At a certain stage in the development of commodity production, money is transformed into capital. The formula of commodity circulation was: C (commodity) – M (money) – C (commodity), i.e., the sale of one commodity in order to purchase another. The general formula of capital is, on the contrary, M – C – M, i.e., purchase in order to sell (at a profit). Marx calls surplus-value this increase in the initial value of the money set in circulation. The fact of this "growth" of money in capitalist circulation is universally known. It is precisely this "growth" that transforms money into capital, as a particular, historically determined, social relation of production. Surplus-value cannot arise from commodity circulation, because it knows only the exchange of equivalents; it cannot arise from a markup in price, because the mutual losses and gains of buyers and sellers would be balanced out, whereas we are dealing precisely with a mass, average, social phenomenon, and not an individual one. In order to obtain surplus-value, "the owner of money must find on the market such a commodity whose use-value itself possesses the original property of being a source of value"{70}, such a commodity whose process of consumption would at the same time be a process of creation of value. And such a commodity exists. This is human labor-power. The consumption of it is labor, and labor creates value. The owner of money purchases labor-power at its value, determined, like the value of any other commodity, by socially-necessary labor-time required for its production (i.e., by the cost of maintenance of the worker and his family). Having purchased labor-power, the owner of money has the right to consume it, i.e., to compel it to work the whole day, say, for 12 hours. Meanwhile, the worker during 6 hours ("necessary" labor-time) creates a product that covers his maintenance, and during the next 6 hours ("surplus" labor-time) creates an unpaid "surplus" product or surplus-value. Consequently, in capital, from the point of view of the process of production, one must necessarily distinguish two parts: constant capital, expended on means of production (machines, implements of labor, raw material, etc.) – its value (immediately or in parts) passes unchanged into the finished product – and variable capital, expended on labor-power. The value of this capital does not remain unchanged, but increases in the process of labor, creating surplus-value. Therefore, to express the degree of exploitation of labor-power by capital, one must compare surplus-value not with the whole capital, but only with variable capital. The rate of surplus-value, as Marx calls this ratio, will be, for example, in our example 6/6, i.e., 100%.

The historical presupposition for the origin of capital is, in the first place, the accumulation of a certain sum of money in the hands of individual persons at a comparatively high level of development of commodity production in general, and in the second place, the existence of a "free" worker in a twofold sense – free from all restrictions or limitations on the sale of labor-power and free from land and generally from means of production, a destitute worker, a "proletarian" worker, who has nothing with which to exist except by the sale of labor-power.

The increase of surplus-value is possible by two basic methods: by the lengthening of the working day ("absolute surplus-value") and by the shortening of the necessary working day ("relative surplus-value"). Analyzing the first method, Marx unfolds a grandiose picture of the struggle of the working class for the reduction of the working day and the intervention of state power for the lengthening of the working day (fourteenth to seventeenth centuries) and for its reduction (factory legislation of the nineteenth century). After "Capital" appeared, the history of the labor movement of all civilized countries of the world furnished thousands and thousands of new facts illustrating this picture.

Analyzing the production of relative surplus-value, Marx investigates three basic historical stages of the increase in labor productivity under capitalism: 1) simple cooperation; 2) the division of labor and manufacture; 3) machinery and large-scale industry. How profoundly Marx has laid bare here the fundamental, typical features of the development of capitalism can be seen, among other things, from the fact that investigations of so-called Russian "cottage" industry provide the richest material for the illustration of the first two of the three named stages. And the revolutionizing effect of large-scale machine industry, described by Marx in 1867, has manifested itself over the half-century that has elapsed since then in a whole series of "new" countries (Russia, Japan, etc.).

Furthermore. Extremely important and new is Marx's analysis of the accumulation of capital, i.e., the transformation of part of surplus-value into capital, its use not for the personal needs or whims of the capitalist, but for new production. Marx revealed the error of all previous classical political economy (beginning with Adam Smith), which assumed that all surplus-value transformed into capital goes into variable capital. In reality, it is divided into means of production plus variable capital. A tremendous significance in the process of the development of capitalism and its transformation into socialism lies in the more rapid growth of the share of constant capital (in the total sum of capital) compared with the share of variable capital.

