2) The Additional Constant Capital
The basic difference between simple reproduction and extended reproduction is not the production of a surplus – which exists in both – but in how this surplus is utilised. Under simple reproduction, the surplus, c-m, (c = C' - C, and m is the money equivalent of c) becomes merely revenue that functions to cover unproductive consumption, whilst M itself continues to buy productive-capital - M is the money equivalent of C, the commodities that comprise the productive-capital. M and C, just as with C' and M' are merely different, metamorphosed forms of the capital value. Under extended reproduction, a portion of m itself is accumulated.
“The difference is here only in the form of the surplus-labour performed, in the concrete nature of its particular useful character. It has been expended in means of production for I c instead of II c, in means of production of means of production instead of means of production of articles of consumption... In order that the transition from simple to extended reproduction may take place, production in department I must be in a position to fabricate fewer elements of constant capital for II and so many the more for I. This transition, which does not always take place without difficulties, is facilitated by the fact that some of the products of I may serve as means of production in either department.” (p 500-1)
So, within the terms of the current example, Capitalist A does not themselves have to have gone beyond simple reproduction for extended reproduction to occur within society. All that needs to change is that their surplus product is used for purposes of creating additional means of production as opposed to consumption. So, for example, 4,000 tonnes of coal might in any case have been used for steel production, with 2,000 tonnes going for domestic fuel. If now this other 2,000 tonnes goes instead to steel production, it will be the basis for increased production of steel, and thereby an increase in the means of production themselves.
“In the case under consideration, this surplus-product consists from the outset of means of production of means of production. It is only when it reaches the hands of B, B', B'', etc. (I) that this surplus-product functions as additional constant capital. But it is this virtualiter even before it is sold, even in the hands of the accumulators of hoards, A, A', A'' (I).” (p 500)
Under simple reproduction the capitalists used their surplus value to buy commodities for their own consumption. But, in order to realise this surplus value in these commodities, they had to themselves throw money into circulation equal to that surplus value. At the end of the circuit, that additional money, they had thrown in, came back to them, ready to be thrown in to realise this surplus value once more. The key to understanding the expanded reproduction is their ability to realise this surplus value without throwing money into circulation to do so. They threw money into circulation to realise their surplus value in other commodities. But, as Marx demonstrated with the example whereby all capitals exchange their commodities with a gold producer, it is logically possible for all capital to simultaneously hold that surplus value in the form, not of commodities to be consumed, but of a money hoard.
That money hoard becomes potential money-capital. For any individual capital it becomes possible to exchange its money hoard not for articles of consumption, but for additional articles of production. It only requires that the society devote a greater proportion of available social labour-time to the latter rather than the former.
To put this in terms of our example, the coal producer's capital is C 400 + V 100 + S 100 = 600. They spend their £100 surplus value to buy food, clothing etc. In order to achieve this, they must throw £100 of money into circulation themselves, which means that other capitalists have the money to buy the coal, and thereby also realise the £100 surplus value in the coal. But, if the coal producer instead of buying clothes and so on decides to hoard the surplus value, they have no need to throw this additional money into circulation to realise this surplus value. In essence, they simply exchange the coal with the gold producer. From that gold, they cover the £400 to replace their constant capital, and the £100 to replace their variable capital, so that they can continue producing at the same level. But, they still now have £100 in gold, as a money hoard.
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