed previously (in Chapter XVII):
In the first place, if we analyse only the circulation and the turnover
 of capital, thus regarding the capitalist merely as a personification of
 capital, not as a capitalist consumer and man about town, we see
 indeed that he is continually throwing surplus-value into circulation as a
 component part of his commodity-capital, but we never see money as a
 form of revenue in his hands. We never see him throwing money into
 circulation for the consumption of his surplus-value.
We have seen that with Adam Smith the entire value of the social
 product resolves itself into revenue, into v + s, so that the constant
 capital-value is set down as zero. It follows necessarily that the money
 required for the circulation of the yearly revenue must also suffice for the
 circulation of the entire annual product, that therefore in our illustration
 the money required for the circulation of the articles of consumption
 worth 3,000 also suffices for the circulation of the entire annual product
 worth 9,000. This is indeed the opinion of Adam Smith, and it is
 repeated by Th. Tooke. This erroneous conception of the ratio of the
 quantity of money required for the realisation of revenue to the quantity
 of money required to circulate the entire social product is the necessary
 result of the uncomprehended, thoughtlessly conceived manner in which
 the various elements of material and value of the total annual product
 are reproduced and annually replaced. It has therefore already been
 refuted.
Let us listen to Smith and Tooke themselves.
Smith says in Book II, Ch. 2:
Th. Tooke remarks to this passage from Adam Smith (in An Inquiry
 into the Currency Principle, London, 1844, pp. 34 to 36 passim):
If this last sentence stood by itself, one might think Tooke simply
 stated the fact that there was a ratio between the exchanges among
 dealers and those among dealers and consumers, in other words,
 between the value of the total annual revenue and the value of the
 capital with which it is produced. But this is not the case. He explicitly
 endorses the view of Adam Smith. A special criticism of his theory of
 circulation is therefore superfluous.
In all lines of industry whose production period — as distinguished
 from its working period — extends over a long term, money is continually
 thrown into circulation during this period by the capitalist producers,
 partly in payment for labour-power employed, partly in the purchase of
 means of production to be consumed. Means of production are thus
 directly withdrawn from the commodity-market, and articles of
 consumption, partly indirectly, by the labourers spending their wages,
 and partly directly, by the capitalists, who do not by any means suspend
 their consumption, although they do not simultaneously throw any
 equivalent in commodities on the market. During this period the money
 thrown by them into circulation serves to convert commodity value,
 including the surplus-value embodied in it, into money. This factor
 becomes very important in an advanced stage of capitalist production in
 the case of long-drawn out enterprises, such as are undertaken by stock
 companies, etc., for instance the construction of railways, canals, docks,
 large municipal buildings, iron shipbuilding, large-scale drainage of land,
 etc.
On the other hand not all movements of the process of reproduction
 are effected through the circulation of money. The entire process of
 production, once its elements have been procured, is excluded from
 circulation. All products which the producer himself consumes directly,
 whether individually or productively, are also excluded. Under this head
 comes also the feeding of agricultural labourers in kind.
Therefore the quantity of money which circulates the annual product,
 exists in society, having been gradually accumulated. It does not belong
 to the value produced during the given year, except perhaps the gold
 used to make good the loss of depreciated coins.
This exposition presupposes the exclusive circulation of precious
 metals as money, and in this circulation the simplest form of cash
 purchases and sales; although money can function also as a means of
 payment, and has actually done so in the course of history, even on the
 basis of circulating plain metal coin, and though a credit system and
 certain aspects of its mechanism have developed upon that basis.
 This assumption is not made from mere considerations of method,
 although these are important enough, as demonstrated by the fact that
 Tooke and his school, as well as their opponents, were continually
 compelled in their controversies concerning the circulation of bank-notes
 to revert to the hypothesis of a purely metallic circulation. They were
 forced to do so post festum and did so very superficially, which was
 unavoidable, because the point of departure in their analysis thus played
 merely the role of an incidental point.
But the simplest study of money — circulation presented in its
 primitive form — and this is here an immanent element of the process of annual reproduction — demonstrates:
In the slave system, the money-capital invested in the purchase of
 labour-power plays the role of the money-form of the fixed capital, which
 is but gradually replaced as the active period of the slave’s life expires.
 Among the Athenians therefore, the gain realised by a slave owner
 directly through the industrial employment of his slave, or indirectly by
 hiring him out to other industrial employers (e.g., for mining), was
 regarded merely as interest (plus depreciation allowance) on the
 advanced money-capital, just as the industrial capitalist under capitalist
 production places a portion of the surplus-value plus the depreciation of
 his fixed capital to the account of interest and replacement of his fixed
 capital. This is also the rule with capitalists offering fixed capital
 (houses, machinery, etc.) for rent. Mere household slaves, whether they
 perform necessary services or are kept as luxuries for show, are not
 considered here. They correspond to the modern servant class. But the
 slave system too — so long as it is the dominant form of productive
 labour in agriculture, manufacture, navigation, etc., as it was in the
 advanced states of Greece and Rome — preserves an element of natural
 economy. The slave market maintains its supply of the commodity
 labour-power by war, piracy, etc., and this rapine is not promoted by a
 process of circulation, but by the actual appropriation of the labour-power
 of others by direct physical compulsion. Even in the United
 States, after the conversion of the buffer territory between the wage-labour
 states of the North and the slavery states of the South into a
 slave-breeding region for the South, where the slave thrown on the
 market thus became himself an element of the annual reproduction, this
 did not suffice for a long time, so that the African slave trade was
 continued as long as possible to satisfy the market.
To this must be added the difference between those lines of business
 whose production proceeds under otherwise normal conditions
 continuously on the same scale, and those which apply varying
 quantities of labour-power in different periods of the year, such as
 agriculture.
This “distinguished writer” gives the following explanations
 concerning the entire process of social reproduction and circulation:
And this quite aside from the fact that a “portion of their profits,” and
 therefore in general a supply of commodities in which there exist profits,
 is here assumed. But Destutt undertook precisely to tell us where those
 profits come from. The quantity of money required to circulate the profit
 is a very subordinate question. The quantity of commodities in which the
 profit is represented seems to have its origin in the circumstance that the
 capitalists not only sell these commodities to one another, although even
 this much is quite fine and profound, but sell them to one another at
 prices which are too high. So we now know one source of the
 enrichment of the capitalists. It is on a par with the secret of the
 “Entspektor Bräsig"”
 [47] that the great poverty is due to the great “pauvreté.”
To be sure it is another question how the capitalists came into
 possession of the £100 and why the labourers, instead of producing
 commodities for their own account, are compelled to exchange their
 labour-power for these £100. But this, for a thinker of Destutt’s calibre,
 is self-explanatory.
Destutt himself is not quite satisfied with the solution. After all, he
 did not tell us that one gets richer by spending a sum of money, a
 hundred pounds, and then taking in again a sum of money amounting to
 £100; hence, by the reflux of £100 in money, which merely shows why
 the £100 in money do not get lost. He tells us that the capitalists get
 richer
Consequently the capitalists must get richer also in their transactions
 with the labourers by selling to them too dear. Very well!
In other words, the capitalists pay £100 in wages to the labourers, and then they sell to these labourers their own product at £120, so that they not only recover
 their £100 but also gain £20? That is impossible. The labourers can pay
 only with the money which they have received in the form of wages. If
 they get £100 in wages from the capitalists they can buy only £100
 worth, not £120 worth. So this will not work. But there is still another
 way. The labourers buy from the capitalists commodities for £100, but
 actually receive commodities worth only £80. Then they are absolutely
 cheated out of £20. And the capitalist has absolutely gained £20,
 because he actually paid for the labour-power 20 per cent less than its
 value, or cut nominal wages 20 per cent by a circuitous route.
The capitalist class would accomplish the same end if it paid the
 labourers at the start only £80 in wages and afterwards gave them for
 these £80 in money actually £80 worth of commodities. This seems to
 be the normal way, considering the class of capitalists as a whole, for
 according to Monsieur Destutt himself the labouring class must receive a
 “sufficient wage” (p. 219), since their wages must at least be adequate
 to maintain their existence and capacity to work,“"to procure the barest
 subsistence.” (p. 180). If the labourers do not receive such sufficient
 wages, that means, according to the same Destutt, “the death of
 industry” (p. 208), which does not seem therefore to be a way in which
 the capitalists can get richer. But whatever may be the scale of wages
 paid by the capitalists to the working-class, they have a definite value,
 e.g., £80. If the capitalist class pays the labourers £80, then it has to
 supply them with commodities worth £80 for these £80 and the reflux
 of the £80 does not enrich it. If it pays them £100 in money, and sells
 them £80 worth of commodities for £100 it pays them in money 25 per
 cent more than their normal wage and supplies them in return with 25
 per cent less in commodities.
In other words, the fund from which the capitalist class in general
 derives its profits is supposedly made up of deductions from the normal
 wages by paying less than its value for labour-power, i.e., less than the
 value of the means of subsistence required for their normal reproduction
 as wage-labourers. If therefore normal wages were paid, which is
 supposed to be the case according to Destutt, there could be no profit
 fund for either the industrial or the idle capitalists.
Hence Destutt should have reduced the entire secret of how the
 capitalist class gets richer to the following: by a deduction from wages.
 In that case the other surplus-value funds, which he mentions under 1)
 and 3), would not exist.
Hence in all countries, in which the money wages of the labourers
 should be reduced to the value of the articles of consumption necessary
 for their subsistence as a class, there would be no consumption-fund
 and no accumulation-fund for the capitalists, and hence also no
 existence-fund for the capitalist class, and hence also no capitalist class.
 And, according to Destutt, this should be the case in all wealthy and
 developed countries with an old civilisation, for in them,
We have seen above that the industrial capitalists
Take it, then, that their profits are equal to £200. And let them use up, say, £100 of this in their individual consumption. But the other half, or £100, does not belong to them; it belongs to the idle capitalists, i.e., to those who receive the ground-rent, and to capitalists who lend money on interest. So they have to pay £100 to these gentry. Let us assume that these gentry need £80 of this money
 for their individual consumption, and £20 for the hire of servants, etc.
 With those £80 they buy articles of consumption from the industrial
 capitalists. Thus while these capitalists part with commodities to the
 value of £80, they receive back £80 in money, or four-fifths of the £100 paid by them to the idle capitalists under the name of rent, interest, etc.
Furthermore the servant class, the direct wage-labourers of the idle
 capitalists, have received £20 from their masters. These servants
 likewise buy articles of consumption from the industrial capitalists to the
 amount of £20. In this way, while parting with commodities worth £20,
 these capitalists have £20 in money flow back to them, the last fifth of
 the £100 which they paid to the idle capitalists for rent, interest, etc.
 At the close of the transaction the industrial capitalists have
 recovered in money the £100 which they remitted to the idle capitalists
 in payment of rent, interest, etc. But one half of their surplus-product,
 equal to £100, passed meanwhile from their hands into the
 consumption-fund of the idle capitalists.
It is evidently quite superfluous for the question now under discussion
 to bring in somehow or other the division of the £100 between the idle
 capitalists and their direct wage-labourers. The matter is simple: their
 rent, interest, in short, their share in the surplus-value equal to £200, is
 paid to them by the industrial capitalists in money to the amount of
 £100. With these £100 they buy directly or indirectly articles of
 consumption from the industrial capitalists. Thus they pay back to them
 the £100 in money and take from them articles of consumption worth
 £100.
And yet the same Destutt is shrewd enough to remark:
So now the payment of this rent, etc., is a deduction from the profit
 of the industrial capitalists. Before it was a means wherewith they could
 enrich themselves.
But at least one consolation is left to our Destutt. These good
 industrialists handle the idle capitalists the same way they have been
 handling one another and the labourers. They sell them all commodities
 too dear, for instance, by 20 per cent. Now there are two possibilities.
 The idle capitalists either have other money resources aside from the
 £100 which they receive annually from the industrial capitalists, or they
 have not. In the first case the industrial capitalists sell them
 commodities worth £100 at a price of, say, £120. Consequently on
 selling their commodities they recover not only the £100 paid to the
 idlers but £20 besides, which constitute really new value for them. How
 does the account look now? They have given away £100 in commodities
 for nothing, because the £100 in money that they were paid in part for
 their commodities were their own money. Thus their own commodities
 have been paid with their own money. Hence they have lost £100. But
 they have also received an excess of £20 in the price of their
 commodities over and above their value, which makes £20 to the good.
 Balance this against the loss of £100, and you still have a loss of £80.
 Never a plus, always a minus. The cheating practised against the idle
 capitalists has reduced the loss of the industrial capitalists, but for all
 that it has not transformed a diminution of their wealth into a means of
 enrichment. But this method cannot go on indefinitely, for the idle
 capitalists cannot possibly pay year after year £120 in money if they
 take in only £100 in money year after year.
There remains the other approach: The industrial capitalists sell
 commodities worth £80 in exchange for the £100 in money they paid to
 the idle capitalists. In this case, the same as before, they still give away
 £80 for nothing, in the form of rent, interest, etc. By this fraudulent
 means the industrial capitalists have reduced their tribute to the idlers,
 but it still exists nevertheless and the idlers are in a position — according
 to the same theory proclaiming that prices depend on the good will of
 the sellers — to demand in the future £120 instead of £100, as formerly, for rent, interest, etc., on their land and capital.
This brilliant analysis is quite worthy of that deep thinker who copies
 on the one hand from Adam Smith that
that the industrial capitalists
and who concludes on the other hand that these industrial capitalists
that it is not the capitalists who are fed by the labourers, but the labourers who are fed by the capitalists, for the brilliant reason that the money with which the
 labourers are paid does not remain in their hands, but continually
 returns to the capitalists in payment of the commodities produced by the
 labourers.
After this exhaustive analysis of social reproduction and consumption,
 as being brought about by the circulation of money, Destutt continues:
Destutt, that very distinguished writer, membre de l’Institut de
 France et de la Société Philosophique de Philadelphie, and in fact to a certain extent a luminary among the vulgar economists, finally requests
 his readers to admire the wonderful lucidity with which he has presented
 the course of social process, the flood of light which he has poured over
 the matter, and is even condescending enough to communicate to his
 readers, where all this light comes from. This must be read in the
 original:
Voilà le crétinisme bourgeois dans toute sa béatitude! 
 [There you have the bourgeois idiocy in all its beatitude!]
Although this surplus-value hoarded in the form of money is not additional new social wealth, it represents new potential money-capital, on account of the function for which it is hoarded. (We shall see later that new money-capital may arise also in a way other than the gradual conversion of surplus-value into money.)
Money is withdrawn from circulation and stored up as a hoard by selling commodities without subsequent buying. If this operation is therefore conceived as a general process, it seems inexplicable where the buyers are to come from, since in that process everybody would want to sell in order to hoard, and none would want to buy. And it must be conceived generally, since every individual capital may be in the process of accumulation.
If we were to conceive the process of circulation between the various parts of the annual reproduction as taking place in a straight line-which would be wrong as it always consists with a few exceptions of mutually opposite movements-then we should have to start from the producer of gold (or silver) who buys without selling, and to assume that all others sell to him. In that case the entire yearly social surplus-product (the bearer of the entire surplus-value) would pass into his hands, and all the other capitalists would distribute among themselves pro rata his surplus-product, which naturally exists in the form of money, the natural embodiment in gold of his surplus-value. For that portion of the product of the gold producer which has to make good his active capital is already tied up and disposed of. The surplus-value of the gold producer, created in the form of gold, would then be the sole fund from which all other capitalists would draw the material for the conversion of their annual surplus-product into money. The magnitude of its value would then have to be equal to the entire annual surplus-value of society, which must first assume the guise of a hoard. Absurd as these assumptions would be, they would do nothing more than explain the possibility of a universal simultaneous formation of a hoard, and would not get reproduction itself one step further, except on the part of the gold producer.
Before we resolve this seeming difficulty we must distinguish between the accumulation in department I (production of means of production) and in department II (production of articles of consumption). We shall start with I.
For instance, let A sell 600 (equal to 400 c + 100 v + 100 s ) to B (who may represent more than one buyer). A sells 600 in commodities for 600 in money, of which 100 are surplus-value which he withdraws from circulation and hoards in the form of money. But these 100 in money are but the money-form of the surplus-product, which was the bearer of a value of 100. The formation of a hoard is no production at all, hence not an increment of production, either. The action of the capitalist consists here merely in withdrawing from circulation the 100 in money he grabbed by the sale of his surplus-product, holding on to it and impounding it. This operation is carried on not alone by A, but at numerous points along the periphery of circulation by other capitalists, A', A'', A''', all of them working with equal zeal at this sort of hoard formation. These numerous points at which money is withdrawn from circulation and accumulated in numerous individual hoards or potential money-capitals appear as so many obstacles to circulation, because they immobilise the money and deprive it of its capacity to circulate for a certain length of time. But it must be borne in mind that hoarding takes place in the simple circulation of commodities long before this is based on capitalist commodity production. The quantity of money existing in society is always greater than the part of it in actual circulation, although this swells or subsides according to circumstances. We find here again the same hoards, and the same formation of hoards, but now as an element immanent in the capitalist process of production.
One can understand the pleasure experienced when all these potential capitals within the credit system, by their concentration in the hands of banks, etc., become disposable, "loanable capital," money-capital, which indeed is no longer passive and music of the future, but active capital growing rank.
However, A accomplishes the formation of a hoard only to the extent that he acts only as a seller, so far as his surplus-product is concerned, and not afterward as a buyer. His successive production of surplus-products, the vehicles of his surplus-value to be converted into money, is therefore the premise of his forming a hoard. In the present case, where we are examining only the circulation within category I, the bodily form of the surplus-product, as that of the total product of which it is a part, is the bodily form of an element of constant capital I, that is to say, it belongs in the category of means of production creating means of production. We shall see presently what becomes of it, what function it performs, in the hands of buyers B, B', B'', etc.
It must be noted at this point first and foremost that although withdrawing money to the amount of his surplus-value from circulation and hoarding it, A on the other hand throws commodities into it without withdrawing other commodities in return. The capitalists B, B', B'', etc., are thereby enabled to throw money into circulation and withdraw only commodities from it. In the present case these commodities, according to their bodily form and their destination, enter into the constant capital of B, B', etc., as fixed or circulating element. We shall hear more about this anon when we deal with the buyer of the surplus-product, with B, B', etc.
So far as the balance is restored by the fact that the buyer acts later on as a seller to the same amount of value, and vice versa, the money returns to the side that advanced it on purchasing, and which sold before it bought again. But the actual balance, so far as the exchange of commodities itself, the exchange of the various portions of the annual product is concerned, demands that the values of the commodities exchanged for one another be equal.
But inasmuch as only one-sided exchanges are made, a number of mere purchases on the one hand, a number of mere sales on the other – and we have seen that the normal exchange of the annual product on the basis of capitalism necessitates such one-sided metamorphoses – the balance can be maintained only on the assumption that in amount the value of the one-sided purchases and that of the one-sided sales tally. The fact that the production of commodities is the general form of capitalist production implies the role which money is playing in it not only as a medium of circulation, but also as money-capital, and engenders certain conditions of normal exchange peculiar to this mode of production and therefore of the normal course of reproduction, whether it be on a simple or on an extended scale – conditions which change into so many conditions of abnormal movement, into so many possibilities of crises, since a balance is itself an accident owing to the spontaneous nature of this production.
We have also seen that in the exchange of I v for a corresponding amount of value of II c, there takes place in the end, precisely for II c, a replacement of commodities II by an equivalent commodity-value I, that therefore on the part of aggregate capitalist II the sale of his own commodities is subsequently supplemented by the purchase of commodities from I of the same amount of value. This replacement takes place. But what does not take place is an exchange between capitalists I and II of their respective goods. II sells its commodities to working-class I. The latter confronts it one-sidedly, as a buyer of commodities, and it confronts that class one-sidedly as a seller of commodities. With the money proceeds so obtained II c confronts aggregate capitalist I one-sidedly as a buyer of commodities, and aggregate capitalist I confronts it one-sidedly as a seller of commodities up to the amount of I v. It is only by means of this sale of commodities that I finally reproduces its variable capital in the form of money-capital. If capital I faces that of II one-sidedly as a seller of commodities to the amount of I v, it faces working-class I as a buyer of commodities purchasing their labour-power. And if working-class I faces capitalist II one-sidedly as a buyer of commodities (namely, as a buyer of means of subsistence), it faces capitalist I one-sidedly as a seller of commodities, namely, as a seller of its labour-power.
The constant supply of labour-power on the part of working-class I, the reconversion of a portion of commodity-capital I into the money-form of variable capital, the replacement of a portion of commodity-capital II by natural elements of constant capital II c – all these necessary premises demand one another, but they are brought about by a very complicated process, including three processes of circulation which occur independently of one another but intermingle. This process is so complicated that it offers ever so many occasions for running abnormally.
It follows, then, that, considering the matter merely from the angle of volume of values, the material substratum of extended reproduction is produced within simple reproduction. It is simply surplus-labour of working-class I expended directly in the production of means of production, in the creation of virtual additional capital I. The formation of virtual additional money-capital on the part of A, A' and A'' (1) – by the successive sale of their surplus-product which was formed without any capitalist expenditure of money – is therefore simply the money-form of additionally produced means of production 1.
Consequently production of virtual additional capital expresses in our case (we shall see that it may also be formed in a quite different way) nothing but a phenomenon of the process of production itself, production, in a particular form, of elements of productive capital.
The production of additional virtual money-capital on a large scale, at numerous points of the periphery of circulation, is therefore but a result and expression of multifarious production of virtually additional productive capital, whose rise does not itself require additional expenditure of money on the part of the industrial capitalist. The successive transformation of this virtually additional productive capital into virtual money-capital (hoard) on the part of A, A', A'', etc. (I), occasioned by the successive sale of their surplus-product – hence by repeated one-sided sale of commodities without a supplementing purchase – is accomplished by a repeated withdrawal of money from circulation and a corresponding formation of a hoard. Except in the case where the buyer is a gold producer, this hoarding does not in any way imply additional wealth in precious metals, but only a change in the function of money previously circulating. A while ago it functioned as a medium of circulation, now it functions as a hoard, as virtually new money-capital in the process of formation. Thus the formation of additional money-capital and the quantity of the precious metals existing in a country are not in any causal relation to each other.
Hence it follows furthermore: The greater the productive capital already functioning in a country (including the labour-power, the producer of the surplus-product, incorporated in it), the more developed the productive power of labour and thereby also the technical means for the rapid expansion of the production of means of production – the greater therefore the quantity of the surplus-product both as to its value and as to the quantity of use-values in which it is represented – so much the greater is
Whereas the surplus-product, directly produced and appropriated by the capitalists A, A', A'' (I), is the real basis of the accumulation of capital, i.e., of extended reproduction, although it does not actually function in this capacity until it reaches the hands of B, B', B'', etc. (I), it is on the contrary absolutely unproductive in its chrysalis stage of money – as a hoard and virtual money-capital in process of gradual formation – runs parallel with the process of production in this form, but lies outside of it. It is a dead weight of capitalist production. The eagerness to utilise this surplus-value accumulating as virtual money-capital for the purpose of deriving profits or revenue from it finds its object accomplished in the credit system and "papers." Money-capital thereby gains in another form an enormous influence on the course and the stupendous development of the capitalist system of production. The surplus-product converted into virtual money-capital will grow so much more in volume, the greater was the total amount of already functioning capital whose functioning brought it into being. With the absolute increase of the volume of the annually reproduced virtual money-capital its segmentation also becomes easier, so that it is more rapidly invested in any particular business, either in the hands of the same capitalist or in those of others (for instance members of the family, in the case of a partition of inherited property, etc.). By segmentation of money-capital is meant here that it is wholly detached from the parent stock in order to be invested as a new money-capital in a new and independent business.
While the sellers of the surplus-product, A, A', A'', etc. (I), have obtained it as a direct outcome of the process of production, which does not envisage any additional acts of circulation except the advance of constant and variable capital required also in simple reproduction; and while they thereby construct the real basis for reproduction on an extended scale, and in actual fact manufacture virtually additional capital, the attitude of B, B', B'', etc. (I), is different. 1) Not until it reaches the hands of B, B', B'', etc. (I), will the surplus-product of A, A', A'', etc., actually function as additional constant capital (we leave out of consideration for the present the other element of productive capital, the additional labour-power, in other words, the additional variable capital).
2) In order that that surplus-product may reach their hands an act of circulation is wanted – they must buy it.
In regard to point 1 it should be noted here that a large portion of the surplus-product (virtually additional constant capital), although produced by A, A', A'' (I) in a given year, may not function as industrial capital in the hands of B, B', B'' (I) until the following year or still later. With reference to point 2, the question arises: Whence comes the money needed for the process of circulation?
This is generally true of the first phase of capitalist production, in which even the credit system is mostly accompanied by metallic circulation, and it applies to the most developed phase of the credit system as well, to the extent that metallic circulation remains its basis. On the one hand an additional production of precious metals, being alternately abundant or scarce, may here exert a disturbing influence on the prices of commodities not only at long, but also at very short intervals. On the other hand the entire credit mechanism is continually occupied in reducing the actual metallic circulation to a relatively more and more decreasing minimum by means of sundry operations, methods, and technical devices. The artificiality of the entire machinery and the possibility of disturbing its normal course increase to the same extent.
The different B's, B''s, B'''s, etc. (I), whose virtual new money-capital enters upon its function as active capital, may have to buy their products (portions of their surplus-product) from one another, or to sell them to one another. Pro tanto the money advanced by them for the circulation of their surplus-product flows back under normal conditions to the different B's in the same proportion in which they had advanced it for the circulation of their respective commodities. If the money circulates as a means of payment, then only balances are to be squared so far as the mutual purchases and sales do not cover one another. But it is important first and foremost to assume here, as everywhere, metallic circulation in its simplest, most primitive form, because then the flux and reflux, the squaring of balances, in short all elements appearing under the credit system as consciously regulated processes present themselves as existing independently of the credit system, and the matter appears in primitive form instead of the later, reflected form.
We have explained at great length in Book I that labour-power is always available under the capitalist system of production, and that more labour can be rendered fluent, if necessary, without increasing the number of labourers or the quantity of labour-power employed. We therefore need not go into this any further, but shall rather assume that the portion of the newly created money-capital capable of being converted into variable capital will always find at hand the labour-power into which it is to transform itself. It has also been explained in Book I that a given capital may expand its volume of production within certain limits without any accumulation. But here we are dealing with the accumulation of capital in its specific meaning, so that the expansion of production implies the conversion of surplus-value into additional capital, and thus also an expansion of the capital forming the basis of production.
The gold producer can accumulate a portion of his golden surplus- value as virtual money-capital. As soon as it becomes sufficient in amount, he can transform it directly into new variable capital, without first having to sell his surplus-product. He can likewise convert it into elements of the constant capital. But in the latter case he must find at hand the material elements of his constant capital. It is immaterial whether, as was assumed in our presentation hitherto, each producer works to stock up and then brings his finished product to the market or fills orders. The actual expansion of production, i.e., the surplus-product, is assumed in either case, in the one case as actually available, in the other as virtually available, capable of delivery.
In this case the additional virtual money-capital on the side of A (I) is indeed a moneyed form of surplus-product (surplus-value), but the surplus-product (surplus-value) considered as such is here a phenomenon of simple reproduction, not yet of reproduction on an extended scale. I(v+s) for which this is true at all events of one portion of s, must ultimately be exchanged for II c, in order that the reproduction of II c may take place on the same scale. By the sale of his surplus-product to B(II), A(I) has supplied to the latter a corresponding portion of the value of constant capital in its bodily form. But at the same time he has rendered an equivalent portion of the commodities of B (II) unsaleable by withdrawing the money from circulation – by failing to complement his sale through subsequent purchase. Hence, if we survey the entire social reproduction, which comprises the capitalists of both I and II, the conversion of the surplus-product of A (I) into virtual money-capital expresses the impossibility of reconverting commodity-capital of B (II) representing an equal amount of value into productive (constant) capital; hence not virtual production on an extended scale but an obstruction of simple reproduction, and so a deficit in simple reproduction. As the formation and sale of the surplus-product of A (I) are normal phenomena of simple reproduction, we have here even on the basis of simple reproduction the following interdependent phenomena: Formation of virtual additional money-capital in class I (hence under-consumption from the view-point of II); piling up of commodity-supplies in class II which cannot be reconverted into productive capital (hence relative over-production in II); surplus of money-capital in I and reproduction deficit in II.
Without pausing any longer at this point, we simply remark that we had assumed in the analysis of simple reproduction that the entire surplus-value of I and II is spent as revenue. As a matter of fact however one portion of the surplus-value is spent as revenue, and the other is converted into capital. Actual accumulation can take place only on this assumption. That accumulation should take place at the expense of consumption is, couched in such general terms, an illusion contradicting the nature of capitalist production. For it takes for granted that the aim and compelling motive of capitalist production is consumption, and not the snatching of surplus-value and its capitalisation, i.e., accumulation.
The first difficulty with reference to II c, i.e., its reconversion from a component part of commodity-capital II into the bodily form of constant capital II, concerns simple reproduction. Let us take the former scheme: (1,000 v + 1,000 s) I are exchanged for 2,000 II c.
Now, if for instance one half of the surplus-product of I, hence 1,000/2 s or 500 I s is reincorporated in department I as constant capital, then this portion of the surplus-product, being detained in I, cannot replace any part of II c. Instead of being converted into articles of consumption (and here in this section of the circulation between I and II the exchange is actually mutual, that is, there is a double change of position of the commodities, unlike the replacement of 1,000 II c by 1,000 I v effected by the labourers of I), it is made to serve as an additional means of production in I itself. It cannot perform this function simultaneously in I and II. The capitalist cannot spend the value of his surplus-product for articles of consumption and at the same time consume the surplus-product itself productively, i.e., incorporate it in his productive capital. Instead of 2,000 I(v+s), only 1,500, namely (1,000 v + 500 s) I, are therefore exchangeable for 2,000 II c ; 500 II c cannot be reconverted from the commodity-form into productive (constant) capital
To this one may object:
We might vary the scheme by changing the ratio between the variable
 and constant capital. For instance as follows:
Now let us analyse scheme a) more closely. Let us suppose that both
 I and II accumulate one half of their surplus-value, that is to say, convert
 it into an element of additional capital, instead of spending it as revenue.
 As one half of 1,000 Is, or 500, are to be accumulated in one form or
 another, invested as additional money-capital, i.e., converted into
 additional productive capital, only (l,000v + 500s) I are spent as revenue. Hence only 1,500 figures here as the normal size of IIc. We
 need not further examine the exchange between 1,500 I(v + s) and 1,500
 IIc, because this has already been done under the head of process of
 simple reproduction. Nor does 4,000 Ic require any attention, since its
 re-arrangement for the newly commencing reproduction (which this time
 will occur on an extended scale) was likewise discussed as a process of
 simple reproduction.
The only thing that remains to be examined by us is 500 Is and (376v + 376s) II, inasmuch as it is a matter on the one hand of the internal relations of both I and II and on the other of the movement between
 them. Since we have assumed that in II likewise one half of the surplus-value
 is to be accumulated, 188 are to be converted here into capital, of
 which one-fifth, or 47, or, to round it off, 48, are to be variable
 capital, so that 140 remain to be converted into constant capital.
Here we come across a new problem, whose very existence must
 appear strange to the current view that commodities of one kind are
 exchanged for commodities of another kind, or commodities for money
 and the same money again for commodities of another kind. The 140
 IIs can be converted into productive capital only by replacing them with
 commodities of Is of the same value. It is a matter of course that that
 portion of Is which must be exchanged for IIs must consist of means of production, which may enter either into the production of both I and II,
 or exclusively into that of II. This replacement can be made feasible only
 by means of a one-sided purchase on the part of II, as the entire surplus-product
 of 500 Is, which we still have to examine, is to serve the
 purposes of accumulation within I, hence cannot be exchanged for
 commodities II; in other words, it cannot be simultaneously accumulated
 and consumed by I. Therefore II must buy 140 Is for cash without
 recovering this money by a subsequent sale of its commodities to I. And
 this is a process which is continually repeating itself in every new annual
 production, so far as it is reproduction on an extended scale. Where in II
 is the source of the money for this?
It would rather seem that II is a very unprofitable field for the
 formation of new money-capital which accompanies actual accumulation
 and necessitates it under capitalist production, and which at first
 actually presents itself as simple hoarding.
We have first 376 IIv. The money-capital of 376, advanced in labour-power,
 continually returns through the purchase of commodities II as
 variable capital in money-form to capitalist II. This constant repetition of
 departure from and return to the starting-point, the pocket of the
 capitalist, does not add in any way to the money roving over this circuit.
 This, then, is not a source of the accumulation of money. Nor can this
 money be withdrawn from circulation in order to form hoarded, virtually
 new, money-capital.
But stop! Isn't there a chance here to make a little profit?
We must not forget that class II has this advantage over class I, that
 its labourers have to buy back from it the commodities produced by
 themselves. Class II is a buyer of labour-power and at the same time a
 seller of the commodities to the owners of the labour-power employed by
 it. Class II can therefore:
We see that in an objective analysis of the mechanism of capitalism
 certain stains still sticking to it with extraordinary tenacity cannot be
 used as a subterfuge to get over some theoretical difficulties. But strange
 to say, the great majority of my bourgeois critics upbraid me as though I
 have wronged the capitalists by assuming, for instance in Book I of
 Capital, that the capitalist pays labour-power at its real value, a thing
 which he mostly does not do! (Here, exercising some of the magnanimity
 attributed to me, it would be appropriate to quote Schäffle.)
So with the 376 IIv we cannot get any nearer the goal we have
 mentioned.
But the 376 IIv seem to be in a still more precarious position. Here
 only capitalists of the same class, mutually buying and selling the
 articles of consumption they produced, confront one another. The money
 required for these transactions functions only as a medium of circulation
 and in the normal course of things must flow back to the interested
 parties in the same portion in which they advanced it to the circulation,
 in order to cover the same route over and over again.
There seem to be only two ways by which this money can be
 withdrawn from circulation to form virtually additional money-capital.
 Either one part of capitalists II cheats the other and thus robs them of
 their money. We know that no preliminary expansion of the circulating
 medium is necessary for the formation of new money-capital. All that is
 necessary is that the money should be withdrawn from circulation by
 certain parties and hoarded. It would not alter the case if this money
 were stolen, so that the formation of additional money-capital by one
 part of capitalists II would entail a positive loss of money by another
 part. The cheated capitalists II would have to live a little less gaily, that
 would be all.
Or a part of II represented by necessities of life is directly converted
 into new variable capital within department II. How that is done we shall
 examine at the close of this chapter (under No. IV).
Let us now assume that 400 of the 500 Is are to be converted into
 constant capital, and 100 into variable capital. The exchange within I of
 the 400s, which are thus to be capitalised, has already been discussed.
 They can therefore be annexed to Ic, without more ado and in that case
 we get for I:
4,400c + 1,000v + 100s (the latter to be converted into 100v).
II in turn buys from I for the purpose of accumulation the 100 Is
 (existing in means of production) which now form additional constant
 capital II, while the 100 in money which it pays for them are converted
 into the money-form of the additional variable capital of I. We then have
 for I a capital of 4,400c + 1,100v (the latter in money), equaling 5,500.
II has now 1,600c for its constant capital. In order to put them to
 work, it must advance a further 50v in money for the purchase of new
 labour-power, so that its variable capital grows from 750 to 800. This
 expansion of the constant and variable capital of II by a total of 150 is
 supplied out of its surplus-value. Hence only 600s of the 750 IIs remain as a consumption-fund for capitalists II, whose annual product is now distributed as follows:
II. 1,600c + 800v + 600s (consumption-fund), equal to 3,000.
The 150s produced in articles of consumption, which have been
 converted here into (100c + 50v) II, go entirely in their bodily form for the consumption of the labourers, 100 being consumed by the labourers
 of I (100 Iv), and 50 by the labourers of II (50 IIv), as explained above. As a matter of fact in II, where its total product is prepared in a form
 suitable for accumulation, a part greater by 100 of the surplus-value in
 the form of necessary articles of consumption must be reproduced. If
 reproduction really starts on an extended scale, then the 100 of variable
 money-capital I flow back through the hands of its working-class to II,
 while II transfers 100s in commodity-supply to I and at the same time
 50 in commodity-supply to its own working-class.
The arrangement changed for the purpose of accumulation is now as
 follows:
But if the old ratio of v:s is maintained in II, then additional 25v must
 be laid out for 50c, and these are to be taken from the 750s. Then we have
In I, 550s must be capitalised. If the former ratio is maintained, 440
 of this amount form constant capital and 110 variable capital. These
 110 might be taken out of the 725 IIs, i.e., articles of consumption to
 the value of 110 are consumed by labourers I instead of capitalists II,
 so that the latter are compelled to capitalise these 110s which they
 cannot consume. This leaves 615 IIs of the 725 IIs. But if II thus converts these 110 into additional constant capital, it requires an
 additional variable capital of 55. This again must be supplied by its
 surplus-value. Subtracting this amount from 615 IIs leaves 560 for the
 consumption of capitalists II, and we now obtain the following capital-value
 after accomplishing all actual and potential transfers:
If things are to proceed normally, accumulation in II must take place
 more rapidly than in I, because otherwise the portion I(v + s) which must
 be converted into commodities II will grow more rapidly than IIc, for
 which alone it can be exchanged.
If reproduction is continued on this basis and conditions otherwise remain
 unchanged we obtain at the end of the succeeding year:
I has now to capitalise 605s. Of these 484 are constant and 121
 variable. The last named are to be deducted from IIs, which is still equal
 to 797½, leaving 676½ IIs. II, then, converts another 121 into constant capital and requires another variable capital of 60½ for it, which
 likewise comes out of 676½, leaving 616 for consumption.
Then we have the following capitals:
in the consumption-fund of the capitalists and labourers.
As 70 IIs are directly annexed here to IIc, a variable capital of 70/5, or 14, is required to set this additional constant capital in motion. These
 14 must also come out of the 215 IIs, so that 201 IIs remain, and we have:
The exchange of 1,500 I(v + ½s) for 1,500 IIc is a process of simple reproduction, and nothing further need be said about it. However a few
 peculiarities remain to be noted here, which arise from the fact that in
 accumulating reproduction I(v + ½s) is not replaced solely by IIc, but by IIc plus a portion of IIs.
It goes without saying that as soon as we assume accumulation, I(v + s)
 is greater than IIc, not equal to IIc, as in simple reproduction. For in the first place, I incorporates a portion of its surplus-product in its own
 productive capital and converts five-sixths of it into constant capital,
 therefore cannot replace these five-sixths simultaneously by articles of
 consumption II. In the second place I has to supply out of its surplus-product
 the material for the constant capital required for accumulation
 within II, just as II has to supply I with the material for the variable
 capital, which is to set in motion the portion of I’s surplus-product
 employed by I itself as additional constant capital. We know that the
 actual, and therefore also the additional, variable capital consists of
 labour-power. It is not capitalist I who buys from II a supply of
 necessities of life or accumulates them for the additional labour-power to
 be employed by him, as the slaveholder had to do. It is the labourers
 themselves who trade with II. But this does not prevent the articles of
 consumption of his additional labour-power from being viewed by the
 capitalist as only so many means of production and maintenance of his
 eventual additional labour-power, hence as the bodily form of his
 variable capital. His own immediate operation, in the present case that
 of I, consists in merely storing up the new money-capital required for
 the purchase of additional labour-power. As soon as he has
 incorporated this in his capital, the money becomes a means of
 purchase of commodities II for this labour-power, which must find these
 articles of consumption at hand.
By the by. The capitalist, as well as his press, is often dissatisfied
 with the way in which the labour-power spends its money and with the
 commodities II in which it realises this money. On such occasions he
 philosophises, babbles of culture, and dabbles in philanthropical talk, for
 instance after the manner of Mr. Drummond, the Secretary of the British
 Embassy in Washington. According to him, The Nation (a journal)
 carried last October 1879, an interesting article, which contained among
 other things the following passages:
Long hours of labour seem to be the secret of the rational and
 healthful processes, which are to raise the condition of the labourer by
 an improvement of his mental and moral powers and to make a rational
 consumer of him. In order to become a rational consumer of the
 commodities of the capitalist, he should above all begin to let his own
 capitalist consume his labour-power irrationally and unhealthfully — but
 the demagogue prevents him! What the capitalist means by a rational
 consumption is evident wherever he is condescending enough to engage
 directly in the trade with his own labourers, in the truck system, which
 includes also the supplying of homes to the labourers, so that the
 capitalist is at the same time a landlord for them — a branch of business
 among many others.
The same Drummond, whose beautiful soul is enamoured of the
 capitalist attempts to uplift the working-class, tells in the same report
 among other things of the cotton goods manufacture of the Lowell and
 Lawrence Mills. The boarding and lodging houses for the factory girls
 belong to the corporation or company owning the mills. The
 stewardesses of these houses are in the employ of the same company
 which prescribes them rules of conduct. No girl is permitted to stay out
 after 10 p.m. Then comes a gem: a special police patrol the grounds for
 the purpose of guarding against an infringement of those rules. After 10
 p. m. no girl can leave or enter. No girl may live anywhere but on the
 premises of the company, and every house on it brings the company
 about 10 dollars per week in rent. And now we see the rational
 consumer in his full glory:
But the main secret of making a rational consumer out of the
 labourer is yet to be told. Mr. Drummond visits the cutlery works of
 Turner’s Falls (Connecticut River), and Mr. Oakman, the treasurer of the
 concern, after telling him that especially American table cutlery beat the
 English in quality, continues:
A reduction of wages and long hours of labour — that is the
 essence of the rational and healthful processes which are to uplift the
 labourer to the dignity of a rational consumer, so that “they make a
 market for things showered upon them” by culture and growth of
 invention.
Consequently, just as I has to supply the additional constant capital
 of II out of its surplus-product, so II likewise supplies the additional
 variable capital for I. II accumulates for I and for itself, so far as the
 variable capital is concerned, by reproducing a greater portion of its total
 product, and hence especially of its surplus-product, in the shape of
 necessary articles of consumption.
In production on the basis of increasing capital, I(v + s) must be equal
 to II plus that portion of the surplus-product which is re-incorporated as
 capital, plus the additional portion of constant capital required for the
 expansion of the production in II; and the minimum of this expansion is
 that without which real accumulation, i.e., a real expansion of
 production in I itself, is unfeasible.
Reverting now to the case which we examined last, we find in it the
 peculiarity that II is smaller than I(v + ½s), than that portion of product I which is spent as revenue for articles of consumption, so that on
 exchanging the 1,500 I(v + s) a portion of surplus-product II, equal to 70,
 is at once realised. As for IIc, equal to 1,430, it must, all other
 conditions remaining the same, be replaced by an equal magnitude of
 value out of I(v + s), in order that simple reproduction may take place in II,
 and to that extent we need not pay any more attention to it here. It is
 different with the additional 70 IIs. What for I is merely a replacement of
 revenue by articles of consumption, merely commodity-exchange meant
 for consumption, is for II not a mere reconversion of its constant capital
 from the form of commodity-capital into its bodily form, as it is in simple
 reproduction, but a direct process of accumulation, a transformation of a
 part of its surplus-product from the form of articles of consumption into
 that of constant capital. If with £70 in money (money-reserve for the
 conversion of surplus-value) I buys the 70 IIs, and if II does not buy in
 exchange 70 Is, but accumulates the £70 as money-capital, then
 the latter is indeed always an expression of additional product (precisely
 of the surplus-product of II, of which it is an aliquot part), although this
 is not a product which re-enters production; but in that case this
 accumulation of money on the part of II would at the same time express
 that 70 Is in means of production are unsaleable. There would be a
 relative overproduction in I, corresponding to the simultaneous non-expansion
 of reproduction on the part of II.
But apart from this: Until the 70 in money, which came from I,
 return to it, wholly or in part, through the purchase of 70 Is by II, this 70
 in money figures wholly or in part as additional virtual money-capital in
 the hands of II. This is true of every exchange between I and II, until the
 mutual replacement of their respective commodities has effected the
 return of the money to its starting-point. But in the normal course of
 things the money figures here only transiently in this role. In the credit
 system, however, where all temporarily released additional money is
 supposed to function at once actively as an additional money-capital,
 such only temporarily released money-capital may be enthralled, for
 instance, serve in new enterprises of I, while it should have to realise
 surplus-products held there in other enterprises. It must also be noted
 that the annexation of 70 Is to constant capital II requires at the same
 time an expansion of variable capital II by 14. This implies — about the
 way it did in I, in the direct incorporation of surplus-product Is in capital
 Ic — that the reproduction in II is already in process with a tendency
 toward further capitalisation; in other words, it implies expansion of that
 portion of the surplus-product which consists of necessary means of
 subsistence.
The product of 9,000 in the second illustration must, as we have
 seen, be distributed in the following manner for the purpose of
 reproduction, if 500 Is is to be capitalised. In doing so we merely
 consider the commodities and neglect the money-circulation.
Capitalisation takes place in the following manner:
In I the 500s which are being capitalised divide into five-sixths, or
 417c plus one-sixth, or 83v. The 83v draw an equal amount out of IIs, which buys elements of constant capital and adds them to IIc. An increase of IIc by 83 implies an increase of IIv by one-fifth of 83, or 17.
We have, then, after this exchange
The reproduction on this basis in the second year brings the capital at
 the end of that year to
In accumulation it is above all the rate of accumulation that must be
 considered. In the preceding cases we assumed that the rate of
 accumulation in I was equal to ½s I, and also that it remained constant
 from year to year. We changed only the proportion in which this
 accumulated capital was divided into variable and constant capital. We
 then had three cases:
The premise of simple reproduction, that I(v + s) is equal to IIc, is not only incompatible with capitalist production, although this does not exclude the possibility that in an industrial cycle of 10-11 years some
 year may show a smaller total production than the preceding year, so
 that not even simple reproduction takes place compared to the preceding
 year. Besides that, considering the natural annual increase in population
 simple reproduction could take place only to the extent that a
 correspondingly larger number of unproductive servants would partake of
 the 1,500 representing the aggregate surplus-value. But accumulation of
 capital, real capitalist production, would be impossible under such
 circumstances. The fact of capitalist accumulation therefore excludes the
 possibility of IIc being equal to I(v + s). Nevertheless it might occur even with capitalist accumulation that in consequence of the course taken by
 the processes of accumulation during a preceding series of periods of
 production IIc might become not only equal but even bigger than I(v + s). This would mean an over-production in II and could not be adjusted in
 any other way than by a great crash, in consequence of which some
 capital of II would get transferred to I.
Nor does it alter the relation of I(v + s) to IIc if a portion of constant capital II reproduces itself, as happens for instance in the use of home-grown
 seeds in agriculture. This portion of IIc is no more to be taken into
 consideration in the exchange between I and II than is Ic. Nor does it
 change matters if a part of the products of II is capable of entering into I
 as means of production. It is covered by a part of the means of
 production supplied by I, and this portion must be deducted on both
 sides at the outset, if we wish to examine in pure and unobscured form
 the exchange between the two large classes of social production, the
 producers of means of production and the producers of articles of
 consumption.
