Part 2. Transformation of Money into Capital

The first chief function of money is to supply commodities with the material for the expression of their values, or to represent their values as magnitudes of the same denomination, qualitatively equal, and quantitatively comparable. It thus serves as a universal measure of value. Price is the money-name of the labor realized in a commodity.

Let us now accompany the owner of some commodity, let’s follow Geraldo who has bottled his family’s recipe for tequila. He sells his bottle for $35 and then he buys his daughter a stuffed animal. He never meets Hilda. He has exchanged his commodity for money, and then exchanged this money for a commodity. We can describe the circulation like this:

Commodity – Money – Commodity.
C–––––– M ––––––C.

The result of the whole process is, so far as concerns the objects themselves, C – C, the exchange of one commodity for another, the circulation of materialized social labor. When this result is attained, the process is at an end.

So what is capital?

The circulation of commodities is the starting-point of capital. The production of commodities, their circulation, and that more developed form of their circulation called commerce, these form the historical ground-work from which it rises. The modern history of capital dates from the creation in the 16th century of a world-embracing commerce and a world-embracing market. (see CAPITAL)

The simplest form of the circulation of commodities is C-M-C, the transformation of commodities into money, and the change of the money back again into commodities; or selling in order to buy. But alongside of this form we find another specifically different form: M-C-M, the transformation of money into commodities, and the change of commodities back again into money; or buying in order to sell. Money that circulates in the latter manner is thereby transformed into, becomes capital, and is already potentially capital.

Capitalism requires commodities.

The expansion of value, which is the objective basis or main-spring of the circulation M-C-M, becomes the capitalist’s subjective aim, and it is only in so far as the appropriation of ever more and more wealth in the abstract becomes the sole motive of his operations, that he functions as a capitalist. Use-values must therefore never be looked upon as the real aim of the capitalist; neither must the profit on any single transaction. The restless never-ending process of profit-making alone is what he aims at. This boundless greed after riches, this passionate chase after exchange-value is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser.

How is it that one can buy a commodity and sell it for more than what one paid for it? What kind of commodity allows that? The change of value that occurs in the case of money intended to be converted into capital, cannot take place in the money itself, since in its function of means of purchase and of payment, it does no more than realize the price of the commodity it buys or pays for; and, as hard cash, it is value petrified, never varying. Just as little can it originate in the second act of circulation, the re-sale of the commodity, which does no more than transform the article from its bodily form back again into its money-form. In order to be able to extract value from the consumption of a commodity, our friend, Moneybags, must be so lucky as to find a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labor, and, consequently, a creation of value. The possessor of money does find on the market such a special commodity in capacity for labor or labor-power. (see LABOR POWER)

By labor-power or capacity for labor is to be understood the aggregate of those mental and physical capabilities existing in a human being, which he exercises whenever he produces a use-value of any description

But in order that our owner of money may be able to find labor-power offered for sale as a commodity, various conditions must first be fulfilled. FIRST, labor-power can appear upon the market as a commodity, only if, and so far as, its possessor, the individual whose labor-power it is, offers it for sale, or sells it, as a commodity. The owner of the labor-power should sell it only for a definite period, for if he were to sell it rump and stump, once for all, he would be selling himself, converting himself from a free man into a slave, from an owner of a commodity into a commodity.

SECOND, the laborer instead of being in the position to sell commodities in which his labor is incorporated, must be obliged to offer for sale as a commodity that very labor-power, which exists only in his living self.

For the conversion of his money into capital, therefore, the owner of money must meet in the market with the free laborer, free in the double sense, that as a free man he can dispose of his labor-power as his own commodity, and that on the other hand he has no other commodity for sale, is short of everything necessary for the realization of his labor-power.

This relation has no natural basis, neither is its social basis one that is common to all historical periods. It is clearly the result of a past historical development, the product of many economic revolutions, of the extinction of a whole series of older forms of social production.

So, too, the economic categories, already discussed by us, bear the stamp of history. Definite historical conditions are necessary that a product (including labor power) may become a commodity.

How is the value of the commodity labor-power determined? Labor-power exists only as a capacity, or power of the living individual. The value of labor-power is the value of the means of subsistence necessary for the maintenance of the laborer. If the owner of labor-power works to-day, to-morrow she must again be able to repeat the same process in the same conditions as regards health and strength. Her means of subsistence must therefore be sufficient to maintain her in her normal state as a laboring individual. Her natural wants, such as food, clothing, fuel, and housing, vary according to the climatic and other physical conditions of her country. The value must also include reproduction (enough to raise the next generation of workers) and education and training.

Like that of every other commodity, labor-power’s value is already fixed before it goes into circulation, since a definite quantity of social labor has been spent upon it; but its use-value consists in the subsequent exercise of its force. The alienation of labor-power and its actual appropriation by the buyer, its employment as a use-value, are separated by an interval of time.

In all cases, therefore, the use-value of the labor-power is advanced to the capitalist: the laborer allows the buyer to consume it before he receives payment of the price; he everywhere gives credit to the capitalist. The labor-power is sold, although it is only paid for at a later period.

Mr. Knight, who before was the money-owner, now strides in front as capitalist; Hilda follows as his laborer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing her own hide to market and has nothing to expect but – a hiding.