Differences in turnover produce a difference in the annual rate of surplus-value, even when the absolute mass of surplus value remains the same. The annual rate of surplus-value, however, only remains the same if surplus-value is not accumulated; if accumulation takes place then the mass of surplus-value is dependent on the circulation of surplus-value.

To explain how faster circulation of surplus-value impacts accumulation, we stick to the two example capitals from the last chapter:

1. Capital A has an income after week five, i.e. Alice can live off her capital after the first turnover period, while Bob has to advance his own means of living for a year.

2. Expenditures on fixed capital which are added during its lifetime, such as repairs, also present themselves differently to Alice and Bob. This part Alice does not need to advance except for the first five weeks. If costs arise later than five weeks she can used some of the surplus-value she already realised to cover them.

   394:6 In this way a part of the capital needed to conduct the business on its original scale is produced by the business itself, in the course of business, by the capitalization of a part of the surplus-value.

   Part of the originally advanced capital can be capitalised surplus-value, if it is paid for by already realised surplus-value.

   Bob cannot do this during the first year, even if his initial investment is the result of surplus-value produced by a previous investment. Here we are concerned with the current business: Alice’s business started by the initial investment of £2,5000 produces money to maintain itself after five weeks; Bob’s surplus-value might be produced, it is not realised. Hence, it does not have the form which would allow to use it for repairs, maintenance etc.

3. Accumulation means production is extended. Sometimes this can be accomplished in small steps. For example, small improvements can be made to improve machines and tools, workers can be made to work longer hours. In these cases, only additional expenditure in circulating capital is necessary, fixed capital merely circulates faster. Another option is to use already realised surplus-value to purchase raw materials when they are cheap. If surplus-value is produced but not yet realised then this is not possible.

However, there will always be periods when all these options for expanded reproduction are not available, the working day is maximised, there are no incremental, small improvements to be made to machines, the nature of production (e.g. agriculture) does not allow expansion at this moment or our capitalist would have to invest so much that it would take years until that money is available. In addition to actual extension of production there is also accumulation of a money hoard; money is hoarded in order to use it as money capital later.

This latent money capital can accumulated when, e.g., an industrial capitalist exchanges her commodities for gold with a gold producer directly. Another way is by attraction of money from society, i.e. our capitalist sells without buying.

The speed and success of circulation of surplus-value is hence a limit for capital’s accumulation. Hence, the two forms of reproduction of capital are hence now investigated with regards to how they affect the realisation of surplus-value. As we have seen its value-form — money — is decisive for accumulation.

1. Simple Reproduction

Recall that in simple reproduction surplus-value is produced but then consumed unproductively by the capitalist. For commodities to be consumed they must be sold first, their value must be realised.

The value composition of commodities (variable capital, constant capital and surplus-value) does not change the amount of value that circulates and is consumed (productively and unproductively). The only thing that can change is who consumes it.

Money circulates commodity values, regardless of how they are composed; $C’-M’$ and $M-C$ are acts of simple commodity circulation and consequently the amount of money required to circulate them is determined by the laws of simple commodity circulation and not affected by the fact that these commodity values contain surplus-value.

This law (Volume 1, Chapter 3, p. 214) states that money in society must suffice to circulate commodities at a given velocity. Additionally, money must exist to cover slow downs in circulation or fluctuations of prices.

Money Production

Whatever the amount of money required to circulate commodities, a part of it must be reproduced by money production each year as it is consumed by wear and tear. Hence, a part of the annual social product must be money (here: gold and silver). Either as much as is consumed by wear and tear (simple reproduction) or to also circulate the increased value of commodities produced if necessary (accumulation).

Here we assume money producers produce as much money as is consumed each year by wear and tear. They enter the market with their products directly and purchase other commodities for individual (surplus-value) and for productive consumption (constant capital). Similarly, they pay their workers immediately with their product who then enter the market with it to buy means of subsistence.

Looking at money producing capitalists under the form $M—C … P … M’$ and restricting ourselves to circulating capital, we notice that in the beginning money is thrown into circulation, but in the end no money is withdrawn from circulation. After all, the product is already money.

However, in general, a capital engaged in money production does not circulate differently from other capitals. It has fixed and fluid components and it requires certain expenditures to keep it going. Additional capital is needed to keep production going during the circulation period. This, too, means that money is continuously set free (e.g. £500 are realised, but only £400 are currently needed). All remains the same except that the money set free is newly produced money. The capitalist advances money and produces new money. Her expenditure does not return to her (plus surplus-value) but is produced anew and enters circulation. Under the assumption of simple reproduction this happens only to the extent that old money is consumed by wear and tear.

In summary: money is produced, that is how new money comes into this world. With respect to simple reproduction we can simply assume that no money is consumed by wear and tear, then no new money was produced.

Hence, capitalist money production does not alter the general result that the amount of money needed to circulate commodities is determined by the laws of simple commodity circulation.

