Marx’s Economic Manuscripts of 1861-63
1) Transformation of Money into Capital

b) Difficulties Arising from the Nature of Value, etc.

<"I-7">[I-7] The first examined the form of capital in which it is directly presented or appears for observation. It can, however, be easily shown that the form M—C—M, value re-entering circulation, preserving and valorising itself within it, seems utterly incompatible with the nature of money, the commodity, value and circulation itself.

Circulation, in which the commodity is now represented as commodity, now as money, involves a change of form for the commodity; the manner in which its exchange value is represented changes but the exchange value itself remains unaltered. The magnitude of its value does not change, it is not affected by this change of form. If we take a commodity, a ton of iron for example, its exchange value, the labour time contained in it, is expressed (represented) in its price, say £3. If it is now sold, it is converted into £3, into the quantity of money indicated by its price, money which contains an identical amount of labour time. Now it exists no longer as a commodity but as money, as independent exchange value. The magnitude of value remains unaltered, being the same in the one form as in the other. Only the form in which the same exchange value exists has altered. The change in the form of the commodity which constitutes circulation, buying and selling, has in itself nothing to do with the magnitude of the commodity’s value: this magnitude is rather pre-posited to circulation as a given factor. The money form is merely another form of the commodity itself, in which no change takes place in its exchange value except that it now appears in its independent form.

But in the circulation C—M—C (selling in order to buy) there is a simple confrontation of commodity owners, one of whom possesses the commodity in its original shape, the other in its converted shape as money. Like the circulation C—M—C, the circulation M—C—M contains the two acts of sale and purchase and no more. The one starts with a sale and ends with a purchase; the other starts with a purchase and ends with a sale. Each of the acts of exchange needs only to be considered for itself in order to see that the sequence of these acts cannot change their nature in any way. In the first act, M—C, what we have called capital exists only as money; in the second act, C—M, it exists only as a commodity. In both acts, therefore, it can only have the effect of money and commodity. In the first it confronts the other commodity owner as the buyer, the money owner, in the second as seller, commodity owner. If we assume that through some inexplicable circumstance the buyers have the opportunity of buying cheaper, i.e. buying the commodity at less than its value and selling it at its value or at more than its value, our man is admittedly a buyer in the first act (M—C) and would therefore buy the commodity at less than its value, but in the second act (C—M) he is a seller and another commodity owner confronts him as buyer; the latter would in turn have the privilege of purchasing the commodity from him at less than its value. What he gained with one hand would be lost with the other. If, on the other hand, one assumes that he sells the commodity at more than its value, this being a privilege enjoyed by the seller, then in the first act, before he himself acquired the commodity in order to sell it later, someone else confronted him as the seller and sold him his commodity too dear. If they all sell their commodities e.g. 10% too dear, i.e. at 10% over their value — and we have here only commodity owners confronting each other, whether they possess their commodities in the commodity or the money form; in fact they will possess them alternately in one form and then the other — then it will be exactly the same as if they sold them to each other at their real value. Similarly if they all buy the commodities at, for example, 10% under their value.

It is clear, in so far as one considers the simple use value of the commodities, that both parties can gain by the exchange. <"I-8">[I-8] In this sense it can be said that “exchange is a transaction in which both sides only gain” (Destutt de Tracy, Élémens d'idéologie. Traité de la volonté et de ses effets (forms part IV and V), Paris, 1826, p. 68. It says there:

“Exchange is an admirable transaction in which the two contracting parties always gain, both of them”).

To the extent that the whole circulation is only a mediating movement to exchange one commodity for another, each person alienates the commodity he does not need as a use value and appropriates the commodity he does need as a use value. They both gain from this process, therefore, and they only enter into it because they both gain. Yet another point: A, who sells iron and buys grain, possibly produces more iron over a given labour time than the grain farmer B could produce in the same time, and B for his part produces more grain in the same labour time than A could produce. By means of the exchange, therefore, whether mediated through money or not, A receives more grain for the same exchange value, and B more iron, than they would if the exchange had not taken place. In so far as it is a matter of the use values iron and grain, then, both sides gain by the exchange. Similarly, if we regard each of the two acts of circulation, buying and selling, in isolation, and limit our consideration to use value, both parties gain. The seller, who converts his commodity into money, gains because he now has it for the first time in a generally exchangeable form, and only thus does it become general means of exchange for him. The buyer, who converts his money back into a commodity, gains because he has taken it out of this form which is required for circulation, but is otherwise useless, and turned it into a use value for himself. There is not the slightest difficulty in understanding, therefore, that both sides gain by the exchange, in so far as it is a question of use value.

