9. The enactment of closure within Capital: Volume II

9. The enactment of closure within Capital: Volume II

Introduction
Volume II is perhaps the most neglected of all the three volumes of Capital. Except for Marx's presentation of his 'schemas of simple and expanded reproduction' contained in Part III, which have served both as the theoretical starting point for Rosa Luxemburg's theory of imperialism1 and, following Bortkiewicz, numerous attempts to 'solve' the so- called transformation problem that arises in Volume III,2 Volume II has been largely overshadowed by Capital's other two volumes.

This is perhaps in no small part due to the rather disordered presentation that we find in Volume II. From a close inspection of the structure of this volume it becomes evident that the precise order of its presentation, particularly that of Part II, had yet to be fully worked out by Marx. As a result, despite the considerable efforts of Engels in compiling and editing the various manuscripts that provide the material for this volume, the presentation of Marx's line of argument often lacks the force and direction that we find elsewhere in Capital.

Nevertheless, the overall structure of Volume II is quite clear. Volume II: The Process of Circulation, as its subtitle suggests, is concerned with the overall circulation of capital. Marx here seeks to show how particular forms of capital crystallize out of the repeated circular movement of capital between the spheres of production and exchange. Marx begins in Part I by considering the purely formal aspects of the circulation of capital from which he derives the three circuits, and the three forms, of industrial capital. Then, in Part II, Marx proceeds to the substantiation of this formal movement, which emerges once the circulation of capital is considered in terms of its subsumption of the multiplicity of individual production processes. With this Marx derives and locates the particular material and temporal categories that arise out of this substantiated circulation of capital, such as fixed, circulating and latent capital. Finally, in Part III, Marx goes on to examine how the multiplicity of particular circuits of capital serve to reproduce capital as a social totality; that is how they become totalized within the overall reproduction and circulation of social capital. With this analysis Marx comes to define the particular departments which must constitute the totality of social capital and the relative proportions which are required to ensure the unity and coherence of social capital's reproduction.

So what do we find in Volume II concerning the question of closure? As we have seen, in Volume I we find the two-fold closure in Marx's broader thematic being actively imposed within his exposition. This is reflected, firstly in the attenuation of the analysis of production from that of a process of alienation to that of a process of exploitation, and secondly, in the attenuation of Marx's abstract social labour theory of value into a quasi-embodied labour theory of value. At the end of Volume I, with the theory of accumulation, capital stands as the unity of production and exchange, as a self-mediating, self-sustaining objective and alien process which subsumes all human subjectivity to its own movement.

It is with this that Volume II begins. In considering the overall circulation and movement of capital, Volume II takes the whole question of production as both a process of alienation and exploitation as given. All this is now presupposed, having been dealt with in Volume I. With exploitation and alienation given as a presupposition within the analysis of the movement and overall circulation of capital we find the closure of the subjective, of the counter- dialectic of class struggle, for the moment complete. This aspect of closure is therefore of little concern for us in our consideration of Volume II.

However, in taking the overall circulation of capital as the unity of capital's movement between production and exchange, Marx has to posit the opposition of production and exchange. An opposition which, as we shall see, repeatedly manifests itself as discontinuities in the continuous overall circulation of capital. With these discontinuities, as we shall point out, we may detect the implicit and submerged question of rupture and crisis within the movement of capital. Although Marx is obliged to resolve such discontinuities in the overall continuity of movement of capital, thereby repressing the question of rupture and crisis, this implicit question becomes increasingly insistent in the course of Volume II's development. In fact by Part III this question, submerged beneath the text of Volume II, reaches the point of insurrection. It threatens to break out and disrupt the very line of development of Marx's exposition -- as in indeed it does later in the final volume of Capital.

