Part Two — The Transformation of Money into Capital Chapters 4–6. The general formula M–C–M′, the contradictions it raises, and the peculiar commodity that resolves them: labour-power.

Part One ended with money. Part Two asks how money becomes capital, and in three short chapters it poses the question the entire rest of the volume exists to answer: where does surplus-value come from? Chapter 4 isolates the form that distinguishes capital from money — not C–M–C, selling in order to buy, but M–C–M′, buying in order to sell dearer, money that returns as more money. Chapter 5 drives that formula into an apparent impossibility: the increment cannot arise in circulation, since exchange of equivalents adds nothing and exchange of non-equivalents only redistributes; yet it cannot arise outside circulation either. Chapter 6 resolves the contradiction with a single discovery — a commodity whose use-value is itself a source of value, labour-power — and then walks the reader to the threshold of production, where the rest of Capital begins.

The through-line is a strict dialectical sequence: a form (M–C–M′), the contradiction the form generates (surplus-value must and cannot arise in circulation), and the resolution that preserves both sides of the contradiction (the sale of labour-power, which happens in circulation and yet delivers a use-value consumed outside it). Part Two is the hinge of Volume I. Everything before it analyses the commodity and money as such; everything after it analyses the production of surplus-value. The labour-power material in Chapter 6 is where the two halves are joined, and this brief catches it in full.

Capital begins where commodity circulation is already developed into trade, and its first appearance is always money. But money as money and money as capital differ in their form of circulation. Simple circulation is C–M–C: sell in order to buy, ending in a use-value consumed outside circulation. Capital's circulation inverts this into M–C–M: buy in order to sell. Money that describes this second path is already, functionally, capital.

But alongside this form we find another form, which is quite distinct from the first: M–C–M, the transformation of money into commodities, and the re-conversion of commodities into money: buying in order to sell. Money which describes the latter course in its movement is transformed into capital, becomes capital, and, from the point of view of its function, already is capital.

Marx, Capital I, page 248.

The two circuits are built from the same phases in inverted order, but the inversion changes everything, because it changes the goal. C–M–C aims at a use-value, a purpose lying outside circulation; M–C–M has money at both ends, so its purpose can only be exchange-value itself.

The path C–M–C proceeds from the extreme constituted by one commodity, and ends with the extreme constituted by another, which falls out of circulation and into consumption. Consumption, the satisfaction of needs, in short use-value, is therefore its final goal. The path M–C–M, however, proceeds from the extreme of money and finally returns to that same extreme. Its driving and motivating force, its determining purpose, is therefore exchange-value.

Marx, Capital I, page 250.

M–C–M with equal sums at both ends would be pointless. What gives the circuit its content is that the money returns augmented. Marx writes the complete form and names the increment — the concept the whole volume is built to explain.

The complete form of this process is therefore M–C–M′, where M′ = M + ΔM, i.e. the original sum advanced plus an increment. This increment or excess over the original value I call ‘surplus-value’.

Marx, Capital I, page 251.

Because the end of the circuit is money, and money is qualitatively identical to the money at the start, the movement has no natural stopping point. Where C–M–C finds its measure in a need to be satisfied, M–C–M′ finds none, and so the valorization of value becomes an end in itself and the movement of capital becomes limitless.

The simple circulation of commodities – selling in order to buy – is a means to a final goal which lies outside circulation, namely the appropriation of use-values, the satisfaction of needs. As against this, the circulation of money as capital is an end in itself, for the valorization of value takes place only within this constantly renewed movement. The movement of capital is therefore limitless.

Marx, Capital I, page 253.

The person who consciously wills this endless movement is the capitalist — not a psychological type but a function, capital personified. Marx marks the kinship and the difference with the miser: both are driven by the boundless chase after value, but the miser hoards while the capitalist keeps the value in motion.

As the conscious bearer [Träger] of this movement, the possessor of money becomes a capitalist. His person, or rather his pocket, is the point from which the money starts, and to which it returns. The objective content of the circulation we have been discussing – the valorization of value – is his subjective purpose, and it is only in so far as the appropriation of ever more wealth in the abstract is the sole driving force behind his operations that he functions as a capitalist, i.e. as capital personified and endowed with consciousness and a will.

Marx, Capital I, page 254.

This boundless drive for enrichment, this passionate chase after value, is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser.

Marx, Capital I, page 254.

In the capital-circuit, value ceases to be a passive property of commodities and becomes the active subject of the whole process, passing through the forms of money and commodity while preserving and expanding itself. This is the passage where Marx grants value its uncanny autonomy — the "automatic subject" that valorizes itself and breeds.