It is entirely different with exchange value. Here the reverse is the case: “Where there is equality there is no gain”

(Galiani, Della moneta, Custodi. Autore etc, Parte Moderna, Vol. IV, [p.] 244... “Dove è eguaglità, non è lucro”).

It is clear that if A and B exchange equivalents, quantities of exchange value or objectified labour time of equal magnitude, whether in the form of money or of commodities, they both bring back from the exchange the same exchange value as they threw into it. If A sells his commodity at its value, he now possesses in the form of money the same quantity of objectified labour time (or a draft on the same quantity, which is for him in practice the same) as he previously possessed in the form of the commodity, i.e. the same exchange value. The same thing holds good, but inversely, for B, who has bought the commodity with his money. He now possesses in the form of the commodity the same exchange value as he previously possessed in the form of money. The sum of the two exchange values remains the same, as also the exchange value possessed by each of them. It is impossible that A should buy the commodity from B under its value and thus receive back in the commodity a higher exchange value than he gave B in money, while B simultaneously sells the commodity above its [value] and thus receives from A in the money form more exchange value than he gave him in the commodity form.

(“A cannot obtain from B more corn for the same quantity of cloth, at the same time that B obtains from A more cloth for the same quantity of corn”) (A Critical Dissertation on the Nature, Measures, and Causes of Value etc, London, 1825, [p. 65]).

(The anonymous author is Bailey.)

That commodities are exchanged in accordance with their value, or, with regard to the particular form of exchange which occurs in the circulation process, are sold and bought, means nothing more than that equivalents, equal magnitudes of value, are exchanged, replace each other, i.e. commodities are exchanged in proportion as their use values contain equal magnitudes of worked-up labour time, are quanta of labour of equal size.

It is of course possible that one person may lose what the other gains, with the result that the two exchangers are exchanging non-equivalents. Hence one person will draw from the exchange a higher exchange value than he threw in, and indeed precisely in the proportion in which the other person draws a lower exchange value from the exchange than he threw into it. Let us suppose that the value of 100 lbs of cotton is 100 shillings. If A now sells 150 pounds of cotton at 100 shillings to B, B has won 50 shillings, but only because A has lost 50 shillings.

<"I-9">[I-9] If 150 lbs of cotton with a price of 150s. (the price is here only its value expressed, measured, in money) are sold at 100s., the sum of the two values is 250s. after the sale as well as before. Hence the total sum of value present in circulation has not increased, has not valorised itself, has posited no surplus value. It has, rather, remained unaltered. All that has taken place within the exchange or by means of the sale is a change in the distribution of the value pre-posited to it, which existed before it and independently of it. 50s. have passed from one side to the other. It is therefore clear that the fraud which has occurred on one side or the other, whether committed by the buyer or by the seller, does not increase the sum of exchange values present in circulation (whether they exist in the commodity or the money form) but only alters (changes) their distribution among the various commodity owners. Let us assume in the above example that A sells 150 lbs of cotton with a value of 150s. to B for 100s., and B sells it at 150s. to C. In this way B gains 50s., or it appears that his value of 100s. has posited a value of 150. But in fact the same amount is present after the transaction as before it: 100s. in A’s possession, 150s. in B’s, commodities to the value of 150s. in C’s. Summa summarum [grand total]: 400s. Originally there were present: commodities to the value of 150s. in A’s possession, 100s. in B’s, 150s. in C’s. Summa summarum: 400s. No further change has taken place except the change in the distribution of the 400s. between A, B and C. 50s. have travelled from A’s pocket to B’s, and A has become poorer precisely to the extent that B has been enriched. What applies to one sale and one purchase applies equally to the sum total of all sales and purchases, in short to the whole of the circulation of commodities taking place between the whole of the owners of commodities within any period of time. If one commodity owner, or a number of them, take advantage of the rest and thereby draw a surplus value from circulation, its quantity can be exactly measured by the reduction in the value drawn from circulation by the other commodity owners. Some of them extract more value from circulation than they threw in because, and to the extent that, the others extract less value, suffer a deduction from, a lessening in, the value they originally laid out. The sum total of existing values is not thereby altered, only their distribution.