The accumulation of capital, accelerating the displacement of workers by machinery, creating wealth at one pole and destitution at the other, also gives rise to the so-called "reserve army of labor," "relative overpopulation" of workers or "capitalist overpopulation," which assumes extremely diverse forms and gives capital the opportunity to expand production at an extraordinarily rapid rate. This possibility, in connection with credit and the accumulation of capital in means of production, provides, among other things, the key to understanding crises of overproduction, which periodically occurred in capitalist countries at first on an average every ten years, then at longer and less definite intervals. From the accumulation of capital on the basis of capitalism must be distinguished the so-called primitive accumulation: the violent separation of the worker from means of production, the expulsion of peasants from the land, the theft of communal lands, the system of colonies and state debts, protective tariffs, etc. "Primitive accumulation" creates at one pole a "free" proletarian, at the other a owner of money, a capitalist.

Marx characterizes "the historical tendency of capitalist accumulation" in the following famous words: "The expropriation of the immediate producers is carried out with every degree of ruthless vandalism, and under the impulse of the most infamous, the most sordid, the most meager and the most odious of passions. Private property, earned by the labor of the proprietor" (peasant and craftsman), "based, so to speak, on the union of the independent worker with his means of production, is supplanted by capitalistic private property, which rests on exploitation of another's, but formally free, labor-power… Now expropriable is no longer the worker who labors for himself, but the capitalist who exploits many workers. This expropriation is accomplished through the play of immanent laws of capitalist production itself, through the centralization of capitals. One capitalist strikes down many capitalists. Along with this centralization or expropriation of many capitalists by few develops the cooperative form of the labor process on an ever-increasing scale; the conscious technical application of science, the methodical cultivation of the soil, the transformation of the means of labor into forms admitting only collective use, the economizing of all means of production by their employment as the means of production of combined, socialized labor, the entanglement of all peoples in the net of the world market, and consequently the international character of the capitalist regime. As the number of capitalist magnates, who usurp and monopolize all the benefits of this transformation, diminishes, the mass of misery, oppression, slavery, degradation, and exploitation increases; but with this there grows the revolt of the working class, a class always increasing in numbers, and schooled, united, and organized by the very mechanism of the capitalist process of production itself. Monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralization of the means of production and socialization of labor at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated." ("Capital," I){71}.

Extremely important and new, furthermore, is the analysis given by Marx in Volume II of "Capital" of the reproduction of social capital taken as a whole. And here too Marx takes not an individual, but a mass phenomenon, not a fraction of a portion of the economy, but this whole economy in its totality. Correcting the error of the classics mentioned above, Marx divides all social production into two great departments: I) production of means of production and II) production of articles of consumption, and discusses in detail, using numerical examples of his own devising, the circulation of all social capital as a whole, both in simple reproduction at the same scale and in reproduction with accumulation. In Volume III of "Capital" the question of the formation of the average rate of profit on the basis of the law of value is resolved. A great step forward for economic science, in the person of Marx, is that the analysis is conducted from the point of view of mass economic phenomena, the whole aggregate of social economy, and not from the point of view of isolated cases or the external surface of competition, with which vulgar political economy or the contemporary "theory of marginal utility" often limits itself. First Marx analyzes the origin of surplus-value and then passes to its distribution into profit, interest, and ground-rent. Profit is the ratio of surplus-value to the whole capital invested in an enterprise. Capital of "high organic composition" (i.e., with a predominance of constant over variable capital in proportions above the social average) yields a rate of profit below the average. Capital of "low organic composition" – above the average. Competition between capitals, the free transition of capital from one branch of production to another, will in both cases bring the rate of profit to the average. The sum of the values of all commodities of a given society coincides with the sum of the prices of commodities, but in individual enterprises and individual branches of production, commodities, under the influence of competition, are sold not at their values, but at prices of production (or production prices), which equal the capital expended plus average profit.