Hence under capitalist production I(v + s) cannot be equal to IIc, in other words, the two cannot balance in mutual exchange. On the other
 hand, if I(s/x) is taken as that portion of Is which is spent by capitalists I as revenue, I(v + s/x) may be equal to, larger, or smaller than, IIc. But I(v + s/x) must always be smaller than II(c + s) by as much as that portion of IIs which must be consumed under all circumstances by capitalist class II.
It must be noted that in this exposition of accumulation the value of the constant capital is not presented accurately so far as that capital is a part of the value of the commodity-capital it helped to produce. The
 fixed portion of the newly accumulated constant capital enters into the
 commodity-capital only gradually and periodically, according to the
 different natures of these fixed elements. Therefore whenever raw
 materials, semi-finished goods, etc., enter in huge quantities into the
 production of commodities, the commodity-capital consists for the most
 part of replacements of the circulating constant components and of the
 variable capital. (On account of the specific turnover of the circulating
 component parts this way of presenting the matter may nevertheless be
 adopted. It is then assumed that the circulating portion together with the
 portion of value of the fixed capital transferred to it is turned over so
 often during the year that the aggregate sum of the commodities
 supplied is equal in value to all the capital entering into the annual
 production.) But wherever only auxiliary materials are used for
 mechanical industry, and no raw material, there the labour element,
 equal to v, must reappear in the commodity-capital as its larger
 constituent. While in the calculation of the rate of profit the surplus-value
 is figured on the total capital, regardless of whether the fixed
 components periodically transfer much or little value to the product, the
 fixed portion of constant capital is to be included in the calculation of the
 value of any periodically created commodity-capital only to the extent
 that on an average it yields value to the product on account of wear and
 tear.
The value of every commodity produced in the capitalist way is represented in the formula: C = c + v + s. If we subtract surplus-values from this value of the product there remains a bare equivalent or a substitute value in goods, for the capital-value c + v expended in the elements of production.
For example, if the production of a certain article requires a capital outlay of £500, of which £20 are for the wear and tear of instruments of production, £380 for the materials of production, and £100 for labour-power, and if the rate of surplus-value is 100%, then the value of the product = 400c + 100v + 100s = £600.
After deducting the surplus-value of £100, there remains a commodity-value of £500 which only replaces the expended capital of £500. This portion of the value of the commodity, which replaces the price of the consumed means of production and labour-power, only replaces what the commodity costs the capitalist himself. For him it, therefore, represents the cost-price of the commodity.
What the commodity costs the capitalist and its actual production cost are two quite different magnitudes. That portion of the commodity-value making up the surplus-value does not cost the capitalist anything simply because it costs the labourer unpaid labour. Yet, on the basis of capitalist production, after the labourer enters the production process he himself constitutes an ingredient of operating productive capital, which belongs to the capitalist. Therefore, the capitalist is the actual producer of the commodity. For this reason the cost-price of the commodity necessarily appears to the capitalist as the actual cost of the commodity. If we take k to be the cost-price, the formula C = c + v + s turns into the formula C = k + s, that is, the commodity-value = cost-price + surplus-value.
The grouping of the various value portions of a commodity which only replace the value of the capital expended in its production under the head of cost-price expresses, on the one hand, the specific character of capitalist production. The capitalist cost of the commodity is measured by the expenditure of capital, while the actual cost of the commodity is measured by the expenditure of labour. Thus, the capitalist cost-price of the commodity differs in quantity from its value, or its actual cost-price. It is smaller than the value of the commodity, because, with C = k + s, it is evident that k = C - s. On the other hand, the cost-price of a commodity is by no means simply a category which exists only in capitalist book-keeping. The individualisation of this portion of value is continually manifest in practice in the actual production of the commodity, because it has ever to be reconverted from its commodity-form by way of the process of circulation into the form of productive capital, so that the cost-price of the commodity always must repurchase the elements of production consumed in its manufacture.
The category of cost-price, on the other hand, has nothing to do with the formation of commodity-value, or with the process of self-expansion of capital. When I know that of the value of a commodity worth £600, five-sixths, or £500, represent no more than an equivalent of the capital of £500 consumed in its production and that it can therefore suffice only to repurchase the material elements of this capital, I know nothing as yet either of the way in which these five-sixths of the value of the commodity, which represent its cost-price, are produced, or about the way in which the last sixth, which constitutes its surplus-value, was produced. The investigation will show, however, that in capitalist economics the cost-price assumes the false appearance of a category of value production itself.
To return to our example. Suppose the value produced by one labourer during an average social working-day is represented by a money sum of 6s. = 6M. Then the advanced capital of £500 = 400c + 100v represents a value produced in 1,666⅔ ten-hour working-days, of which 1,333⅓ working-days are crystallised in the value of the means of production = 400c, and 333⅓ are crystallised in the value of labour-power = 100v. Having assumed a rate of surplus-value of 100%, the production of the commodity to be newly formed entails a labour expenditure = 100v + 100s = 666⅔ ten-hour working-days.
We know, then (see Buch 1, Kap. VII, S. 201/193) [English edition: Ch. IX, p. 212.-Ed.] that the value of the newly created product of £600 is composed of 1) the reappearing value of the constant capital of £400 expended for means of production, and 2) a newly produced value of £200. The cost-price of the commodity = £500 comprises the reappearing 400c and one-half of the newly produced value of £200 ( = 100v), that is, two elements of the commodity-value which are of entirely different origin.
Owing to the purposive nature of the labour expended during 666⅔ ten-hour working-days, the value of the consumed means of production amounting to £400 is transferred from these means of production to the product. This previously existing value thus reappears as a component part of the value of the product, but is not created in the process of production of this commodity. It exists as a component of the value of the commodity only because it previously existed as an element of the invested capital. The expended constant capital is therefore replaced by that portion of the value of the commodity which this capital itself adds to that value. This element of the cost-price, therefore, has a double meaning. On the one hand, it goes into the cost-price of the commodity, because it is part of the commodity-value which replaces consumed capital. And on the other hand, it forms an element of the commodity-value only because it is the value of expended capital or because the means of production cost so and so much.
It is quite the reverse in the case of the other element of the cost-price. The 666⅔ working-days expended in the production of the commodity create a new value of £200. One portion of this new value merely replaces the advanced variable capital of £100, or the price of the labour-power employed. But this advanced capital-value does not in any way go into the creation of the new value. So far as the advance of capital is concerned, labour-power counts as a value. But in the process of production it acts as the creator of value. The place of the value of the labour-power that obtains within the advanced capital is taken in the actually functioning productive capital by living value-creating labour-power itself.
The two elements of the cost-price, in the present case 400c + 100v, have only this in common that they are both parts of the commodity-value that replace advanced capital.
But this true state of affairs necessarily appears reversed from the standpoint of capitalist production.
The capitalist mode of production differs from the mode of production based on slavery, among other things, by the fact that in it the value, and accordingly the price, of labour-power appears as the value, or price, of labour itself, or as wages (Buch 1, Kap. XVII) [English edition: Ch. XIX. — Ed.]. The variable part of the advanced capital, therefore, appears as capital expended in wages, as a capital-value which pays for the value, and accordingly the price, of all the labour expended in production. Let us assume, for instance, that an average ten-hour social working-day is incorporated in a sum of money amounting to 6 shillings. In that case the advance of a variable capital of £100 represents the money expression of a value produced in 333 ⅓; ten-hour working-days. But this value, representing purchased labour-power in the capital advanced, does not, however, form a part of the actually functioning productive capital. Its place in the process of production is taken by living labour-power. If, as in our illustration, the degree of exploitation of the latter is 100%, then it is expended during 666⅔ ten-hour working-days, and thereby adds to the product a new value of £200. But in the capital advanced the variable capital of £100 figures as capital invested in wages, or as the price of labour performed during 666⅔ ten-hour days. The sum of £100 divided by 666⅔ gives us 3 shillings as the price of a ten-hour working-day, which is equal in value to the product of five hours' labour.
Now, if we compare the capital advanced on the one hand with the commodity-value on the other, we find:
In this formula, the portion of capital invested in labour-power differs from that invested in means of production, such as cotton or coal, only by serving as payment for a materially different element of production, but not by any means because it serves a functionally different purpose in the process of creating commodity-value, and thereby also in the process of the self-expansion of capital. The price of the means of production reappears in the cost-price of the commodities, just as it figured in the capital advanced, and it does so because these means of production have been purposively consumed. The price, or wages, for the 666⅔ working-days consumed in the production of these commodities likewise reappears in the cost-price of the commodities just as it has figured in the capital advanced, and also because this amount of labour has been purposively expended. We see only finished and existing values — the portions of the value of the advanced capital which go into the making of the value of the product — but not the element creating new values. The distinction between constant and variable capital has disappeared. The entire cost-price of £500 now has the double meaning that, first, it is that portion of the commodity-value of £600 which replaces the capital of £500 expended in the production of the commodity; and that, secondly, this component of the commodity-value exists only because it existed previously as the cost-price of the elements of production employed, namely means of production and labour, i.e., as advanced capital. The capital-value reappears as the cost-price of a commodity because, and in so far as, it has been expended as a capital-value.
The fact that the various components of the value of the advanced capital have been expended for materially different elements of production, namely for instruments of labour, raw materials, auxiliary materials, and labour, requires only that the cost-price of the commodity must buy back these materially different elements of production. So far as the formation of the cost-price is concerned, however, only one distinction is appreciable, namely that between fixed and circulating capital. In our example we have set down £20 for wear and tear of instruments of labour (400c = £20 for depreciation of instruments of labour + £380 for materials of production). Before the productive process the value of these instruments of labour was, say, £1,200. After the commodities have been produced it exists in two forms, the £20 as part of the value of the commodity, and 1,200 - 20, or £1,180, as the remaining value of the instruments of labour which, as before, are in the possession of the capitalist; in other words, as an element of his productive, not of his commodity-capital. Materials of production and wages, as distinct from means of labour, are entirely consumed in the production of the commodity and thus their entire value goes into that of the produced commodity. We have seen how these various components of the advanced capital assume the forms of fixed and circulating capital in relation to the turnover.
Accordingly, the capital advanced = £1,680: fixed capital = £1,200 + circulating capital = £480 ( = £380 in materials of production plus £100 in wages).
But the cost-price of the commodity only = £500 (£20 for the wear and tear of the fixed capital, and £480 for circulating capital).
This difference between the cost-price of the commodity and the capital advanced merely proves, however, that the cost-price of the commodity is formed exclusively by the capital actually consumed in its production.
Means of production valued at £1,200 are employed in producing the commodity, but only £20 of this advanced capital-value are lost in production. Thus, the employed fixed capital goes only partially into the cost-price of the commodity, because it is only partially consumed in its production. The employed circulating capital goes entirely into the cost-price of the commodity, because it is entirely consumed in production. But does not this only prove that the consumed portions of the fixed and circulating capital pass uniformly, pro rata to the magnitude of their values, into the cost-price of the commodity and that this component of the value of the commodity originates solely with the capital expended in its production? If this were not so, it would be inexplicable why the advanced fixed capital of £1,200 should not, aside from the £20 which it loses in the productive process, also contribute the other £1,180 which it does not lose.
This difference between fixed and circulating capital with reference to the calculation of the cost-price, therefore, only confirms the seeming origination of the cost-price from the expended capital-value, or the price paid by the capitalist himself for the expended elements of production, including labour. On the other hand, so far as the formation of value is concerned, the variable portion of capital invested in labour-power is here emphatically identified under the head of circulating capital with constant capital (that part of capital which consists of materials of production), and this completes the mystification of the self-expansion process of capital.[1]
So far we have considered just one element of the value of commodities, namely the cost-price. We must now turn also to the other component of the value of commodities, namely the excess over the cost-price, or the surplus-value. In the first place, then, surplus-value is the excess value of a commodity over and above its cost-price. But since the cost-price equals the value of the consumed capital, into whose material elements it is continually reconverted, this excess value is an accretion in the value of the capital expended in the production of the commodity and returning by way of its circulation.
We have already seen earlier that, though s, the surplus-value, springs merely from a change in the value of the variable capital v and is, therefore, originally but an increment of variable capital, after the process of production is over it nevertheless also forms an increment of c + v, the expended total capital. The formula c + (v + s), which indicates that s is produced through the conversion of a definite capital-value v advanced for labour-power into a fluctuating magnitude, i.e., of a constant magnitude into a variable one, may also be represented as (c + v) + s. Before production took place we had a capital of £500. After production is completed we have the capital of £500 plus a value increment of £100.[2]
However, surplus-value forms an increment not only of the portion of the advanced capital which goes into the self-expansion process, but also of the portion which does not go into it. In other words, it is an accretion not only to the consumed capital made good out of the cost-price of the commodity, but to all the capital invested in production. Before the production process we had a capital valued at £1,680, namely £1,200 of fixed capital invested in means of production, only £20 of which go into the value of the commodity for wear and tear, plus £480 of circulating capital in materials of production and wages. After the production process we have £1,180 as the constituent element of the value of the productive capital plus a commodity-capital of £600. By adding these two sums of value we find that the capitalist now has a value of £1,780. After deducting his advanced total capital of £1,680 there remains a value increment of £100. The £100 of surplus-value thus form as much of an increment in relation to the invested £1,680 as to its fraction of £500 expended during production.
In its assumed capacity of offspring of the aggregate advanced capital, surplus-value takes the converted form of profit. Hence, a certain value is capital when it is invested with a view to producing profit [4], or, there is profit because a certain value was employed as capital. Suppose profit is p. Then the formula C = c + v + s = k + s turns into the formula C = k + p, or the value of a commodity = cost-price + profit.
The profit, such as it is represented here, is thus the same as surplus-value, only in a mystified form that is nonetheless a necessary outgrowth of the capitalist mode of production. The genesis of the mutation of values that occurs in the course of the production process, must be transferred from the variable portion of the capital to the total capital, because there is no apparent distinction between constant and variable capital in the assumed formation of the cost-price. Because at one pole the price of labour-power assumes the transmuted form of wages, surplus-value appears at the opposite pole in the transmuted form of profit.
We have seen that the cost-price of a commodity is smaller than its value. Since C = k + s, it follows that k = C - s. The formula C = k + s reduces itself to C = k, or commodity-value = commodity cost-price only if s = 0, a case which never occurs on the basis of capitalist production, although peculiar market conditions may reduce the selling price of commodities to the level of, or even below, their cost-price.
Hence, if a commodity is sold at its value, a profit is realised which is equal to the excess of its value over its cost-price, and therefore equal to the entire surplus-value incorporated in the value of the commodity. But the capitalist may sell a commodity at a profit even when he sells it below its value. So long as its selling price is higher than its cost-price, though it may be lower than its value, a portion of the surplus-value incorporated in it is always realised, thus always yielding a profit. In our illustration the value of the commodity is £600, and the cost-price £500. If the commodity is sold at £510, 520, 530, 560 or 590, it is sold respectively £90, 80, 70, 40, or 10 below its value. Yet a profit of £10, 20, 30, 60, or 90 respectively is realised in its sale. There is obviously an indefinite number of selling prices possible between the value of a commodity and its cost-price. The greater the surplus-value element of the value of a commodity, the greater the practical range of these intermediate prices.
This explains more than just the everyday phenomena of competition, such as certain cases of underselling, abnormally low commodity-prices in certain lines of industry [5], etc. The fundamental law of capitalist competition, which political economy had not hitherto grasped, the law which regulates the general rate of profit and the so-called prices of production determined by it, rests, as we shall later see, on this difference between the value and the cost-price of commodities, and on the resulting possibility of selling a commodity at a profit under its value.
The minimal limit of the selling price of a commodity is its cost-price. If it is sold under its cost-price, the expended constituent elements of productive capital cannot be fully replaced out of the selling price. If this process continues, the value of the advanced capital disappears. From this point of view alone, the capitalist is inclined to regard the cost-price as the true inner value of the commodity, because it is the price required for the bare conservation of his capital. But there is also this, that the cost-price of a commodity is the purchase price paid by the capitalist himself for its production, therefore the purchase price determined by the production process itself. For this reason, the excess value, or the surplus-value, realised in the sale of a commodity appears to the capitalist as an excess of its selling price over its value, instead of an excess of its value over its cost-price, so that accordingly the surplus-value incorporated in a commodity is not realised through its sale, but springs out of the sale itself. We have given this illusion closer consideration in Book I (Kap. IV, 2) [English edition: Ch. V, 2. — Ed.] (“Contradictions in the General Formula of Capital”), but revert here for a moment to the form in which it was reaffirmed by Torrens, among others, as an advance of political economy beyond Ricardo.
Torrens concludes therefrom that the excess of the selling price over the cost-price, or profit, is derived from the fact that the consumers,
Indeed, the excess over a given magnitude cannot form a part of this magnitude, and therefore the profit, the excess value of a commodity over the capitalist's expenditures, cannot form a part of these expenditures. Hence, if no other element than the value advance of the capitalist enters into the formation of the value of a commodity, it is inexplicable how more value should come out of production than went into it, for something cannot come out of nothing. But Torrens only evades this creation out of nothing by transferring it from the sphere of commodity-production to that of commodity-circulation. Profit cannot come out of production, says Torrens, for otherwise it would already be contained in the cost of production, and there would not be a surplus over this cost. Profit cannot come out of the exchange of commodities, replies Ramsay, unless it already existed before this exchange. The sum of the value of the exchanged products is evidently not altered in the exchange of these products, whose sum of value it is. It is the same before and after the exchange. It should be noted here that Malthus refers expressly to the authority of Torrens [7] although he himself has a different explanation for the sale of commodities above their value, or rather has no explanation at all, since all arguments of this sort never, in effect, fail to be reduced to the same thing as the once-famed negative weight of phlogiston.
In a social order dominated by capitalist production even the non-capitalist producer is gripped by capitalist conceptions. Balzac, who is generally remarkable for his profound grasp of reality, aptly describes in his last novel, Les Paysans, how a petty peasant performs many small tasks gratuitously for his usurer, whose goodwill he is eager to retain, and how he fancies that he does not give the latter something for nothing because his own labour does not cost him any cash outlay. As for the usurer, he thus fells two dogs with one stone. He saves the cash outlay for wages and enmeshes the peasant, who is gradually ruined by depriving his own field of labour, deeper and deeper in the spider-web of usury.
The thoughtless conception that the cost-price of a commodity constitutes its actual value, and that surplus-value springs from selling the product above its value, so that commodities would be sold at their value if their selling price were to equal their cost-price, i.e., if it were to equal the price of the consumed means of production plus wages, has been heralded to the world as a newly discovered secret of socialism by Proudhon with his customary quasi-scientific chicanery. Indeed, this reduction of the value of commodities to their cost-price is the basis of his People's Bank. It was earlier shown that the various constituent elements of the value of a product may be represented in proportional parts of the product itself. For instance (Buch I, Kap. VI 1, 2, S. 211/203) [English edition: Ch. IX, 2, pp. 220-21. — Ed.] if the value of 20 lbs. of yarn is 30 shillings — namely 24 shillings of means of production, 3 shillings of labour-power, and 3 shillings of surplus-value — then this surplus-value may be represented as 1/10 of the product=2 lbs. of yarn. Should these 20 lbs. of yarn now be sold at their cost-price, at 27 shillings, then the purchaser receives 2 lbs. of yarn for nothing, or the article is sold 1/10 below its value. But the labourer has, as before, performed his surplus-labour, only this time for the purchaser of the yarn instead of the capitalist yarn producer. It would be altogether wrong to assume that if all commodities were sold at their cost-price, the result would really be the same as if they had all been sold above their cost-price, but at their value. For even if the value of the labour-power, the length of the working-day, and the degree of exploitation of labour were the same everywhere, the quantities of surplus-value contained in the values of the various kinds of commodities would be unequal, depending on the different organic composition of the capitals advanced for their production.[8]
The capitalist does not care whether it is considered that he advances constant capital to make a profit out of his variable capital, or that he advances variable capital to enhance the value of the constant capital; that he invests money in wages to raise the value of his machinery and raw materials, or that he invests money in machinery and raw materials to be able to exploit labour. Although it is only the variable portion of capital which creates surplus-value, it does so only if the other portions, the conditions of production, are likewise advanced. Seeing that the capitalist can exploit labour only by advancing constant capital and that he can turn his constant capital to good account only by advancing variable capital, he lumps them all together in his imagination, and much more so since the actual rate of his gain is not determined by its proportion to the variable, but to the total capital, not by the rate of surplus-value, but by the rate of profit. And the latter, as we shall see, may remain the same and yet express different rates of surplus-value.
The costs of the product include all the elements of its value paid by the capitalist or for which he has thrown an equivalent into production. These costs must be made good to preserve the capital or to reproduce it in its original magnitude.
The value contained in a commodity is equal to the labour-time expended in its production, and the sum of this labour consists of paid and unpaid portions. But for the capitalist the costs of the commodity consist only of that portion of the labour materialised in it for which he has paid. The surplus-labour contained in the commodity costs the capitalist nothing, although, like the paid portion, it costs the labourer his labour, and although it creates value and enters into the commodity as a value-creating element quite like paid labour. The capitalist's profit is derived from the fact that he has something to sell for which he has paid nothing. The surplus-value, or profit, consists precisely in the excess value of a commodity over its cost-price, i.e., the excess of the total labour embodied in the commodity over the paid labour embodied in it. The surplus-value, whatever its origin, is thus a surplus over the advanced total capital. The proportion of this surplus to the total capital is therefore expressed by the fraction s/C, in which C stands for total capital. We thus obtain the rate of profit s/C=s/(c+v), as distinct from the rate of surplus-value s/v.
The rate of surplus-value measured against the variable capital is called rate of surplus-value. The rate of surplus-value measured against the total capital is called rate of profit. These are two different measurements of the same entity, and owing to the difference of the two standards of measurement they express different proportions or relations of this entity.
The transformation of surplus-value into profit must be deduced from the transformation of the rate of surplus-value into the rate of profit, not vice versa. And in fact it was rate of profit which was the historical point of departure. Surplus-value and rate of surplus-value are, relatively, the invisible and unknown essence that wants investigating, while rate of profit and therefore the appearance of surplus-value in the form of profit are revealed on the surface of the phenomenon.
So far as the individual capitalist is concerned, it is evident that he is only interested in the relation of the surplus-value, or the excess value at which he sells his commodities, to the total capital advanced for the production of the commodities, while the specific relationship and inner connection of this surplus with the various components of capital fail to interest him, and it is, moreover, rather in his interests to draw the veil over this specific relationship and this intrinsic connection.
Although the excess value of a commodity over its cost-price is shaped in the immediate process of production, it is realised only in the process of circulation, and appears all the more readily to have arisen from the process of circulation, since in reality, under competition, in the actual market, it depends on market conditions whether or not and to what extent this surplus is realised. There is no need to waste words at this point about the fact that if a commodity is sold above or below its value, there is merely another kind of division of surplus-value, and that this different division, this changed proportion in which various persons share in the surplus-value, does not in any way alter either the magnitude or the nature of that surplus-value. It is not alone the metamorphoses discussed by us in Book II that take place in the process of circulation; they fall in with actual competition, the sale and purchase of commodities above or below their value, so that the surplus-value realised by the individual capitalist depends as much on the sharpness of his business wits as on the direct exploitation of labour.
In the process of circulation the time of circulation comes to exert its influence alongside the working-time, thereby limiting the amount of surplus-value realisable within a given time span. Still other elements derived from circulation intrude decisively into the actual production process. The actual process of production and the process of circulation intertwine and intermingle continually, and thereby invariably adulterate their typical distinctive features. The production of surplus-value, and of value in general, receives new definition in the process of circulation, as previously shown. Capital passes through the circuit of its metamorphoses. Finally, stepping beyond its inner organic life, so to say, it enters into relations with outer life, into relations in which it is not capital and labour which confront one another, but capital and capital in one case, and individuals, again simply as buyers and sellers, in the other. The time of circulation and working-time cross paths and thus both seem to determine the surplus-value. The original form in which capital and wage-labour confront one another is disguised through the intervention of relationships seemingly independent of it. Surplus-value itself does not appear as the product of the appropriation of labour-time, but as an excess of the selling price of commodities over their cost-price, the latter thus being easily represented as their actual value (valeur intrinsèque), while profit appears as an excess of the selling price of commodities over their immanent value.
True, the nature of surplus-value impresses itself constantly upon the consciousness of the capitalist during the process of production, as his greed for the labour-time of others, etc., has revealed in our analysis of surplus-value. But: 1) The actual process of production is only a fleeting stage which continually merges with the process of circulation, just as the latter merges with the former, so that in the process of production, the more or less clearly dawning notion of the source of the gain made in it, i.e., the inkling of the nature of surplus-value, stands at best as a factor equally valid as the idea that the realised surplus originates in a movement that is independent of the production process, that it arises in circulation, and that it belongs to capital irrespective of the latter's relation to labour. Even such modern economists as Ramsay, Malthus, Senior, Torrens, etc., identify these phenomena of circulation directly as proofs that capital in its bare material existence, independent of its social relation to labour which makes capital of it, is, as it were, an independent source of surplus-value alongside labour and independent of labour. 2) Under the item of expenses, which embrace wages as well as the price of raw materials, wear and tear of machinery, etc., the extortion of unpaid labour figures only as a saving in paying for an article which is included in expenses, only as a smaller payment for a certain quantity of labour, similar to the saving when raw materials are bought more cheaply, or the depreciation of machinery decreases. In this way the extortion of surplus-labour loses its specific character. Its specific relationship to surplus-value is obscured. This is greatly furthered and facilitated, as shown in Book I (Abschn. VI) [English edition: Part VI, pp. 535-43. — Ed.], by representing the value of labour-power in the form of wages.
The relationships of capital are obscured by the fact that all parts of capital appear equally as the source of excess value (profit).
The way in which surplus-value is transformed into the form of profit by way of the rate of profit is, however, a further development of the inversion of subject and object that takes place already in the process of production. In the latter, we have seen, the subjective productive forces of labour appear as productive forces of capital. [English edition: Vol. 1, pp. 332-33. — Ed.] On the one hand, the value, or the past labour, which dominates living labour, is incarnated in the capitalist. On the other hand, the labourer appears as bare material labour-power, as a commodity. Even in the simple relations of production this inverted relationship necessarily produces certain correspondingly inverted conceptions, a transposed consciousness which is further developed by the metamorphoses and modifications of the actual circulation process.
It is altogether erroneous, as a study of the Ricardian school shows, to try to identify the laws of the rate of profit with the laws of the rate of surplus-value, or vice versa. The capitalist naturally does not see the difference between them. In the formula s/C the surplus-value is measured by the value of the total capital advanced for its production, of which a part was totally consumed in this production and a part was merely employed in it. In fact, the formula s/C expresses the degree of self-expansion of the total capital advanced, or, taken in conformity with inner conceptual connections and the nature of surplus-value, it indicates the ratio of the amount of variation of variable capital to the magnitude of the advanced total capital.
If, as Hegel would put it, the surplus therefore re-reflects itself in itself out of the rate of profit, or, put differently, the surplus is more closely characterised by the rate of profit, it appears as a surplus produced by capital above its own value over a year, or in a given period of circulation.
Although the rate of profit thus differs numerically from the rate of surplus-value, while surplus-value and profit are actually the same thing and numerically equal, profit is nevertheless a converted form of surplus-value, a form in which its origin and the secret of its existence are obscured and extinguished. In effect, profit is the form in which surplus-value presents itself to the view, and must initially be stripped by analysis to disclose the latter. In surplus-value, the relation between capital and labour is laid bare; in the relation of capital to profit, i.e., of capital to surplus-value that appears on the one hand as an excess over the cost-price of commodities realised in the process of circulation and, on the other, as a surplus more closely determined by its relation to the total capital, the capital appears as a relation to itself, a relation in which it, as the original sum of value, is distinguished from a new value which it generated. One is conscious that capital generates this new value by its movement in the processes of production and circulation. But the way in which this occurs is cloaked in mystery and appears to originate from hidden qualities inherent in capital itself.
The further we follow the process of the self-expansion of capital, the more mysterious the relations of capital will become, and the less the secret of its internal organism will be revealed.
In this part, the rate of profit is numerically different from the rate of surplus-value; while profit and surplus-value are treated as having the same numerical magnitude but only a different form. In the next part we shall see how the alienation goes further, and how profit represents a magnitude differing also numerically from surplus-value.
So far as the quantity of profit is assumed to be equal to that of
 surplus-value, its magnitude, and that of the rate of profit, is determined by
 ratios of simple figures given or ascertainable in every individual case. The
 analysis, therefore, first is carried on purely in the mathematical field.
We retain the designations used in Books I and II. Total capital C consists
 of constant capital c and variable capital v, and produces a surplus-value s.
 The ratio of this surplus-value to the advanced variable capital, or s/v, is
 called the rate of surplus-value and designated s'. Therefore s/v = s', and
 consequently s = s'v. If this surplus-value is related to the total capital
 instead of the variable capital, it is called profit, p, and the ratio of the
 surplus-value s to the total capital C, or s/C, is called the rate of profit,
 p'. Accordingly,
Now, substituting for s its equivalent s'v, we find
which equation may also be expressed by the proportion
the rate of profit is related to the rate of surplus-value as the variable
 capital is to the total capital.
It follows from this proportion that the rate of profit, p', is always
 smaller than s', the rate of surplus-value, because v, the variable capital, is
 always smaller than C, the sum of v + c, or the variable plus the constant
 capital; the only, practically impossible case excepted, in which v = C, that is,
 no constant capital at all, no means of production, but only wages are advanced
 by the capitalist.
However, our analysis also considers a number of other factors which have a
 determining influence on the magnitude of c, v, and s, and must therefore be
 briefly examined.
First, the value of money. We may assume this to be constant
 throughout.
Second, the turnover. We shall leave this factor entirely out of
 consideration for the present, since its influence on the rate of profit will be
 treated specially in a later chapter. [Here we anticipate just one point, that
 the formula p' = s' (v/C) is strictly correct only for
 
 one period of turnover of the variable capital. But we may correct it
 for an annual turnover by substituting for the simple rate of surplus-value, s',
 the annual rate of surplus-value, s'n. In this, n is the number of turnovers of
 the variable capital within one year. (Cf. Book II, Chapter XVI, 1) — F. E.]
Third, due consideration must be given to productivity of labour,
 whose influence on the rate of surplus-value has been thoroughly discussed in
 Book I (Abschnitt IV). [English edition: Part IV. — Ed.] Productivity of labour
 may also exert a direct influence on the rate of profit, at least of an
 individual capital, if, as has been demonstrated in Book I (Kap. X, S. 323/324
 [ = MEW 23, S.335/336]) [English edition: Ch. XII, pp. 316-17. — Ed.] this
 individual capital operates with a higher than the average social productivity
 and produces commodities at a lower value than their average social value,
 thereby realising an extra profit. However, this case will not be considered for
 the present, since in this part of the work we also proceed from the premise
 that commodities are produced under normal social conditions and are sold at
 their values. Hence, we assume in each case that the productivity of labour
 remains constant. In effect, the value-composition of a capital invested in a
 branch of industry, that is, a certain proportion between the variable and
 constant capital, always expresses a definite degree of labour productivity. As
 soon, therefore, as this proportion is altered by means other than a mere change
 in the value of the material elements of the constant capital, or a change in
 wages, the productivity of labour must likewise undergo a corresponding change,
 and we shall often enough see, for this reason, that changes in the factors c,
 v, and s also imply changes in the productivity of labour.
The same applies to the three remaining factors — the length of the
 working-day, intensity of labour, and wages. Their influence on the
 quantity and rate of surplus-value has been exhaustively discussed in Book I
 [English edition: Vol. 1, pp. 519-30. — Ed.] It will be understood, therefore,
 that notwithstanding the assumption, which we make for the sake of simplicity,
 that these three factors remain constant, the changes that occur in v and s may
 nevertheless imply changes in the magnitude of these, their determining
 elements. In this respect we must briefly recall that the wage influences the
 quantity of surplus-value and the rate of surplus-value in inverse proportion to
 the length of the working-day and the intensity of labour; that an increase in
 wages reduces the surplus-value, while a lengthening of the working-day and an
 increase in the intensity of labour add to it.
Suppose a capital of 100 produces a surplus-value of 20 employing 20
 labourers working a 10-hour day for a total weekly wage of 20. Then we have:
Now the working-day is lengthened to 15 hours without raising the wages. The
 total value produced by the 20 labourers will thereby increase from 40 to 60 (10 : 15 = 40 : 60). Since v, the wages paid to the labourers, remains the same, the
 surplus-value rises from 20 to 40, and we have:
If, conversely, the ten-hour working-day remains unchanged, while wages fall
 from 20 to 12, the total value-product amounts to 40 as before, but is
 differently distributed; v falls to 12, leaving a remainder of 28 for s. Then we
 have:
Hence, we see that a prolonged working-day (or a corresponding increase in
 the intensity of labour) and a fall in wages both increase the amount, and thus
 the rate, of surplus-value. Conversely, a rise in wages, other things being
 equal, would lower the rate of surplus-value. Hence, if v rises through a rise
 in wages, it does not express a greater, but only a dearer quantity of labour,
 in which case s' and p' do not rise, but fall.
This indicates that changes in the working-day, intensity of labour and
 wages cannot take place without a simultaneous change in v and s and their
 ratio, and therefore also p', which is the ratio of s to the total capital c + v.
 And it is also evident that changes in the ratio of s to v also imply
 corresponding changes in at least one of the three above-mentioned labour
 conditions.
Precisely this reveals the specific organic relationship of variable capital
 to the movement of the total capital and to its self-expansion, and also its
 difference from constant capital. So far as generation of value is concerned,
 the constant capital is important only for the value it has. And it is
 immaterial to the generation of value whether a constant capital of £1,500
 represents 1,500 tons of iron at, say, £1, or 500 tons of iron at £3.
 The quantity of actual material, in which the value of the constant capital is
 incorporated, is altogether irrelevant to the formation of value and the rate of
 profit, which varies inversely to this value no matter what the ratio of the
 increase or decrease of the value of constant capital to the mass of material
 use-value which it represents.
It is different with variable capital. It is not the value it has, not the
 labour incorporated in it, that matter at this point, but this value as a mere
 index of the total labour that it sets in motion and which is not expressed in
 it — the total labour, whose difference from the labour expressed in that value,
 hence the paid labour, i.e., that portion of the total labour which produces
 surplus-value, is all the greater, the less labour is contained in that value
 itself. Suppose, a ten-hour working-day is equal to ten shillings = ten marks. If
 the labour necessary to replace the wages, and thus the variable capital = 5
 hours = 5 shillings, then the surplus-labour = 5 hours and the surplus-value = 5
 shillings. Should the necessary labour = 4 hours = 4 shillings, then the
 surplus-labour = 6 hours and the surplus-value = 6 shillings.
Hence, as soon as the value of the variable capital ceases to be an index of
 the quantity of labour set in motion by it, and, moreover, the measure of this
 index is altered, the rate of surplus-value will change in the opposite
 direction and inversely.
Let us now go on to apply the above-mentioned equation of the rate of
 profit, p' = s' (v/C), to the various possible cases. We shall successively change
 the value of the individual factors of s' (v/C) and determine the effect of these
 changes on the rate of profit. In this way we shall obtain different series of
 cases, which we may regard either as successive altered conditions of operation
 for one and the same capital, or as different capitals existing side by side and
 introduced for the sake of comparison, taken, as it were, from different
 branches of industry or different countries. In cases, therefore, where the
 conception of some of our examples as successive conditions for one and the same
 capital appears to be forced or impracticable, this objection falls away the
 moment they are regarded as comparisons of independent capitals.
Hence, we now separate the product s' (v/C) into its two factors s' and v/C. At
 first we shall treat s' as constant and analyse the effect of the possible
 variations of v/C. After that we shall treat the fraction v/C as constant and
 let s' pass through its possible variations. Finally we shall treat all factors
 as variable magnitudes and thereby exhaust all the cases from which laws
 concerning the rate of profit may be derived.
This case, which embraces a number of subordinate cases, may be covered by a
 general formula. Take two capitals, C and C1, with their
 respective variable components, v and v1, with a common
 rate of surplus-value, s', and rates of profit p' and p'1.
 Then:
Now let us make a proportion of C and C1, and of v
 and v1. For instance, let the value of the fraction C1/C = E, and that of v1/v = e. Then C1 = EC, and v1 = ev. Substituting in the
 above equation these values for p1, C1
 
 and v1, we obtain
Again, we may derive a second formula from the above two equations by
 transforming them into the proportion:
Since the value of a fraction is not changed if we multiply or divide its
 numerator and denominator by the same number, we may reduce v/C and v1/C1 to percentages, that is, we may
 make C and C1 both = 100. Then we have v/C = v/100 and v1/C1 = v1/100,
 and may then drop the denominators in the above proportion, obtaining:
Taking any two capitals operating with the same rate of surplus-value, the
 rates of profit are to each other as the variable portions of the capitals
 calculated as percentages of their respective total capitals.
These two formulas embrace all the possible variations of v/C.
One more remark before we analyse these various cases singly. Since C is the
 sum of c and v, of the constant and variable capitals, and since the rates of
 surplus-value, as of profit, are usually expressed in percentages, it is
 convenient to assume that the sum of c + v is also equal to 100, i.e., to express
 c and v in percentages. For the determination of the rate of profit, if not of
 the amount, it is immaterial whether we say that a capital of 15,000, of which
 12,000 is constant and 3,000 is variable, produces a surplus-value of 3,000, or
 whether we reduce this capital to percentages:
In either case the rate of surplus-value s' = 100%, and the rate of
 profit = 20%.
The same is true when we compare two capitals, say, the foregoing capital
 with another, such as
in both of which s' = 100%, p' = 10%, and in which the comparison with the
 foregoing capital is clearer in percentage form.
On the other hand, if it is a matter of changes taking place in one and the
 same capital, the form of percentages is rarely to be used, because it almost
 always obscures these changes. If a capital expressed in the form of
 percentages:
assumes the form of percentages:
we cannot tell whether the changed composition in percentages, 90v + 10c, is
 due to an absolute decrease of v or an absolute increase of c, or to both. We
 would need the absolute magnitudes in figures to ascertain this. In the analysis
 of the following individual cases of variation, however, everything depends on
 how these changes have come about; whether 80v + 20c changed into 90c + 10v through
 an increase of the constant capital without any change in the variable capital,
 for instance through 12,000c + 3,000v changing into 27,000c + 3,000v (corresponding
 to a percentage of 90c + 10v); or whether they took this form through a reduction
 of the variable capital, with the constant capital remaining unchanged, that is,
 through a change into 12,000c + 1,333⅓ v (also
 corresponding to a percentage of 90c + 10v); or, lastly, whether both of the terms
 changed into 13,500c + 1,500v (corresponding once more to a percentage of
 90c + 10v). But it is precisely these cases which we shall have to successively
 analyse, and in so doing dispense with the convenient form of percentages, or at
 least employ these only as a secondary alternative.
If v changes in magnitude, C can remain unaltered only if c, the other
 component of C, that is, the constant capital, changes by the same amount as v,
 but in the opposite direction.
If C originally = 80c + 20v = 100, and if v is then reduced to 10, then C can = 100 only if c is increased to 90; 90c + 10v = 100. Generally speaking, if v is
 transformed into v ± d, into v increased or decreased by d, then c
 must be transformed into c ± d, into c varying by the same amount, but
 in the opposite direction, so that the conditions of the present case are
 satisfied.
Similarly, if the rate of surplus-value s' remains the same, while the
 variable capital v changes, the amount of surplus-value s must change, since
 s = s'v, and since one of the factors of s'v, namely v, is given another value.
The assumptions of the present case produce, alongside the original
 equation,
still another equation through the variation of v:
in which v has become v1 and p'1,
 the resultant changed rate of profit, is to be found.
It is determined by the following proportion:
Or: with the rate of surplus-value and total capital remaining the same, the
 original rate of profit is to the new rate of profit produced by a change in the
 variable capital as the original variable capital is to the changed variable
 capital.
If the original capital was, as above:
I. 15,000 C = 12,000c + 3,000v ( + 3,000s), and if it is now:
II. 15,000 C = 13,000c + 2,000v ( + 2,000s), then C = 15,000 and s' = 100% in either
 case, and the rate of profit of I, 20%, is to that of II, 13⅓%,
 as the variable capital of I, 3,000, is to that of II, 2,000, i. e., 20% : 13⅓% = 3,000 : 2,000.
Now, the variable capital may either rise or fall. Let us first take an
 example in which it rises. Let a certain capital be originally constituted and
 employed as follows:
Now let the variable capital rise to 30. In that case, according to our
 assumption, the constant capital must fall from 100 to 90 so that total capital
 remains unchanged at 120. The rate of surplus-value remaining constant at 50%,
 the surplus-value produced will then rise from 10 to 15. We shall then have:
Let us first proceed from the assumption that wages remain unchanged. Then
 the other factors of the rate of surplus-value, i.e., the working-day and the
 intensity of labour, must also remain unchanged. In that event the rise of v
 (from 20 to 30) can signify only that another half as many labourers are
 employed. Then the total value produced also rises one-half, from 30 to 45, and
 is distributed, just as before, ⅔ for wages and ⅓ for surplus-value. But at the same time, with the
 increase in the number of labourers, the constant capital, the value of the
 means of production, has fallen from 100 to 90. We have, then, a case of
 decreasing productivity of labour combined with a simultaneous shrinkage of
 constant capital. Is such a case economically possible?
In agriculture and the extractive industries, in which a decrease in labour
 productivity and, therefore, an increase in the number of employed labourers is
 quite comprehensible, this process is on the basis and within the scope of
 capitalist production attended by an increase, instead of a decrease, of
 constant capital. Even if the above fall of c were due merely to a fall in
 prices, an individual capital would be able to accomplish the transition from I
 to II only under very exceptional circumstances. But in the case of two
 independent capitals invested in different countries, or in different branches
 of agriculture or extractive industry, it would be nothing out of the ordinary
 if in one of the cases more labourers (and therefore more variable capital) were
 employed and worked with less valuable or scantier means of production than in
 the other case.
But let us drop the assumption that the wage remains the same, and let us
 explain the rise of the variable capital from 20 to 30 through a rise of wages
 by one-half. Then we shall have an entirely different case. The same number of
 labourers — say, twenty — continue to work with the same or only slightly
 reduced means of production. If the working-day remains unchanged — say, 10
 hours — then the total value produced also remains unchanged. It was and
 remains = 30. But all of this 30 is now required to make good the advanced
 variable capital of 30; the surplus-value would disappear. We have assumed,
 however, that the rate of surplus-value should remain constant, that is, the
 same as in I, at 50%. This is possible only if the working-day is prolonged by
 one-half to 15 hours. Then the 20 labourers would produce a total value of 45 in
 15 hours, and all conditions would be satisfied:
In this case, the 20 labourers do not require any more means of labour,
 tools, machines, etc., than in case I. Only the raw materials or auxiliary
 materials would have to be increased by one-half. In the event of a fall in the
 prices of these materials, the transition from I to II might be more possible
 economically, even for an individual capital in keeping with our assumption. And
 the capitalist would be somewhat compensated by increased profits for any loss
 incurred through the depreciation of his constant capital.
Now let us assume that the variable capital falls, instead of rising. Then
 we have but to reverse our example, taking II as the original capital, and
 passing from II to I.
If v falls from 30 to 20 because ⅓ fewer labourers
 are employed with the growing constant capital, then we have before us the
 normal case of modern industry, namely, an increasing productivity of labour,
 and the operation of a larger quantity of means of production by fewer
 labourers. That this movement is necessarily connected with a simultaneous drop
 in the rate of profit will be developed in the third part of this book.
If, on the other hand, v falls from 30 to 20, because the same number of
 labourers is employed at lower wages, the total value produced would, with the
 working-day unchanged, as before = 30v + 15s = 45. Since v fell to 20, the
 surplus-value would rise to 25, the rate of surplus-value from 50% to 125%,
 which would be contrary to our assumption. To comply with the conditions of our
 case, the surplus-value, with its rate at 50%, must rather fall to 10, and the
 total value produced must, therefore, fall from 45 to 30, and this is possible
 only if the working-day is reduced by ⅓. Then, as before, we have:
It need hardly be said that this reduction of the working-time, in the case
 of a fall in wages, would not occur in practice. But that is immaterial. The
 rate of profit is a function of several variable magnitudes, and if we wish to
 know how these variables influence the rate of profit, we must analyse the
 individual effect of each in turn, regardless of whether such an isolated effect
 is economically practicable with one and the same capital.
This case differs from the preceding one only in degree. Instead of
 decreasing or increasing by as much as v increases or decreases, c remains
 constant. Under present-day conditions in the major industries and agriculture
 the variable capital is only a relatively small part of the total capital. For
 this reason, its increase or decrease, so far as either is due to changes in the
 variable capital, are likewise relatively small.
Let us again proceed with a capital:
which would then change, say, into:
The opposite case, in which the variable capital decreases, would again be
 illustrated by the reverse transition from II to I.
The economic conditions would be essentially the same as in the preceding
 case, and therefore they need not be discussed again. The transition from I to
 II implies a decrease in the productivity of labour by one-half; for II the
 utilisation of 100 requires an increase of labour by one-half over that of I.
 This case may occur in agriculture. [9]
But while the total capital remains constant in the preceding case, owing to
 the conversion of constant into variable capital, or vice versa, there is in
 this case a tie-up of additional capital if the variable capital increases, and
 a release of previously employed capital if the variable capital decreases.
In this case the equation changes from:
and after reducing the same factors on both sides, we have:
with the same rate of surplus-value and equal variable capitals, the rates
 of profit are inversely proportional to the total capitals.
Should we, for example, have three capitals, or three different conditions
 of the same capital:
Then we obtain the proportions:
The previously given general formula for variations of v/C with a constant
 s' was:
since v does not change, the factor e = v1/v ,
 becomes = 1.
Since s'v = s, the quantity of surplus-value, and since both s' and v remain
 constant, it follows that s, too, is not affected by any variation of C. The
 amount of surplus-value is the same after the change as it was before it.
If c were to fall to zero, p' would = s', i.e., the rate of profit would equal
 the rate of surplus-value.
The alteration of c may be due either to a mere change in the value of the
 material elements of constant capital, or to a change in the technical
 composition of the total capital, that is, a change in the productivity of
 labour in the given branch of industry. In the latter case, the productivity of
 social labour mounting due to the development of modern industry and large-scale
 agriculture would bring about a transition (in the above illustration) in the
 sequence from III to I and from I to II. A quantity of labour which is paid with
 20 and produces a value of 40 would first utilise means of labour to a value of
 60; if productivity mounted and the value remained the same, the used up means
 of labour would rise first to 80, and then to 100. An inversion of this sequence
 would imply a decrease in productivity. The same quantity of labour would put a
 smaller quantity of means of production into motion and the operation would be
 curtailed, as may occur in agriculture, mining, etc.