“The exchange of two equal values neither increases nor diminishes the amount of the values available in society. Nor does the exchange of two unequal values ... change anything in the sum of social values, although it adds to the wealth of one person what it removes from the wealth of another” U. B. Say, Traité d'économie politique, 3rd ed., Vol. 2, Paris, 1817, pp. 443-44).

If we take all the capitalists of a country and the sum total of purchases and sales between them in the course of a year, for example, one capitalist may admittedly defraud the other and hence draw from circulation more value than he threw in, but this operation would not increase by one iota the sum total of the circulating value of the capital. In other words: the class of capitalists taken as a whole cannot enrich itself as a class, it cannot increase its total capital, or produce a surplus value, by one capitalist’s gaining what another loses. The class as a whole cannot defraud itself. The sum total of capital in circulation cannot be increased by changes in the distribution of its individual components between its owners. Operations of this kind, therefore, however large a number of them one may imagine, will not produce any increase in the sum total of value, any new or surplus value, or any gain on top of the total capital in circulation.

To say that equivalents are exchanged is in fact to say nothing more than that commodities are exchanged at their exchange value, that they are bought and sold and bought at their exchange value.

“In fact the exchange value of one commodity expressed in the use value of another commodity represents equivalence” (I-15) [Contribution to Critique of Political Economy, Marx 1859]

Where exchange has developed into the form of circulation, however, the exchange value of the commodity is expressed, by means of the price, in money (the material of the commodity which serves as the measure of values and hence as money). Its price is its exchange value expressed in money. Therefore, the fact that it is sold in return for an equivalent in money means nothing more than that it is sold at its price, i.e. its value. Similarly, in the case of a purchase, the money buys the commodity at its price, i.e. here the identical sum of money. <"I-10">[I-10] The prerequisite that commodities are exchanged for their equivalents is the same as that they are exchanged at their value, bought and sold at their value.

Two things follow from this.

Firstly. If the commodities are bought and sold at their value, equivalents are exchanged. The value cast by each hand into circulation returns back from circulation into the same hand. It is therefore not increased, it is not affected at all by the act of exchange. Capital, i.e. value which valorises itself in and through circulation, i.e. increasing value, value which posits a surplus value, would thereby be impossible if the commodities were bought and sold at their value.

Secondly. If, however, the commodities are not sold or bought at their value, this is only possible — and, altogether, non-equivalents .can only be exchanged — if one side takes advantage of the other, i.e. if one person receives through the exchange exactly as much more than the value he laid out as the other receives less than the value he laid out. But the sum total of the values exchanged is not thereby altered and no new value has therefore arisen through the exchange. A possesses 100 lbs of cotton to the value of 100s. B buys it for 50s. B has gained 50s., because A has lost 50s. The total sum of values before the exchange was 150s. It is the same after the exchange. But B owned 1/3 of this sum before the exchange, and afterwards he owns 2/3 . A in contrast owned 2/3 before the exchange and only owns 1/3 afterwards. All that has happened, therefore, is a change in the distribution of the sum of values, 150s. The sum itself has remained unchanged.

According to this, capital, self-valorising value, would once again be impossible as a general form of wealth, as in the first case, since an increase of value on the one side would imply a corresponding reduction of value on the other, hence the value as such would not rise. In circulation, one value would only increase because the other value declined, hence was not even maintained.

It is therefore clear that exchange as such, whether in the form of direct barter or in the form of circulation, leaves the values cast into it unchanged, adds no value.

“Exchange confers no value at all upon products” (F. Wayland, The Elements of Political Economy, Boston, 1843, [p.] 169).

Even so, one still meets with the nonsensical assertion, even from renowned modern economists, that surplus value as such derives from things being sold dearer than their purchase price. Thus, e.g., Mr. Torrens:

“Effectual demand consists in the power and inclination, on the part of the consumers, to give for commodities, either by immediate or circuitous barter, some greater portion of all the ingredients of capital than their production costs” (Torrens, An Essay on the Production of Wealth etc, London, 1821, p. 349).

