Marx discusses industrial capital, and its circuit in Capital Volume II, Chapter 4. The circuit of industrial capital is P... C` - M`.M – C … P, and its expanded form is:
Within this formula is contained the process of social reproduction that Marx also examines in relation to Quesnay's Tableau Economique, as well as in Chapters 20 and 21 of Volume II, where he analyses simple reproduction and expanded reproduction. The process of social reproduction in every mode of production involves the reproduction of physical material balances so that production can continue on at least the same scale, and, in reality, involves the increase in the size of those material balances, so that production, and social reproduction occurs on a continuously expanding scale. The above formula elaborates this social process as it specifically relates to the capitalist mode of production.
Although the formula relates to the reproduction and expansion of physical material balances, because it is impossible to rationally compare the physical inputs that enter at one end with the physical outputs that emerge at the other, Marx always denotes these inputs in money terms, but these money terms should not be viewed as prices paid (historic prices) for inputs, or prices received (current prices) for outputs. These are just money equivalents of values for both inputs and outputs, i.e. they are values, current reproduction costs, expressed as money prices, with money here simply used as unit of account. As Marx puts it,
“In calculating the aggregate turnover of the advanced productive capital we therefore fix all its elements in the money-form, so that the return to that form concludes the turnover. We assume that value is always advanced in money, even in the continuous process of production, where this money-form of value is only that of money of account. Thus we can compute the average.”
(Capital II, p 187)
If we take the formula above, therefore, it begins with a physical mass of productive-capital (a quantity of labour-power, and of means of production, materials and fixed capital). Marx initially assumes that there is no change in social productivity, so that the value of these elements of productive-capital remains constant. This value can then be represented in terms of its money equivalent, i.e. an amount in £'s, $'s etc. As a consequence of the production process, this advanced capital self expands, because the labour performed creates a greater amount of new value than is required to reproduce the mass of labour-power consumed in production. In other words, it creates a greater new value than the value of the commodities required to reproduce that labour-power. It creates a surplus value.
The new value, including this surplus value is contained in the value of the commodities that come out of this production process. Those commodities also contain the value of the constant capital consumed in their production. Because Marx assumes that social productivity remains constant, this value also remains constant, i.e. it remains the same as the value of those commodities at the point that they entered into this process. However, this assumption is unrealistic, and later Marx deals with the reality that these values change during the actual production and circulation process itself. A change in the value of inputs, after they have entered into the circuit, means that they likewise affect the value of outputs. A rise in the value of inputs causes output values to rise, and vice versa. A rise in input values also causes a fall in the rate of profit, and vice versa. A rise in input values can cause a tie-up of capital, whereas a fall in input values can lead to a release of capital, which creates the illusion of a fall or increase in the actual profit itself, but which actually only signifies a conversion of revenue to capital, or vice versa.
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