CHAPTER XVI.: COMMERCIAL CAPITAL.

MERCHANT'S capital, or trading capital, consists of two subdivisions, namely commercial capital and financial capital, which we shall now proceed to define more in detail, so far as is necessary for the analysis of capital in its innermost structure. This is so much the more needed, as modern political economy, even in its best representatives, indiscriminately mixes trading capital with industrial capital and wholly over looks the characteristic peculiarities of the former.

The movements of commodity-capital have been analysed in volume II. The total capital of society exists always in part in commodities on the market about to be converted into money, and this part is naturally made up of ever changing elements and is continually changing in quantity. Another part exists as money on the market, ready to be converted into commodities. These portions of the total capital are perpetually passing through these metamorphoses. To the extent that this function of capital in the process of circulation becomes a special function of independent capital and becomes an established service assigned by division of labor to some particular species of capitalists, the commodity-capital becomes commercial or financial capital.

In volume II, chapter VI, under the head of cost of circulation, 2 and 3, we have explained to what extent the transportation industry, the storage and distribution of commodities in a distributable form, may be regarded as processes of production continuing within the process of circulation. These incidents in the circulation of commodity-capital are sometimes confounded with the peculiar functions of commercial or financial capital. It is true that the peculiar functions of these last-named forms of capital are sometimes practically combined with those incidental ones, but with the advancing development of social division of labor the functions of merchant's capital evolve into a distinct type and are separated from those real functions connected with those incidents in circulation. For our present purpose, which is to define the specific difference of this special form of capital, we must leave aside those other functions as irrelevant. So far as capital employed only in the process of circulation, such as commercial capital, combines at times those other functions with its specific ones, it does not appear in its typical form. We do not get its pure type, until we strip it of all incidental functions.

We have seen that the existence of capital in the shape of commodity-capital and the metamorphoses through which it passes within the sphere of circulation in its capacity as commodity-capital on the market—a series of metamorphoses expressed by buying and selling, conversion of commodity-capital into money-capital and money-capital into commodity-capital—form a phase in the process of reproduction of industrial capital, that is, a phase in its process of production as a whole. But we have also seen at the same time that it is distinguished in its function as capital of circulation from its function as productive capital. These are two different and separate forms of existence of the same capital. One portion of the total social capital is continually on the market in the form of capital of circulation, passing through those metamorphoses. For each individual capital, however, its existence as commodity-capital, and its metamorphoses in this form, represent merely ever vanishing and ever renewed points of transition, stages of transition in the continuity of its process of production. And the elements of commodity-capital on the market vary continually, being perpetually withdrawn from the market and just as perpetually returned to it as new products of the process of production.

Commercial capital is nothing else but a changed form of a portion of this capital of circulation, which exists continually on the market in the process of its metamorphoses within the sphere of circulation. We say explicitly, a portion, because a portion of the selling and buying of commodities takes place between the industrial capitalists themselves. We leave this portion entirely out of consideration in this analysis, because it contributes nothing to the definition of the concept, or to the understanding of the specific nature, of merchant's capital. Moreover, it has been exhaustively treated in volume II.

The dealer in commodities, as a capitalist, appears first on the market as the representative of a certain sum of money, which he advances in his capacity as a capitalist. He desires to transform this sum of money from its original value x into x + 8x, that is, the original sum plus his profit. But it is evident that his capital must first enter the market in the shape of money, not only on account of his capacity as a capitalist in general, but also as a trader in commodities in particular. For he does not produce any commodities. He merely trades in them, he acts as middleman in their movements, and in order to be able to trade in them, he must first buy them, must be the owner of money-capital.

Take it that a trader in commodities owns 3,000 p.st., which he invests as a trading capital. He buys with these 3,000 p.st., say, 30,000 yards of linen from some linen manufacturer, at 2 sh. per yard. Then he sells his 30,000 yards. If the annual average rate of profit is 10%, and if he makes a profit of 10% after deducting all incidental expenses, then he has converted his 3,000 p.st. into 3,300 p.st. at the end of one year. How he makes this profit is a question which we shall discuss later. At this place we merely intend to observe the form, which the movements of his capital take. He continually buys with his 3,000 p.st. linen and sells this linen; he continually repeats this operation of buying for the purpose of selling, M—C—M', the simple form of capital confined entirely to the sphere of circulation and not interrupted by the intervention of the process of production, which lies outside of its own movement and function.

What, then, is the relation of this commercial capital to the commodity-capital representing a mere passing phase of industrial capital? So far as the linen manufacturer is concerned, he has realised the value of his linen with the money of the merchant. He has thereby completed the first phase in the metamorphosis of commodity-capital, its conversion into money, and he can now, provided that circumstances remain the same, proceed to reconvert this money into yarn, coal, wages, etc., or into means of existence, etc., for the consumption of his revenue. Leaving aside the spending of his revenue, he can continue his process of production.

But while the sale of the linen, its metamorphosis into money, has taken place so far as its direct producer is concerned, it has not yet taken place so far as the linen itself is concerned. It is still on the market as a commodity-capital and awaits the completion of its first metamorphosis, awaits its sale. Nothing has happened to this linen but a change in the person of its owner. From the point of view of its own destination, of its position in the process, it is still a commodity-capital, a saleable commodity; only, it is now in the hands of the merchant instead of those of the manufacturer. The function of selling it, of serving as an agent in the first phase of its metamorphosis, has been transferred from the manufacturer to the merchant, has been converted into the particular business of the merchant, while it used to be a function, which the producer had to perform after completing the process of its production.

Now let us assume that the merchant would not succeed in disposing of those 30,000 yards of linen during the interval, which the linen manufacturer requires for the production of another lot of 30,000 yards and its marketing at 3,000 p.st. In that case, the merchant cannot buy this new lot, because he still has the old stock of 30,000 yards on hand, which he has not yet reconverted into money-capital. A stagnation then ensues, an interruption of reproduction. Of course, the linen manufacturer might have some additional money-capital in reserve, which he might convert into productive capital independently of the sale of those 30,000 yards of linen, in order to continue his process of production. But this assumption would not alter the matter. So far as the capital tied up in the 30,000 yards of linen is concerned, its process of reproduction is and remains interrupted. Here we see indeed very clearly, that the operations of the merchant are really nothing but operations which must be performed under all circumstances in order to convert the commodity-capital of the producer into money-capital, operations, which promote the functions of the commodity-capital in the process of circulation and reproduction. If a clerk of the producer were to attend exclusively to the sale, and also with the purchase, instead of an independent merchant, this connection would not be obscured for a moment.

Commercial capital, then, is nothing but the commodity-capital of the producer, which has to pass through its transformation into money and to perform its function of commodity-capital on the market. The difference is only that this incidental function of the producer is now established as the exclusive business of a special kind of capitalists, of merchants, and becomes the independent business of a special investment of capital.

This is furthermore shown in the specific form of the circulation of commercial capital. The merchant buys a commodity and then sells it: M—C—M'. In the simple circulation of commodities, or even in the circulation of commodities as it appears when a process of circulation of industrial capital, C'—M—C, circulation is promoted by the circumstance that every piece of money changes hands twice. The linen manufacturer sells his commodity, the linen, converts it into money; the money of the buyer passes into his hands. With this money he buys yarn, coal, labor, etc., he spends the same money for the purpose of reconverting the value of linen into those commodities which form the elements of production of linen. The commodity which he buys is not the same kind of commodity which he sells. He has sold products and bought means of production. But it is different with the movements of commercial capital. With his 3,000 p.st., the linen merchant buys 30,000 yards of linen. He sells the same linen for the purpose of recovering his money-capital (increased by profits) from the circulation. It is not the same pieces of money which here change places twice, but the same commodities; the linen passes from the seller into the hands of the buyer, and from the hands of the buyer, who becomes a seller, into those of another buyer. It is sold twice, and it may be sold still oftener, if a series of other merchants intervenes. And it is precisely through this repeated sale, this twofold change of place of the same commodity, that the money advanced by its first buyer for its purchase is recovered, its reflux to him promoted. In the case of C'—M—C the twofold change of place of the same money assists in the sale of one form of commodities and the purchase of another form. In the other case, M—C—M', the twofold change of place of the same commodity assists in the recovery of the advanced money from the circulation. This shows that the commodity has not been definitely sold, when it has passed from the hands of the producer into those of the merchant, and that the latter merely continues the operation of selling—or promotes the functions of commodity-capital. But it shows at the same time that the operation C—M, which represents for the productive capitalist a mere function of his capital in its transient form of commodity-capital, constitutes for the merchant the movement M—C—M', that is, a specific utilisation of his advanced money-capital. A phase in the metamorphosis of commodities here shows itself, with reference to the merchant, in the form of M—C—M', that is, as the evolution of a separate kind of capital.

The merchant sells his commodity, in this case the linen, definitely to the consumer, whether it be a productive consumer (for instance, a bleacher), or an individual consumer who uses the linen for his private needs. By this means the merchant recovers his advanced capital (with a profit), and he can then repeat his operation. If the money had served merely as a means of payment, when the merchant bought the linen from the manufacturer, for instance, if the merchant would not have had to make payment until after six weeks, he might be able to pay the manufacturer without even advancing any money-capital of his own. But if he should not have sold the goods at the end of six weeks, he would have to advance his 3,000 p.st. on the date of the expiration, instead of advancing them on delivery of the linen. And if a fall in the market-price should have compelled him to sell below his purchase price, he would have to make good the loss out of his own capital.

Now, what is it that lends to commercial capital the character of an independently operating capital, while in the hands of the producer who does his own selling, it is obviously merely a special form of his capital in some particular phase of his process of reproduction, during its sojourn in the sphere of circulation?

1) It is, in the first place, the fact that the commodity-capital completes its definite conversion into money, its first metamorphosis, its function on the market in its capacity as commodity-capital, in the hands of another agent than the producer, and that this function of commodity-capital is promoted by the operations of the merchant, by his buying and selling, so that these transactions constitute themselves into a separate and independent business distinct from the other functions of industrial capital. Through it a portion of a function, which used to be performed in circulation as a special phase of the process of reproduction, is molded into the exclusive function of an independent agent of the circulation distinct from the producer. But this alone would not be enough to give to this special business the aspect of a function of an independent capital distinct from the industrial capital in process of self-expansion. In fact, it does not assume this aspect in cases where the trade in commodities is carried on by traveling agents, or by other direct agents of the industrial capitalist. Another element is necessary to complete its special character.

2) This second element is introduced by the fact that the independent agent of circulation, the merchant, advances money-capital (his own or borrowed) in this position. The transaction which amounts for the industrial capital in process of reproduction merely to C—M, to a conversion of commodity-capital into money-capital, to a mere sale, assumes for the merchant the form M—C—M', purchase and sale of the same commodity, and thus to a reflux, by means of a sale, of the money-capital expended in a purchase.

It is always C—M, the conversion of commodity-capital into money, which assumes for the merchant the form of M—C—M, whenever he advances money for the purchase of commodities from their producers; it is always the first metamorphosis of commodity-capital, although the same transaction may amount for a producer, or for industrial capital in process of reproduction, to M—C, a reconversion of money into commodities (means of production), the second phase of this metamorphosis. For the linen producer, the first metamorphosis was C—M, the conversion of commodity-capital into money-capital. This transaction amounts for the merchant to M—C, the conversion of his money-capital into commodity-capital. Now, if he sells this linen to a bleacher, it means M—C, conversion of money-capital into productive capital, for the bleacher, which represents the second metamorphosis of his commodity-capital; while it means C—M, the sale of the linen, for the merchant. Actually the commodity-capital manufactured by the producer has now been definitely sold. This transaction, M—C—M, on the part of the merchant represents but the action of a middleman for the transaction C—M between two producers. Or let us assume, that the linen manufacturer buys with a portion of the value of the sold linen some yarn from a yarn dealer. This is M—C for him. For the merchant selling the yarn it is C—M, resale of the yarn. So far as the yarn itself is concerned, in its capacity of commodity-capital, it amounts to its definite sale, its transition from the sphere of circulation into the sphere of production by means of C—M, the definite conclusion of its first metamorphosis. Whether the merchant buys from the industrial capitalist, or sells to him, the circulation of his merchant's capital, M—C—M, always expresses but the same thing, which constitutes, from the point of view of the commodity-capital itself, a form of transition of the industrial capital in process of reproduction, C—M, the mere completion of its first metamorphosis. The M—C of the merchant's capital amounts only for the industrial capitalist to C—M, but not for the commodity-capital produced by him. It is but the transfer of the commodity-capital from the hands of the industrial capitalist to those of the agent of circulation; Not until the merchant's capital closes the transaction C—M does commodity-capital as such perform its final C—M. M—C—M amounts merely to two times C—M on the part of the same commodity-capital, two successive sales of it, which promote its last and final sale.