Here we merely have seller and buyer before us. The question whether the commodity owner (the seller) has produced the commodity by himself, and whether the other, the buyer (whose money, however, must also have originated from the sale of commodities, is only their converted form) wants to buy the commodity for consumption, to buy it as a consumer, does not alter the relation in any way. The seller always represents use value. The [economists'] phrase, reduced to its essential content, and with its incidental accoutrement stripped off, means nothing more than this, that all buyers buy their commodities at more than their value, hence the seller in general sells his commodity at more than its value, and the buyer always buys at less than the value of his money. To bring in the producer and the consumer does not alter things in the least; for they do not confront each other in the act of exchange as consumer and producer but as seller and buyer. Yet where the individuals exchange solely as commodity owners each of them must be both producer and consumer, and each can only be the one in so far as he is the other. Each would lose as buyer what he gains as seller.

On the one hand, then, if a surplus value, as we still can call every form of gain here, is to emerge from the exchange, it must already have been present before the exchange, as a result of some act which is, however, invisible, not perceptible, in the formula M—C—M.

“Profit (this is a special form of surplus value), in the usual condition of the market, is not made by exchanging. Had it not existed before, neither could it after that transaction” (G. Ramsay, An Essay on the Distribution of Wealth, Edinburgh, London] 1836, p. 184).

Ramsay says in the same place:

“The idea of profits being paid by the consumers, is, assuredly, very absurd. Who are the consumers?” etc. (p. 183).

There are only commodity owners facing each other, each of whom is just as much a consumer as a producer; and each of them can only he the one to the extent that he is the other. But if one thinks, anticipating, of classes which consume without <"I-11">[I-11] producing, even so their wealth can only consist of a share of the commodities of the producers, and one cannot explain the increase in value by saying that classes which are given values for nothing are defrauded when an exchange is made in return for those values. (See Malthus) The surplus value or the self-valorisation of value cannot arise from exchange, from circulation. On the other hand, value which as such creates value can only be a product of exchange, of circulation, for only in exchange can it function as exchange value. In itself, isolated, it would be a hoard and as such it no more valorises itself than it serves as a use value. Or if, e.g., one were to say: the money owner buys the commodity, but he works on it, applies it productively, and in that way adds value to it, and then in turn sells it, the surplus value would have arisen entirely and exclusively from his labour. Value as such would not have functioned, would not have valorised itself. He does not obtain more value because he has value: the increase of value comes instead from the addition of labour.

In any case, if capital is a specific form of wealth, a potentiality of value, it must be developed on the basis that equivalents are exchanged, i.e. that the commodities are sold at their value, i.e. in proportion to the labour time contained in them. This seems impossible, however. If equivalents are exchanged for each other in M—C—M, both in the act M—C and in the act C—M, how can more money emerge from the process than went into it?

The investigation of the origins of surplus value has therefore formed the most important problem of political economy from the Physiocrats to the present day. It is in fact the question of how money (or the commodity, as money is only the converted form of the commodity), a sum of values in general, becomes transformed into capital, how capital originates.

The apparent contradictions which lie in the problem — in the conditions of the task — led Franklin to the following utterance:

“There are only 3 ways of increasing the riches of a state: the first is by war: that is robbery; the second is by commerce: this is cheating; and the third is by agriculture: this is the only honest way” ([The] Works of B. Franklin, Vol. II, ed. Sparks, [p. 373,] — Positions to be examined concerning National Wealth”).

Here one can already see why two forms of capital [merchant’s capital and usurer’s capital] that correspond most closely to the ordinary conception of capital and are, in fact, historically the oldest forms of existence of capital — capital in two functions, for its appearance as a particular sort of capital depends on whether it functions in one form or the other — do not come into consideration here at all, for we are dealing with capital as such, but must rather be developed later as derived, secondary forms of capital.

The movement M—C—M is shown most clearly in merchant’s capital proper. It was therefore realised at an early stage that its purpose is to increase the value or the money cast into circulation, and that the form in which this is achieved is through buying in order to sell again.

“All the orders of merchants have in common that they buy in order to re-sell” (Reflexions sur la formation et la distribution des richesses, (appeared in 1766) in Oeuvres de Turgot, ed. by Eugène Daire, Vol. 1, Paris, 1844, p. 43).

