Capital II, Chapter 2 - Part 1

The Circuit of Productive Capital

“The circuit of productive capital has the general formula P ... C' — M' — C ... P. It signifies the periodical renewal of the functioning of productive capital, hence its reproduction, or its process of production as a process of reproduction aiming at the self-expansion of value; not only production but a periodical reproduction of surplus-value; the function of industrial capital in its productive form, and this function performed not once but periodically repeated, so that the renewal is determined by the starting-point.” (p 65) 

A part of C' may never re-enter into circulation. That is if its never sold C' – M'. Instead it is re-used in the same production process. That could be where grain is used for seed, or coal used to power steam engines for pumping out water from a coal mine. If it assumes a money form, in these cases, it is only as money of account i.e. appearing in the firm's books merely as a paper transaction. Other instances where C' does not re-enter circulation are where a portion of it is directly consumed by the capitalist. For example, a capitalist farmer might consume some of the farm's output.

 

But, as Marx says, this latter is insignificant. Capitalist production is production on a large scale, for the purpose of sale. The capitalist's own consumption of their own output necessarily forms a negligible proportion of that, where it features at all.

In the circulation of money capital M – C … P … C' – M', P appears as an interruption in the circuit. But, in the circuit of Productive Capital, the entire circulation process M – C, and C' – M', appear as an interruption to the production process.

“Circulation proper appears but as an instrument promoting the periodically renewed reproduction, rendered continuous by the renewal.

For another thing, the entire circulation presents itself in a form which is the opposite of that which it has in the circuit of money-capital. There it was: M — C — M (M — C. C — M), apart from the determination of value; here it is, again apart from the value determination: C — M — C (C — M. M — C), i.e., the form of the simple circulation of commodities.” (p 66)

1) Simple Reproduction

In the circuit M – C – M', what we really have is M – C ...P … C' – M', but C' – M' is also also really (C + c) – (M + m). Similarly, in the circuit, P … C' – M'. M – C … P, C' – M' is (C + c) – (M + m).

In the former it was not necessary to ask what the fate of m (the surplus value) was. It could have been consumed by the capitalist, in which case, there is just simple reproduction, or it could have been accumulated as additional capital. It is not necessary to enquire, because the circuit concludes at M'. But, in the circuit P – P, it is necessary to know what happens to m, precisely because its fate determines C, i.e. it determines whether C is simply reproduction of its original quantity, or whether it represents expanded capital.

If there is simple reproduction, the capitalist consumes all of the Surplus Value (m). But, the Capital Value represented by M continues to circulate. That is, it continues in the above circuit to purchase C. So, M' (M + m). M – C.  Putting figures to it may make it clearer. Suppose the capitalist had £10,000. They bought Means of Production and Labour-Power (commodities) equal to this amount. So, M – C. Production takes place, and the workers create a Surplus Value of £2,000. So, C … P … C'(C+c) where c is the surplus value created, represented by a given quantity of the new commodity. These commodities are sold, and this surplus value is then realised as money. So (C+c) – (M + m). The capitalist consumes m, £2,000, whilst M £10,000 goes back into buying (reproducing) the Means of Production and Labour-Power, used up in the previous production cycle. So, M – C.

“m — c represents a series of purchases by means of money which the capitalist spends either for commodities proper or for personal services to his cherished self or family. These purchases are made piecemeal at various times. The money therefore exists temporarily in the form of a supply, or hoard, destined for current consumption, since money whose circulation has been interrupted assumes the form of a hoard. Its function as a medium of circulation, which includes its transient form of a hoard, does not enter the circulation of capital in its money-form M. This money is not advanced but spent.” (p 67) 

Just as previously it was assumed that any machines etc. were fully used up in the production process, so its assumed here that all the value created in the production process is equal to the value of the productive capital plus the surplus value. The former has a value of £10,000, the latter £2,000 in the example above.

So, the Surplus Value can be expressed as a proportion of the Productive Capital 2000/10000 = 20%, which means that for any quantity of the end product, say yarn, the Surplus Value can be expressed as a certain quantity of it. In a kilo of yarn, 200 grams represent Surplus Value.

Of course, for some commodities, such a division may not be possible. If the end commodity is a machine, a steam locomotive, or a ship, for example, it cannot be so divided, because it only has value in its complete form. Yet, as Marx says, it is common practice, even in such cases, that these commodities can be broken down, certainly as far as advance of stage payments is concerned. Marx cites the example of house building, where payments are advanced as succeeding stages of construction are completed.

The fact remains that, over a period, as the 10,000 kilos are sold, it will have returned both the Capital value consumed in its production (£10,000) plus the Surplus Value (£2,000).

With discrete commodities such as the yarn, it is not necessary that all of the output (say 10,000 kilos) is sold at once. A certain proportion of it may be sold daily, the money received from the sale then being also used to replenish the means of production consumed on a piecemeal basis, as well as to cover daily wages.

“However that may be, by means of C' — M' both the capital-value and surplus-value contained in C' acquire a separable existence, the existence of different sums of money. In both cases M and m are really a converted form of the value which originally in C' had only a peculiar, an ideal expression as the price of the commodity.” (p 68)

So, here M and m have become separated. M continues to circulate, because it is required to purchase C, in order that production can continue on the same scale. But, m can be either consumed by the capitalist or accumulated. A separate circuit for m, therefore, exists – m - c – m.

Back To Chapter 1

Forward To Part 2