## Tuesday, 21 May 2013

### Capital II, Chapter 1 - Part 5

4) The Circuit as a Whole

The circuit of capital is M-C-M'. But, in reality, under capitalist production this circuit is interrupted after M-C, by P. The commodities bought in the first part of the circuit, M-C, (means of production and labour-power) are consumed in the production process, creating through it a new commodity. In reality, M becomes M' i.e. M plus an additional m, only because in the production process C has become C'. That is, this new commodity has greater value than the commodities that went to produce it. It has this additional value because of the surplus labour provided by workers during the production process.

“The circulation series therefore appears as 1) M — C1; 2) C'2— M', where in the second phase of the first commodity, C1, another commodity of greater value and different use-form, C'2, is substituted during the interruption caused by the functioning of P, the production of C' from the elements of C, the forms of existence of productive capital P.” (p 49)

This is different to the first time we encountered the circuit M-C-M' because there – the circuit of merchant capital – money buys a commodity, and this same commodity is then re-sold, but for a greater sum of money. In other words, the merchant made their profit not from the creation of surplus value, as the industrial capitalist does, but from unequal exchange. The merchant either buys the commodity (M-C) below its value, or sells it (C-M) above its value or both. This process of arbitrage – buying and selling in different markets to take advantage of price differences – is how Merchant Capital obtains its profit. Yet, as was seen in Volume I, for the system as a whole, this cannot be the source of profit. For everyone, who gains from an exchange, from such cheating, there is someone else who loses, by the same amount. In the end, profits can only be created for the system as a whole if an actual surplus is produced i.e. the total value of production must be greater than the total value of inputs used to produce it. All the various forms of exchange do then is to determine how the surplus is distributed.

This circuit of capital is also distinguished by the fact that in each of its stages, capital-value assumes different forms – money-capital, commodity-capital, productive-capital, commodity-capital, money-capital.

“The capital which assumes these forms in the course of its total circuit and then discards them and in each of them performs the function corresponding to the particular form, is industrial capital, industrial here in the sense it comprises every branch of industry run on a capitalist basis.” (p 50)

All of these three types of capital, therefore, have to be seen not as independent, but only as the forms of industrial capital assumed at successive stages of its circuit.

Marx then describes, on this basis, essentially the three forms in which a capitalist crisis can break out.

“Capital describes its circuit normally only so long as its various phases pass uninterruptedly into one another. If capital stops short in the first phase M — C, money-capital assumes the rigid form of a hoard; if it stops in the phase of production, the means of production lie without functioning on the one side, while labour-power remains unemployed on the other; and if capital stops short in the last phase C' — M', piles of unsold commodities accumulate and clog the flow of circulation.” (p 50)

But, capital necessarily is tied up in each of these stages, because it cannot move on to the next stage until it has assumed the necessary form. Money-capital has to buy the commodity-capital (MP and L) before that commodity capital can engage in production, and that production process must take place before the capital value can take the form of the new commodity-capital, and it must take that form before it can be sold.

But, we've seen that not all of the capital-value from one stage is passed on to the next. For example, if £1,000 is laid out for the purchase of a machine, which lasts for 10 years, then only 10% of this £1,000 (£100) is passed on each year as wear and tear into the value of the commodities it produces. So, only £100 of the value of the machine forms part of C' and, therefore, M'. In addition, we have seen that such machines suffer depreciation, and so their value diminishes and this value is not passed on at all into the value of the new commodities. It is a capital loss, which the capitalist must make good themselves, out of their own pocket, the same as if the machine had been stolen or destroyed in a fire.

For the former of these, all that is needed is to take as the production period the ten years of the life of the machine. Over that period, its full value will have been passed into C' and thereby recovered in M'. But, that is not so for the latter. Marx returns to how these instances modify the circuit of capital, later.

Marx then also deals with the situation of industrial capital that does not produce some material product. The example he gives is communication. For example, a railway transports people and goods, the Post Office transports letters and parcels. It is not some material commodity that is produced and consumed. What is consumed in a sense is the actual process of production itself. The production process is the act of transportation, and it is that which is consumed, whether directly by passengers, or indirectly by those whose goods, letters, parcels etc. are transported.