So in our consideration of Volume II our attention will be focused on the second part of our two-fold closure that we find imposed in Capital.(3) A) Part I: the three circuits of industrial capital Within the formal movement of capital's overall circulation Marx identifies three moments, or aspects, which he terms the three circuits of industrial capital. Each of these circuits expresses a particular aspect of the movement of capital, whether of an individual capital or of the social capital as a whole, and, as a consequence, each one gives rise to its own particular, yet one-sided perspective on the process of the circulation of capital.(4) The first of these circuits that Marx identifies, which is a direct result and summary of Marx's exposition of Volume I, is the circuit of money- capital.

i) The circuit of money-capital.

Once capital takes hold of production to realize itself as industrial capital the general formula of capital, M -- C -- M' , becomes expanded by the interruption of production. We consequently have the formula for the circuit of money-capital as follows: M -- C ... P ... C' -- M' Here a sum of money-capital, M, is advanced to buy a set of commodities of value, C, which are then used in the process of production, P, to produce a new set of commodities with an expanded value, C', which are then sold to realize an expanded value in the money-form, M'. The entire movement of capital is therefore seen as a movement from money to production and back again to money. In abbreviated form it becomes reduced to M ...M'; the movement of money-capital -- money making money.

However, this simple form of the circuit of money-capital may be further developed. With the movement M -- C capital breaks up into two parts in becoming commodity-capital; one part becomes embodied in means of production, which was produced directly by capital in previous cycles of production, and the other part becomes embodied in labour-power, which is only indirectly produced as a commodity by capital. We therefore have: Lp M -- C < ... P ... C' ... M' Mp Where Lp represents the commodity-capital in the material form of labour-power and Mp represents the commodity-capital in the form of the means of production.

Alongside the circulation of capital we also have the simple commodity circulation of the wage; that is from the view point of capital we have: C(w) -- M(w) -- C(Lp) Where M(w) is the money-form of the wage paid to the worker which the worker then uses to buy a value of commodities for her means of subsistence, C(w), which then serves to reproduce the value of her labour-power C(Lp),,which she can sell to the capitalist anew.

We are therefore able to obtain the expanded form of the circuit of money-capital as follows: - C(Lp) C(w) -- M(w) -- C(Lp) M -- C { ... P ... C'{ -- M'{ -- C'{ ... P ... C''{ -- M'' Mp Mp From this expanded expression of the circuit of money-capital the revenue circuit of the wage clearly stands as a mere adjunctant, a mere epicycle, to the overall circulation of capital. The simple circulation of commodities that serves to maintain the survival of the workers is here clearly shown to be subordinated to the movement of capital.

The circuit of money-capital, particularly in its abbreviated form, M...M', shows the circulation of capital to be simply an expanding movement of money. Money is seen as both the 'alpha and omega' of the entire process, so that production appears as merely a necessary means through which 'money makes more money'. This perspective was one that was taken up by both the mercantilists, with their fixation on money as the exclusive form of wealth, and also by vulgar and neoclassical economists, concerned as they are by the readily apparent money categories of wages, profits, prices etc. Yet in glossing over the importance of production it is a perspective that is clearly one-sided. To correct this Marx moves on to the circuit of productive-capital.

ii) The circuit of productive-capital The circuit of productive-capital first appears as follows: P... C -- M -- C ... P Here the simple circulation of commodities, C -- M -- C, acts as a means through which production can recommence. The outputs at the end of one cycle of production are exchanged and circulated so as to provide the necessary inputs for each particular production process for the following cycle of production.

It is now production that stands as the beginning and end of the overall circulation of capital which is expressed in the abbreviated form of productive-capital P...P.

However, capitalist production necessarily entails the production of surplus-value. We can only have the simple reproduction of the material conditions of production in the extreme case in which all the surplus-value is consumed as the revenue of the capitalist. In this special case the circuit of productive-capital becomes expanded as: P... C' -- M' -- C ...P Here we can see the circuit of revenue for the capitalist, the personal enrichment of the capitalist, as a mere adjunctant, a mere epicycle in the overall movement of capital. Yet in general at least a part of the surplus-value will be capitalized in order to expand the scale of production. Hence we have the general abbreviated form for the circuit of productive capital as P...P'.

