Chapter 2: Profit Squeeze
Basic formula of capitalist production
The basic formula of capitalist production is M—C…P…C’—M’. (1) Industrial capitalists begin with a sum of money M. They must then find on the market the elements of productive capital — both constant capital (factory buildings, machinery, and raw and auxiliary materials) and variable capital (labor power), the only commodity that produces surplus value. The productive capital, both constant and variable, is represented by C.
“The basic formula of capitalist production is M—C…P…C’—M’. (1) Industrial capitalists begin with a sum of money M. They must then find on the market the elements of productive capital — both constant capital (factory buildings, machinery, and raw and auxiliary materials) and variable capital (labor power), the only commodity that produces surplus value. The productive capital, both constant and variable, is represented by C.”
This is wrong. Marx sets out in Capital Volume II, Chapter 4, the three formulas of the circuits of capital, as money-capital, commodity-capital, and industrial capital, each one existing separately, and simultaneously side by side.
The formula you give, starting with M (Money-capital), Marx makes clear is only the circuit for new capitals, just as the circuit of merchant capital, begins with C rather than M. The circuit of all existing productive-capital, however begins not with M nor C, but with P, the existing productive-capital (constant capital and labour-power) engaged in the production process, which as use values, must be reproduced and replaced “on a like for like basis” (Capital III, Chapter 47).
Marx says in Capital II, Chapter 4,
“The circuits P … P and C’ … C’ present themselves as M … M’ only to the extent that the movement of P and C’ is at the same time accumulation, hence to the extent that additional m, money, is converted into money-capital; here, too, we do not take into consideration the reaction of such changes in value on those constituent parts of capital which are engaged in the process of production. It is not the original expenditure which is directly affected here, but an industrial capital engaged in its process of reproduction and not in its first circuit; i.e., C’ … C
, the reconversion of commodity-capital into its elements of production, so far as they are composed of commodities.”
In Chapter 2 on the circuit of productive-capital, Marx makes clear,
““The circuit of productive capital has the general formula P … C’ — M’ — C … P. It signifies the periodical renewal of the functioning of productive capital, hence its reproduction, or its process of production as a process of reproduction aiming at the self-expansion of value; not only production but a periodical reproduction of surplus-value; the function of industrial capital in its productive form, and this function performed not once but periodically repeated, so that the renewal is determined by the starting-point.”
Which is precisely why it is its physical components (use-values) consumed in the production process that must be replaced “on a like for like basis”, and why M forms only a moment within this circuit, and not the starting and ending point. It only assumes that role for new capitals, or for capitals that are leaving production, or for that element that constitutes accumulation rather than reproduction.
Marx notes, that it is this circuit of productive-capital P … C’ — M’ — C … P, which is determinate.
“The circuit of productive capital is the form in which classical Political Economy examines the circular movement of industrial capital.”
Without understanding that, and the requirement for its reproduction “on a like for like basis”, as use-values, with all of the attendant potential for the circuit to be broken, or for changes in values to result in the tie-up and release of capital, it is impossible to understand Marx’s theories of crises.
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