Capital II, Chapter 20 - Part 3

To facilitate an understanding of these circuits, and exchanges, I have produced the diagram of the Circuits of Capital and Money (which are free to use, provided the source is accredited), which describes this. 

The circuit of commodity-capital commences at C'^, where the end product exists, and already embodies surplus value. In other words, it assumes capitalist production is already being undertaken. As we have seen in previous chapters, we can then make several assumptions. Money already exists, and is here depicted as sitting in Bank Deposits. We can also assume that capitalists not only have sufficient money-capital to advance for the purchase of productive-capital, but they also have sufficient money to cover their own consumption needs, to buy commodities, for personal consumption, during the period until they receive payment for the commodities they sell. We can also assume that workers have not simply arisen from nowhere, but are the result of the long historical process discussed in Volume I, and so are able to offer their labour-power for sale as an advance to capital, prior to being paid for it at the end of the day, week or whatever period.

Similarly, capitalist producers have not simply arisen from nowhere, but are also the result of the same historical process, and so both means of production and consumption have evolved from being produced and provided by peasant and artisan producers, to now being produced and sold as commodities, capitalistically. That means that means of production and consumption already exist, and may already be in the hands of capitalists ready to be advanced. Indeed, that is one reason Marx refers to the Tableau Economique, whose starting point is last year's harvest, i.e. it assumes the existence of these stocks available to be advanced.

The consequence of these entirely reasonable assumptions is that the total value of commodity-capital at C', can be bought with money resources held by workers and capitalists, i.e. with existing money funds, or from wages or surplus value. In reality, as was seen earlier, those money funds are really primarily in the hands of capitalists, who advance it as capital and revenue, and in doing so, also put a part of those money funds in the hands of workers, in the form of wages. These money funds flow from and through Bank Deposits, and as a money flow are indicated by the green line. The flow of capital-value is indicated by the red lines.

The result of the realisation of this commodity-capital (total national output) is M', which also includes the surplus value. That surplus value, as described in previous chapters, is equal to the additional money that capitalists threw into circulation, to cover their own unproductive consumption, in the period while they were waiting to sell their commodities. In the conditions of simple reproduction, we are discussing, the surplus value, now reproduces that money, enabling the capitalists to once more throw it into circulation, to cover their personal consumption, in the next cycle.

At M', for the reasons Marx described earlier, the circuit of money-capital ends. Its circuit always starts with M never with M'. M – C – M, is always the circuit of newly invested money capital, not the circuit of industrial capital in the process of reproduction, whether it is simple reproduction or expanded reproduction. Under expanded reproduction, as Marx showed earlier, what we really have for money-capital is two circuits. The first circuit M – C – M, ensures that the productive capital consumed in the first circuit is physically reproduced. So, if the value of that productive-capital has changed, this is reflected in the values retrospectively. But, the surplus value accumulated forms a new circuit of money capital m – c – m, where this is not the case. This money capital buys productive capital at its current value. So, this m will buy a greater or lesser physical quantity of productive-capital, c, dependent upon whether its price has fallen or risen.

So, if £1,000 was paid for 1000 kilos of cotton, and £1000 for labour-power, with a 100% rate of surplus value, we would have – C 1000 + V 1000 + S 1000 = E 3,000. But, if the price of cotton doubled after it was bought, but before the completed yarn was sold, this would be retrospectively reflected in these values. So, C 2000 + V 1000 + S 1000 = E 4000. The yarn would now sell for £4,000, and thereby enable the same quantity of cotton and labour-power to be bought, as in this cycle. However, if all of S is accumulated, it is clear that this is not the case, for this new additional capital value. Previously, (M)£1,000 bought 1000 kilos of cotton, and now M still buys 1000 kilos of cotton, but the £1,000 of surplus value becomes m – c – m, and here in this new circuit of money capital, m only buys 500 kilos of cotton.

So, the circuit of money-capital ends at M'. It is deposited in the bank, awaiting its future destiny. Here, Bank Deposits are a sort of Black Box. That is, the true nature of what is inside is not determined. It is the equivalent of the Uncertainty Principle. Like Schrodinger's Cat, the condition of the money inside remains undetermined, until it is observed. It exists in limbo, as a money hoard, that might be money-capital, or else might be simply money to be used as revenue.