It is evident, then, that commodity-capital assumes in commercial capital the form of an independent class of capital through the fact that the merchant advances money-capital. This money-capital serves its purpose as capital only by attending exclusively to the conversion of commodity-capital into money-capital, and it accomplishes this by the continual purchase and sale of commodities. This is its exclusive work. This promotion of the process of circulation of industrial capital is the exclusive function of the money-capital with which the merchant operates. By means of this function he converts his money into money-capital, molds his M into M—C—M', and by the same process he converts commodity-capital into commercial capital.

So long and so far as commercial capital exists in the form of commodity-capital, from the point of view of the process of reproduction of the total social capital, it is obviously nothing else but that portion of the industrial capital in process of metamorphosis, which is still on the market and serves as commodity-capital. It is therefore only the money-capital advanced by the merchant, which is exclusively destined for purchase and sale and for this reason never assumes any other form but that of commodity-capital and money-capital, always remaining confined to the sphere of circulation. It is only this money-capital which is now to be analysed with reference to the entire process of reproduction of capital.

As soon as the producer, the linen manufacturer has sold his 30,000 yards of linen to the merchant for 3,000 p.st., he buys with the money so obtained the necessary means of production, and his capital re-enters the process of production; his process of production continues without interruption. So far as he is concerned, the conversion of his commodity into money has been accomplished. But we have already seen that the linen itself has not yet closed its metamorphosis. It has not yet been definitely reconverted into money, it has not yet passed as a use-value into productive or individual consumption. The linen merchant now represents on the market the same commodity-capital, which the linen manufacturer represented originally. So far as the manufacturer is concerned, the process of transformation has been abbreviated, but only to be continued through the hand of the merchant.

If the linen producer had to wait, until his linen had really ceased being a commodity, until it had actually passed into the hands of its final purchaser for productive or individual consumption, his process of reproduction would be interrupted. Or, if he did not wish to interrupt it, he would have had to restrict his operations, to transform a smaller portion of the value of his linen into yarn, coal, labor, etc., in short, into the elements of productive capital, and to hold back a larger portion of it as a money-reserve. While one portion of his capital would then be on the market in the shape of commodities, another would be enabled to continue in the process of production. In this way, one portion would return in the shape of money, while another would be going to market in the form of commodities. This division of capital of the individual producer is not abolished by the intervention of the merchant. But without it that portion of the capital of circulation which is held as a money reserve would have to be always greater in proportion than the portion employed as productive capital, and the scale of production would have to be restricted accordingly. Instead of that, the producer is now enabled to employ a larger portion of his capital continually in the process of production itself, and a smaller portion as a money reserve.

This is offset on the other hand by the fact that another portion of the social capital, in the shape of merchant's capital, is held continually within the sphere of circulation. It is employed for no other purpose but that of buying and selling. There seems then to have been no other change but that of the persons who hold this capital in their hands.

If the merchant, instead of buying 3,000 p.st.'s worth of linen with the intention of selling it again, were to employ these 3,000 p.st. productively himself, then the productive capital of society would be increased. It is true, that the linen producer would then have to hold back a larger portion of his capital as a money reserve, and likewise the merchant who has now been transformed into an industrial capitalist. On the other hand, if the merchant were to remain a merchant the producer would save time in selling which he could employ for the supervision of the process of production, while the merchant would have to devote his whole time to selling.

If the merchant's capital does not exceed its necessary proportions, it may be assumed

1) that as a result of division of labor, the capital devoted exclusively to buying and selling (and this includes not only the money required for the purchase of commodities, but also the money which must be invested in the labor required for running the business of the merchant, in the constant capital of the merchant, store rooms, transportation, etc.) is smaller than it would be, if the industrial capitalist had to carry on the entire commercial part of his business himself;

2) that the exclusive occupation of the merchant with this business enables the producer to convert his commodities more rapidly into money, and permits the commodity-capital itself to pass more quickly through its metamorphosis, than it would in the hands of the producer;

3) that looking upon the entire merchant's capital in proportion to the industrial capital, one turn-over of the merchant's capital may represent not only the turn-overs of many capitals in one sphere of production, but the turn-overs of a numbers of capitals in different spheres of production. The first is the case when the linen merchant, after buying with his 3,000 p.st. the product of some linen producer, sells it before the same producer can bring another lot of the same quantity to market, so that the linen merchant has to buy the product of another, or several other, linen manufacturers. When he sells this, he promotes the turn-overs of different capitals in the same sphere of production. The second is the case, if the merchant, after selling his linen, buys, for instance, some silk. In this way he promotes the turn-overs of capitals in different spheres.

In general it may be noted that the turn-over of the industrial capital is not limited merely by the time of circulation, but also by the time of production. The turn-over of merchant's capital, so far as it deals in one sort of commodities, is limited, not merely by the turn-over of one industrial capital, but by the turn-overs of all industrial capitals in the same line of production. After the merchant has bought and sold the linen of one producer, he can buy and sell that of another, before the first can bring another lot of his product on the market. The same merchant's capital may, therefore, promote successively the different turn-overs of the industrial capitals invested in a certain line of production. Its turn-over is therefore not identified with the turn-overs of one sole industrial capital, but with the turn-overs of many, and it does not take the place of but one money reserve, which one single industrial capitalist would have to hold back. The turn-over of the merchant's capital in one sphere of production is naturally determined by the total production of that sphere. But it is not determined by the limits of production or the time of turn-over of any single capital of the same sphere, so far as its time of turn-over is determined by its time of production. For instance, let us assume that A supplies a commodity, which requires three months for its production. After the merchant has bought and sold it, say, in one month, he can buy and sell the same product of some other producer. Or, after he has sold, say, the corn of some farmer, he can buy with the same money that of another and another, etc. The turn-over of his capital is limited by the mass of corn, which he can buy successively in a certain time, for instance, in one year, while the capital of the farmer is limited in its turn-over, aside from the time of circulation, by the time of production, which lasts one year.

However, the turn-over of the same merchant's capital may promote equally well the turn-overs of capitals in different lines of production.

To the extent that the same merchant's capital serves in different turn-overs to transform different commodity-capitals successively into money, buying and selling them one after another, it performs in its capacity as money-capital the same function with regard to the commodity-capital, which money in general performs by means of its turn-overs within a certain period with regard to commodities.

The turn-over of merchant's capital is not identical with the turn-over or with one single reproduction of one industrial capital of the same size; it is rather equal to the sum of the turn-overs of a number of such capitals, either in the same, or in different spheres of production. The quicker merchant's capital is turned over, the smaller is that portion of the total money-capital, which serves as merchant's capital; the slower it is turned over, the larger is that same portion. The more undeveloped production is, the larger is the sum of merchant's capital as compared to the sum of the commodities thrown into circulation; but so much smaller is it absolutely, or compared with more developed conditions. Vice versa, the opposite holds good. In such undeveloped conditions the greater part of the strict money-capital is in the hands of the merchants, whose wealth constitutes the money wealth as compared to the wealth of others.

The velocity of the circulation of the money-capital advanced by the merchant depends: 1) on the velocity with which the process of production is renewed and the different processes of production are linked together; 2) on the velocity of consumption.

It is not necessary that merchant's capital should pass merely through the above mentioned turn-over, by first buying commodities to its full amount and then selling them. The merchant may make both movements at the same time. His capital is then divided into two parts. One of them consists of commodity-capital, the other of money-capital. Here he buys and converts his money into commodities. There he sells and converts another part of his commodity-capital into money. On one side, his capital returns in the shape of money-capital, on the other it returns in the shape of commodity-capital. The larger the portion assuming one shape, the smaller the portion assuming another. This alternates and balances itself. If money is not employed merely as a medium of circulation, but also as a means of payment and in conjunction with the credit system, which develops along with it, then the money portion of the merchant's capital is reduced still more in proportion to the volume of the transactions promoted by the merchant's capital. If I buy 1,000 p.st.'s worth of wine on three months' credit, and sell all the wine for cash before the expiration of the three months, then I do not need to advance one penny for these transactions. In this case it is quite obvious that the money-capital, which here serves as merchant's capital, is nothing but industrial capital itself in the shape of money-capital, in process of reflux to itself in the shape of money. (The fact that the producer who sold 1,000 p.st.'s worth of wine on three months' credit may discount his note, which is a certificate of indebtedness of the buyer, at some bank does not alter the matter and has nothing to do with the capital of the merchant.) If market-prices should fall in the mean time by 1/10, the merchant would not only make no profit, but would recover only 2,700 p.st. instead of 3,000 p.st. He would then have to put up 300 p.st. out of his own pocket. These 300 p.st. serve merely as a reserve for balancing the difference in price. But the same applies to the producer. If he had sold at falling prices, he would likewise have lost 300 p.st., and could not begin production on the same scale without reserve capital.

The linen merchant buys 3,000 p.st.'s worth of linen from the manufacturer. The manufacturer uses 2,000 p.st. of the 3,000 to buy yarn. He buys this yarn from a yarn dealer. The money with which the manufacturer pays the yarn dealer does not belong to the linen dealer. For the latter has received commodities to this amount. It is the money-form of the manufacturer's own capital. In the hands of the yarn dealer these 2,000 p.st. now appear as returned money-capital. But to what extent are they so, in what respect do they differ from the 2,000 p.st. representing the discarded money-form of the linen and the assumed money-form of the yarn? If the yarn dealer bought on credit and sold for cash before the expiration of his time, then these 2,000 p.st. do not contain one penny of merchant's capital as distinguished from the money-form, which the industrial capital itself assumes in the course of its circulation. The commercial capital then, so far as it is not a mere form of industrial capital, held in the hands of the merchant in the shape of commodity-capital or money-capital, is nothing but that portion of the money-capital which belongs to the merchant himself and is circulated by the purchase and sale of commodities. This portion represents on a reduced scale that part of the capital advanced for production, which must always be in the hands of the industrial as a money reserve, medium of purchase, and which would always have to circulate as money-capital. This portion, in a reduced scale, is now in the hands of capitalist merchants, and performs its functions only in the process of circulation. It is that portion of the total capital which, aside from expenditures of revenue, must continually circulate on the market as a medium of purchase in order to maintain the continuity of the process of reproduction. This portion is so much smaller in comparison to the total capital, the more rapidly the process of reproduction takes place, and the more developed the function of money as a means of payment, that is, of the credit-system. 38

Merchant's capital is simply capital performing its functions in the sphere of circulation. The process of circulation is a phase of the total process of reproduction. But no value is produced in the process of circulation, and, therefore, no surplus-value. Nothing takes place there but changes of form of the same mass of values. In fact, nothing occurs there but the metamorphosis of commodities, and this has nothing to do either with the creation or with the transformation of values. If surplus-value is realised by the sale of the produced commodities, it is only because that surplus-value already existed in them. In the second act, the reconversion of money-capital into commodities (elements of production), the buyer does not realise any surplus-value. He merely inaugurates the production of surplus-value by the exchange of his money for means of production and labor-power. So far as these metamorphoses cost time of circulation—a time, during which capital is not producing at all, least of all surplus-value—they limit the creation of values, and the surplus-value will express itself through the rate of profit precisely in an inverse ratio to the duration of the time of circulation. Merchant's capital, therefore, does not create any value or surplus-value, at least not directly. If it contributes toward shortening the time of circulation, it may help indirectly to increase the surplus-value produced by the industrial capitalists. To the extent that it helps to expand the market and promotes the division of labor between capitals, thereby enabling capital to work on a larger scale, its function enhances the productivity of the industrial capital and the accumulation of this capital. Inasmuch as it may shorten the time of circulation, it raises the ratio of surplus-value to the advanced capital, that is, the rate of profit. And to the extent that it confines a smaller portion of capital in the form of money-capital to the sphere of circulation, it increases that portion of capital which is engaged directly in production.

