Friday, 17 August 2012

Capital I - Chapter 4

The Transformation Of Money Into Capital

General Formula For Capital

Capital arises out of the circulation of commodities, and particularly from the 16th Century, when this circulation takes place in the context of a “world embracing market.” (p 145)  From the point of view of economic analysis it does not matter what these commodities are in terms of Use Values (i.e. apples, guns, jewellery). All that is significant is the economic forms this takes, and, as Marx has described, the result of these processes is the development of money as the embodiment of Exchange Value. Money is the first form also in which Capital appears.

Under feudalism and previous modes of production, wealth takes forms other than money e.g. land, slaves etc. By contrast, Capital invariably takes first the money form in the hands of the Merchant and Usurer.

NB. Its important to understand Marx's dialectical method here. In subsequent Chapters he will appear to contradict this statement.  For Marx, categories are not fixed and frozen. Categories are historically determined. As Lenin puts it, “The truth is always concrete.” This is true of all categories used by Marx, such as his definition of Class, for example. Categories can only be understood in their process of development. So, to pre-empt, Marx further analysis, the use of the term “Capital” here does not conform with his later definition. In that later definition, he defines Capital as a social relation. This social relation is a necessary one between Capital and Wage Labour. Neither can exist without the other. They form a contradictory whole. On the basis of this relation, Capital constitutes self-expanding Value, which is accumulated, and becomes capital itself, which results in more Wage Labour being employed, which produces more Surplus Value and so on.

The Medici were part of that poweful
Merchant and Money Class who pauperised
the producers through unequal exchange, and
stifled Capitalism at birth.
But, neither merchant nor Usurer's Capital are capital on this definition. Both expand, not from the extraction of Surplus Value from Wage Labour, but from a process of Unequal Exchange that can have the opposite effect to creating a self-expanding Capital. Indeed, in the Mediterranean City States, where this form of “Capitalism” first developed, it eventually collapsed precisely because it pauperised the actual peasant producers!

Marx is trying to present an historical as well as logical development of capitalism, and so he is describing Capital here in its pro-genesis. This is like the way he describes Exchange Value in the Grundrisse. There he argues that Exchange Value can only take its mature form when Wage Labour has developed to the stage where workers form the dominant consumers.

But, Capital logically adopts the form of money first because it is only in the form of money that it can purchase means of production and labour power.

Marx begins by distinguishing between the circuit of money and the circuit of Capital. Commodities circulate, C-M-C. That is selling in order to buy. But, another circuit can be established, M-C-M1. That is buying in order to sell. Here the owner of money buys commodities for no other purpose than to sell them. We encountered this earlier in relation to the merchant who buys commodities in the expectation of being able to sell them at some other time and place at a higher price (arbitrage). Clearly, there would be no purpose in laying out money for commodities if their sale only returned the same amount of money. It implies that the money that is returned is more than than is laid out, and its in this sense of its expansion that Marx describes it as Capital.
The difference between the circuit of commodities, C-M-C, and that of Capital is that the former seeks only to exchange a commodity that has no Use Value, for its owner, for one of the same Exchange Value that does. Money merely facilitates this metamorphosis. But, in the circuit M-C-M the only point is to end up with a larger amount of Exchange Value (M) at the end than you had at the beginning – whether you do or not is another matter. In other words, what look like the same economic processes but with different starting and finishing points, are in fact, completely different processes reflecting different motivations, and economic relations built upon them.

Quoting Steuart, Marx describes this use of money as an advance rather than an expenditure, because the intention is not to spend the money, never to see it again, but to advance it in the hope of seeing it again soon after with an addition to it.

““When a thing is bought in order to be sold again, the sum employed is called money advanced; when it is bought not to be sold, it may be said to be expended.” — (James Steuart: “Works,” &c. Edited by Gen. Sir James Steuart, his son. Lond., 1805, V. I., p. 274.)” (note 1, p 147)

In the circuit of commodities, C-M-C, the process begins and ends with commodities whose Exchange Value is the same (Quantity), but whose quality (Use Value) is different. In the circuit of capital the opposite is true. The Quality (Use Value) of the money at the beginning and end is the same, but it is the Quantity of Exchange Value that is different.

In reality then, the circuit of Capital is more correctly defined as, M-C-M1.,.where M1 is M + ΔM. Here Marx writes,

This increment or excess over the original value I call “surplus-value.” The value originally advanced, therefore, not only remains intact while in circulation, but adds to itself a surplus-value or expands itself. It is this movement that converts it into capital.” (p 149)

But, as pointed out in my earlier note, at this stage of his analysis, Marx has only detailed the movement of commodities and money in the realm of circulation. He is about to go on to demonstrate why, in fact, Surplus Value cannot arise within the realm of circulation. Resolving, this contradiction, and demonstrating where Surplus Value does come from is perhaps is greatest revelation.

In fact, the contradiction in Marx's presentation in this section is apparent. He writes,

Of course, it is also possible, that in C-M-C, the two extremes C-C, say corn and clothes, may represent different quantities of value. The farmer may sell his corn above its value, or may buy the clothes at less than their value. He may, on the other hand, “be done” by the clothes merchant. Yet, in the form of circulation now under consideration, such differences in value are purely accidental.” (p 149)

But, the only basis, at this stage of his analysis, by which M-C-M1 can arise is precisely on this same basis of mis-pricing, sharp practice or accident that allows the Merchant to either buy the commodity, C, below its Value or else to sell it above its Value!!! In other words, it assumes a breakdown of the very equivalence that Marx has set as the cornerstone of his analysis or commodities, which is the foundation of his analysis of Capital!

At this stage of his analysis then, Marx is wrong when he states,

The circulation of capital has therefore no limits.” (p 150) because he has not yet shown how real Surplus Value is created by Wage Labour. He has only described the historical reality of the way Merchants were able to to make profits through buying low and selling high. But, in fact,as he describes elsewhere this 'Profit on Appropriation' as Steuart calls it, must from the perspective of the economy as a whole, be self-cancelling. If profits are essentially made from swindling, by A selling commodities to B above their Value, then A's profit is cancelled by B's loss., just as is the case if A sells to B at its Value a commodity they bought from C below its Value, in which case A's Profit is cancelled by C's loss.

It was precisely this fact that demonstrated that there were very real limits to the accumulation of this kind of Capital in relation to the City States. There the peasant producers were so squeezed by the Merchants that they could not even ensure their own reproduction, and that of their means of production. Production collapsed killing the goose that laid the golden eggs, appropriated by the merchants.

For the same reason, I would take issue with Marx's statement.

As the conscious representative of this movement, the possessor of money becomes a capitalist.” (p 151)

Merchants like the East India Company existed, under
Mercantilism in a symbiotic relation with Feudalism.
At this stage of his analysis, I would argue that all we have is the existence of Merchants and Money Lenders, and a system arising not of Capitalism, but of Mercantilism, as a transitional phase between Feudalism and Capitalism. In it, the Merchants and Money lenders co-exist in a symbiotic relation with Landlords. Its true that as Capitalism does develop all of these forms of property and economic activity take on the characteristics of of capital, for example, Land becomes capitalistically owned land, Rent becomes Capitalist Rent, and so on, but that is a consequence of the dominance of Capital, a situation which has not yet arisen within Marx's analysis.

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