Part One: The Metamorphoses of Capital and their Circuit

Chapter 1: The Circuit of Money Capital

1. First Stage. M-C

2. Second Stage. The Function of Productive Capital

3. Third Stage. C’-M’

4. The Circuit as a Whole

Chapter 2: The Circuit of Productive Capital

1. Simple Reproduction

2. Accumulation and Reproduction on an Expanded Scale

3. Accumulation of Money

4. The Reserve Fund

Chapter 3: The Circuit of Commodity Capital

Chapter 4: The Three Figures of the Circuit

(Natural Economy, Money Economy and Credit Economy)

(The Matching of Demand and Supply)

Chapter 5: Circulation Time

Chapter 6: The Costs of Circulation

1. Pure Circulation Costs

(a) Buying and Selling Time

(b) Book-keeping

(c) Money

2. Costs o f Storage

(a) Stock Formation in General

(b) The Commodity Stock Proper

3. Transport Costs

Part Two: The Turnover of Capital

The following terms are defined below. They are collected here as a quick reference:

• turnover time also called: turnover period = production time + circulation time (Chapter 7)
• circulation time: selling time + time of purchase (Chapter 14)
• cycle of turnovers: number of turnovers needed for all capital components to be reproduced (Chapter 9)
• overall turnover: average of turnovers of all capital parts (Chapter 9)

Chapter 7: Turnover Time and Number of Turnovers

Capital must pass through production time and circulation time. To realise the purpose of perpetual valorisation the advance must return in order to go through the circuit again.

Whilst parts of capital are in different phases of the circuit the identity of capital is expressed ideally in money of account. Turnover expresses the periodical return of capital to its point of departure.

236:4 For the capitalist, the turnover time of his capital is the time for which he has to advance his capital in order for this to be valorized and for him to receive it back in its original shape.

The emphasis here is on “in its original shape”, i.e. the time it takes capital in money form (resp. in form of productive capital, commodity capital is not a form of advanced capital) to return to money form.

Turnover time measures the time of such a period, it is the sum of production time and circulation time. The number of turnovers compares the turnover of various capitals, where — conventionally, due to agriculture — the turnover time of each individual capital is related to a year.

Turnover is a new determination of efficiency. The faster the turnover the faster capital returns to its original shape with a surplus, i.e. the faster it valorised. While in Chapter 5 the standpoint was that circulation time is a limit for production time, the new standpoint is that turnover time overall ought to be shortened.

Chapter 8: Fixed Capital and Circulating Capital

1. The Formal Distinctions

The starting point for this chapter is that different parts of productive capital have different turnover times. This leads to the introduction of the concepts of circulating and of fixed capital.

Circulating or fluid capital: the value of those means of production that is fully transferred to a new commodity and hence ceases to exist materially after this transfer. The same for labour power: a value equivalent of the labour power consumed during production is part of the commodity created and can hence circulate on.

Fixed capital on the other hand consists of means of labour such as machinery that transfer part of their value to newly created products but remain materially in the production process (until finally used up). Fixed capital is any means of labour that circulates slower than circulating capital.

The difference between fixed and circulating capital is hence related to the use-value side of production: some means of production are completely consumed in the production of a single product, while others continue to function for longer. But fixed capital has nothing to do with it being immobile (that’s a mistake bourgeois economists made). The decisive point is how this part of capital circulates.

240:0 This particular manner of circulation arises from the particular way in which the means of labour gives up its value to the product, or acts to form value during the production process. This in turn arises from the special way in which the means of labour function in the labour process.

Only in this regard, use-value plays a role: the way in which it allows its value to be transferred. Hence, fixed/circulating capital is about how value is giving up or transferred to the product, whereas constant/variable capital is about how value is formed.