CHAPTER XVII.: COMMERCIAL PROFIT.

WE have seen in volume II, that the mere functions of capital in the sphere of circulation—the operations which the industrial capitalist must perform, first, in order to realise the value of his commodities, and secondly, in order to reconvert this value into elements of production, operations which promote the metamorphosis of the commodity-capital C'—M—C, the acts of selling and buying—produce neither value nor surplus-value. It was rather seen that the time required for this purpose, objectively so far as the commodities, subjectively so far as the capitalist is concerned, creates barriers to the production of value and surplus-value. What is true of the metamorphosis of commodity-capital in general, is, as a matter of course, not in the least altered by the fact that a part of it may assume the shape of commercial capital, or that the operations, by which the metamorphosis of commodity-capital is promoted, may become the particular business of a special class of capitalists, or the exclusive function of a portion of the money-capital. If selling and buying of commodities —and that is what the metamorphosis of the commodity-capital C'—M—C amounts to—by the industrial capitalists themselves do not create any value or surplus-value, they will certainly not become creators of value by being transferred from the industrial capitalists to other persons. Furthermore, if that portion of the total social capital, which must be continually on hand in order that the process of reproduction, instead of being interrupted, may proceed continuously—if this money-capital does not create any value or surplus-value, then it cannot acquire the faculty to do so by being continually thrown into circulation for the performance of its function by some other section of the capitalists than the industrial capitalists. We have already indicated to what extent merchant's capital may be indirectly productive, and we shall discuss this point more at length later on.

Commercial capital, then—stripped of all heterogeneous functions, such as storing, expressing, transporting, distributing, arranging, which may be connected with its true function of buying in order to sell—creates neither value nor surplus-value, but promotes only their realisation and thereby the actual exchange of commodities, their transfer from one hand to the other, the social circulation of matter. Nevertheless, since the circulating phase of industrial capital is as much a phase of the process of reproduction as production is, the capital performing its functions independently in the process of circulation must yield the average annual profit just as well as the capital performing its functions in the different lines of production. If merchant's capital were to yield a higher percentage of average profit than industrial capital, then a portion of the industrial capital would transform itself into merchant's capital. If this capital were to yield a lower average profit, then the opposite process would take place. A portion of the merchant's capital would transform itself into industrial capital. No species of capital enjoys a greater facility to change its occupation than merchant's capital.

Seeing that merchant's capital itself does not produce any surplus-value, it is evident that surplus-value appropriated by it in the shape of average profit must be a portion of the surplus-value produced by the total productive capital. But the question is now: How does the merchant's capital manage to appropriate its share of the surplus-value or profit produced by the productive capital?

It is only outward semblance that commercial profit is a mere addition to, a nominal raise of the prices of commodities above their value.

It is evident that the merchant can draw his profit only out of the price of the commodities sold by him, more even, that this profit, which he makes by the sale of his commodities, must be equal to the difference between his purchase price and his selling price, equal to the excess of the latter over the former.

It is possible, that additional costs (costs of circulation) may enter into the commodities after their purchase and before their sale, and it is also possible, that this may not happen. If such costs should be added, it is evident that the excess of the selling price over the purchase price does not represent merely profit. In order to simplify the analysis, we assume first, that no such costs are added.

For the industrial capitalist, the difference between the selling price and the purchase price of his commodities is equal to the difference between their price of production and their cost-price, or, looking upon the matter from the point of view of the total social capital, equal to the difference between the value of the commodities and their cost-price for the capitalists, and this again resolves itself into the difference between the total quantity of labor incorporated in them and the quantity of the paid labor incorporated in them. Before the commodities bought by the industrial capitalist are taken back to market as saleable commodities, they pass through the process of production, in which that portion of their price which shall be realised as profit must be created. But it is different with the trading merchant. The commodities are in his hands only so long as they are in the process of circulation. He merely continues their sale, the realisation of their price begun by the productive capitalist, and therefore he does not cause them to pass through any intermediate process, in which they can once more absorb new surplus-value. While the industrial capitalist merely realises the previously produced surplus-value or profit by means of the circulation, the merchant must not only realise his profit in and by the circulation, but he must first make it there. This seems possible in no other way than that of selling the commodities bought by him from the industrial capitalist at their prices of production, or, from the point of view of the total commodity-capital, their values, above their prices of production, by making a nominal addition to these prices, in other words by selling the total commodity-capital above its value and pocketing this excess of their nominal value over their real value. In short, it seems that he would be selling them for more than they are worth.

This method of raising prices seems easy to grasp. For instance, one yard of linen costs 2 sh. If I want to make 10% profit on my sales, I must add 1/10 to the price, I must sell one yard of linen at 2 sh. 2 2/5d. The difference between its actual price of production and its selling price is then 2 2/5d. and this represents a profit of 10% on 2 sh. This amounts to my selling one yard of linen to the buyer at a price which is in reality the price of 1 1/10 yard. Or, what amounts to the same, it is as though I sold to the buyer only 10/11 of one yard for 2 sh. and kept 1/11 for myself. In fact, I might buy back 1/11 of one yard for 2 2/5 d., if the price of one yard is 2 sh. 2 2/5d. This would be but a round-about way of sharing in the surplus-value and surplus-product by a nominal raise in the price of commodities.

This is the realisation of commercial profit by raising the price of commodities, as it appears at first glance on the surface. And it is indeed a fact that this whole conception of the rise of profit from a nominal raise in the price of commodities, or from their sale above their value, has its origin in the point of view of commercial capital.

But on closer inspection it is quickly seen that this is a mere semblance, and that, assuming capitalist production to be the prevailing mode, commercial profit cannot be realised in this manner. (It is here always a question of averages, not of exceptions.) Why do we assume that the dealer in commodities can realise his profit of 10% on his commodities only by selling them 10% above their price of production? Because we had assumed that the producer of these commodities, the industrial capitalist (who impersonates The producer before the outside world as the personification of industrial capital), had sold them to the dealer at their prices of production. If the prices paid by the dealer for commodities are equal to their prices of production, so that the price of production, or in the last instance the value, represents the cost-price for the merchant, then the excess of the latter's selling price over his purchase price—and only this difference constitutes his profit—must indeed be an excess of their commercial price over their price of production, so that in the last analysis the merchant would be selling all commodities above their values. But why did we assume that the industrial capitalist sells his commodities to the merchant at their prices of production? Or rather, what was the premise of that assumption? It was that the commercial capital did not share in the formation of the average rate of profit (and as yet we are dealing with merchant's capital only in so far as it is commercial capital.) We started necessarily from this premise in the discussion of the average rate of profit, first, because the commercial capital as such did not exist for us at that time; and secondly, because the average profit, and thus the average rate of profit, had to be first developed out of a mutual leveling of profits, or surplus-values, actually produced by the industrial capitals of the different spheres of production. But in the case of merchant's capital we are dealing with a capital which shares in the profit without participating in its production. Hence it now becomes necessary, to supplement our former presentation at this point.

Let us suppose that the total industrial capital advanced for one year is 720 c + 180 v = 900 (say million p.st.), and that s' = 100%. The product is then valued at 720 c + 180 v + 180 s. Now let us call this product, the produced commodity-capital, C. Its value, or its price of production (both are identical for the total social commodity-capital), is then 1080, and the rate of profit for the total social capital of 900 is 20%. These 20% constitute, according to our previous analyses, the average rate of profit, since the surplus-value is not calculated in this instance on this or that capital of some particular composition, but on the average composition of the total industrial capital. In short, C = 1,080, and the rate of profit = 20%. Now let us further assume that aside from these 900 of industrial capital, there are invested 100 of merchant's capital, which share in the profit, just as the industrial capital does, in proportion to their magnitude. According to our assumption, the total capital consists of 900 industrial + 100 commercial = 1,000, so that the commercial capital is 1/10 of the whole. Therefore it participates to the extent of 1/10 in the total surplus-value of 180, and by this means secures a profit at the rate of 18%. Actually, then, the profit remaining to be distributed among the other 9/10 of the total capital is only 162, which amounts likewise to 18% on the total capital of 900. In other words, the price at which C is sold by the owners of the industrial capital of 900 to the dealers is 720 c + 180 v + 162 s = 1,062. Now, if the dealer adds his average profit of 18% on his capital of 100, he sells the commodities at 1,062 + 18 = 1,080, which is their price of production, or, from the point of view of the total commodity-capital, their value, although he makes his profit only in and by the circulation, and only by an excess of his selling price over his purchase price. But nevertheless he does not sell the commodities above their value, nor above their price of production, just because he had bought them from the industrial capitalist below their value, or below their price of production.

The merchant's capital, then, plays a determining role in the formation of the average rate of profit in proportion to its pro rata magnitude in the total capital. Hence if we say in the cited case that the average rate of profit is 18%, it would be 20%, were it not for the fact that 1/10 of the total capital is merchant's capital, which implies a reduction of the rate of profit by 1/10.

This requires also a more precise and detailed definition of the price of production. By price of production we mean, now as before, that price of the commodities, which is equal to their cost (the value of the constant + variable capital contained in them) + the average profit. But this average profit is now differently determined. It is determined by the total profit produced by the total productive capital, but it is not calculated merely on this total productive capital. It is not calculated, as first assumed, so that, if the total productive capital were 900, and the profit 180, the average rate of profit would be 180/900 = 20%. It is rather calculated on the total productive + the merchant's capital, so that, if the total capital is 900 productive + 100 merchant's capital, the average rate of profit is 180/1000 = 18%. The price of production is, therefore, equal to k (the costs) + 18, instead of k + 20. In the average rate of profit, the share of the total profit falling to the merchant's capital is included. The actual value, or price of production, of the total commodity-capital is, therefore, k + p + m (where m indicates profits in merchant's capital). The price of production, or the price at which the industrial capitalist as such sells his commodities, is thus smaller than the actual price of production of commodities. Or, looking upon the matter from the point of view of the total commodity-capital, the prices at which the class of industrial capitalists sell are lower than the values of commodities. Thus, in the above case, 900 costs + 18% on 900, or 900 + 162 = 1,062.

It follows, then, that the merchant, when selling a commodity at 118 for which he paid 100 does indeed raise the price by 18%. But since this commodity, for which he paid 100, is really worth 118, he does not sell it above its value. We shall retain the price of production as more closely defined above. Then it is evident, that the profit of the industrial capitalist is equal to the excess of the price of production of his commodities over their cost-price, and that the commercial profit, as distinguished from this industrial profit, is equal to the excess of the selling price over the price of production of the commodities, which is their cost-price for the merchant; but that the actual price of the commodities is equal to their price of production plus the commercial profit. Just as the industrial capital realises only such profits as exist previously in the commodities as surplus-value, so the merchant's capital realises profits only because the entire surplus-value, or profit, has not yet been realised in the price charged for the commodities by the industrial capitalist. 39 The selling price of the merchant, then, stands above his purchase price, not because the former stands above the total value, but because the purchase price stands below this value.

The merchant's capital participates in the compensation of the surplus-value to an average profit, although it does not take part in its production. So the average rate of profit implies that general deduction from surplus-value which falls to the share of merchant's capital, a deduction from the profit of the industrial capital.

From the foregoing it follows:

Assuming all other circumstances to remain the same, the relative volume of the merchant's capital (excepting the small dealer, who represents a hermaphrodite form) will be in a reverse ratio to the velocity of its turn-over, or in a reverse ratio to the energy of the process of reproduction in general. In the process of scientific analysis, the formation of an average rate of profit appears to take its departure from the industrial capitals and their competition, and only later on does it seem to be corrected, supplemented, and modified by the intervention of merchant's capital. But in the course of historical events, the process is reversed. It is the commercial capital, which first determines the prices of commodities more or less by their values, and it is the sphere of circulation, while promoting the process of reproduction, which first affords an opportunity for the formation of an average rate of profit. The commercial profit originally determines the industrial profit. Not until the capitalist mode of production has asserted itself and the producer himself has become a merchant, is the commercial profit reduced to that aliquot part of the total surplus-value, which falls to the share of the merchant's capital as an aliquot part of the total capital engaged in the social process of reproduction.