Thus the universally known and undisputed fact of the divergence of prices from values and the equalization of profit is completely explained by Marx on the basis of the law of value, because the sum of the values of all commodities coincides with the sum of prices. But the reduction of value (social) to prices (individual) occurs not in a simple, not an immediate way, but in a very complex manner: it is entirely natural that in a society of scattered commodity-producers connected only by the market, regularity can manifest itself only as average, social, mass regularity, with the mutual cancellation of individual deviations in one direction or another.

An increase in labor productivity means a more rapid growth of constant capital compared with variable capital. And since surplus-value is a function of variable capital alone, it is clear that the rate of profit (the ratio of surplus-value to all capital, not to its variable part only) has a tendency to fall. Marx analyzes this tendency in detail and the series of circumstances that conceal it or act against it. Without dwelling on the transmission of the extremely interesting sections of Volume III devoted to usurer's, merchant's, and money capital, we shall pass to the most important matter: to the theory of ground-rent. The price of production of agricultural products, by virtue of the limitation of the area of land, which is entirely occupied by individual owners in capitalist countries, is determined by the cost of production not on average, but on the worst soil, not under average conditions but under the worst conditions of delivery of the product to market. The difference between this price and the price of production on better soils (or under better conditions) gives differential or differentiated rent. Analyzing it in detail, showing its origin in the difference in fertility of individual plots of land, in the difference in the amounts of capital invested in land, Marx completely exposed (see also "Theories of Surplus-Value," where the criticism of Rodbertus deserves special attention) the error of Ricardo, namely that differential rent is obtained only with successive transition from better lands to worse lands. On the contrary, there are also reverse transitions, there is the transformation of one category of lands into another (by virtue of progress in agricultural technique, the growth of cities, etc.), and a profound error, a foisting upon nature of the deficiencies, limitations, and contradictions of capitalism, is the notorious "law of the diminishing fertility of the soil." Furthermore, equality of profit in all branches of industry and economy in general presupposes complete freedom of competition, freedom of the flow of capital from one branch to another. Meanwhile, private property in land creates a monopoly, an obstacle to this free flow. By virtue of this monopoly, the products of agriculture, distinguished by lower organic composition of capital and consequently individually higher rate of profit, do not go into the completely free process of equalization of the rate of profit; the landowner, as a monopolist, gains the opportunity to hold the price above the average, and this monopoly price gives rise to absolute rent. Differential rent cannot be eliminated under the existence of capitalism; absolute rent, however, can be – for example, through nationalization of land, through its transition into the ownership of the state. Such a transition would mean the undermining of the monopoly of private owners, would mean more consistent, more complete carrying out of freedom of competition in agriculture. And therefore radical bourgeois, Marx notes, have repeatedly appeared in history with this progressive bourgeois demand for the nationalization of land, which, however, frightens the majority of the bourgeoisie, because it too closely "touches" another, in our day especially important and "sensitive" monopoly: the monopoly of the means of production in general. (Remarkably popular, concise, and clearly, Marx himself expounded his theory of average profit on capital and absolute ground-rent in a letter to Engels of August 2, 1862. See "Correspondence," Vol. III, pp. 77–81. See also the letter of August 9, 1862, ibid., pp. 86–87){72}. – On the history of ground-rent it is also important to note Marx's analysis showing the transformation of labor-rent (when the peasant by his labor on the landowner's land creates a surplus product) into rent in kind or in produce (the peasant on his own land produces a surplus product, giving it to the landowner by virtue of "extra-economic compulsion"), then into money-rent (the same rent in kind, transformed into money, the "obrok" of old Russia, by virtue of the development of commodity production), and finally into capitalist rent, when in place of the peasant appears an entrepreneur in agriculture, conducting cultivation by means of hired labor. In connection with this analysis of "the genesis of capitalist ground-rent," one should note a series of profound (and especially important for backward countries, such as Russia) thoughts of Marx on the evolution of capitalism in agriculture. "To the transformation of rent in kind into money-rent, not only does the formation inevitably accompany it, but even precedes it of a class of destitute