Realisation of Surplus-Value

From the standpoint of a capitalist there is a problem, though. She constantly throws less money into circulation than she withdraws. Where does the money come from to realise her surplus-value?

405:1 The commodity capital that the capitalist casts into circulation is of greater value (…) than the productive capital he has withdrawn in labour-power and means of production from the circulation sphere. On this assumption, it is therefore clear why not only capitalist A, but also B, C, D, etc. can always withdraw from circulation, by exchanging their commodities, more value than the value of their original capital, which is always advanced anew. A, B, C, D, etc. always cast a greater commodity value into circulation in the form of commodity capital (an operation which has as many sides to it as there are independently functioning capitals) than they withdraw from it in the form of productive capital. Thus they always have a value sum to share among themselves (i.e. each of them can withdraw from circulation a productive capital) equal to the value of the productive capitals they have respectively advanced, and can just as regularly share out a value sum which they cast into circulation from just as many sides in the commodity form, as a respective surplus of commodity value over the value of their commodity’s elements of production. But before the commodity capital is transformed back into productive capital and the surplus-value contained in it is spent, it must be turned into money. Where does the money for this come from?

To give an example: the whole capitalist class invests £500 and produces £600. They hence withdraw £600 from circulation in which they put £500 in money form. The question is not where did those additional £100 come from but where does the money come from to pay for them?

Before this contradiction is resolved, a few refutations of false solutions:

• Capitalists do not advance and realise at the same time. Alice buys means of production from Bob, so Bob sells and Alice purchases. This way they all get what they want and realise each others surplus-value by buying each others products. However, this solves the problem by giving up on the assumption. That assumption was that they all advance at the same time and realise more than what they advanced at the same time later. This answer does not answer the original question.

• Bob buys Alice’s products and consumes them unproductively. Bob’s money realises Alice’s surplus-value. This answer presupposes the solution without giving it: where does Bob get the money from to transform his surplus-value in money?

• The money workers receive is used to realise surplus-value before it eventually flows back to the capitalist through sale of her commodities. However, the longer the time difference between advance and flowing back the more money the capitalist must have: our capitalist hence does not need less but more money. Furthermore, the money a worker spends on her means of subsistence do realise surplus-value as a part of the commodity, but only as a part. They cannot realise all surplus-value of the capitalist class.

• When fixed capital is purchased a lot of money is thrown into circulation, which only flows back slowly. Cannot this sum of money suffice to realise surplus-value? However, when fixed capital is purchased then the full value is paid for. The surplus-value of fixed capital, too, is realised and the question is where the money for that realisation comes from.

The abstract answer was already given:

407:2 The general answer has already been given: if a mass of commodities of $x$ times £1,000 is to circulate, it in no way affects the quantity of money needed for this circulation whether the value of this commodity mass contains surplus-value or not, or whether the mass of commodities is produced under capitalist conditions or not. Thus the problem itself does not exist. […] In as much as a problem does exist here, it coincides with the general problem: where does the sum of money needed in a country for the circulation of commodities come from?

The value composition of commodities does not affect the amount of money required to circulate them. The problem is merely a special instance of the amount of money require to circulate commodities in society.

To be more concrete, recall that the capitalist as a capitalist advances money for wages and for means of production, not more. Also, there are no other people who throw money into circulation except for capitalists (or those who participate in their surplus-value). Workers are only secondary sources of value as their money was money capital destined for being variable capital before. It must therefore be the capitalists who throw all money into circulation in the first place.

Yet, they only advance £500 but withdraw £600. The problem only exists because we only consider the capitalist as a capitalist: the riddle is solved by realising that capitalists too must live and spend money on this.

409:1 In point of fact, paradoxical as it may seem at the first glance, the capitalist class itself casts into circulation the money that serves towards the realization of the surplus-value contained in its commodities. But note well: it does not cast this in as money advanced, and therefore not as capital. It spends it as means of purchase for its individual consumption. Thus the money is not advanced by the capitalist class, even though this class is the starting-point of its circulation.

During the first production phase capitalists eat too. They might advance £500 and realise £600, but they also spend an addition £100 on their individual consumption. In the second turnover the same happens again except that those additional £100 represent surplus-value.

Money Production (Cont.)

With this in mind, capitalist money production represents no difficulty.

While for gold producers the relation of putting money into circulation and withdrawing it is the other way around from normal producers, i.e. they permanently put more money into circulation than they withdraw, the surplus-value contained in their products has nothing to do with the above problem.

While the total gold product of gold producers contains surplus-value, it is merely destined to replace that money which was consumed by wear and tear. How much of the gold product realises surplus-value or other value components is irrelevant. It is not surplus-value of gold producers which allows the other producers to realise their surplus-value; the surplus-value of gold producers and what their commodities are used for are two different things.

Quantity of Money and Wage

If the division of the value product in wage and surplus-value changes, this does not require a change in the money quantity. A capitalist must pay more for wages but she pays that out of her surplus-value. Neither the prices of commodities rise nor the circulating mass of money changes.

