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Marx’s General Formula for Capital

February 2nd, 2009

In Chapter 4 of Capital, Marx begins to discuss the transformation of money into capital.

Marx imagines two sorts of abstract circuits of exchange: C-M-C’ and M-C-M’. In the former, Peter brings to market a commodity, C, and sells it in exchange for money, which he then uses to purchase another commodity, C’. In the latter, Paul brings to market money, M, and sells it in exchange for a commodity, C, which he then sells in order to obtain M’.

From the former Marx concludes that, “The circuit C-M-C comes completely to an end, so soon as the money brought in by the sale of one commodity is abstracted again by the purchase of another,” which is to say that Peter has exchanged one commodity for another commodity of equal value. In the latter circuit Marx objects to the “surplus value” created by capitalist Paul, who merely exchanged £100 for £110, the difference of £10 being “surplus value”.

Now let us examine the circuit M-C-M a little closer. It consists, like the other, of two antithetical phases. In the first phase, M-C, or the purchase, the money is changed into a commodity. In the second phase, C-M, or the sale, the commodity is changed back again into money. The combination of these two phases constitutes the single movement whereby … a commodity is bought with money, and then money is bought with a commodity. The result, in which the phases of the process vanish, is the exchange of money for money, M-M. If I purchase 2,000 lbs. of cotton for £100, and resell the 2,000 lbs. of cotton for £110, I have, in fact, exchanged £100 for £110, money for money

At least two objections come immediately to mind:

  1. The M in C-M-C may at any time be either M or M’ in the circuit M-C-M, and that as such, these are not independent circuits but rather interlocking parts of a greater whole.
  2. What Marx is really describing is an arbitrageur, although painted as a thief and usurer.

In the first instance, Peter does not keep the money he receives any longer than is needed for his own security. He may of course immediately effect the C-M-C by exchanging the money he receives for another commodity item. Or, he may enter into an M-C-M circuit, exchanging the money for a commodity, to which he adds his labor over a period of time, the completed product which he expects to exchanges for M’ in the future. The farmer, for instance, spends money M on the purchase of new seeds, stock and tools with which to work the soil, in hopes of selling them in the future for M’.

Is the lack of transformation (as in the example of the farmer) what riles Marx? If so, this is barely worthy of scorn: where the farmer creates value, the arbitrageur has at the very least prevented the destruction of value, thus allowing its creator to realize value in exchange far greater than he could’ve on his own accord. The “capitalist” function in this instance is, if nothing else, Pareto efficient. One must not lose sight of the fact that the arbitrageur performs a valuable service of allocating scarce resources across an economy. Without the “capitalist” in Marx’s M-C-M circuit, the commodity is sold at a steep discount (if it is in-fact sold at all) and the most urgent need as measured by opportunity cost remains entirely unsatisfied. The problem of “surplus value”, posed by the M-C-M appears only as a result of Marx’s imaginary demarcation.

In the real world, C-M-C and M-C-M, are indistinguishable parts of a complex economy, in which economizing individuals are to some extent, constantly in the midst of performing both roles.  Even Marx’s vulgar capitalist holds and acquires money in order to satisfy some future need to consume.

Or, to put it another way, even the vulgar capitalist, at some time in the past had to provide valuable goods; he had to contribute materially to the economy in order to earn that first chunk of money, which Marx scorns.  What he does with it after that is of no man’s concern but his own.

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  • The Fish says on: June 4, 2010 at 12:09 pm

     

    Hmmm I think this an argument against a strawman rather than Marx’s analysis.

    It’s odd to me that you would deny a difference between selling a commodity to get money to buy something else for consumption (C-M-C) and buying commodities to sell them with the goal of making additional money (M-C-M). Obviously these are knit together in a complex web of social relations…..does that mean that it’s impossible to analyze separate stages or parts of these complex social relations?

    Marx explains these stages as not somehow “independent circuits” (how could they possibly be independent?) but as differentiated by their respective goals: “The path C-M-C proceeds from the extreme constituted by one commodity, and ends with the extreme constituted by another, which falls out of circulation and into consumption. Consumption, the satisfaction of needs, in short use-value, is therefore its final goal. The path M-C-M, however, proceeds from the extreme of money and finally returns to that same extreme. Its driving and motivating force, its determining purpose, is therefore exchange-value.” – Capital Chapter 4

    Would you disagree that there have been historical periods where money mainly served the function of mediating the exchange of commodities (C-M-C)? I see this as a fact that for instance in 1500’s feudal European economies almost all use of money was for commodity exchange (i.e. no concern to surplus value) except for an extreme minority of merchants who did want to make a profit (Marx calls this merchant’s capital.)