It is constantly changing from one form into the other, without becoming lost in this movement; it thus becomes transformed into an automatic subject. … In truth, however, value is here the subject of a process in which, while constantly assuming the form in turn of money and commodities, it changes its own magnitude, throws off surplus-value from itself considered as original value, and thus valorizes itself independently. For the movement in the course of which it adds surplus-value is its own movement, its valorization is therefore self-valorization [Selbstverwertung]. By virtue of being value, it has acquired the occult ability to add value to itself. It brings forth living offspring, or at least lays golden eggs.

Marx, Capital I, page 255. The ellipsis drops the intervening sentence listing capital as money and capital as commodities.

The section closes by naming the formula and marking its scope: whatever the type of capital — merchant, industrial, interest-bearing — this is the shape it shows in the sphere of circulation. That "in the sphere of circulation" is the hook Chapter 5 will pull on, because the formula as stated looks impossible.

M–C–M′ is in fact therefore the general formula for capital, in the form in which it appears directly in the sphere of circulation.

Marx, Capital I, page 257.

Chapter 5 is the negative moment. It takes the general formula and shows that, on the laws established in Part One, the surplus it promises cannot be produced in circulation at all. The argument proceeds by exhausting the cases: exchange of equivalents, exchange of non-equivalents, and a special class of pure buyers. Marx first disposes of the idea that the mere inversion of sale and purchase could work the change, since for the other two parties to any deal no inversion exists.

Take exchange in its pure form, as an exchange of equivalents. In use-value terms both parties can gain — each gives up what is useless to him for what he needs — but in exchange-value terms nothing is created, because price is fixed before circulation and the metamorphosis only changes the form of a value, not its magnitude.

In so far, therefore, as the circulation of commodities involves a change only in the form of their values, it necessarily involves the exchange of equivalents, provided the phenomenon occurs in its purity.

Marx, Capital I, page 260.

Every attempt to make circulation the source of surplus-value, Marx argues, rests on smuggling — a confusion of use-value with exchange-value, as in Condillac, who imagines each party gives a lesser for a greater value. But commodities are not paid for twice, once for use-value and once for value. Now drop the assumption of purity and let non-equivalents be exchanged. Suppose sellers can all sell ten per cent too dear: since each is also a buyer, the universal surcharge cancels, leaving relations of value unchanged. The symmetric case, buying too cheap, fails the same way.

The formation of surplus-value, and therefore the transformation of money into capital, can consequently be explained neither by assuming that commodities are sold above their value, nor by assuming that they are bought at less than their value.

Marx, Capital I, page 263.

What if one sharp party, A, simply gets the better of another? Then value is redistributed, not created; the sum in circulation is unchanged, and the transaction is indistinguishable from theft.

A sells wine worth £40 to B, and obtains from him in exchange corn to the value of £50. A has converted his £40 into £50, has made more money out of less, and has transformed his commodities into capital. Let us examine this a little more closely. Before the exchange we had £40 of wine in the hands of A, and £50 worth of corn in those of B, a total value of £90. After the exchange we still have the same total value of £90. The value in circulation has not increased by one iota; all that has changed is its distribution between A and B. What appears on one side as a loss of value appears on the other side as surplus-value; what appears on one side as a minus appears on the other side as a plus. The same change would have taken place if A, without the disguise provided by the exchange, had directly stolen the £10 from B.

Marx, Capital I, page 265.

The cases are now exhausted, and Marx states the negative conclusion flatly. This is the wall against which the "profit-on-alienation" theories of surplus break.

However much we twist and turn, the final conclusion remains the same. If equivalents are exchanged, no surplus-value results, and if non-equivalents are exchanged, we still have no surplus-value. Circulation, or the exchange of commodities, creates no value.

Marx, Capital I, page 266.

Having closed circulation, Marx closes the other exit too. Surplus-value cannot arise outside circulation either, in the solitary labour of the producer. Adding labour raises the value of the product, but the raw material's value is merely carried over, not self-augmented; a producer can create value but not value that valorizes itself.

The commodity-owner can create value by his labour, but he cannot create values which can valorize themselves. He can increase the value of his commodity by adding fresh labour, and therefore more value, to the value in hand, by making leather into boots, for instance. The same material now has more value, because it contains a greater quantity of labour. The boots have therefore more value than the leather, but the value of the leather remains what it was. It has not valorized itself, it has not annexed surplus-value during the making of the boots.