On the other hand, surplus value appears here to originate purely in circulation, in that the merchant sells dearer than he buys, whether by buying cheaper than he sells (buying the commodity at less than its value and selling it at or above its value) or by buying the commodity at its value but selling it above its value. He buys the commodity from one person, sells it to another, representing money to the one and the commodity to the other; and when he begins the movement all over again, he sells also in order to buy, but the commodity as such is never his goal, the latter movement serving him only — as <"I-12">[I-12] a mediation for the first. He alternately represents the different sides (phases) of circulation towards the buyer and the seller, and the whole of his movement falls within circulation, or rather, he appears as its vehicle, as the representative of money, just as in simple commodity circulation the, whole movement seems to proceed from the medium of circulation, from money as medium of circulation. He appears only as the intermediary of the different phases the commodity has to pass through in circulation and he therefore mediates only between available extremes, available sellers and buyers, who represent available commodities and available money. Since no other process is added here to the circulation process, the surplus value (profit) the merchant makes by alternately selling and buying — for all his operations can be reduced to sales and purchases — the increase in the money or value brought by him into circulation seems to be explained purely by his taking advantage of the parties with whom he is alternately concerned; the explanation appears to lie in the exchange of non-equivalents, whereby he always draws out of circulation a greater value than he puts into it. His gain — the surplus value created for him by the value he has brought into the exchange — thus appears to stem exclusively from circulation and hence only to be made up of the losses of the people trading with him.

Merchant wealth can in fact originate purely in this manner, and the wealth of the trading peoples which conduct a carrying trade between industrially less developed nations originated to a large extent in this manner. Merchant’s capital can act between nations standing at very diverse stages of production and of the economic structure of society in general. It can therefore act between nations where the capitalist mode of production does not occur, hence long before capital is developed in its main forms. But if the gain made by the merchant, or the self-valorisation of the merchant’s wealth, is not merely to be explained by his taking advantage of the commodity owners; if, therefore, it is to be more than just a different distribution of previously existing sums of value, it must evidently be derived only from prerequisites which do not appear in its movement, in its specific function, and its gain, its self-valorisation, appears as a purely derivative, secondary form, the origin of which must be sought elsewhere. Indeed, if its specific form is viewed independently, for itself, commerce must appear, in Franklin’s words, as mere cheating, and if equivalents are exchanged, or commodities are sold and bought at their exchange value, it must appear altogether impossible.

“Under the rule of invariable equivalents commerce would be impossible” (G. Opdyke, A Treatise on Political Economy, New York, 1851, [p.] 67).

(Hence Engels, in his Outlines of a Critique of Political Economy — see Deutsch-Franzosische Jahrbücher, Paris, 1844 — sought in similar fashion to explain the difference between exchange value and price by saying that commerce was impossible as long as commodities were exchanged at their value.)

Another form of capital, similarly age-old, is money lent out at interest, interest-bearing money capital, from which popular opinion has taken its concept of capital. Here we do not see the movement M—C—M, the exchange of money for the commodity followed by the exchange of the commodity for more money. All we see is the result of the movement M—M: money is exchanged for more money. It returns to its starting-point, but augmented. If it was originally 100 thalers, it is now 110. The money, the value represented by the 100 thalers, has preserved and valorised itself, i.e. it has posited a surplus value of 10 thalers. We find interest-bearing money, money that posits money, formally therefore capital, in almost all countries and epochs of history, however primitive the mode of production of the society and however undeveloped its economic structure. One side of capital comes still closer here to the [popular] conception than was the case with merchant’s wealth. <"I-13">[I-13] (The kefalaion of the Greeks is our capital in its etymological formation as well.) Namely the fact that value as such valorises itself, posits surplus value, because it (enters into circulation) already exists previously as value, independent value (money), and that, in general, value is only posited, and the [original] value is only preserved and multiplied, because value — value as value — was pre-posited, because it functions as self-valorising. It is sufficient to remark here (we shall return to this on another occasion):

