The circuit, C – M – C, divides into C – M, and M – C, but, as described, the currency, M, does not immediately flow into M – C. For one thing, it actually flows into a multitude of M – C's, because the owner of money, though they may have sold only one type of commodity, must buy many other types of commodities, and they buy these from different sellers, over different periods of time. Each one, therefore, having sold a commodity, C – M, now holds money as a stock of currency, taking it out of circulation, where it, now, constitutes money rather than currency. In addition to these money reserves, in the form of currency, there is also actual hoarding, in which gold and silver itself is hoarded, as a store of wealth, rather than being in a temporarily suspended state. Neither of these forms of money, then, constitute currency, in this state, but only because they do not circulate.
Marx, now, turns to money that does circulate, but which does not take part in the actual circulation of commodities, via purchase and sale. It is money not as means of circulation, but as means of payment. This can take a number of forms, but, what is common is that, unlike M – C, where a value of money exchanges directly for some use value of equal value, in the case of payment, there is no exchange with a use value. Money, handed over as rent or taxes is simply a payment of money with no use value of equal value obtained in return, for example, but, to pay rent or taxes, the owner of money must previously have sold a commodity, C – M, or else obtained money from someone else who has done so.
Money can be handed over as a prepayment, which might be for a deposit, or full payment for some use-value, which is only ever to be supplied at a later date. Conversely, a use-value may be supplied, but payment for it only occurs later, as is the case of commercial or consumer credit. And, in the case of commercial credit, money itself may never actually intervene at all, and always only amounts to a small fraction of the total value of commodities exchanged.
That is because the credit advanced, by different capitals, to each other, is netted off, one to another, so that it is only this net amount that must be resolved by payment. For example, if A supplies B with £100 of commodities, on credit, and B supplies A with £100 of commodities, on credit, these different claims for future payment are netted to zero, so that, although £200 of commodities have been circulated, no money, as currency, has been required. If B only supplies £80 of commodities to A, then the net balance is £20, which requires a money payment. But, still, £200 of commodities have been circulated with only £20 of currency required.
Marx and Engels discuss the consequence of that at great length in Capital III, setting out the way that this commercial credit expands automatically along with economic expansion, and so also means that attempts by central banks to curtail such economic expansion, by means of restricting the supply of liquidity, are necessarily limited.
This different form of exchange, in which, rather than C – C, or C – M – C, there is the payment of money prior to the provision of commodities in exchange (commodities which may not even exist), or else the provision of commodities prior to the payment of money for them, (money which the buyer may likewise not have), also establishes different social relations, between the participants in the exchange than those existing under simple commodity exchange. One becomes a creditor, and the other a debtor.
As Marx describes, in Theories of Surplus Value, Chapter 17, this is significant, because it also, now, establishes a contradiction between money as measure of value, and money as means of payment, a contradiction that already represents the potential for crisis. It is a basis for the failure of independent commodity producers, turning them into debt slaves, serfs, and paupers. Later, under capitalism, it is not only the basis upon which such commodity producers are turned into wage labourers, but, as such credit becomes extended, and fundamental to capitalist production, it forms the basis of the second form of crisis – a payments crisis.
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