In the analysis of the supplementary compensation of profit through the intervention of the merchant's capital it was found that no additional element for the advanced money-capital entered into the value of commodities, and that the addition to the price, by which the merchant makes his profit, was merely equal to that portion of the value of commodities, which the productive capital did not calculate, but rather left out of calculation in the price of production. The case of this money-capital is similar to that of the fixed capital of the industrial capitalist, which is not all consumed and does not pass as an element into the value of commodities. By the purchase price which the merchant pays for the commodity-capital, he replaces its price of production, M, in money. His own selling price, as we have previously shown, is equal to M + 8Delta;M, and this 8Delta;M stands for the addition to the price of commodities determined by the average rate of profit. By selling these commodities, he recovers together with this 8Delta;M his original money-capital, which he advanced for their purchase. Here, then, we see once more that his money-capital is nothing else but the commodity-capital of the industrial capitalist transformed into money-capital, and this change does not affect the magnitude of the volume of this commodity-capital any more than a direct sale to the ultimate consumer instead of the merchant would. It merely anticipates payment by the consumer. However, this is correct only on the condition, which we had hitherto assumed, that the merchant has no expenses, or that he need not advance any fixed or circulating capital during the process of metamorphosis of the commodities, of buying and selling, aside from the money-capital which he must advance for the purchase of the commodities from the producer. But this is not so in reality, as we have seen in the analysis of the costs of circulation, volume II, chapter VI. These costs of circulation represent either expenses, which the merchant has to reclaim from the other agents of the circulation, or expenses, which are due directly to his specific business.

No matter what may be the character of these costs of circulation—whether they arise from the purely mercantile nature of the business, or whether they belong to the specific costs of circulation of the merchant, or whether they represent items, which are charges for subsequent processes of production added within the process of circulation, such as expressage, transportation, storage, etc.—they always require that the merchant should have, aside from his advanced money-capital, some additional capital for the purchase and payment of such means of circulation. To the extent that this element of cost consists of circulating capital, it passes wholly as an additional element into the selling price of the commodities; to the extent that it consists of fixed capital, it is transferred in proportion to its wear and tear. It is, however, an element, which forms a nominal value, even if it does not add any real value to the commodities. Such nominal values, which do not add any real value to the commodities, are the purely mercantile costs of circulation. But whether fixed or circulating, the entire additional capital participates in the formation of the general rate of profit.

The purely commercial costs of circulation (that is, excepting the costs of transportation, shipping, storage, etc.) resolve themselves into the costs required for the purpose of realising the value of commodities, by transforming it either from commodities into money, or from money into commodities, by means of exchange. We leave entirely out of consideration any processes of production, which may eventually continue during the process of circulation, and which may exist separately from the merchant's business. In fact, the actual transport industry and shipping may be, and are, lines of occupation entirely separated from the merchant's business, and the purchaseable or saleable commodities may be stored in warehouses or other public sheds, and the cost of storage, so far as it has to be advanced by the merchant, may be charged up to him by other people. All this becomes apparent in commerce on a large scale, in which the merchant's capital assumes its purest form, unalloyed by other functions. The express owner, the railroad director, the ship owner, are not "merchants." The costs which we consider here are those of buying and selling. We have already remarked in another place that these resolve themselves into accounting, bookkeeping, marketing, correspondence, etc. The constant capital required for this purpose consists of offices, paper, postage, etc. The other costs resolve themselves into variable capital advanced for the employment of mercantile wage workers. (Expressage, cost of transportation, advances for duties, etc., may be considered as being advances made by the merchant for the purchase of commodities and entering into the purchase price to be paid by him.)

All these costs are not incurred in the production of the use-value of the commodities, but in the realisation of their exchange value. They are pure costs of circulation. They do not enter into the strict process of production, but since they enter into the process of circulation they are part of the total process of reproduction.

The only portion of these costs that interests us here is that advanced as variable capital. (Furthermore the following questions remain to be analysed: 1) How is the law, that only socially necessary labor enters into the value of commodities, enforced in the process of circulation? 2) How does accumulation represent itself in the case of merchant's capital? 3) How does merchant's capital function in the actual process of reproduction of society as a whole?)

These costs are due to the economic form of the product, that of a commodity.

Seeing that the labor time lost by the industrial capitalists themselves while directly selling commodities to one another, in other words, the circulation time of the commodities, does not add any value to these commodities, it is evident that this labor time is not endowed with any other character by transferring it from the industrial capitalist to the merchant. The conversion of commodities (products) into money, and of money into commodities (means of production) is a necessary function of industrial capital and, therefore, a necessary operation for the capitalist, who is but personified capital endowed with his consciousness and will. But these functions do not create any value, nor do they produce any surplus-value. The merchant, by performing these operations, by further promoting the functions of capital in the sphere of circulation after the productive capitalist has ceased to do so, merely steps into the shoes of the industrial capitalist. The labor time required for these operations is devoted to certain necessary operations in the process of reproduction of capital, but it adds no value to it. If the merchant did not perform these operations (did not expend the labor time required for them), he would not be using his capital as a circulation agent of industrial capital; he would not be continuing the interrupted function of the industrial capitalist, and consequently he could not participate as a capitalist, in proportion to his advanced capital, in the mass of profit produced by the class of industrial capitalists. In order to share in the mass of surplus-value, in order to expand the value of his advanced capital, the commercial capitalist need not employ any wage workers. If his business is small, he may be the only worker in it. But his wages are derived from that portion of the social profit which falls to his share through the difference between the purchase price paid by him for commodities and their actual price of production.

Under these circumstances, and assuming the merchant's advanced capital to be small, the profit realised by him may not be a bit larger, or may even be smaller, than the wages of one of the better paid skilled wage workers. In fact, there are employed, side by side with him, many commercial agents of the industrial capitalist, such as buyers, sellers, travelers, who receive the same or a higher income than he, either in the form of wages, or in the form of a check upon the profit (percentages, tantièmes) made by each sale. In the first case, the merchant pockets the mercantile profit as an independent capitalist; in the other case, the salesman, the wage laborer of the industrial capitalist, receives a portion of the profit, either in the form of wages, or in the form of a proportional share in the profit of the industrial capitalist, whose direct agent he is, while his principal pockets both the industrial and the commercial profit. But in all these cases the income of the circulation agent is derived from the merchant's profit, even though he may regard it merely as wages paid to him for the performance of his labor, or, where it does not appear in this light, though his profit may not be any larger than the wages of a better paid wage laborer. This follows from the fact that his labor is not labor producing any values.

The prolongation of the act of circulation implies for the industrial capitalist 1) a personal loss of time, to the extent that it prevents him from performing his own function as a manager of the productive process; 2) a prolonged stay of his product, in the form of money or commodities, in the process of circulation, that is, a process, in which it does not produce any value and by which the direct process of production is interrupted. If this process is not to be interrupted, production must either be restricted, or more money-capital must be advanced, in order that the process of production may proceed on the same scale. This means every time that either a smaller profit is made by the capital hitherto invested, or that additional money-capital must be advanced in order to make the same profit. All this remains unchanged, when the merchant takes the place of the industrial capitalist. Instead of the industrial capitalist, the merchant then spends this prolonged time in the process of circulation; instead of the industrial capitalist, the merchant advances additional capital for the circulation; or, what amounts to the same, instead of a large portion of the industrial capital straying off continually into the process of circulation, the capital of the merchant is wholly tied up in it; and instead of the industrial capitalist making a smaller profit, he must yield a portion of his profit wholly to the merchant. So long as merchant's capital remains within the boundaries, in which it is necessary, the only difference is that this division of the functions of capital reduces the time exclusively needed for the process of circulation, that less additional capital is advanced for this purpose, and that the loss of the total profits represented by the profits of merchant's capital is smaller than it would have been otherwise. If in the above example, a capital of 720 c + 180 v + 180 s, assisted by a merchant's capital of 100, leaves a profit of 162, or 18% for the industrial capitalist, or, in other words, implies a deduction of 18, then the additional capital required without the assistance of this independent merchant's capital would probably be 200, and the total advance to be made by the industrial capitalist would be 1,100 instead of 900, which, with a surplus-value of 180, would mean a rate of profit of only 16 4/11%.

Now, if the industrial capitalist, who acts as his own merchant, advances not only the additional capital with which he buys new commodities, before his product in process of circulation has been reconverted into money, but also capital (office expenses and wages for commercial laborers) for the realisation of the value of his commodity-capital, or, in other words, for the process of circulation, then these costs form additional capital, but they produce no surplus-value. They must be made good out of the value of the commodities. For a portion of the value of these commodities must once more be converted into these circulation costs; and no additional surplus-value is created thereby. So far as this concerns the total capital of society, it means that a portion of it must be set aside for secondary operations, which are no part of the process of creating value, and that this portion of the social capital must be continually reproduced for this purpose. This reduces the rate of profit for the individual capitalist and for the entire class of industrial capitalists, a result, which follows from every addition of auxiliary capital, whenever such capital is required for the purpose of setting in motion the same mass of variable capital.

To the extent that these additional costs connected with the business of circulating are transferred from the shoulders of the industrial to those of the commercial capitalist, the same reduction in the rate of profit takes place, only to a smaller extent and in another way. The matter now assumes the form that the merchant advances more capital than would be necessary, if these costs did not exist, and that the profit on this additional capital increases the amount of the commercial profit, so that the merchant's capital shares with the industrial capital to a greater extent in the leveling of the average rate of profit, thereby lowering the average profit. If in our above examply 50 additional capital are advanced for those costs together with a merchant's capital of 100, then the total surplus-value of 180 is distributed over a productive capital of 900 plus a merchant's capital of 150, a total of 1,050. The average rate of profit then falls to 17 1/7%. The industrial capitalists sells his commodities to the merchant at 900 + 154 2/7 = 1,054 2/7, and the merchant sells them at 1,130, namely 1080 + 50 for costs which he must recover. For the rest it must be assumed that the division between merchant's and industrial capital is accompanied by a centralisation of the expenses of commerce and, consequently, by their reduction.

The question is now: How is it with the commercial wage workers employed by the commercial capitalist, in this case by the merchant?

In one respect, such a commercial laborer is a wage laborer like others. For, in the first place, his labor-power is bought with the variable capital of the merchant, not with the money spent by him as revenue, and consequently this labor-power is not bought for private service, but for the creation of value by means of the capital advanced for it. In the second place, the value of this labor-power, and thus his wages, are determined in the same way as those of other wage workers, namely by the cost of production and reproduction of his specific labor-power, not by the product of his labor.

However, we must make the same distinction between the commercial wage worker and the wage workers directly employed by the industrial capital which we found existing between the industrial capital and merchant's capital, and thus between the industrial capitalist and the commercial capitalist. Since the merchant, as a mere agent of circulation, produces neither value nor surplus-value (for the additional value, which he adds to the commodities by his expenses, resolves itself into an addition of previously existing values, although the question here poses itself: How does he preserve the value of his constant capital?) it follows that the mercantile laborers employed in these same functions cannot very well create any direct surplus-value for him. Here, as in the case of the productive laborers, we assume that wages are determined by the value of labor-power, and that the merchant does not make money by depressing wages, so that he does not allow in his accounts for any advance of wages which he paid only in part, in other words, that he does not make money by cheating his clerks.

The difficulty in the case of the mercantile wage workers is by no means that of explaining the way in which they produce any direct profits for their employer, even though they do not create any direct surplus-value (of which profit is but a changed form.) This part of the question has already been solved by the general analysis of commercial profits. Just as the industrial capital makes profits by selling labor embodied and realised in commodities for which it has not paid any equivalent, so the merchants' capital makes profits by not paying the productive capital for all the unpaid labor incorporated in the commodities (that is, commodities in so far as the capital invested in their production functions as an aliquot part of the total industrial capital), while in selling it demands payment for this unpaid portion still contained in the commodities and not paid for by itself. The relation of the merchant's capital to the surplus-value is different from that of the industrial capital. The industrial capital produces surplus-value by the direct appropriation of the unpaid labor of others. The merchant's capital, on the other hand, appropriates a portion of this surplus-value by having this portion transferred from the industrial capital to itself.

