Marx here addresses the problem of how money is transformed into capital. He says that he must explain how someone can buy commodities at their value, sell them at their value, and also make a profit. The change in value cannot occur in the money itself, or in the resale of the commodity. Rather, the change must occur in the first act of circulation (Money to Commodity, or M-C). The commodity's use-value must be a source of value whose consumption is a creation of value. This occurs in the case of labor-power.
However, there are necessary social conditions in order for labor-power to be a commodity. First, the individual must be selling his labor-power as a commodity. This means he must own his own person, and he and the owner of money must meet in the marketplace as legal equals. In order to treat his labor as his property, he must be willing to put it at the buyer's disposal. This means that the laborer alienates himself from his labor, in order to claim his rights to it. Second, a person must not be able to sell the commodities that his labor has created. Rather, he must be forced to sell his own labor-power. This will only happen when the laborer does not own the means of production. For example, a person can't make boots without leather. He also can't make boots if he can't afford to buy food until the boots are finished. In these cases, the person will have to sell his labor-power to someone else, who will provide the leather or the food.
While Marx will not explore here why it is that some people own money while others only own their own labor-power, he does observe that this situation is not natural. It is "the product of many economic revolutions, of the extinction of a whole series of older formations of social production." Furthermore, the existence of capital is rooted in historical pre-conditions that took all of the world's history to develop. It "announces from the outset a new epoch in the process of social production."
How, then, is labor-power's value determined? Labor-power's value comes from the amount of labor-time needed to produce and reproduce itself. "The value of labor-power is the value of the means of subsistence necessary for the maintenance of its owner." There are therefore historical and moral elements to this definition, because we have to define what subsistence means. The means of subsistence must be paid for by the worker's income. If the price of labor-power falls below the cost of subsistence, then it falls below its value, since the labor-power cannot be maintained at a normal rate.
Marx spends a lot of time discussing the ways in which capitalism is rooted in social institutions. Capitalism is not natural, but rather depends upon social structures, such as property laws. One social factor that is very important for Marx's theory is that the workers don't own the means of production. Because of this, they must sell their labor to others. It is precisely because workers do own their own labor that they are able to give up all claims to it, by selling it as property. As a result, they don't own the commodities they produce; somebody else owns their labor and the products of that labor. The result is that workers become alienated from their labor—they do not control or own what they create. In Marx's framework, labor-power is a commodity in the market. Its value is determined in the same way as for other commodities, and it is used by capitalists as another commodity in the production process.
Marx's labor theory of value becomes very important when looking at the commodity of labor-power. A hammer's value comes from the amount of labor put into it. What, then, is labor-power's value? Marx applies the definition of value—its value is the amount of labor needed to produce and sustain labor-power. Or more simply, it is the amount of labor needed to keep the laborer alive and functioning at his capacity. Let's say that a worker needs $100/week to survive and function. The value of his labor-power is, therefore, $100/week as well. A worker's "price" (his wage) must be at least $100/week in order for the worker to be paid at value. This concept will be very important in later chapters, when Marx will try to show that it is possible to exploit labor.