A saving in constant capital increases the rate of profit on the one hand,
 and, on the other, sets free capital, for which reason it is of importance to
 the capitalist. We shall make a closer study of this, and likewise of the
 influence of a change in the prices of the elements of constant capital,
 particularly of raw materials, at a later point. [Present edition: Ch. V, VI. —
 Ed.]
It is again evident here that a variation of the constant capital equally
 affects the rate of profit, regardless of whether this variation is due to an
 increase or decrease of the material elements of c, or merely to a change in
 their value.
In this case, the general formula for the changed rate of profit, given at
 the outset, remains in force:
It follows from this that with the rate of surplus-value remaining the same:
a) The rate of profit falls if E is greater than e, that is, if the constant
 capital is augmented to such an extent that the total capital grows at a faster
 rate than the variable capital. If a capital of 80c + 20v + 20s
 changes into 170c + 30v + 30s, then s' remains = 100%, but v/C falls from 20/100 to
 30/100, in spite of the fact that both v and C have grown, and the rate of
 profit falls correspondingly from 20% to 15%.
b) The rate of profit remains unchanged only if e = E, that is, if the
 fraction v/C retains the same value in spite of a seeming change, i.e., if its
 numerator and denominator are multiplied or divided by the same factor. The
 capitals 80c + 20v + 20s and 160c + 40v + 40s obviously have the same rate of profit of
 20%, because s' remains = 100% and v/C = 20/100 = 40/200 represents the same value in
 both examples.
c) The rate of profit rises when e is greater than E, that is, when the
 variable capital grows at a faster rate than the total capital. If 80c + 20v + 20s
 turns into 120c + 40v + 40s, the rate of profit rises from 20% to 25%, because with
 an unchanged s' (v/C) = 20/100 rises to 40/160, or from 1/5 to 1/4.
If the changes of v and C are in the same direction, we may view this change
 of magnitude as though, to a certain extent, both of them varied in the same
 proportion, so that v/C remained unchanged up to that point. Beyond this point,
 only one of them would vary, and we shall have thereby reduced this complicated
 case to one of the preceding simpler ones.
Should, for instance, 80c + 20v + 20s become 100c + 30v + 30s, then the proportion
 of v to c, and also to C, remains the same in this variation up to :
 100c + 25v + 25s. Up to that point, therefore, the rate of profit likewise remains
 unchanged. We may then take 100c + 25v + 25s as our point of departure; we find that
 v increased by 5 to become 30v, so that C rose from 125 to 130, thus giving us
 the second case, that of the simple variation of v and the consequent variation
 of C. The rate of profit, which was originally 20%, rises through this addition
 of 5v to 23 1/13 %, provided the rate of surplus-value
 remains the same.
The same reduction to a simpler case can also take place if v and C change
 their magnitudes in opposite directions. For instance, let us again start with
 80c + 20v + 20s, and let this become: 110c + 10v + 10s. In that case, with the change
 going as far as 40c + 10v + 10s, the rate of profit would remain the same 20%. By
 adding 70c to this intermediate form, it will drop to 8⅓%.
 Thus, we have again reduced the case to an instance of change of one variable,
 namely of c.
Simultaneous variation of v, c, and C, does not, therefore, offer any new
 aspects and in the final analysis leads back to a case in which only one factor
 is a variable.
Even the sole remaining case has actually been exhausted, namely that in
 which v and C remain numerically the same, while their material elements undergo
 a change of value, so that v stands for a changed quantity of labour put in
 motion and c for a changed quantity of means of production put in motion.
In 80c + 20v + 20s, let 20v originally represent the wages of 20 labourers
 working 10 hours daily. Then let the wages of each rise from 1 to 1
 
 ¼. In that case the 20v will pay only 16 labourers
 instead of 20. But if 20 labourers produce a value of 40 in 200 working-hours,
 16 labourers working 10 hours daily will in 160 working-hours produce a value of
 only 32. After deducting 20v for wages, only 12 of the 32 would then remain for
 surplus-value. The rate of surplus-value would have fallen from 100% to 60%. But
 since we have assumed the rate of surplus-value to be constant, the working-day
 would have to be prolonged by one-quarter, from 10 to 12½
 hours. If 20 labourers working 10 hours daily = 200 working-hours produce a value
 of 40, then 16 labourers working 12½ hours daily = 200
 hours will produce the same value, and the capital of 80c + 20v would as before
 yield the same surplus-value of 20.
Conversely, if wages were to fall to such an extent that 20v would represent
 the wages of 30 labourers, then s would remain constant only if the working-day
 were reduced from 10 to 6⅔ hours. For 20 × 10 = 30 × 6⅔ = 200 working-hours.
We have already in the main discussed to what extent c may in these
 divergent examples remain unchanged in terms of value expressed in money and yet
 represent different quantities of means of production changed in accordance with
 changing conditions. In its pure form this case would be possible only by way of
 an exception.
As for a change in the value of the elements of c which increases or
 decreases their mass but leaves the sum of the value of c unchanged, it does not
 affect either the rate of profit or the rate of surplus-value, so long as it
 does not lead to a change in the magnitude of v.
We have herewith exhausted all the possible cases of variation of v, c, and
 C in our equation. We have seen that the rate of profit may fall, remain
 unchanged, or rise, while the rate of surplus-value remains the same, with the
 least change in the proportion of v to c or to C, being sufficient to change the
 rate of profit as well.
We have seen, furthermore, that in variations of v there is a certain limit
 everywhere beyond which it is economically impossible for s' to remain constant.
 Since every one-sided variation of c must also reach a certain limit where v can
 no longer remain unchanged, we find that there are limits for every possible
 variation of v/C, beyond which s' must likewise become variable. In the
 variations of s' which we shall now discuss, this interaction of the different
 variables of our equation will stand out still clearer.
We obtain a general formula for the rates of profit with different rates of
 surplus-value, no matter whether v/C remains constant or not, by converting the
 equation:
into
in which p'1, s'1, v1 and C1 denote the changed values of
 p', s', v and C. Then we have:
and hence:
In this case we have the equations:
in both of which v/C is equal. Therefore:
The rates of profit of two capitals of the same composition are to each
 other as the two corresponding rates of surplus-value. Since in the fraction v/C
 it is not a question of the absolute magnitudes of v and C, but only of their
 ratio, this applies to all capitals of equal composition whatever their absolute
 magnitude.
If the absolute magnitudes of v and C are the same in both cases, the rates
 of profit are moreover also related to one another as the amounts of
 surplus-value:
For instance:
It is now clear that with capitals of equal absolute or percentage
 composition the rate of surplus-value can differ only if either the wages, or
 the length of the working-day, or the intensity of labour, differ. In the
 following three cases:
the total value produced in I is 30 (20v + 10s); in II it is 40; in III it is
 60. This may come about in three different ways.
First, if the wages are different, and 20v stands for a different
 number of labourers in every individual case. Suppose capital I employs 15
 labourers 10 hours daily at a wage of £1⅓,
 who produce a value of £30, of which £20 replace the wages
 and £10 are surplus-value. If wages fall to £1, then 20
 labourers may be employed for 10 hours; they will produce a value of £40,
 of which £20 will replace the wages and £20 will be
 surplus-value. Should wages fall still more, to £⅔,
 thirty labourers may be employed for 10 hours. They will produce a value of £60,
 of which £20 will be deducted for wages and £40 will
 represent surplus-value.
This case — a constant composition of capital in per cent, a constant
 working-day and constant intensity of labour, and the rate of surplus-value
 varying because of variation in wages — is the only one in which Ricardo's
 assumption is correct:
Or second, if the intensity of labour varies. In that case, say, 20
 labourers working 10 hours daily with the same means of production produce 30
 pieces of a certain commodity in I, 40 in II, and 60 in III, of which every
 piece, aside from the value of the means of production incorporated in it,
 represents a new value of £1. Since every 20 pieces = £20 make
 good the wages, there remain 10 pieces = £10 for surplus-value in I, 20
 pieces = £20 in II, and 40 pieces = £40 in III.
Or third, the working-day differs in length. If 20 labourers work
 with the same intensity for 9 hours in I, 12 hours in II, and 18 hours in III,
 their total products, 30 : 40 : 60 vary as 9 : 12 : 18. And since wages = 20 in
 every case, 10, 20, and 40 respectively again remain as surplus-value.
A rise or fall in wages, therefore, influences the rate of surplus-value
 inversely, and a rise or fall in the intensity of labour, and a lengthening or
 shortening of the working-day, act the same way on the rate of surplus-value and
 thereby, with v/C constant, on the rate of profit.
The following proportion applies in this case:
The rates of profit are related to one another as the respective amounts of
 surplus-value.
Changes in the rate of surplus-value with the variable capital remaining
 constant meant a change in the magnitude and distribution of the produced value.
 A simultaneous variation of v and s' also always implies a different
 distribution, but not always a change in the magnitude of the produced value.
 Three cases are possible:
a) Variation of v and s' takes place in opposite directions, but by the same
 amount; for instance:
The produced value is equal in both cases, hence also the quantity of labour
 performed; 20v + 10s = 10v + 20s = 30. The only difference is that in the first case
 20 is paid out for wages and 10 remains as surplus-value, while in the second
 case wages are only 10 and surplus-value is therefore 20. This is the only case
 in which the number of labourers, the intensity of labour, and the length of the
 working-day remain unchanged, while v and s' vary simultaneously.
b) Variation of s' and v also takes place in opposite directions, but not by
 the same amount. In that case the variation of either v or s' outweighs the
 other.
Capital I pays for produced value amounting to 40 with 20v, II a value of 48
 with 28v, and III a value of 36 with 16v. Both the produced value and the wages
 have changed. But a change in the produced value means a change in the amount of
 labour performed, hence a change either in the number of labourers, the hours of
 labour, the intensity of labour, or in more than one of these.
c) Variation of s' and v takes place in the same direction. In that case the
 one intensifies the effect of the other.
Here too the three values produced are different, namely 20, 50, and 14. And
 this difference in the magnitude of the respective quantities of labour reduces
 itself once more to a difference in the number of labourers, the hours of
 labour, and the intensity of labour, or several or all of these factors.
This case offers no new aspects and is solved by the general formula given
 under II, in which s' is variable.
The effect of a change in the magnitude of the rate of surplus-value on the
 rate of profit hence yields the following cases:
1) p' increases or decreases in the same proportion as s' if v/C remains
 constant.
2) p' rises or falls at a faster rate than s' if v/C moves in the same
 direction as s', that is, if it increases or decreases when s' increases or
 decreases.
3) p' rises or falls at a slower rate than s' if v/C changes inversely to
 s', but at a slower rate.
4) p' rises while s' falls, or falls while s' rises if v/C changes inversely
 to, and at, a faster rate than, s'.
s' has risen from 100% to 150%, p' has fallen from 20% to 15%.
5) Finally, p' remains constant whereas s' rises or falls, while v/C changes
 inversely to, but in exactly the same proportion as, s'.
It is only this last case which still requires some explanation. We have
 observed earlier in the variations of v/C that one and the same rate of
 surplus-value may be expressed in very much different rates of profit. Now we
 see that one and the same rate of profit may be based on very much different
 rates of surplus-value. But while any change in the proportion of v to C is
 sufficient to produce a difference in the rate of profit so long as s is
 constant, a change in the magnitude of s must lead to a corresponding inverse
 change of v/C in order that the rate of profit remains the same. In the case of
 one and the same capital, or in that of two capitals in one and the same country
 this is possible but in exceptional cases. Assume, for example, that we have a
 capital of
and let us suppose that wages fall to such an extent that the same number of
 labourers is obtainable for 16v instead of 20v. Then, other things being equal,
 and 4v being released, we shall have:
In order that p' may now = 20% as before, the total capital would have to
 increase to 120, the constant capital therefore rising to 104:
This would only be possible if the fall in wages were attended
 simultaneously by a change in the productivity of labour which required such a
 change in the composition of capital. Or, if the value in money of the constant
 capital increased from 80 to 104. In short, it would require an accidental
 coincidence of conditions such as occurs in exceptional cases. In fact, a
 variation of s' that does not call for the simultaneous variation of v, and thus
 of v/C, is conceivable only under very definite conditions, namely in such
 branches of industry in which only fixed capital and labour are employed, while
 the materials of labour are supplied by Nature.
But this is not so when the rates of profit of two different countries are
 compared. For in that case the same rate of profit is, in effect, based largely
 on different rates of surplus-value.
It follows from all of these five cases, therefore, that a rising rate of
 profit may correspond to a falling or rising rate of surplus-value, a falling
 rate of profit to a rising or falling rate of surplus-value, and a constant rate
 of profit to a rising or falling rate of surplus-value. And we have seen in I
 that a rising, falling, or constant rate of profit may also accord with a
 constant rate of surplus-value.
The rate of profit, therefore, depends on two main factors — the rate of
 surplus-value and the value-composition of capital. The effects of these two
 factors may be briefly summed up as follows, by giving the composition in per
 cent, for it is immaterial which of the two portions of the capital causes the
 variation:
The rates of profit of two different capitals, or of one and the same
 capital in two successive different conditions,
are equal
1) if the per cent composition of the capitals is the same and their rates
 of surplus-value are equal;
2) if their per cent composition is not the same, and the rates of
 surplus-value are unequal, provided the products of the rates of surplus-value
 by the percentages of the variable portions of capitals (s' by v) are the same,
 i.e., if the masses of surplus-value (s = s'v) calculated in per cent of
 the total capital are equal; in other words, if the factors s' and v are
 inversely proportional to one another in both cases.
They are unequal
1) if the per cent composition is equal and the rates of surplus-value are
 unequal, in which case they are related as the rates of surplus-value;
2) if the rates of surplus-value are the same and the per cent composition
 is unequal, in which case they are related as the variable portions of the
 capitals;
3) if the rates of surplus-value are unequal and the per cent composition
 not the same, in which case they are related as the products s'v, i.e., as the
 quantities of surplus-value calculated in per cent of the total capital.
 [10]
It has already been shown in detail in Book II [English edition: Vol. II, pp. 293-98. — Ed.] how the quantity of produced surplus-value is augmented by reductions in the period of turnover, or of one of its two sections, in the time of production and the time of circulation. But since the rate of profit only expresses the relation of the produced quantity of surplus-value to the total capital employed in its production, it is evident that any such reduction increases the rate of profit. Whatever has been said earlier in Part II of Book II in regard to surplus-value, applies equally to profit and the rate of profit and needs no repetition here. We wish only to stress a few of the principal points.
The chief means of reducing the time of production is higher labour productivity, which is commonly called industrial progress. If this does not involve a simultaneous considerable increase in the outlay of total capital resulting from the installation of expensive machinery, etc., and thus a reduction of the rate of profit, which is calculated on the total capital, this rate must rise. And this is decidedly true in the case of many of the latest improvements in metallurgy and in the chemical industry. The recently discovered methods of producing iron and steel, such as the processes of Bessemer, Siemens, Gilchrist-Thomas, etc., cut to a minimum at relatively small costs the formerly arduous processes. The making of alizarin, a red dye-stuff extracted from coal-tar, requires but a few weeks, and this by means of already existing coal-tar dye-producing installations, to yield the same results which formerly required years. It took a year for the madder to mature, and it was customary to let the roots grow a few years more before they were processed.
The chief means of reducing the time of circulation is improved communications. The last fifty years have brought about a revolution in this field, comparable only with the industrial revolution of the latter half of the 18th century. On land the macadamised road has been displaced by the railway, on sea the slow and irregular sailing vessel has been pushed into the background by the rapid and dependable steamboat line, and the entire globe is being girdled by telegraph wires. The Suez Canal has fully opened East Asia and Australia to steamer traffic. The time of circulation of a shipment of commodities to East Asia, at least twelve months in 1847 (cf. Buch II, S. 235 [English edition: Karl Marx, Capital, Vol. II, pp. 251-52. — Ed.]), has now been reduced to almost as many weeks. The two large centres of the crises of 1825-57, America and India, have been brought from 70 to 90 per cent nearer to the European industrial countries by this revolution in transport, and have thereby lost a good deal of their explosive nature. The period of turnover of the total world commerce has been reduced to the same extent, and the efficacy of the capital involved in it has been more than doubled or trebled. It goes without saying that this has not been without effect on the rate of profit.
To single out the effect of the turnover of total capital on the rate of profit we must assume all other conditions of the capitals to be compared as equal. Aside from the rate of surplus-value and the working-day it is also notably the per cent composition which we must assume to be the same. Now let us take a capital A composed of 80c + 20v = 100 C, which makes two turnovers yearly at a rate of surplus-value of 100%. The annual product is then:
160c + 40v + 40s. However, to determine the rate of profit we do not calculate the 40s on the turned-over capital-value of 200, but on the advanced capital of 100, and thus obtain p' = 40%.
Now let us compare this with a capital B = 160c + 40v = 200 C, which has the same rate of surplus-value of 100%, but which is turned over only once a year. The annual product of this capital is, therefore, the same as that of A:
160c + 40v + 40s. But this time the 40s are to be calculated on an advance of capital amounting to 200, which yields a rate of profit of only 20%, or one-half that of A.
We find, then, that for capitals with an equal per cent composition, with equal rates of surplus-value and equal working-days, the rates of profit of the two capitals are related inversely as their periods of turnover. If either the composition, the rates of surplus-value, the working-day, or the wages, are unequal in the two compared cases, this would naturally produce further differences in the rates of profit; but these are independent of the turnover and, for this reason, do not concern us at this point. They have already been discussed in Chapter III.
The direct effect of a reduced period of turnover on the production of surplus-value, and consequently of profit, consists of an increased efficiency imparted thereby to the variable portion of capital, as shown in Book II, Chapter XVI, "The Turnover of Variable Capital". This chapter demonstrated that a variable capital of 500 turned over ten times a year produces as much surplus-value in this time as a variable capital of 5,000 with the same rate of surplus-value and the same wages, turned over just once a year.
Take capital I, consisting of 10,000 fixed capital whose annual depreciation is 10% = 1,000, of 500 circulating constant and 500 variable capital. Let the variable capital turn over ten times per year at a 100% rate of surplus-value. For the sake of simplicity we assume in all the following examples that the circulating constant capital is turned over in the same time as the variable, which is generally the case in practice. Then the product of one such period of turnover will be:
and the product of one entire year, with ten such turnovers, will be
Now let us take capital II: 9,000 fixed capital, 1,000 annual wear and tear, 1,000 circulating constant capital, 1,000 variable capital, 100% rate of surplus-value, 5 turnovers of variable capital per year. Then the product of each of the turnovers of the variable capital will be:
and the total annual product after five turnovers:
Further, take capital III with no fixed capital, 6,000 circulating constant capital and 5,000 variable capital. Let there be one turnover per year at a 100% rate of surplus-value. Then the total annual product is:
In all the three cases we therefore have the same annual quantity of surplus-value = 5,000, and, since the total capital is likewise equal in all three cases, namely = 11,000, also the same rate of profit of 45 5/11%.
But should capital I have only 5 instead of 10 turnovers of its variable part per year, the result would be different. The product of one turnover would then be:
And the annual product:
The rate of profit has fallen one-half, because the period of turnover has doubled.
The quantity of surplus-value appropriated in one year is therefore equal to the quantity of surplus-value appropriated in one turnover of the variable capital multiplied by the number of such turnovers per year. Suppose we call the surplus-value, or profit, appropriated in one year S, the surplus-value appropriated in one period of turnover s, the number of turnovers of the variable capital in one year n, then S = sn, and the annual rate of surplus-value S' = s'n, as already demonstrated in Book II, Chapter XVI, I. [English edition: Vol. II, p. 305. — Ed.]
It goes without saying that the formula p' = s' (v/C) = s' v/(c + v) is correct only so long as the v in the numerator is the same as that in the denominator. In the denominator v stands for the entire portion of the total capital used on an average as variable capital for the payment of wages. The v of the numerator is primarily only determined by the fact that a certain quantity of surplus-value = s is produced and appropriated by it, whose relation to it s/v, is m', the rate of surplus-value. It is only along these lines that the formula p' = s/(c + v) is transformed into the other: p' = s' v/(c + v). The v of the numerator will now be more accurately determined by the fact that it must equal the v of the denominator, that is, the entire variable portion of capital C. In other words, the equation p' = (s/C) may be correctly transformed into the equation p' = s' v/(c + v) only if s stands for surplus-value produced in one turnover of the variable capital. Should s be only a portion of this surplus-value, then s = s'v is still correct, but this v is then smaller than the v in C = c + v, because it is smaller than the entire variable capital expended for wages. But should s stand for more than the surplus-value of one turnover of v, then a portion of this v, or perhaps the whole of it, serves twice, namely in the first and in the second turnover, and eventually in subsequent turnovers. The v which produces the surplus-value and represents the sum of all paid wages, is therefore greater than the v in c + v and the calculation falls into error.
To make the formula precise for the annual rate of profit, we must substitute the annual rate of surplus-value for the simple rate of surplus-value, that is, substitute S' or s'n for s'. In other words, we must multiply the rate of surplus-value s', or, what amounts to the same thing, the variable capital v contained in C, by n, the number of turnovers of this variable capital in one year. Thus we obtain p' = s'n (v/C), which is the formula for the annual rate of profit.
The amount of variable capital invested in his business is something the capitalist himself does not know in most cases. We have seen in Chapter VIII of Book II, and shall see further along, that the only essential distinction within his capital which impresses itself upon the capitalist is that of fixed and circulating capital. He takes money to pay wages from his cash-box containing the part of the circulating capital he has on hand in the form of money, so far as it is not deposited in a bank; he takes money from the same cash-box for raw and auxiliary materials, and credits both items to the same cash-account. And even if he should keep a separate account for wages, at the close of the year this would only show the sum paid out for this item, hence vn, but not the variable capital v itself. In order to ascertain this, he would have to make a special calculation, of which we propose here to give an illustration.
For this purpose we select the cotton spinnery of 10,000 mule spindles described in Book I (S. 209/201) [English edition: p. 219. — Ed.] and assume that the data given there for one week of April 1871, are in force during the whole year. The fixed capital incorporated in the machinery was £10,000. The circulating capital was not given. We assume it to have been £2,500. This is a rather high estimate, but justified by the assumption, which we must always make here, that no credit operations were effected, hence no permanent or temporary employment of other people's capital. The value of the weekly product was composed of £20 for depreciation of machinery, £358 circulating constant advanced capital (rent £6; cotton £342; coal, gas, oil, £10), £52 variable capital paid out for wages, and £80 surplus-value. Therefore,
The weekly advance of circulating capital therefore was 358c + 52v = 410. In terms of per cent this was 87.3c + 12.7v. For the entire circulating capital of £2,500 this would be £2,182 constant and £318 variable capital. Since the total expenditure for wages in one year was 52 times £52, or £2,704, it follows that in a year the variable capital of £318 was turned over almost exactly 8½ times. The rate of surplus-value was 80/52 = 153 11/13. We calculate the rate of profit on the basis of these elements by inserting the above values in the formula p' = s'n (v/C) : s' = 153 11/13, n = 8½, v = 318, C = 12,500; hence:
We test this by means of the simple formula p' = (s/C). The total annual surplus-value or profit amounts to 52 times £80, or £4,160, and this divided by the total capital of £12,500 gives us 33.28%, or almost an identical result. This is an abnormally high rate of profit, which may only be explained by extraordinarily favourable conditions of the moment (very low prices of cotton along with very high prices of yarn), and could certainly not have obtained throughout the year.
The s'n in the formula p' = s'n (v/C) stands, as has been said, for the thing called in Book II [English edition: Vol. II, p. 295. — Ed.] the annual rate of surplus-value. In the above case it is 153 11/13% multiplied by 8½ or in exact figures, 1,307 9/18%. Thus, if a certain Biedermann [Biedermann — Philistine. A pun, being also the name of the editor of the Deutsche Allgemeine Zeitung. — Ed.] was shocked by the abnormity of an annual rate of surplus-value of 1,000% used as an illustration in Book II, he will now perhaps be pacified by this annual rate of surplus-value of more than 1,300% taken from the living experience of Manchester. In times of greatest prosperity, such as we have not indeed seen for a long time, such a rate is by no means a rarity.
For that matter we have here an illustration of the actual composition of capital in modern large-scale industry. The total capital is broken up into £12,182 constant and £318 variable capital, a sum of £12,500. In terms of percent this is 97½c + 2½v = 100 C. Only one-fortieth of the total, but in more than an eight-fold annual turnover, serves for the payment of wages.
Since very few capitalists ever think of making calculations of this sort with reference to their own business, statistics is almost completely silent about the relation of the constant portion of the total social capital to its variable portion. Only the American census gives what is possible under modern conditions, namely the sum of wages paid in each line of business and the profits realised. Questionable as they may be, being based on the capitalist's own uncontrolled statements, they are nevertheless very valuable and the only records available to us on this subject. [In Europe we are far too delicate to expect such revelations from our major capitalists. — F.E.]
Transcribed for the Internet by Hinrich Kuhls
Quite a number of current expenses remain almost or entirely the same whether the working-day is longer or shorter. The cost of supervision is less for 500 working-men during 18 working-hours than for 750 working-men during 12 working-hours.
State and municipal taxes, fire insurance, wages of various permanent employees, depreciation of machinery, and various other expenses of a factory, remain unchanged whether the working-time is long or short. To the extent to which production decreases, these expenses rise as compared to the profit. (Reports of Insp. of Fact., October 1862, p. 19.)
The period in which the value of the machinery and of the other components of fixed capital is reproduced is determined in practice not by their mere lifetime, but by the duration of the entire labour-process during which they serve and wear out. If the labourers must work 18 instead of 12 hours, this makes a difference of three days more per week, so that one week is stretched into one and a half, and two years into three. If this overtime is unpaid the labourers give away gratis a week out of every three and a year out of every three on top of the normal surplus-labour time. In this way, the reproduction of the value of the machinery is speeded up 50% and accomplished in ⅔ of the usually required time.
To avoid useless complications, we proceed in this analysis, and in that of price fluctuations for raw materials (Chap. VI), from the assumption that the mass and rate of surplus-value are given.
As already shown in the presentation of co-operation, division of labour and machinery, the economy of production conditions [English edition: Vol. I, pp. 324-25 — Ed.] found in large-scale production is essentially due to the fact that these conditions prevail as conditions of social, or socially combined, labour, and therefore as social conditions of labour. They are commonly consumed in the process of production by the aggregate labourer, instead of being consumed in small fractions by a mass of labourers operating disconnectedly or, at best, directly co-operating on a small scale. In a large factory with one or two central motors the cost of these motors does not increase in the same ratio as their horse-power and, hence, their possible sphere of activity. The cost of the transmission equipment does not grow in the same ratio as the total number of working machines which it sets in motion. The frame of a machine does not become dearer in the same ratio as the mounting number of tools which it employs as its organs, etc. Furthermore, the concentration of means of production yields a saving on buildings of various kinds not only for the actual workshops, but also for storage, etc. The same applies to expenditures for fuel, lighting, etc. Other conditions of production remain the same, whether used by many or by few.
This total economy, arising as it does from the concentration of means of production and their use en masse, imperatively requires, however, the accumulation and co-operation of labourers, i.e., a social combination of labour. Hence, it originates quite as much from the social nature of labour, just as surplus-value originates from the surplus-labour of the individual labourer considered singly. Even the continual improvements, which are here possible and necessary, are due solely to the social experience and observation ensured and made possible by production of aggregate labour combined on a large scale.
The same is true of the second big source of economy in the conditions of production. We refer to the reconversion of the excretions of production, the so-called waste, into new elements of production, either of the same, or of some other line of industry; to the processes by which this so-called excretion is thrown back into the cycle of production and, consequently, consumption, whether productive or individual. This line of savings, which we shall later examine more closely, is likewise the result of large-scale social labour. It is the attendant abundance of this waste which renders it available again for commerce and thereby turns it into new elements of production. It is only as waste of combined production, therefore, of large-scale production, that it becomes important to the production process and remains a bearer of exchange-value. This waste, aside from the services which it performs as new element of production, reduces the cost of the raw material to the extent to which it is again saleable, for this cost always includes the normal waste, namely the quantity ordinarily lost in processing. The reduction of the cost of this portion of constant capital increases pro tanto the rate of profit, assuming the magnitude of the variable capital and the rate of surplus-value to be given.
If the surplus-value is given, the rate of profit can be increased only by reducing the value of the constant capital required for commodity-production. So far as constant capital enters into the production of commodities, it is not its exchange-value, but its use-value alone, which matters. The quantity of labour which flax can absorb in a spinnery does not depend on its value, but on its quantity, assuming the productivity of labour, i.e., the level of technical development, to be given. In like manner the assistance rendered by a machine to, say, three labourers does not depend on its value, but on its use-value as a machine. On one level of technical development a bad machine may be expensive and on another a good machine may be cheap.
The increased profit received by a capitalist through the cheapening of, say, cotton and spinning machinery, is the result of higher labour productivity; not in the spinnery, to be sure, but in cotton cultivation and construction of machinery. It requires smaller outlays of the conditions of labour to incorporate a given quantity of labour, and hence to extract a given quantity of surplus-labour. The costs required to appropriate a certain quantity of surplus-labour diminish.
We have already mentioned savings yielded in the production process through co-operative use of means of production by the aggregate, or socially combined, labour. Other savings of constant capital arising from the shortening of the time of circulation in which the development of means of communication is a dominant material factor will be discussed later. At this point we shall deal with the savings yielded by continuous improvements of machinery, namely 1) of its material, e.g., the substitution of iron for wood; 2) the cheapening of machinery due to the general improvement of machine-building; so that, although the value of the fixed portion of constant capital increases continually with the development of labour on a large scale, it does not increase at the same rate [12]; 3) special improvements enabling existing machinery to work more cheaply and effectively; for instance, improvements of steam-boilers, etc., which will be discussed later on in greater detail; 4) reduction of waste through better machinery.
Whatever reduces the wear of machinery, and of fixed capital in general, for any given period of production, cheapens not only the individual commodity, in view of the fact that in its price every individual commodity reproduces its aliquot share of this depreciation, but reduces also the aliquot portion of the invested capital for this period. Repair work, etc., to the extent that it becomes necessary, is added to the original cost of the machinery. A reduction in repair costs, due to greater durability of the machinery, lowers pro tanto the price of this machinery.
It may again be said of all these savings that they are largely possible only for combined labour, and are often not realised until production is carried forward on a still larger scale, so that they require an even greater combination of labour in the immediate process of production.
However, on the other hand the development of the productive power of labour in any one line of production, e.g., the production of iron, coal, machinery, in architecture, etc., which may again be partly connected with progress in the field of intellectual production, notably natural science and its practical application, appears to be the premise for a reduction of the value, and consequently of the cost, of means of production in other lines of industry, e.g., the textile industry, or agriculture. This is self-evident, since a commodity which is the product of a certain branch of industry enters another as a means of production. Its greater or lesser price depends on the productivity of labour in the line of production from which it issues as a product, and is at the same time a factor that not only cheapens the commodities into whose production it goes as a means of production, but also reduces the value of the constant capital whose element it here becomes, and thereby one that increases the rate of profit.
The characteristic feature of this kind of saving of constant capital arising from the progressive development of industry is that the rise in the rate of profit in one line of industry depends on the development of the productive power of labour in another. Whatever falls to the capitalist's advantage in this case is once more a gain produced by social labour, if not a product of the labourers he himself exploits. Such a development of productive power is again traceable in the final analysis to the social nature of the labour engaged in production; to the division of labour in society; and to the development of intellectual labour, especially in the natural sciences. What the capitalist thus utilises are the advantages of the entire system of the social division of labour. It is the development of the productive power of labour in its exterior department, in that department which supplies it with means of production, whereby the value of the constant capital employed by the capitalist is relatively lowered and consequently the rate of profit is raised.
Another rise in the rate of profit is produced, not by savings in the labour creating the constant capital, but by savings in the application of this capital itself. On the one hand, the concentration of labourers, and their large-scale co-operation, saves constant capital. The same buildings, and heating and lighting appliances, etc., cost relatively less for the large-scale than for small-scale production. The same is true of power and working machinery. Although their absolute value increases, it falls in comparison to the increasing extension of production and the magnitude of the variable capital, or the quantity of labour-power set in motion. The economy realised by a certain capital within its own line of production is first and foremost an economy in labour, i. e., a reduction of the paid labour of its own labourers. The previously mentioned economy, on the other hand, is distinguished from this one by the fact that it accomplishes the greatest possible appropriation of other people's unpaid labour in the most economical way, i. e., with as little expense as the given scale of production will permit. Inasmuch as this economy does not rest with the previously mentioned exploitation of the productivity of the social labour employed in the production of constant capital, but with the economy in the constant capital itself, it springs either directly from the co-operation and social form of labour within a certain branch of production, or from the production of machinery, etc., on a scale in which its value does not grow at the same rate as its use-value.
Two points must be borne in mind here: It the value of c = zero, then p' = s', and the rate of profit would be at its maximum. Second, however, the most important thing for the direct exploitation of labour itself is not the value of the employed means of exploitation, be they fixed capital, raw materials or auxiliary substances. In so far as they serve as means of absorbing labour, as media in or by which labour and, hence, surplus-labour are materialised, the exchange-value of machinery, buildings, raw materials, etc., is quite immaterial. What is ultimately essential is, on the one hand, the quantity of them technically required for combination with a certain quantity of living labour, and, on the other, their suitability, i.e., not only good machinery, but also good raw and auxiliary materials. The rate of profit depends partly on the good quality of the raw material. Good material produces less waste. Less raw materials are then needed to absorb the same quantity of labour. Furthermore, the resistance to be overcome by the working machine is also less. This partly affects even the surplus-value and the rate of surplus-value. The labourer needs more time when using bad raw materials to process the same quantity. Assuming wages remain the same, this causes a reduction in surplus-labour. This also substantially affects the reproduction and accumulation of capital, which depend more on the productivity than on the amount of labour employed, as shown in Book I (S. 627/619ff.) [English edition: p. 603. — Ed.].
The capitalist's fanatical insistence on economy in means of production is therefore quite understandable. That nothing is lost or wasted and the means of production are consumed only in the manner required by production itself, depends partly on the skill and intelligence of the labourers and partly on the discipline enforced by the capitalist for the combined labour. This discipline will become superfluous under a social system in which the labourers work for their own account, as it has already become practically superfluous in piece-work. This fanatical insistence comes to the surface also conversely in the adulteration of the elements of production, which is one of the principal means of lowering the relation of the value of the constant capital to the variable capital, and thus of raising the rate of profit. Whereby the sale of these elements of production above their value, so far as this reappears in the product, acquires a marked element of cheating. This practice plays an essential part particularly in German industry, whose maxim is: People will surely appreciate if we send them good samples at first, and then inferior goods afterward. However, as these matters belong to the sphere of competition they do not concern us here.
It should be noted that this raising of the rate of profit by means of lowering the value of the constant capital, i. e., by reducing its expensiveness, does not in any way depend on whether the branch of industry in which it takes place produces luxuries, or necessities for the consumption of labourers, or means of production generally. This last circumstance would only be of material importance if it were a question of the rate of surplus-value, which depends essentially on the value of labour-power, i. e., on the value of the customary necessities of the labourer. But in the present case the surplus-value and the rate of surplus-value have been assumed as given. The relation of surplus-value to total capital — and this determines the rate of profit — depends under these circumstances exclusively on the value of the constant capital, and in no way on the use-value of the elements of which it is composed.
A relative cheapening of the means of production does not, of course, exclude the possible increase of their absolute aggregate value, for the absolute volume in which they are employed grows tremendously with the development of the productive power of labour and the attendant growth of the level of production. Economy in the use of constant capital, from whatever angle it may be viewed, is, in part, the exclusive result of the fact that the means of production function and are consumed as joint means of production of the combined labourer, so that the resulting saving appears as a product of the social nature of directly productive labour; in part, however, it is the result of developing productivity of labour in spheres which supply capital with its means of production, so that if we view the total labour in relation to total capital, and not simply the labourers employed by capitalist X in relation to capitalist Y, this economy presents itself once more as a product of the development of the productive forces of social labour, with the only difference that capitalist X enjoys the advantage not only of the productivity of labour in his own establishment, but also of that in other establishments. Yet the capitalist views economy of his constant capital as a condition wholly independent of, and entirely alien to, his labourers. He is always well aware, however, that the labourer has something to do with the employer buying much or little labour with the same amount of money (for this is how the transaction between the capitalist and labourer appears in his mind). This economy in the application of the means of production, this method of obtaining a certain result with a minimum outlay appears more than any other inner power of labour as an inherent power of capital and a method peculiar and characteristic of the capitalist mode of production.
This conception is so much the less surprising since it appears to accord with fact, and since the relationship of capital actually conceals the inner connection behind the utter indifference, isolation, and alienation in which they place the labourer vis-à-vis the means incorporating his labour.
First, the means of production that make up the constant capital represent only the money belonging to the capitalist (just as the body of the Roman debtor represented the money of his creditor, according to Linguet [Théorie des loix civiles, ou principes fondamentaux de la société, tome II, Londres, 1767, livre V, chapitre XX. — Ed.]) and are related to him alone, while the labourer, who comes in contact with them only in the direct process of production, deals with them as use-values of production only as means of labour and materials of production. Increase or decrease of their value, therefore, has as little bearing on his relations to the capitalist as the circumstance whether he may be working with copper or iron. For that matter, the capitalist likes to view this point differently, as we shall later indicate, whenever the means of production gain in value and thereby reduce his rate of profit.
Second, in so far as these means of production in the capitalist production process are at the same time means of exploiting labour, the labourer is no more concerned with their relative dearness or cheapness than a horse is concerned with the dearness or cheapness of its bit and bridle.
Finally, we have earlier [English edition: Vol. 1, p. 325. — Ed.] seen that, in fact, the labourer looks at the social nature of his labour, at its combination with the labour of others for a common purpose, as he would at an alien power; the condition of realising this combination is alien property, whose dissipation would be totally indifferent to him if he were not compelled to economise with it. The situation is quite different in factories owned by the labourers themselves, as in Rochdale, for instance.
It scarcely needs to be mentioned, then, that as far as concerns the productivity of labour in one branch of industry as a lever for cheapening and improving the means of production in another, and thereby raising the rate of profit, the general interconnection of social labour affects the labourers as a matter alien to them, a matter that actually concerns the capitalist alone, since it is he who buys and appropriates these means of production. The fact that he buys the product of labourers in another branch of industry with the product of labourers in his own, and that he therefore disposes of the product of the labourers of another capitalist only by gratuitously appropriating that of his own, is a development that is fortunately concealed by the process of circulation, etc.
Moreover, since production on a large scale develops for the first time in its capitalist form, the thirst for profits on the one hand, and competition on the other, which compels the cheapest possible production of commodities, make this economy in the employment of constant capital appear as something peculiar to the capitalist mode of production and therefore as a function of the capitalist.
Just as the capitalist mode of production promotes the development of the productive powers of social labour, on the one hand, so does it whip on to economy in the employment of constant capital on the other.
However, it is not only the alienation and indifference that arise between the labourer, the bearer of living labour, and the economical, i.e., rational and thrifty, use of the material conditions of his labour. In line with its contradictory and antagonistic nature, the capitalist mode of production proceeds to count the prodigious dissipation of the labourer's life and health, and the lowering of his living conditions, as an economy in the use of constant capital and thereby as a means of raising the rate of profit.
Since the labourer passes the greater portion of his life in the process of production, the conditions of the production process are largely the conditions of his active living process, or his living conditions, and economy in these living conditions is a method of raising the rate of profit; just as we saw earlier [English edition: Vol. I, pp. 231-302. — Ed.] that overwork, the transformation of the labourer into a work horse, is a means of increasing capital, or speeding up the production of surplus-value. Such economy extends to overcrowding close and unsanitary premises with labourers, or, as capitalists put it, to space saving; to crowding dangerous machinery into close quarters without using safety devices; to neglecting safety rules in production processes pernicious to health, or, as in mining, bound up with danger, etc. Not to mention the absence of all provisions to render the production process human, agreeable, or at least bearable. From the capitalist point of view this would be quite a useless and senseless waste. The capitalist mode of production is generally, despite all its niggardliness, altogether too prodigal with its human material, just as, conversely, thanks to its method of distribution of products through commerce and manner of competition, it is very prodigal with its material means, and loses for society what it gains for the individual capitalist.
Just as capital has the tendency to reduce the direct employment of living labour to no more than the necessary labour, and always to cut down the labour required to produce a commodity by exploiting the social productiveness of labour and thus to save a maximum of directly applied living labour, so it has also the tendency to employ this labour, reduced to a minimum, under the most economical conditions, i.e., to reduce to its minimum the value of the employed constant capital. If it is the necessary labour-time which determines the value of commodities, instead of all the labour-time contained in them, so it is the capital which realises this determination and, at the same time, continually reduces the labour-time socially necessary to produce a given commodity. The price of the commodity is thereby lowered to its minimum since every portion of the labour required for its production is reduced to its minimum.
We must make a distinction in economy as regards use of constant capital. If the quantity, and consequently the sum of the value of employed capital, increases, this is primarily only a concentration of more capital in a single hand. Yet it is precisely this greater quantity applied by a single source — attended, as a rule, by an absolutely greater but relatively smaller amount of employed labour — which permits economy of constant capital. To take an individual capitalist, the volume of the necessary investment of capital, especially of its fixed portion, increases. But its value decreases relative to the mass of worked-up materials and exploited labour.
This is now to be briefly illustrated by a few examples. We shall begin at the end — the economy in the conditions of production, in so far as these also constitute the living conditions of the labourer.
Coal mines. Neglect of indisputable outlays.
About 1860, a weekly average of 15 men lost their lives in the English collieries. According to the report on Coal Mines Accidents (February 6, 1862), a total of 8,466 were killed in the ten years 1852-61. But the report admits that this number is far too low, because in the first few years, when the inspectors had just been installed and their districts were far too large, a great many accidents and deaths were not reported. The very fact that the number of accidents, though still very high, has decreased markedly since the inspection system was established, and this in spite of the limited powers and insufficient numbers of the inspectors, demonstrates the natural tendency of capitalist exploitation.— These human sacrifices are mostly due to the inordinate avarice of the mine owners. Very often they had only one shaft sunk, so that apart from the lack of effective ventilation there was no escape were this shaft to become obstructed.
Capitalist production, when considered in isolation from the process of circulation and the excesses of competition, is very economical with the materialised labour incorporated in commodities. Yet, more than any other mode of production, it squanders human lives, or living-labour, and not only blood and flesh, but also nerve and brain. Indeed, it is only by dint of the most extravagant waste of individual development that the development of the human race is at all safeguarded and maintained in the epoch of history immediately preceding the conscious reorganisation of society. Since all of the economising here discussed arises from the social nature of labour, it is indeed just this directly social nature of labour which causes the waste of life and health. The following question suggested by factory inspector R. Baker is characteristic in this respect:
Factories. Under this heading there is covered the disregard for safety measures to ensure the security, comfort, and health of labourers also in the actual factories. It is to blame for a large portion of the casualty lists containing the wounded and killed industrial workers (cf. the annual factory reports). Similarly, lack of space, ventilation, etc.
As far back as October 1855, Leonard Horner complained about the resistance of very many manufacturers to the legal requirements concerning safety devices on horizontal shafts, although the danger was continually emphasised by accidents, many of them fatal, and although these safety devices did not cost much and did not interfere with production. (Reports of Insp. of Fact., October 1855, p. 6.) In their resistance against these and other legal requirements the manufacturers were openly seconded by the unpaid justices of the peace, who were themselves mostly manufacturers or friends of manufacturers, and handed down their decisions accordingly. What sort of verdicts these gentlemen handed down was revealed by Superior Judge Campbell, who said with reference to one of them, against which an appeal had been made to him:
But the manufacturers did not rest until they obtained a writ of the Court of Queen's Bench, according to which the Law of 1844 did not prescribe protective devices for horizontal shafts installed more than seven feet above the ground and, finally, in 1856 they succeeded in securing an Act of Parliament entirely satisfactory to them in the circumstances, through the services of the bigot Wilson Patten, one of those pious souls whose display of religion is always ready to do the dirty work for the knights of the money-bag. This Act practically deprived the labourers of all special protection and referred them to the common courts for compensation in the event of industrial accidents (sheer mockery in view of the excessive cost of English lawsuits), while it made it almost impossible for the manufacturer to lose the lawsuit by providing in a finely-worded clause for expert testimony. The result was a rapid increase of accidents. In the six months from May to October 1858, Inspector Baker reported that accidents increased by 21% compared with the preceding half-year. In his opinion 36.7% of these accidents might have been avoided. It is true that the number of accidents in 1858 and 1859 was considerably below that of 1845 and 1846. It was actually 29% less although the number of labourers in the industries subject to inspection had increased 20%. But what was the reason for this? In so far as this issue has been settled now (1865), it was mainly accomplished through the introduction of new machinery already provided with safety devices to which the manufacturer did not object because they cost him no extra expense. Furthermore, a few labourers succeeded in securing heavy damages for their lost arms, and had this judgement upheld even by the highest courts. (Reports of Insp. of Fact., April 30, 1861, p. 31, ditto April 1862, p. 17.)
So much for economy in devices protecting the life and limbs of labourers (among whom many children) against the dangers of handling and operating machinery.
Work in enclosed places generally. It is well known to what extent economy of space, and thus of buildings, crowds labourers into close quarters. In addition, there is also economy in means of ventilation. Coupled with the long working-hours, the two cause a large increase in diseases of the respiratory organs, and an attendant increase in the death-rate. The following illustrations have been taken from Reports on Public Health, 6th report, 1863. This report was compiled by Dr. John Simon, well known from our Book I.
Just as combination and co-operation of labour permits large-scale employment of machinery, concentration of means of production, and economy in their use, it is this very working together en masse in enclosed places and under conditions rather determined by ease of manufacture than by health requirements — it is this mass concentration in one and the same workshop that acts, on the one hand, as a source of greater profits for the capitalist and, on the other, unless counteracted by a reduced number of hours and special precautions, as the cause of the squandering of the lives and health of the labourers.
Dr. Simon formulates the following rule and backs it up with abundant statistics:
Mortality figures for industries carried on in enclosed places, collected by the Board of Health in 1860 and 1861, indicate that for the same number of men between the ages of 15 and 55, for which the death-rate from consumption and other pulmonary diseases in English agricultural districts is 100, the death-rate in Coventry is 163, in Blackburn and Skipton 167, Congleton and Bradford 168, Leicester 171, Leek 182, Macclesfield 184, Bolton 190, Nottingham 192, Rochdale 193, Derby 198, Salford and Ashton-under-Lyne 203, Leeds 218, Preston 220, and Manchester 263 (p. 24). The following table presents a still more striking illustration.