It is only by its function of realising values that the merchant's capital serves in the process of reproduction as capital and in this capacity gets a share of the surplus-value produced by the total capital. The mass of profits depends for the individual merchant on the mass of capital, which he can invest in this process, and he can use so much more of it in buying and selling, the more unpaid labor his clerks perform. The function itself, by virtue of which the money of the merchant capitalist is capital, is largely performed by his employes. The unpaid labor of his clerks, while it does not create any surplus-value, at least appropriates surplus-value for him, which amounts to the same thing so far as results on his capital go. This unpaid labor is for him, therefore, a source of profit. Otherwise the mercantile business could never be carried on capitalistically, on a large scale.

Just as the unpaid labor of the laborer of the productive capital creates surplus-value for it in a direct way, so the unpaid labor of the commercial wage workers secures a share of this surplus-value for the merchant's capital.

Here is the difficulty: Seeing that the labor time and the labor of the merchant himself do not create any value, but only secure for him a share of already produced surplus-value, how is it with the variable capital, which he invests in the purchase of commercial labor-power? Must this variable capital be included in the expense account of advanced merchant's capital? If not, then it seems to be in contradiction with the law of the compensation of the average rate of profit; for where is there a capitalist who would advance 150, if he could place only 100 in account? If yes, it seems to be in contradiction with the nature of merchant's capital, since this class of capital does not act in the capacity of capital by setting in motion the labor of others, as the industrial capital does, but rather by performing its own work, that is, the process of buying and selling, and only for this and by this means does it transfer a portion of the surplus-value produced by the industrial capital to itself.

(Therefore the following points must be analysed: the variable capital of the merchant; the law of necessary labor in circulation; the way in which the merchant's labor preserves the value of his constant capital; the role of merchant's capital in the total process of reproduction; and finally, the two-fold materialisation in commodity-capital and money-capital on one side, and in commercial capital and financial capital on the other.)

If every merchant had only as much money as he is personally able to turn over by his own labor, there would be an infinite dissociation of merchant's capital. This dissociation would increase to the extent that productive capital, in the forward march of the capitalist mode of production, would produce and operate on a larger scale. The disproportion between the two classes of capital would increase. In proportion as capital in the sphere of production would be centralised, it would be decentralised in the sphere of circulation. The purely commercial business of the industrial capitalist, and thus his purely commercial expenses, would be infinitely expanded thereby, for he would have dealings with 1,000 capitalists at a time instead of 100. In this way, a large part of the advantage of the independent organisation of merchant's capital would be lost. Not only the purely commercial expenses, but also the other costs of circulation, sorting, expressage, etc., would grow. This applies to the industrial capital. Now let us consider the merchant's capital. In the first place, let us look at the purely commercial labors. It does not require more time to figure with large than with small numbers. But it costs ten times as much time to make 10 purchases at 100 p.st. each as it does to make one purchase at 1,000 p.st. It costs ten times as much correspondence, paper, postage, to carry on a correspondence with 10 small merchants as it does with one large merchant. A limited division of labor in a commercial office, in which one keeps books, another has charge of the treasury, a third carries on the correspondence, one man buys, another sells, another travels, etc., saves immense quantities of labor time, so that the number of workers employed in wholesale commerce stand in no proportion to the comparative size of the business. This is so, because in commerce much more than in industry the same function, whether performed on a large or a small scale, costs the same labor time. For this reason, concentration appears historically in the merchant's business before it shows itself in the industrial workshop. There are furthermore the expenses for constant capital. 100 small offices cost incomparably more than one large office, 100 small warehouses more than one large one, etc. The costs of transportation, which enter into the accounts of commercial business at least as advances, grow with this dissociation.

The industrial capitalist would have to spend more for labor and circulation in the commercial part of his business. The same merchant's capital, when distributed among many small capitalists would require more laborers for the performance of its functions, on account of this dissociation, and, besides, more merchant's capital would be needed in order to turn over the same commodity-capital.

Let us designate the entire merchant's capital directly invested in the purchase and sale of commodities by B, and the corresponding variable capital invested in wages of commercial help by b. Then B + b is smaller than it would be, if every merchant had to worry along without any assistance and without investing any capital in b. However, we have not yet overcome all difficulties.

The selling price of the commodities must suffice, 1) to pay the average profit on B + b. This explains itself by virtue of the fact that B + b represents a reduction of the original B and a smaller merchant's capital than would be required without b. But this selling price must also suffice, 2) to cover not only the additional profit on b, but to recover also the paid wages, the variable capital of the merchant. There is the difficulty. Does b form a new constituent of the price, or is it merely a part of the profit made by means of B + b, which takes on the appearance of wages only so far as the mercantile wage worker is concerned, and simply replaces the variable capital from the point of view of the merchant? In this last case, the profit made by the merchant on his advanced capital B + b would be only equal to the profit due to B according to the general rate, plus b, which he pays out in the form of wages without getting a profit on it.

The crux of the matter is, indeed, to find the limits (mathematically speaking) of b. Let us first define the difficulty exactly. Let us designate the capital invested directly in buying and selling commodities by B, the constant capital (expenses of objective materials of commerce) consumed in this function by K, and the variable capital invested by the merchant by b.

The recovery of B offers no difficulties. It simply represents for the merchant the realised purchase price, the price of production for the manufacturer. The merchant pays this price and in reselling he recovers B as a part of his selling price. Apart from this B, he also receives a profit on B, as we have previously explained. For instance, let the commodities cost 100 p.st. The profit on this may be 10%. In that case the commodities are sold at 110. These commodities cost previously 100, and the merchant's capital of 100 merely makes an additional 10 out of them.

Now let us look at K. It will at most be as large as, but in fact smaller, than that portion of the constant capital, which the producer would have to invest in the department of buying and selling, and which would be an addition to the constant capital invested by him in direct production. However, this portion must be continually recovered by the price of the commodities, or, what amounts to the same, a corresponding portion of the commodities must be continually expended in this form, must, from the point of view of the total capital of society, be continually reproduced in this form. This portion of the advanced constant capital would reduce the rate of profit just as well as the entire mass of it invested in production itself. To the extent that the industrial capitalist gives up the commercial part of his business to the merchant, he is no longer compelled to advance this part of the capital. The merchant advances it in his stead. In a way he does this but nominally, since a merchant neither produces nor reproduces the constant capital consumed by him (the cost of the objective materials of commerce). Its production appears as a specific business, or at least as a part of the business, of some industrial capitalists, who play a similar role as those, who supply the constant capital for the producers of necessities of life. The merchant recovers this constant capital and his profit on it. Both things reduce the profit of the industrial capitalist to that extent. But owing to the economies and concentration which come with a division of labor, he loses less profits than he would, if he had to advance his own capital for this purpose. The reduction of the rate of profit is smaller, because the advanced capital is smaller.

So far, then, the selling price is made up of B + K + profits on B + K. This portion of the selling price offers no further difficulties. But now b, the variable capital advanced by the merchant, enters into this consideration.

The selling price is then made up of B + K + b + profits on B + K + profits on b.

B makes good merely the purchase price and adds nothing to this price but the profit on B. K adds K itself plus a profit on K; but K + profit on K, the circulation cost advanced in the form of constant capital plus a corresponding average profit, would be larger in the hands of the industrial capitalist than it is in those of the merchant. The reduction of the average profit assumes this form: It is as though the full average profit had been calculated, after deducting B + K from the advanced industrial capital, but the deduction from this average profit for B + K paid to the merchant, so that this deduction appears as the profit of a particular class of capital, of merchant's capital.

But it is different with b + profits on b, or in the present case, where we have assumed a rate of profit of 10%, with b + (1/10)b. Here lies the real difficulty.

What the merchant buys with b, is according to our assumption nothing but commercial labor, in other words, labor required for the promotion of the functions of circulating the capital, of performing the acts C—M and M—C. But this commercial labor is that labor, which is generally necessary, in order that any capital may perform the functions of commercial capital, the conversion of commodity-capital into money and money into commodities. It is labor which realises values, but does not create any. And only to the extent that a capital performs this function—that a capitalist performs these operations with his capital—does this capital serve as commercial capital and participate in the regulation of the general rate of profit, that is, draw its dividend out of the total profit. But in b + profit on b, it looks as though labor were being paid, in the first place (for it makes no difference, whether the industrial capitalist pays the merchant for his own labor or the clerk employed by the merchant for his), and in the second place, as though it contained a profit on labor, which the merchant himself has to perform. The merchant's capital gets in the first place its b refunded, and in the second place a profit on it. This arises from the fact that it demands pay, in the first place, for work, which it performs in its capacity as merchant's capital, and that it receives, in the second place, a profit in its capacity of capital, for performing work, which is remunerated in the profit as the function of capital. This, then, is the question which we have to solve.

Let us assume that B = 100, b = 10, and the rate of profit = 10%. We place K = O, in order to leave this element of the purchase price, which does not belong here and has already been accounted for, out of consideration. In that case, the selling price would be B + p + b + p (or B + Bp' + b + bp'); where p' stands for the rate of profit. This means in figures 100 + 10 + 10 + 1 = 121.

Now, if b would not be invested by the merchant in wages—since b is paid only for commercial labor, for labor required for the realisation of the value of commodity-capital thrown on the market by industrial capital—then the condition of the matter would be the following: In order to buy or sell anything for B = 100, the merchant would spend his time, and we will assume, that this is the only time at his disposal. The commercial labor represented by b, or 10, if paid for by a profit instead of wages, would presuppose another commercial capital of 100, which, at 10%, would be equal to b = 10. This second B of 100 would not be added to the price of commodities, but the 10% would. We should then have two operations with 100, making 200, that would buy commodities at 200 + 20 = 220.

Since merchant's capital is nothing but an independent form of a portion of industrial capital engaged in the process of circulation, all questions referring to it must be solved by representing the problem at first in that form, in which the phenomena peculiar to merchant's capital do not yet appear in an independent shape, but still in direct connection with industrial capital as one of its subdivsions. As an office separate from the workshop, the mercantile capital serves continually in the process of circulation. It is here that we must first analyse the b under consideration—in the office of the industrial capitalist himself.

The office is from the outset always infinitesimally small compared to the industrial workshop. For the rest, it is clear that the commercial operations increase to the extent that the scale of production is enlarged. These are operations, which must be continually performed for the circulation of the industrial capital, in order to sell the product existing in the shape of commodities, to convert the money so received once more into means of production, and to keep account of the whole. The calculation of prices, bookkeeping, managing funds, carrying on the correspondence, all these belong under this head. The more developed the scale of production is, the greater, if not in proportion, will be the commercial operations of industrial capital, and consequently the labor and other costs of circulation for the realisation of value and surplus-value. This necessitates the employment of commercial wage workers, who form the office staff. The expenses for these, although incurred for wages, differ from the variable capital invested in the purchase of productive labor. It increases the expenses of the industrial capitalist, the mass of capital to be advanced, without increasing the direct surplus-value. For these expenses are made for labor, which is employed only for the realisation of already created values. Like every expense of this kind, these expenses reduce the rate of profit, because the advanced capital increases, but not the surplus-value. If the surplus-value s remains constant, while the advanced capital C increases to C + 8Delta;C, then the place of the rate of profit s/C is taken by the smaller rate of profit s/(C + 8Delta;C). For this reason, the industrial capitalist endeavors to limit these expenses of circulation to a minimum, just as he does with his expenses for constant capital. Hence industrial capital does not maintain the same relations to its commercial wage laborers that it does to its productive wage laborers. The greater the number of productive wages laborers employed under otherwise equal circumstances, the more voluminous is production, the greater the surplus-value or profit. On the other hand, the larger the scale of production, the greater the quantity of value and surplus-value to be realised, the greater, in other words, the produced commodity-capital, the larger grow the absolute office expenses, even if they do not grow relatively, and give rise to some kind of division of labor. To what extent profit is the first condition for these expenses, is shown among other things by the fact, that with the increase of commercial salaries a part of them is frequently paid by a share in the profits. It is in the nature of things that labor consisting merely of intermediary operations, which are connected either with a calculation of values, or with their realisation, or with the reconversion of the realised money into means of production, a labor whose amount depends on the quantity of produced values about to be realised, should not act as cause of the respective magnitudes and masses of these values, as directly productive labor does, but as their result. The case of the other costs of circulation is similar. In order that plenty may be measured, weighed, wrapped, transported, plenty must be supplied. The amount of labor consumed in packing, transporting, etc., depends on the quantity of the commodities which are the objects of its activity, not vice versa.

