Merchant Capital

Merchant Capital like Money Capital exists in two different forms. Merchant Capital arises as a consequence of commodity exchange. As commodities sell at different prices in different markets, this enables merchant capital to arise on the back of arbitrage, buying low in one market, and selling high in another. In order to make profits on this basis, merchant capital can operate in different modes of production from slave societies, through to capitalism.

But, this illustrates that Merchant Capital is not truly Capital, in Marx's sense as a social relation based on the exploitation of wage labour, or as self-expanding value. Merchant Capital neither exploits wage labour nor self expands value. It arises as merely an undeveloped, embryonic form of Capital. In fact, as Marx points out in Capital I, the dominance of these embryonic forms of Capital – Merchant Capital and Money Capital – is inimical to the development of Capitalism, because both drain surplus value from productive capital, thereby reducing the potential for capital accumulation.

The truth of that was demonstrated by the first example of capitalist development in the Mediterranean city states during the Middle Ages. There, the powerful merchant capitalists drained the peasant producers to such an extent that not only did they prevent the accumulation of productive-capital developing, but they even squeezed the peasants so much that they could not even reproduce their own labour-power.

When Industrial Capital does become dominant, the character of Merchant Capital and Money Capital is different, precisely because these forms of Capital are subordinate to productive-capital, which is the source of surplus value production. Industrial Capital is a fusion of productive-capital, commodity-capital and money-capital. Each of these is dependent upon the other, each represents merely a different form of Industrial Capital Value at different stages of its circuit. Commodity-Capital does not exist without being produced by productive-capital, money-capital depends upon the sale of commodity-capital, whilst productive-capital requires the existence of money-capital for the purpose of buying the necessary means of production and labour-power.

The need to minimise the costs of selling gives rise to the development of the merchant capitalist not so that additional surplus value is produced, but so that a greater proportion of the surplus value produced by productive-capital is realised.

The Merchant Capitalist can employ all of the same kinds of measures as those employed by the productive-capitalist to reduce their costs, and to increase their own rate of profit. Because, the merchant capitalist buys from a range of producers, they are able to perform the function of selling on a much larger scale than any individual productive capitalist. That means they obtain all of the same kinds of benefits of the economies of scale.

Because this specialisation reduces the costs of selling compared to that which would be faced by the productive-capitalist, they can sell to the merchant capitalist at a price higher than would have been their net receipts, but below the actual value of the commodity. For example, if the value of a commodity is £10, but the cost of selling is £3, the productive-capitalist would obtain only £7 net of this selling cost. If a merchant capitalist only has costs of £1.50 for selling the commodity, the productive capitalist can sell it to them at £8, whilst the merchant capitalist sells it at its value of £10. Thereby, the productive capitalist makes an additional £0.50 compared to selling it themselves, whilst the merchant capitalist has laid out £8 of capital for its purchase, and a further £1.50 of capital for selling costs making £9.50, but having sold the commodity at its value of £10, thereby pockets a profit of £0.50 themselves.