Circulating capital embodied in the commodity gets thrown onto the market, sold, and thereby its initial value is returned in form of money capital, providing means to buy new circulating capital in form of means of labour and labour-power. Fixed capital, however, only returns partially. During its lifespan the value of the fixed capital in the form of the machine decreases accordingly – while the amount of fixed capital in money form increases. All things being equal, the money fund for buying a new machine must be filled after the old one has served fully. Then, a new version of it needs to be bought – the money is spent all at once. Fixed capital is an upper limit on turnover, as it needs longest – fluid capital has turned over several times before fixed capital does it once. In terms of advance both forms are equal, but the way reflux works makes a difference: fixed capital withdraws a big value from the commodity market at once, whereas circulating capital only takes smaller parts of value, but more often.

2. Components, Replacement, Repairs and Accumulation of the Fixed Capital

It is a repair or replacement, if some part of a machine does not work any longer and is replaced. It is expansion, if production is enlarged (extensively) or machines are made more efficient (intensively). Neither is driven by $m$ even though it is expansion, but is paid for by a money hoard formed by returned value parts of fixed capital.

Chapter 9: The Overall Turnover of the Capital Advanced. Turnover Cycles

Fixed and fluid capital parts of capital turn over differently. Furthermore, different parts of fixed capital have different turnover times.

1. Capital is one sum of value that continuously produces its own surplus. However, in its material form (as means of production) this identity is not expressed. To express this identity the average turnover time of its components is taken to express the overall turnover of capital.

   262:2 The overall turnover of the capital advanced is the average turnover of its different component parts.

   Note that this is different from the turnover of capital which is the sum of production time and circulation time, i.e. the turnover time of fluid capital.

2. However, there are not only differences in turnover time but also in how the various parts turnover. Fluid capital parts have to be replaced continuously. Some parts of fixed capital can be replaced or repaired at shorter intervals. Other parts of fixed capital can only be replaced once they have transferred all their value to the product. Those different forms of replacement do affect material reproduction but they do not affect the reproduction time of the values involved.

   262:5 It is necessary therefore to reduce the separate turnovers of the various parts of the fixed capital to a similar form of turnover, so that these differ only quantitatively, in the duration of their turnover.

3. The total value that turns over during a year might be larger than the total value advanced, even if a large part is advanced in fixed capital which takes many years to turn over. Say, a capital splits into £80 fixed capital which takes 10 years to turn over, and £20 which turn over 5 times a year. After a year 5·£20 + £8 turned over which is more than the initially advanced £100.

4. The value turnover of capital is the time it takes for the initially advanced sum to turn over once and it is separate from the actual reproduction time of capital’s components.

   A capital that turns over 5 times a year has a value turnover of 5 times its original size in a year, but it is still the same capital. Its size is not affected by turnover time (ignoring surplus-value for now). But the continuous return of fluid capital into its originally advanced form — money — allows capital to continuously produce value and surplus-value even though its material components are not yet reproduced.

   If fixed capital needs 10 years to be reproduced then the production process must continue — the advanced capital has to describe a cycle of turnovers — until the fixed capital components are reproduced/turned over. Only after 10 years, in this example, all components of capital turned over, i.e. in its originally advanced form.

   With the capitalist mode of production fixed capital grows relatively to fluid capital and overall turnover time increases. On the other hand, the development of the capitalist mode of production shortens overall turnover time due to moral depreciation. The result is an estimated (by Marx) overall turnover time of 10 years.

   The separation of the actual reproduction of the fixed components of capital and continuous turnover of fluid capital which realises value components of fixed capital is the material basis for the business cycle — stagnation, moderate activity, overexcitement, crisis. Fixed capital is purchased once and then continuously transferred to the final product which then is continuously sold. Capitals hence sell without buying for long periods, and buy fixed capital seldomly and suddenly; but from Volume 1, Chapter 3 we know that the abstract possibility of crisis is the possibility of separating sale and purchase which yet belong together. Coming out of a crisis capitals invest in fixed capital which leads to a synchronisation of investments which creates a lot of demand which then lessens.