It shows the death-rate for pulmonary diseases separately for both sexes between the ages of 15 and 25 computed for every 100,000 population. In the districts selected only women are employed in industries carried on in enclosed places, while men work in all other possible lines.
In the silk districts, where more men are employed in the factory, their mortality is also higher. The death-rate from consumption, etc., for both sexes, reveals, as the report says,
And it is in this same silk industry that the manufacturers, pleading exceptionally favourable and sanitary conditions in their establishments, demanded by way of an exception, and partially obtained, long working-hours for children under 13 years of age (Buch I, Kap. VIII, 6, S. 296/286) [English edition: Ch. X, 6, p. 293. — Ed.]
(p. 30). It must be noted, and has in fact been remarked by John Simon, chief of the Medical Department and author of the report, that the mortality-rate for tailors, type-setters, and printers of London between the ages of 25 and 35 was cited lower than the real figure, because London employers in both lines of business have a large number of young people (probably up to 30 years of age) from the country engaged as apprentices and "improvers", i.e., men getting additional training. These swell the number of hands for which the London industrial death-rates are computed. But they do not proportionally contribute to the number of deaths in London because their stay there is only temporary. If they fall ill during this period, they return to their homes in the country, where their death is registered if they die. This circumstance affects the earlier ages still more and renders the London death-rates for these age groups completely valueless as indexes of the ill-effects of industry on health (p. 30).
The case of the type-setters is similar to that of the tailors. In addition to lack of ventilation, to poisoned air, etc., there is still night-work to be mentioned. Their regular working-time is 12 to 13 hours, sometimes 15 to 16.
The milliners and dress-makers have already attracted our attention in Book I (Kap. VIII, 3, S. 249/241) [English edition: Ch. X, 3, pp. 254-55. — Ed.] in respect to overwork. Their workshops are described in our report by Dr. Ord. Even if better during the day, they become overheated, foul, and unhealthy during the hours in which gas is burned. Dr. Ord found in 34 shops of the better sort that the average number of cubic feet per worker was as follows:
And here is Dr. Ord's remark about one of the minor workshops which he visited, operated for the account of a middleman:
The same report states with reference to the overwork of milliners and dress-makers:
John Simon remarks in a footnote to this page:
The conclusion arrived at by the chief of the English Board of Health is that
In his October 1852 report L. Horner quotes a letter of the famous engineer James Nasmyth of Patricroft, the inventor of the steam-hammer, which, among other things, contains the following:
What applies to power generation also applies to power transmission and working machinery.
These improvements of the machinery do not show their full effect until they are used in new, appropriately arranged factories.
The capitalist mode of production extends the utilisation of the excretions of production and consumption. By the former we mean the waste of industry and agriculture, slid by the latter partly the excretions produced by the natural exchange of matter in the human body and partly the form of objects that remains after their consumption. In the chemical industry, for instance, excretions of production are such by-products as are wasted in production on a smaller scale; iron filings accumulating in the manufacture of machinery and returning into the production of iron as raw material, etc. Excretions of consumption are the natural waste matter discharged by the human body, remains of clothing in the form of rags, etc. Excretions of consumption are of the greatest importance for agriculture. So far as their utilisation is concerned, there is an enormous waste of them in the capitalist economy. In London, for instance, they find no better use for the excretion of four and a half million human beings than to contaminate the Thames with it at heavy expense.
Rising prices of raw materials naturally stimulate the utilisation of waste products.
The general requirements for the re-employment of these excretions are: large quantities of such waste, such as are available only in large-scale production; improved machinery whereby materials, formerly useless in their prevailing form, are put into a state fit for new production; scientific progress, particularly of chemistry, which reveals the useful properties of such waste. It is true that great savings of this sort are also observed in small-scale agriculture, as prevails in, say, Lombardy, southern China, and Japan. But on the whole, the productivity of agriculture under this system obtains from the prodigal use of human labour-power, which is withheld from other spheres of production.
The so-called waste plays an important role in almost every industry. Thus, the Factory Report for December 1863 mentions as one of the principal reasons why the English and many of the Irish farmers do not like to grow flax, or do so but rarely,
whereas all this might be avoided through the use of better machinery. So much tow fell by the wayside that the factory inspector reports:
We shall speak of cotton waste later, when we deal with the price fluctuations of raw materials.
The wool industry was shrewder than the flax manufacturers.
By the end of 1862 the rejuvenated shoddy made up as much as one-third of the entire consumption of wool in English industry. (Reports of Insp. of Fact., October 1862, p. 81.) The "big benefit" for the "consumer" is that his shoddy clothes wear out in just one-third of the previous time and turn threadbare in one-sixth of this time.
The English silk industry moved along the same downward path. The consumption of genuine raw silk decreased somewhat between 1839 and 1862, while that of silk waste doubled. Improved machinery helped to manufacture a silk useful for many purposes from this otherwise rather worthless stuff.
The most striking example of utilising waste is furnished by the chemical industry. It utilises not only its own waste, for which it finds new uses, but also that of many other industries. For instance, it converts the formerly almost useless gas-tar into aniline dyes, alizarin, and, more recently, even into drugs.
This economy of the excretions of production through their re-employment is to be distinguished from economy through the prevention of waste, that is to say, the reduction of excretions of production to a minimum, and the immediate utilisation to a maximum of all raw and auxiliary materials required in production.
Reduction of waste depends in part on the quality of the machinery in use. Economy in oil, soap, etc., depends on how well the mechanical parts are machined and polished. This refers to the auxiliary materials. In part, however, and this is most important, it depends on the quality of the employed machines and tools whether a larger or smaller portion of the raw material is turned into waste in the production process. Finally, this depends on the quality of the raw material itself. This, in turn, depends partly on the development of the extractive industry and agriculture which produce the raw material (strictly speaking on the progress of civilisation), and partly on the improvement of processes through which raw materials pass before they enter into manufacture.
These savings in the application of fixed capital are, we repeat, due to the employment of the conditions of labour on a large scale; in short, are due to the fact that these serve as conditions of directly social, or socialised labour or direct co-operation within the process of production. On the one hand, this is the indispensable requirement for the utilisation of mechanical and chemical inventions without increasing the price of the commodity, and this is always the conditio sine qua non. On the other hand, only production on a large scale permits the savings derived from co-operative productive consumption. Finally, it is only the experience of the combined labourer which discovers and reveals the where and how of saving, the simplest methods of applying the discoveries, and the ways to overcome the practical frictions arising from carrying out the theory — in its application to the production process — etc.
Incidentally, a distinction should be made between universal labour and co-operative labour. Both kinds play their role in the process of production, both flow one into the other, but both are also differentiated. Universal labour is all scientific labour, all discovery and all invention. This labour depends partly on the co-operation of the living, and partly on the utilisation of the labours of those who have gone before. Co-operative labour, on the other hand, is the direct co-operation of individuals.
The foregoing is corroborated by frequent observation, to wit:
But in general, it should be noted here, as in the previous case, that if variations take place, either due to savings in constant capital, or due to fluctuations in the price of raw materials, they always affect the rate of profit, even if they leave the wage, hence the rate and amount of surplus-value, untouched. They change the magnitude of C in s' (v/C), and thus the value of the whole fraction. It is therefore immaterial, in this case as well — in contrast to what we found in our analysis of surplus-value — in which sphere of production these variations occur; whether or not the production branches affected by them produce necessities for labourers, or constant capital for the production of such necessities. The deductions made here are equally valid for variations occurring in the production of luxury articles, and by luxury articles we here mean all production that does not serve the reproduction of labour-power.
The raw materials here include auxiliary materials as well, such as indigo, coal, gas, etc. Furthermore, so far as machinery is concerned under this head, its own raw material consists of iron, wood, leather, etc. Its own price is therefore affected by fluctuations in the price of raw materials used in its construction. To the extent that its price is raised through fluctuations, either in the price of the raw materials of which it consists, or of the auxiliary materials consumed in its operation, the rate of profit falls pro tanto. And vice versa.
In the following analysis we shall confine ourselves to fluctuations in the price of raw materials, not so far as they go to make up the raw materials of machinery serving as means of labour or as auxiliary materials applied in its operation, but in so far as they enter the process in which commodities are produced. There is just one thing to be noted here: the natural wealth in iron, coal, wood, etc., which are the principal elements used in the construction and operation of machinery, presents itself here as a natural fertility of capital and is a factor determining the rate of profit irrespective of the high or low level of wages.
This makes clear the great importance to industry of this elimination or reduction of customs duties on raw materials. The rational development of the protective tariff system made the utmost reduction of import duties on raw materials one of its cardinal principles. This, and the abolition of the duty on corn, was the main object of the English free-traders, who were primarily concerned with having the duty on cotton lifted as well.
The use of flour in the cotton industry may serve as an illustration of the importance of a price reduction for an article which is not strictly a raw material but an auxiliary and at the same time one of the principal elements of nourishment. As far back as 1837, R. H. Greg [13] calculated that the 100,000 power-looms and 250,000 hand-looms then operating in the cotton-mills of Great Britain annually consumed 41 million lbs of flour to smooth the warp. He added a third of this quantity for bleaching and other processes, and estimated the total annual value of the flour so consumed at £342,000 for the preceding ten years. A comparison with flour prices on the continent showed that the higher flour price forced upon manufacturers by corn tariffs alone amounted to £170,000 per year. Greg estimated the sum at a minimum of £200,000 for 1837 and cited a firm for which the flour price difference amounted to £1,000 annually. As a p108result,
The Corn Laws were repealed. So were the duties on cotton and other raw materials. But no sooner had this been accomplished than the opposition of the manufacturers to the Ten Hours' Bill became more violent than ever. And when the ten-hour factory day nevertheless became a law soon after, the first result was a general attempt to reduce wages.
The value of raw and auxiliary materials passes entirely and all at one time into the value of the product in the manufacture of which they are consumed, while the elements of fixed capital transfer their value to the product only gradually in proportion to their wear and tear. It follows that the price of the product is influenced far more by the price of raw materials than by that of fixed capital, although the rate of profit is determined by the total value of the capital applied no matter how much of it is consumed in the making of the product. But it is evident — although we merely mention it in passing, since we here still assume that commodities are sold at their values, so that price fluctuations caused by competition do not as yet concern us — that the expansion or contraction of the market depends on the price of the individual commodity and is inversely proportional to the rise or fall of this price. It actually develops, therefore, that the price of the product does not rise in proportion to that of the raw material, and that it does not fall in proportion to that of raw material. Consequently, the rate of profit falls lower in one instance, and rises higher in the other than would have been the case if products were sold at their value.
Further, the quantity and value of the employed machinery grows with the development of labour productivity but not in the same proportion as this productivity, i. e., not in the proportion in which this machinery increases its output. In those branches of industry, therefore, which do consume raw materials, i. e., in which the subject of labour is itself a product of previous labour, the growing productivity of labour is expressed precisely in the proportion in which a larger quantity of raw material absorbs a definite quantity of labour, hence in the increasing amount of raw material converted in, say, one hour into products, or processed into commodities. The value of raw material, therefore, forms an ever-growing component of the value of the commodity-product in proportion to the development of the productivity of labour, not only because it passes wholly into this latter value, but also because in every aliquot part of the aggregate product the portion representing depreciation of machinery and the portion formed by the newly added labour — both continually decrease. Owing to this falling tendency, the other portion of the value representing raw material increases proportionally, unless this increase is counterbalanced by a proportionate decrease in the value of the raw material arising from the growing productivity of the labour employed in its own production.
Further, raw and auxiliary materials, just like wages, form parts of the circulating capital and must, therefore, be continually replaced in their entirety through the sale of the product, while only the depreciation is to be renewed in the case of machinery, and first of all in the form of a reserve fund. It is, moreover, in no way essential for each individual sale to contribute its share to this reserve fund, so long as the total annual sales contribute their annual share. This shows again how a rise in the price of raw material can curtail or arrest the entire process of reproduction if the price realised by the sale of the commodities should not suffice to replace all the elements of these commodities. Or, it may make it impossible to continue the process on the scale required by its technical basis, so that only a part of the machinery will remain in operation, or all the machinery will work for only a fraction of the usual time.
Finally, the expense incurred through waste varies in direct proportion to the price fluctuations of the raw material, rising, when they rise and falling when they fall. But there is a limit here as well. The Factory Report for April 1850 maintained:
But when, as a result of the American Civil War, the price of cotton rose to a level unequalled in almost 100 years, the report read differently:
II. APPRECIATION, DEPRECIATION, RELEASE AND TIE-UP OF CAPITAL
The phenomena analysed in this chapter require for their full development the credit system and competition on the world-market, the latter being the basis and the vital element of capitalist production. These more definite forms of capitalist production can only be comprehensively presented, however, after the general nature of capital is understood. Furthermore, they do not come within the scope of this work and belong to its eventual continuation. Nevertheless the phenomena listed in the above title may be discussed in a general way at this stage. They are interrelated, first with one another and, secondly, also with the rate and amount of profit. They are to be briefly discussed here if only because they create the impression that not only the rate, but also the amount of profit — which is actually identical with the amount of surplus-value — could increase or decrease independently of the movements of the quantity or rate of surplus-value.
Are we to consider release and tie-up of capital, on the one hand, and its appreciation and depreciation, on the other, as different phenomena?
The question is what we mean by release and tie-up of capital? Appreciation and depreciation are self-explanatory. All they mean is that a given capital increases or decreases in value as a result of certain general economic conditions, for we are not discussing the particular fate of an individual capital. All they mean, therefore, is that the value of a capital invested in production rises or falls, irrespective of its self-expansion by virtue of the surplus-labour employed by it.
By tie-up of capital we mean that certain portions of the total value of the product must be reconverted into elements of constant and variable capital if production is to proceed on the same scale. By release of capital we mean that a portion of the total value of the product which had to be reconverted into constant or variable capital up to a certain time, becomes disposable and superfluous, should production continue on the previous scale. This release or tie-up of capital is different from the release or tie-up of revenue. If the annual surplus-value of an individual capital C is, let us say, equal to x, then a reduction in the price of commodities consumed by the capitalists would make x — a sufficient to procure the same enjoyments, etc., as before. A portion of the revenue = a is released, therefore, and may serve either to increase consumption or to be reconverted into capital (for the purpose of accumulation). Conversely, if x + a is needed to continue to live as before, then this standard of living must either be reduced or a portion of the previously accumulated income = a, expended as revenue.
Appreciation and depreciation may affect either constant or variable capital, or both, and in the case of constant capital it may, in turn, affect either the fixed, or the circulating portion, or both.
Under constant capital we must consider the raw and auxiliary materials, including semi-finished products, all of which we here include under the term of raw materials, machinery, and other fixed capital.
In the preceding analysis we referred especially to variations in the price, or the value, of raw materials in respect to their influence on the rate of profit, and determined the general law that with other conditions being equal, the rate of profit is inversely proportional to the value of the raw materials. This is absolutely true for capital newly invested in a business enterprise, in which the investment, i. e., the conversion of money into productive capital, is only just taking place.
But aside from this capital, which is being newly invested, a large portion of the already functioning capital is in the sphere of circulation, while another portion is in the sphere of production. One portion is in the market in the shape of commodities waiting to be converted into money; another is on hand as money, in whatever form, waiting to be reconverted into elements of production; finally, a third portion is in the sphere of production, partly in its original form of means of production such as raw and auxiliary materials, semi-finished products purchased in the market, machinery and other fixed capital, and partly in the form of products which are in the process of manufacture. The effect of appreciation or depreciation depends here to a great extent on the relative proportion of these component parts. Let us, for the sake of simplicity, leave aside all fixed capital and consider only that portion of constant capital which consists of raw and auxiliary materials, and semi-finished products, and both finished commodities in the market and commodities still in the process of production.
If the price of raw material, for instance of cotton, rises, then the price of cotton goods — both semi-finished goods like yarn and finished goods like cotton fabrics — manufactured while cotton was cheaper, rises also. So does the value of the unprocessed cotton held in stock, and of the cotton in the process of manufacture. The latter because it comes to represent more labour-time in retrospect and thus adds more than its original value to the product which it enters, and more than the capitalist paid for it.
Hence, if the price of raw materials rises, and there is a considerable quantity of available finished commodities in the market, no matter what the stage of their manufacture, the value of these commodities rises, thereby enhancing the value of the existing capital. The same is true for the supply of raw materials, etc., in the hands of the producer. This appreciation of value may compensate, or more than compensate, the individual capitalist, or even an entire separate sphere of capitalist production, for the drop in the rate of profit attending a rise in the price of raw materials. Without entering into the detailed effects of competition, we might state for the sake of thoroughness that 1) if available supplies of raw material are considerable, they tend to counteract the price increase which occurred at the place of their origin; 2) if the semi-finished and finished goods press very heavily upon the market, their price is thereby prevented from rising proportionately to the price of their raw materials.
The reverse takes place when the price of raw material falls. Other circumstances remaining the same, this increases the rate of profit. The commodities in the market, the articles in the process of production, and the available supplies of raw material, depreciate in value and thereby counteract the attendant rise in the rate of profit.
The effect of price variations for raw materials is the more pronounced, the smaller the supplies available in the sphere of production and in the market at, say, the close of a business year, i.e., after the harvest in agriculture, when great quantities of raw materials are delivered anew.
We proceed in this entire analysis from the assumption that the rise or fall in prices expresses actual fluctuations in value. But since we are here concerned with the effects such price variations have on the rate of profit, it matters little what is at the bottom of them. The present statements apply equally if prices rise or fall under the influence of the credit system, competition, etc., and not on account of fluctuations in value.
Since the rate of profit equals the ratio of the excess over the value of the product to the value of the total capital advanced, a rise caused in the rate of profit by a depreciation of the advanced capital would be associated with a loss in the value of capital. Similarly, a drop caused in the rate of profit by an appreciation of the advanced capital might possibly be associated with a gain.
As for the other portion of constant capital, such as machinery and fixed capital in general, the appreciation of value taking place in it with respect mainly to buildings, real estate, etc., cannot be discussed without the theory of ground-rent, and does not therefore belong in this chapter. But of a general importance to the question of depreciation are:
The continual improvements which lower the use-value, and therefore the value, of existing machinery, factory buildings, etc. This process has a particularly dire effect during the first period of newly introduced machinery, before it attains a certain stage of maturity, when it continually becomes antiquated before it has time to reproduce its own value. This is one of the reasons for the flagrant prolongation of the working-time usual in such periods, for alternating day and night-shifts, so that the value of the machinery may be reproduced in a shorter time without having to place the figures for wear and tear too high. If, on the other hand, the short period in which the machinery is effective (its short life vis-à-vis the anticipated improvements) is not compensated in this manner, it gives up so much of its value to the product through moral depreciation that it cannot compete even with hand-labour.[15]
After machinery, equipment of buildings, and fixed capital in general, attain a certain maturity, so that they remain unaltered for some length of time at least in their basic construction, there arises a similar depreciation due to improvements in the methods of reproducing this fixed capital. The value of the machinery, etc., falls in this case not so much because the machinery is rapidly crowded out and depreciated to a certain degree by new and more productive machinery, etc., but because it can be reproduced more cheaply. This is one of the reasons why large enterprises frequently do not flourish until they pass into other hands, i. e., after their first proprietors have been bankrupted, and their successors, who buy them cheaply, therefore begin from the outset with a smaller outlay of capital.
It leaps to the eye, particularly in the case of agriculture, that the causes which raise or lower the price of a product, also raise or lower the value of capital, since the latter consists to a large degree of this product, whether as grain, cattle, etc. (Ricardo [D. Ricardo, On the Principles of Political Economy, and Taxation, Third edition, London, 1821, Chapter II. — Ed.]).
There is still variable capital to be considered.
Inasmuch as the value of labour-power rises because there is a rise in the value of the means of subsistence required for its reproduction, or falls because there is a reduction in their value — and the appreciation and depreciation of variable capital are really nothing more than expressions of these two cases — a drop in surplus-value corresponds to such appreciation and an increase in surplus-value to such depreciation, provided the length of the working-day remains the same. But other circumstances — the release and tie-up of capital — may also be associated with such cases, and since we have not analysed them so far, we shall briefly mention them now.
If wages fall in consequence of a depreciation in the value of labour-power (which may even be attended by a rise in the real price of labour), a portion of the capital hitherto invested in wages is released. Variable capital is set free. In the case of new investments of capital, this has simply the effect of its operating with a higher rate of surplus-value. It takes less money than before to set in motion the same amount of labour, and in this way the unpaid portion of labour increases at the expense of the paid portion. But in the case of already invested capital, p115not only does the rate of surplus-value rise but a portion of the capital previously invested in wages is also released. Until this time it was tied up and formed a regular portion which had to be deducted from the proceeds for the product and advanced for wages, acting as variable capital if the business were to continue on its former scale. Now this portion is set free and may be used as a new investment, be it to extend the same business or to operate in some other sphere of production.
Let us assume, for instance, that £500 per week were required at first to employ 500 labourers, and that now only £400 are needed for the same purpose. If the quantity of value produced in either case = £1,000, the amount of weekly surplus-value in the first case = £500 and the rate of surplus-value 500/500 = 100%. But after the wage reduction the quantity of surplus-value £1,000 - £400 = £600, and its rate 600/400 = 150%. And this increase in the rate of surplus-value is the only effect for one who starts a new enterprise in this sphere of production with a variable capital of £400 and a corresponding constant capital. But when this takes place in a business already in operation, the depreciation of the variable capital does not only increase the quantity of surplus-value from £500 to £600, and the rate of surplus-value from 100 to 150%, but releases £100 of the variable capital for the further exploitation of labour. Hence, the same amount of labour is exploited to greater advantage, and, what is more, the release of £100 makes it possible to exploit more labourers than before at the higher rate with the same variable capital of £500.
The advantages resulting from a release and the disadvantages resulting from a tie-up of variable capital both exist only for capital already engaged and reproducing itself under certain given conditions. For newly invested capital the advantages on the one hand, and the disadvantages on the other, are confined to an increase or drop in the rate of surplus-value, and to a corresponding, if in no way proportionate, change in the rate of profit.
The release and tie-up of variable capital, just analysed, is the result of a depreciation or appreciation of the elements of variable capital, that is, of the cost of reproducing labour-power.
But variable capital could also be released if, with the wage rate unchanged, fewer labourers were required due to the development of labour productivity to set in motion the same amount of constant capital. In like manner, there may reversely be a tie-up of additional variable capital if more labourers are required for the same quantity of constant capital due to a drop in productivity. If, on the other hand, a portion of capital formerly employed as variable capital is employed in the form of constant capital, so that merely a different distribution exists between p117the components of the same capital, this has an influence on both the rate of surplus-value and the rate of profit, but does not belong under the heading of tie-up and release of capital, which is here being discussed.
We have already seen that constant capital may also be tied up or released by the appreciation or depreciation of its component elements. Aside from this, it can be tied up only if the productive power of labour increases (provided a portion of the variable is not converted into constant capital), so that the same amount of labour creates a greater product and therefore sets in motion a larger constant capital. The same may occur under certain circumstances if productivity decreases, for instance in agriculture, so that the same quantity of labour requires more means of production, such as seeds or manure, drainage, etc., in order to produce the same output. Constant capital may be released without depreciation if improvements, utilisation of the forces of Nature, etc., enable a constant capital of smaller value to technically perform the same services as were formerly performed by a constant capital of greater value.
But so much is already evident from the foregoing: The greater p119the development of capitalist production, and, consequently, the greater the means of suddenly and permanently increasing that portion of constant capital consisting of machinery, etc., and the more rapid the accumulation (particularly in times of prosperity), so much greater the relative over-production of machinery and other fixed capital, so much more frequent the relative under-production of vegetable and animal raw materials, and so much more pronounced the previously described rise of their prices and the attendant reaction. And so much more frequent are the convulsions caused as they are by the violent price fluctuations of one of the main elements in the process of reproduction.
The closer we approach our own time in the history of production, the more regularly do we find, especially in the essential lines of industry, the ever-recurring alternation between relative appreciation and the subsequent resulting depreciation of raw materials obtained from organic nature. What we have just analysed will be illustrated by the following examples taken from reports of factory inspectors.
The moral of history, also to be deduced from other observations concerning agriculture, is that the capitalist system works against a rational agriculture, or that a rational agriculture is incompatible with the capitalist system (although the latter promotes technical improvements in agriculture), and needs either the hand of the small farmer living by his own labour or the control of associated producers.
Herewith follow the illustrations referred to above, taken from the English Factory Reports.
The halcyon days of the West-Riding worsted industry, of Yorkshire, were 1849-50. This industry employed 29,246 persons in 1838; 37,000 persons in 1843; 48,097 in 1845; and 74,891 in 1850. The same district had 2,768 mechanical looms in 1838; 11,458 in 1841; 16,870 in 1843; 19,121 in 1845 and 29,539 in 1850. (Reports of Insp. of Fact., 1850, p. 60.) This prosperity of the carded wool industry excited certain forebodings as early as October 1850. In his report for April 1851, Sub-Inspector Baker said in regard to Leeds and Bradford:
The same is true of the cotton industry. In the cited report for October 1858, we read:
"Thus we see that, according to Mr. Baynes's calculations, the total number of cotton spindles in the United Kingdom is 28,800,000, and supposing these to be always working full time, that the annual consumption of cotton ought to be 1,432,080,000 lbs. But as the import of cotton, less the export in 1856 and 1857, was only 1,022,576,832 lbs, there must necessarily be a deficiency of supply equal to 409,503,168 lbs. Mr. Baynes, however, who has been good enough to communicate with me on this subject, thinks that an annual consumption of cotton based upon the quantity used in the Blackburn district would be liable to be overcharged, owing to the difference, not only in the counts spun, but in the excellence of the machinery. He estimates the total annual consumption of cotton in the United Kingdom at 1,000,000,000 lbs. But if he is right, and there really is an excess of supply equal to 22,576,832 lbs, supply and demand seem to be nearly balanced already, without taking into consideration those additional spindles and looms which Mr. Baynes speaks of as getting ready for work in his own district, and, by parity of reasoning, probably in other districts also" (pp. 59, 60).
III. GENERAL ILLUSTRATION. THE COTTON CRISIS OF 1861-65 Preliminary History. 1845-60
1845. The golden age of cotton industry. Price of cotton very low. L. Horner says on this point:
1846. The complaints begin:
The rising demand for raw materials naturally went hand in hand with a market flooded with manufactures. By the way, the expansion of industry at that time and the subsequent stagnation were not confined to the cotton districts. The carded wool district of Bradford had only 318 factories in 1836 and 490 in 1846. These figures do not by any means express the actual growth of production, since the existing factories were also considerably enlarged. This was particularly true of the flax spinning-mills.
1847. In October, a money panic. Discount 8%. This was preceded by the debacle of the railway swindle and the East Indian speculation in accommodation bills. But:
1849. Since late in 1848 business revived.
In November 1848, and in May and summer of 1849, right up to October, business flourished.
1850. April. Business continued brisk. The exception:
1850. October.
And on pages 31 and 33 of the same report we learn that the Committee of the Royal Society for the Promotion and Improvement of the Growth of Flax in Ireland predicted that the high price of flax, together with the low level of prices for other agricultural products, ensured a considerable increase in flax production in the ensuing year.
1853. April. Great prosperity. L. Horner says in his report:
1853. October. Depression in the cotton industry. "Over-production." (Reports of Insp. of Fact., Oct. 1853, p. 15.)
1854. April.
1859.
1861-64. American Civil War. Cotton Famine. The Greatest Example of an Interruption in the Production Process through Scarcity and Dearness of Raw Material
1860. April.
1860. October.
1861. April.
It had become evident that in 1860 the cotton industry had overproduced. The effect of this made itself felt during the next few years.
1861. October.
Cotton Waste. East Indian Cotton (Surat). Influence on the Wages of Labourers. Improvement of Machinery. Adding Starch Flour and Mineral Substitutes to Cotton. Effect of Starch Flour Sizing on Labourers. Manufacturers of Finer Yarn Grades. Manufacturers' Fraud
Early in 1861 there was a strike among the mechanical weavers in some parts of Lancashire. Several manufacturers had announced a wage reduction of 5 to 7.5%. The operatives insisted that the wage scale remain the same while working-hours were reduced. This was not granted, and a strike was called. A month later, the operatives had to give in. But then they got both.
1862. April.
1862. October.
According to the same report, 40,146, or 11.3%, of the cotton employees in Lancashire and Cheshire were then working full time; 134,767, or 38%, were working short time; and 179,721, or 50.7%, were unemployed. After deducting the returns from Manchester and Bolton, where mainly fine grades were spun, a line relatively little affected by the cotton famine, the matter looks still more unfavourable; namely, fully employed 8.5%, partly employed 38%, and unemployed 53.5% (pp. 19 and 20).
1863. April.
Wages were miserable, even where work was full time. The cotton workers willingly offered themselves for all public works such as drainage, road-building, stone-breaking and street-paving, in which they were employed, to get their keep from the authorities (although this practically amounted to assistance to the manufacturer. See Book I, S. 598/589 [English edition: pp. 574-75. — Ed.]). The whole bourgeoisie stood guard over the labourers. Were the worst dog's wages offered, and a labourer refused to accept them, the Relief Committee would strike him from its lists. It was in a way a golden age for the manufacturers, for the labourers had either to starve or work at a price most profitable for the bourgeois. The Relief Committees p134acted as watch-dogs. At the same time, the manufacturers acted in secret agreement with the government to hinder emigration as much as possible, partly to retain in readiness the capital invested in the flesh and blood of the labourers, and partly to safeguard the house-rent squeezed out of the labourers.
The operatives were willing to perform any work given to them under the Public Works Act.
Loans to the amount of £883,700 had been granted under this Act up to the end of October 1863 (p. 70). The works undertaken were mainly canalisation, road-building, street-paving, water-works reservoirs, etc.
Mr. Henderson, president of the committee in Blackburn, wrote with reference to this to factory inspector Redgrave:
(Depending on the size of his family, he earned 4 to 12s. per week, this enormous amount providing sometimes for a family of eight. The towns-men derived a double profit from this. In the first place, they secured money to improve their smoky and neglected cities at exceptionally low interest rates. In the second place, they paid the labourers far less than the regular wage.)
1864. April.
It was indeed high time for the manufacturers. Due to the Public Works Act the demand for labour grew so strong that many a factory hand was earning 4 to 5 shillings daily in the quarries of Bacup. And so the public works were gradually suspended — this new edition of the Ateliers nationaux of 1848, but this time instituted in the interests of the bourgeoisie.
Inspector Redgrave, who makes this report, then proceeds to cite wage figures taken from actual practice, of which the following examples may suffice:
A, weaver, family of 6, employed 4 days a week, 6s. 8.5d.; B, twister, employed 4.5 days a week, 6s.; C, weaver, family of 4, employed 5 days a week, 5s. 1d.; D, slubber, family of 6, employed 4 days a week, 7s. 10d.; E, weaver, family of 7, employed 3 days a week, 5s., etc. Redgrave continues:
From the beginning of the crisis to March 25, 1863, nearly three million pounds sterling were expended by the guardians, the Central Relief Committee, and the Mansion House Committee. (Ibid., p. 13.)
In one district, where Egyptian cotton was used with an admixture of East Indian
House-Rent.
Emigration. The employers were naturally opposed to emigration of labourers, because, on the one hand,
Mr. Bernall Osborne said in a speech to his parliamentary constituents on October 22, 1864, that the labourers of Lancashire had behaved like the ancient philosophers — (Stoics). Not like sheep?
Transcribed for the Internet by Hinrich Kuhls
This is true only in two cases. First, when – assuming that all other circumstances, especially the rate of surplus-value, remain unchanged – there is a change in the value of that commodity which is a money-commodity. (The same occurs in a merely nominal change of value, the rise or fall of more tokens of value, other conditions being equal.) Let the total capital = £100, and the profit = £20, the rate of profit being = 20%. Should gold fall by half, or double, the same capital previously worth only £100, will be worth £200 if it falls and the profit will be worth £40, i. e., it will be expressed in so much money instead of the former £20; if it rises, the capital of £100 will be worth only £50, and the profit will be represented by a product, whose value will be £10. But in either case 200:40 = 50:10 = 100:20 = 20%. In all these examples there would, however, have been no actual change in the magnitude of capital-value, and only in the money-expression of the same value and the same surplus-value. For this reason s/C, or the rate of profit, could not be affected.
In the second case there is an actual change of magnitude in the value, but unaccompanied by a change in the ratio of v to c; in other words, with a constant rate of surplus-value the relation of capital invested in labour-power (variable capital considered as an index of the amount of labour-power set in motion) to the capital invested in means of production remains the same. Under these circumstances, no matter whether we have C, or nC, or C/n, e.g., 1,000, or 2,000, or 500, and the rate of profit being 20%, the profit = 200 in the first case, = 400 in the second, and = 100 in the third. But 200:1,000 = 400:2,000 = 100:500 = 20%. That is to say, the rate of profit is unchanged, because the composition of capital remains the same and is not affected by the change in magnitude. Therefore, an increase or decrease in the amount of profit shows merely an increase or decrease in the magnitude of the invested capital.
In the first case there is, therefore, but the appearance of a change in the magnitude of the employed capital, while in the second case there is an actual change in magnitude, but no change in the organic composition of the capital, i. e., in the relative proportions of its variable and constant portions. But with the exception of these two cases, a change in the magnitude of the employed capital is either the result of a preceding change in the value of one of its components, and therefore of a change in the relative magnitude of these components (as long as the surplus-value itself does not change with the variable capital); or, this change of magnitude (as in labour-processes on a large scale, introduction of new machinery, etc.) is the cause of a change in the relative magnitude of its two organic components. In all these cases, other circumstances remaining the same, a change in the magnitude of the employed capital must therefore be accompanied simultaneously by a change in the rate of profit.
Fluctuations in the rate of profit may occur irrespective of changes in the organic components of the capital, or of the absolute magnitude of the capital, through a rise or fall in the value of the fixed or circulating advanced capital caused by an increase or a reduction of the working-time required for its reproduction, this increase or reduction taking place independently of the already existing capital. The value of every commodity – thus also of the commodities making up the capital – is determined not by the necessary labour-time contained in it, but by the social labour-time required for its reproduction. This reproduction may take place under unfavourable or under propitious circumstances, distinct from the conditions of original production. If, under altered conditions, it takes double or, conversely, half the time, to reproduce the same material capital, and if the value of money remains unchanged, a capital formerly worth £100 would be worth £200, or £50 respectively. Should this appreciation or depreciation affect all parts of capital uniformly, then the profit would also be accordingly expressed in double, or half, the amount of money. But if it involves a change in the organic composition of the capital, if the ratio of the variable to the constant portion of capital rises or falls, then, other circumstances remaining the same, the rate of profit will rise with a relatively rising variable capital and fall with a relatively falling one. If only the money-value of the advanced capital rises or falls (in consequence of a change in the value of money), then the money-expression of the surplus-value rises, or falls, in the same proportion. The rate of profit remains unchanged.
The difference in the rates of surplus-value in different countries, and
 consequently the national differences in the degree of exploitation of labor,
 are immaterial for our present analysis. What we want to show in this part is
 precisely the way in which a general rate of profit takes shape in any given
 country. It is evident, however, that a comparison of the various national
 rates of profit requires only a collation of the previously studied with that
 which is here to be studied. First one should consider the differences in the
 national rates of surplus-value, and then, on the basis of these given rates, a
 comparison should be made of the differences in the national rates of profit.
 In so far as those differences are not due to differences in the national rates
 of surplus-value, they must be due to circumstances in which the surplus-value
 is assumed, just as in the analysis of this chapter, to be universally the
 same, i. e., constant.
We demonstrated in the preceding chapter that, assuming the rate of
 surplus-value to be constant, the rate of profit obtaining for a given capital
 may rise or fall in consequence of circumstances which raise or lower the value
 of one or the other portion of constant capital, and so affect the proportion
 between the variable and constant components of capital. We further observed
 that circumstances which prolong or reduce the time of turnover of an
 individual capital may similarly influence the rate of profit. Since the mass
 of the profit is identical with the mass of the surplus-value, and with the
 surplus-value itself, it was also seen that the mass of the profit
 — as distinct from the rate of profit — is not affected by
 the aforementioned fluctuations of value. They only modify the rate in which a
 given surplus-value, and therefore a profit of a given magnitude, express
 themselves; in other words, they modify only the relative magnitude of profit,
 i. e., its magnitude compared with the magnitude of the advanced capital.
 Inasmuch as capital was tied up or released by such fluctuations of value, it
 was not only the rate of profit, but the profit itself, which was likely to be
 affected in this indirect manner. However, this has then always applied only to
 such capital as was already invested, and not to new investments. Besides, the
 increase or reduction of profit always depended on the extent to which the same
 capital could, in consequence of such fluctuation of value, set in motion more
 or less labor; in other words, it depended on the extent to which the same
 capital could, with the rate of surplus-value remaining the same, obtain a
 larger or smaller amount of surplus-value. Far from contradicting the general
 rule, or from being an exception to it, this seeming exception was really but a
 special case in the application of the general rule.
It was seen in the preceding part that, the degree of exploitation remaining
 constant, changes in the value of the component parts of constant capital and
 in the time of turnover of capital are attended by changes in the rate of
 profit. The obvious conclusion is that the rates of profit in different spheres
 of production existing side by side have to differ when, other circumstances
 remaining unchanged, the time of turnover of capitals employed in the different
 spheres differs, or when the value-relation of the organic components of these
 capitals differs in the various branches of production. What we previously
 regarded as changes occurring successively with one and the same capital is now
 to be regarded as simultaneous differences among capital investments existing
 side by side in different spheres of production.
In these circumstances we shall have to analyze: 1) the difference in the
 organic composition of capitals, and 2) the difference in their period
 of turnover.
The premise in this entire analysis is naturally that by speaking of the
 composition or turnover of a capital in a certain line of production we always
 mean the average normal proportions of capital invested in this sphere, and
 generally the average in the total capital employed in that particular sphere,
 and not the accidental differences of the individual capitals.
Since it is further assumed that the rate of surplus-value and the
 working-day are constant, and since this assumption also implies constant
 wages, a certain quantity of variable capital represents a definite quantity of
 labor-power set in motion, and therefore a definite quantity of materialized
 labor. If, therefore, £100 represent the weekly wage of 100 laborers,
 indicating 100 actual labor-powers, then n times £100 indicate the
 labour-powers of n times 100 laborers, and £100/n those of 100/n laborers. The
 variable capital thus serves here (as is always the case when the wage is
 given) as an index of the amount of labor set in motion by a definite total
 capital. Differences in the magnitude of the employed variable capitals serve,
 therefore, as indexes of the difference in the amount of employed labor-power.
 If £100 indicate 100 laborers per week, and represent 6,000 working-hours at 60
 working-hours per week, then £200 represent 12,000, and £50 only 3,000
 working-hours.
By composition of capital we mean, as stated in Book I, the proportion of
 its active and passive components, i. e., of variable and constant capital. Two
 proportions enter into consideration under this heading. They are not equally
 important, although they may produce similar effects under certain
 circumstances.
The first proportion rests on a technical basis, and must be regarded as
 given at a certain stage of development of the productive forces. A definite
 quantity of labor-power represented by a definite number of laborers is
 required to produce a definite quantity of products in, say, one day, and
 — what is self-evident — thereby to consume productively, i. e., to
 set in motion, a definite quantity of means of production, machinery, raw
 materials, etc. A definite number of laborers corresponds to a definite
 quantity of means of production, and hence a definite quantity of living labor
 to a definite quantity of labor materialized in means of production. This
 proportion differs greatly in different spheres of production, and frequently
 even in different branches of one and the same industry, although it may by
 coincidence be entirely or approximately the same in entirely separate lines of
 industry.
This proportion forms the technical composition of capital and is the real
 basis of its organic composition.
However, it is also possible that this first proportion may be the same in
 different lines of industry, provided variable capital is merely an index of
 labor-power and constant capital merely an index of the mass of means of
 production set in motion by this labor-power. For instance, certain work in
 copper and iron may require the same ratio of labor-power to mass of means of
 production. But since copper is more expensive than iron, the value-relation
 between variable and constant capital is different in each case, and hence also
 the value-composition of the two total capitals. The difference between the
 technical composition and the value composition is manifested in each branch of
 industry in that the value-relation of the two portions of capital may vary
 while the technical composition is constant, and the value-relation may remain
 the same while the technical composition varies. The latter case will, of
 course, be possible only if the change in the ratio of the employed masses of
 means of production and labor-power is compensated by a reverse change in their
 values.
The value-composition of capital, inasmuch as it is determined by, and
 reflects, its technical composition, is called the organic composition
 of capital.
In the case of variable capital, therefore, we assume that it is the index
 of a definite quantity of labor-power, or of a definite number of laborers, or
 a definite quantity of living labor set in motion. We have seen in the
 preceding part that a change in the magnitude of the value of variable capital
 might eventually indicate nothing but a higher or lower price of the same mass
 of labor. But here, where the rate of surplus-value and the working-day are
 taken to be constant, and the wages for a definite working period are given,
 this is out of the question. On the other hand, a difference in the magnitude
 of the constant capital may likewise be an index of a change in the mass of
 means of production set in motion by a definite quantity of labor-power. But it
 may also stem from a difference in value between the means of production set in
 motion in one sphere and those of another. Both points of view must therefore
 be examined here.
Finally, we must take note of the following essential facts:
Let £100 be the weekly wage of 100 laborers. Let the weekly working-hours =
 60. Furthermore, let the rate of surplus-value = 100%. In this case, the
 laborers work 30 of the 60 hours for themselves and 30 hours gratis for the
 capitalist. In fact, the £100 of wages represent just the 30 working-hours of
 100 laborers, or altogether 3,000 working-hours, while the other 3,000 hours
 worked by the laborers are incorporated in the £100 of surplus-value, or in the
 profit pocketed by the capitalist. Although the wage of £100 does not,
 therefore, express the value in which the weekly labor of the 100 laborers is
 materialized, it indicates nevertheless (since the length of the working-day
 and the rate of surplus-value are given) that this capital sets in motion 100
 laborers for 6,000 working-hours. The capital of £100 indicates this, first,
 because it indicates the number of laborers set in motion, with £1 = 1 laborer
 per week, hence £100 = 100 laborers; and, secondly, because, since the rate of
 surplus-value is given as 100%, each of these laborers performs twice as much
 work as is contained in his wages, so that £1, i. e., his wage, which is the
 expression of half a week of labor, actuates a whole week's labor, just as £100
 sets in motion 100 weeks of labor, although it contains only 50. A very
 essential distinction is thus to be made in regard to variable capital laid out
 in wages. Its value as the sum of wages, i. e., as a certain amount of
 materialised labour, is to be distinguished from its value as a mere index of
 the mass of living labour which it sets in motion. The latter is always greater
 than the labour which it incorporates, and is, therefore, represented by a
 greater value than that of the variable capital. This greater value is
 determined, on the one hand, by the number of labourers set in motion by the
 variable capital and, on the other, by the quantity of surplus-labour performed
 by them.
It follows from this manner of looking upon variable capital that:
When a capital invested in production sphere A expends only 100 in variable
 capital for each 700 of total capital, leaving 600 for constant capital, while
 a capital invested in production sphere B expends 600 for variable and only 100
 for constant capital, then capital A of 700 sets in motion only 100 of
 labour-power, or, in the terms of our previous assumption, 100 weeks of labour,
 or 6,000 hours of living labour, while the same amount of capital B will set in
 motion 600 weeks of labour, or 36,000 hours of living labour. The capital in A
 would then appropriate only 50 weeks of labour, or 3,000 hours of
 surplus-labour, while the same amount of capital in B would appropriate 300
 weeks of labour, or 18,000 hours. Variable capital is not only the index of the
 labour embodied in it. When the rate of surplus-value is known it is also an
 index of the amount of labour set in motion over and above that embodied in
 itself, i. e., of surplus-labour. Assuming the same intensity of exploitation,
 the profit in the first case would be 100/700 = 1/7 = 14 2/7%, and in the
 second case, 600/700 = 6/7 = 85 5/7%, or a six-fold rate of profit. In this
 case, the profit itself would actually be six times as great, 600 in B as
 against 100 in A, because the same capital set in motion six times as much
 living labour, which at the same level of exploitation means six times as much
 surplus value, and thus six times as much profit.
But if the capital invested in A were not 700 but £7,000, while that
 invested in B were only £700, and the organic composition of both were to
 remain the same, then the capital in A would employ £1,000 of the £7,000 as
 variable capital, that is, 1,000 labourers per week = 60,000 hours of living
 labour, of which 30,000 would be surplus-labour. Yet each £700 of the capital
 in A would continue to set in motion only 1/6 as much living labour, and hence
 only 1/6 as much surplus-labour, as the capital in B, and would produce only
 1/6 as much profit. If we consider the rate of profit, then in A 1000/7000 =
 100/700 = 14 2/7%, as compared with 600/700, or 85 5/7%, in B. Taking equal
 amounts of capital, the rates of profit differ because, owing to the different
 masses of living labour set in motion, the masses of surplus-value, and thus of
 profit, differ, although the rates of surplus-value are the same.
We get practically the same result if the technical conditions are the same
 in both spheres of production, but the value of the elements of the employed
 constant capital is greater or smaller in the one than in the other. Let us
 assume that both invest £100 as variable capital and therefore employ 100
 labourers per week to set in motion the same quantity of machinery and raw
 materials. But let the latter be more expensive in B than in A. For instance,
 let the £100 of variable capital set in motion £200 of constant capital in A,
 and £400 in B. With the same rate of surplus-value, of 100%, the surplus-value
 produced is in either case equal to £100. Hence, the profit is also equal to
 £100 in both. But the rate of profit in A is 100/(200c +
 100v) = ⅓ = 33⅓%, while in B it is
 100/(400c + 100v) = 1/5 = 20%. In
 fact, if we select a certain aliquot part of the total capital in either case,
 we find that in every £100 of B only £20, or 1/5, constitute variable capital,
 while in every £100 of A £33⅓, or ⅓, form variable capital. B
 produces less profit for each £100, because it sets in motion less living
 labour than A. The difference in the rates of profit thus resolves itself once
 more, in this case, into a difference of the masses of profit, because of the
 masses of surplus-value, produced by each 100 of invested capital.
The difference between this second example and the first is just this: The
 equalisation between A and B in the second case would require only a change in
 the value of the constant capital of either A or B, provided the technical
 basis remained the same. But in the first case the technical composition itself
 is different in the two spheres of production and would have to be completely
 changed to achieve an equalisation.
The different organic composition of various capitals is thus independent of
 their absolute magnitude. It is always but a question of how much of every 100
 is variable and how much constant capital.