The commercial laborer does not produce any surplus-value directly. But the value of his labor is determined by the value of his labor-power, that is, of its costs of production, while the application of this labor-power, its exertion, expression, and consumption, the same as in the case of every other wage laborer, is by no means limited by the value of his labor-power. His wages are therefore not necessarily in proportion to the mass of profits, which he helps the capitalist to realise. What he costs the capitalist and what he makes for him are two different things. He adds to the income of the capitalist, not by creating any direct surplus-value, but by helping him to reduce the costs of the realisation of surplus-value. In so doing, he performs partly unpaid labor. The commercial laborer, in the strict meaning of the term, belongs to the better paid classes of wage workers, he belongs to the class of skilled laborers, which is above the average. However, wages have a tendency to fall, even in proportion to the average labor, with the advance of the capitalist mode of production. This is due to the fact that in the first place, division of labor in the office is introduced; this means that only a onesided development of the laboring capacity is required, and that the cost of this development does not fall entirely on the capitalist, since the ability of the laborer is developed through the exercise of his function and increases so much faster, the more onesidedly the division of labor develops. In the second place, the necessary preparation, such as the learning of commercial details, languages, etc., is more and more rapidly, easily, generally, cheaply reproduced with the progress of science and popular education, to the extent that the capitalist mode of production organises the methods of teaching, etc., in a practical manner. The generalisation of public education makes it possible to recruit this line of laborers from classes that had formerly no access to such education and that were accustomed to a lower scale of living. At the same time this generalisation of education increases the supply and thus competition. With a few exceptions, the labor-power of this line of laborers is therefore depreciated with the progress of capitalist development. Their wages fall, while their ability increases. The capitalist increases the number of these laborers, whenever he has more value and profits to realise. The increase of this labor is always a result, never a cause of the augmentation of surplus-value. 40

We see, then, that a duplication takes place here. On the one hand, the functions of commodity-capital and money-capital (which later become merchant's capital) are general forms assumed by industrial capital. On the other hand, particular capitals, and therefore a particular series of capitalists, are exclusively devoted to these functions. And these functions develop into specific spheres of enhancing the value of capital.

The commercial functions and expenses of circulation become independent only in the case of the mercantile capital. That side of industrial capital, which is devoted to the circulation, exists not only in its continuous shape of commodity-capital and money-capital, but also in the office alongside of the workshop. But it assumes an independent existence in the mercantile capital. For this capital, its office is its only workshop. The portion of capital employed in the form of expenses of circulation appears much larger in the business of the large merchant than in that of the industrial capitalist, because the offices connected with every industrial workshop are concentrated in the hands of a few merchants, and so is at the same time that portion of the capital, which would have to be invested for this purpose by the entire class of industrial capitalists. These merchants take care of the circulation and provide for the expenses incidental to its continuation.

For the industrial capital, the expenses of circulation appear as dead expenses, and so they are. For the merchant they appear as a source of his profit, which is proportional to the level of the average rate of profit, whose existence is assumed. The investment to be made by the mercantile capital for these expenses of circulation is, therefore, a productive investment. And for this reason the commercial labor which it buys is likewise immediately productive for it.

CHAPTER XVIII.: THE TURN-OVER OF MERCHANT'S CAPITAL. THE PRICES.

THE turn-over of industrial capital is the combination of its time of production and time of circulation. It comprises, therefore, the process of production as a whole. The turn-over of merchant's capital, on the other hand; being in reality nothing but a movement of commodity-capital in an independent form, represents merely the first phase in the metamorphosis of commodities, C—M, as a movement of some capital returning to itself. M—C, C—M, is the turn-over of merchant's capital from the mercantile point of view. The merchant buys, converts his money into commodities, then sells, converts the same commodities back into money. And so forth in continuous repetitions. Within the circulation, the metamorphosis of industrial capital always presents itself in the form of C'—M—C''; the money realised by the sale of the produced commodities C' is used for the purchase of new means of production C''. This amounts to a practical exchange of C' for C'', and the same money thus changes hands twice. Its movement acts as an intermediary between two different kinds of commodities C' and C''. But in the case of the merchant, it is the same commodity, which changes hands twice in the process M—C—M'. It merely promotes the reflux of his money to him.

For instance, if a certain merchant's capital is 100 p.st., and the merchant buys for these 100 p.st. commodities and sells these commodities for 110 p.st., then his capital of 100 p.st. has completed one turn-over, and the number of its turn-overs in one year depends on the number of times which it can repeat this movement M—C—M'.

We leave entirely out of consideration at this point those expenses, which may be concealed in the difference between the purchase price and the selling price, since these expenses do not alter in any way the form, which we are now analysing.

The number of turn-overs of a certain merchant's capital shows evidently some analogy to the repeated cycles of money in its capacity as a mere medium of circulation. Just as the same dollar, which circulates ten times, buys ten times its value in commodities, so the same money-capital of the merchant, when turned over ten times, buys ten times its value in commodities, or realises a total commodity-capital of ten times its value, for instance a merchant's capital of 100 a value of 1,000. But there is this difference: In the circulation of money as a medium of circulation, it is the same piece of money, which passes through different hands and performs repeatedly the same function, thereby making up for the limited number of the circulating pieces of money by the velocity of its circulation. But in the case of the merchant it is the same money-capital, the same money-value regardless of the pieces of money of which it may be composed, which repeatedly buys and sells the amount of its value, thereby returning repeatedly to the same hands from which it departed as M + 8Delta; M, value plus surplus-value. This is characteristic of its turn-over as a turn-over of capital. It always withdraws more money from circulation than it threw into it. By the way, it is a matter of course that an accelerated turn-over of merchant's capital (in which the function of money as a means of payment likewise predominates whenever the credit system is developed) is accompanied by a more rapid circulation of the same quantity of money.

A repeated turn-over of commercial capital, however, never expresses anything else but a repetition of buying and selling; while a repeated turn-over of industrial capital expresses the periodicity and renovation of the entire process of reproduction (which includes the process of consumption). For the merchant's capital, this appears merely as an outward condition. The industrial capital must continually throw commodities on the market and withdraw others from it, in order that the turn-over of merchant's capital may continue rapidly. If the process of reproduction proceeds slowly in general, then the turn-over of merchant's capital does likewise. Now, it is true that the merchant's capital promotes the turn-over of the productive capital, but only in so far as it shortens the time of circulation of the latter. It has no direct influence on the time of production, which is also one of the limits of the time of turn-over of industrial capital. This is the first barrier for the turn-over of merchant's capital. In the second place, aside from the barrier formed by reproductive consumption, the turn-over of the merchant's capital is ultimately limited by the velocity and volume of individual consumption, since the entire part of commodity-capital which passes into the fund for consumption depends on that.

However, aside from the turn-overs in the world of merchants, in which one merchant always sells the same commodity to another, whereby this sort of circulation may assume the aspect of great prosperity during times of speculation, the merchant's capital abbreviates in the first place the phase C—M for the productive capital. In the second place, under the modern credit system, it disposes of a large portion of the total capital of society, so that it can repeat its purchases, even before it has definitely sold its previous purchases. And it is immaterial in this case, whether the merchant sells directly to the ultimate consumer, or whether a dozen other merchant's intervene between the first merchant and the ultimate consumer. Owing to the immense elasticity of the process of reproduction, which at any time may be driven beyond all bounds, this process finds no obstacle in production itself, or at best a very elastic one. Aside from the separation of C—M and M—C, which follows from the nature of commodities, a fictitious demand is here created. In spite of its independent status, the movement of merchant's capital is never anything else but the movement of industrial capital within the sphere of circulation. But thanks to its individualisation it moves within certain limits independently of the bounds of the process of reproduction, and thereby drives this process itself beyond its boundaries. The internal dependence and the external independence drive merchant's capital to a point, where the internal connection is violently restored by a crisis.

Hence we note the phenomenon that crises do not show themselves, nor break forth, first in the retail business, which deals with direct consumption, but in the spheres of wholesale business and banking, by which the money-capital of society is placed at the disposal of wholesale business.

The manufacturer may actually sell to the exporter, and the exporter may in his turn sell to his foreign customer, the importer may sell his raw materials to the manufacturer, and the manufacturer his products to the wholesale dealer, etc. But at some particular and unseen point, the goods may lie unsold. On some other occasion, again, the supplies of all producers and middle men may become gradually overstocked. Consumption is then generally at its best either because one industrial capitalist sets a succession of others in motion, or because the laborers employed by them are fully employed and spend more than ordinarily. With the growing income of the capitalists their expenditures increase likewise. Besides, we have seen in volume II, Part III, that a continuous circulation takes place between constant capital and constant capital (even without considering any accelerated accumulation), which is in so far independent of individual consumption, as it never enters into such consumption, but which is nevertheless definitely limited by it, because the production of constant capital never takes place for its own sake, but solely because more of this capital is needed in those spheres of production whose products pass into individual consumption. However, this may proceed undisturbed for a while, stimulated by prospective demand, and in such lines the business of merchants and industrial capitalists prospers exceedingly. A crisis occurs whenever the returns of those merchants, who sell at long range, or whose supplies have accumulated also on the home market, become so slow and meager, that the banks press for payment, or the notes for the purchased commodities become due before they have been resold. It is then that forced sales take place, sales made in order to be able to meet payments. And then we have the crash, which brings the deceptive prosperity to a speedy end.

But the superficiality and meaninglessness of the turn-over of merchant's capital are still greater, because the turn-over of one and the same merchant's capital may promote simultaneously or successively the turn-overs of several productive capitals.

Now, the turn-over of merchant's capital may not only promote the turn-overs of several industrial capitals, but also the opposite phase of the metamorphosis of commodity-capital. For instance, the merchant buys linen from the manufacturer and sells it to the bleacher. In this case, the turn-over of the same merchant's capital—in fact, the same C—M, a realisation on the linen—represents two opposite phases for two different industrial capitals. So far as the merchant sells at all for productive consumption, his C—M always means M—C for some industrial capitalist, and his M—C always C—M for some other industrial capitalist.

If we leave out of consideration, as we do in this chapter, K, the expenses of circulation, in other words, if we leave aside that portion of capital which the merchant advances apart from the money required for the purchase of commodities, it follows that 8Delta; K, the additional profit made on this additional capital, will likewise be left out. This is the strictly logical and mathematically correct mode of analysis, if we wish to study the way in which the profits and turn-over of merchant's capital affect prices.