For Marx, this was the perspective that informed classical political economy. The movement of capital is seen as the ever increasing expansion of production and thus of real material wealth. Capital serves merely to advance the productive forces, to provide the means to create material use- values on an ever increasing scale. But it could be equally said that it reveals the circulation of capital as a movement motivated by production for the sake of production.

Either way the emphasis on production within this perspective stands in stark opposition to the emphasis on money that arose with the perspective of the previous circuit. Whereas the perspective of the circuit P...P' reduces the circulation of capital to the accumulation of real concrete wealth, to the essential categories that arise in the realm of production, the perspective of the circuit of money-capital reduces the movement of capital to the accumulation of abstract money wealth, to the formal categories of exchange and circulation. Both of these perspectives, however, find their common ground in the third and final circuit of industrial capital, the circuit of commodity-capital.

iii) The circuit of commodity-capital The circuit of commodity-capital is given by Marx as follows: C' -- M' -- C' ... P ... C'' From this circuit, which in abbreviated form is expressed as C'...C'', it becomes apparent that the wealth within the capitalist mode of production is both produced and circulated in the specific form of the commodity. But for Marx what is more important than this is that by beginning with C' the production of surplus-value is presupposed by this circuit. Production and exchange are thereby seen as two distinct spheres within the overall circulation of capital. With the circuit of money-capital production enters as a mere interruption in the process of the circulation, while, inversely, in the circuit of productive-capital the circulation of commodities -- the sphere of exchange -- appears as a mere interruption in the process of production. With the circuit of commodity-capital, however, exchange and production stand opposed to each other as two distinct, yet equally important, spheres. We have: The exchange of commodities The production of commodities ___________________________ ____________________________ C' -- M' -- C' P ... C'' The overall circulation of capital then stands as the unity of these two opposed spheres or phases.

This perspective is vital for Marx's exposition in Volume II since, as we shall see, it allows him to overcome the confusion with regard to the production and circulation of surplus-value that emerges as a result of the one-sided perspectives of money-capital and productive-capital. A point well recognized by Marx when he commends the originator of this perspective Quesnay and his fellow physiocrats:(5) C' ... C' is the groundwork for Quesnay's Tableau economique, and it shows great and true discretion on his part that in contrast to M ... M' (the isolatedly and rigidly retained form of the mercantile system) he selected this form and not P...P. (Capital II, p. 103) But the circuit of commodity-capital is only one of the three circuits of industrial capital. We must now take them together as a whole.

iv) The three circuits taken as a whole With these three circuits we can see that each and every industrial capital must pass through three distinct stages; money-capital, commodity-capital and productive-capital. The three circuits of capital only distinguish themselves insofar as we arbitrarily take a particular stage in the circulation of capital as our starting point. In fact in reality: ...every individual industrial capital is present simultaneously in all three circuits. These three circuits, the forms of reproduction assumed by the three forms of capital, are made continuously side by side.

For instance, one part of the capital-value, which now performs the function of commodity-capital, is transformed into the money-capital, but at the same time another part leaves the process of production and enters the circulation as a new commodity-capital. The circuit form C'...C' is thus continuously described; and so are the other two forms. (Capital II, p 104) If, in accordance with this reality we: ...combine all three forms, all premises of the process appear as its result, as a premise produced by itself.

