Capitalism involves the production and circulation of commodities, and these are its “starting-point” and historical foundations (Marx 1990: 247). World trade, according to Marx, dates from the 16th century and this is when the modern history of capitalism commences (Marx 1990: 247).
Next, Marx comes to a point which is one of his genuinely important and profound insights into capitalism, and which anticipated Keynes. The object of capitalism, Marx rightly argues, is monetary profit:
“If we abstract from the material substance of the circulation of commodities, that is, from the exchange of the various use-values, and consider only the economic forms produced by this process of circulation, we find its final result to be money: this final product of the circulation of commodities is the first form in which capital appears.Capital in the form of money buys a commodity in the first stage M–C (the advance of capital) and realises a profit in C–M (the realisation of capital) (Brewer 1984: 34).
As a matter of history, capital, as opposed to landed property, invariably takes the form at first of money; it appears as moneyed wealth, as the capital of the merchant and of the usurer. But we have no need to refer to the origin of capital in order to discover that the first form of appearance of capital is money. We can see it daily under our very eyes. All new capital, to commence with, comes on the stage, that is, on the market, whether of commodities, labour, or money, even in our days, in the shape of money that by a definite process has to be transformed into capital.
The first distinction we notice between money that is money only, and money that is capital, is nothing more than a difference in their form of circulation.
The simplest form of the circulation of commodities is C–M–C, the transformation of commodities into money, and the change of the money back again into commodities; or selling in order to buy. But alongside of this form we find another specifically different form: M–C–M, the transformation of money into commodities, and the change of commodities back again into money; or buying in order to sell. Money that circulates in the latter manner is thereby transformed into, becomes capital, and is already potentially capital.” (Marx 1906: 163–164).
Ultimately, the capitalist starts with money and desires to earn more money at the end of his enterprise (whether simple commodity speculation or production, as Marx later makes clear):
“Now it is evident that the circuit M–C–M would be absurd and without meaning if the intention were to exchange by this means two equal sums of money, £100 for £100. The miser’s plan would be far simpler and surer; he sticks to his £100 instead of exposing it to the dangers of circulation.” (Marx 1906: 164–165).So there is a distinction between the two circular paths C–M–C and M–C–M (Marx 1990: 248):
“In the circulation C–M–C, the money is in the end converted into a commodity, that serves as a use-value; it is spent once for all. In the inverted form, M–C–M, on the contrary, the buyer lays out money in order that, as a seller, he may recover money. By the purchase of his commodity he throws money into circulation, in order to withdraw it again by the sale of the same commodity. He lets the money go, but only with the sly intention of getting it back again. The money, therefore, is not spent, it is merely advanced.” (Marx 1906: 165–166).This idea that modern capitalism is a monetary production economy where capitalists’ main aim is to earn more money was also held by Keynes (Rogers 1989: 165–167; see also Torr 1980 and Dillard 1984). Thus both Keynes and Marx rejected the Classical “real” analysis that attempted to model capitalism as if it were a barter economy (Rogers 1989: 165).
There is also another very important point here: for Marx money (M) in the formula M–C–M, describing the capitalist mode of production, is defined as capital (Marx 1990: 250). As Marx says, there is “a palpable difference between the circulation of money as capital, and its circulation as mere money” (Marx 1906: 166). Capital is a type of “value in motion” that is used by capitalists to create more value, but the “value in motion” can appear in the form of either money or commodities (Harvey 2010: 90).
To return to Marx’s analysis, the circuit M–C–M has a different goal from C–M–C:
“The circuit C–M–C starts with one commodity, and finishes with another, which falls out of circulation and into consumption. Consumption, the satisfaction of wants, in one word, use-value, is its end and aim. The circuit M–C–M, on the contrary, commences with money and ends with money. Its leading motive, and the goal that attracts it, is therefore mere exchange value.” (Marx 1906: 167).That is, the point of the circuit C–M–C is a use value, or consumption or satisfaction of needs as a final goal (Marx 1990: 250; Harvey 2010: 85). But the goal of M–C–M is more money and so it should properly be written M–C–M′ (where M′ = money plus an increment) (Marx 1990: 251). The increment in the money is the surplus value (Marx 1990: 251). So surplus value is M′ minus M.
The circuit of capital M–C–M is the process that generates surplus value (Brewer 1984: 34). It is the desire for quantitative expansion of monetary value and may have no limits (Brewer 1984: 35). Marx describes what he thinks is the mentality of the capitalist:
“The simple circulation of commodities—selling in order to buy—is a means of carrying out a purpose unconnected with circulation, namely, the appropriation of use-values, the satisfaction of wants. The circulation of money as capital is, on the contrary, an end in itself, for the expansion of value takes place only within this constantly renewed movement. The circulation of capital has therefore no limits. Thus the conscious representative of this movement, the possessor of money becomes a capitalist. His person, or rather his pocket, is the point from which the money starts and to which it returns. The expansion of value, which is the objective basis or main-spring of the circulation M–C–M, becomes his subjective aim, and it is only in so far as the appropriation of ever more and more wealth in the abstract becomes the sole motive of his operations, that he functions as a capitalist, that is, as capital personified and endowed with consciousness and a will. Use-values must therefore never be looked upon as the real aim of the capitalist; neither must the profit on any single transaction. The restless never-ending process of profit-making alone is what he aims at. This boundless greed after riches, this passionate chase after exchange-value, is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser. The never-ending augmentation of exchange-value, which the miser strives after, by seeking to save his money from circulation, is attained by the more acute capitalist, by constantly throwing it afresh into circulation.” (Marx 1906: 169–171).According to Marx, the “restless never-ending process of profit-making alone is what he [sc. the capitalist] aims at” (Marx 1906: 170).