Marx, Capital I, page 268.

Both exits are shut, and the result is a genuine contradiction stated as such — the pivot of Part Two. Surplus-value must arise in circulation and cannot; the capitalist must exchange only equivalents and still come out ahead.

Capital cannot therefore arise from circulation, and it is equally impossible for it to arise apart from circulation. It must have its origin both in circulation and not in circulation. We therefore have a double result.

Marx, Capital I, page 268.

The money-owner, who is as yet only a capitalist in larval form, must buy his commodities at their value, sell them at their value, and yet at the end of the process withdraw more value from circulation than he threw into it at the beginning. His emergence as a butterfly must, and yet must not, take place in the sphere of circulation. These are the conditions of the problem. Hic Rhodus, hic salta!

Marx, Capital I, page 269.

The resolution of the double result is a single discovery. Since the increment cannot come from the money, nor from the resale, nor from a change in the value of the commodity bought (which is paid at its value), it can only come from the use-value of that commodity — from its consumption. The capitalist needs a commodity whose consumption is itself the creation of value. Such a commodity exists.

In order to extract value out of the consumption of a commodity, our friend the money-owner must be lucky enough to find within the sphere of circulation, on the market, a commodity whose use-value possesses the peculiar property of being a source of value, whose actual consumption is therefore itself an objectification [Vergegenständlichung] of labour, hence a creation of value. The possessor of money does find such a special commodity on the market: the capacity for labour [Arbeitsvermögen], in other words labour-power [Arbeitskraft].

Marx, Capital I, page 270.

We mean by labour-power, or labour-capacity, the aggregate of those mental and physical capabilities existing in the physical form, the living personality, of a human being, capabilities which he sets in motion whenever he produces a use-value of any kind.

Marx, Capital I, page 270.

Labour-power can appear on the market as a commodity only under definite conditions, and Marx states two. The first: its possessor must be the free proprietor of his own person, and must sell his labour-power for a limited time only — for to sell it outright would be to sell himself into slavery, converting the owner of a commodity into a commodity.

For this relation to continue, the proprietor of labour-power must always sell it for a limited period only, for if he were to sell it in a lump, once and for all, he would be selling himself, converting himself from a free man into a slave, from an owner of a commodity into a commodity. He must constantly treat his labour-power as his own property, his own commodity, and he can do this only by placing it at the disposal of the buyer, i.e. handing it over to the buyer for him to consume, for a definite period of time, temporarily.

Marx, Capital I, page 271.

The second condition is the harsher one, and it is the origin of the concept of the doubly free worker: the seller of labour-power must have nothing else to sell — no means of production, no means of subsistence, no product — so that selling his own living capacity is his only option. "Free" here carries both meanings at once, the liberty of the contracting person and the dispossession that compels him to contract.

For the transformation of money into capital, therefore, the owner of money must find the free worker available on the commodity-market; and this worker must be free in the double sense that as a free individual he can dispose of his labour-power as his own commodity, and that, on the other hand, he has no other commodity for sale, i.e. he is rid of them, he is free of all the objects needed for the realization [Verwirklichung] of his labour-power.

Marx, Capital I, pages 272–273.

Marx insists this configuration is not natural but historical. Neither pole — the money-owner and the propertyless labourer — is given by nature; the relation is the deposit of a long and violent history, which Part Eight will excavate. Here the point is registered as a warning against naturalizing the wage-relation.

One thing, however, is clear: nature does not produce on the one hand owners of money or commodities, and on the other hand men possessing nothing but their own labour-power. This relation has no basis in natural history, nor does it have a social basis common to all periods of human history. It is clearly the result of a past historical development, the product of many economic revolutions, of the extinction of a whole series of older formations of social production.

Marx, Capital I, page 273.

This is what distinguishes capital from mere money and commodity circulation, which are ancient. Capital requires the meeting of the owner of means of production with the free seller of labour-power, and that meeting is the threshold of a new epoch.

It is otherwise with capital. The historical conditions of its existence are by no means given with the mere circulation of money and commodities. It arises only when the owner of the means of production and subsistence finds the free worker available, on the market, as the seller of his own labour-power. And this one historical pre-condition comprises a world’s history. Capital, therefore, announces from the outset a new epoch in the process of social production.

Marx, Capital I, page 274.

Labour-power is a commodity and so has a value, determined like any other by the labour-time necessary to produce and reproduce it. Since labour-power exists only in the living worker, producing it means maintaining him; its value is the value of the means of subsistence he requires.