Chapter 10: Theories of Fixed and Circulating Capital. The Physiocrats and Adam Smith

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Chapter 11: Theories of Fixed and Circulating Capital. Ricardo

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Chapter 12: The Working Period

A working period is the total working time which is needed to produce a certain product, i.e. the total number of labour hours. It is the only time where value is produced and where exploitation takes place. The longer the working time, the more disastrous the consequences of an unsuccessful commodity, as more value was produced in vain.

Discrete product: the whole working period is short (say, a day or a week).

Continuous product: it takes a long time to finish a product (extreme version: building a ship).

For the production of discrete products, less circulating capital must be available as selling of already finished products provides returning capital to keep the production of more stuff going. If the continuous product is sold, a big chunk of capital including surplus-value returns at once. The practical consequence is especially relevant for capital-intensive and continuous products: if the process of production is halted or stopped completely, all the labour done so far counts nil. Faster machines help by speeding up the process of (continuous) production, thereby relatively more fixed capital is applied. It also means more bound capital, which is a burden in a crisis.

Historically, huge continuous products could only be produced after accumulation of capital in society reached a point where a company could actually gather enough money capital. Building railways was vastly supported by the state. Credit addresses that problem.

The working period, on the one hand, is the one where valorisation happens – so for valorisation a long working period is great (cf. Volume 1). In this second volume though with standpoint of continuity having been established, turnover in itself counts – and for that, each single period comes under attack and should be shortened or as short as possibly possible.

Chapter 13: Production Time

Production time is the sum of the working period and the time during which natural laws run their course without human intervention. In that latter period no value is created. Examples are plants that need to grow, wine that needs to ferment, etc. Capital attempts to shorten production time. This usually entails additional expenditures in fixed capital which increases the overall turnover. Furthermore, these attempts have their limit in natural conditions, e.g. in agriculture. To produce a regularity of production and circulation stock is maintained such that part of the products can be sold while other products still come into being.

Chapter 14: Circulation Time

Circulation time is split into selling time and time of purchase (and transaction time).

Selling time is the time it takes to sell a commodity. This time fluctuates, but there are circumstances which determine it beyond such fluctuations, such as distance to markets. Improvements in communication and transportation technology allow to decrease selling time. These tend to affect different capitals in different ways, so the ratios of their selling times might vary. These improved transportation and communication routes and hubs lead to concentration of people and capital in one place. Improved communication and transportation also implies production for the world market as these new improved means must be used.

The time of purchase is the time in which capital is in money form and seeks to transform itself into productive capital. Here too distance to markets and delivery times determine circulation time. Another factor is that sometimes commodities can only be bought on specific dates, which lengthens time of purchase.

In addition to selling time and time of purchase there is also transaction time, i.e. the time it takes money to travel. For example, it takes to process a bank transfer.

Both with respect to buying and selling the moment of payment is crucial for turnover time. This is a basis for the credit system. The seller wants money when she sends her commodities off, the buyer wants to pay when the commodities arrive. The time between the two can be bridged by credit.

Chapter 15: Effect of Circulation Time on the Magnitude of the Capital Advanced

Circulation time influences the valorisation of capital negatively. Continuity now counts, so during circulation time additional capital takes the place of that capital now in stuck in the circulation sphere to keep production going. In order to ensure continuity of capital’s valorisation additional capital is necessary which mostly lies idle. The size of this additional capital is determined by the relation of the length of the circulating time to the turnover time. With additional capital, circulation time appears to be zero and production is continuous.

1.-3. Working Period and Circulation Period Equal, Longer than, Shorter than

How the two periods (working/circulation period) and their length relate to each other and how that effects the tying-up of capital in form of money capital. They are rarely identical in length and when they are not, continuity of the working period demands for additional circulating capital to be available as money capital.

