“For example, say that he has paid 10s. for wages. The labourer buys goods from him with this 10s. He has given the labourer goods to the value of 10s. for his labour-power. If he had given him means of subsistence in kind to the price of 10s., there would have been no circulation of money, and therefore no return flow of money. This phenomenon of money returning has therefore nothing to do with the enrichment of the capitalist, which only arises from the fact that in the production process itself the capitalist appropriates more labour than he has expended in wages, and that his product is consequently larger than the costs of producing it;” (p 322-3)
This circuit M-C-M reflects a purchase followed by a sale, and as Marx says above, as such it almost inevitably means that less money flows back. If I buy a bunch of bananas, and then come to sell them again, I am likely to get back less money than I spent. Not only will a passage of time lead to a deterioration of the bananas, but I will have costs in trying to sell them.
Yet, this process of buying in order to sell, but to sell at a higher price, so that the circuit is M-C-M', is the basis of merchant capital. It is clear then that here the profit once more does not arise from the mere act of exchange itself. The merchants profit arises from the fact that they have been able to buy a commodity below its value, or to sell it above its value or both. Yet, there is no guarantee they will be able to achieve this.
“It is possible that the buyer—M—is unable to sell the commodity, rice for example, at a higher price than he bought it at; he may have to sell it below its price. Thus in such a case a simple return of the money takes place, because the purchase turns into a sale without the M having established itself as value that increases value, that is, as capital.” (p 323)
The same is true in relation to those commodities that comprise the constant capital. Suppose an iron producer sells £1,000 of iron to a machine maker. The machine maker, in turn, sells £1,000 of machines to the iron maker. In effect, the iron has acted as money, in the hands of the iron maker. It was the means for them to buy the machines. If they mutually exchange these commodities, as with barter, then, in the same way, the machines have acted as money for the machine maker. They are the means of him buying the iron.
But, even if they do not exchange in this way, but via commercial credit, the same thing applies. The iron maker sells the iron to the machine maker, recording a debt in his books, for £1,000. When the machine maker supplies the machines, that debt is cancelled out in his books. The debt here acted like money, and flowed back to the iron maker, in the form of machines.
Yet, the fact that the iron forms a part of the iron maker's commodity-capital, and of the machine maker's constant capital, in no way enables the iron maker to make a profit out of this iron, as a consequence of the exchange. It has a value of £1,000 and that is exactly what flows back to them, in the form of the machine. In respect of this transaction, the iron acted as money, not as capital. The same is true in respect of the machine. It forms part of the commodity-capital of the machine maker, and of the constant capital of the iron maker, but, in this transaction, it acts only as money not as capital. It has a value of £1,000 and that is exactly the value that it buys in the form of iron.
Nothing is changed here, if these exchanges are mediated by money, in the form of gold or silver or of bank notes. The iron maker sells £1,000 of iron to the machine maker, and obtains £1,000 in notes or coins, C-M. They then use these notes and coins to buy £1,000 of machines from the machine maker, M-C.
£1,000 in notes and coins was initially in the hands of the machine maker, and passed into the hands of the iron maker, and then flowed back to them, as the iron maker bought machines. But, the same £1,000 that was put into circulation flowed back from it without any increment, i.e. it acted as money not capital.
The only difference here is that where the two producers directly exchanged their commodities, only £2,000 of value had to be present, but if gold or silver coins are used, £1,000 of value in this form must also be present. Only £1,000 of coins is required, even though £2,000 of commodities are exchanged, because the money acts twice, once in the hands of the machine maker, to buy iron, and then again in the hands of the iron maker, to buy machines.
“If paper money or credit money (bank-notes) circulate, then there is one difference in the transaction. £1,000 still exist in bank-notes, but they have no intrinsic value. In any case here too there are three [times £1,000]: £1,000 iron, £1,000 machinery, £1,000 in bank-notes. But as in the first case these three only exist because the machine builder has had [£l,000] twice—machinery £1,000 and money— in gold and silver or bank-notes—£l,000. In both cases the iron producer returns to him only number two (the money); because the only reason why he received it at all was that the machine builder, as buyer, did not immediately become seller; he did not pay for the first commodity, the iron, in commodities, and so he paid for it in money.” (p 324)
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