# Karl Marx/Capital1/Part2

This is a resource about the second part of the first volume of Capital by Karl Marx, entitled "The Transformation of Money into Capital".
This part holds three chapters:
* Chapter 4: The General Formula for Capital
* Chapter 5: Contradictions in the General Formula
* Chapter 6: The Sale and Purchase of Labour-Power
This part follows the first part of the first volume of Capital, in which Marx treated Commodities, Exchange and Money. The book started with a model of exchange based on barter of commodities. It is important to note, that at the time when Marx wrote his work, anyone was familiar with the (Ricardian) labour theory of value. Marx does not spend many words proving its correctness. So he simply assumes that exchange is based on the socially necessary labour time. Marx moves from this C—C relation to the form of exchange, mediated by money, C—M—C. Finally the M—C—M circulation is explained: money becoming the aim and object of exchange.
It is easy to understand that M-C-M only makes sense if it results in an increment of value: M—C—(M+ΔM). The increment of value is called surplus-value, and the problem is of course, where surplus-value comes from, if the M—C and C—M transactions are exchanges of equivalents. Only if a commodity can be found, that has the capacity to produce more value than it itself has, the mystery can be unveiled. "This is the broad transitional story told in these three chapters. The focus begins to shift from commodity exchange to capital circulation."

## Chapter 4: The General Formula for Capital

In this chapter the logical analysis of commodity circulation is intertwined with historic development: "World trade and the world market date from the sixteenth century, and from then on the modern history of capital starts to unfold." (p. 247) In the transition from feudalism to capitalism merchants' capital and usurers' capital played important historical roles. These forms of capital must be distinguished from industrial capital, that is considered the central form of capital in (industrial) capitalism. But it is the independent social power of money, and of the money holders, that is necessary to come to a definition of capital. As long as the money only works as a circulating medium, the exchange cycle is completed with C—M—C: selling in order to buy. But if we consider the opposite movement: M—C—M, buying in order to sell, we see that money can transform into capital. In the simple circulation of commodities the cycle M—C—M "appears to lack any content, because it is tautological" (p. 250-251). The cycle M—C—M can only be considered as a meaningful process on its own, if it leads to a quantitative change: M—C—(M+ΔM). The original sum advanced to buy commodities returns after the selling of the commodities as "the original sum advanced plus an increment. This increment or excess over the original value I call 'surplus-value'. The value originally advanced, therefore, not only remains intact while in circulation, but increases its magnitude, adds to itself a surplus-value, or is valorized [German: verwertet sich]. And this movement converts it into capital. (p. 251–251).
As Harvey says: we now arrive for the first time at "the concept of surplus-value, which is, of course, fundamental to all of Marx's analysis. (…) Here, finally, is the definition of "capital"." He emphasizes that capital is not conceived as a thing, but as a process-"a process, specifically, of the circulation of values". He stresses the importance of this process definition of capital: a radical departure from the definition in classical political economy, "where capital was traditionally understood as a stock of assets." The process definition of capital is made explicit by Marx:
To which paragraph Harvey adds, for good measure, that this sentence is meant ironically, of course, and that the occult qualities of capital and its seemingly magical capacity to lay golden eggs "exist only in the realm of appearance".

## Chapter 5: Contradictions in the General Formula

"In its pure form, the exchange of commodities is an exchange of equivalents, and thus it is not a method of increasing value." (p. 261). This means that surplus-value cannot originate in exchange. Marx next assumes that an exchange of non-equivalents takes place. But this leads to no result. "The formation of surplus-value (…) can (…) be explained neither by assuming that commodities are sold above their value, nor by assuming that they are bought at less than their value." (p. 263) Marx also briefly considers merchants' capital and usurers' capital (or interest-bearing capital), but states that in the course of his investigation, he will prove that both these forms of capital "are derivative forms, and at the same time it will become clear why, historically, these two forms appear before the modern primary form of capital." (p. 267)
The solution of this problem, that "the money-owner, (…) 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" is found in the title of the next chapter…..
This chapter holds one of the most important economic discoveries of Marx: the difference between labour and labour-power.
Ricardo was the most outspoken economist when it came to the labor theory of value: he explained that the value of all commodities is finally determined by the amount of labour, necessary to produce it. Labour is the source of value. But Ricardo did not discover surplus value.
For Marx to be able to develop his theory of surplus value, he needed to find a special commodity, "whose use-value possesses the peculiar property of being a source of value." (p. 270) The money-owner becomes a capitalist when he finds this "special commodity on the market: the capacity for labour [German: Arbeitsvermögen], in other words labour-power [German: Arbeitskraft]. (ibid.)
In The Story of a Great Discovery (1965), Vygodski describes in detail how Marx found the solution for the contradiction of the previous chapter, and how he founded his surplus value theory.
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