4. Results

As a result of turnover, whose measure of valorisation dictates the speed of value reproduction, lots of additional money capital is necessary on a social level for the continuity of the working period. That is, capital set free is necessary for the continuity. This working process is objectified in machinery, and

356:4 Continuity is itself a productive force of labour.

A longer circulation time leads to pressure on the money market. The need for more money capital and money at the same time having to lie idle, is one drive for a credit system: need for money capital and the need for it to be used as such – even in simple reproduction.

5. Effect of Changes in Price

Changes of price lead to more capital being set free – or to more capital being bound and thereby affect capital advance, the amount of capital available as money capital and thereby the speed of turnover.

Chapter 16: The Turnover of Variable Capital

1 . The Annual Rate of Surplus-Value

Additional capital is required to keep production going continuously. Part of capital is idle, but the turnover is related to all circulating capital advanced, not only that which is active. In this chapter we ignore constant capital as we are dealing with the effect of the turnover on surplus-value, which is created by variable capital. A faster turnover realises that the same advance in variable capital sets a bigger amount of labour in motion because less capital is idle. This gives rise to the introduction of the annual rate of surplus value:

$\frac{\mbox{mass of surplus-value produced during a turnover period}}{\mbox{variable capital applied during a turnover period}} \times \mbox{ turnover time of v}$

The more often $v$ turns over, the more often it can produce $m$, and the efficiency of the advance in $v$ to bring that production of $m$ about is measured in the annual rate of surplus-value. The rate of surplus-value is not related to a specific period: it applies to one hour just as much as to one day or year. The annual rate of surplus-value is related to a year and measures the efficiency of capital to exploit labour.

This does not mean that surplus-value now has a source outside of the exploitation of labour: if a capital turns over faster then less variable capital is idle and the ratio of advanced variable capital to actually employed variable capital decreases: more of the variable capital is actually employed.

2. The Turnover of an Individual Variable Capital

Individual capital has to advance less capital to set the same amount of labour into motion if turnover decreases. If variable capital turns over in 5 weeks, capital can pay the wages of its workers after five weeks from the proceeds of the previous turnover. This is different if turnover is 1 year: in week 6 capital has to pay wages from initially advanced capital. Its workers might have produced value in the first 5 weeks this value does not have the right value-form yet, though: it is at most commodity, but not money yet.

3 . The Turnover of Variable Capital Considered from the Social Point of View

In week one a Capital A and a Capital B advance money which their workers use to buy food. Say Capital A turns over in a week. Then the money it throws into circulation to hire its workers in week 2 is the equivalent of a value product it produced and sold. If Capital B turns over slower, it also throws money into circulation but without throwing a commodity equivalent into circulation at the same time.

If the turnover is long there are periods where there is a surplus of money entering circulation compared with commodities entering circulation.

Chapter 17: The Circulation of Surplus-Value

Differences in turnover produce a difference in the annual rate of surplus-value, although the absolute mass of surplus value remains the same. This result is correct if surplus-value is not accumulated; if accumulation takes place then the mass of surplus-value is dependent on the circulation of surplus-value. The speed and success of circulation of surplus-value is hence a limit for capital’s accumulation.

Faster turnover means

1. less expenditure for means of subsistence of the capitalist.

2. already realised surplus-value can be used for additional outlays in fixed capital. Part of the originally advanced capital can be capitalised surplus-value, if it is covered by already realised surplus-value.

3. reproduction on an extended scale by reinvesting surplus-value when incremental small improvements are possible.

However, there will always be period when money is hoarded in order for it to be turned into money capital later. This hoard can be accumulated by either selling to a money producer directly (overall money in society increases) or by withdrawing money from circulation by selling without buying.

How do the two forms of capitalist reproduction — simple reproduction and accumulation — affect the realisation of surplus-value?

1. Simple Reproduction

The amount of money necessary to realise the commodities in circulation is determined by the laws of simple commodity production (Volume 1, Chapter 3). This result is not altered by the value composition of commodities, i.e. that they contain surplus-value.

