Department I: c 4000 + v 1000 + s 1000 = 6000
Department II: c 2000 + v 500 + s 500 = 3000
The £1,000 that the Department I workers spend to buy commodities, from Department II, is not variable-capital, but money wages, money as revenue. It is an equivalent of the variable capital value, which is reproduced out of Department 1 output, but that does not at all mean that it is the same thing, or that those Department II commodities are bought with Department 1 variable capital. The conditions under which the exploiters buy the means of consumption for the producers directly, are the conditions of pre-capitalist societies, e.g. in slave-owning societies, it is the slave-owner that buys the consumption goods required by the slave, where they are not directly produced. But, under such conditions the money used to buy those commodities is not variable-capital, because the slave themselves represents only the equivalent of constant capital. The slave produces a surplus product, but not surplus value, in the sense that the wage worker does under capitalism.
Moreover, although, in our example, the Department 1 workers produce commodities with a value of £6,000, and £1,000 of that is equivalent to the value of the variable capital, this £1,000 in the form of finished commodities – now sold to Department 2 – is no more variable capital than it was when it was in the form of money-capital, prior to being used to buy labour-power. It is only commodity-capital.
The Department 2 capitalists confront the Department 1 capitalists as buyers of commodities, just as vice versa, the Department 1 capitalists appear as sellers of commodities – means of production. In selling means of production, the money-capital can then only function as variable capital so long as it buys labour-power, once more.
“As money the variable capital-value was only potential variable capital. But it had a form in which it was directly convertible into labour-power. As a commodity the same variable capital-value is still potential money-value, it is restored to its original money-form only by the sale of the commodities, and therefore by II buying for 1,000 commodities from I.” (p 447)
In other words, what we have here is M-C-M. £1,000 of money-capital (M) is used in Department 1 to buy labour-power (C). The labour-power produces commodities (C') with a value of £6,000 (4000 c + 1000 v + 1000 s). With the £1,000 spent, by Department 1 workers, with them, Department 2 capitalists buy £1,000 of these Department 1 commodities, thereby completing the circuit (M').
If the diagram opposite is considered as the total economy. This flow of money and capital can be seen. Money-capital (£1,000) follows the red arrow from M to C. The £1,000 buys labour-power with a value of £1,000 (LP). In the production process P, this labour-power creates new value that is greater than the £1,000 value of the labour-power itself. It creates surplus value, so that the value of the commodity-capital, C', is expanded by this amount. But, the workers, with the £1,000 of wages they have been paid, buy £1,000 of these commodities. That is from K, the green arrow shows the flow of money. The workers' wages are paid into the bank, and flow out of their bank deposits to buy the commodities required for their subsistence. Its clear here that the workers can never buy back all of the commodities they have produced.
“The process of production intervening between C ... C does not itself belong in the sphere of circulation. It does not figure in the mutual exchange of the various elements of the annual reproduction, although this exchange includes the reproduction of all the elements of productive capital, the constant elements as well as the variable element (labour-power).” (p 447)
In short, £1,000 laid out for labour-power, (M), commodities equal to that labour-power sold (C), money received for these commodities (M) equal to £1,000 so that labour-power can be bought once more.
“Result: I possesses once more the variable value-constituent of its capital in the form of money, from which alone it is directly convertible into labour-power, i.e., it once more possesses the variable capital-value in the sole form in which it can really be advanced as a variable element of its productive capital. On the other hand the labourer must again act as a seller of commodities, of his labour-power, before he can act again as a buyer of commodities.” (p 447)
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