Every element appears as a point of departure, of transit, and of return. The total process presents itself as the unity of the processes of production and circulation. The process of production becomes the mediator of the process of circulation and vice versa. (Capital II, : p. 103) The continuous circulation of industrial capital taken as a whole expresses both the unity of its three moments, its three distinct circuits, and the unity of production and circulation. But, as Marx repeatedly notes in passing in these opening chapters of Volume II, this continuity of the overall circulation of industrial capital must continually posit its own discontinuity: The circuit-describing process of capital means constant interruption, the leaving of one stage and the entering into the next, the discarding of one form and the assuming of another. Each one of these stages not only presupposes the next but excludes it. (Capital II, p. 105) But what is more, if this exclusion leads to stagnation then this: ...stagnation in one stage causes more or less stagnation in the entire circuit of not only the stagnant part of the capital but also of the total individual capital. (Capital II, p. 106) Here, in Marx's exposition, we can see the necessity for the discontinuity in the movement of capital's circulation opening out into the possibility of rupture and crisis. But at this point it is still only a formal possibility. It serves to highlight Marx's exposition and no more. However, the discontinuity within the movement of capital, and thus implicitly the possibility of rupture and crisis, remains an important counterpoint in the development of Marx's principal line of theoretical development as it unfolds through the course of Volume II. As we shall now see as we pass on to the substantiatiation of the overall circulation of capital.

B) Part II: particularization in terms of the individual circuit of capital We have seen that through the continuity of movement of capital expressed in each of its three moments -- the three circuits of industrial capital -- capital comes to inscribe the unity of production and exchange. Production stands as the presupposition of circulation and exchange, just as circulation and exchange stand as the presupposition of production. Both become articulated with the other in the course of capital's movement through and between them that is described by its overall process of circulation.

But as we have seen, this continuity of movement must at the same time posit its own discontinuity. The very movement of capital through its various circuits requires that it becomes halted, at least momentarily, in each of its three distinct and mutually exclusive forms or stages, that is as money- capital, productive-capital or commodity-capital. And, as we have noted, it is with such necessary discontinuity that there lurks the possibility of rupture and crisis.

Yet all this has only so far concerned the mere formal movement of capital. It is a movement that is equally true of capital as a social whole as it is for each individual capital. This formal and abstract movement must now be given a concrete and material content. Marx must proceed to show how the movement of capital becomes particularized in the multiplicity of material and concrete production processes that together make up the totality of the social division of labour, and which serve to specify the particularity of each individual capital. As a result we shall find that capital, in the course of its movement, must assume distinct material and temporal forms.

i) The temporal forms within the overall circulation of capital As we have seen, from the perspective of money-capital the movement of capital appears as simply 'money making money' -- the endless accumulation of the abstract and universal form of wealth. An amount of money, M, is advanced only so that it may return later as a greater sum of money, M'. From this perspective, what is important is the time it takes for this given amount of money that is advanced, M, to expand by a given amount to become M'. The circulation of capital therefore appears as simply the delay in the return of money in the expanded form M'. The shorter the delay represented by the overall circulation of capital the faster money-capital can be accumulated. Hence, for money-capital, the time of the circulation of capital must be reduced to a minimum. Time is the crucial factor.

From such a perspective, which begins and ends in the midst of the realm of exchange, production merely appears as a particularly obstinate, but otherwise indifferent part in the overall circulation of capital. It stands merely as an unfortunate, but nonetheless necessary delay in the return of capital to its expanded money form. As a consequence, from this perspective, the particular forms and categories of productive-capital become collapsed into those of exchange and circulation. (This then becomes reflected and systematized in those bourgeois theories informed by this perspective, such as vulgar and mercantilist economics, which only go as far as to examine the superficial categories of circualtion and exchange).

With the movement of capital reduced to a mere matter of time the particularization of capital into a multiplicity of different material and concrete processes of production also appears simply as a question of time. Each individual circuit of capital becomes specified and differentiated from other individual circuits of capital simply in terms of the time it requires before capital can resume its money-form -- that is the period of its turnover. The multiplicity of concrete and material forms that must be assumed by productive-capital according to each particular production process thereby become resolved in terms of the turnover period of each particular capital.

So, each particular capital is specified in terms of its own particular turnover period. From the point view of the simple circulation of capital (its simple reproduction) the multiplicity of different turnover periods that specify each particular capital can then find a common measure in the annual turnover of capital. That is if the turnover period of a particular capital Mi is ti, so that the number of times the capital will turnover in one year is: ni = 1/ti Where ti is expressed in years).