From the standpoint of a capitalist there appears to be a problem, though. She constantly throws less money into circulation than she withdraws and asks: “Where does the money come from to realise surplus-value?” The problem, however, is not where does the money come from to circulate surplus-value, but in general where does the money come from to circulate commodities. In our case, it is the capitalists themselves who provide this money when they — in addition to advancing capital — spend money on means of subsistence and luxury items.

2. Accumulation and Expanded Reproduction

This general result is not affected if production is expanded in the first instance. The capitalist already owns the money now to be invested in additional productive capital. That money now circulates as money capital instead of as revenue, i.e. it changes its form, but it already exists.

Furthermore, the value reproduced by expanded reproduction — additional variable and constant capital — can be realised with the money initially advanced, it has the same value. However, the increased capital also produced an increases surplus-value, where does the money come from to realise it?

To some extend increased velocity of circulation of circulation can replace additional money, otherwise additional money must be produced. This limits the capitalist mode of production’s accumulation to the growth of money production; a limit which is overcome by the credit system.

Yet, in absence of such a credit system, most extended reproduction requires hoarding until sufficient funds are available. Where does this hoarded money come from? If the hoard is accumulated by selling to money producers directly, there is no problem, additional money is produced and hoarded.

However, if the hoard is accumulated by withdrawing money from circulation, this presupposes that not all capitalists engage in hoarding at the same time. The condition of accumulation is hence that the turnovers of capital interlock in such a way, that selling without buying is matched by buying with selling, i.e. some capitalists must expand their production while others hoard.

The realisation of surplus-value of one capitalist is dependent on the realisation of surplus-value of other capitalists, those have to realise her surplus-value. Already in Volume 1 was discussed that for accumulation every capitalist is dependent on other capitalists having earned the money to buy their commodities. This concerns the mass of value (enough surplus-value) and value form (money). An additional consideration here is turnover: those other capitalists might have produced surplus-value but might have realised it. When they go on and start purchasing is another question. The interlock of turnovers on a social scale hence determines the reproduction and accumulation of capital.

Part Three: The Reproduction and Circulation of the Total Social Capital

Chapter 18: Introduction

The new object is developed: individual capital as part of total social capital.

Chapter 19: Former Presentations of the Subject

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Chapter 20: Simple Reproduction

1. Formulation of the Problem

469:2 “The immediate form in which the problem presents itself is this. How is the capital consumed in production replaced in its value out of the annual product, and how is the movement of this replacement intertwined with the consumption of surplus-value by the capitalists and of wages by the workers?”

The question and the scheme to answer it are developed: commodity capital in each year must suffice to replace capital in value and material terms, otherwise there is no simple reproduction.

2. The Two Departments of Social Production

The distinction between capitals based on what they produce is introduced. department I produces means of production for $c$ and department II produces means of subsistence for $v$ and $s$.

3. Exchange Between the Two Departments: I(v+c) against IIc

First new law: constant capital of department II must equal the sum of the $v$ and $s$ components of department I: $I_{v +s} = II_c$.

4. Exchange Within Department II. Necessary Means of Subsistence and Luxury Items

Second new law: the realisation of the value components $v$ and $s$ of department II must happen within that department. The class opposition which restricts workers to necessary means of subsistence necessitates a conceptual distinction of capitals which produce ordinary means of subsistence (IIa) and those which produce luxury items (IIb). The consumption of luxury items by capitalists from department IIa is the condition for the reproduction of workers in department IIb. The realisation of surplus-value of department IIa is also determined by this relationship.

5. The Mediation of t he Exchanges by Monetary Circulation

Rejections, relationships and a third law. Money returns to its origin: capitalists are paid with money they themselves throw into circulation (partially mediated by wage payments) either as an advance or as personal spending.

The reciprocal value realisation of the departments is dependent on money expenditures which happen before value realisation. Capitalists speculating on their success and their positive verdict about the course of business is a necessary condition for this success.