If the price of production of 1 lb. of sugar is 1 p.st., the merchant can buy 100 lbs. of sugar with 100 p.st. If he buys and sells this quantity in the course of one year, and if the annual rate of average profit is 15% he would add 15 p.st. to 100 p.st., and 3 sh. to the price of production of 1 lb. of sugar, 1 p.st. That is, he would sell one pound of sugar at 1 p.st. 3 sh. But if the price of production of 1 lb. of sugar should fall to 1 sh., then the merchant could buy 2,000 lbs. of sugar with 100 p.st., and he could sell the sugar at 1 sh. 1 4/5 d. per lb. The annual profit on capital invested in the sugar business would still be 15 p.st. on each 100 p.st. Only he has to sell 100 lbs. in the first case, while he must sell 2,000 lbs. in the second place. The high or low level of the price of production would not have anything to do with the rate of profit. But it would have a great deal, or even a decisive deal, to do with that aliquot part of the selling price of each lb. of sugar which resolves itself in mercantile profit; in other words, it would have a great deal to do with the addition to the price which the merchant makes on a certain quantity of commodities, or products. If the price of production of a certain commodity is small, then the amount advanced by the merchant for the purchase of a certain quantity of that commodity is also small, and so is the amount of profit made by him on this quantity of cheap commodities. Or, what amounts to the same, he can buy with a certain amount of capital, for instance with 100, a large quantity of these commodities, and the total profit of 15, which he makes on 100, will be distributed in small fractions over each individual portion of this mass of commodities. The opposite takes place in the opposite case. This depends entirely on the greater or smaller productivity of the industrial capital, with whose products he trades. If we except the cases, in which the merchant is a monopolist and monopolises at the same time the production of certain goods, as did the Dutch East India Company once upon a time, we must say that there is nothing more ridiculous than the current idea that it depends on the merchant whether he wants to sell many commodities at a small profit or few commodities at a large profit on the individual commodities. The two limits of his selling price are: On one hand, the price of production of commodities, over which he has no control; on the other hand, the average rate of profit, over which he has also no control. The only thing which he has to decide is whether he wants to deal in cheap or in dear commodities, and even here the size of his available capital and other circumstances have something to say. Therefore it depends wholly on the degree of development of the capitalist mode of production, not on the good will of the merchant, what course he shall follow in this. A purely commercial company like the old Dutch East India Company, which had a monopoly of production, could imagine that it would be able to continue a method, adapted at best to the beginnings of capitalist production, under entirely changed conditions. 41

The following circumstances, among others, help to maintain that popular prejudice, which, like all wrong conceptions of profit, etc., arise out of the views of pure commerce:

All these things concern only competition between merchants themselves.

We have already shown in volume I, that the high or low level of the prices of commodities determines neither the mass of surplus-value produced by a certain capital nor the rate of surplus-value; it is merely true that, according to the relative quantity of commodities produced by a certain quantity of labor, the price of the individual commodity, and with it the share of surplus-value falling upon this price, is greater or smaller. The prices of every quantity of commodities are determined, so far as they correspond to their values, by the total quantity of labor incorporated in these commodities. If much labor is incorporated in few commodities, then the price of the individual commodities is low and the surplus-value contained in them is small. No matter in what proportion the labor incorporated in a commodity is divided into paid and unpaid labor, and no matter what portion of its price may represent surplus-value, it has nothing to do with the total quantity of this labor, nor, consequently, with its price. On the other hand, the rate of surplus-value does not depend on the absolute magnitude of the surplus-value contained in the price of the individual commodity, but on its relative magnitude, on its proportion to the wages contained in the same commodity. The rate of surplus-value may therefore be large, while the absolute magnitude of the surplus-value in each individual commodity may be small. This absolute magnitude of the surplus-value in each commodity depends in the first place on the productivity of labor, and only in the second place on its division into paid and unpaid labor.

Moreover, in the case of the commercial selling price, the price of production is a condition determined by external circumstances.

The high prices of commerce in former times were due 1) to the dearness of the prices of production, in other words, to the unproductivity of labor; 2) to the absence of an average rate of profit, which enabled the merchant's capital to absorb a much larger quantity of the surplus-value than would have fallen to its share, had the capitals enjoyed a greater general mobility. The cessation of this condition, in both of its aspects, is due to the development of the capitalist mode of production.

The turn-overs of merchant's capital vary in length, their numbers consequently are greater or smaller, in different lines of commerce. Within the same line of commerce, the turn-over is more or less rapid in different phases of the economic cycle. However, an average number of turn-overs, which is found by experience, takes place.

We have already noted, that the turn-over of merchant's capital differs from that of industrial capital. This follows from the nature of the case; one single phase in the turn-over of industrial capital appears as a complete turn-over of some independently constituted merchant's capital, or of a part of some such merchant's capital. This turn-over has also a different relation to the determination of profit and prices.

In the case of the industrial capital, its turn-over expresses on one hand the periodicity of reproduction, and on it depends the mass of commodities, which may be thrown on the market in a certain period. On the other hand, its time of circulation forms a barrier, which is elastic and exerts more or less of a restraint on the creation of value and surplus-value, because it exerts a pressure on the volume of the process of production. The turn-over therefore acts as a determining element on the mass of annually produced surplus-value, and thus helps to determine the average rate of profit, but it acts as a negative, not as a positive element. For the merchant's capital, however, the average rate of profit exists as a given magnitude. The merchant's capital does not directly participate in the creation of value or surplus-value, and it participates in the formation of an average rate of profit only to the extent that draws a dividend, in proportion to its size in the total social capital, out of the mass of profit produced by the industrial capital.

The greater the number of turn-overs of a certain industrial capital is under the conditions described in Volume II, Part II, the greater is the mass of profits created by it. Now, the formation of an average rate of profit distributes, the total profit among the different capitals, not in proportion to their actual participation in its direct production, but in proportion to the aliquot parts which they constitute in the total capital, that is, in proportion to their magnitudes. But this does not alter the essence of the matter. The greater the number of turnovers of the industrial capital as a whole is, the greater is the mass of profits, the mass of annually produced surplus-value, and therefore the rate of profit, always assuming other circumstances to remain unchanged. It is different with merchant's capital. For it, the rate of profit is a given magnitude, determined on one hand by the mass of profit produced by the industrial capital, on the other hand by the relative magnitude of the total merchant's capital, by its quantitative relation to the sum of capital advanced in the processes of production and circulation. The number of its turn-overs does indeed exert a determining influence on its relation to the total social capital, or on the relative magnitude of the total merchant's capital required for the circulation. For it is evident that the absolute magnitude of the total merchant's capital and the velocity of its turn-over are inversely proportioned to one another. But, all other circumstances remaining the same, the relative magnitude of the merchant's capital, or its aliquot proportion in the total social capital, is determined by its absolute magnitude. If the total social capital is 10,000, and the merchant's capital 1,000, then it is 1/10 of the total; if the total capital is 1,000, and the merchant's capital 100, it is again 1/10. To that extent, the absolute magnitude of the merchant's capital may vary, while its relative magnitude in the total social capital remains the same. But in the present case, we assume that its relative magnitude of 1/10 of the total social capital is given. This relative magnitude, again, is determined by its turn-over. If it is turned over rapidly, its absolute magnitude will be 1,000 in the first case, and 100 in the second, so that its relative magnitude will be 1/10. But if it is turned over more slowly, then its absolute magnitude may be 2,000 in the first case, and 200 in the second case. Then its relative magnitude will have increased from 1/10 to 1/5 of the total social capital. Circumstances which reduce the average turn-over of merchant's capital, for instance, the development of means of transportation, reduce to that extent the absolute magnitude of merchants' capital and thereby increase the average rate of profit. The opposite takes place, if things are reversed. A developed mode of capitalist production, compared to previous conditions, exerts a twofold influence on merchants' capital. In the first place, the same quantity of commodities is turned over with a smaller mass of actually functioning merchants' capital; for the proportion of the merchants' capital to industrial capital is reduced by the more rapid turn-over of merchants' capital and the greater velocity of the process of reproduction that is its basis. On the other hand, the development of the capitalist mode of production turns all production into a production of commodities, which puts all products into the hands of the agents of circulation. This is so much more notable, as under previous modes of production, which produced things on a small scale, a large portion of the producers sold their goods directly to the consumers or worked for their personal orders, leaving out of consideration that mass of products, which were immediately consumed by the producer himself, and that mass of services, which were performed in natura. While, therefore, under former methods of production, commercial capital represented proportionately a larger share of the commodity-capital which it turned over, it was.

1) absolutely smaller, because a disproportionately smaller part of the total product was produced in the shape of commodities, passed as commodity-capital into circulation, and fell into the hands of merchants. It was smaller, because the commodity-capital was smaller. But it was proportionately larger, not only because its turn-over was slower, and because it constituted a larger portion of the mass of commodities turned over by it, but also because the price of this mass of commodities, and consequently the merchants' capital to be advanced for it, were greater than under capitalist production on account of a lower productivity of labor, so that the same value was incorporated in a smaller mass of commodities.

2) Not alone is a larger mass of commodities produced on the basis of capitalist production (taking account also of the reduced value of these commodities), but the same mass of products, for instance, of corn, also becomes to a greater extent commodity, that is, more and more of the product becomes an object of commerce. As a consequence, not only the mass of the merchants' capital, but of all capital invested in the circulation, increases, such as capital invested in marine shipping, railroading, telegraph business, etc.;

3) However, there is one point of view, which belongs in the discussion of "competition among capitals," namely: The merchants' capital, which is not serving in any function, or serving only in part, grows with the progress of the capitalist mode of production, with the facility of its investment in retail trade, with the increase of speculation, and with the superfluity of released capital.

But, assuming the relative magnitude of the merchants' capital in proportion to the social capital to be given, the difference of the turn-overs in the various lines of commerce does not affect the magnitude of the total profit falling to the share of the total merchants' capital, nor the general rate of profit. The profit of the merchant is determined, not by the mass of the commodity-capital turned over by him, but by the magnitude of the money-capital advanced by him for the promotion of this turn-over. If the yearly general rate of profit is 15%, and the merchant advances 100 p.st., which he turns over once a year, then he will sell his commodities at 115. If his capital is turned over five times per year, then he will sell a commodity-capital of 100 purchase price five times per year at 103, which will amount in one year to a commodity-capital of 500 sold 515. This constitutes the same annual profit of 15% on his advanced capital of 100 as before. If this were not so, then the merchants' capital would yield a much higher profit in proportion to the number of its turn-overs than the industrial capital, and this would be a contradiction to the law of the average rate of profit.

It follows, then, that the number of turn-overs of merchants' capital in the various lines of commerce affects the mercantile prices of commodities directly. The amount of the mercantile addition to the price, the addition of that aliquot part of the mercantile profit of a given capital which falls upon the price of production of the individual commodities, stands in an inverse ratio to the number of turn-overs, or the velocity of turn-over, of the merchants' capitals in the various lines of commerce. If a certain merchants' capital is turned over five times per year, it will add to a commodity-capital of its own value but one-fifth of the profit, which another merchants' capital of the same value, which is turned over but once per year, will add to a commodity-capital of the same value.

This modification of selling prices by the average time of turn-over of the capitals in different lines of commerce amounts to this: In proportion to the velocity of turn-over, the same mass of profits, which is determined by the annual rate of average profit for any given magnitude of merchants' capital, independently of the specific commercial character of the operations of this capital, is differently distributed over masses of commodities of the same value. For instance, if the merchants' capital is turned over five times per year, it will add 15/5 = 3% to the price of commodities, and if turned over once per year, it will add 15% to their price.

The same percentage of the commercial profit in different lines of industry, according to the proportions of their times of turn-over, increases the selling prices of commodities by different percentages calculated on their values.

On the other hand, in the case of industrial capital, the time of turn-over does not affect in any way the magnitude of the value of the individual commodities produced during that time, although it does affect the mass of value and surplus-value produced in a given time, because it affects the mass of exploited labor. This is indeed concealed and seems to be otherwise, as soon as one has an eye only to the prices of production. But this is due solely to the fact that, according to the previously analysed laws, the prices of production of the various commodities deviate from their values. As soon as we look upon the process of production in its totality, upon the mass of commodities produced by the entire industrial capital of society, we shall find the general law vindicated.

We see then, that a closer inspection of the influence of the time of turn-over on the formation of the values leads us back, in the case of the industrial capital, to the general law and to the basis of political economy, to-wit, the law that the values of commodities are determined by the labor time contained in them. But the influence of the turn-overs of merchants' capital on the mercantile prices reveals phenomena, which, without a very lengthy analysis of the connecting links, seem to point to a purely arbitrary fixing of prices. They seem to be fixed purely on the intention that a certain capital should make a definite quantity of profits in one year. Particularly it looks, on account of this influence of the turn-overs, as though the process of circulation determined by itself the prices of commodities, independently, within certain limits, of the process of production. All superficial and false conceptions of the process of reproduction as a whole arise from the point of view of merchants' capital and from the conceptions, which its peculiar movements call forth in the minds of the agents of circulation.