    I’m also interested in where you see Marx “objecting” to surplus-value….I more see him as arguing that it does exist rather than polemicizing against it or something, but maybe I’m miss things. For Marx to be saying that surplus-value or merchant capital is just “bad” would be definitely pretty dumb and pointless….but he’s analyzing what it is rather than saying that it sucks. Where is he “riled” exactly? Assuming that he is leads you to argue that actually what he calls a merchant capitalist (had to google arbitrageur) “performs a valuable service of allocating scarce resources across an economy”…… something else that Marx doesn’t dispute, and in fact specifically analyzes exactly what value that has and how merchant capital evolved out of C-M-C.

    In what way does “The problem of “surplus value”, posed by the M-C-M appears only as a result of Marx’s imaginary demarcation?” Surplus-value (also known as profit) is a fact of capitalist life, in fact the central one that every business must keep in mind. It’s also called “the bottom line”, because if your M’ is smaller than your M then you’ve gone below the line of profitability and you’re gonna go out of business. My boss tells me about this constantly.

    This blows my mind: “Or, to put it another way, even the vulgar capitalist, at some time in the past had to provide valuable goods; he had to contribute materially to the economy in order to earn that first chunk of money, which Marx scorns. What he does with it after that is of no man’s concern but his own.”

    Or couldn’t he have stolen it (say from a colony somewhere), or inherited it? Obviously some people “pull themselves up by their bootstraps” but this Ayn Randian myth represents the vast minority of modern capitalists IMHO. You really think that what people do with their money is no man’s concern but his own? This seems to fly in the face of the interconnectedness of the economy that you were talking about earlier, which would definitely make it our concern what Bill Gates or the majority shareholders in BP do with their money, even if you don’t agree that we should expropriate them.

    I’d suggest that you check out the sections on labor-power, where the Marxist arguments about exploitation I think you’ve heard of and are arguing against here are actually deployed. He doesn’t view merchant capital as exploitative so it’s kinda misplaced here. I’m in a Capital study group with a group of activists so I was excited to read some counterarguments, thanks for putting them out there!

    • David Z says on: June 5, 2010 at 2:33 pm

       

      Hi – thanks for stopping by and hopefully I can clarify or respond to some of the points you raise.

      I’m also interested in where you see Marx “objecting” to surplus-value…

      I did not mean that Marx “objects” to, or doesn’t believe in, the concept of surplus value. Isn’t the withholding of “surplus value” the manifestation of exploitation? I think it is fair to say that Marx objects to the manner in which surplus value is distributed among the factors of production — an argument with which I don’t disagree.

      Surplus-value (also known as profit) is a fact of capitalist life,

      I believe that surplus value is fact of life. It is not unique to “capitalism”. The creation of surplus value, productivity is necessary for life.

      Or couldn’t he have stolen it (say from a colony somewhere), or inherited it? Obviously some people “pull themselves up by their bootstraps” but this Ayn Randian myth represents the vast minority of modern capitalists IMHO.

      Yes, he could’ve stolen it (this objection is a strawman), in which case he’s a thief first and should be treated as such. I do not think you will find anything here which would argue the contrary. Conceded, the productive ‘capitalist’ or ‘entrepreneur’ represents the minority of modern capitalists, most of whom owe their existence and fortunes to the state which enables them.

      I do not have any qualms about a man or woman receiving inheritance, provided that inheritance was justly acquired in the first place (i.e., it was not stolen, etc.)

      You really think that what people do with their money is no man’s concern but his own?

      To a degree. If I make some money, assuming that I’m not deploying it for explicitly violent purposes, it’s not anyone’s business. Maybe I want to wipe my ass with it. Maybe I want to reinvest it. Maybe I want to spend it on hookers and booze. It’s not your money, it’s not the product of your labor, so you don’t get to tell me what I can do with it.

no third solution

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