But, we are examining the circuit of commodity-capital, not money-capital, and that proceeds from C' to C'. In the simple reproduction model we have assumed, the same value of money-capital comes out of Bank Deposits, as was originally used, as Money-capital, at the start of the previous circuit of Money Capital, that started at M. By definition, this means that because M' = M + m, an amount of money equal to m, remains in Bank Deposits, and can once again be used by Capitalists to purchase their own personal consumption needs.

M now purchases the same quantity of means of production and labour-power as in the original circuit – C. This is indicated by the red lines M – C (MoP and LP). These are red lines, because although the payment is necessarily in money, it is money-capital i.e. capital-value in money form. The Capital-value, previously inhabiting the money-capital, now abandons it, and is metamorphosed into Productive-Capital. But, as seen previously, there is a difference here between the exchange between this capital, and the workers, and between the capital, and the producers of means of production.

The exchange between this capital and labour is an exchange between capital and revenue. The workers sell a commodity, labour-power, that is not capital. It produces no surplus value for the worker when they sell it. In exchange for this commodity, they obtain not money-capital, but money, as revenue. What was money-capital, for the capitalist, in the same exchange, is metamorphosed into productive-capital, in the shape of labour-power. This labour-power, in the hands of the capitalist, is capital, even though it was not for the worker. For the capitalist, it is the means of expanding value, via the creation of surplus value.

However, the producer of means of production is not merely exchanging a commodity for money. For them, the commodities they are selling constitute a part of their capital – the commodity-capital. When they sell them, they metamorphose their capital value from that of commodity-capital into money-capital, or at least potential money-capital. In the same way, the capitalist buying these means of production, metamorphoses their money-capital into productive-capital, via this exchange. The exchange between these two capitals, therefore, is an exchange of capital with capital, not of capital with revenue.

The buyer of the means of production, however, does not buy productive-capital. They buy merely commodities, albeit commodities that already contain surplus value, and form the commodity-capital of some other capitalist. These commodities, like the labour-power, only become productive-capital in the hands of the buyer, to the extent that they are employed productively. In the same way, the seller of means of production does not obtain money-capital, from the buyer, but only money. It only becomes money-capital in their hands, if it is again used to buy productive-capital.

The money now begins its own new independence and circuit. This is indicated by the green money flow line from Productive Capital, K, to Bank Deposits. In other words, this represents the myriad of separate circuits of money and commodities that result from these payments. Workers deposit their wages in the bank, and from there make numerous purchases of commodities, to meet their needs. In fact, those purchases are themselves represented by the green line from Bank Deposits to C', the commodity-capital.

But, also the capitalists selling means of production, put their money receipts into the Bank and, from there, pay for their purchases, be they for labour-power or for their own means of production, or for their own personal consumption. Given that C' is equal to K, plus the surplus value produced in the production process, we can now see that both an equivalent amount of value is created to be exchanged with it, and a sufficient amount of money, equal to this value, exists with which to purchase it. The wages paid to workers, and the receipts of capitalists that come out of K, are equal to the capital-value they transfer to the end product. The money equivalent of that exists in Bank Deposits, available to purchase commodities equal to that value. That leaves those commodities that are equal to the surplus value produced, but an amount of value, and of money equal to that amount was deposited in the Bank at the start i.e. m, which was the residual from M'.

Returning to the flow of capital, the productive-capital, engages in the production process, and as a result, surplus value is created by labour. The capital-value now exits the productive-capital, and enters the newly produced commodity-capital. So, now the circuit is complete. All output can be exchanged, and fully accounted for. That, of course does not mean to say that it is. We only have here a potential for these exchanges to occur. Similarly, the purchases undertaken from C' might be accomplished using either commercial or consumer credit. That opens a series of further complications. For example, potential deficiencies in demand resulting from some consumers (productive or unproductive) choosing not to buy, might be balanced by others choosing to buy, using credit, rather than their own revenue. It also opens the potential for higher monetary demand than the amount of value thrown into circulation as supply. The consequences of that, which might be inflation or else the stimulation of increased output, cannot be discussed here.

“In the circuits M — C ... P... C'— M' and P ... C'— M'— C ... P, the movement of the capital is the starting and finishing point. And of course this includes consumption, for the commodity, the product, must be sold. When this has assumedly been done it is immaterial for the movement of the individual capital what becomes of the commodities subsequently. On the other hand in the movement of C' ... C' the conditions of social reproduction are discernible precisely from the fact that it must be shown what becomes of every portion of value of this total product, C'. In this case the total process of reproduction includes the process of consumption brought about by the circulation quite as much as the process of reproduction of the capital itself.” (p 396-7)

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