Firstly: If money is lent out as capital in the modern sense of the word, it is already assumed that money — a sum of value — is in itself capital; i.e. that the person to whom the money is lent can or will apply it as productive capital, as self-valorising value, and will have to pay a portion of the surplus value thereby created to the person who has lent him the money as capital. Here, then, interest-bearing money capital is manifestly not only a derived form of capital, capital in a particular function, but capital is assumed to be already fully developed, so that now a sum of value — whether in the money or the commodity forM—Can he lent as capital, not as money and commodity, i.e. capital itself can be thrown into circulation as a commodity sui generis [of a special kind]. Here capital is already presupposed in finished form as a power of money or the commodity, of value in general, so that it can be thrown into circulation as this potentiated value. Interest-bearing money capital in this sense therefore already assumes the development of capital. The capital-relation must already be complete before it can appear in this specific form. The self-valorising nature of value is here already presupposed as rooted in it, so that a sum of value could be sold as self-valorising value, disposed of to a third person on certain conditions. Similarly, interest appears then merely as a particular form and branch of surplus value, just as the latter divides altogether later on into different forms, which constitute different kinds of revenue, such as profit, rent, interest. All questions about the magnitude of the interest, etc., therefore appear as questions of the distribution of the available surplus value between different sorts of capitalist. The existence of surplus value as such is presupposed here.

In order that money or commodities, a sum of value in general, may be lent as capital, capital is already so far presupposed as a specific potentiated form of value that, just as money and commodities are presupposed as material elements over against capital in general, the capital form of value is here presupposed as the identical inherent quality of money and commodities, so that money or commodities can be made over as capital to a third person, since commodities or money are not developed as capital during circulation but can instead be cast into circulation as finished capital, as capital in itself, as a particular commodity, which also has its own particular form of alienation.

On the basis of capitalist production itself, therefore, interest-bearing capital appears as a derived, secondary form.

Secondly. Interest-bearing money appears as the first form of interest-bearing capital, just as money in general appears as the starting-point of capital formation, since value first becomes independent in money, hence the increase of money initially appears as an increase in value in itself, and in money the standard is available for the measurement of, first, the value of all commodities, but then the self-valorisation of value. Money can now be lent out to productive purposes, hence formally as capital, although capital has not yet taken control of production, there is no capitalist production yet, hence no capital exists yet in the strict sense of the word, whether because production takes place on the basis of slavery, or the surplus product belongs to the landlord (as in Asia and in feudal times), or craft industry or peasant economy and the like is the rule. This form of capital is therefore just as independent of the development of the stages of production as merchant’s wealth (the only presupposition being that the circulation of commodities has proceeded far enough to create money), and hence appears historically before the development of capitalist production, on the basis of which it is only a secondary form. Like merchant’s wealth it only needs to be formally capital, capital in a function in which it can exist before it has taken control of production; the latter capital alone is the basis of an historical mode of social production of its own.

<"I-14">[I-14] Thirdly. Money can be borrowed (just like commodities) for buying, not for productive employment, but for consumption, to expend it. In this case no surplus value is formed, there is merely a change in distribution, a displacement of the available values.

Fourthly. Money can be borrowed for payment. Money can be borrowed as a means of payment. If this is done to cover debts arising out of consumption, it is the same case as 3, the only difference being that there money is borrowed to buy use values, here to pay for use values which have been consumed.

But the payment may be required as an act of the circulation process of capital. Discount The examination of this case belongs in the doctrine of credit.

After this digression back to the subject.

In developing capital it is important to keep in mind that the sole prerequisite — the sole material we start out from — is commodity circulation and money circulation, commodities and money, and that individuals only confront each other as commodity owners. The second prerequisite is that the change of form the commodity undergoes in circulation is only formal, i.e. that in all forms the value remains unchanged, that although the commodity exists at one time as a use value and next time as money, there is no alteration in the magnitude of its value, that the commodities are therefore bought and sold at their value, in proportion to the labour time contained in them: in other words, that equivalents alone are exchanged.

Of course, if one looks at the form C—M—C, one finds that here too the value is preserved. It exists first in the form of the commodity, then in that of money, then in that of the commodity again. E.g. if a ton of iron is sold at a price of £3, the same £3 then exist as money, and after that as wheat at a price of £3. The magnitude of the value, £3, has therefore been preserved in this process, but the grain, as a use value, now drops out of circulation into consumption and with this the value is annihilated. Even though the value is preserved in this case as long as the commodity stays in circulation, this appears a purely formal matter. [continued in addendum to section a.]