Against this, one could object in two ways:

1. Workers have more money so there is an increased demand for means of subsistence and those luxury items that workers can now afford. Consequently, the price of these commodities rises. Yet, on the other hand, prices for luxury items beyond the reach of workers will drop because capitalists do not purchase them any more. As a consequence more capital will be invested in means of subsistence and affordable luxury items which implies dropping prices for those commodities. There are some turbulences, but in the end all remains the same.

2. If wages rise, capitalists simply raise prices. This implies, however, that capitalists can simply raise prices as it pleases them. Why object to unions and engage in class struggle in the factory when they can simply increase prices until the ratio is right again. The second objection hence is based on the assertion that capitalist are free from the law of value.

It is not true that higher wages imply an increase in the amount of money circulating in society. However, that people arrive at this theory is based in reality.

1. 415:2 It is a general law of monetary circulation that, if the sum of the prices of goods in circulation rises […] with other circumstances remaining the same, the quantity of money in circulation grows. The effect is then taken for the cause. However, wages rise […] with the increased price of the necessary means of subsistence. Their rise is the result of the rise in commodity prices, and not the cause of this.

   When the sum of values circulating rises more money is required to circulate it (all other conditions remaining the same). Hence, if wages rise because the value of the means of subsistence rise, then at the same time the amount of money in circulation rises, but is not caused by a rise in wages.

2. Given a partial or local rise in wages — i.e. a rise in just a few branches of production — it is possible that a local rise in prices for the products of this branch may result. But even this depends on many circumstances. For example, that wages were not abnormally depressed here, and hence the rate of profit abnormally high, that the market for these commodities was not constricted by a rise in price (and thus that a rise in their prices does not depend on a preceding contraction in their supply), etc.

   This phenomenon is described but not explained here as it relies on laws to be developed later.

3. With a general rise in wages, the price of the goods produced in branches of industry in which variable capital is predominant rises, whereas prices fall in those branches in which constant or fixed capital predominates.

   This phenomenon is described but not explained here as it relies on laws to be developed later.

Turnover of Capital and Velocity of Circulation

The circulation of money (money flows from Alice to Bob to Charley) is not the same as the circuit of money (money is advanced in order to return to its origin). However, increased velocity of the circuit of money implies an increased velocity of the circulation of money.

If a capital turns over 10 times a year, then the value of its circulating capital circulates a value of 10 times its size over the year (ignoring surplus-value). The circulation of money hence increased compared to a capital that only turns over once a year, say.

However, faster circulation of money does not imply a faster turnover. The reproduction of capital might not change, but how money is involved changes, money can be used for operations which have nothing to do with industrial capital, money transactions can be avoided if a capitalist also owns something which normally is purchased (e.g. when a capitalist owns the land she produces on).

2. Accumulation and Expanded Reproduction

This leads to the question if there is a problem with money circulation under accumulation? If we assume accumulation as immediate reproduction on an extended scale — as opposed to hoarding of money to be used as money capital later — then there is no difference — in the first instance — to the previous section. 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, it changes its form, but it already exists.

Furthermore, part of the value produced by expanded reproduction can be realised with the money initially advanced: that money which realises constant and variable capital, i.e. the advanced, increased capital. It can be realised with the money advanced and thrown into circulation. However, our capital also produced an increases surplus-value, where does the money come from to realise it?

To some extent 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 this hoarded money is “new”, i.e. there simply is more money, then there is nothing to be explained. More difficult is the case when the mass of money in society remains the same. Then the circulating money is transformed into latent money capital; a hoard: sale without purchase.

If only a part of the capitalist class does this, then again there is nothing to explain. Some capitalists only sell and do not turn around and throw that money back into circulation. Another group of capitalists purchases to expand production. One group uses its hoard to extend production, the other group hoards.

However, if all capitalists hoard money at the same time, all capitalists sell without buying. There is no one who can purchase their products: workers cannot realise the whole surplus-value of the capitalist class as they only have an equivalent of their variable capital.

This works by hoarding not in the form of cash, but in form of demands of payment. In other words, it works by this case not actually happening:

1. When money is in a bank account, it is lent out by the bank. This money is not hoarded, it is in circulation. What is being accumulated are demands against the bank.

2. When money is invested in sovereign debt, it is not money that is accumulated but demands against the state and the total product of society.

3. When money is invested in stocks then not money is accumulated but demands against future profits.

Hence, what is hoarding on one end is an investment on the other end. Not all capitalists hoard at the same time, some of them invest.

423:7 If on the one hand, therefore, a part of the surplus-value realized in money is withdrawn from circulation and stored up as a hoard, at the same time a further part of the surplus-value is always transformed into productive capital. With the exception of the division of additional precious metal among the capitalist class, storage in the money form never occurs simultaneously at all points.

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). The focus here is turnover and value form: those other capitalists might have produced surplus-value but might not have realised it (value form). Additionally, when they go on and start purchasing is another question (turnover). The interlock of turnovers on a social scale hence determines the reproduction and accumulation of capital.