The value of labour-power is determined, as in the case of every other commodity, by the labour-time necessary for the production, and consequently also the reproduction, of this specific article. … Given the existence of the individual, the production of labour-power consists in his reproduction of himself or his maintenance. For his maintenance he requires a certain quantity of the means of subsistence. Therefore the labour-time necessary for the production of labour-power is the same as that necessary for the production of those means of subsistence; in other words, the value of labour-power is the value of the means of subsistence necessary for the maintenance of its owner.

Marx, Capital I, page 274. The ellipsis drops the sentence establishing that labour-power presupposes the existence of the living individual.

Two extensions of this value are load-bearing. First, because the worker is mortal, the means of subsistence must cover his replacements — his children — so that the class reproduces itself on the market. Second, and this is the qualification that separates Marx's account from a bare physiological subsistence theory, the bundle of "necessary" needs is itself historically and morally determined, set by the level of civilization and the habits of the working class in a given country.

The labour-power withdrawn from the market by wear and tear, and by death, must be continually replaced by, at the very least, an equal amount of fresh labour-power. Hence the sum of means of subsistence necessary for the production of labour-power must include the means necessary for the worker’s replacements, i.e. his children, in order that this race of peculiar commodity-owners may perpetuate its presence on the market.

Marx, Capital I, page 275.

On the other hand, the number and extent of his so-called necessary requirements, as also the manner in which they are satisfied, are themselves products of history, and depend therefore to a great extent on the level of civilization attained by a country; in particular they depend on the conditions in which, and consequently on the habits and expectations with which, the class of free workers has been formed. In contrast, therefore, with the case of other commodities, the determination of the value of labour-power contains a historical and moral element.

Marx, Capital I, page 275.

Marx notes a peculiarity of this commodity that will matter later: its use-value is delivered only after the contract, over the working period, so the worker in fact advances his labour-power on credit and is paid after he has already been consumed.

In every country where the capitalist mode of production prevails, it is the custom not to pay for labour-power until it has been exercised for the period fixed by the contract, for example, at the end of each week. In all cases, therefore, the worker advances the use-value of his labour-power to the capitalist. He lets the buyer consume it before he receives payment of the price. Everywhere the worker allows credit to the capitalist.

Marx, Capital I, page 278.

The consumption of labour-power — its actual use — happens outside the market, in production. So the analysis must now leave circulation, and Marx marks the passage with the most famous stage direction in the book. The bright surface of exchange is left behind for the place where its secret is kept.

The process of the consumption of labour-power is at the same time the production process of commodities and of surplus-value. The consumption of labour-power is completed, as in the case of every other commodity, outside the market or the sphere of circulation. Let us therefore, in company with the owner of money and the owner of labour-power, leave this noisy sphere, where everything takes place on the surface and in full view of everyone, and follow them into the hidden abode of production, on whose threshold there hangs the notice ‘No admittance except on business’. Here we shall see, not only how capital produces, but how capital is itself produced. The secret of profit-making must at last be laid bare.

Marx, Capital I, pages 279–280.

Before crossing the threshold, Marx pauses to characterize the sphere being left behind, in the passage that names the ideology the wage-contract generates about itself. The market of labour-power is the paradise of the bourgeois rights of man — and the irony is set up precisely so that the descent into production can detonate it.

The sphere of circulation or commodity exchange, within whose boundaries the sale and purchase of labour-power goes on, is in fact a very Eden of the innate rights of man. It is the exclusive realm of Freedom, Equality, Property and Bentham. Freedom, because both buyer and seller of a commodity, let us say of labour-power, are determined only by their own free will. They contract as free persons, who are equal before the law. … Equality, because each enters into relation with the other, as with a simple owner of commodities, and they exchange equivalent for equivalent. Property, because each disposes only of what is his own. And Bentham, because each looks only to his own advantage.

Marx, Capital I, page 280. The ellipsis drops the sentence adding that the contract is the joint will of buyer and seller in common legal expression.

The chapter, and Part Two, closes on the change of physiognomy as the two parties cross out of the market — the money-owner become capitalist striding ahead, the seller of labour-power following as his worker. The last image is the one Part Three will make literal.

He who was previously the money-owner now strides out in front as a capitalist; the possessor of labour-power follows as his worker. The one smirks self-importantly and is intent on business; the other is timid and holds back, like someone who has brought his own hide to market and now has nothing else to expect but – a tanning.

Marx, Capital I, page 280.