Now, if capitals in different spheres of production, calculated in per cent,
 i. e., capitals of equal magnitude, produce unequal profits in consequence of
 their different organic composition, then it follows that the profits of
 unequal capitals in different spheres of production cannot be proportional to
 their respective magnitudes, or that profits in different spheres of production
 are not proportional to the magnitude of the respective capitals invested in
 them. For if profits were to grow pro rata to the magnitude of
 invested capital, it would mean that in per cent the profits would be the same,
 so that in different spheres of production capitals of equal magnitude would
 have equal rates of profit, in spite of their different organic composition. It
 is only in the same sphere of production, where we have a given organic
 composition of capital, or in different spheres with the same organic
 composition of capital, that the amounts of profits are directly proportional
 to the amounts of invested capitals. To say that the profits of unequal
 capitals are proportional to their magnitudes would only mean that capitals of
 equal magnitude yield equal profits, or that the rate of profit is the same for
 all capitals, whatever their magnitude and organic composition.
These statements hold good on the assumption that the commodities are sold
 at their values. The value of a commodity is equal to the value of the constant
 capital contained in it, plus the value of the variable capital reproduced in
 it, plus the increment — the surplus-value produced — of this
 variable capital. At the same rate of surplus-value, its quantity evidently
 depends on the quantity of the variable capital. The value of the product of an
 individual capital of 100 is, in one case, 90c + 10v + 10s = 110; and in the other, 10c + 90v + 90s =
 l90. If the commodities go at their values, the first product is sold at 110,
 of which 10 represent surplus-value, or unpaid labour, and the second at 190,
 of which 90 represent surplus-value, or unpaid labour.
This is particularly important in comparing rates of profit in different
 countries. Let us assume that the rate of surplus-value in one European country
 is 100%, so that the labourer works half of the working-day for himself and the
 other half for his employer. Let us further assume that the rate of profitsurplus value in
 an Asian country is 25%, so that the labourer works 4/5 of the working-day for
 himself, and 1/5 for his employer. Let 84c + l6v be the composition of the national capital in the European
 country, and 16c + 84v in the Asian
 country, where little machinery, etc., is used, and where a given quantity of
 labour-power consumes relatively little raw material productively in a given
 time. Then we have the following calculation:
In the European country the value of the product = 84c
 + 16v + 16s = 116; rate of profit =
 16/100 = 16%.
In the Asian country the value of the product = 16c +
 84v + 21s = 121; rate of profit =
 21/100 = 21%.
The rate of profit in the Asian country is thus more than 25% higher than in
 the European country, although the rate of surplus-value in the former is
 one-fourth that of the latter. Men like Carey, Bastiat, and tutti
 quanti, would arrive at the very opposite conclusion.
By the way, different national rates of profit are mostly based on different
 national rates of surplus-value. But in this chapter we compare unequal rates
 of profit derived from the same rate of surplus-value.
Aside from differences in the organic composition of capitals, and therefore
 aside from the different masses of labour — and consequently, other
 circumstances remaining the same, from different masses of surplus-labour set
 in motion by capitals of the same magnitude in different spheres of production,
 there is yet another source of inequality in rates of profit. This is the
 different period of turnover of capital in different spheres of production. We
 have seen in Chapter IV that, other conditions being equal, the rates of profit
 of capitals of the same organic composition are inversely proportional to their
 periods of turnover. We have also seen that the same variable capital turned
 over in different periods of time produces different quantities of annual
 surplus-value. The difference in the periods of turnover is therefore another
 reason why capitals of equal magnitude in different spheres of production do
 not produce equal profits in equal periods, and why, consequently, the rates of
 profit in these different spheres differ.
It follows, therefore, that the different composition of constant capital in
 respect to its fixed and circulating portions in various branches of production
 has in itself no bearing on the rate of profit, since it is the ratio of
 variable to constant capital which decides this question, while the value of
 the constant capital, and therefore also its magnitude in relation to the
 variable is entirely unrelated to the fixed or circulating nature of its
 components. Yet it may be found — and this often leads to incorrect
 conclusions — that wherever fixed capital is considerably advanced this
 but expresses the fact that production is on a large scale, so that constant
 capital greatly outweighs the variable, or that the living labour-power it
 employs is small compared to the mass of the means of production which it
 operates.
We have thus demonstrated that different lines of industry have different
 rates of profit, which correspond to differences in the organic composition of
 their capitals and, within indicated limits, also to their different periods of
 turnover; given the same time of turnover, the law (as a general tendency) that
 profits are related to one another as the magnitudes of the capitals, and that,
 consequently, capitals of equal magnitude yield equal profits in equal periods,
 applies only to capitals of the same organic composition, even with the same
 rate of surplus-value. These statements hold good on the assumption which has
 been the basis of all our analyses so far, namely that the commodities are sold
 at their values. There is no doubt, on the other hand, that aside from
 unessential, incidental and mutually compensating distinctions, differences in
 the average rate of profit in the various branches of industry do not exist in
 reality, and could not exist without abolishing the entire system of capitalist
 production. It would seem, therefore, that here the theory of value is
 incompatible with the actual process, incompatible with the real phenomena of
 production, and that for this reason any attempt to understand these phenomena
 should be given up.
It follows from the first part of this volume that the cost-prices of
 products in different spheres of production are equal if equal portions of
 capital have been advanced for their production, however different the organic
 composition of such capitals. The distinction between variable and constant
 capital escapes the capitalist in the cost-price. A commodity for whose
 production he must advance £100 costs him just as much, whether he invests
 90c + 10v, or 10c + 90v. It costs him £100 in either
 case — no more and no less. The cost-prices are the same for equal
 capitals in different spheres, no matter how much the produced values and
 surplus-values may differ. The equality of cost-prices is the basis for
 competition among invested capitals, whereby an average profit is brought
 about.
Let us take five different spheres of production, and let the capital in each have a different organic composition as follows:
Here, in different spheres of production with the same degree of exploitation, we find considerably different rates of profit corresponding to the different organic composition of these capitals.
The sum total of the capitals invested in these five spheres of production = 500; the sum total of the surplus-value produced by them = 110; the aggregate value of the commodities produced by them = 610. If we consider the 500 as a single capital, and capitals I to V merely as its component parts (as, say, different departments of a cotton mill, which has different ratios of constant to variable capital in its carding, preparatory spinning, spinning, and weaving shops, and in which the average ratio for the factory as a whole has still to be calculated), the mean composition of this capital of 500 would = 390c + 110v, or, in per cent, = 78c + 22v. Should each of the capitals of 100 be regarded as 1/5 of the total capital, its composition would equal this average of 78c + 22v; for every 100 there would be an average surplus-value of 22; thus, the average rate of profit would = 22%, and, finally, the price of every fifth of the total product produced by the 500 would = 122. The product of each fifth of the advanced total capital would then have to be sold at 122.
But to avoid entirely erroneous conclusions it must not be assumed that all cost-prices = 100.
With 80c + 20v and a rate of surplus-value = 100%, the total value of commodities produced by capital I = 100 would be 80c + 20v + 20s = 120, provided the entire constant capital went into the annual product. Now, this may under certain circumstances be the case in some spheres of production. But hardly in cases where the proportion of c : v = 4 : 1. We must, therefore, remember in comparing the values produced by each 100 of the different capitals, that they will differ in accordance with the different composition of c as to its fixed and circulating parts, and that, in turn, the fixed portions of each of the different capitals depreciate slowly or rapidly as the case may be, thus transferring unequal quantities of their value to the product in equal periods of time. But this is immaterial to the rate of profit. No matter whether the 80c give up a value of 80, or 50, or 5, to the annual product, and the annual product consequently = 80c + 20v + 20s = 120, or 50c + 20v + 20s = 90, or 5v + 20v + 20s = 45; in all these cases the redundance of the product's value over its cost-price = 20, and in calculating the rate of profit these 20 are related to the capital of 100 in all of them. The rate of profit of capital I, therefore, is 20% in every case. To make this still plainer, we let different portions of constant capital go into the value of the product of the same five capitals in the following table:
If we now again consider capitals I to V as a single total capital, we shall see that, in this case as well, the composition of the sums of these five capitals = 500 = 390c + 110v, so that we get the same average composition = 78c + 22v, and, similarly, the average surplus-value remains 22. If we divide this surplus-value uniformly among capitals I to V, we get the following commodity-prices:
Taken together, the commodities are sold at 2 + 7 + 17 = 26 above, and 8 + 18 = 26 below their value, so that the deviations of price from value balance out one another through the uniform distribution of surplus-value, or through addition of the average profit of 22 per 100 units of advanced capital to the respective cost-prices of the commodities I to V. One portion of the commodities is sold above its value in the same proportion in which the other is sold below it. And it is only the sale of the commodities at such prices that enables the rate of profit for capitals I to V to be uniformly 22%, regardless of their different organic composition. The prices which obtain as the average of the various rates of profit in the different spheres of production added to the cost-prices of the different spheres of production, constitute the prices of production. They have as their prerequisite the existence of a general rate of profit, and this, again, presupposes that the rates of profit in every individual sphere of production taken by itself have previously been reduced to just as many average rates. These particular rates of profit = s/c in every sphere of production, and must, as occurs in Part I of this book, be deduced out of the values of the commodities. Without such deduction the general rate of profit (and consequently the price of production of commodities) remains a vague and senseless conception. Hence, the price of production of a commodity is equal to its cost-price plus the profit, allotted to it in per cent, in accordance with the general rate of profit, or, in other words, to its cost-price plus the average profit.
Owing to the different organic compositions of capitals invested in different lines of production, and, hence, owing to the circumstance that — depending on the different percentage which the variable part makes up in a total capital of a given magnitude — capitals of equal magnitude put into motion very different quantities of labour, they also appropriate very different quantities of surplus-labour or produce very different quantities of surplus-value. Accordingly, the rates of profit prevailing in the various branches of production are originally very different. These different rates of profit are equalized by competition to a single general rate of profit, which is the average of all these different rates of profit. The profit accruing in accordance with this general rate of profit to any capital of a given magnitude, whatever its organic composition, is called the average profit. The price of a commodity, which is equal to its cost-price plus the share of the annual average profit on the total capital invested (not merely consumed) in its production that falls to it in accordance with the conditions of turnover, is called its price of production. Take, for example, a capital of 500, of which 100 is fixed capital, and let 10% of this wear out during one turnover of the circulating capital of 400. Let the average profit for the period of turnover be 10%. In that case the cost-price of the product created during this turnover will be 10c for wear plus 400 (c + v) circulating capital = 410, and its price of production will be 410 cost-price plus (10% profit on 500) 50 = 460.
Thus, although in selling their commodities the capitalists of the various spheres of production recover the value of the capital consumed in their production, they do not secure the surplus-value, and consequently the profit, created in their own sphere by the production of these commodities. What they secure is only as much surplus-value, and hence profit, as falls, when uniformly distributed, to the share of every aliquot part of the total social capital from the total social surplus-value, or profit, produced in a given time by the social capital in all spheres of production. Every 100 of an invested capital, whatever its composition, draws as much profit in a year, or any other period of time, as falls to the share of every 100, the Nth part of the total capital, during the same period. So far as profits are concerned, the various capitalists are just so many stockholders in a stock company in which the shares of profit are uniformly divided per 100, so that profits differ in the case of the individual capitalists only in accordance with the amount of capital invested by each in the aggregate enterprise, i. e., according to his investment in social production as a whole, according to the number of his shares. Therefore, the portion of the price of commodities which replaces the elements of capital consumed in the production of these commodities, the portion, therefore, which will have to be used to buy back these consumed capital-values, i. e., their cost-price, depends entirely on the outlay of capital within the respective spheres of production. But the other element of the price of commodities, the profit added to this cost-price, does not depend on the amount of profit produced in a given sphere of production by a given capital in a given period of time. It depends on the mass of profit which falls as an average for any given period to each individual capital as an aliquot part of the total social capital invested in social production.
When a capitalist sells his commodities at their price of production, therefore, he recovers money in proportion to the value of the capital consumed in their production and secures profit in proportion to this advanced capital as the aliquot part in the total social capital. His cost-prices are specific. But the profit added to them is independent of his particular sphere of production, being a simple average per 100 units of invested capital.
Let us assume that the five different investments I to V of the foregoing illustration belong to one man. The quantity of variable and constant capital consumed per 100 of the invested capital in each of the departments I to V in the production of commodities I to V would, needless to say, make up a part of their price, since at least this price is required to recover the advanced and consumed portions of the capital. These cost-prices would therefore be different for each class of the commodities I to V, and would as such be set differently by the owner. But as regards the different quantities of surplus-value, or profit, produced by I to V, they might easily be regarded by the capitalist as profit on his advanced aggregate capital, so that each 100 units would get their definite aliquot part. Hence, the cost-prices of the commodities produced in the various departments I to V would be different; but that portion of their selling price derived from the profit added per 100 capital would be the same for all these commodities. The aggregate price of the commodities I to V would therefore equal their aggregate value, i. e., the sum of the cost-prices I to V plus the sum of the surplus-values, or profits, produced in I to V. It would hence actually be the money-expression of the total quantity of past and newly applied labour incorporated in commodities I to V. And in the same way the sum of the prices of production of all commodities produced in society — the totality of all branches of production — is equal to the sum of their values.
This statement seems to conflict with the fact that under capitalist production the elements of productive capital are, as a rule, bought on the market, and that for this reason their prices include profit which has already been realised, hence, include the price of production of the respective branch of industry together with the profit contained in it, so that the profit of one branch of industry goes into the cost-price of another. But if we place the sum of the cost-prices of the commodities of an entire country on one side, and the sum of its surplus-values, or profits, on the other, the calculation must evidently be right. For instance, take a certain commodity A. Its cost-price may contain the profits of B, C, D, etc., just as the cost-prices of B, C, D, etc., may contain the profits of A. Now, as we make our calculation the profit of A will not be included in its cost-price, nor will the profits of B, C, D, etc., be included in theirs. Nobody ever includes his own profit in his cost-price. If there are, therefore, n spheres of production, and if each makes a profit amounting to p, then their aggregate cost-price = k - np. Considering the calculation as a whole we see that since the profits of one sphere of production pass into the cost-price of another, they are therefore included in the calculation as constituents of the total price of the end-product, and so cannot appear a second time on the profit side. If any do appear on this side, however, then only because the commodity in question is itself an ultimate product, whose price of production does not pass into the cost-price of some other commodity.
If the cost-price of a commodity includes a sum = p, which stands for the profits of the producers of the means of production, and if a profit = p1 is added to this cost-price, the aggregate profit P = p + p1. The aggregate cost-price of the commodity, considered without the profit portions, is then its own cost-price minus P. Let this cost-price be k. Then, obviously, k + p = k + p + p1. In dealing with surplus-values, we have seen in Book I that the product of every capital may be so treated, as though a part of it replaces only capital, while the other part represents only surplus-value. In applying this approach to the aggregate product of society, we must make some rectifications. Looking upon society as a whole, the profit contained in, say, the price of flax cannot appear twice — not both as a portion of the linen price and as the profit of the flax.
There is no difference between surplus-value and profit, as long as, e.g., A's surplus-value passes into B's constant capital. It is, after all, quite immaterial to the value of the commodities, whether the labour contained in them is paid or unpaid. This merely shows that B pays for A's surplus-value. A's surplus-value cannot be entered twice in the total calculation.
But the difference is this: Aside from the fact that the price of a particular product, let us say that of capital B, differs from its value because the surplus-value realised in B may be greater or smaller than the profit added to the price of the products of B, the same circumstance applies also to those commodities which form the constant part of capital B, and indirectly also its variable part, as the labourers' necessities of life. So far as the constant portion is concerned, it is itself equal to the cost-price plus the surplus-value, here therefore equal to cost-price plus profit, and this profit may again be greater or smaller than the surplus-value for which it stands. As for the variable capital, the average daily wage is indeed always equal to the value produced in the number of hours the labourer must work to produce the necessities of life. But this number of hours is in its turn obscured by the deviation of the prices of production of the necessities of life from their values. However, this always resolves itself to one commodity receiving too little of the surplus-value while another receives too much, so that the deviations from the value which are embodied in the prices of production compensate one another. Under capitalist production, the general law acts as the prevailing tendency only in a very complicated and approximate manner, as a never ascertainable average of ceaseless fluctuations.
Since the general rate of profit is formed by taking the average of the various rates of profit for each 100 of capital invested in a definite period, e.g., a year, it follows that in it the difference brought about by different periods of turnover of different capitals is also effaced. But these differences have a decisive bearing on the different rates of profit in the various spheres of production whose average forms the general rate of profit.
In the preceding illustration concerning the formation of the average rate of profit we assumed each capital in each sphere of production = 100, and we did so to show the difference in the rates of profit in per cent, and thus also the difference in the values of commodities produced by equal amounts of capital. But it goes without saying that the actual amounts of surplus-value produced in each sphere of production depend on the magnitude of the invested capitals, since the composition of capital is given in each sphere of production. Yet the actual rate of profit in any particular sphere of production is not affected by the fact that the capital invested is 100, or m times 100, or xm times 100. The rate of profit remains 10%, whether the total profit is 10:100, or 1,000:10,000.
However, since the rates of profit differ in the various spheres of production, with very much different quantities of surplus-value, or profit, being produced in them, depending on the proportion of the variable to the total capital, it is evident that the average profit per 100 of the social capital, and hence the average, or general, rate of profit, will differ considerably in accordance with the respective magnitudes of the capitals invested in the various spheres. Let us take four capitals A, B, C, D. Let the rate of surplus-value for all = 100%. Let the variable capital for each 100 of the total be 25 in A, 40 in B, 15 in C, and 10 in D. Then each 100 of the total capital would yield a surplus-value, or profit, of 25 in A, 40 in B, 15 in C, and 10 in D. This would total 90, and if these four capitals are of the same magnitude, the average rate of profit would then be 90/4 or 22½%.
Suppose, however, the total capitals are as follows: A = 200, B = 300, C = 1,000, D = 4,000. The profits produced would then respectively = 50, 120, 150, and 400. This makes a profit of 720, and an average rate of profit of 13 1/11% for 5,500, the sum of the four capitals.
The masses of the total value produced differ in accordance with the magnitudes of the total capitals invested in A, B, C, D, respectively. The formation of the average rate of profit is, therefore, not merely a matter of obtaining the simple average of the different rates of profit in the various spheres of production, but rather one of the relative weight which these different rates of profit have in forming this average. This, however, depends on the relative magnitude of the capital invested in each particular sphere, or on the aliquot part which the capital invested in each particular sphere forms in the aggregate social capital. There will naturally be a very great difference, depending on whether a greater or smaller part of the total capital produces a higher or lower rate of profit. And this, again, depends on how much capital is invested in spheres, in which the variable capital is relatively small or large compared to the total capital. It is just like the average interest obtained by a usurer who lends various quantities of capital at different interest rates; for instance, at 4, 5, 6, 7%, etc. The average rate will depend entirely on how much of his capital he has loaned out at each of the different rates of interest.
The general rate of profit is, therefore, determined by two factors:
1) The organic composition of the capitals in the different spheres of production, and thus, the different rates of profit in the individual spheres.
2) The distribution of the total social capital in these different spheres, and thus, the relative magnitude of the capital invested in each particular sphere at the specific rate of profit prevailing in it; i. e., the relative share of the total social capital absorbed by each individual sphere of production.
In Books I and II we dealt only with the value of commodities. On the one hand, the cost-price has now been singled out as a part of this value, and, on the other, the price of production of commodities has been developed as its converted form.
Suppose the composition of the average social capital is 80c + 20v and the annual rate of surplus-value, s', is 100%. In that case the average annual profit for a capital of 100 = 20, and the general annual rate of profit = 20%. Whatever the cost-price, k, of the commodities annually produced by a capital of 100, their price of production would then be k + 20. In those spheres of production in which the composition of capital would = (80 - x)c + (20 + x)v, the actually produced surplus-value, or the annual profit produced in that particular sphere, would be 20 + x, that is, greater than 20, and the value of the produced commodities = k + 20 + x, that is, greater than k + 20, or greater than their price of production. In those spheres, in which the composition of the capital=(80 + x)c + (20 - x)v, the annually produced surplus-value, or profit, would = 20 - x, or less than 20, and consequently the value of the commodities k + 20 - x less than the price of production, which = k + 20. Aside from possible differences in the periods of turnover, the price of production of the commodities would then equal their value only in spheres, in which the composition would happen to be 80c + 20v.
The specific development of the social productivity of labour in each particular sphere of production varies in degree, higher or lower, depending on how large a quantity of means of production are set in motion by a definite quantity of labour, hence in a given working-day by a definite number of labourers, and, consequently, on how small a quantity of labour is required for a given quantity of means of production. Such capitals as contain a larger percentage of constant and a smaller percentage of variable capital than the average social capital are, therefore, called capitals of higher composition, and, conversely, those capitals in which the constant is relatively smaller, and the variable relatively greater than in the average social capital, are called capitals of lower composition. Finally, we call those capitals whose composition coincides with the average, capitals of average composition. Should the average social capital be composed in per cent of 80c + 20v, then a capital of 90c + 10v is higher, and a capital of 70c + 30vlower than the social average. Generally speaking, if the composition of the average social capital=mc + nv, in which m and n are constant magnitudes and m + n = 100, the formula (m + x)c + (n - x)v represents the higher composition, and (m - x)c + (n + x)v the lower composition of an individual capital or group of capitals. The way in which these capitals perform their functions after establishment of an average rate of profit and assuming one turnover per year, is shown in the following tabulation, in which I represents the average composition with an average rate of profit of 20%.
The value of the commodities produced by capital II would, therefore, be smaller than their price of production, the price of production of the commodities of III smaller than their value, and only in the case of capital I in branches of production in which the composition happens to coincide with the social average, would value and price of production be equal. In applying these terms to any particular cases note must, however, be taken whether a deviation of the ratio between c and v is simply due to a change in the value of the elements of constant capital, rather than to a difference in the technical composition.
The formula that the price of production of a commodity = k + p, i. e., equals its cost-price plus profit, is now more precisely defined with p = kp' (p' being the general rate of profit). Hence the price of production = k + kp'. If k = 300 and p' = 15%, then the price of production is k + kp' = 300 + 300 × 15/100, or 345.
The price of production of the commodities in any particular sphere may change in magnitude:
1) If the general rate of profit changes independently of this particular sphere, while the value of the commodities remains the same (the same quantities of congealed and living labour being consumed in their production as before).
2) If there is a change of value, either in this particular sphere in consequence of technical changes, or in consequence of a change in the value of those commodities which form the elements of its constant capital, while the general rate of profit remains unchanged.
3) Finally, if a combination of the two aforementioned circumstances takes place.
In spite of the great changes occurring continually, as we shall see, in the actual rates of profit within the individual spheres of production, any real change in the general rate of profit, unless brought about by way of an exception by extraordinary economic events, is the belated effect of a series of fluctuations extending over very long periods, fluctuations which require much time before consolidating and equalising one another to bring about a change in the general rate of profit. In all shorter periods (quite aside from fluctuations of market-prices), a change in the prices of production is, therefore, always traceable prima facie to actual changes in the value of commodities, i. e., to changes in the total amount of labour-time required for their production. Mere changes in the money-expression of the same values are, naturally, not at all considered here.
On the other hand, it is evident that from the point of view of the total social capital the value of the commodities produced by it (or, expressed in money, their price) = value of constant capital + value of variable capital + surplus-value. Assuming the degree of labour exploitation to be constant, the rate of profit cannot change so long as the mass of surplus-value remains the same, unless there is a change in either the value of the constant capital, the value of the variable capital, or the value of both, so that C changes, and thereby s/C, which represents the general rate of profit. In each case, therefore, a change in the general rate of profit implies a change in the value of commodities which form the elements of the constant or variable capital, or of both.
Or, the general rate of profit may change, while the value of the commodities remains the same, when the degree of labour exploitation changes.
Or, if the degree of labour exploitation remains the same, the general rate of profit may change through a change in the amount of labour employed relative to the constant capital as a result of technical changes in the labour-process. But such technical changes must always show themselves in, and be attended by, a change in the value of the commodities, whose production would then require more or less labour than before.
We saw in Part I that surplus-value and profit are identical from the standpoint of their mass. But the rate of profit is from the very outset distinct from the rate of surplus-value, which appears at first sight as merely a different form of calculating. But at the same time this serves, also from the outset, to obscure and mystify the actual origin of surplus-value, since the rate of profit can rise or fall while the rate of surplus-value remains the same, and vice versa, and since the capitalist is in practice solely interested in the rate of profit. Yet there was difference of magnitude only between the rate of surplus-value and the rate of profit and not between the surplus-value itself and profit. Since in the rate of profit the surplus-value is calculated in relation to the total capital and the latter is taken as its standard of measurement, the surplus-value itself appears to originate from the total capital, uniformly derived from all its parts, so that the organic difference between constant and variable capital is obliterated in the conception of profit. Disguised as profit, surplus-value actually denies its origin, loses its character, and becomes unrecognisable. However, hitherto the distinction between profit and surplus-value applied solely to a qualitative change, or change of form, while there was no real difference of magnitude in this first stage of the change between surplus-value and profit, but only between the rate of profit and the rate of surplus-value.
But it is different, as soon as a general rate of profit, and thereby an average profit corresponding to the magnitude of invested capital given in the various spheres of production, have been established.
The fact that this intrinsic connection is here revealed for the first time; that up to the present time political economy, as we shall see in the following and in Book IV, either forcibly abstracted itself from the distinctions between surplus-value and profit, and their rates, so it could retain value determination as a basis, or else abandoned this value determination and with it all vestiges of a scientific approach, in order to cling to the differences that strike the eye in this phenomenon — this confusion of the theorists best illustrates the utter incapacity of the practical capitalist, blinded by competition as he is, and incapable of penetrating its phenomena, to recognise the inner essence and inner structure of this process behind its outer appearance.
In fact, all the laws evolved in Part I concerning the rise and fall of the rate of profit have the following two-fold meaning:
1) On the one hand, they are the laws of the general rate of profit. In view of the many different causes which make the rate of profit rise or fall one would think, after everything that has been said and done, that the general rate of profit must change every day. But a trend in one sphere of production compensates for that in another, their effects cross and paralyse one another. We shall later examine to which side these fluctuations ultimately gravitate. But they are slow. The suddenness, multiplicity, and different duration of the fluctuations in the individual spheres of production make them compensate for one another in the order of their succession in time, a fall in prices following a rise, and vice versa, so that they remain limited to local, i. e., individual, spheres. Finally, the various local fluctuations neutralise one another. Within each individual sphere of production, there take place changes, i. e., deviations from the general rate of profit, which counterbalance one another in a definite time on the one hand, and thus have no influence upon the general rate of profit, and which, on the other, do not react upon it, because they are balanced by other simultaneous local fluctuations. Since the general rate of profit is not only determined by the average rate of profit in each sphere, but also by the distribution of the total social capital among the different individual spheres, and since this distribution is continually changing, it becomes another constant cause of change in the general rate of profit. But it is a cause of change which mostly paralyses itself, owing to the uninterrupted and many-sided nature of this movement.
2) Within each sphere, there is some room for play for a longer or shorter space of time, in which the rate of profit of this sphere may fluctuate, before this fluctuation consolidates sufficiently after rising or falling to gain time for influencing the general rate of profit and therefore assuming more than local importance. The laws of the rate of profit, as developed in Part I of this book, likewise remain applicable within these limits of space and time.
If in any particular sphere of production there is a rise or fall of the portion of the cost-price which represents the value of constant capital, this portion comes from the circulation and, either enlarged or reduced, passes from the very outset into the process of production of the commodity. If, on the other hand, the same number of labourers produces more or less in the same time, so that the quantity of labour required for the production of a definite quantity of commodities varies while the number of labourers remains the same, that portion of the cost-price which represents the value of the variable capital may remain the same, i. e., contribute the same amount to the cost-price of tho total product. But every one of the individual commodities whose sum makes up the total product, shares in more or less labour (paid and therefore also unpaid), and shares consequently in the greater or smaller outlay for this labour, i. e., a 1arger or smaller portion of the wage. The total wages paid by the capitalist remain the same, but wages differ if calculated per piece of the commodity. Thus, there is a change in this portion of the cost-price of the commodity. But no matter whether the cost-price of the individual commodity (or, perhaps, the cost-price of the sum of commodities produced by a capital of a given magnitude) rises or falls, be it due to such changes in its own value, or in that of its elements, the average profit of, e.g., 10% remains 10%. Still, 10% of an individual commodity may represent very different amounts, depending on the change of magnitude caused in the cost-price of the individual commodity by such changes of value as we have assumed.
In the case of capitals of average, or approximately average, composition, the price of production is thus the same or almost the same as the value, and the profit the same as the surplus-value produced by them. All other capitals, of whatever composition, tend toward this average under pressure of competition. But since the capitals of average composition are of the same, or approximately the same, structure as the average social capital, all capitals have the tendency, regardless of the surplus-value produced by them, to realize the average profit, rather than their own surplus-value in the price of their commodity, i.e., to realize the prices of production.
On the other hand, it may be said that wherever an average profit, and therefore a general rate of profit, is produced — no matter by what means — such an average profit cannot be anything but the profit on the average social capital, whose sum is equal to the sum of surplus-value. Moreover, the prices obtained by adding this average profit to the cost-prices cannot be anything but the values transmuted into prices of production. Nothing would be altered if capitals in certain spheres of production would not, for some reason, be subject to the process of equalization. The average profit would then be computed on that portion of the social capital which enters the equalization process. It is evident that the average profit can be nothing but the total mass of surplus-values allotted to the various quantities of capital proportionally to their magnitudes in their different spheres of production. It is the total realized unpaid labour, and this total mass, like the paid, congealed or living, labour, obtains in the total mass of commodities and money that falls to the capitalists.
The really difficult question is this: how is this equalization of profits into a general rate of profit brought about, since it is obviously a result rather than a point of departure?
To begin with, an estimate of the values of commodities, for instance in terms of money, can obviously only be the result of their exchange. If, therefore, we assume such an estimate, we must regard it as the outcome of an actual exchange of commodity-value for commodity-value. But how does this exchange of commodities at their real value come about?
Let us first assume that all commodities in the different branches of production are sold at their real values. What would then be the outcome? According to the foregoing, very different rates of profit would then reign in the various spheres of production. It is prima facie two entirely different matters whether commodities are sold at their values (i.e., exchanged in proportion to the value contained in them at prices corresponding to their value), or whether they are sold at such prices that their sale yields equal profits for equal masses of the capital advanced for their respective production.
The fact that capitals employing unequal amounts of living labour produce unequal amounts of surplus-value, presupposes at least to a certain extent that the degree of exploitation or the rate of surplus-value are the same, or that any existing differences in them are equalized by real or imaginary (conventional) grounds of compensation. This would assume competition among labourers and equalization through their continual migration from one sphere of production to another. Such a general rate of surplus-value — viewed as a tendency, like all other economic laws — has been assumed by us for the sake of theoretical simplification. But in reality it is an actual premise of the capitalist mode of production, although it is more or less obstructed by practical frictions causing more or less considerable local differences, such as the settlement laws for farm-labourers in Britain. But in theory it is assumed that the laws of capitalist production operate in their pure form. In reality there exists only approximation; but, this approximation is the greater, the more developed the capitalist mode of production and the less it is adulterated and amalgamated with survivals of former economic conditions.
The whole difficulty arises from the fact that commodities are not exchanged simply as commodities, but as products of capitals, which claim participation in the total amount of surplus-value, proportional to their magnitude, or equal if they are of equal magnitude. And this claim is to be satisfied by the total price for commodities produced by a given capital in a certain space of time. This total price is, however, only the sum of the prices of the individual commodities produced by this capital.
The exchange of commodities at their values, or approximately at their values, thus requires a much lower stage than their exchange at their prices of production, which requires a definite level of capitalist development.
Whatever the manner in which the prices of various commodities are first mutually fixed or regulated, their movements are always governed by the law of value. If the labour-time required for their production happens to shrink, prices fall; if it increases, prices rise, provided other conditions remain the same.
Apart from the domination of prices and price movement by the law of value, it is quite appropriate to regard the values of commodities as not only theoretically but also historically prius to the prices of production. This applies to conditions in which the labourer owns his means of production, and this is the condition of the land-owning farmer living off his own labour and the craftsman, in the ancient as well as in the modern world. This agrees also with the view we expressed previously that the evolution of products into commodities arises through exchange between different communities, not between the members of the same community. It holds not only for this primitive condition, but also for subsequent conditions, based on slavery and serfdom, and for the guild organisation of handicrafts, so long as the means of production involved in each branch of production can be transferred from one sphere to another only with difficulty and therefore the various spheres of production are related to one another, within certain limits, as foreign countries or communist communities.
For prices at which commodities are exchanged to approximately correspond to their values, nothing more is necessary than 1) for the exchange of the various commodities to cease being purely accidental or only occasional; 2) so far as direct exchange of commodities is concerned, for these commodities to be produced on both sides in approximately sufficient quantities to meet mutual requirements, something learned from mutual experience in trading and therefore a natural outgrowth of continued trading; and 3) so far as selling is concerned, for no natural or artificial monopoly to enable either of the contracting sides to sell commodities above their value or to compel them to undersell. By accidental monopoly we mean a monopoly which a buyer or seller acquires through an accidental state of supply and demand.
The assumption that the commodities of the various spheres of production are sold at their value merely implies, of course, that their value is the centre of gravity around which their prices fluctuate, and their continual rises and drops tend to equalise. There is also the market-value — of which later — to be distinguished from the individual value of particular commodities produced by different producers. The individual value of some of these commodities will be below their market-value (that is, less labour time is required for their production than expressed is the market value) while that of others will exceed the market-value. On the one hand, market-value is to be viewed as the average value of commodities produced in a single sphere, and, on the other, as the individual value of the commodities produced under average conditions of their respective sphere and forming the bulk of the products of that sphere. It is only in extraordinary combinations that commodities produced under the worst, or the most favourable, conditions regulate the market-value, which, in turn, forms the centre of fluctuation for market-prices. The latter, however, are the same for commodities of the same kind. If the ordinary demand is satisfied by the supply of commodities of average value, hence of a value midway between the two extremes, then the commodities whose individual value is below the market-value realise an extra surplus-value, or surplus-profit, while those, whose individual value exceeds the market-value, are unable to realise a portion of the surplus-value contained in them.
It does no good to say that the sale of commodities produced under the least favourable conditions proves that they are required to satisfy the demand. If in the assumed case the price were higher than the average market-value, the demand would be smaller. At a certain price, a commodity occupies just so much place on the market. This place remains the same in case of a price change only if the higher price is accompanied by a drop in the supply of the commodity, and a lower price by an increase of supply. And if the demand is so great that it does not contract when the price is regulated by the value of commodities produced under the least favourable conditions, then these determine the market-value. This is not possible unless demand is greater than usual, or if supply drops below the usual level. Finally, if the mass of the produced commodities exceeds the quantity disposed of at average market-values, the commodities produced under the most favourable conditions regulate the market-value. They may, for example, be sold exactly or approximately at their individual value, in which case the commodities produced under the least favourable conditions may not even realise their cost-price, while those produced under average conditions realise only a portion of the surplus-value contained in them. What has been said here of market-value applies to the price of production as soon as it takes the place of market-value. The price of production is regulated in each sphere, and likewise regulated by special circumstances. And this price of production is, in its turn, the centre around which the daily market-prices fluctuate and tend to equalise one another within definite periods. (See Ricardo on determining the price of production through those working under the least favourable conditions.)
No matter how the prices are regulated, we arrive at the following:
1) The law of value dominates price movements with reductions or increases in required labour-time making prices of production fall or rise. It is in this sense that Ricardo (who doubtlessly realised that his prices of production deviated from the value of commodities) says that "the inquiry to which I wish to draw the reader's attention relates to the effect of the variations in the relative value of commodities, and not in their absolute value".
2 ) The average profit determining the prices of production must always be approximately equal to that quantity of surplus-value which falls to the share of individual capital in its capacity of an aliquot part of the total social capital. Suppose that the general rate of profit, and therefore the average profit, are expressed by money-value greater than the money-value of the actual average surplus-value. So far as the capitalists are concerned, it is then immaterial whether they reciprocally charge 10 or 15% profit. Neither of these percentages covers more actual commodity-value than the other, since the overcharge in money is mutual. As for the labourer (the assumption being that he receives his normal wage and the rise in the average profit does not therefore imply an actual deduction from his wage, i.e., it expresses something entirely different from the normal surplus-value of the capitalist), the rise in commodity-prices caused by an increase of the average profit must correspond to the rise of the money-expression of the variable capital. Such a general nominal increase in the rate of profit and the average profit above the limit provided by the ratio of the actual surplus-value to the total invested capital is not, in effect, possible without causing an increase in wages, and also an increase in the prices of commodities forming the constant capital. The reverse is true in case of a reduction. Since the total value of the commodities regulates the total surplus-value, and this in turn regulates the level of average profit and thereby the general rate of profit — as a general law or a law governing fluctuations — it follows the law of value regulates the prices of production.
What competition, first in a single sphere, achieves is a single market-value and market-price derived from the various individual values of commodities. And it is competition of capitals in different spheres, which first brings out the price of production equalizing the rates of profit in the different spheres. The latter process requires a higher development of capitalist production that the previous one.
For commodities of the same sphere of production, the same kind, and approximately the same quality, to be sold at their values, the following two requirements are necessary:
First, the different individual values must be equalized at one social value, the above-named market value, and this implies competition among producers of the same kind of commodities and, likewise, the existence of a common market in which they offer their articles for sale. For the market-price of identical commodities, each, however, produced under different individual circumstances, to correspond to the market-value and not to deviate from it either by rising above or falling below it, it is necessary that the pressure exerted by different sellers upon one another be sufficient to bring enough commodities to market to fill the social requirements, i.e., a quantity for which society is capable of paying the market-value. Should the mass of products exceed this demand, the commodities would have to be sold below their market-value; and conversely, above their market-value if the mass of products were not large enough to meet the demand, or, what amounts to the same, if the pressure of competition among sellers were not strong enough to bring this mass of products to market. Should the market-value change, this would also entail a change in the conditions on which the total mass of commodities could be sold. Should the market-value fall, this would entail a rise in the average social demand (this always taken to mean the effective demand), which could, within certain limits, absorb larger masses of commodities. Should the market-value rise, this would entail a drop in the social demand, and a smaller mass of commodities would be absorbed. Hence, if supply and demand regulate the market-price, or rather the deviations of the market-price from the market-value, then, in turn, the market-value regulates the ratio of supply to demand, or the centre round which fluctuations of supply and demand cause market-prices to oscillate.
Looking closer, we find that the conditions applicable to the value of an individual commodity are here reproduced as conditions governing the value of the aggregate of a certain kind of commodity. Capitalist production is mass production from the very outset. But even in other, less developed, modes of production that which is produced in relatively small quantities as a common product by small-scale, even if numerous, producers, is concentrated in large quantities — at least in the case of the vital commodities — in the hands of relatively few merchants. The latter accumulate them and sell them as the common product of an entire branch of production, or of a more or less considerable contingent of it.
It should be here noted in passing that the "social demand," i.e., the factor which regulates the principle of demand, is essentially subject to the mutual relationship of the different classes and their respective economic position, notably therefore to, firstly, the ratio of total surplus-value to wages, and, secondly, to the relation of the various parts into which surplus-value is split up (profit, interest, ground-rent, taxes, etc.). And this thus again shows how absolutely nothing can be explained by the relation of supply to demand before ascertaining the basis on which this relation rests.
Although both commodity and money represent a unity of exchange-value and use-value, we have already seen that in buying and selling both of these functions are polarised at the two extremes, the commodity (seller) representing the use-value, and the money (buyer) representing the exchange-value. One of the first premises of selling was that a commodity should have use-value and should therefore satisfy a social need. The other premise was that the quantity of labour contained in the commodity should represent socially necessary labour, i.e., its individual value (and, what amounts to the same under the present assumption, its selling price) should coincide with its social value.
Let us apply this to the mass of commodities available in the market, which represents the product of a whole sphere.
The matter will be most readily pictured by regarding this whole mass of commodities, produced by one branch of industry, as one commodity, and the sum of the prices of the many identical commodities as one price. Then, whatever has been said of a single commodity applies literally to the mass of commodities of an entire branch of production available in the market. The requirement that the individual value of a commodity should correspond to its social value is now realised, or further determined, in that the mass contains social labour necessary for its production, and that the value of this mass is equal to its market-value.
Now suppose that the bulk of these commodities is produced under approximately similar normal social conditions, so that this value is at the same time the individual value of the individual commodities which make up this mass. If a relatively small portion of these commodities may now have been produced below, and another above, these conditions, so that the individual value of one portion is greater, and that of the other smaller, than the average value of the bulk of the commodities, but in such proportions that these extremes balance one another, so that the average value of the commodities at these extremes is equal to the value of commodities in the centre, then the market-value is determined by the value of the commodities produced under average conditions. The value of the entire mass of commodities is equal to the actual sum of the values of all individual commodities taken together, whether produced under average conditions, or under conditions above or below the average. In that case, the market-value, or social value, of the mass of commodities — the necessary labour-time contained in them — is determined by the value of the preponderant mean mass.
Suppose, on the contrary, that the total mass of the commodities in question brought to market remains the same, while the value of the commodities produced under less favourable conditions fails to balance out the value of commodities produced under more favourable conditions, so that the part of the mass produced under less favourable conditions forms a relatively weighty quantity as compared with the average mass and with the other extreme. In that case, the mass produced under less favourable conditions regulates the market, or social, value.
Suppose, finally, that the mass of commodities produced under better than average conditions considerably exceeds that produced under worse conditions, and is large even compared with that produced under average conditions. In that case, the part produced under the most favourable conditions determines the market-value. We ignore here the overstocked market, in which the part produced under most favourable conditions always regulates the market-price. We are not dealing here with the market-price, in so far as it differs from the market-value, but with the various determinations of the market-value itself. [1]
In fact, strictly speaking (which, of course, occurs in reality only in approximation and with a thousand modifications) the market-value of the entire mass, regulated as it is by the average values, is in case I equal to the sum of their individual values; although in the case of the commodities produced at the extremes, this value is represented as an average value which is forced upon them. Those who produce at the worst extreme must then sell their commodities below the individual value; those producing at the best extreme sell them above it.
In case II the individual lots of commodity-values produced at the two extremes do not balance one another. Rather, the lot produced under the worse conditions decides the issue. Strictly speaking, the average price, or the market-value, of each individual commodity, or each aliquot part of the total mass, would now be determined by the total value of the mass as obtained by adding up the values of the commodities produced under different conditions, and in accordance with the aliquot part of this total value falling to the share of each individual commodity. The market-value thus obtained would exceed the individual value not only of the commodities belonging to the favourable extreme, but also of those belonging to the average lot. Yet it would still be below the individual value of those commodities produced at the unfavourable extreme. How close the market-value approaches, or finally coincides with, the latter would depend entirely on the volume occupied by commodities produced at the unfavourable extreme of the commodity sphere in question. If demand is only slightly greater than supply, the individual value of the unfavourably produced commodities regulates the market-price.
Finally, if the lot of commodities produced at the favourable extreme occupies greater place than the other extreme, and also than the average lot, as it does in case III, then the market-value falls below the average value. The average value, computed by adding the sums of values at the two extremes and at the middle, stands here below the value of the middle, which it approaches, or vice versa, depending on the relative place occupied by the favourable extreme. Should demand be weaker than supply, the favourably situated part, whatever its size, makes room for itself forcibly by paring its price down to its individual value. The market-value cannot ever coincide with this individual value of the commodities produced under the most favourable conditions, except when supply far exceeds demand.
This mode of determining market-values, which we have here outlined abstractly, is promoted in the real market by competition among the buyers, provided the demand is large enough to absorb the mass of commodities at values so fixed. And this brings us to the other point.
Second, to say that a commodity has a use-value is merely to say that it satisfies some social want. So long as we dealt with individual commodities only, we could assume that there was a need for a particular commodity — its quantity already implied by its price without inquiring further into the quantity required to satisfy this want. This quantity is, however, of essential importance, as soon as the product of an entire branch of production is placed on one side, and the social need for it on the other. It then becomes necessary to consider the extent, i.e., the amount of this social want.
Now let us look at the other side — the demand.
Commodities are bought either as means of production or means of subsistence to enter productive or individual consumption. It does not alter matters that some commodities may serve both purposes. There is, then, a demand for them on the part of producers (here capitalists, since we have assumed that means of production have been transformed into capital) and of consumers. Both appear at first sight to presuppose a given quantity of social want on the side of demand, corresponding on the other side to a definite quantity of social output in the various lines of production. If the cotton industry is to accomplish its annual reproduction on a given scale, it must have the usual supply of cotton, and, other circumstances remaining the same, an additional amount of cotton corresponding to the annual extension of reproduction caused by the accumulation of capital. This is equally true with regard to means of subsistence. The working-class must find at least the same quantity of necessities on hand if it is to continue living in its accustomed average way, although they may be more or less differently distributed among the different kinds of commodities. Moreover, there must be an additional quantity to allow for the annual increase of population. The same, with more or less modification, applies to other classes.
It would seem, then, that there is on the side of demand a certain magnitude of definite social wants which require for their satisfaction a definite quantity of a commodity on the market. But quantitatively, the definite social wants are very elastic and changing. Their fixedness is only apparent. If the means of subsistence were cheaper, or money-wages higher, the labourers would buy more of them, and a greater social need would arise for them, leaving aside the paupers, etc., whose demand is even below the narrowest limits of their physical wants. On the other hand, if cotton were cheaper, for example, the capitalists' demand for it would increase, more additional capital would be thrown into the cotton industry, etc. We must never forget that the demand for productive consumption is, under our assumption, a demand of the capitalist, whose essential purpose is the production of surplus-value, so that he produces a particular commodity to this sole end. Still, this does not hinder the capitalist, so long as he appears in the market as a buyer of, say, cotton, from representing the need for this cotton, just as it is immaterial to the seller of cotton whether the buyer converts it into shirting or gun-cotton, or whether he intends to turn it into wads for his own, and the world's, ears. But this does exert a considerable influence on the kind of buyer the capitalist is. His demand for cotton is substantially modified by the fact that it disguises his real need for making profit. The limits within which the need for commodities in the market, the demand, differs quantitatively from the actual social need, naturally vary considerably for different commodities; what I mean is the difference between the demanded quantity of commodities and the quantity which would have been in demand at other money-prices or other money or living conditions of the buyers.
Nothing is easier than to realise the inconsistencies of demand and supply, and the resulting deviation of market-prices from market-values. The real difficulty consists in determining what is meant by the equation of supply and demand.
Supply and demand coincide when their mutual proportions are such that the mass of commodities of a definite line of production can be sold at their market-value, neither above nor below it. That is the first thing we hear.
The second is this: If commodities are sold at their market-values, supply and demand coincide.