Also, as we have seen above, for Marx, money or commodities can function as capital or, in other words, as value in motion to produce more value (Marx 1990: 255). It is very important to note that Marx’s definition of capital is quite different from that of neoclassical economics, as noted by Brewer (1984: 35). For Marx, capital is a certain sum of value repeatedly “being transformed from money to commodities and back again” to produce more value (Brewer 1984: 35).
Marx describes this as follows:
“The independent form, i. e., the money-form, which the value of commodities assumes in the case of simple circulation, serves only one purpose, namely, their exchange, and vanishes in the final result of the movement. On the other hand, in the circulation M–C–M, both the money and the commodity represent only different modes of existence of value itself, the money its general mode, and the commodity its particular, or, so to say, disguised mode. It is constantly changing from one form to the other without thereby becoming lost, and thus assumes an automatically active character. If now we take in turn each of the two different forms which self-expanding value successively assumes in the course of its life, we then arrive at these two propositions: Capital is money: Capital is commodities. In truth, however, value is here the active factor in a process, in which, while constantly assuming the form in turn of money and commodities, it at the same time changes in magnitude, differentiates itself by throwing off surplus-value from itself; the original value, in other words, expands spontaneously. For the movement, in the course of which it adds surplus value, is its own movement, its expansion, therefore, is automatic expansion. Because it is value, it has acquired the occult quality of being able to add value to itself. It brings forth living offspring, or, at the least, lays golden eggs.The whole process is summed up Marx:
Value, therefore, being the active factor in such a process, and assuming at one time the form of money, at another that of commodities, but through all these changes preserving itself and expanding, it requires some independent form, by means of which its identity may at any time be established. And this form it possesses only in the shape of money. It is under the form of money that value begins and ends, and begins again, every act of its own spontaneous generation. It began by being £100, it is now £110, and so on. But the money itself is only one of the two forms of value. Unless it takes the form of some commodity, it does not become capital.” (Marx 1906: 171–172).
“Value therefore now becomes value in process, money in process, and, as such, capital. It comes out of circulation, enters into it again, preserves and multiplies itself within its circuit, comes back out of it with expanded bulk, and begins the same round ever afresh. M–M′, money which begets money, such is the description of Capital from the mouths of its first interpreters, the Mercantilists.So whether the capitalist is an industrialist, merchant or usurer who lends money at interest, his activity can be summed up by the “general formula” M–C–M′ which describes his ceaseless search for surplus value in the sphere of circulation.
Buying in order to sell, or, more accurately, buying in order to sell dearer, M–C–M′, appears certainly to be a form peculiar to one kind of capital alone, namely, merchants’ capital. But industrial capital too is money, that is changed into commodities, and by the sale of these commodities, is reconverted into more money. The events that take place outside the sphere of circulation, in the interval between the buying and selling, do not affect the form of this movement. Lastly, in the case of interest-bearing capital, the circulation M–C–M′ appears abridged. We have its result without the intermediate stage, in the form M–M′, ‘en style lapidaire’ so to say, money that is worth more money, value that is greater than itself.
M–C–M′ is therefore in reality the general formula of capital as it appears prima facie within the sphere of circulation.” (Marx 1906: 173).
Now there are two problematic aspects of this chapter, as follows:
(1) does mere speculation (buying commodities cheap and selling dear) count as capitalist production and can value arise in circulation of commodities? How does speculation produce labour value?First, there is the interesting problem about the nature of speculation. If a capitalist buys commodities for $100 and sells them for $110 has he created surplus value by his labour? It would seem that Marx merely thinks that the initial $100 is only “circulating money capital” and any surplus obtained in this way is done so “by trickery, or by speculation on the oscillation of commodity prices” (letter, Marx to Engels, London, 30 April 1868; elsewhere Marx sees gambling in a comparable way). Though the transaction can be explained as M–C–M′, the surplus value is not created by the labour power of the speculator.
(2) does Marx think that capitalists really aim at increasing labour value?
To illustrate the second problem: Marx says that the point of M–C–M′ is to increase value:
“The value originally advanced, therefore, not only remains intact while in circulation, but adds to itself a surplus-value or expands itself. It is this movement that converts it into capital.” (Marx 1906: 168).But “value” usually means labour value for Marx, so that Marx can be interpreted as saying that capitalists’ real aim is to increase the labour value embodied in the money they receive from production. This is absurd and empirically false. Capitalists and business people are interested in money profits, not Marx’s labour value concept.
In conclusion, there are interesting insights in Chapter 4, but they are quickly contaminated by Marx’s dogmatic and untenable labour theory of value. None of the good insights about the monetary nature of production taken up by Keynes should blind us to the fact that Marx’s Capital is a deeply flawed work and his overall theory is wrong, since it is founded and the erroneous and untenable labour theory of value.
Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.
Dillard, Dudley. 1984. “Keynes and Marx: A Centennial Appraisal,” Journal of Post Keynesian Economics 6.3: 421–432.
Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.
Marx, Karl. 1868. Letter, Marx to Engels, London, 30 April
Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.
Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.
Rogers, C. 1989. Money, Interest and Capital: A Study in the Foundations of Monetary Theory. Cambridge University Press, Cambridge.
Torr, C. 1980. “The Distinction Between an Entrepreneur Economy and a Co-operative Economy,” South African Journal of Economics 48.4: 429–434.