1. THE GENERAL FORMULA FOR CAPITAL 

Commodity circulation is the starting point of capital. Hence 
commodity production, commodity circulation and the latter’s 
developed form, commerce, are always the historical groundwork 
from which capital arises. The modern history .of capital dates 
from the creation of modern world trade and the world market in 
the sixteenth century. (P. 106.) 

If we consider only the economic forms produced by commodity 
circulation, we find that its final product is money, and the latter 
is the first form in which capital appears. Historically, capital 
invariably confronts landed property at first as moneyed wealth, 
merchant capital or usurer’s capital, and even today all new capital 
first comes on the stage in the shape of money that by definite 
processes has to be transformed into capital. 

Money as money and money as capital differ, to begin with, only 
‘in their form of circulation. Alongside C—M—C, the form 
M-—C—M, buying in order to sell, also occurs. Money that 
describes this form of circulation in its movement becomes capital, 
is already capital in itself (i.e., by its destination). 

The result of M—C—M is M—M, the indirect exchange of 
money for money. I buy cotton for £100 and sell it for £110; 
ultimately I have exchanged £100 for £110, money for money. 

If this process yielded at its outcome the same money-value that 
was originally put into it, £100 out of £100, it would be absurd. 
Yet whether the merchant realises £100, £110, or merely £50 for 

his £100, his money has described a specific movement quite 
different from that of commodity circulation, C—-M—C. From 
the examination of the differences in form between this movement 
and C—M—C the difference in content will also be found. 

The two phases of the process taken separately are the same as 
in C—M—C. But there is a great difference in the process as a 
whole. In C—M-—C money constitutes the intermediary, the 
commodity the starting point and the finish; in this case the 
commodity is the intermediary, with money the starting point and 
the finish. In C—M-—C the money is spent once for all; in 
M—C—M it is merely advanced, it is to be got back again. It flows 
back to its starting point. Here, therefore, is already a palpable 
difference between the circulation of money as money and money 
as capital. 

In C—M-—C money can return to its starting point only 
through the repetition of the whole process, through the sale of fresh 
commodities. Hence the reflux is independent of the process itself. 
In M—C—M, on the other hand, it is conditioned from the 
outset by the structure of the process itself, which is incomplete if 
the reflux fails. (P. 110.) 

The ultimate object of C—M—C is use-value, that of M—C—M 
exchange-value itself. 

In C—Mw—C both extremes possess the same definiteness of 
economic form. Both are commodities, and of equal value. But at the 
same time they are qualitatively different use-values, and the 
process has social interchange of matter as its content. In M— 
C—M the operation, at first glance, seems tautological, meaning- 
less. To exchange £100 for £100, and in a roundabout way to 
boot, seems absurd. One sum of money is distinguishable from 
another only by its size; M-—-C—M acquires its meaning, there- 
fore, only through the quantitative difference in the extremes. More 
money is withdrawn from circulation than has been thrown 
into it. The cotton bought for £100 is sold, say, for £100+£10; 
the process thus follows the formula M-—C—M"', where 
M’'=M+AM. This AM, this increment is surplus-value. The value 
originally advanced not only remains intact in circulation, but adds to 
itself a surplus-value, expands itself—and this movement converts 
money into capital. 

In C—M—C there may also be a difference in the value of the 
extremes, but it is purely accidental in this form of circulation, and 
C—M—C does not become absurd when the extremes are 
equivalent—on the contrary, this is rather the necessary condition 
for the normal process. 

The repetition of C—M—C is regulated by an ultimate object 
outside itself: consumption, the satisfaction of definite needs. In 
M—C-—M, on the other hand, the beginning and the end are the 
same, money, and that already makes the movement endless. 
Granted, M+AM differs quantitatively from M, but it too is 
merely a limited sum of money; if it were spent, it would no 
longer be capital; if it were withdrawn from circulation, it would 
remain stationary as a hoard. Once the need for expansion of 
value is given, it exists for M’ as well as for M, and the movement 
of capital is boundless, because its goal is as much unattained at 
the end of the process as at the beginning. (Pp. 111-13.) As the 
representative of this process, the owner of money becomes a 
capitalist. 

If in commodity circulation the exchange-value attains at most a 
form independent of the use-value of a commodity, it suddenly 
manifests itself here as a substance in process, endowed with motion of its 
own, for which commodity and money are mere forms. More than that, as 
original value it is differentiated from itself as surplus-value. It becomes 
money in process, and as such, capital. (P. 116.) 