On the one hand, the relation of demand and supply, therefore, only explains the deviations of market-prices from market-values. On the other, it explains the tendency to eliminate these deviations, i.e., to eliminate the effect of the relation of demand and supply. (Such exceptions as commodities which have a price without having a value are not considered here.) Supply and demand may eliminate the effect caused by their difference in many different ways. For instance, if the demand, and consequently the market-price, fall, capital may be withdrawn, thus causing supply to shrink. It may also be that the market-value itself shrinks and balances with the market-price as a result of inventions which reduce the necessary labour-time. Conversely, if the demand increases, and consequently the market-price rises above the market-value, this may lead to too much capital flowing into this line of production and production may swell to such an extent that the market-price will even fall below the market-value. Or, it may lead to a price increase, which cuts the demand. In some lines of production it may also bring about a rise in the market-value itself for a shorter or longer period, with a portion of the desired products having to be produced under worse conditions during this period.
Supply and demand determine the market-price, and so does the market-price, and the market-value in the further analysis, determine supply and demand. This is obvious in the case of demand, since it moves in a direction opposite to prices, swelling when prices fall, and vice versa. But this is also true of supply. Because the prices of means of production incorporated in the offered commodities determine the demand for these means of production, and thus the supply of commodities whose supply embraces the demand for these means of production. The prices of cotton are determinants in the supply of cotton goods.
To this confusion — determining prices through demand and supply, and, at the same time, determining supply and demand through prices — must be added that demand determines supply, just as supply determines demand, and production determines the market, as well as the market determines production. [2]
Even the ordinary economist (see footnote) agrees that the proportion between supply and demand may vary in consequence of a change in the market-value of commodities, without a change being brought about in demand or supply by extraneous circumstances. Even he must admit that, whatever the market-value, supply and demand must coincide in order for it to be established. In other words, the ratio of supply to demand does not explain the market-value, but conversely, the latter rather explains the fluctuations of supply and demand. The author of the Observations continues after the passage quoted in the footnote:
It is admitted, then, that with two different natural prices of the same commodity, at different times, demand and supply are always able to, and must, balance one another if the commodity is to be sold at its natural price in both instances. Since there is no difference in the ratio of supply to demand in either case, but a difference in the magnitude of the natural price itself, it follows that this price is obviously determined independently of demand and supply, and thus that it can least of all be determined by them.
For a commodity to be sold at its market-value, i.e., proportionally to the necessary social labour contained in it, the total quantity of social labour used in producing the total mass of this commodity must correspond to the quantity of the social want for it, i.e., the effective social want. Competition, the fluctuations of market-prices which correspond to the fluctuations of demand and supply, tend continually to reduce to this scale the total quantity of labour devoted to each kind of commodity.
In the case of supply and demand, however, the supply is equal to the sum of sellers, or producers, of a certain kind of commodity, and the demand equals the sum of buyers or consumers (both productive and individual) of the same kind of commodity. The sums react on one another as units, as aggregate forces. The individual counts here only as part of a social force, as an atom of the mass, and it is in this form that competition brings out the socialcharacter of production and consumption.
Demand and supply imply the conversion of value into market-value, and so far as they proceed on a capitalist basis, so far as the commodities are products of capital, they are based on capitalist production processes, i.e., on quite different relationships than the mere purchase and sale of goods. Here it is not a question of the formal conversion of the value of commodities into prices, i.e., not of a mere change of form. It is a question of definite deviations in quantity of the market-prices from the market-values, and, further, from the prices of production. In simple purchase and sale it suffices to have the producers of commodities as such counterposed to one another. In further analysis supply and demand presuppose the existence of different classes and sections of classes which divide the total revenue of a society and consume it among themselves as revenue, and, therefore, make up the demand created by revenue. While on the other hand it requires an insight into the over-all structure of the capitalist production process for an understanding of the supply and demand created among themselves by producers as such.
Under capitalist production it is not merely a matter of obtaining an equal mass of value in another form — be it that of money or some other commodity — for a mass of values thrown into circulation in the form of a commodity, but it is rather a matter of realising as much surplus-value, or profit, on capital advanced for production, as any other capital of the same magnitude, or pro rata to its magnitude in whichever line it is applied. It is, therefore, a matter, at least as a minimum, of selling the commodities at prices which yield the average profit, i.e., at prices of production. In this form capital becomes conscious of itself as a social power in which every capitalist participates proportionally to his share in the total social capital.
First, capitalist production is in itself indifferent to the particular use-value, and distinctive features of any commodity it produces. In every sphere of production it is only concerned with producing surplus-value, and appropriating a certain quantity of unpaid labour incorporated in the product of labour. And it is likewise in the nature of the wage-labour subordinated by capital that it is indifferent to the specific character of its labour and must submit to being transformed in accordance with the requirements of capital and to being transferred from one sphere of production to another.
Second, one sphere of production is, in fact, just as good or just as bad as another. Every one of them yields the same profit, and every one of them would be useless if the commodities it produced did not satisfy some social need.
Now, if the commodities are sold at their values, then, as we have shown, very different rates of profit arise in the various spheres of production, depending on the different organic composition of the masses of capital invested in them. But capital withdraws from a sphere with a low rate of profit and invades others, which yield a higher profit. Through this incessant outflow and influx, or, briefly, through its distribution among the various spheres, which depends on how the rate of profit falls here and rises there, it creates such a ratio of supply to demand that the average profit in the various spheres of production becomes the same, and values are, therefore, converted into prices of production. Capital succeeds in this equalisation, to a greater or lesser degree, depending on the extent of capitalist development in the given nation; i.e., on the extent the conditions in the country in question are adapted for the capitalist mode of production. With the progress of capitalist production, it also develops its own conditions and subordinates to its specific character and its immanent laws all the social prerequisites on which the production process is based.
The incessant equilibration of constant divergences is accomplished so much more quickly, 1) the more mobile the capital, i.e., the more easily it can be shifted from one sphere and from one place to another; 2) the more quickly labour-power can be transferred from one sphere to another and from one production locality to another. The first condition implies complete freedom of trade within the society and the removal of all monopolies with the exception of the natural ones, those, that is, which naturally arise out of the capitalist mode of production. It implies, furthermore, the development of the credit system, which concentrates the inorganic mass of the disposable social capital vis-a-vis the individual capitalist. Finally, it implies the subordination of the various spheres of production to the control of capitalists. This last implication is included in our premises, since we assumed that it was a matter of converting values into prices of production in all capitalistically exploited spheres of production. But this equilibration itself runs into greater obstacles, whenever numerous and large spheres of production not operated on a capitalist basis (such as soil cultivation by small farmers), filter in between the capitalist enterprises and become linked with them. A great density of population is another requirement.— The second condition implies the abolition of all laws preventing the labourers from transferring from one sphere of production to another and from one local centre of production to another; indifference of the labourer to the nature of his labour; the greatest possible reduction of labour in all spheres of production to simple labour; the elimination of all vocational prejudices among labourers; and last but not least, a subjugation of the labourer to the capitalist mode of production. Further reference to this belongs to a special analysis of competition.
It follows from the foregoing that in each particular sphere of production the individual capitalist, as well as the capitalists as a whole, take direct part in the exploitation of the total working-class by the totality of capital and in the degree of that exploitation, not only out of general class sympathy, but also for direct economic reasons. For, assuming all other conditions — among them the value of the total advanced constant capital — to be given, the average rate of profit depends on the intensity of exploitation of the sum total of labour by the sum total of capital.
The average profit coincides with the average surplus-value produced for each 100 of capital, and so far as the surplus-value is concerned the foregoing statements apply as a matter of course. In the case of the average profit the value of the advanced capital becomes an additional element determining the rate of profit. In fact, the direct interest taken by the capitalist, or the capital, of any individual sphere of production in the exploitation of the labourers who are directly employed is confined to making an extra gain, a profit exceeding the average, either through exceptional overwork, or reduction of the wage below the average, or through the exceptional productivity of the labour employed. Aside from this, a capitalist who would not in his line of production employ any variable capital, and therefore any labourer (in reality an exaggerated assumption), would nonetheless be as much interested in the exploitation of the working-class by capital, and would derive his profit quite as much from unpaid surplus-labour, as, say, a capitalist who would employ only variable capital (another exaggeration), and who would thus invest his entire capital in wages. But the degree of exploitation of labour depends on the average intensity of labour if the working-day is given, and on the length of the working-day if the intensity of exploitation is given. The degree of exploitation of labour determines the rate of surplus-value, and therefore the mass of surplus-value for a given total mass of variable capital, and consequently the magnitude of the profit. The individual capitalist, as distinct from his sphere as a whole, has the same special interest in exploiting the labourers he personally employs as the capital of a particular sphere, as distinct from the total social capital, has in exploiting the labourers directly employed in that sphere.
On the other hand, every particular sphere of capital, and every individual capitalist, have the same interest in the productivity of the social labour employed by the sum total of capital. For two things depend on this productivity: First, the mass of use-values in which the average profit is expressed; and this is doubly important, since this average profit serves as a fund for the accumulation of new capital and as a fund for revenue to be spent for consumption. Second, the value of the total capital invested (constant and variable), which, the amount of surplus-value, or profit, for the whole capitalist class being given, determines the rate of profit, or the profit on a certain quantity of capital. The special productivity of labour in any particular sphere, or in any individual enterprise of this sphere, is of interest only to those capitalists who are directly engaged in it, since it enables that particular sphere, vis-a-vis the total capital, or that individual capitalist, vis-a-vis his sphere, to make an extra profit.
Here, then, we have a mathematically precise proof why capitalists form a veritable freemason society vis-a-vis the whole working-class, while there is little love lost between them in competition among themselves.
The price of production includes the average profit. We call it price of production. It is really what Adam Smith calls natural price, Ricardo calls price of production, or cost of production, and the physiocrats call prix nécessaire, because in the long run it is a prerequisite of supply, of the reproduction of commodities in every individual sphere. But none of them has revealed the difference between price of production and value. We can well understand why the same economists who oppose determining the value of commodities by labour-time, i.e., by the quantity of labour contained in them, why they always speak of prices of production as centres around which market-prices fluctuate. They can afford to do it because the price of production is an utterly external and prima facie meaningless form of the value of commodities, a form as it appears in competition, therefore in the mind of the vulgar capitalist, and consequently in that of the vulgar economist.
Our analysis has revealed how the market-value (and everything said concerning it applies with appropriate modifications to the price of production) embraces a surplus-profit for those who produce in any particular sphere of production under the most favourable conditions. With the exception of crises, and of overproduction in general, this applies to all market-prices, no matter how much they may deviate from market-values or market-prices of production. For the market-price signifies that the same price is paid for commodities of the same kind, although they may have been produced under very different individual conditions and hence may have different cost-prices. (We do not speak at this point of any surplus-profits due to monopolies in the usual sense of the term, whether natural or artificial.)
A surplus-profit may also arise if certain spheres of production are in a position to evade the conversion of the values of their commodities into prices of production, and thus the reduction of their profits to the average profit. We shall devote more attention to the further modifications of these two forms of surplus-profit in the part dealing with ground-rent.
Conversely, suppose we take a sphere of production of a higher composition
 than the average capital; say, 92c + 8v. The original average profit in this case would still be 20,
 and if we again assume that the entire fixed capital passes into the annual
 product and that the period of turnover is the same as in cases I and II, the
 price of production of the commodity is here also 120.
Owing to the rise in wages of 25% the variable capital for the same quantity
 of labour rises from 8 to 10, the cost-price of the commodities from 100 to
 102, while the average rate of profit falls from 20% to 14 2/7%. But 100:14 2/7
 = 102:14 4/7. The profit now falling to the share of 102 is therefore 14 4/7.
 For this reason, the total product sells at k + kp' = 102 + 14 4/7 = 116 4/7.
 The price of production has therefore fallen from 120 to 116 4/7, or 3 3/7.
Consequently, if wages are raised 25%:

 1) the price of production of the commodities of a capital of average social
 composition does not change;

 2) the price of production of the commodities of a capital of lower composition
 rises, but not in proportion to the fall in profit;

 3) the price of production of the commodities of a capital of higher
 composition falls, but also not in the same proportion as profit.
Since the price of production of the commodities of the average capital
 remained the same, equal to the value of the product, the sum of the prices of
 production of the products of all capitals remained the same as well, and equal
 to the sum total of the values produced by the aggregate capital. The increase
 on one side and the decrease on the other balance for the aggregate capital on
 the level of the average social capital.
If the price of production rises in case II and falls in case III, these
 opposite effects alone, which are brought about by a fall in the rate of
 surplus-value or by a general wage increase, show that this cannot be a matter
 of compensation in the price for the rise in wages, since the fall in the price
 of production in case III cannot compensate the capitalist for the fall in
 profit, and since the rise of the price in case II does not prevent a fall in
 profit. Rather, in either case, whether the price rises or falls, the profit
 remains the same as that of the average capital, in which case the price
 remains unchanged. It is the same average profit which has fallen by 5 5/7, or
 somewhat over 25%, in the case of II as well as III. It follows from this that
 if the price did not rise in II and fall in III, II would have to sell below
 and III above the new reduced average profit. It is self-evident that,
 depending on whether 50, 25, or 10 per 100 units of capital are laid out for
 wages, the effect of a wage increase on a capitalist who has invested 1/10 of
 his capital in wages must be quite different from that on one who has invested
 ¼ or ½. An increase in the price of production on the one side, a fall on the
 other, depending on a capital being below or above the average social
 composition, occurs solely by virtue of the process of levelling the profit to
 the new reduced average profit.
How would a general reduction in wages, and a corresponding general rise of
 the rate of profit, and thus of the average profit, now affect the prices of
 production of commodities produced by capitals deviating in opposite directions
 from the average social composition? We have but to reverse the foregoing
 exposition to obtain the result (which Ricardo fails to analyse).
I. Average capital = 80c + 20v =
 100; rate of surplus-value = 100%; price of production=value of commodities =
 80c + 20v + 20p = 120; rate of profit = 20%. Suppose wages fall by
 one-fourth. Then the same constant capital is set in motion by 15v, instead of 20v. Then the value of
 commodities = 80c + 15v + 25p = 120. The quantity of labour performed by v remains
 unchanged, except that the value newly created by it is distributed differently
 between the capitalist and the labourer. The surplus-value rises from 20 to 25
 and the rate of surplus-value from 20/20 to 25/15, or from 100% to
 166⅔%. The profit on 95 now = 25, so that the rate of profit per 100 =
 26 6/19. The new composition of the capital in per cent is now 84 4/19c + 15 15/19v = 100.
II. Lower composition. Originally 50c + 50v, as above. Due to the fall of wages by one-fourth v is
 reduced to 37½, and consequently the advanced total capital to 50c + 37½ v = 87½. If we apply the new
 rate of profit of 26 6/19% to this, we get 100:26 6/19 = 87½:23 1/38. The same
 mass of commodities which formerly cost 120, now costs 87½ + 23 1/38 = 110
 10/19, this being a price reduction of almost 10%.
III. Higher composition. Originally 92c + 8v = 100. The reduction of wages by one-fourth reduces 8v to 6v, and the total capital to 98.
 Consequently, 100:26 6/19 = 98:25 16/19. The price of production of the
 commodity, formerly 100 + 20 = 120, is now, after the fall in wages, 98 + 25
 15/19 = 123 15/19, this being a rise of almost 4.
It is evident, therefore, that we have but to follow the same development in
 the opposite direction with the appropriate modifications; that a general
 reduction of wages is attended by a general rise of surplus-value, of the rate
 of surplus-value and, other circumstances remaining the same, of the rate of
 profit, even if expressed in a different proportion; a fall in the prices of
 production for commodities produced by capitals of lower composition, and a
 rise in the prices of production for commodities produced by capitals of higher
 composition. The result is just the reverse of that observed for a general rise
 of wages.[1] In
 both cases — rise or fall of wages — it is assumed that the
 working-day remains the same, and also the prices of the means of subsistence.
 In these circumstances a fall in wages is possible only if they stood higher
 than the normal price of labour, or if they are depressed below this price. The
 way in which the matter is modified if the rise or fall of wages is due to a
 change in value, and consequently the price of production of commodities
 usually consumed by the labourer, will be analysed at some length in the part
 dealing with ground-rent. At this point, however, the following remarks are to
 be made once and for all:
Should the rise or fall in wages be due to a change in the value of the
 necessities of life, a modification of the foregoing findings can take place
 only to the extent that commodities, whose change of price raises or lowers the
 variable capital, also go into the constant capital as constituent elements and
 therefore affect more than just the wages alone. But if they affect only wages,
 the above analysis contains all that needs to be said.
In this entire chapter, the establishment of the general rate of profit and
 the average profit, and consequently, the transmutation of values into prices
 of production, are assumed as given. The question merely was, how a general
 rise or fall in wages affected the assumed prices of production of commodities.
 This is but a very secondary question compared with the other important points
 analysed in this part. But it is the only relevant question treated by Ricardo,
 and, as we shall see, he treated it one-sidedly and unsatisfactorily.
There are just two causes that can change the price of production of a commodity:
First. A change in the general rate of profit. This can solely be due to a change in the average rate of surplus-value, or, if the average rate of surplus-value remains the same, to a change in the ratio of the sum of the appropriated surplus-values to the sum of the advanced total social capital.
If the change in the rate of surplus-value is not due to a depression of wages below normal, or their rise above normal — and movements of that kind are to be regarded merely as oscillations — it can only occur either through a rise, or fall, in the value of labour-power, the one being just as impossible as the other unless there is a change in the productivity of the labour producing means of subsistence, i.e., in the value of commodities consumed by the labourer.
Or, through a change in the proportion of the sum of appropriated surplus-values to the advanced total capital of society. Since the change in this case is not caused by the rate of surplus-value, it must be caused by the total capital, or rather its constant part. The mass of this part, technically considered, increases or decreases in proportion to the quantity of labour-power bought by the variable capital, and the mass of its value thus increases or decreases with the increase or decrease of its own mass. It also increases or decreases, therefore, proportionately to the mass of the value of the variable capital. If the same labour sets more constant capital in motion, it has become more productive. If the reverse, then less productive. Thus, there has been a change in the productivity of labour, and there must have occurred a change in the value of certain commodities.
The following law, then, applies to both cases: If the price of production of a commodity changes in consequence of a change in the general rate of profit, its own value may have remained unchanged. However, a change must have occurred in the value of other commodities.
Second. The general rate of profit remains unchanged. In this case the price of production of a commodity can change only if its own value has changed. This may be due to more, or less, labour being required to reproduce the commodity in question, either because of a change in the productivity of labour which produces this commodity in its final form, or of the labour which produces those commodities that go into its production. The price of production of cotton yarn may fall, either because raw cotton is produced cheaper than before, or because the labour of spinning has become more productive due to improved machinery.
The price of production, as we have seen, = k + p, equal to cost-price plus profit. This, however, = k + kp', in which k, the cost-price, is a variable magnitude, which changes for different spheres of production and is everywhere equal to the value of the constant and variable capital consumed in the production of the commodity, and p' is the average rate of profit in percentage form. If k = 200, and p' = 20%, the price of production k + kp' = 200 + 200 × 20/100 = 200 + 40 = 240. This price of production may clearly remain the same, in spite of a change in the value of the commodities.
All changes in the price of production of commodities are reduced, in the last analysis, to changes in value. But not all changes in the value of commodities need express themselves in changes in the price of production. The price of production is not determined by the value of any one commodity alone, but by the aggregate value of all commodities. A change in commodity A may therefore be balanced by an opposite change in commodity B, so that the general relation remains the same.
We have seen how a deviation in prices of production from values arises from: 1) adding the average profit instead of the surplus-value contained in a commodity to is cost-price; 2) the price of production, which so deviates from the value of a commodity, entering into the cost-price of other commodities as one of its elements, so that the cost-price of a commodity may already contain a deviation from value in those means of production consumed by it, quite aside from a deviation of its own which may arise through a difference between the average profit and the surplus-value.
It is therefore possible that even the cost-price of commodities produced by capitals of average composition may differ from the sum of the values of the elements which make up this component of their price of production. Suppose, the average composition is 80c + 20v. Now, it is possible that in the actual capitals of this composition 80c may be greater or smaller than the value of c, i.e., the constant capital, because this c may be made up of commodities whose price of production differs from their value. In the same way, 20v might diverge from its value if the consumption of the wage includes commodities whose price of production diverges from their value; in which case the labourer would work a longer, or shorter, time to buy them back (to replace them) and would thus perform more, or less, necessary labour than would be required if the price of production of such necessities of life coincided with their value.
However, this possibility does not detract in the least from the correctness of the theorems demonstrated which hold for commodities of average composition. The quantity of profit falling to these commodities is equal to the quantity of surplus-value contained in them. For instance, in a capital of the given composition 80c + 20v, the most important thing in determining surplus-value is not whether these figures are expressions of actual values, but how they are related to one another, i.e., whether v = l/5 of the total capital, and c = 4/5. Whenever this is the case, the surplus-value produced by v is, as was assumed, equal to the average profit. On the other hand, since it equals the average profit, the price of production = cost-price plus profit = k + p = k + s; i.e., in practice it is equal to the value of the commodity. This implies that a rise or fall in wages would not change the price of production, k + p, any more than it would change the value of the commodities, and would merely effect a corresponding opposite movement, a fall or a rise, in the rate of profit. For if a rise or fall of wages were here to bring about a change in the price of commodities, the rate of profit in these spheres of average composition would rise above, or fall below, the level prevailing in other spheres. The sphere of average composition maintains the same level of profit as the other spheres only so long as the price remains unchanged. The practical result is therefore the same as it would be if its products were sold at their real value. For if commodities are sold at their actual values, it is evident that, other conditions being equal, a rise, or fall, in wages will cause a corresponding fall or rise in profit, but no change in the value of commodities, and that under all circumstances a rise or fall in wages can never affect the value of commodities, but only the magnitude of the surplus-value.
It has been said that competition levels the rates of profit of the different spheres of production into an average rate of profit and thereby turns the values of the products of these different spheres into prices of production. This occurs through the continual transfer of capital from one sphere to another, in which, for the moment, the profit happens to lie above average. The fluctuations of profit caused by the cycle of fat and lean years succeeding one another in any given branch of industry within given periods must, however, receive due consideration. This incessant outflow and inflow of capital between the different spheres of production creates trends of rise and fall in the rate of profit, which equalise one another more or less and thus have a tendency to reduce the rate of profit everywhere to the same common and general level.
This movement of capitals is primarily caused by the level of market-prices, which lift profits above the general average in one place and depress them below it in another. Merchant's capital is left out of consideration as it is irrelevant at this point, for we know from the sudden paroxysms of speculation appearing in certain popular articles that it can withdraw masses of capital from one line of business with extraordinary rapidity and throw them with equal rapidity into another. Yet with respect to each sphere of actual production — industry, agriculture, mining, etc. — the transfer of capital from one sphere to another offers considerable difficulties, particularly on account of the existing fixed capital. Experience shows, moreover, that if a branch of industry, such as, say, the cotton industry, yields unusually high profits at one period, it makes very little profit, or even suffers losses, at another, so that in a certain cycle of years the average profit is much the same as in other branches. And capital soon learns to take this experience into account.
What competition does not show, however, is the determination of value, which dominates the movement of production; and the values that lie beneath the prices of production and that determine them in the last instance. Competition, on the other hand, shows: 1) the average profits, which are independent of the organic composition of capital in the different spheres of production, and therefore also of the mass of living labour appropriated by any given capital in any given sphere of exploitation; 2) the rise and fall of prices of production caused by changes in the level of wages, a phenomenon which at first glance completely contradicts the value relation of commodities; 3) the fluctuations of market-prices, which reduce the average market-price of commodities in a given period of time, not to the market-value, but to a very different market-price of production, which diverges considerably from this market-value. All these phenomena seem to contradict the determination of value by labour-time as much as the nature of surplus-value consisting of unpaid surplus-labour. Thus everything appears reversed in competition. The final pattern of economic relations as seen on the surface, in their real existence and consequently in the conceptions by which the bearers and agents of these relations seek to understand them, is very much different from, and indeed quite the reverse of, their inner but concealed essential pattern and the conception corresponding to it.
Further. As soon as capitalist production reaches a certain level of development, the equalisation of the different rates of profit in individual spheres to general rate of profit no longer proceeds solely through the play of attraction and repulsion, by which market-prices attract or repel capital. After average prices, and their corresponding market-prices, become stable for a time it reaches the consciousness of the individual capitalists that this equalisation balances definite differences, so that they include these in their mutual calculations. The differences exist in the mind of the capitalists and are taken into account as grounds for compensating.
Average profit is the basic conception, the conception that capitals of equal magnitude must yield equal profits in equal time spans. This, again, is based on the conception that the capital in each sphere of production must share pro rata to its magnitude in the total surplus-value squeezed out of the labourers by the total social capital; or, that every individual capital should be regarded merely as a part of the total social capital, and every capitalist actually as a shareholder in the total social enterprise, each sharing in the total profit pro rata to the magnitude of his share of capital.
This conception serves as a basis for the capitalist's calculations, for instance, that a capital whose turnover is slower than another's, because its commodities take longer to be produced, or because they are sold in remoter markets, nevertheless charges the profit it loses in this way, and compensates itself by raising the price. Or else, that investments of capital in lines exposed to greater hazards, for instance in shipping, are compensated by higher prices. As soon as capitalist production, and with it the insurance business, are developed, the hazards are, in effect, made equal for all spheres of production (cf. Corbet); but the more hazardous lines pay higher insurance rates, and recover them in the prices of their commodities. In practice all this means that every circumstance, which renders one line of production — and all of them are considered equally necessary within certain limits — less profitable, and another more profitable, is taken into account once and for all as valid ground for compensation, without always requiring the renewed action of competition to justify the motives or factors for calculating this compensation. The capitalist simply forgets — or rather fails to see, because competition does not point it out to him — that all these grounds for compensation mutually advanced by capitalists in calculating the prices of commodities of different lines of production merely come down to the fact that they all have an equal claim, pro rata to the magnitude of their respective capitals, to the common loot, the total surplus-value. It rather seems to them that since the profit pocketed by them differs from the surplus-value they appropriated, these grounds for compensation do not level out their participation in the total surplus-value, but create the profit itself, which seems to be derived from the additions made on one or another ground to the cost-price of their commodities.
In other respects the statements made in Chapter VII concerning the capitalists' assumptions as to the source of surplus-value, apply also to average profit. The present case appears different only in so far as a saving in cost-price depends on individual business acumen, alertness, etc., assuming the market-price of commodities and the exploitation of labour to be given.
Assuming a given wage and working-day, a variable capital, for instance of
 100, represents a certain number of employed labourers. It is the index of this
 number. Suppose £100 are the wages of 100 labourers for, say, one week. If
 these labourers perform equal amounts of necessary and surplus-labour, if they
 work daily as many hours for themselves, i.e., for the reproduction of
 their wage, as they do for the capitalist, i.e., for the production of
 surplus-value, then the value of their total product = £200, and the
 surplus-value they produce would amount to £100. The rate of surplus-value,
 s/v, would = 100%. But, as we have seen, this rate of surplus-value would
 nonetheless express itself in very different rates of profit, depending on the
 different volumes of constant capital c and consequently of the total capital
 C, because the rate of profit = s/C. The rate of surplus-value is 100%:
This is how the same rate of surplus-value would express itself under the
 same degree of labour exploitation in a falling rate of profit, because the
 material growth of the constant capital implies also a growth — albeit
 not in the same proportion — in its value, and consequently in that of
 the total capital.
Simple as this law appears from the foregoing statements, all of political
 economy has so far had little success in discovering it, as we shall see in a
 later part. [K. Marx, Theorien über den Mehrwert. K. Marx/F. Engels,
 Werke, Band 26, Teil 2, S. 435-66, 541-43. — Ed.] The
 economists perceived the phenomenon and cudgelled their brains in tortuous
 attempts to interpret it. Since this law is of great importance to capitalist
 production, it may be said to be a mystery whose solution has been the goal of
 all political economy since Adam Smith, the difference between the various
 schools since Adam Smith having been in the divergent approaches to a solution.
 When we consider, on the other hand, that up to the present political economy
 has been running in circles round the distinction between constant and variable
 capital, but has never known how to define it accurately; that it has never
 separated surplus-value from profit, and never even considered profit in its
 pure form as distinct from its different, independent components, such as
 industrial profit, commercial profit, interest, and ground-rent; that it has
 never thoroughly analysed the differences in the organic composition of
 capital, and, for this reason, has never thought of analysing the formation of
 the general rate of profit — if we consider all this, the failure to
 solve this riddle is no longer surprising.
We intentionally present this law before going on to the division of profit
 into different independent categories. The fact that this analysis is made
 independently of the division of profit into different parts, which fall to the
 share of different categories of people, shows from the outset that this law
 is, in its entirety, independent of this division, and just as independent of
 the mutual relations of the resultant categories of profit. The profit to which
 we are here referring is but another name for surplus-value itself, which is
 presented only in its relation to total capital rather than to variable
 capital, from which it arises. The drop in the rate of profit, therefore,
 expresses the falling relation of surplus-value to advanced total capital, and
 is for this reason independent of any division whatsoever of this surplus-value
 among the various categories.
We have seen that at a certain stage of capitalist development, where the
 organic composition of capital c : v was 50 : 100, a rate of surplus-value of
 100% was expressed in a rate of profit of 66⅔%, and that at a higher
 stage, where c : v was 400 : 100, the same rate of surplus-value was expressed
 in a rate of profit of only 20%. What is true of different successive stages of
 development in one country, is also true of different coexisting stages of
 development in different countries. In an undeveloped country, in which the
 former composition of capital is the average, the general rate of profit would
 = 66⅔%, while in a country with the latter composition and a much higher
 stage of development it would = 20%.
The difference between the two national rates of profit might disappear, or
 even be reversed, if labour were less productive in the less developed country,
 so that a larger quantity of labour were to be represented in a smaller
 quantity of the same commodities, and a larger exchange-value were represented
 in less use-value. The labourer would then spend more of his time in
 reproducing his own means of subsistence, or their value, and less time in
 producing surplus-value; consequently, he would perform less surplus-labour,
 with the result that the rate of surplus-value would be lower. Suppose, the
 labourer of the less developed country were to work ⅔ of the working-day
 for himself and ⅓ for the capitalist; in accordance with the above
 illustration, the same labour-power would then be paid with 133⅓ and
 would furnish a surplus of only 60⅔. A constant capital of 50 would
 correspond to a variable capital of 433⅓. The rate of surplus-value
 would amount to 66⅔ : 133⅓ = 50%, and the rate of profit to
 66⅔ : 133⅓, or approximately 36%.
Since we have not so far analysed the different component parts of profit,
 i.e., they do not for the present exist for us, we make the following
 remarks beforehand merely to avoid misunderstanding: In comparing countries in
 different stages of development it would be a big mistake to measure the level
 of the national rate of profit by, say, the level of the national rate of
 interest, namely when comparing countries with a developed capitalist
 production with countries in which labour has not yet been formally subjected
 to capital, although in reality the labourer is exploited by the capitalist
 (as, for instance, in India, where the ryot manages his farm as an independent
 producer whose production as such is not, therefore, as yet subordinated to
 capital, although the usurer may not only rob him of his entire surplus-labour
 by means of interest, but may also, to use a capitalist term, hack off a part
 of his wage). This interest comprises all the profit, and more than the profit,
 instead of merely expressing an aliquot part of the produced surplus-value, or
 profit, as it does in countries with a developed capitalist production. On the
 other hand, the rate of interest is, in this case, mostly determined by
 relations (loans granted by usurers to owners of larger estates who draw
 ground-rent) which have nothing to do with profit, and rather indicate to what
 extent usury appropriates ground-rent.
As regards countries possessing different stages of development of
 capitalist production, and consequently capitals of different organic
 composition, a country where the normal working-day is shorter than another's
 may have a higher rate of surplus-value (one of the factors which determines
 the rate of profit). First, if the English ten-hour working-day is, on
 account of its higher intensity, equal to an Austrian working-day of 14 hours,
 then, dividing the working-day equally in both instances, 5 hours of English
 surplus-labour may represent a greater value on the world-market than 7 hours
 of Austrian surplus-labour. Second, a larger portion of the English
 working-day than of the Austrian may represent surplus-labour.
The law of the falling rate of profit, which expresses the same, or even a
 higher, rate of surplus-value, states, in other words, that any quantity of the
 average social capital, say, a capital of 100, comprises an ever larger portion
 or means of labour, and an ever smaller portion of living labour. Therefore,
 since the aggregate mass of living labour operating the means of production
 decreases in relation to the value of these means of production, it follows
 that the unpaid labour and the portion of value in which it is expressed must
 decline as compared to the value of the advanced total capital. Or: An ever
 smaller aliquot part of invested total capital is converted into living labour,
 and this total capital, therefore, absorbs in proportion to its magnitude less
 and less surplus-labour, although the unpaid part of the labour applied may at
 the same time grow in relation to the paid part. The relative decrease of the
 variable and increase of the constant capital, however much both parts may grow
 in absolute magnitude, is, as we have said, but another expression for greater
 productivity of labour.
Let a capital of 100 consist of 80c + 20v, and the latter = 20 labourers. Let the rate of
 surplus-value be 100%, i.e., the labourers work half the day for
 themselves and the other half for the capitalist. Now let the capital of 100 in
 a less developed country = 20c + 80v, and let the latter = 80 labourers. But these labourers
 require 2/3 of the day for themselves, and work only 1/3 for the capitalist.
 Everything else being equal, the labourers in the first case produce a value of
 40, and in the second of 120. The first capital produces 80c + 20v + 20s =
 120; rate of profit = 20%. The second capital, 20c +
 80v + 40s = 140; rate of profit
 40%. In the second case the rate of profit is, therefore, double the first,
 although the rate of surplus-value in the first = 100%, which is double that of
 the second, where it is only 50%. But then, a capital of the same magnitude
 appropriates the surplus-labour of only 20 labourers in the first case, and of
 80 labourers in the second case.
The law of the progressive falling of the rate of profit, or the relative
 decline of appropriated surplus-labour compared to the mass of materialised
 labour set in motion by living labour, does not rule out in any way that the
 absolute mass of exploited labour set in motion by the social capital, and
 consequently the absolute mass of the surplus-labour it appropriates, may grow;
 nor, that the capitals controlled by individual capitalists may dispose of a
 growing mass of labour and, hence, of surplus-labour, the latter even though
 the number of labourers they employ does not increase.
Take a certain working population of, say, two million. Assume, furthermore,
 that the length and intensity of the average working-day, and the level of
 wages, and thereby the proportion between necessary and surplus-labour, are
 given. In that case the aggregate labour of these two million, and their
 surplus-labour expressed in surplus-value, always produces the same magnitude
 of value. But with the growth of the mass of the constant (fixed and
 circulating) capital set in motion by this labour, this produced quantity of
 value declines in relation to the value of this capital, which value grows with
 its mass, even if not in quite the same proportion. This ratio, and
 consequently the rate of profit, shrinks in spite of the fact that the mass of
 commanded living labour is the same as before, and the same amount of
 surplus-labour is sucked out of it by the capital. It changes because the mass
 of materialised labour set in motion by living labour increases, and not
 because the mass of living labour has shrunk. It is a relative decrease, not an
 absolute one, and has, in fact, nothing to do with the absolute magnitude of
 the labour and surplus-labour set in motion. The drop in the rate of profit is
 not due to an absolute, but only to a relative decrease of the variable part of
 the total capital, i.e., to its decrease in relation to the constant
 part.
What applies to any given mass of labour and surplus-labour, also applies to
 a growing number of labourers, and, thus, under the above assumption, to any
 growing mass of commanded labour in general, and to its unpaid part, the
 surplus-labour, in particular. If the working population increases from two
 million to three, and if the variable capital invested in wages also rises to
 three million from its former two million, while the constant capital rises
 from four million to fifteen million, then, under the above assumption of a
 constant working-day and a constant rate of surplus-value, the mass of
 surplus-labour, and of surplus-value, rises by one-half, i.e., 50%,
 from two million to three. Nevertheless, in spite of this growth of the
 absolute mass of surplus-labour, and hence of surplus-value, by 50%, the ratio
 of variable to constant capital would fall from 2 : 4 to 3 : 15, and the ratio
 of surplus-value to total capital would be (in millions)
I. 4c + 2v + 2s; C = 6, p' = 33⅓%.
II. 15c + 3v + 3s; C = 18, p' = 16⅔%.
While the mass of surplus-value has increased by one-half, the rate of
 profit has fallen by one-half. However, the profit is only the surplus-value
 calculated in relation to the total social capital, and the mass of profit, its
 absolute magnitude, is socially equal to the absolute magnitude of the
 surplus-value. The absolute magnitude of the profit, its total amount, would,
 therefore, have grown by 50%, in spite of its enormous relative decrease
 compared to the advanced total capital, or in spite of the enormous decrease in
 the general rate of profit. The number of labourers employed by capital, hence
 the absolute mass of the labour set in motion by it, and therefore the absolute
 mass of surplus-labour absorbed by it, the mass of the surplus-value produced
 by it, and therefore the absolute mass of the profit produced by it,
 can, consequently, increase, and increase progressively, in spite of
 the progressive drop in the rate of profit. And this not only can be
 so. Aside from temporary fluctuations it must be so, on the basis of
 capitalist production.
We shall entirely ignore here that with the advance of capitalist production
 and the attendant development of the productiveness of social labour and
 multiplication of production branches, hence products, the same amount of value
 represents a progressively increasing mass of use-values and enjoyments.
The development of capitalist production and accumulation lifts
 labour-processes to an increasingly enlarged scale and thus imparts to them
 ever greater dimensions, and involves accordingly larger investments of capital
 for each individual establishment. A mounting concentration of capitals
 (accompanied, though on a smaller scale, by an increase in the number of
 capitalists) is, therefore, one of its material requirements as well as one of
 its results. Hand in hand with it, mutually interacting, there occurs a
 progressive expropriation of the more or less direct producers. It is, then,
 natural for the individual capitalists to command increasingly large armies of
 labourers (no matter how much the variable capital may decrease in relation to
 the constant), and natural, too, that the mass of surplus-value, and hence
 profit, appropriated by them, should grow simultaneously with, and in spite of,
 the fall in the rate of profit. The causes which concentrate masses of
 labourers under the command of individual capitalists, are the very same that
 swell the mass of the invested fixed capital, and auxiliary and raw materials,
 in mounting proportion as compared to the mass of employed living labour.
It requires no more than a passing remark at this point to indicate that,
 given a certain labouring population, the mass of surplus-value, hence the
 absolute mass of profit, must grow if the rate of surplus-value increases, be
 it through a lengthening or intensification of the working-day, or through a
 drop in the value of wages due to an increase in the productiveness of labour,
 and that it must do so in spite of the relative decrease of variable capital in
 respect to constant.
The same development of the productiveness of social labour, the same laws
 which express themselves in a relative decrease of variable as compared to
 total capital, and in the thereby facilitated accumulation, while this
 accumulation in its turn becomes a starting-point for the further development
 of the productiveness and for a further relative decrease of variable capital
 — this same development manifests itself, aside from temporary
 fluctuations, in a progressive increase of the total employed labour-power and
 a progressive increase of the absolute mass of surplus-value, and hence of
 profit.
Now, what must be the form of this double-edged law of a decrease in the
 rate of profit and a simultaneous increase in the absolute
 mass of profit arising from the same causes? As a law based on the
 fact that under given conditions the appropriated mass of surplus-labour, hence
 of surplus-value, increases, and that, so far as the total capital is
 concerned, or the individual capital as an aliquot part of the total capital,
 profit and surplus-value are identical magnitudes?
On the other hand, however, the same causes which bring about an absolute
 decrease of surplus-value, and hence profit, on a given capital, and
 consequently of the rate of profit calculated in per cent, produce an increase
 in the absolute mass of surplus-value, and hence of profit, appropriated by the
 social capital (i.e., by all capitalists taken as a whole). How does
 this occur, what is the only way in which this can occur, or what are the
 conditions obtaining in this seeming contradiction?
If any aliquot part = 100 of the social capital, and hence any 100 of
 average social composition, is a given magnitude, for which therefore a fall in
 the rate of profit coincides with a fall in the absolute magnitude of the
 profit because the capital which here serves as a standard of measurement is a
 constant magnitude, then the magnitude of the social capital like that of the
 capital in the hands of individual capitalists, is variable, and in keeping
 with our assumptions it must vary inversely with the decrease of its variable
 portion.
In our former illustration, when the percentage of composition was 60c + 40v, the corresponding
 surplus-value, or profit, was 40, and hence the rate of profit 40%. Suppose,
 the total capital in this stage of composition was one million. Then the total
 surplus-value, and hence the total profit, amounted to 400,000. Now, if the
 composition later = 80c + 20v,
 while the degree of labour exploitation remained the same, then the
 surplus-value or profit for each 100 = 20. But since the absolute mass of
 surplus-value or profit increases, as demonstrated, in spite of the decreasing
 rate of profit or the decreasing production of surplus-value by every 100 of
 capital — increases, say, from 400,000 to 440,000, then this occurs
 solely because the total capital which formed at the time of this new
 composition has risen to 2,200,000. The mass of the total capital set in motion
 has risen to 220%, while the rate of profit has fallen by 50%. Had the total
 capital no more than doubled, it would have to produce as much surplus-value
 and profit to obtain a rate of profit of 20% as the old capital of 1,000,000
 produced at 40%. Had it grown to less than double, it would have produced less
 surplus-value, or profit, than the old capital of 1,000,000, which, in its
 former composition, would have had to grow from 1,000,000 to no more than
 1,100,000 to raise its surplus-value from 400,000 to 440,000.
We again meet here the previously defined law that the relative decrease of
 the variable capital, hence the development of the social productiveness of
 labour, involves an increasingly large mass of total capital to set in motion
 the same quantity of labour-power and squeeze out the same quantity of
 surplus-labour. Consequently, the possibility of a relative surplus of
 labouring people develops proportionately to the advances made by capitalist
 production not because the productiveness of social labour decreases,
 but because it increases. It does not therefore arise out of an
 absolute disproportion between labour and the means of subsistence, or the
 means for the production of these means of subsistence, but out of a
 disproportion occasioned by capitalist exploitation of labour, a disproportion
 between the progressive growth of capital and its relatively shrinking need for
 an increasing population.
Should the rate of profit fall by 50%, it would shrink one-half. If the mass
 of profit is to remain the same, the capital must be doubled. For the mass of
 profit made at a declining rate of profit to remain the same, the multiplier
 indicating the growth of the total capital must be equal to the divisor
 indicating the fall of the rate of profit. If the rate of profit falls from 40
 to 20, the total capital must rise inversely at the rate of 20 : 40 to obtain
 the same result. If the rate of profit falls from 40 to 8, the capital would
 have to increase at the rate of 8 : 40, or five-fold. A capital of 1,000,000 at
 40% produces 400,000, and a capital of 5,000,000 at 8% likewise produces
 400,000. This applies if we want the result to remain the same. But if the
 result is to be higher, then the capital must grow at a greater rate than the
 rate of profit falls. In other words, for the variable portion of the total
 capital not to remain the same in absolute terms, but to increase absolutely in
 spite of its falling in percentage of the total capital, the total capital must
 grow at a faster rate than the percentage of the variable capital falls. It
 must grow so considerably that in its new composition it should require more
 than the old portion of variable capital to purchase labour-power. If the
 variable portion of a capital = 100 should fall from 40 to 20, the total
 capital must rise higher than 200 to be able to employ a larger variable
 capital than 40.
Even if the exploited mass of the working population were to remain
 constant, and only the length and intensity of the working-day were to
 increase, the mass of the invested capital would have to increase, since it
 would have to be greater in order to employ the same mass of labour under the
 old conditions of exploitation after the composition of capital changes.
Thus, the same development of the social productiveness of labour expresses
 itself with the progress of capitalist production on the one hand in a tendency
 of the rate of profit to fall progressively and, on the other, in a progressive
 growth of the absolute mass of the appropriated surplus-value, or profit; so
 that on the whole a relative decrease of variable capital and profit is
 accompanied by an absolute increase of both. This two-fold effect, as we have
 seen, can express itself only in a growth of the total capital at a pace more
 rapid than that at which the rate of profit falls. For an absolutely increased
 variable capital to be employed in a capital of higher composition, or one in
 which the constant capital has increased relatively more, the total capital
 must not only grow proportionately to its higher composition, but still more
 rapidly. It follows, then, that as the capitalist mode of production develops,
 an ever larger quantity of capital is required to employ the same, let alone an
 increased, amount of labour-power. Thus, on a capitalist foundation, the
 increasing productiveness of labour necessarily and permanently creates a
 seeming over-population of labouring people. If the variable capital forms just
 1/6 of the total capital instead of the former ½, the total capital must be
 trebled to employ the same amount of labour-power. And if twice as much
 labour-power is to be employed, the total capital must increase six-fold.
Political economy, which has until now been unable to explain the law of the
 tendency of the rate of profit to fall, pointed self-consolingly to the
 increasing mass of profit, i.e., to the growth of the absolute
 magnitude of profit, be it for the individual capitalist or for the social
 capital, but this was also based on mere platitude and speculation.
To say that the mass of profit is determined by two factors — first,
 the rate of profit, and, secondly, the mass of capital invested at this rate,
 is mere tautology. It is therefore but a corollary of this tautology to say
 that there is a possibility for the mass of profit to grow even though the rate
 of profit may fall at the same time. It does not help us one step farther,
 since it is just as possible for the capital to increase without the mass of
 profit growing, and for it to increase even while the mass of profit falls. For
 100 at 25% yields 25, and 400 at 5% yields only 20.[1] But if the same causes which make the rate of
 profit fall, entail the accumulation, i.e., the formation, of
 additional capital, and if each additional capital employs additional labour
 and produces additional surplus-value; if, on the other hand, the mere fall in
 the rate of profit implies that the constant capital, and with it the total old
 capital, have increased, then this process ceases to be mysterious. We shall
 see later [K. Marx, Theorien über den Mehrwert. K. Marx/F. Engels,
 Werke, Band 26, Teil 2,. S. 435-66, 541- 43. — Ed] to
 what deliberate falsifications some people resort in their calculations to
 spirit away the possibility of an increase in the mass of profit simultaneous
 with a decrease in the rate of profit.
The law that a fall in the rate of profit due to the development of
 productiveness is accompanied by an increase in the mass of profit, also
 expresses itself in the fact that a fall in the price of commodities produced
 by a capital is accompanied by a relative increase of the masses of profit
 contained in them and realised by their sale.