If it is realised—and the reader will have realised it to his great dismay—that the analysis of the actual internal interconnections of the capitalist process of production is a very complicated matter and a very protracted work; if it is a work of science to resolve the visible and external movement into the internal actual movement, then it is understood as a matter of course, that the conceptions formed about the laws of production in the heads of the agents of production and circulation will differ widely from these real laws and will be merely the conscious expression of the apparent movements. The conceptions of a merchant, a stock gambler, a banker, are necessarily quite perverted. Those of the manufacturer are vitiated by the acts of circulation, to which their capital is subject, and by the compensation of the general rate of profit. 42

Competition likewise plays a completely perverted role in these heads. If the limits of value and surplus-value are given, then it is easy to understand, in what manner the competition of capitals will transform values into prices of production and further into mercantile prices, and surplus-value into average profit. But without these limits, we cannot see any reason at all, why competition should reduce the average rate of profit to such and such a level instead of some other, should make it 15% instead of 1,500%. Competition at best can only reduce the rate of profit to one and the same level. But it does not contain any element, by which this level could be determined.

From the point of view of merchants' capital, the turn-over itself takes on the guise of a determining element of prices. On the other hand, while the velocity of the turn-over of industrial capital, in so far as it enables a certain industrial capital to exploit more or less labor, exerts a determining and limiting influence on the mass of profit and thus on the average rate of profit, this rate of profit exists as an external fact for the merchants' capital, and the internal connection of this rate with the production of surplus-value is entirely obliterated. If the same industrial capital, under otherwise equal circumstances, particularly with the same organic composition, is turned over four times per year instead of twice, it produces twice as much surplus-value and, consequently, profit. And this becomes palpable, as soon and so long as this capital has the monopoly of that improved mode of production, to which it owes its accelerated turn-over. Vice versa, differences in the times of turn-over in different lines of commerce manifest themselves in such a way that the profit made on the turn-over of some given commodity-capital is in an inverse ratio to the number of turn-overs of the money-capital which turns this commodity-capital over. Small profits and quick returns appears particularly to the shopkeeper as a principle, which he follows on principle.

For the rest, it is a matter of course, that this law of turn-overs of merchants' capital holds good in each line of commerce only for the average of turn-overs made by the entire merchants' capital invested in each particular line, and always without a consideration of any succession of alternating and mutually compensating turn-overs of longer or shorter duration. The capital of A, who deals in the same line as B, may make more or less than the average number of turn-overs. This does not alter the turn-over of the total mass of merchants' capital invested in this line. But this is of decisive moment for the individual merchant or shopkeeper. He makes in this case an extra profit, just as the industrial capitalists make extra profits, if they produce under conditions more favorable than the average. If competition compels him, he can sell cheaper than his competitors without lowering his profit below the average. If the conditions, which would enable him to turn his capital over more rapidly, are themselves for sale, such as a favorable location of the shop, he can pay extra rent for it, that is to say, a portion of his surplus-profit is converted into ground rent.

CHAPTER XIX.: FINANCIAL CAPITAL.

THE purely technical movements performed by money in the process of circulation of industrial capital, and, as we may now add, of commercial capital, which assumes a part of the circulation movement of industrial capital as its own peculiar movement,—these movements, if individualised into an independent function of some particular capital that performs nothing but just this service, convert a capital into financial capital. In that case, one portion of the industrial capital, and of commercial capital, persists not only in the form of money, of money capital in general, but as money-capital, which performs only these technical functions. A definite part of the total social capital separates from the rest and individualises itself in the form of money-capital, whose capitalist function consists exclusively in performing the financial operations for the entire class of industrial and commercial capitalists. As in the case of the commercial capital, so in that of financial capital a portion of the industrial capital in process of function in circulation separates from the rest and performs these operations of the process of reproduction for all the other capital. These movements of such money-capital, then, are once more merely movements of an individualised part of industrial capital in the process of reproduction.

Capital appears as the first and last point of this movement only to the extent that capital is newly invested, as happens in accumulation. But for every capital, which is already in process, this first and last point appear merely as points of transit. To the extent that industrial capital, from the moment of its exit from the sphere of production to that of its return to it, passes through the metamorphosis C'—M—C, M represents merely the final result of one phase of this metamorphosis and becomes at once the starting point of its supplementing second phase, as we have already seen in the discussion of the simple circulation of commodities. And although the C—M of industrial capital signifies always M—C—M for the commercial capital, nevertheless the actual process for this last named capital, once that it has become engaged, is also C—M—C. But the commercial capital passes continually through and simultaneously through the acts C—M and M—C, that is to say, there is not only one capital in the stage C—M, while another is in the stage M—C, but the same capital buys continually and sells continually at the same time, on account of the continuity of the process of production. It is continually and simultaneously in both stages. While one of its parts is converted into money, to be reconverted later into commodities, another is simultaneously converted into commodities, to be reconverted into money.

Whether the money serves here as a means of circulation or of payment, depends on the form of the exchange of commodities. In both cases, the capitalist has to pay out money continually to many persons, and to receive money continually from many persons. This purely technical labor of paying money and receiving money constitutes an employment by itself, which necessitates the making of balances, the balancing of accounts, so far as money serves as a means of payment. This labor belongs to the expenses of circulation, it does not create any values. It is abbreviated by being organised as a special department of agents, or capitalists, who perform this work for all the rest of the capitalist class.

A definite portion of the capital must be continually available as a hoard, as potential money-capital. It constitutes a reserve of means of purchase, a reserve of means of payment, unemployed capital in the form of money waiting to be put to work. And one portion of the capital continually returns in this form. This requires not only the collecting, paying, and bookkeeping operations, but also the storing of a hoard, which constitutes an operation by itself. This work consists indeed in a continual conversion of a hoard into means of circulation and means of payment, and its restoration to the form of a hoard by means of money secured through sales and due payments. This continuous movement of that part of capital, which exists in the form of money, separated from the function of capital itself, this purely technical function causes its own labors and expenses, which belong to the expenses of circulation.

The division of labor brings it about, that these technical operations, which are conditioned on the functions of capital, should be performed as much as possible for the entire capitalist class by one class of agents, or capitalists, into whose hands it is concentrated as their exclusive function. We have here, as in the case of commercial capital, a division of labor in a twofold sense. It becomes a special business, and because it is performed as a special business for the money-mechanism of the whole class, it is concentrated and performed on a large scale. And then a further division of labor takes place within this special business, on one hand by a separation into various independent lines, on the other by a segmentation of the work within each office of these special lines. Large offices, many bookkeepers and cashiers, far going division of labor, disbursing of money, receiving of money, balancing of accounts, keeping of current accounts, storing of money, etc., all these things, separated from the acts that necessitate these technical operations, make of the capital advanced for these functions a financial capital.

The various operations, whose individualisation gives rise to special lines of financial business, follow from the different capacities of money itself and from its different functions, through which capital in its money-form must likewise pass.

I have pointed out on a previous occasion, that the money business in general developed originally from an exchange of products between different communes. 43

The financial business, the trade with money as a commodity, developed first out of international commerce. As soon as different national coins exist, the merchants buying in foreign countries must exchange their national coins into foreign coins, and vice versa, or exchange different coins for uncoined pure silver or gold as international money. This gives rise to the business of money-exchange, which is one of the primitive foundations of modern financial business. 44 Out of it developed the modern banks of exchange, in which silver (or gold) serve as world money—now called bank money or commercial money—as distinguished from current money. The business of money-exchange, so far as it consists merely of notes of payment to travelers from one money-exchanger in one country to another in another country, developed as early as Roman and Grecian times out of the simple money-exchange.

The trade with gold and silver as commodities (raw materials for the making of articles of luxury) forms the primitive basis of bullion trade, or of that trade, which promotes the functions of money as world money. These, functions, as previously explained (Volume I, chapter III, 3c), are twofold: A currency back and forth between the various national spheres of circulation for the purpose of balancing the international payments and for performing the migrations of capital in quest of interest; simultaneously with this movement, there is a movement of precious metals from their sources of production across the world market and a distribution of their supply over the various national spheres of circulation. In England, the goldsmiths still served as bankers during the greater part of the 17th century. The way in which the balancing of international accounts in the money trade is further developed, is not discussed here, any more than any points referring to the business of dealing in valuable papers, in short, we leave out of consideration all special forms of the credit system, since this does not yet concern us here.

In the shape of world money, national money strips off its local character; one national money is expressed in another, and thus all of them are finally reduced to their contents in gold or silver, while these two metals, being the two commodities circulating as world money, are simultaneously reduced to their mutual ratios, which change continually. The money trader makes this intermediate business his special occupation. Money changing and bullion trading are thus the primitive forms of the money trade, and they arise from the twofold functions of money as national money and world money.

The capitalist process of production, and commerce in general, even under precapitalist methods, imply:

Dealing in money is fully developed, even in its first stages, as soon as its ordinary functions of lending and borrowing are supplemented by the credit business. Of this more in the following part, which deals with interest-bearing capital.

The bullion trade itself, the transfer of gold or silver from one country to another, is merely the result of the trade in commodities. It is determined by the quotations of bills of exchange, which express the stand of the international payments and of the rate of interest on the different markets. The bullion trader as such acts but as an intermediary between results.

In discussing the way, in which the movements and forms of money develop out of the simple circulation of commodities, we have seen (Vol. I, chap. III), that the movements of the mass of money circulating as a means of purchase and payment are determined by the metamorphosis of commodities, by the volume and velocity of this metamorphosis. And we know now, that this metamorphosis is itself but a phase in the entire process of reproduction. As for the movement of the raw materials of money—gold and silver—from their places of production, it resolves itself in a direct exchange of commodities, an exchange of gold and silver as commodities for other commodities. Hence it is as much a phase of the exchange of commodities as the securing of iron or other metals by means of exchange. And so far as the movements of precious metals on the world-market are concerned (we leave aside at this point the consideration of their movements to the extent that they express the transfer of capital by loans, a transfer, which takes place also in the shape of commodity-capital), they are quite as much determined by the international exchange of commodities as the movements of money as a national means of purchase and payment are determined by the exchange of commodities on the home market. The emigrations and immigrations of precious metals from one national sphere to another, which are caused by a depreciation of national coins, or by a double standard, are extraneous to the circulation of money as such and represent merely corrections of deviations brought about arbitrarily by state decrees. And finally, as concerns the formation of hoards, which constitute reserve funds for means of purchase and payment, either for the home trade or for foreign trade, and likewise of hoards, which represent merely a form of capital temporarily unemployed, they are both necessary precipitates of the process of circulation.

Just as the entire circulation of money, in its volume, its forms, and movements, is purely a result of the circulation of commodities which in its turn represents from the capitalist point of view only the process of circulation of capital (including the exchange of capital for revenue, and of revenue for revenue, so far as the expenditure of revenue is realised in retail trade), so it is a matter of course, that the trade in money does not promote merely the circulation of money, a mere result and phenomenon of the circulation of commodities. This circulation of money itself, as a phase in the circulation of commodities, is a fundamental requisite for the trade in money. This trade promotes merely the technical operations of money-circulation, concentrating, abbreviating, simplifying them. The trade in money does not form the hoards, but supplies the technical means by which the formation of hoards may be reduced to its economical minimum (so far as it is voluntary, that is, so far as it is not an expression of unemployed capital or of disturbances of the process of reproduction). For if the reserve funds of means of purchase and payment are managed for the capitalist class as a whole, they need not be so large as they would have to be, did each capitalist manage his own. The trade in money does not buy the precious metals, but merely promotes their distribution, as soon as the trade in commodities has bought them. The trade in money facilitates the squaring of balances, so far as money serves as a means of payment, and reduces by the artificial mechanism of these compensations the amount of money required for this purpose. But it determines neither the connections, nor the volume, of the mutual payments. For instance, the bills of exchange and checks, which are exchanged for one another in banks and clearing houses, reflect quite independent transactions and are the results of real operations. It is merely a question of a better technical compensation of these results. So far as money serves as a means of purchase, the volume and number of purchases and sales are quite independent of the money trade. This trade cannot do anything but abbreviate the technical operations that go with buying and selling, and by this means it is enabled to reduce the amount of cash money required to turn the commodities over.