His initial formulation I think is badly worded. He says,

“In the general formula the product P is regarded as a material thing different from the elements of the productive capital, as an object existing apart from the process of production and having a use-form different from that of the elements of production. This is always the case when the result of the productive process assumes the form of a thing, even when a part of the product re-enters the resumed production as one of its elements. Grain for instance serves as seed for its own production, but the product consists only of grain and hence has a shape different from those of related elements such as labour-power, implements, fertiliser. But there are certain independent branches of industry in which the product of the productive process is not a new material product, is not a commodity.” (p 54)

But, a commodity does not have to be a material product, as Marx says elsewhere. For example, Marx gave in Volume I, the example of a schoolteacher, providing education as a commodity.

“If we may take an example from outside the sphere of production of material objects, a schoolmaster is a productive labourer when, in addition to belabouring the heads of his scholars, he works like a horse to enrich the school proprietor. That the latter has laid out his capital in a teaching factory, instead of in a sausage factory, does not alter the relation.”

Capital I, Chapter 16

Elsewhere in discussing productive and unproductive labour, he talks about the labour of an actor being productive, even though it produces no material product. Its understandable why Marx was not so clear on this point given the time he was writing. At that time services formed only a small portion of the total social product, whereas today they form its majority. Marx seems to have fallen into the same trap here in relation to services that the Physiocrats did in relation to industry. Marx's further elaboration demonstrates why services such as transport constitute commodities in their own right, and that elaboration makes clear that there is no basis for saying that what is sold is not a commodity. Its not clear then that Marx really wanted to say that what is produced is not a commodity, or whether he simply wanted to say that it is not a commodity in a material product form. Either way, his analysis of the role of transport, I think is not clear, and possibly not fully formed (remember Volume II is compiled, by Engels, from piles of assorted notes, not by Marx himself). That leads, I believe to an error later.

“But the exchange-value of this useful effect is determined, like that of any other commodity, by the value of the elements of production (labour-power and means of production) consumed in it plus the surplus-value created by the surplus-labour of the labourers employed in transportation. This useful effect also entertains the very same relations to consumption that other commodities do. If it is consumed individually its value disappears during its consumption; if it is consumed productively so as to constitute by itself a stage in the production of the commodities being transported, its value is transferred as an additional value to the commodity itself. The formula for the transport industry would therefore be M — C ... P — M', since it is the process of production itself that is paid for and consumed, not a product separate and distinct from it. Hence this formula has almost the same form as that of the production of precious metals, the only difference being that in this case M' represents the converted form of the useful effect created during the process of production, and not the bodily form of the gold or silver produced in this process and extruded from it.” (p 54)

Marx says this is essentially the same formula as for precious metals, but that was during a time when those precious metals acted as money. Today, the precious metals are sold as commodities in return for dollars as with any other products. But, what Marx’s formula here is significant for is the most important area of industrial capital in the modern world – the service industries. In these it is precisely again the production process itself that is most usually consumed. If as Marx says, the product is a “useful effect” then this product is a use value, in the terms, Marx previously defined it. A use value, that has exchange value, i.e. is the product of necessary social labour, undertaken for the purpose of sale is a commodity, whether it is a physical product or not.

“At first sight a commodity presented itself to us as a complex of two things – use value and exchange value.”

Capital I, Chapter 1

It is the performance by a comedian, actor, singer, footballer, musician, dancer and so on i.e. their production process that is consumed not some physical commodity arising from it. Even when those performances are captured on some form of medium, it is still the performance that is actually being consumed not the physical medium on which it has been captured. The same is true of the production process of a dentist, doctor, teacher, nurse, financial advisor and so on.

“Industrial capital is the only mode of existence of capital in which not only the appropriation of surplus-value, or surplus-product, but simultaneously its creation is a function of capital.” (p 57)