Since the development of the productiveness and the correspondingly higher
 composition of capital sets in motion an ever-increasing quantity of means of
 production through a constantly decreasing quantity of labour, every aliquot
 part of the total product, i.e., every single commodity, or each
 particular lot of commodities in the total mass of products, absorbs less
 living labour, and also contains less materialised labour, both in the
 depreciation of the fixed capital applied and in the raw and auxiliary
 materials consumed. Hence every single commodity contains a smaller sum of
 labour materialised in means of production and of labour newly added during
 production. This causes the price of the individual commodity to fall. But the
 mass of profits contained in the individual commodities may nevertheless
 increase if the rate of the absolute or relative surplus-value grows. The
 commodity contains less newly added labour, but its unpaid portion grows in
 relation to its paid portion. However, this is the case only within certain
 limits. With the absolute amount of living labour newly incorporated in
 individual commodities decreasing enormously as production develops, the
 absolute mass of unpaid labour contained in them will likewise decrease,
 however much it may have grown as compared to the paid portion. The mass of
 profit on each individual commodity will shrink considerably with the
 development of the productiveness of labour, in spite of a growth in the rate
 of surplus-value. And this reduction, just as the fall in the rate of profit,
 is only delayed by the cheapening of the elements of constant capital and by
 the other circumstances set forth in the first part of this book, which
 increase the rate of profit at a given, or even falling, rate of
 surplus-value.
That the price of individual commodities whose sum makes up the total
 product of capital falls, means simply that a certain quantity of labour is
 realised in a larger quantity of commodities, so that each individual commodity
 contains less labour than before. This is the case even if the price of one
 part of constant capital, such as raw material, etc., should rise. Outside of a
 few cases (for instance, if the productiveness of labour uniformly cheapens all
 elements of the constant, and the variable, capital), the rate of profit will
 fall, in spite of the higher rate of surplus-value, 1) because even a larger
 unpaid portion of the smaller total amount of newly added labour is smaller
 than a smaller aliquot unpaid portion of the former larger amount and 2)
 because the higher composition of capital is expressed in the individual
 commodity by the fact that the portion of its value in which newly added labour
 is materialised decreases in relation to the portion of its value which
 represents raw and auxiliary material, and the wear and tear of fixed capital.
 This change in the proportion of the various component parts in the price of
 individual commodities, i.e., the decrease of that portion of the
 price in which newly added living labour is materialised, and the increase of
 that portion of it in which formerly materialised labour is represented, is the
 form which expresses the decrease of the variable in relation to the constant
 capital through the price of the individual commodities. Just as this decrease
 is absolute for a certain amount of capital, say of 100, it is also absolute
 for every individual commodity as an aliquot part of the reproduced capital.
 However, the rate of profit, if calculated merely on the elements of the price
 of an individual commodity, would be different from what it actually is. And
 for the following reason:
[The rate of profit is calculated on the total capital invested, but for a
 definite time, actually a year. The rate of profit is the ratio of the
 surplus-value, or profit, produced and realised in a year, to the total capital
 calculated in per cent. It is, therefore, not necessarily equal to a rate of
 profit calculated for the period of turnover of the invested capital rather
 than for a year. It is only if the capital is turned over exactly in one year
 that the two coincide.
On the other hand, the profit made in the course of a year is merely the sum
 of profits on commodities produced and sold during that same year. Now, if we
 calculate the profit on the cost-price of commodities, we obtain a rate of
 profit = p/k in which p stands for the profit realised during one year, and k
 for the sum of the cost-prices of commodities produced and sold within the same
 period. It is evident that this rate of profit p/k will not coincide with the
 actual rate of profit p/C, mass of profit divided by total capital, unless k =
 C, that is, unless the capital is turned over in exactly one year.
Let us take three different conditions of an industrial capital.
I. A capital of £8,000 produces and sells annually 5,000 pieces of a
 commodity at 30s. per piece, thus making an annual turnover of £7,500. It makes
 a profit of 10s. on each piece, or £2,500 per year. Every piece, then, contains
 20s. advanced capital and 10s. profit, so that the rate of profit per piece is
 10/20 = 50%. The turned-over sum of £7,500 contains £5,000 advanced capital and
 £2,500 profit. Rate of profit per turnover, p/k, likewise 50%. But calculated
 on the total capital the rate of profit p/C = 2,500/8,000 = 31¼%
II. The capital rises to £10,000. Owing to increased productivity of labour
 it is able to produce annually 10,000 pieces of the commodity at a cost-price
 of 20s. per piece. Suppose the commodity is sold at a profit of 4s., hence at
 24s. per piece. In that case the price of the annual product = £12,000, of
 which £10,000 is advanced capital and £2,000 is profit. The rate of profit p/k
 = 4/20 per piece, and 2,000/10,000 for the annual turnover, or in both cases =
 20%. And since the total capital is equal to the sum of the cost-prices, namely
 £10,000, it follows that p/C, the actual rate of profit, is in this case also
 20%.
III. Let the capital rise to £15,000 owing to a constant growth of the
 productiveness of labour, and let it annually produce 30,000 pieces of the
 commodity at a cost-price of 13s. per piece, each piece being sold at a profit
 of 2s., or at 15s. The annual turnover therefore = 30,000×15s. = £22,500, of
 which £19,500 is advanced capital and £3,000 profit. The rate of profit p/k
 then = 2/13 = 3,000/19,500 = 15 5/13%. But p/C = 3,000/15,000 = 20%.
We see, therefore, that only in case II, where the turned-over capital-value
 is equal to the total capital, the rate of profit per piece, or per total
 amount of turnover, is the same as the rate of profit calculated on the total
 capital. In case I, in which the amount of the turnover is smaller than the
 total capital, the rate of profit calculated on the cost-price of the commodity
 is higher; and in case III, in which the total capital is smaller than the
 amount of the turnover, it is lower than the actual rate calculated on the
 total capital. This is a general rule.
In commercial practice, the turnover is generally calculated inaccurately.
 It is assumed that the capital has been turned over once as soon as the sum of
 the realised commodity-prices equals the sum of the invested total capital. But
 the capital can complete one whole turnover only when the sum of the
 cost-prices of the realised commodities equals the sum of the total
 capital. — F.E.]
This again shows how important it is in capitalist production to regard
 individual commodities, or the commodity-product of a certain period, as
 products of advanced capital and in relation to the total capital which
 produces them, rather than in isolation, by themselves, as mere commodities.
The rate of profit must be calculated by measuring the mass of
 produced and realised surplus-value not only in relation to the consumed
 portion of capital reappearing in the commodities, but also to this part plus
 that portion of unconsumed but applied capital which continues to operate in
 production. However, the mass of profit cannot be equal to anything
 but the mass of profit or surplus-value, contained in the commodities
 themselves, and to be realised by their sale.
But in reality, as we have seen, the rate of profit will fall in the long
 run. In no case does a fall in the price of any individual commodity by itself
 give a clue to the rate of profit. Everything depends on the magnitude of the
 total capital invested in its production. For instance, if the price of one
 yard of fabric falls from 3s. to 1⅔s., if we know that before this price
 reduction it contained 1⅔s. constant capital, yarn, etc., ⅔s.
 wages, and ⅔s. profit, while after the reduction it contains 1s.
 constant capital, $#8531s. wages, and ⅓s. profit, we cannot tell if the
 rate of profit has remained the same or not. This depends on whether, and by
 how much, the advanced total capital has increased, and how many yards more it
 produces in a given time.
The phenomenon, springing from the nature of the capitalist mode of
 production, that increasing productivity of labour implies a drop in the price
 of the individual commodity, or of a certain mass of commodities, an increase
 in the number of commodities, a reduction in the mass of profit on the
 individual commodity and in the rate of profit on the aggregate of commodities,
 and an increase in the mass of profit on the total quantity of commodities
 — this phenomenon appears on the surface only in a reduction of the mass
 of profit on the individual commodity, a fall in its price, an increase in the
 mass of profit on the augmented total number of commodities produced by the
 total social capital or an individual capitalist. It then appears as if the
 capitalist adds less profit to the price of the individual commodity of his own
 free will, and makes up for it through the greater number of commodities he
 produces. This conception rests upon the notion of profit upon alienation,
 which, in its turn, is deduced from the conception of merchant capital.
We have previously seen in Book I (4 and 7 Abschnitt) [English edition:
 Parts IV and VII. — Ed.] that the mass of commodities growing
 along with the productivity of labour and the cheapening of the individual
 commodity as such (as long as these commodities do not enter the price of
 labour-power as determinants) — that this does not affect the proportion
 between paid and unpaid labour in the individual commodity, in spite of the
 falling price.
Since all things appear distorted, namely, reversed in competition, the
 individual capitalist may imagine: 1) that he is reducing his profit on the
 individual commodity by cutting its price, but still making a greater profit by
 selling a larger quantity of commodities; 2) that he fixes the price of the
 individual commodities and that he determines the price of the total product by
 multiplication, while the original process is really one of division (see Book
 I, Kap. X, S. 281 [English edition: Ch. XII. — Ed]), and
 multiplication is only correct secondarily, since it is based on that division.
 The vulgar economist does practically no more than translate the singular
 concepts of the capitalists, who are in the thrall of competition, into a
 seemingly more theoretical and generalised language, and attempt to
 substantiate the justice of those conceptions.
The fall in commodity-prices and the rise in the mass of profit on the
 augmented mass of these cheapened commodities is, in fact, but another
 expression for the law of the falling rate of profit attended by a
 simultaneously increasing mass of profit.
The analysis of how far a falling rate of profit may coincide with rising
 prices no more belongs here than that of the point previously discussed in Book
 I (S. 280-81 [English edition: Ch. XII. — Ed.]), concerning
 relative surplus-value. A capitalist working with improved but not as yet
 generally adopted methods of production sells below the market-price, but above
 his individual price of production; his rate of profit rises until competition
 levels it out. During this equalisation period the second requisite, expansion
 of the invested capital, makes its appearance. According to the degree of this
 expansion the capitalist will be able to employ a part of his former labourers,
 actually perhaps all of them, or even more, under the new conditions, and hence
 to produce the same, or a greater, mass of profit.
The following are the most general counterbalancing forces:
It might be asked whether the factors that check the fall of the rate of profit, but that always hasten its fall in the last analysis, whether these include the temporary, but always recurring, elevations in surplus-value above the general level, which keep occurring now in this and now in that line of production redounding to the benefit of those individual capitalists, who make use of inventions, etc., before these are introduced elsewhere. This question must be answered in the affirmative.
The mass of surplus-value produced by a capital of a given magnitude is the product of two factors — the rate of surplus-value multiplied by the number of labourers employed at this rate. At a given rate of surplus-value it therefore depends on the number of labourers, and it depends on the rate of surplus-value when the number of labourers is given. Generally, therefore, it depends on the composite ratio of the absolute magnitudes of the variable capital and the rate of surplus-value. Now we have seen that, on the average, the same factors which raise the rate of relative surplus-value lower the mass of the employed labour-power. It is evident, however, that this will occur to a greater or lesser extent, depending on the definite proportion in which this conflicting movement obtains, and that the tendency towards a reduction in the rate of profit is notably weakened by a rise in the rate of absolute surplus-value, which originates with the lengthening of the working-day.
We saw in the case of the rate of profit that a drop in the rate was generally accompanied by an increase in the mass of profit, due to the increasing mass of total capital employed. From the standpoint of the total variable capital of society, the surplus-value it has produced is equal to the profit it has produced. Both the absolute mass and the rate of surplus-value have increased; the one because the quantity of labour-power employed by society has grown, and the other, because the intensity of exploitation of this labour-power has increased. But in the case of a capital of a given magnitude, e.g., 100, the rate of surplus-value may increase, while the average mass may decrease; for the rate is determined by the proportion, in which the variable capital produces value, while the mass is determined by the proportion of variable capital to the total capital.
The rise in the rate of surplus-value is a factor which determines the mass of surplus-value, and hence also the rate of profit, for it takes place especially under conditions, in which, as we have previously seen, the constant capital is either not increased at all, or not proportionately increased, in relation to the variable capital. This factor does not abolish the general law. But it causes that law to act rather as a tendency, i.e., as a law whose absolute action is checked, retarded, and weakened, by counteracting circumstances. But since the same influences which raise the rate of surplus-value (even a lengthening of the working-time is a result of large-scale industry) tend to decrease the labour-power employed by a certain capital, it follows that they also tend to reduce the rate of profit and to retard this reduction. If one labourer is compelled to perform as much labour as would rationally be performed by at least two, and if this is done under circumstances in which this one labourer can replace three, then this one labourer will perform as much surplus-labour as was formerly performed by two, and the rate of surplus-value will have risen accordingly. But he will not perform as much as three had performed, and the mass of surplus-value will have decreased accordingly. But this reduction in mass will be compensated, or limited, by the rise in the rate of surplus-value. If the entire population is employed at a higher rate of surplus-value, the mass of surplus-value will increase, in spite of the population remaining the same. It will increase still more if the population increases. And although this is tied up with a relative reduction of the number of employed labourers in proportion to the magnitude of the total capital, this reduction is moderated, or checked, by the rise in the rate of surplus-value.
Before leaving this point, it is to be emphasised once more that with a capital of a given magnitude the rate of surplus-value may rise, while its mass is decreasing, and vice versa. The mass of surplus-value is equal to the rate multiplied by the number of labourers; however, the rate is never calculated on the total, but only on the variable capital, actually only for every working-day. On the other hand, with a given magnitude of capital-value, the rate of profit can neither rise nor fall without the mass of surplus-value also rising or falling.
This is mentioned here only empirically, since, like many other things which might be enumerated, it has nothing to do with the general analysis of capital, but belongs in an analysis of competition, which is not presented in this work. However, it is one of the most important factors checking the tendency of the rate of profit to fall.
Everything said in Part I of this book about factors which raise the rate of profit while the rate of surplus-value remains the same, or regardless of the rate of surplus-value, belongs here. Hence also, with respect to the total capital, that the value of the constant capital does not increase in the same proportion as its material volume. For instance, the quantity of cotton worked up by a single European spinner in a modern factory has grown tremendously compared to the quantity formerly worked up by a European spinner with a spinning-wheel. Yet the value of the worked-up cotton has not grown in the same proportion as its mass. The same applies to machinery and other fixed capital. In short, the same development which increases the mass of the constant capital in relation to the variable reduces the value of its elements as a result of the increased productivity of labour, and therefore prevents the value of constant capital, although it continually increases, from increasing at the same rate as its material volume, i.e., the material volume of the means of production set in motion by the same amount of labour-power. In isolated cases the mass of the elements of constant capital may even increase, while its value remains the same, or falls.
The foregoing is bound up with the depreciation of existing capital (that is, of its material elements), which occurs with the development of industry. This is another continually operating factor which checks the fall of the rate of profit, although it may under certain circumstances encroach on the mass of profit by reducing the mass of the capital yielding a profit. This again shows that the same influences which tend to make the rate of profit fall, also moderate the effects of this tendency.
Its propagation is inseparable from, and hastened by, the development of the productivity of labour as expressed by a fall in the rate of profit. The relative over-population becomes so much more apparent in a country, the more the capitalist mode of production is developed in it. This, again, is the reason why, on the one hand, the more or less imperfect subordination of labour to capital continues in many branches of production, and continues longer than seems at first glance compatible with the general stage of development. This is due to the cheapness and abundance of disposable or unemployed wage-labourers, and to the greater resistance, which some branches of production, by their very nature, render to the transformation of manual work into machine production. On the other hand, new lines of production are opened up, especially for the production of luxuries, and it is these that take as their basis this relative over-population, often set free in other lines of production through the increase of their constant capital. These new lines start out predominantly with living labour, and by degrees pass through the same evolution as the other lines of production. In either case the variable capital makes up a considerable portion of the total capital and wages are below the average, so that both the rate and mass of surplus-value in these lines of production are unusually high. Since the general rate of profit is formed by levelling the rates of profit in the individual branches of production, however, the same factor which brings about the tendency in the rate of profit to fall, again produces a counterbalance to this tendency and more or less paralyses its effects.
Since foreign trade partly cheapens the elements of constant capital, and partly the necessities of life for which the variable capital is exchanged, it tends to raise the rate of profit by increasing the rate of surplus-value and lowering the value of constant capital. It generally acts in this direction by permitting an expansion of the scale of production. It thereby hastens the process of accumulation, on the one hand, but causes the variable capital to shrink in relation to the constant capital, on the other, and thus hastens a fall in the rate of profit. In the same way, the expansion of foreign trade, although the basis of the capitalist mode of production in its infancy, has become its own product, however, with the further progress of the capitalist mode of production, through the innate necessity of this mode of production, its need for an ever-expanding market. Here we see once more the dual nature of this effect. (Ricardo has entirely overlooked this side of foreign trade. [D. Ricardo, On the Principles of Political Economy, and Taxation, Third edition, London, 1824, Ch. VII. — Ed.])
Another question — really beyond the scope of our analysis because of its special nature — is this: Is the general rate of profit raised by the higher rate of profit produced by capital invested in foreign, and particularly colonial, trade?
This same foreign trade develops the capitalist mode of production in the home country, which implies the decrease of variable capital in relation to constant, and, on the other hand, causes over-production in respect to foreign markets, so that in the long run it again has an opposite effect.
We have thus seen in a general way that the same influences which produce a tendency in the general rate of profit to fall, also call forth counter-effects, which hamper, retard, and partly paralyse this fall. The latter do not do away with the law, but impair its effect. Otherwise, it would not be the fall of the general rate of profit, but rather its relative slowness, that would be incomprehensible. Thus, the law acts only as a tendency. And it is only under certain circumstances and only after long periods that its effects become strikingly pronounced.
Before we go on, in order to avoid misunderstandings, we should recall two, repeatedly treated, points.
First: The same process which brings about a cheapening of commodities in the course of the development of the capitalist mode of production, causes a change in the organic composition of the social capital invested in the production of commodities, and consequently lowers the rate of profit. We must be careful, therefore, not to identify the reduction in the relative cost of an individual commodity, including that portion of it which represents wear and tear of machinery, with the rise in the value of the constant in relation to variable capital, although, conversely, every reduction in the relative cost of the constant capital assuming the volume of its material elements remains the same, or increases, tends to raise the rate of profit, i.e., to reduce pro tanto the value of the constant capital in relation to the shrinking proportions of the employed variable capital.
Second: The fact that the newly added living labour contained in the individual commodities, which taken together make up the product of capital, decreases in relation to the materials they contain and the means of labour consumed by them; the fact, therefore, that an ever-decreasing quantity of additional living labour is materialised in them, because their production requires less labour with the development of the social productiveness — this fact does not affect the ratio, in which the living labour contained in the commodities breaks up into paid and unpaid labour. Quite the contrary. Although the total quantity of additional living labour contained in the commodities decreases, the unpaid portion increases in relation to the paid portion, either by an absolute or a relative shrinking of the paid portion; for the same mode of production which reduces the total quantity of additional living labour in a commodity is accompanied by a rise in the absolute and relative surplus-value. The tendency of the rate of profit to fall is bound up with a tendency of the rate of surplus-value to rise, hence with a tendency for the rate of labour exploitation to rise. Nothing is more absurd, for this reason, than to explain the fall in the rate of profit by a rise in the rate of wages, although this may be the case by way of an exception. Statistics is not able to make actual analyses of the rates of wages in different epochs and countries, until the conditions which shape the rate of profit are thoroughly understood. The rate of profit does not fall because labour becomes less productive, but because it becomes more productive. Both the rise in the rate of surplus-value and the fall in the rate of profit are but specific forms through which growing productivity of labour is expressed under capitalism.
The foregoing five points may still be supplemented by the following, which, however, cannot be more fully treated for the present. With the progress of capitalist production, which goes hand in hand with accelerated accumulation, a portion of capital is calculated and applied only as interest-bearing capital. Not in the sense in which every capitalist who lends out capital is satisfied with interest, while the industrial capitalist pockets the investor's profit. This has no bearing on the level of the general rate of profit, because for the latter profit = interest + profit of all kinds + ground rent, the division into these particular categories being immaterial to it. But in the sense that these capitals, although invested in large productive enterprises, yield only large or small amounts of interest, so-called dividends, after all costs have been deducted. In railways, for instance. These do not therefore go into levelling the general rate of profit, because they yield a lower than average rate of profit. If they did enter into it, the general rate of profit would fall much lower. Theoretically, they may be included in the calculation, and the result would then be a lower rate of profit than the seemingly existing rate, which is decisive for the capitalists; it would be lower, because the constant capital particularly in these enterprises is largest in its relation to the variable capital.
On the plea of analysing the rate of profit, Ricardo actually analyses the rate of surplus-value alone, and this only on the assumption that the working-day is intensively and extensively a constant magnitude.
A fall in the rate of profit and accelerated accumulation are different expressions of the same process only in so far as both reflect the development of productiveness. Accumulation, in turn, hastens the fall of the rate of profit, inasmuch as it implies concentration of labour on a large scale, and thus a higher composition of capital. On the other hand, a fall in the rate of profit again hastens the concentration of capital and its centralisation through expropriation of minor capitalists, the few direct producers who still have anything left to be expropriated. This accelerates accumulation with regard to mass, although the rate of accumulation falls with the rate of profit.
On the other hand, the rate of self-expansion of the total capital, or the rate of profit, being the goad of capitalist production (just as self-expansion of capital is its only purpose), its fall checks the formation of new independent capitals and thus appears as a threat to the development of the capitalist production process. It breeds over-production, speculation, crises, and surplus-capital alongside surplus-population. Those economists, therefore, who, like Ricardo, regard the capitalist mode of production as absolute, feel at this point that it creates a barrier itself, and for this reason attribute the barrier to Nature (in the theory of rent), not to production. But the main thing about their horror of the falling rate of profit is the feeling that capitalist production meets in the development of its productive forces a barrier which has nothing to do with the production of wealth as such; and this peculiar barrier testifies to the limitations and to the merely historical, transitory character of the capitalist mode of production; testifies that for the production of wealth, it is not an absolute mode, moreover, that at a certain stage it rather conflicts with its further development.
True, Ricardo and his school considered only industrial profit, which includes interest. But the rate of ground-rent likewise has a tendency to fall, although its absolute mass increases, and may also increase proportionately more than industrial profit. (E. West, [Essay on the Application of Capital to Land, London, 1815. — Ed] who developed the law of ground-rent before Ricardo.) If we consider the total social capital C, and use p1 for the industrial profit that remains after deducting interest and ground-rent, i for interest, and r for ground-rent, then s/C = p/C = p1 + i + r/C = p1/C + i/C + r/C. We have seen that while s, the total amount of surplus-value, is continually increasing in the course of capitalist development, s/C is just as steadily declining, because C grows still more rapidly than s. Therefore it is by no means a contradiction for p1, i, and r to be steadily increasing, each individually, while s/C = p/C, as well as p1/C, i/C, and r/C, should each by itself be steadily shrinking, or that p1 should increase in relation to i, or r in relation to p1 or to p1 and i. With a rising total surplus-value or profit s = p, and a simultaneously falling rate of profit s/C = p/C, the proportions of the parts p1, i, and r, which make up s = p, may change at will within the limits set by the total amount of s without thereby affecting the magnitude of s or s/C.
The mutual variation of p1, i, and r is merely a varying distribution of s among different classes. Consequently, p1/C, i/C, or r/C, the rate of individual industrial profit, the rate of interest, and the ratio of ground-rent to the total capital, may rise in relation to one another, while s/C, the general rate of profit, falls. The only condition is that the sum of all three = s/C. If the rate of profit falls from 50% to 25%, because the composition of a certain capital with, say, a rate of surplus-value = 100% has changed from 50c + 50v to 75c + 25v, then a capital of 1,000 will yield a profit of 500 in the first case, and in the second a Capital of 4,000 will yield a profit of 1,000. We see that s or p have doubled, while p' has fallen by one-half. And if that 50% was formerly divided into 20 profit, 10 interest, and 20 rent, then p1/C = 20%, i/C = 10%, and r/C = 20%. If the proportions had remained the same after the change from 50% to 25%, then p1/C = 10%, i/C = 5%, and r/C = 10%. If, however, p1/C should fall to 8% and i/C to 4%, then r/C would rise to 13%. The relative magnitude of r would have risen as against p1 and i, while p would have remained the same. Under both assumptions, the sum of p1, i, and r would have increased, because produced by a capital four times as large. Furthermore, Ricardo's assumption that originally industrial profit (plus interest) contains the entire surplus-value is historically and logically false. It is rather the progress of capitalist production which 1) gives the whole profit directly to the industrial and commercial capitalists for further distribution, and 2) reduces rent to the excess over the profit. On this capitalist basis, again, the rent grows, being a portion of profit (i.e. , of the surplus-value viewed as the product of the total capital), but not that specific portion of the product, which the capitalist pockets.
Given the necessary means of production, i.e. , a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e. , the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given. And the capitalist process of production consists essentially of the production of surplus-value, represented in the surplus-product or that aliquot portion of the produced commodities materialising unpaid labour. It must never be forgotten that the production of this surplus-value — and the reconversion of a portion of it into capital, or the accumulation, forms an integrate part of this production of surplus-value — is the immediate purpose and compelling motive of capitalist production. It will never do, therefore, to represent capitalist production as something which it is not, namely as production whose immediate purpose is enjoyment or the manufacture of the means of enjoyment for the capitalist. This would be overlooking its specific character, which is revealed in all its inner essence.
If a certain rate of profit is given, the mass of profit will always depend on the magnitude of the advanced capital. The accumulation, however, is then determined by that portion of this mass which is reconverted into capital. As for this portion, being equal to the profit minus the revenue consumed by the capitalists, it will depend not merely on the value of this mass, but also on the cheapness of the commodities which the capitalist can buy with it, commodities which pass partly into his consumption, his revenue, and partly into his constant capital. (Wages are here assumed to be given.)
The mass of capital set in motion by the labourer, whose value he preserves by his labour and reproduces in his product, is quite different from the value which he adds to it. If the mass of the capital = 1,000 and the added labour = 100, the reproduced capital = 1,100. If the mass = 100 and the added labour = 20, the reproduced capital = 120. In the first case the rate of profit = 10%, in the second = 20%. And yet more can be accumulated out of 100 than out of 20. And thus the river of capital rolls on (aside from its depreciation through increase of the productiveness), or its accumulation does, not in proportion to the rate of profit, but in proportion to the impetus it already possesses. So far as it is based on a high rate of surplus-value, a high rate of profit is possible when the working-day is very long, although labour is not highly productive. It is possible, because the wants of the labourers are very small, hence average wages very low, although the labour itself is unproductive. The low wages will correspond to the labourers' lack of energy. Capital then accumulates slowly, in spite of the high rate of profit. Population is stagnant and the working-time which the product costs, is great, while the wages paid to the labourer etare small.
The rate of profit does not sink because the labourer is exploited any less, but because generally less labour is employed in proportion to the employed capital.
The development of the social productiveness of labour is manifested in two ways: first, in the magnitude of the already produced productive forces, the value and mass of the conditions of production under which new production is carried on, and in the absolute magnitude of the already accumulated productive capital; secondly, in the relative smallness of the portion of total capital laid out in wages, i.e. , in the relatively small quantity of living labour required for the reproduction and self-expansion of a given capital, for mass production. This also implies concentration of capital.
In relation to employed labour-power the development of the productivity again reveals itself in two ways: First, in the increase of surplus-labour, i.e. , the reduction of the necessary labour-time required for the reproduction of labour-power. Secondly, in the decrease of the quantity of labour-power (the number of labourers) generally employed to set in motion a given capital.
The two movements not only go hand in hand, but mutually influence one another and are phenomena in which the same law expresses itself. Yet they affect the rate of profit in opposite ways. The total mass of profit is equal to the total mass of surplus-value, the rate of profit = s/C = surplus-value/advanced total capital. The surplus-value, however, as a total, is determined first by its rate, and second by the mass of labour simultaneously employed at this rate, or, what amounts to the same, by the magnitude of the variable capital. One of these factors, the rate of surplus-value, rises, and the other, the number of labourers, falls (relatively or absolutely). Inasmuch as the development of the productive forces reduces the paid portion of employed labour, it raises the surplus-value, because it raises its rate; but inasmuch as it reduces the total mass of labour employed by a given capital, it reduces the factor of the number by which the rate of surplus-value is multiplied to obtain its mass. Two labourers, each working 12 hours daily, cannot produce the same mass of surplus-value as 24 who work only 2 hours, even if they could live on air and hence did not have to work for themselves at all. In this respect, then, the compensation of the reduced number of labourers by intensifying the degree of exploitation has certain insurmountable limits. It may, for this reason, well check the fall in the rate of profit, but cannot prevent it altogether.
With the development of the capitalist mode of production, therefore, the rate of profit falls, while its mass increases with the growing mass of the capital employed. Given the rate, the absolute increase in the mass of capital depends on its existing magnitude. But, on the other hand, if this magnitude is given, the proportion of its growth, i.e. , the rate of its increment, depends on the rate of profit. The increase in the productiveness (which, moreover, we repeat, always goes hand in hand with a depreciation of the available capital) can directly only increase the value of the existing capital if by raising the rate of profit it increases that portion of the value of the annual product which is reconverted into capital. As concerns the productivity of labour, this can only occur (since this productivity has nothing direct to do with the value of the existing capital) by raising the relative surplus-value, or reducing the value of the constant capital, so that the commodities which enter either the reproduction of labour-power, or the elements of constant capital, are cheapened. Both imply a depreciation of the existing capital, and both go hand in hand with a reduction of the variable capital in relation to the constant. Both cause a fall in the rate of profit, and both slow it down. Furthermore, inasmuch as an increased rate of profit causes a greater demand for labour, it tends to increase the working population and thus the material, whose exploitation makes real capital out of capital.
Indirectly, however, the development of the productivity of labour contributes to the increase of the value of the existing capital by increasing the mass and variety of use-values in which the same exchange-value is represented and which form the material substance, i.e. , the material elements of capital, the material objects making up the constant capital directly, and the variable capital at least indirectly. More products which may be converted into capital, whatever their exchange-value, are created with the same capital and the same labour. These products may serve to absorb additional labour, hence also additional surplus-labour, and therefore create additional capital. The amount of labour which a capital can command does not depend on its value, but on the mass of raw and auxiliary materials, machinery and elements of fixed capital and necessities of life, all of which it comprises, whatever their value may be. As the mass of the labour employed, and thus of surplus-labour increases, there is also a growth in the value of the reproduced capital and in the surplus-value newly added to it.
These two elements embraced by the process of accumulation, however, are not to be regarded merely as existing side by side in repose, as Ricardo does. They contain a contradiction which manifests itself in contradictory tendencies and phenomena. These antagonistic agencies counteract each other simultaneously.
Alongside the stimulants of an actual increase of the labouring population, which spring from the increase of the portion of the total social product serving as capital, there are agencies which create a merely relative over-population.
Alongside the fall in the rate of profit mass of capitals grows, and hand in hand with this there occurs a depreciation of existing capitals which checks the fall and gives an accelerating motion to the accumulation of capital-values.
Alongside the development of productivity there develops a higher composition of capital, i.e., the relative decrease of the ratio of variable to constant capital.
These different influences may at one time operate predominantly side by side in space, and at another succeed each other in time. From time to time the conflict of antagonistic agencies finds vent in crises. The crises are always but momentary and forcible solutions of the existing contradictions. They are violent eruptions which for a time restore the disturbed equilibrium.
The contradiction, to put it in a very general way, consists in that the capitalist mode of production involves a tendency towards absolute development of the productive forces, regardless of the value and surplus-value it contains, and regardless of the social conditions under which capitalist production takes place; while, on the other hand, its aim is to preserve the value of the existing capital and promote its self-expansion to the highest limit (i.e., to promote an ever more rapid growth of this value). The specific feature about it is that it uses the existing value of capital as a means of increasing this value to the utmost. The methods by which it accomplishes this include the fall of the rate of profit, depreciation of existing capital, and development of the productive forces of labour at the expense of already created productive forces.
The periodical depreciation of existing capital — one of the means immanent in capitalist production to check the fall of the rate of profit and hasten accumulation of capital-value through formation of new capital — disturbs the given conditions, within which the process of circulation and reproduction of capital takes place, and is therefore accompanied by sudden stoppages and crises in the production process.
The decrease of variable in relation to constant capital, which goes hand in hand with the development of the productive forces, stimulates the growth of the labouring population, while continually creating an artificial over-population. The accumulation of capital in terms of value is slowed down by the falling rate of profit, to hasten still more the accumulation of use-values, while this, in its turn, adds new momentum to accumulation in terms of value.
Capitalist production seeks continually to overcome these immanent barriers, but overcomes them only by means which again place these barriers in its way and on a more formidable scale.
The real barrier of capitalist production is capital itself. It is that capital and its self-expansion appear as the starting and the closing point, the motive and the purpose of production; that production is only production for capital and not vice versa, the means of production are not mere means for a constant expansion of the living process of the society of producers. The limits within which the preservation and self-expansion of the value of capital resting on the expropriation and pauperisation of the great mass of producers can alone move — these limits come continually into conflict with the methods of production employed by capital for its purposes, which drive towards unlimited extension of production, towards production as an end in itself, towards unconditional development of the social productivity of labour. The means — unconditional development of the productive forces of society — comes continually into conflict with the limited purpose, the self-expansion of the existing capital. The capitalist mode of production is, for this reason, a historical means of developing the material forces of production and creating an appropriate world-market and is, at the same time, a continual conflict between this its historical task and its own corresponding relations of social production.
A drop in the rate of profit is attended by a rise in the minimum capital required by an individual capitalist for the productive employment of labour; required both for its exploitation generally, and for making the consumed labour-time suffice as the labour-time necessary for the production of the commodities, so that it does not exceed the average social labour-time required for the production of the commodities. Concentration increases simultaneously, because beyond certain limits a large capital with a small rate of profit accumulates faster than a small capital with a large rate of profit. At a certain high point this increasing concentration in its turn causes a new fall in the rate of profit. The mass of small dispersed capitals is thereby driven along the adventurous road of speculation, credit frauds, stock swindles, and crises. The so-called plethora of capital always applies essentially to a plethora of the capital for which the fall in the rate of profit is not compensated through the mass of profit — this is always true of newly developing fresh offshoots of capital — or to a plethora which places capitals incapable of action on their own at the disposal of the managers of large enterprises in the form of credit. This plethora of capital arises from the same causes as those which call forth relative over-population, and is, therefore, a phenomenon supplementing the latter, although they stand at opposite poles — unemployed capital at one pole, and unemployed worker population at the other.
Over-production of capital, not of individual commodities — although over-production of capital always includes over-production of commodities — is therefore simply over-accumulation of capital. To appreciate what this over-accumulation is (its closer analysis follows later), one need only assume it to be absolute. When would over-production of capital be absolute? Overproduction which would affect not just one or another, or a few important spheres of production, but would be absolute in its full scope, hence would extend to all fields of production?
There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.
In reality, it would appear that a portion of the capital would lie completely or partially idle (because it would have to crowd out some of the active capital before it could expand its own value), and the other portion would produce values at a lower rate of profit, owing to the pressure of unemployed or but partly employed capital. It would be immaterial in this respect if a part of the additional capital were to take the place of the old capital, and the latter were to take its position in the additional capital. We should still always have the old sum of capital on one side, and the sum of additional capital on the other. The fall in the rate of profit would then be accompanied by an absolute decrease in the mass of profit, since the mass of employed labour-power could not be increased and the rate of surplus-value raised under the conditions we had assumed, so that the mass of surplus-value could not be increased either. And the reduced mass of profit would have to be calculated on an increased total capital. But even if it is assumed that the employed capital continues to self-expand at the old rate of profit, and the mass of profit hence remains the same, this mass would still he calculated on an increased total capital, this likewise implying a fall in the rate of profit. If a total capital of 1,000 yielded a profit of 100, and after being increased to 1,500 still yielded 100, then, in the second case, 1,000 would yield only 66⅔. Self-expansion of the old capital, in the absolute sense, would have been reduced. The capital = 1,000 would yield no more under the new circumstances than formerly a capital = 666⅔.
It is evident, however, that this actual depreciation of the old capital could not occur without a struggle, and that the additional capital ΔC could not assume the functions of capital without a struggle. The rate of profit would not fall under the effect of competition due to over-production of capital. It would rather be the reverse; it would be the competitive struggle which would begin because the fallen rate of profit and over-production of capital originate from the same conditions. The part of ΔC in the hands of old functioning capitalists would be allowed to remain more or less idle to prevent a depreciation of their own original capital and not to narrow its place in the field of production. Or they would employ it, even at a momentary loss, to shift the need of keeping additional capital idle on newcomers and on their competitors in general.
That portion of ΔC which is in new hands would seek to assume a place for itself at the expense of the old capital, and would accomplish this in part by forcing a portion of the old capital to lie idle. It would compel the old capital to give up its old place and withdraw to join completely or partially unemployed additional capital.
A portion of the old capital has to lie unused under all circumstances; it has to give up its characteristic quality as capital, so far as acting as such and producing value is concerned. The competitive struggle would decide what part of it would be particularly affected. So long as things go well, competition effects an operating fraternity of the capitalist class, as we have seen in the case of the equalisation of the general rate of profit, so that each shares in the common loot in proportion to the size of his respective investment. But as soon as it no longer is a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another. The class, as such, must inevitably lose. How much the individual capitalist must bear of the loss, i.e., to what extent he must share in it at all, is decided by strength and cunning, and competition then becomes a fight among hostile brothers. The antagonism between each individual capitalist's interests and those of the capitalist class as a whole, then comes to the surface, just as previously the identity of these interests operated in practice through competition.
How is this conflict settled and the conditions restored which correspond to the "sound" operation of capitalist production? The mode of settlement is already indicated in the very emergence of the conflict whose settlement is under discussion. It implies the withdrawal and even the partial destruction of capital amounting to the full value of additional capital ΔC, or at least a part of it. Although, as the description of this conflict shows, the loss is by no means equally distributed among individual capitals, its distribution being rather decided through a competitive struggle in which the loss is distributed in very different proportions and forms, depending on special advantages or previously captured positions, so that one capital is left unused, another is destroyed, and a third suffers but a relative loss, or is just temporarily depreciated, etc.
But the equilibrium would be restored under all circumstances through the withdrawal or even the destruction of more or less capital. This would extend partly to the material substance of capital, i.e., a part of the means of production, of fixed and circulating capital, would not operate, not act as capital; some of the operating establishments would then be brought to a standstill. Although, in this respect, time attacks and worsens all means of production (except land), the stoppage would in reality cause far greater damage to the means of production. However, the main effect in this case would be that these means of production would cease to function as such, that their function as means of production would be disturbed for a shorter or longer period.
The main damage, and that of the most acute nature, would occur in respect to capital, and in so far as the latter possesses the characteristic of value it would occur in respect to the values of capitals. That portion of the value of a capital which exists only in the form of claims on prospective shares of surplus-value, i.e., profit, in fact in the form of promissory notes on production in various forms, is immediately depreciated by the reduction of the receipts on which it is calculated. A part of the gold and silver lies unused, i.e., does not function as capital. Part of the commodities on the market can complete their process of circulation and reproduction only through an immense contraction of their prices, hence through a depreciation of the capital which they represent. The elements of fixed capital are depreciated to a greater or lesser degree in just the same way. It must be added that definite, presupposed, price relations govern the process of reproduction, so that the latter is halted and thrown into confusion by a general drop in prices. This confusion and stagnation paralyses the function of money as a medium of payment, whose development is geared to the development of capital and is based on those presupposed price relations. The chain of payment obligations due at specific dates is broken in a hundred places. The confusion is augmented by the attendant collapse of the credit system, which develops simultaneously with capital, and leads to violent and acute crises, to sudden and forcible depreciations, to the actual stagnation and disruption of the process of reproduction, and thus to a real falling off in reproduction.
But there would have been still other agencies at work at the same time. The stagnation of production would have laid off a part of the working-class and would thereby have placed the employed part in a situation, where it would have to submit to a reduction of wages even below the average. This has the very same effect on capital as an increase of the relative or absolute surplus-value at average wages would have had. Prosperity would have led to more marriages among labourers and reduced the decimation of offspring. While implying a real increase in population, this does not signify an increase in the actual working population. But it affects the relations of the labourer to capital in the same way as an increase of the number of actually working labourers would have affected them. On the other hand, the fall in prices and the competitive struggle would have driven every capitalist to lower the individual value of his total product below its general value by means of new machines, new and improved working methods, new combinations, i.e., to increase the productivity of a given quantity of labour, to lower the proportion of variable to constant capital, and thereby to release some labourers; in short, to create an artificial over-population. Ultimately, the depreciation of the elements of constant capital would itself tend to raise the rate of profit. The mass of employed constant capital would have increased in relation to variable, but its value could have fallen. The ensuing stagnation of production would have prepared — within capitalistic limits — a subsequent expansion of production.
And thus the cycle would run its course anew. Part of the capital, depreciated by its functional stagnation, would recover its old value. For the rest, the same vicious circle would be described once more under expanded conditions of production, with an expanded market and increased productive forces.
However, even under the extreme conditions assumed by us this absolute over-production of capital is not absolute over-production, not absolute over-production of means of production. It is over-production of means of production only in so far as the latter serve as capital, and consequently include a self-expansion of value, must produce an additional value in proportion to the increased mass.
Yet it would still be over-production, because capital would be unable to exploit labour to the degree required by a "sound", "normal" development of the process of capitalist production, to a degree which would at least increase the mass of profit along with the growing mass of the employed capital; to a degree which would, therefore, prevent the rate of profit from falling as much as the capital grows, or even more rapidly.
Over-production of capital is never anything more than over-production of means of production — of means of labour and necessities of life — which may serve as capital, i.e., may serve to exploit labour at a given degree of exploitation; a fall in the intensity of exploitation below a certain point, however, calls forth disturbances, and stoppages in the capitalist production process, crises, and destruction of capital. It is no contradiction that this over-production of capital is accompanied by more or less considerable relative over-population. The circumstances which increased the productiveness of labour, augmented the mass of produced commodities, expanded markets, accelerated accumulation of capital both in terms of its mass and its value, and lowered the rate of profit — these same circumstances have also created, and continuously create, a relative overpopulation, an over-population of labourers not employed by the surplus-capital owing to the low degree of exploitation at which alone they could be employed, or at least owing to the low rate of profit which they would yield at the given degree of exploitation.
If capital is sent abroad, this is not done because it absolutely could not be applied at home, but because it can be employed at a higher rate of profit in a foreign country. But such capital is absolute excess capital for the employed labouring population and for the home country in general. It exists as such alongside the relative over-population, and this is an illustration of how both of them exist side by side, and mutually influence one another.
There are not too many necessities of life produced, in proportion to the existing population. Quite the reverse. Too little is produced to decently and humanely satisfy the wants of the great mass.
There are not too many means of production produced to employ the able-bodied portion of the population. Quite the reverse. In the first place, too large a portion of the produced population is not really capable of working, and is through force of circumstances made dependent on exploiting the labour of others, or on labour which can pass under this name only under a miserable mode of production. In the second place, not enough means of production are produced to permit the employment of the entire able-bodied population under the most productive conditions, so that their absolute working period could be shortened by the mass and effectiveness of the constant capital employed during working-hours.
On the other hand, too many means of labour and necessities of life are produced at times to permit of their serving as means for the exploitation of labourers at a certain rate of profit. Too many commodities are produced to permit of a realisation and conversion into new capital of the value and surplus-value contained in them under the conditions of distribution and consumption peculiar to capitalist production, i.e., too many to permit of the consummation of this process without constantly recurring explosions.
Not too much wealth is produced. But at times too much wealth is produced in its capitalistic, self-contradictory forms.
The limitations of the capitalist mode of production come to the surface:
1) In that the development of the productivity of labour creates out of the falling rate of profit a law which at a certain point comes into antagonistic conflict with this development and must be overcome constantly through crises.
2) In that the expansion or contraction of production are determined by the appropriation of unpaid labour and the proportion of this unpaid labour to materialised labour in general, or, to speak the language of the capitalists, by profit and the proportion of this profit to the employed capital, thus by a definite rate of profit, rather than the relation of production to social requirements, i.e., to the requirements of' socially developed human beings. It is for this reason that the capitalist mode of production meets with barriers at a certain expanded stage of production which, if viewed from the other premise, would reversely have been altogether inadequate. It comes to a standstill at a point fixed by the production and realisation of profit, and not the satisfaction of requirements.
If the rate of profit falls, there follows, on the one hand, an exertion of capital in order that the individual capitalists, through improved methods, etc., may depress the value of their individual commodity below the social average value and thereby realise an extra profit at the prevailing market-price. On the other hand, there appears swindling and a general promotion of swindling by recourse to frenzied ventures with new methods of production, new investments of capital, new adventures, all for the sake of securing a shred of extra profit which is independent of the general average and rises above it.
Since the development of the productivity of labour proceeds very disproportionately in the various lines of industry, and not only disproportionately in degree but frequently also in opposite directions, it follows that the mass of average profit (= surplus-value) must be substantially below the level one would naturally expect after the development of the productiveness in the most advanced branches of industry. The fact that the development of the productivity in different lines of industry proceeds at substantially different rates and frequently even in opposite directions, is not due merely to the anarchy of competition and the peculiarity of the bourgeois mode of production. Productivity of labour is also bound up with natural conditions, which frequently become less productive as productivity grows — inasmuch as the latter depends on social conditions. Hence the opposite movements in these different spheres — progress here, and retrogression there. Consider the mere influence of the seasons, for instance, on which the bulk of raw materials depends for its mass, the exhaustion of forest lands, coal and iron mines, etc.
While the circulating part of constant capital, such as raw materials, etc., continually increases its mass in proportion to the productivity of labour, this is not the case with fixed capital, such as buildings, machinery, and lighting and heating facilities, etc. Although in absolute terms a machine becomes dearer with the growth of its bodily mass, it becomes relatively cheaper. If five labourers produce ten times as much of a commodity as before, this does not increase the outlay for fixed capital ten-fold; although the value of this part of constant capital increases with the development of the productiveness, it does not by any means increase in the same proportion. We have frequently pointed out the difference in the ratio of constant to variable capital as expressed in the fall of the rate of profit, and the difference in the same ratio as expressed in relation to the individual commodity and its price with the development of the productivity of labour.
[The value of a commodity is determined by the total labour-time of past and living labour incorporated in it. The increase in labour productivity consists precisely in that the share of living labour is reduced while that of past labour is increased, but in such a way that the total quantity of labour incorporated in that commodity declines; in such a way, therefore, that living labour decreases more than past labour increases. The past labour contained in the value of a commodity — the constant part of capital — consists partly of the wear and tear of fixed, partly of circulating, constant capital entirely consumed by that commodity, such as raw and auxiliary materials. The portion of value deriving from raw and auxiliary materials must decrease with the increased productivity of labour, because with regard to these materials the productivity expresses itself precisely by reducing their value. On the other hand, it is most characteristic of rising labour productivity that the fixed part of constant capital is strongly augmented, and with it that portion of its value which is transferred by wear and tear to the commodities. For a new method of production to represent a real increase in productivity, it must transfer a smaller additional portion of the value of fixed capital to each unit of the commodity in wear and tear than the portion of value deducted from it through the saving in living labour; in short, it must reduce the value of the commodity. It must obviously do so even if, as it occurs in some cases, an additional value goes into the value of the commodity for more or dearer raw or auxiliary materials over and above the additional portion for wear and tear of the fixed capital. All additions to the value must be more than offset by the reduction in value resulting from the decrease in living labour.