6. The Constant Capital in Department I

No new problem for the material and value reproduction of constant capital of producers of means of production. Constant capital in department I is realised and reproduced within this department.

7. Variable Capital and Surplus-Value in the Two Departments, 8. The Constant Capital in Both Departments, 9. A Look Back at Adam Smith, Storch and Ramsay

A riddle which concerned economists, a solution and critique of ideology. It can look like Smith had a point when he said all values decompose into revenue if you consider that $II_{c+v+s}$ can be considered as $I_{v+s} + II_{v+s}$ because $II_c = I_{v+s}$.

501:2 On the premise of simple reproduction, therefore, the total value of the means of consumption annually produced is equal to the annual value product, i.e. equal to the total value produced by the labour of the society in the course of the year, and the reason why this must be the case is that with simple reproduction this entire value is consumed.

However, this equality in magnitudes is not the same as the equivalence in substance. Both departments produce fresh value and the value of constant capital reappears in their products. Expressed for department I:

509:1 Socially considered, however, the portion of the social working day that produces means of production, both adding new value to them and transferring to them the value of the means of production consumed while they were being produced, produces nothing but new constant capital, destined to replace that consumed in the form of the old means of production, the constant capital consumed in both departments I and II.

10. Capital and Revenue: Variable Capital and Wages

It is wrong to say that what is capital for one is revenue for another, as this (a) identifies the value of the product with the value product and (b) confuses what becomes of money after it left the circuit of capital with the function of value within the circuit.

A cause for potential frictions: while the working class lives hand to mouth, the capitalist class can indulge in luxury spending or save up. This might assert itself against the necessary relationship of exchanges between the departments.

11. Replacement of the Fixed Capital

A fourth law: simple reproduction can only happen if department II wants to buy new machinery to the same extend as it hoards in order to buy fixed capital later. That is, for there to be a part of department II that only buys means of production without selling an equivalent in this year (section 1), there must be an equally big part of department II that sells without buying means of production (section 2).

Such a balance would have to exist in every year which is unlikely due to the anarchy of the market. If every year the same is produced in terms of value and material then this means crisis. Simple reproduction only exists under constant overproduction, i.e. expanded reproduction, which means accumulation must take place. This is the transition to the next chapter.

12. The Reproduction of the Money Material

Money material is replaced and the possibility of hoarding without disturbing the reproduction process exists.

13. Destutt de Tracy’s Theory of Reproduction

Destutt de Tracy held that profits are the result of uneven exchange i.e. that surplus was generated in the distribution of the annual product. While this might account for individual capitalists getting richer at the expense of each other or the workers they sell to, it cannot explain the presence of increased wealth in the whole of society.

Chapter 21: Accumulation and Reproduction on an Expanded Scale

The general result of this chapter: accumulation presupposes accumulation.

• Capitals which hoard in order to expand in the future are dependent on capitals which are expanding now, i.e. those which already successfully hoarded.

• Accumulation in department I is dependent on accumulation in department II and vice versa. This way capitals produce the material and value conditions for accumulation.

• This accumulation includes simple reproduction.

• Means of subsistence producing capitals must expand in anticipation of expansion elsewhere and must produce commodity hoards which are only realised by workers yet to be hired by department I.

• The presentation of the circulation or the process of reproduction of capital not only shows how capital produces, but also how capital is produced.

• The laws developed in Chapters 20 and 21 present themselves as possibilities and limits (up to interruptions) of accumulation or even simple reproduction.

The drive to accumulation determines capitalist production. Capital makes simple reproduction dependent on the success of accumulation. If an individual capital is successful with this or not depends on if it fits into the unity of production and circulation process of total social capital. A unity which is re-produced by individual capitals — or not. Capital must fix this new criterion for the capitalist purpose to the commodity, the link between production and circulation. This is how the next volume starts.