Capital III, Chapter 17 - Part 1

Commercial Profit

In Capital I, it was demonstrated that surplus value can only be created in the production process. The act of exchange may result in one party to the exchange obtaining a profit by swindling the other, but, taken as a whole, these acts of mutual swindling must cancel each other out. In Capital II, it was further demonstrated that no surplus value can be created in the realm of circulation, but that, in fact, the need for commodities to be circulated itself places a limit on the ability to produce surplus value. In other words, the turnover period of capital comprises not just the production time, but also the circulation time, the time required to sell the commodities and convert the resulting money-capital back into productive-capital. The fact that this function of the circulation of commodities becomes the specific function of merchant capital cannot change that.

Sir James Steuart

Yet, it appears that the act of circulation DOES create a profit. The merchant capitalist does make a profit on their activity. In fact, one reason that the idea arises that profit is simply an additional amount added to the value of commodities being sold is that the first form of capital is this merchants capital, and the way it makes profit is indeed to add an additional amount on to the cost of the commodities it buys before selling them again. This profit is what Sir James Steuart calls profit upon alienation.

Marx then turns to the explanation of where this commercial profit comes from, under capitalism, and its important to note that the explanation for this profit, under capitalism, is different than it is for previous modes of production, and the same thing will be seen later in respect of rent and interest.

“If selling and buying commodities — and that is what the metamorphosis of commodity-capital C' — M — C amounts to — by industrial capitalists themselves are not operations which create value or surplus-value, they will certainly not create either of these when carried out by persons other than the industrial capitalists. Furthermore, if that portion of the total social capital, which must continually be on hand as money-capital, in order that the process of reproduction is not interrupted by the process of circulation and proceeds continuously — if this money-capital creates neither value nor surplus-value, it cannot acquire the properties of creating them by being continually thrown into circulation by some section of capitalists other than the industrial capitalists, to perform the same function.” (p 281)

Part of the solution has already been indicated. That is, although merchant capital is not productive of value or surplus value, it is “indirectly productive” (p 282), because, in the end, capital is not concerned with the surplus value it has, as yet, only theoretically produced, in the labour process, but only with the actual profit it can realise by selling the commodities, which are the bearers of that surplus value. In other words, the commodities must be sold, and that includes a cost in both time and money. The extent to which merchant capital can reduce that cost is the equivalent of actually increasing the surplus value produced.

For this reason, the merchant capital must also receive the average profit, the same as productive-capital.

“Nevertheless, since the circulation phase of industrial capital is just as much a phase of the reproduction process as production is, the capital operating independently in the process of circulation must yield the average annual profit just as well as capital operating in the various branches of production. Should merchant's capital yield a higher percentage of average profit than industrial capital, then a portion of the latter would transform itself into merchant's capital. Should it yield a lower average profit, then the converse would result. A portion of the merchant's capital would then be transformed into industrial capital. No species of capital changes its purpose, or function, with greater ease than merchant's capital.” (p 282)

But, the question still arises of how this is possible. If merchant's capital produces no surplus value, even if it increases the realised profit, how does this merchant's capital obtain this share of the total profit, if commodities exchange at their prices of production?

“Since merchant's capital does not itself produce surplus-value, it is evident that the surplus-value which it pockets in the form of average profit must be a portion of the surplus-value produced by the total productive capital. But now the question arises: How does merchant's capital attract its share of the surplus-value or profit produced by the productive capital?

It is just an illusion that commercial profit is a mere addition to, or a nominal rise of, the prices of commodities in excess of their value.

It is plain that the merchant can draw his profit only out of the price of the commodities he sells, and plainer still that the profit he makes in selling his commodities must be equal to the difference between his purchase price and his selling price, i.e., equal to the excess of the latter over the former.” (p 282)

Just to be clear, what is being discussed here is not the selling costs that are invariably incurred, whether the commodities are sold by the industrial capitalists themselves, or by a merchant capitalist. Nor, as was discussed in the previous chapter, is what is being discussed the costs of transporting the commodities to market, which, as was seen in Capital II, is a value creating activity in its own right.

Even if we assume that there are no transport costs, no costs of storage etc., the merchant capitalist must still lay out capital to simply buy the commodities from the industrial capitalist, and it is on this outlay of capital that they will expect to obtain a profit.

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