M—C—M' appears indeed to be a form peculiar to merchant 
capital alone. But industrial capital, too, is money which is 
converted into commodities, and by the latter’s sale reconverted 
into more money. Acts that take place between purchase and sale, 
outside the sphere of circulation, effect no change in this. Lastly, in 
interest-bearing capital, the process appears directly as M—M; 
value that is, as it were, greater than itself. (P. 117.) 

2. CONTRADICTIONS IN THE GENERAL FORMULA 

The form of circulation by which money becomes capital 
contradicts all previous laws bearing on the nature of commodities, 
of value, of money and of circulation itself. Can the purely formal 
difference of inverted sequence cause this? 

What is more, this inversion exists only for one of the three 
transacting persons. As a capitalist I buy commodities from A and 
sell them in turn to B..A and B appear merely as simple buyer 
and seller of commodities. In each of the two cases I confront 
them merely as a simple owner of money or owner of 
commodities, confronting one as buyer or money, the other as 
seller or commodity, but neither of them as a capitalist or a 
representative of something that is more than money or commodi- 
ty. For A the transaction began with a sale; for B it ended with a 

purchase, hence, just as in commodity circulation. Moreover, if I 
base the right to surplus-value upon the inverted sequence, A 
could sell to B directly and the chance of surplus-value would be 
eliminated. 

Assume that A and B buy commodities from each other 
directly. As far as use-value is concerned, both may profit; A may 
even produce more of his commodity than B could produce in the 
same time, and vice versa, whereby both would profit again. But 
otherwise with exchange-value. Here equal values are exchanged for 
each other, even if money, as the medium of circulation, 
intervenes. (P. 119.) 

Abstractly considered, only a change in form of the commodity 
takes place in simple commodity circulation, if we except the 
substitution of one use-value for another. So far as it involves only 
a change in form of its exchange-value, it involves the exchange of 
equivalents, if the phenomenon proceeds in a pure form. Com- 
modities can, indeed, be sold at prices differing from their values, 
but only when the law of commodity exchange is violated. In its 
pure form it is an exchange of equivalents, hence no medium for 
enriching oneself. (P. 120.) 

Hence the error of all endeavours to derive surplus-value from 
commodity circulation. Condillac* (p. 121), Newman” (p. 122). 

But let us assume that the exchange does not take place in a 
pure form, that non-equivalents are exchanged. Let us assume that 
each seller sells his commodity at 10 per cent above its value. 
Everything remains the same; what each one gains as a seller, he 
loses in turn as a buyer. Just as if the value of money had changed 
by 10 per cent. Likewise if the buyers bought everything at 10 per 
cent below value. (P. 123, Torrens.‘) 

The assumption that surplus-value arises from a rise in prices 
presupposes that a class exists which buys and does not sell, i.e., 
consumes and does not produce, which constantly receives money 
gratis. To sell commodities above their value to this class means 
merely to get back, by cheating, part of the money given away 
gratis (Asia Minor and Rome). Yet the seller always remains the 
cheated one and cannot grow richer, cannot form surplus-value 
thereby. 

Let us take the case of cheating. A sells to B wine worth £40 in 
exchange for grain worth £50. A has gained £10. But A and B 
together have only 90. A has 50 and B only 40; value has been 
transferred but not created. The capitalist class, as a whole, in any 
country cannot cheat itself. (P. 126.) 

Hence: if equivalents are exchanged, no surplus-value results; 
and if non-equivalents are exchanged, still no surplus-value 
results. Commodity circulation creates no new value. 

That is why the oldest and most popular forms of capital, 
merchant capital and usurers’ capital, are not considered here. If 
the expansion of merchant capital is not to be explained by mere 
cheating, many intermediate factors, lacking here as yet, are 
required. Even more so for usurers’ and interest-bearing capital. It 
will later be seen that both are derived forms, and why they occur 
historically before modern capital. 

Hence surplus-value cannot originate in circulation. But outside 
it? Outside it the commodity owner is the simple producer of his 
commodity, the value of which depends upon the quantity of his 
own labour contained in it, measured according to a definite social 
law; this value is expressed in money of account, e.g., in a price of 
£10. But this value is not at the same time a value of £11; his 
labour creates values, but not self-expanding values. It can add 
more value to existing value, but this occurs only through the 
addition of more labour. Thus the commodity producer cannot 
produce surplus-value outside the sphere of circulation without coming 
in contact with other commodity owners. 

