In Marx's terms, capitalism is driven by a sum of money being turned into a commodity which is exchanged for a larger sum of money. The capitalist has more money than he started with. The difference is profit. But where does it come from?
Assume a closed economy. Perhaps a very small island. (If you want to argue that economies are not closed, but open to trade, imagine a global economy. Earth cannot trade with any other planet.)
A company hires the people on the island as workers to produce widgets out of thin air. (If the costs of raw materials and tools are considered, making a profit appears even more difficult!) It then sells the widgets back to the workers. (This may sound far-fetched, but in aggregate, the producers of goods must also be the consumers of goods.)
The workers produce 20 widgets and are paid $100 for their labour. That $100 is all the money circulating in the economy. It's all the money that the people have in their pockets.
Now the company has 20 widgets, and it wants to sell the widgets to make a profit. How should the widgets be priced? If the price is more than $5, the people can't afford to buy all of the widgets. If the price is less than $5, the company loses money.
Making a profit appears impossible. Profit means having more money than you started with, but in this model, the money supply is fixed.
OK, so we'll increase the money supply. Imagine a bank, or government body, that prints $50 and distributes. Bills falling out of the sky. Now the people can afford to buy the widgets at a higher price.
The company prices the widgets at $7.50 each and sells all of them. Its costs were $100 and its revenues were $150. So it made a profit, right? But wait, this extra $50 is just inflation. In real terms, the company has not profited at all. If we imagine that the economy is producing something other than widgets, gadgets perhaps, the company cannot buy any more gadgets than it could before.
Is fractional-reserve banking the answer?