Merchant capital does nothing to revolutionise these previous modes of production. In fact, as seen in the case of the Mediterranean city-states, by sucking out value, the merchant capital retards development. In the case of colonialism, this merchant capital acts directly to liquidate the existing modes of production, as it did with the physical destruction of the Indian village commune, for example. Its role is only to buy low and sell high, not to develop the system of production. To the extent it does become involved in production, it tends to be in conjunction with its colonial partners, the feudal aristocracy and money-capital, and takes the shape not of industrial production, but the creation of large landed estates and plantations.
Industrial capital, by contrast, obtains its surplus value, not in the circulation process, but by the production process, and the extraction of surplus value from the exploitation of wage labour. The conditions for achieving that are completely different from those of deriving merchant profit.
The very process of industrial production necessitates a continual revolutionising of the production process, growth of capital and of the industrial workforce. Imperialism, as a system in which this industrial capital expands across the globe, therefore, requires a completely different set of social and political frameworks, to achieve this than did merchant capital and colonialism. (See also: Imperialism, Industrialisation, Trade and Sub-Imperialism, and related documents.)
By the end of the 19th century, industrial capital had recognised the limits of extracting absolute surplus value, by lengthening the working day, and had realised that the extraction of relative surplus value by raising productivity via innovation, was far superior. As Engels put it, the big industrial capitalists recognised their shared interests with workers, not just against the old ruling-class, but also against the backward looking sections of capital too. The social-democratic regimes they established were founded on that basis, of providing workers with concessions made possible out of the increasing volumes of relative surplus value the workers themselves produced. This is also the basis of imperialism proper, as it seeks to replicate this arrangement across the globe so as to be able to extract relative surplus surplus value from increasing masses of workers.
The fact that we see remnants of colonialism, intermingled with imperialism, does not invalidate this, any more than the fact we see remnants of feudalism intermingled with bourgeois social democracy, and sometimes conservative governments, invalidate the fact that modern social democratic regimes were established by big industrial capital as the best way for it to exercise political power, and to extract relative surplus value. In the same way, at different periods, the influence of merchant and money-capital can grow relative to the influence of productive-capital. Yet, the fact remains that now, the independent function of merchant capital has ended. Merchant capital exists in the form of independent capitals in the sense that they are separate firms, rather than merely being a department of a productive-capital, but, merchant capital cannot exist separate from industrial capital, because it functions only as a phase in the overall circuit of industrial capital, and is ultimately subordinate to it.
“The production process rests wholly upon circulation, and circulation is a mere transitional phase of production, in which the product created as a commodity is realised and its elements of production, likewise created as commodities, are replaced. That form of capital — merchant's capital — which developed directly out of circulation appears here merely as one of the forms of capital occurring in its reproduction process.” (p 328)
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