Hence capital must originate in commodity circulation and yet 
not in it. (P. 128.) 

Thus: the transformation of money into capital has to be 
explained on the basis of the laws inherent in the exchange of 
commodities, the exchange of equivalents forming the starting 
point. Our owner of money as yet the mere chrysalis of a 
capitalist, has to buy his commodities at their value, to sell them at 
their value, and yet at the end of this process to extract more 
value than he put into it. His development into a butterfly must 
take place in the sphere of circulation and yet not in it. These are 
the conditions of the problem. Hic Rhodus, hic salta!* (P. 129.) 

3. THE BUYING AND SELLING OF LABOUR-POWER 

The change in value of money that is to be converted into 
capital cannot take place in money itself, for in buying, it merely 
realises the price of the commodity, and on the other hand, as 
long as it remains money, it does not change the magnitude of its 
value; and in selling, too, it merely converts the commodity from 
its natural form into its money-form. The change must, therefore, 
take place in the commodity of M—C—M; but not in its 
exchange-value, since equivalents are exchanged; it can only arise 
from its use-value as such, that is, from its consumption. For that 
purpose a commodity is required whose use-value possesses the 
property of being the source of exchange-value—and this does 
exist—labour-power. (P. 130.) 

But for the owner of money to find labour-power in the market 
as a commodity, it must be sold by its own possessor, that is, it must 
be free labour-power. Since buyer and seller as contracting parties 
are both juridically equal persons, labour-power must be sold only 
temporarily, since in a sale en bloc the seller no longer remains the 
seller, but becomes a commodity himself. But then the owner, 
instead of being able to sell commodities in which his labour is 
embodied, must rather be in a position where he has to sell his 
labour-power itself as a commodity. (P. 131.) 

For the conversion of his money into capital, therefore, the 
owner of money must find in the commodity market the free 
labourer, free in the double sense that as a free man he can 
dispose of his labour-power as his commodity and that, on the 
other hand, he has no other commodities to sell, has got rid of, is free 
of all things necessary for the realisation of his labour-power. 
(P. 132.) 

Parenthetically, the relation between money owner and labour- 
power owner is not a natural one, or a social one common to all 
ages, but a historical one, the product of many economic 
revolutions. So, too, do the economic categories considered up to 
now bear their historical stamp. To become a commodity, a 
product must no longer be produced as the immediate means of 
subsistence. The mass of products can assume commodity-form 
only within a specific mode of production, the capitalist mode, although 
commodity production and circulation can take place even where 
the mass of products never become commodities. Likewise, money 
can exist in all periods that have attained a certain level of 
commodity circulation; the specific money-forms, from mere 
equivalent to world money, presuppose various stages of develop- 

ment; nevertheless, a very slightly developed circulation of 
commodities can give rise to all of them. Capital, on the other 
hand, arises only under the above condition, and this one 
condition comprises a world’s history. (P. 133.) 

Labour-power has an exchange-value which is determined, like 
that of all other commodities, by the labour-time required for its 
production, and hence for its reproduction as well. The value of 
labour-power is the value of the means of subsistence necessary 
for the maintenance of its owner, that is, his maintenance in a 
state of normal capacity for work. This depends upon climate, 
natural conditions, etc., and also on the given historical stanparp oF 
tire in each country. These vary, but they are given for each 
particular country and for each particular epoch. Moreover, his 
maintenance includes the means of subsistence for his substitutes, 
i.e., his children, in order that the race of these peculiar commodity 
owners may perpetuate itself. Furthermore, for skilled labour, the 
cost of education. (P. 135.) 

The minimum limit of the value of labour-power is the value of 
the physically indispensable means of subsistence. If the price of 
labour-power falls to this minimum, it falls below its value, since 
the latter presupposes normal, not stunted, quality of labour- 
power. (P. 136.) 

The nature of labour implies that labour-power is consumed 
only after conclusion of the contract, and, as money is usually the 
means of payment for such commodities in all countries with the 
capitalist mode of production, the labour-power is paid for only 
after it is consumed. Everywhere, therefore, the labourer gives credit 
to the capitalist. (Pp. 137, 138.) 

The process of consuming labour-power is at the same time the 
process of producing commodities and surplus-value and this consump- 
tion takes place outside the sphere of circulation. (P. 140.)