Chapter 10: Rotation and Turnover of Capital

Rotation of Capital. Three Forms of Industrial Capital

One of the conditions of existence of the capitalist mode of production is developed commodity circulation, i.e., exchange of commodities through the medium of money. Capitalist production is inseparably connected with circulation.

Every individual capital begins its career as a certain sum of money, it appears as money capital. The capitalist uses money to buy commodities of certain kinds: (1) means of production, (2) labor-power. This act of circulation can be expressed like this:

In this diagram M stands for money, C for the commodity, Lp for labor-power, and Mp for means of production. As a result of this change of form which his capital has undergone, its owner has at his disposal everything he needs for production. Whereas previously he owned capital in the form of money, he now owns capital to the same amount but in the form of productive capital.

So the first phase in the movement of capital is the transformation of money capital into productive capital.

Following this begins the process of production, in which there takes place the productive consumption of the commodities which the capitalist has bought. It is expressed in the fact of the workers expending their labor, the raw material being worked up, fuel being burnt and machinery wearing out.

Capital changes its form once again: as a result of the production-process the capital invested appears embodied in a certain mass of commodities, it assumes the form of commodity capital. However, in the first: place, these are not the same commodities which the capitalist bought when he started up in business, and secondly, the value of this mass of commodities is greater than the original value of his capital, for in it is contained the surplus-value produced by the workers.

This stage in the movement of capital can be shown like this:

Here the letter P stands for production, representing that the process of circulation has been interrupted and the process of production is taking place, while C’ stands for capital in the form of commodities, the value of which has grown as a result of the workers surplus labor.

Thus the second phase in the movement of capital consists of the transformation of productive capital into commodity capital.

Capital does not stop short with this movement. The commodities which have been produced have to be realized. In exchange for the commodities which he sells the capitalist receives a certain sum of money.

This act of circulation may be depicted like this:

Capital changes its shape a third time: it once more assumes the form of money capital. At the end of this process its owner has a larger sum of money than he had at the beginning. The aim of capitalist production, which is to extract surplus-value, has been attained.

Thus the third stage in the movement of capital consists in the transformation of commodity capital into money capital.

Having received money for the commodities he has sold, the capitalist spends it once again on buying the means of production and labor-power needed for further production, and the entire process starts anew.

These are the three phases through which capital passes successively in the course of its movement. In each of these phases, capital fulfills a corresponding function. The transformation of money capital into the elements of productive capital ensures the union of the means of production which belong to the capitalists with the labor-power of the wage-workers: unless such a union is effected the process of production cannot take place. The function of productive capital is to create, with the labor of the wage-workers, masses of commodities, new value, and consequently, surplus-value. The function of commodity capital is, through the sale of the mass of commodities which has been produced, first, to return to the capitalist in money form the capital which he invested in production and, second, to realize in money form the surplus-value created in the process of production.

Industrial capital passes through these three phases in the course of its movement. By industrial capital we mean, in this instance, all capital which is used for the production of commodities, regardless of whether industry or agriculture is meant.

“Industrial capital is the only form of existence of capital in which not only the appropriation of surplus-value or surplus product but also its creation is a function of capital. Therefore it gives to production its capitalist character. Its existence includes that of class antagonisms between capitalists and laborers.”[1]

Consequently, all industrial capital performs a rotatory movement.

By the rotation of capital is meant the successive transformation of capital from one form into another, its movement, which includes three phases. Of these phases, the first and third take place in the sphere of circulation, while the second belongs to that of production. Without circulation, that is, without transformation of commodities into money and then of money back into commodities, capitalist reproduction, i.e., the constant renewal of the production-process, would be unthinkable.

The rotation of capital as a whole can be shown in the following form:

All three stages of the rotation of capital are very closely interconnected and mutually dependent. The rotation of capital proceeds normally only so long as its various phases flow uninterruptedly one into the other.

If capital stops short in its first phase, this means it drops into a barren existence as money capital. If the hold-up occurs in the second phase, this means that the means of production remain lifeless and labor-power remains unemployed. If capital stops short in its last phase, unsold commodities accumulate in the warehouses and clog the channels of circulation.

It is the second phase, when it is in the form of productive capital, that is of decisive importance in the rotation of industrial capital; in this phase takes place the production of commodities, value and surplus-value. In the other two phases value and surplus-value are not created; in them only a change in the form of capital takes place.

To the three phases of the rotation of capital correspond three forms of industrial capital: (1) money capital, (2) productive capital and (3) commodity capital.

Every capital exists simultaneously in all of these forms: at the same time as one part of it appears as money capital being transformed into productive capital, another part appears as productive capital being transformed into commodity capital, and a third part appears as commodity capital being transformed into money capital. Each part of it in turn assumes and discards, one after another, all three of these forms. This is true not only of each capital taken separately but also of all capitals taken together or, in other words, of the aggregate social capital. Therefore, Marx declares, capital can be understood only as a movement and not as a thing lying at rest.

“This includes the possibility of distinct existence of the three forms of capital. Later on it will be shown how merchant capital and loan capital are separated off from capital employed in production. It is this distinction that provides the basis for the existence of the different groups of the bourgeoisie—manufacturers, merchants, bankers—who share out the surplus-value among themselves.”

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[1]  Marx, Capital, Kerr edition, Vol. II, p. 63.