This reduction of the total quantity of labour going into a commodity seems, accordingly, to be the essential criterion of increased productivity of labour, no matter under what social conditions production is carried on. Productivity of labour, indeed, would always be measured by this standard in a society, in which producers regulate their production according to a preconceived plan, or even under simple commodity-production. But how does the matter stand under capitalist production?
Suppose, a certain line of capitalist industry produces a normal unit of its commodity under the following conditions: The wear and tear of fixed capital amounts to ½ shilling per piece; raw and auxiliary materials go into it to the amount of 17½ shillings per piece; wages, 2 shillings; and surplus-value, 2 shillings at a rate of surplus-value of 100%. Total value = 22 shillings. We assume for the sake of simplicity that the capital in this line of production has the average composition of social capital, so that the price of production of the commodity is identical with its value, and the profit of the capitalist with the created surplus-value. Then the cost-price of the commodity = ½ + 17½ + 2 = 20s., the average rate of profit 2/20 = 10%, and the price of production per piece of the commodity, like its value = 22s.
Suppose a machine is invented which reduces by half the living labour required per piece of the commodity, but trebles that portion of its value accounted for by the wear and tear of the fixed capital. In that case, the calculation is: Wear and tear = 1½ s., raw and auxiliary materials, as before, 17½s., wages, 1s., surplus-value 1s., total 21s. The commodity then falls 1s. in value; the new machine has certainly increased the productivity of labour. But the capitalist sees the matter as follows: his cost-price is now 1½s. for wear, 17½s. for raw and auxiliary materials, 1s. for wages, total 20s., as before. Since the rate of profit is not immediately altered by the new machine, he will receive 10% over his cost-price, that is, 2s. The price of production, then, remains unaltered = 22s., but is 1s. above the value. For a society producing under capitalist conditions the commodity has not cheapened. The new machine is no improvement for it. The capitalist is, therefore, not interested in introducing it. And since its introduction would make his present, not as yet worn-out, machinery simply worthless, would turn it into scrap-iron, hence would cause a positive loss, he takes good care not to commit this, what is for him a utopian, mistake.
The law of increased productivity of labour is not, therefore, absolutely valid for capital. So far as capital is concerned, productiveness does not increase through a saving in living labour in general, but only through a saving in the paid portion of living labour, as compared to labour expended in the past, as we have already indicated in passing in Book I (Kap. XI II, 2, 5. 409/398). [English edition: Ch. XV, 2. — Ed.] Here the capitalist mode of production is beset with another contradiction. Its historical mission is unconstrained development in geometrical progression of the productivity of human labour. It goes back on its mission whenever, as here, it checks the development of productivity. It thus demonstrates again that it is becoming senile and that it is more and more outlived.] [1]
Under competition, the increasing minimum of capital required with the increase in productivity for the successful operation of an independent industrial establishment, assumes the following aspect: As soon as the new, more expensive equipment has become universally established, smaller capitals are henceforth excluded from this industry. Smaller capitals can carry on independently in the various spheres of industry only in the infancy of mechanical inventions. Very large undertakings, such as railways, on the other hand, which have an unusually high proportion of constant capital, do not yield the average rate of profit, but only a portion of it, only an interest. Otherwise the general rate of profit would have fallen still lower. But this offers direct employment to large concentrations of capital in the form of stocks.
Growth of capital, hence accumulation of capital, does not imply a fall in the rate of profit, unless it is accompanied by the aforementioned changes in the proportion of the organic constituents of capital. Now it so happens that in spite of the constant daily revolutions in the mode of production, now this and now that larger or smaller portion of the total capital continues to accumulate for certain periods on the basis of a given average proportion of those constituents, so that there is no organic change with its growth, and consequently no cause for a fall in the rate of profit. This constant expansion of capital, hence also an expansion of production, on the basis of the old method of production which goes quietly on while new methods are already being introduced at its side, is another reason, why the rate of profit does not decline as much as the total capital of society grows.
The increase in the absolute number of labourers does not occur in all branches of production, and not uniformly in all, in spite of the relative decrease of variable capital laid out in wages. In agriculture, the decrease of the element of living labour may be absolute.
At any rate, it is but a requirement of the capitalist mode of production that the number of wage-workers should increase absolutely, in spite of its relative decrease. Labour-power becomes redundant for it as soon as it is no longer necessary to employ it for 12 to 15 hours daily. A development of productive forces which would diminish the absolute number of labourers, i.e., enable the entire nation to accomplish its total production in a shorter time span, would cause a revolution, because it would put the bulk of the population out of the running. This is another manifestation of the specific barrier of capitalist production, showing also that capitalist production is by no means an absolute form for the development of the productive forces and for the creation of wealth, but rather that at a certain point it comes into collision with this development. This collision appears partly in periodical crises, which arise from the circumstance that now this and now that portion of the labouring population becomes redundant under its old mode of employment. The limit of capitalist production is the excess time of the labourers. The absolute spare time gained by society does not concern it. The development of productivity concerns it only in so far as it increases the surplus labour-time of the working-class, not because it decreases the labour-time for material production in general. It moves thus in a contradiction.
We have seen that the growing accumulation of capital implies its growing concentration. Thus grows the power of capital, the alienation of the conditions of social production personified in the capitalist from the real producers. Capital comes more and more to the fore as a social power, whose agent is the capitalist. This social power no longer stands in any possible relation to that which the labour of a single individual can create. It becomes an alienated, independent, social power, which stands opposed to society as an object, and as an object that is the capitalist's source of power. The contradiction between the general social power into which capital develops, on the one hand, and the private power of the individual capitalists over these social conditions of production, on the other, becomes ever more irreconcilable, and yet contains the solution of the problem, because it implies at the same time the transformation of the conditions of production into general, common, social, conditions. This transformation stems from the development of the productive forces under capitalist production, and from the ways and means by which this development takes place.
No capitalist ever voluntarily introduces a new method of production, no matter how much more productive it may be, and how much it may increase the rate of surplus-value, so long as it reduces the rate of profit. Yet every such new method of production cheapens the commodities. Hence, the capitalist sells them originally above their prices of production, or, perhaps, above their value. He pockets the difference between their costs of production and the market-prices of the same commodities produced at higher costs of production. He can do this, because the average labour-time required socially for the production of these latter commodities is higher than the labour-time required for the new methods of production. His method of production stands above the social average. But competition makes it general and subject to the general law. There follows a fall in the rate of profit — perhaps first in this sphere of production, and eventually it achieves a balance with the rest — which is, therefore, wholly independent of the will of the capitalist.
It is still to be added to this point, that this same law also governs those spheres of production, whose product passes neither directly nor indirectly into the consumption of the labourers, or into the conditions under which their necessities are produced; it applies, therefore, also to those spheres of production, in which there is no cheapening of commodities to increase the relative surplus-value or cheapen labour-power. (At any rate, a cheapening of constant capital in all these lines may increase the rate of profit, with the exploitation of labour remaining the same.) As soon as the new production method begins to spread, and thereby to furnish tangible proof that these commodities can actually be produced more cheaply, the capitalists working with the old methods of production must sell their product below its full price of production, because the value of this commodity has fallen, and because the labour-time required by them to produce it is greater than the social average. In one word — and this appears as an effect of competition — these capitalists must also introduce the new method of production, in which the proportion of variable to constant capital has been reduced.
All the circumstances which lead to the use of machinery cheapening the price of a commodity produced by it, come down in the last analysis to a reduction of the quantity of labour absorbed by a single piece of the commodity; and secondly, to a reduction in the wear-and-tear portion of the machinery, whose value goes into a single piece of the commodity. The less rapid the wear of machinery, the more the commodities over which it is distributed, and the more living labour it replaces before its term of reproduction arrives. In both cases the quantity and value of the fixed constant capital increase in relation to the variable.
Jones emphasises correctly that in spite of the falling rate of profit the inducements and faculties to accumulate are augmented; first, on account of the growing relative overpopulation; second, because the growing productivity of labour is accompanied by an increase in the mass of use-values represented by the same exchange-value, hence in the material elements of capital; third, because the branches of production become more varied; fourth, due to the development of the credit system, the stock companies, etc., and the resultant case of converting money into capital without becoming an industrial capitalist; fifth, because the wants and the greed for wealth increase; and, sixth, because the mass of investments in fixed capital grows, etc.
Three cardinal facts of capitalist production:
1) Concentration of means of production in few hands, whereby they cease to appear as the property of the immediate labourers and turn into social production capacities. Even if initially they are the private property of capitalists. These are the trustees of bourgeois society, but they pocket all the proceeds of this trusteeship.
2) Organisation of labour itself into social labour: through co-operation, division of labour, and the uniting of labour with the natural sciences.
In these two senses, the capitalist mode of production abolishes private property and private labour, even though in contradictory forms.
3) Creation of the world-market.
The stupendous productivity developing under the capitalist mode of production relative to population, and the increase, if not in the same proportion, of capital-values (not just of their material substance), which grow much more rapidly than the population, contradict the basis, which constantly narrows in relation to the expanding wealth, and for which all this immense productiveness works. They also contradict the conditions under which this swelling capital augments its value. Hence the crises.
The movements of commodity-capital have been analysed in Book II. To take the total capital of society, one part of it — always made up of different elements and even changing in magnitude — always exists in the form of commodities on the market, to be converted into money. Another part exists on the market in the form of money, to be converted into commodities. It is always in the process of this transition, of this formal metamorphosis. Inasmuch as this function of capital in the process of circulation is at all set apart as a special function of a special capital, as a function established by virtue of the division of labour to a special group of capitalists, commodity-capital becomes commercial capital.
We have explained (Book II, Chapter VI, "The Costs of Circulation,") to what extent the transport industry, storage and distribution of commodities in a distributable form, may be regarded as production processes continuing within the process of circulation. These episodes incidental to the circulation of commodity-capital are sometimes confused with the distinct functions of merchant's or commercial capital. Sometimes they are, indeed, practically bound up with these distinct, specific functions, although with the development of the social division of labour the function of merchant's capital evolves in a pure form, i.e., divorced from those real functions, and independent of them. Those functions are therefore irrelevant to our purpose, which is to define the specific difference of this special form of capital. In so far as capital solely employed in the circulation process, special commercial capital, partly combines those functions with its specific ones, it does not appear in its pure form. We obtain its pure form after stripping it of all these incidental functions.
We have seen that the existence of capital as commodity-capital and the metamorphosis it undergoes within the sphere of circulation in the market as commodity-capital — a metamorphosis which resolves itself into buying and selling, converting commodity-capital into money-capital and money-capital into commodity-capital — that this forms a phase in the reproduction process of industrial capital, hence in its process of production as a whole. We have also seen, however, that it is distinguished in its function as a capital of circulation from its function as productive capital. These are two different and separate forms of existence of the same capital. One portion of the total social capital is continually on the market in the form of capital of circulation, passing through this process of transmutation, although for each individual capital its existence as commodity-capital, and its metamorphosis as such, merely represent ever-vanishing and ever renewed nodal points — i.e., stages of transition in the continuity of its production process, and although the elements of commodity-capital in the market vary continuously for this reason, being constantly withdrawn from the commodity-market and equally periodically returned to it as new products of the process of production.
Commercial capital is nothing but a transmuted form of a part of this capital of circulation constantly to be found in the market, ever in the process of its metamorphosis, and always encompassed by the sphere of circulation. We say a part, because a part of the selling and buying of commodities always takes place directly between industrial capitalists. We leave this part entirely out of consideration in this analysis, because it contributes nothing to defining the conception, or to understanding the specific nature of merchant's capital, and because it has furthermore been exhaustively treated for our purpose in Book II.
The dealer in commodities, as a capitalist generally, appears on the market primarily as the representative of a certain sum of money, which be advances as a capitalist, i.e., which he wants to turn from x (its original value) into x + Dx (the original sum plus profit). But it is evident to him — not being just a capitalist in general, but rather a special dealer in commodities — that his capital must first enter the market in the form of money-capital, for he does not produce commodities. He merely trades in them, expedites their movement, and to operate with them he must first buy them, and, therefore, must be in possession of money-capital.
Suppose that a dealer in commodities owns £3,000 which he invests as a trading capital. With these £3,000 he buys, say, 30,000 yards of linen from some linen manufacturer at 2s. per yard. He then sells the 30,000 yards. If the annual average rate of profit = 10% and he makes an annual profit of 10% after deducting all incidental expenses, then by the end of the year he has converted his £3,000 into £3,300. How he makes this profit is a question which we shall discuss later. At present, we intend to consider solely the form of the movements of his capital. With his £3,000 he keeps buying linen and selling it; he constantly repeats this operation of buying in order to sell, M — C — M', the simple form of capital as it obtains entirely in the process of circulation, uninterrupted by the production process, which lies outside its own movement and function.
What is now the relation of this commercial capital to commodity-capital as a mere form of existence of industrial capital? So far as the linen manufacturer is concerned, he has realised the value of his linen with the merchant's money and thereby completed the first phase in the metamorphosis of his commodity-capital — its conversion into money. Other conditions being equal, he can now proceed to reconvert this money into yarn, coal, wages, etc., and into means of existence, etc., for the consumption of his revenue. Hence, leaving aside the revenue expenditure, he can go on with his process of reproduction.
But while the sale of the linen, its metamorphosis into money, has taken place for him, as producer, it has not yet taken place for the linen itself. It is still on the market as commodity-capital awaiting to undergo its first metamorphosis — to be sold. Nothing has happened to this linen besides a change in the person of its owner. As concerns its purpose, as concerns its place in the process, it is still commodity-capital, a saleable commodity, with the only difference that it is now in the merchant's hands instead of the manufacturer's. The function of selling it, of effecting the first phase of its metamorphosis, has passed from the manufacturer to the merchant, has become the special business of the merchant, whereas previously it was a function which the producer had to perform himself after having completed the function of its production.
Let us assume that the merchant fails to sell the 30,000 yards of linen during the interval required by the linen manufacturer to bring another 30,000 yards to market at a value of £3,000. The merchant cannot buy them again, because he still has in stock the unsold 30,000 yards which have not as yet been reconverted into money-capital. A stoppage ensues, i.e., an interruption of reproduction. The linen producer might, of course, have additional money-capital at his disposal, which he could convert into productive capital, regardless of the sale of the 30,000 yards, in order to continue the production process. But this would not alter the situation. So far as the capital tied up in the 30,000 yards of linen is concerned, its process of reproduction is, and remains, interrupted. It is, indeed, easily seen here that the merchant's operations are really nothing but operations that must be performed at all events to convert the producer's commodity-capital into money. They are operations which effect the functions of commodity-capital in the circulation and reproduction processes. If it devolved upon the producer's clerk to attend exclusively to the sale, and also the purchase, instead of an independent merchant, this connection would not be obscured for a single moment.
Commercial capital is, therefore, nothing but the producer's commodity — capital which has to undergo the process of conversion into money — to perform its function of commodity-capital on the market — the only difference being that instead of representing an incidental function of the producer, it is now the exclusive operation of a special kind of capitalist, the merchant, and is set apart as the business of a special investment of capital.
The merchant finally sells his commodity, that is, the linen, to the consumer, be it a productive consumer (for instance, a bleacher), or an individual who acquires the linen for his private use. The merchant thereby recovers his advanced capital (with a profit), and can repeat his operation anew. Had the money served merely as a means of payment in purchasing the linen, so that the merchant would have had to pay only after six weeks, and had he succeeded in selling before this term was out, he could have paid the linen manufacturer without advancing any money-capital of his own. Had he not sold it, he would have had to advance his £3,000 on the date of expiration, instead of on delivery of the linen. And if a drop in the market-prices had compelled him to sell below the purchase price, he would have had to make good the shortage out of his own capital.
What is it, then, that lends to commercial capital the character of an independently operating capital, whereas in the hands of the producer who does his own selling it is obviously merely a special form of his capital in a specific phase of the reproduction process during its sojourn in the sphere of circulation?
First: The fact that commodity-capital is finally converted into money, that it performs its initial metamorphosis, i.e., its appropriate function on the market qua commodity-capital while in the hands of an agent other than the producer, and that this function of commodity-capital is effected by the merchant in his operations, his buying and selling, so that these operations assume the appearance of a separate undertaking distinct from the other functions of industrial capital — and hence of an independent undertaking. It is a distinct form of the social division of labour, so that part of the function ordinarily performed as a special phase of the reproduction process of capital, in this case — circulation, appears as the exclusive function of specific circulation agent distinct from the producer. But this alone would by no means give this particular business the aspect of a function of a specific capital distinct from, and independent of, industrial capital engaged in the process of reproduction; indeed, it does not so appear in cases where trade is carried on by travelling salesmen or other direct agents of the industrial capitalist. Therefore, there must be a second element involved.
Second: This arises from the fact that in his capacity as an independent circulation agent, the merchant advances money-capital (his own or borrowed). The transaction which for industrial capital in the reproduction process amounts merely to C — M, i.e., converting commodity-capital into money-capital, or mere sale, assumes for the merchant the form of M — C — M', or purchase and sale of the same commodity, and thus of a reflux of money-capital which leaves him in the purchase, and returns to him in the sale.
Thus, commodity-capital assumes in commercial capital the form of an independent type of capital because the merchant advances money-capital, which is realised and functions as capital only by serving exclusively to mediate the metamorphosis of commodity-capital, its function as commodity-capital, i.e., its conversion into money, and it accomplishes this by the continual purchase and sale of commodities. This is its exclusive operation. This activity of effecting the circulation process of industrial capital is the exclusive function of the money-capital with which the merchant operates. By means of this function he converts his money into money-capital, moulds his M into M — C — M, and by the same process converts commodity-capital into commercial capital.
So long and so far as commercial capital exists in the form of commodity-capital, it is obviously nothing else — from the standpoint of the reproduction process of the total social capital — but a portion of industrial capital in the market in process of metamorphosis, which exists and functions as commodity-capital. It is therefore only the money-capital advanced by the merchant which is exclusively destined for purchase and sale and for this reason never assumes any other form but that of commodity-capital and money-capital, never that of productive capital, and is always confined to the sphere of circulation of capital — it is only this money-capital which is now to be regarded with reference to the entire reproduction process of capital.
As soon as the producer, the linen manufacturer, has sold his 30,000 yards to the merchant for £3,000, he uses the money so obtained to buy the necessary means of production, so that his capital returns to the production process. His process of production continues without interruption. So far as he is concerned, the conversion of his commodity into money is accomplished. But for the linen itself, as we have seen, its metamorphosis has not yet taken place. It has not yet been finally reconverted into money, has not yet passed as a use-value into either productive or individual consumption. It is now the linen merchant who represents on the market the same commodity-capital originally represented by the linen manufacturer. For the latter the process of transformation has been curtailed, only to be continued in the merchant's hands.
Had the linen producer been obliged to wait until his linen had really ceased being a commodity, until it has passed into the hands of its ultimate buyer, its productive or individual consumer, his process of reproduction would have been interrupted. Or, to avoid interrupting it, he would have had to curtail his operations, to convert a smaller portion of his linen into yarn, coal, labour, etc., in short, into the elements of productive capital, and to retain a larger portion of it as a money reserve, so that with one portion of his capital on the market in the shape of commodities, another would continue the process of production; one portion would be on the market in the form of commodities, while the other returned in the form of money. This division of his capital is not abolished by the merchant's intervention. But without it the portion of money reserve in the capital of circulation would always have to be greater in relation to the part employed in the form of productive capital, and the scale of reproduction would have to be restricted accordingly. Instead, however, the manufacturer is enabled to constantly employ a larger portion of his capital in the actual process of production, and a smaller portion as money reserve.
On the other hand, however, another portion of the social capital, in the form of merchant's capital, is kept continually within the sphere of circulation. It is employed all the time for the sole purpose of buying and selling. Hence there seems to have been no more than a replacement of persons holding this capital in their hands.
If, instead of buying £3,000 worth of linen with the purpose of selling it again, the merchant had applied these £3,000 productively, the productive capital of society would have increased. True, the linen manufacturer would then have been obliged to hold back a larger portion of his capital as money reserve, and likewise the merchant, now transformed into an industrial capitalist. On the other hand, if the merchant remains merchant, the manufacturer saves time in selling, which he can devote to supervising the production process, while the merchant must apply all his time to selling.
If merchant's capital does not overstep its necessary proportions, it is to be inferred,
1) that as a result of the division of labour the capital devoted exclusively to buying and selling (and this includes not only the money required to buy commodities, but also the money which must be invested in labour to maintain the merchant's establishment, and in his constant capital-the storehouses, transport, etc.) is smaller than it would be if the industrial capitalist were constrained to carry on the entire commercial part of his business on his own;
2) that because the merchant devotes all his time exclusively to this business, the producer is able to convert his commodities more rapidly into money, and, moreover, the commodity-capital itself passes more rapidly through its metamorphosis than it would in the hands of the producer;
3) that in viewing the aggregate merchant's capital in its relation to industrial capital, one turnover of merchant's capital may represent not only the turnovers of many capitals in one sphere of production, but the turnovers of a number of capitals in different spheres of production. The former is the case when, for instance, the linen merchant, after buying the product of some linen manufacturer with his £3,000, sells it before the same manufacturer brings another lot of the same quantity to market, and buys, and again sells, the product of another, or several other, linen manufacturers, thus effecting the turnovers of different capitals in the same sphere of production. The latter is the case if, for example, the merchant after selling his linen buys silk, thus effecting the turnover of a capital in a different sphere of production.
In general, it may be noted that the turnover of industrial capital is limited not by the time of circulation alone, but also by the time of production. The turnover of merchant's capital dealing in one kind of commodity is not merely limited by the turnover of a single industrial capital, but by that of all industrial capitals in the same branch of production. After the merchant has bought and sold the linen of one producer he can buy and sell that of another, before the first brings another lot to the market. The same merchant's capital may, therefore, successively promote the different turnovers of capitals invested in a certain branch of production, with the effect that its turnover is not identical with the turnovers of a sole industrial capital, and does not therefore replace just the single money reserve which that one industrial capitalist would have had to hold in petto. The turnover of merchant's capital in one sphere of production is naturally restricted by the total production of that sphere. But it is not restricted by the scale of production, or the period of turnover, of any one capital of the same sphere, so far as its period of turnover is qualified by its time of production. Suppose, A supplies a commodity requiring three months for its production. After the merchant has bought and sold it, say, in one month, he can buy and sell the same product of some other manufacturer. Or after he has sold, say, the corn of one farmer, he can buy and sell that of another with the same money, etc. The turnover of his capital is restricted by the mass of corn he is able to buy and sell successively within a certain period, for instance, in one year, while the turnover of the farmer's capital is, regardless of the time of turnover, restricted by the time of production, which lasts one year.
However, the turnover of the same merchant's capital may equally well effect the turnovers of capitals in different branches of production.
In so far as the same merchant's capital serves in different turnovers to transform different commodity-capitals successively into money, buying and selling them one after another, it performs the same function in its capacity of money-capital with regard to commodity-capital, which money in general performs by means of the number of its turnovers in a given period with regard to commodities.
The turnover of merchant's capital is not identical with the turnover, or a single reproduction, of an industrial capital of equal size; it is rather equal to the sum of the turnovers of a number of such capitals, whether in the same or in different spheres of production. The more quickly merchant's capital is turned over, the smaller the portion of total money-capital serving as merchant's capital; and conversely, the more slowly it is turned over, the larger this portion. The less developed production, the larger the sum of merchant's capital in its relation to the sum of the commodities thrown into circulation; but the smaller in absolute terms, or in comparison with more developed conditions, and vice versa. In such undeveloped conditions, therefore, the greater part of the actual money-capital is in the hands of merchants, whose fortune constitutes money wealth vis-à-vis the others.
The velocity of circulation of the money-capital advanced by the merchant depends 1) on the speed with which the process of production is renewed and the different processes of production are linked together; and 2) on the velocity of consumption.
The linen merchant buys £3,000 worth of linen from the manufacturer. The latter pays, say, £2,000 of the £3,000 for yarn. He buys this yarn from a yarn dealer. The money which the manufacturer pays to the yarn dealer is not the linen dealer's money, for the latter has received commodities to this amount. It is the money-form of the manufacturer's own capital. Now in the hands of the yarn dealer these £2,000 appear as returned money-capital. But to what extent are they that as distinct from the £2,000 representing the discarded money-form of the linen and the assumed money-form of the yarn? If the yarn dealer bought on credit and sold for cash before the expiration of his term of payment, then these £2,000 do not contain one penny of merchant's capital as distinct from the money-form which the industrial capital itself assumes in the course of its circuit. In so far as commercial capital is not, therefore, just a form of industrial capital in the merchant's hands as commodity- or money-capital, it is nothing but that portion of money-capital which belongs directly to the merchant and circulates in the purchase and sale of commodities. On a reduced scale this portion represents that part of capital advanced for production which should always have to be in the hands of the industrialist as money reserve and means of purchase, and which should always have to circulate as his money-capital. This portion, on a reduced scale, is now in the hands of merchant capitalists and performs its functions as such in the process of circulation. It is that portion of the total capital which, aside from what is expended as revenue, must continually circulate on the market as a means of purchase in order to maintain the continuity of the process of reproduction. The more rapid the process of reproduction, and the more developed the function of money as a means of payment, i.e., the more developed the credit system, [1] the smaller that portion is in relation to the total capital.
Merchant's capital is simply capital functioning in the sphere of circulation. The process of circulation is a phase of the total process of reproduction. But no value is produced in the process of circulation, and, therefore, no surplus-value. Only changes of form of the same mass of value take place. In fact, nothing occurs there outside the metamorphosis of commodities, and this has nothing to do as such either with the creation or change of values. If a surplus-value is realised in the sale of produced commodities, then this is only because it already existed in them. In the second act, the re-exchange of money-capital against commodities (elements of production), the buyer therefore does not realise any surplus-value either. He merely initiates the production of surplus-value through exchanging his money for means of production and labour-power. But so far as these metamorphoses require circulation time — time during which capital does not produce at all, least of all surplus-value — it restricts the creation of values, and the surplus-value expresses itself through the rate of profit in inverse ratio to the duration of the circulation period. Merchant's capital, therefore, does not create either value or surplus-value, at least not directly. In so far as it contributes to shortening the time of circulation, it may help indirectly to increase the surplus-value produced by the industrial capitalists. In so far as it helps to expand the market and effects the division of labour between capitals, hence enabling capital to operate on a larger scale, its function promotes the productivity of industrial capital, and its accumulation. In so far as it shortens circulation time, it raises the ratio of surplus-value to advanced capital, hence the rate of profit. And to the extent that it confines a smaller portion of capital to the sphere of circulation in the form of money-capital, it increases that portion of capital which is engaged directly in production.
Commercial capital, therefore — stripped of all heterogeneous
 functions, such as storing, expressing, transporting, distributing, retailing,
 which may be connected with it, and confined to its true function of buying in
 order to sell — creates neither value nor surplus-value, but acts as
 middleman in their realisation and thereby simultaneously in the actual
 exchange of commodities, i.e., in their transfer from hand to hand, in
 the social metabolism. Nevertheless, since the circulation phase of industrial
 capital is just as much a phase of the reproduction process as production is,
 the capital operating independently in the process of circulation must yield
 the average annual profit just as well as capital operating in the various
 branches of production. Should merchant's capital yield a higher percentage of
 average profit than industrial capital, then a portion of the latter would
 transform itself into merchant's capital. Should it yield a lower average
 profit, then the converse would result. A portion of the merchant's capital
 would then be transformed into industrial capital. No species of capital
 changes its purpose, or function, with greater ease than merchant's capital.
Since merchant's capital does not itself produce surplus-value, it is
 evident that the surplus-value which it pockets in the form of average profit
 must be a portion of the surplus-value produced by the total productive
 capital. But now the question arises: How does merchant's capital attract its
 share of the surplus-value or profit produced by the productive capital?
It is just an illusion that commercial profit is a mere addition to, or a
 nominal rise of, the prices of commodities in excess of their value.
It is plain that the merchant can draw his profit only out of the price of
 the commodities he sells, and plainer still that the profit he makes in selling
 his commodities must be equal to the difference between his purchase price and
 his selling price, i.e., equal to the excess of the latter over the
 former.
It is possible that additional costs (costs of circulation) may enter into
 the commodities after their purchase and before their sale, and it is also
 possible that this may not happen. If such costs should occur, it is plain that
 the excess of the selling price over the purchase price would not be all
 profit. To simplify the analysis, we shall assume at this point that no such
 costs occur.
For the industrial capitalist the difference between the selling price and
 the purchase price of his commodities is equal to the difference between their
 price of production and their cost-price, or, from the standpoint of the total
 social capital, equal to the difference between the value of the commodities
 and their cost-price for the capitalists, which again comes down to the
 difference between the total quantity of labour and the quantity of paid labour
 incorporated in them. Before the commodities bought by the industrial
 capitalist are thrown back on the market as saleable commodities, they pass
 through the process of production, in which alone the portion of their price to
 be realised as profit is created. But it is different with the merchant. The
 commodities are in his hands only so long as they are in the process of
 circulation. He merely continues their sale, the realisation of their price
 which was begun by the productive capitalist, and therefore does not cause them
 to pass through any intermediate process in which they could again absorb
 surplus-value. While the industrial capitalist merely realises the previously
 produced surplus-value, or profit, in the process of circulation, the merchant
 has not only to realise his profit during and through circulation, but must
 first make it. There appears to be no other way of doing this outside of
 selling the commodities bought by him from the industrial capitalist at their
 prices of production, or, from the standpoint of the total commodity-capital,
 at their values in excess of their prices of production, making a nominal extra
 charge to their prices, hence, selling them, from the standpoint of the total
 commodity-capital, above their value, and pocketing this excess of their
 nominal value over their real value; in short, selling them for more than they
 are worth.
This method of adding an extra charge is easy to grasp. For instance, one
 yard of linen costs 2s. If I want to make a 10% profit in reselling it, I must
 add 1/10 to the price, hence sell the yard at 2s. 2 2/5 d. The difference
 between its actual price of production and its selling price is then = 2 2/5d.,
 and this represents a profit of 10% on 2s. This amounts to my selling the yard
 to the buyer at a price which is in reality the price of 1 1/10 yard. Or, what
 amounts to the same, it is as though I sold to the buyer only 10/11 of a yard
 for 2s. and kept 1/11 of a yard for myself. In fact I can buy back 1/11 of a
 yard for 2 2/5d. at the price of 2s. 2 2/5d. per yard. This would, therefore,
 be just a roundabout way of sharing in the surplus-value and surplus-product by
 a nominal rise in the price of commodities.
This is realisation of commercial profit by raising the price of
 commodities, as it appears at first glance. And, indeed, this whole notion that
 profit originates from a nominal rise in the price of commodities, or from
 their sale above their value, springs from the observations of commercial
 capital.
Suppose, the total industrial capital advanced in the course of the year =
 720c + 180v = 900 (say million £),
 and that s' = 100%. The product therefore = 720c +
 180v + 180s. Let us call this
 product or the produced commodity-capital, C, whose value, or price of
 production (since both are identical for the totality of commodities) = 1,080,
 and the rate of profit for the total social capital of 900 = 20%. These 20%
 are, according to our earlier analyses, the average rate of profit, since the
 surplus-value is not calculated here on this or that capital of any particular
 composition, but on the total industrial capital of average composition. Thus,
 C = 1,080, and the rate of profit = 20%. Let us now assume, however, that aside
 from these £900 of industrial capital, there are still £100 of merchant's
 capital, which shares in the profit pro rata to its magnitude just as
 the former. According to our assumption, it is 1/10 of the total capital of
 1,000. Therefore, it participates to the extent of 1/10 in the total
 surplus-value of 180, and thus secures a profit of 18%. Actually, then, the
 profit to be distributed among the other 1/10 of the total capital is only =
 162, or on the capital of 900 likewise = 18%. Hence, the price at which C is
 sold by the owners of the industrial capital of 900 to the merchants = 720c + 180v + 162s =
 1,062. If the dealer then adds the average profit of 18% to his capital of 100,
 he sells the commodities at 1,062 + 18 = 1,080, i.e., at their price
 of production, or, from the standpoint of the total commodity-capital, at their
 value, although he makes his profit only during and through the circulation
 process, and only from an excess of his selling price over his purchase price.
 Yet he does not sell the commodities above their value, or above their price of
 production, precisely because he has bought them from the industrial capitalist
 below their value, or below their price of production.
Merchant's capital, therefore, participates in levelling surplus-value to
 average profit, although it does not take part in its production. Thus, the
 general rate of profit contains a deduction from surplus-value due to
 merchant's capital, hence a deduction from the profit of industrial capital.
It follows from the foregoing:
1) The larger the merchant's capital in proportion to the industrial
 capital, the smaller the rate of industrial profit, and vice versa.
2) It was demonstrated in the first part that the rate of profit is always
 lower than the rate of the actual surplus-value, i.e., it always
 understates the intensity of exploitation, as in the above case, 720c + 180v + 180s,
 the rate of surplus-value of 100% and a rate of profit of only 20%. And the
 difference becomes still greater, inasmuch as the average rate of profit
 appears smaller again, dropping from 20% to 18%, if the share falling to
 merchant's capital is also taken into account. The average rate of profit of
 the direct capitalist exploiter, therefore, expresses a rate of profit smaller
 than it actually is.
Assuming all other circumstances remaining the same, the relative volume of
 merchant's capital (with the exception of the small dealer who represents a
 hybrid form) is in inverse proportion to the velocity of its turnover, hence in
 inverse proportion to the energy of the process of reproduction in general. In
 the course of scientific analysis, the formation of a general rate of profit
 appears to result from industrial capitals and their competition, and is only
 later corrected, supplemented, and modified by the intervention of merchant's
 capital. In the course of its historical development, however, the process is
 really reversed. It is the commercial capital which first determines the prices
 of commodities more or less in accordance with their values, and it is the
 sphere of circulation, the sphere that promotes the process of reproduction, in
 which a general rate of profit initially takes shape. It is originally the
 commercial profit which determines the industrial profit. Not until the
 capitalist mode of production has asserted itself and the producer himself has
 become merchant, is commercial profit reduced to that aliquot part of the total
 surplus-value falling to the share of merchant's capital as an aliquot part of
 the total capital engaged in the social process of reproduction.
No matter what the nature of these costs of circulation — whether they
 arise from the purely commercial nature of the merchant's establishment as such
 and hence belong to the merchant's specific costs of circulation, or represent
 items which are charges for subsequent processes of production added in the
 process of circulation, such as expressage, transport, storage, etc. —
 they always require of the merchant, aside from his money-capital, advanced to
 the purchase of commodities, some additional capital for the purchase and
 payment of such means of circulation. As much of this element of cost as
 consists of circulating capital passes wholly as an additional element into the
 selling price of the commodities; and as much of it as consists of fixed
 capital only to the extent of its wear and tear. But only as an element which
 forms a nominal value, even if as the purely commercial costs of circulation,
 it does not add any real value to the commodities. But whether fixed or
 circulating, this entire additional capital participates in forming the general
 rate of profit.
The purely commercial costs of circulation (hence, excluding costs of
 expressage, shipping, storage, etc.) resolve themselves into costs required to
 realise the value of commodities, to transform it from commodities into money,
 or from money into commodities, to effect their exchange. We leave entirely out
 of consideration all possible processes of production which may continue in the
 process of circulation, and from which the merchant's business can be
 altogether separated; as, in fact, the actual transport industry and expressage
 may be, and are, industrial branches entirely distinct from commercial; and
 purchaseable and saleable commodities may be stored in docks or in other public
 premises, with the resultant cost of storage being charged to the merchant by
 third persons inasmuch as he has to advance it. All this takes place in actual
 wholesale commerce, where merchant's capital appears in its purest form,
 unmixed with other functions. The express company owner, the railway director,
 and the shipowner, are not "merchants." The costs which we consider here are
 those of buying and selling. We have already remarked earlier that these
 resolve themselves into accounting, book-keeping, marketing, correspondence,
 etc. The constant capital required for this purpose consists of offices, paper,
 postage, etc. The other costs break up into variable capital advanced for the
 employment of mercantile wage-workers. (Expressage, transport costs, advances
 for customs duties, etc., may partly be considered as being advanced by the
 merchant in purchasing commodities and thus enter the purchase price as far as
 he is concerned.)
All these costs are not incurred in producing the use-value of commodities,
 but in realising their value. They are pure costs of circulation. They do not
 enter into the immediate process of production, but since they are part of the
 process of circulation they are also part of the total process of
 reproduction.
The only portion of these costs of interest to us at this point is that
 advanced as variable capital. (The following questions should also be analysed:
 First, how does the law that only necessary labour enters the value of
 commodities operate in the process of circulation? Second, how does
 accumulation obtain in merchant's capital? Third, how does merchant's capital
 function in the actual aggregate reproduction process of society?)
These costs arise due to the product having the economic form of a
 commodity.
If the labour-time which the industrial capitalists themselves lose while
 directly selling commodities to one another — hence, speaking
 objectively, the circulation time of the commodities — does not add value
 to these commodities, it is evident that this labour-time does not change its
 nature in the least by falling to the merchant instead of the industrial
 capitalist. The conversion of commodities (products) into money, and of money
 into commodities (means of production) is a necessary function of industrial
 capital and, therefore, a necessary operation of the capitalist — who is
 actually but personified capital endowed with a consciousness of its own and a
 will. But these functions neither create value, nor produce surplus-value. By
 performing these operations and carrying on the functions of capital in the
 sphere of circulation after the productive capitalist has ceased to be involved
 the merchant merely takes the place of the industrial capitalist. The
 labour-time required in these operations is devoted to certain necessary
 operations of the reproduction process of capital, but yields no additional
 value. If the merchant did not perform these operations (hence, did not expend
 the labour-time entailed), he would not be applying his capital as a
 circulation agent of industrial capital; he would not then be continuing the
 interrupted function of the industrial capitalist, and consequently could not
 participate as a capitalist pro rata to his advanced capital, in the
 mass of profit produced by industrial capitalists. In order to share in the
 mass of surplus-value, to expand the value of his advance as capital, the
 commercial capitalist need not employ wage-workers. If his business and capital
 are small, he may be the only worker in it. He is paid with that portion of the
 profit which falls to him through the difference between the purchase price
 paid by him for commodities and their actual price of production.
But, on the other hand, the profit realised by the merchant on a small
 amount of advanced capital may be no larger, or may even be smaller, than the
 wages of one of the better-paid skilled wage-workers. In fact, he brushes
 shoulders with many direct commercial agents of the productive capitalist, such
 as buyers, sellers, travellers, who enjoy the same or a higher income either in
 the form of wages, or in the form of a share in the profit (percentages,
 bonuses) made from each sale. In the first case, the merchant pockets the
 mercantile profit as an independent capitalist; in the other, the salesman, the
 industrial capitalist's wage-labourer, receives a portion of the profit either
 in the form of wages, or as a proportional share in the profit of the
 industrial capitalist, whose direct agent he is, while his employer pockets
 both the industrial and the commercial profit. But in all these cases, although
 his income may appear to the circulation agent as an ordinary wage, as payment
 for work performed, and although, where it does not so appear, the profit may
 be no larger than the wage of a better-paid labourer, his income is derived
 solely from the mercantile profit. This follows from his labour not being
 labour which produces value.
If the industrial capitalist who acts as his own merchant advances not only
 the additional capital to buy new commodities before his product in the process
 of circulation has been reconverted into money, but also capital (office
 expenses and wages for commercial employees) to realise the value of his
 commodity-capital, or, in other words, for the process of circulation, then
 these supplements form additional capital, but do not create surplus-value.
 They must be made good out of the value of the commodities, because a portion
 of the value of these commodities must be reconverted into these circulation
 costs. But no additional surplus-value is created thereby. So far as this
 concerns the total capital of society, it means in fact that a portion of it
 must be set aside for secondary operations which are no part of the
 self-expansion process, and that this portion of the social capital must be
 continually reproduced for this purpose. This reduces the rate of profit for
 the individual capitalist and for the entire class of industrial capitalists,
 an effect arising from every new investment of additional capital whenever such
 capital is required to set in motion the same mass of variable capital.
In so far as these additional costs connected with the business of
 circulation are transferred from the industrial to the commercial capitalist,
 there takes place a similar reduction in the rate of profit, but to a lesser
 degree and in a different way. It now develops that the merchant advances more
 capital than would be necessary if these costs did not exist, and that the
 profit on this additional capital increases the amount of the commercial
 profit, so that more of the merchant's capital joins industrial capital in
 levelling the average rate of profit and thereby the average profit falls. If
 in our above example an additional capital of 50 is advanced besides the
 merchant's capital of 100 to cover the costs in question, then the total
 surplus-value of 180 is distributed with respect to a productive capital of 900
 plus a merchant's capital of 150, together = 1,050. The average rate of profit,
 therefore, sinks to 17 1/7% The industrial capitalist sells his commodities to
 the merchant at 900 + 154 2/7 = 1,0542 1/7, and the merchant sells them at
 1,130 (1,080 + 50 for costs which he must recover). Moreover, it must be
 admitted that the division between merchant's and industrial capital is
 accompanied by a centralisation of the commercial expenses and, consequently,
 by their reduction.
The question now arises: What about the commercial wage-workers employed by
 the commercial capitalist, here the merchant?
In one respect, such a commercial employee is a wage-worker like any other.
 In the first place, his labour-power is bought with the variable capital of the
 merchant, not with money expended as revenue, and consequently it is not bought
 for private service, but for the purpose of expanding the value of the capital
 advanced for it. In the second place, the value of his labour-power, and thus
 his wages, are determined as those of other wage-workers, i.e., by the
 cost of production and reproduction of his specific labour-power, not by the
 product of his labour.
However, we must make the same distinction between him and the wage-workers
 directly employed by industrial capital which exists between industrial capital
 and merchant's capital, and thus between the industrial capitalist and the
 merchant. Since the merchant, as a mere agent of circulation, produces neither
 value nor surplus-value (for the additional value which he adds to the
 commodities through his expenses resolves itself into an addition of previously
 existing values, although the question here poses itself, how he preserves this
 value of his constant capital?) it follows that the mercantile workers employed
 by him in these same functions cannot directly create surplus-value for him.
 Here, as in the case of productive labourers, we assume that wages are
 determined by the value of the labour-power, and that, hence, the merchant does
 not enrich himself by depressing wages, so that he does not enter into his cost
 account an advance for labour which he has paid only in part; in other words,
 that he does not enrich himself through cheating his clerks, etc.
The difficulty as concerns mercantile wage-workers is by no means to explain
 how they produce direct profits for their employer without creating any direct
 surplus-value (of which profit is but a transmuted form). This question has,
 indeed, already been solved in the general analysis of commercial profits. Just
 as industrial capital makes profit by selling labour embodied and realised in
 commodities, for which it has not paid any equivalent, so merchant's capital
 derives profit from not paying in full to productive capital for all the unpaid
 labour contained in the commodities (in commodities, in so far as capital
 invested in their production functions as an aliquot part of the total
 industrial capital), and by demanding payment for this unpaid portion still
 contained in the commodities when making a sale. The relation of merchant's
 capital to surplus-value is different from that of industrial capital. The
 latter produces surplus-value by directly appropriating the unpaid labour of
 others. The former appropriates a portion of this surplus-value by having this
 portion transferred from industrial capital to itself.
It is only through its function of realising values that merchant's capital
 acts as capital in the process of reproduction, and hence draws on the
 surplus-value produced by the total capital. The mass of the individual
 merchant's profits depends on the mass of capital that he can apply in this
 process, and he can apply so much more of it in buying and selling, the more
 the unpaid labour of his clerks. The very function, by virtue of which the
 merchant's money becomes capital, is largely done through his employees. The
 unpaid labour of these clerks, while it does not create surplus-value, enables
 him to appropriate surplus-value, which, in effect, amounts to the same thing
 with respect to his capital. It is, therefore, a source of profit for him.
 Otherwise commerce could never be conducted on a large scale,
 capitalistically.
Just as the labourer's unpaid labour directly creates surplus-value for
 productive capital, so the unpaid labour of the commercial wage-worker secures
 a share of this surplus-value for merchant's capital.
The difficulty lies here: Since the merchant's labour-time and labour do not
 create value, although they secure for him a share of already produced
 surplus-value, how does the matter stand with the variable capital which he
 lays out in purchasing commercial labour-power? Is this variable capital to be
 included in the cost outlays of the advanced merchant's capital? If not, this
 appears to conflict with the law of equalisation of the rate of profit; what
 capitalist would advance 150 if he could charge only 100 to advanced capital?
 If so, it seems to conflict with the nature of merchant's capital, since this
 kind of capital does not act as capital by setting in motion the labour of
 others, as industrial capital does, but rather by doing its own work,
 i.e., performing the functions of buying and selling, this being
 precisely the means and the reason why it receives a portion of the
 surplus-value produced by the industrial capital.
(We must therefore analyse the following points: the merchant's variable
 capital; the law of necessary labour in the sphere of circulation; how the
 merchant's labour maintains the value of his constant capital; the part played
 by merchant's capital in the process of reproduction as a whole; and, finally,
 the duplication in commodity-capital and money-capital, on the one hand, and in
 commercial capital and money-dealing capital on the other.)
The industrial capitalist would have to lay out more in labour and in
 circulation costs in the commercial part of his business. The same merchant's
 capital, when divided among many small capitalists, would, owing to this
 fragmentation, require more labourers to perform its functions, and more
 merchant's capital would, furthermore, be needed to turn over the same
 commodity-capital.
Suppose B is the entire merchant's capital directly applied in buying and
 selling commodities, and b the corresponding variable capital paid out in wages
 to the commercial employees. Then B + b is smaller than the total merchant's
 capital, B, would be if every merchant had to get along without assistants,
 hence would invest nothing in b. However, we have not yet overcome the
 difficulty.
The selling price of the commodities must suffice 1) to pay the average
 profit on B + b. This is explained if only by the fact that B + b is generally
 a reduction of the original B, representing a smaller merchant's capital than
 would be required without b. But this selling price must suffice 2) to cover
 not only the additional profit on b, but to replace also the paid wages, the
 merchant's variable capital = b. This last consideration gives rise to the
 difficulty. Does b represent a new constituent of the price, or is it merely a
 part of the profit made by means of B + b, which appears as wages only so far
 as the mercantile wage-worker is concerned, and as concerns the merchant simply
 replaces variable capital? In the latter case, the merchant's profit on his
 advanced capital B + b would just equal the profit due to B by virtue of the
 general rate, plus b, which he pays out in the form of wages, but which does
 not itself yield a profit.
The crux of the matter is, indeed, to find the limits (mathematically
 speaking) of b. Let us first accurately define the problem. Let B stand for
 capital invested directly in buying and selling commodities, K for the constant
 capital (actual handling costs) consumed in this function, and b for the
 variable capital invested by the merchant.