day-laborers hired for money. During the period of the genesis of this class, when it appears as yet only sporadically, among the wealthier peasants obligated to pay obrok, there naturally develops the custom of utilizing, at their own cost, rural hired laborers—quite analogously to the way that, in feudal times, well-to-do serf-peasants themselves, in turn, held serfs. In these peasants there gradually develops, accordingly, the capacity to accumulate a certain amount of property and themselves to transform into future capitalists. Accordingly, among the old independent landowners, there arises, in this way, a nursery for capitalist tenant farmers, whose development is conditioned by the general development of capitalist production outside of agriculture" ("Capital," III, 332){73}… "The expropriation and displacement from the soil of a part of the rural population not only sets free for the industrial capital the workers, their means of subsistence, and their implements of labor, but also creates a home market" ("Capital," I, 778){74}. The impoverishment and ruin of the rural population plays, in turn, a role in creating the reserve army of labor for capital. In every capitalist country "a part of the rural population is therefore constantly in the state of transition into an urban or manufacturing (i.e., non-agricultural) population. This source of relative surplus population flows continuously… The rural laborer is depressed to the minimum of wages, and ever stands with one foot in the swamp of pauperism" ("Capital," I, 668){75}. The private property of the peasant in the land he cultivates is the basis of small-scale production and the condition of its flourishing, of it acquiring its classical form. But this small-scale production is compatible only with narrow, primitive limits of production and society. Under capitalism, "the exploitation of the peasantry is distinguished from that of the industrial proletariat only in form. The exploiter is the same—capital. Individual capitalists exploit individual peasants through mortgages and usury; the class of capitalists exploits the class of peasants through state taxes" ("The Class Struggles in France"){76}. "The peasant's parcel is merely a pretext for the capitalist to extract from the land profit, interest and rent, leaving it to the peasant to extract, as best he can, his own wages" ("The Eighteenth Brumaire"){77}. Usually the peasant even surrenders to capitalist society, i.e., to the class of capitalists, a part of his wages, sinking "to the level of the Irish tenant-farmer—under the mask of a private owner" ("The Class Struggles in France"){78}. In what does "one of the causes consist that in countries with predominant small peasant landed property the price of grain stands below that in countries with the capitalist mode of production"? ("Capital," III, 340). In the fact that "the peasant surrenders to society (i.e., to the class of capitalists) gratuitously a portion of the surplus product. Consequently, such a low price (of grain and other agricultural products) is a consequence of the poverty of the producers, and not in any case a result of the productivity of their labor" ("Capital," III, 340). Small landed property, the normal form of small-scale production, is degraded, destroyed, annihilated under capitalism. "Small landed property, by its very nature, excludes: the development of the social productive forces of labor, the social forms of labor, the social concentration of capital, stock-raising on a large scale, the ever-growing application of science. Usury and the tax system necessarily lead everywhere to its impoverishment. The expenditure of capital on the purchase of land withdraws this capital from use for the improvement of the land. The endless fragmentation of the means of production and the separation of the producers themselves." (Cooperative associations, i.e., partnerships of small peasants, playing an extremely progressive bourgeois role, only weaken this tendency, but do not eliminate it; one must also not forget that these cooperatives give much to the prosperous peasants and very little, almost nothing, to the masses of the poor, and then the associations themselves become exploiters of wage labor.) "Gigantic squandering of human labor-power. The ever-increasing deterioration of the conditions of production and rise in the cost of the means of production is the law of small (parceled) property"{79}. Capitalism, both in agriculture as in industry, transforms the process of production only at the cost of "the martyrology of the producers." "The scattering of rural workers over large areas breaks their power of resistance, whereas the concentration of urban workers increases it. In modern, capitalist agriculture, as in modern industry, the increase in the productive power of labor and its greater mobility are bought at the cost of the destruction and exhaustion of labor-power itself. Moreover, every advance of capitalist agriculture is not only an advance in the art of robbing the worker, but also in the art of robbing the soil… Capitalist production, therefore, develops technique and the combination of the social process of production only by simultaneously undermining the original sources of all wealth: the soil and the worker" ("Capital," I, end of Chapter 13){80}.