Chapter 4: The General Formula for Capital
Marx says that capital's starting point is with the circulation of commodities. The ultimate product of this commodity circulation is money. We see this every day, when capital enters various markets in the form of money. Marx distinguishes two kinds of circulation. C-M-C (commodities transformed into money which is transformed back into commodities) is the direct form of circulation. In this case we sell commodities in order to buy more, and money acts as a kind of middle-man. However, there is also another form, M-C-M. In this case, we buy in order to sell; money is capital. The first phase transforms money into a commodity, the second transforms a commodity into money. Ultimately, then, we exchange money for money.
Marx then compares C-M-C and M-C-M. They are similar in that both have M-C and C-M phases, involving commodities and money, and buyers and sellers. However, in the case of C-M-C, the final product is a use-value, and thus gets spent once and for all. There is no "reflux" of money because it is lost in exchange for the product bought. In M-C-M the seller gets his money back again; the money is not spent, but rather advanced. This reflux of money occurs regardless of whether a profit is made, by the nature of the process. Use-value is the purpose of C-M-C, while exchange-value is the purpose of M-C-M. Money is indistinguishable, and it seems absurd to exchange it for itself. It is distinguishable only in amount. Thus, in M-C-M what really occurs is M-C-M', where M' = M + excess. This excess is called surplus-value. The original value adds to itself and converts the surplus value to capital.
Since M-C-M is buying in order to sell, the cycle is endless. Both M and M' have the "same vocation, to approach, by quantitative increase, as near as possible to absolute in wealth." In the end, money is again the starting point, and from M' we go to M'' and so on. Thus, the possessor of money becomes the capitalist. He is a capitalist in so far as the increase of wealth is the sole force behind his actions—in this role he is "capital personified and endowed with consciousness and a will." His aim is boundless enrichment. M-C-M' is the general formula for capital, as it appears in the sphere of circulation.
Marx introduces here the idea that money plays a very different role in modern capitalistic society than it does in traditional society. C-M-C uses money as a unit of exchange. An example would be a person who sold a hat for $30, and then used that money to buy corn. The money is instrumentally useful in trading commodities. Thus, the person with the hat doesn't have to find someone who would like to buy it with corn. Rather, he can sell the hat to someone for money, and then buy the corn from someone else with that money. The ultimate purpose of C-M-C, then, is to consume use-values (in this case the corn).
M-C-M' represents modern capitalism and is very different. Its ultimate purpose is the accumulation of money. There is a never-ending cycle, because the end product is simply more money. Here, money is properly thought of as capital. It is an end in itself, and is put out into the market to buy goods in order to sell them for more money. Notice that according to Marx, by definition a capitalist's goal is boundless enrichment. Insofar as a capitalist is not working towards that goal, he is not a capitalist.
One thing to consider when thinking about Marx's characterization of capitalism is where this capitalistic ethic came from. Marx says that capitalists have an endless need for more money, and that the system of capitalism requires and perpetuates this attitude. Even if this is true, however, it does not explain how capitalism developed in the first place. What made people view M' as an end in itself? Where does this thirst for profit come from? Marx's description does not spend a lot of time explaining how people could have come to develop these ideas. This limitation is a potential theoretical difficulty.
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