Then the annual turnover of capital will be: Ti = ni . Mi With this the particular circulation of each capital finds a common measure against all other particular capitals in terms of time.

However, from the perspective of money-capital, the circulation of capital is at one and the same time the movement of its self-expansion. The turnover of capital must bring with it a profit. The longer a given amount of capital takes to circulate the larger must be the profit it must bring in return to compensate for this delay. Thus the common measure of capital becomes annual rate of profit produced by each particular capital. It appears then, that with mi as the profit per turnover, then the annual rate of profit is given as: ARPi = ni . mi / Mi Hence with the formation of a general rate of profit which each money-capital will expect to obtain when advanced, the greater the turnover period required by a particular capital (i.e. the smaller ni) the bigger must be the profit per turnover (i.e. mi). It therefore appears, from this perspective, that profit is a direct function of abstract time! Thus we find in the theories informed by this perspective such notions as profit being the result of the 'reward' for the capitalists' abstinence from current consumption, or for the 'roundaboutness' of production, and so forth.(6) Such misconceptions that arise from this perspective of money-capital are, as Marx points out, due to a failure to distinguish the production of surplus-value from its realization in exchange.

This becomes clearer if we consider the turnover of capital from the perspective that arises with the circuit of commodity- capital, C'...C'. As we have already noted, from such a perspective, in which the expansion of capital is presupposed from the beginning, production and exchange stand as two distinct parts within the overall circulation of capital. Once more we have: Capital-in-circulation Capital-in-production C' -- M' -- C' P ...C'' From this it becomes clear that the turnover of capital must break up into two component parts. Firstly we have the time capital must spend in the sphere of exchange as capital-in- circulation. That is the time taken for the commodities produced by a particular capital to be sold (C' -- M') plus the time taken for commodity inputs for the next cycle of production to be bought. This constitutes the circulation time of a particular capital. This circulation time will of course will depend on the nature of the commodities that are produced by the particular individual capital and the character and location of consumers of these commodities.

Secondly, we have the time capital must spend in the sphere of production as productive capital. This Marx terms the production time which again breaks up into two distinct parts. Firstly we have that part of the production time within which labour is expended in transforming the raw materials of production to create fresh values. This Marx terms working time. Secondly we have that time in which, although in production, no labour is expended on the material forms of capital in order to create fresh values or preserve old values. This he terms non-working time.

So, for Marx the overall turnover period of capital is constituted as follows: Overall turnover period <---------------------------------------------------------> Circulation time + Production time / \ Working + Non-working time time So, for example, in the case of an individual capital which is in the business of producing and selling beer the turnover period will be constituted as follows: Firstly we have the circulation time. This is made up firstly of the time it takes to sell the produced beer; that is, the time taken to deliver the beer to the various pubs and the time it remains in the beer cellars waiting to be sold to those who will finally drink it. And secondly of the time it takes to order and obtain delivery of the raw materials to make the beer such as hops, sugar and yeast; and the time required to hire labour- power of the brewery workers.

We then have the production time. The brewery workers must spend time preparing the yeast, hops etc. for the process of fermentation from which the beer is produced, and time must also be spent after the fermentation process in bottling and labelling the beer for distribution. The sum total of these times constitutes the working time of the productive-capital. However, in this case of beer production, productive-capital must spend a considerable amount of time in which it is not being worked upon by living labour. The beer must be left to ferment. This fermenting time then constitutes the non- working time of the particular productive-capital that has assumed the material forms of beer production.(7)

All these particular temporal forms of capital's circulation become obliterated from the perspective of money-capital which collapses them all into an undifferentiated time of the overall turnover of capital. And it is indeed by making the distinction of these temporal forms that Marx is able to correct the error in the money-capital's perspective of the source of profit.

From this we are able to see that value, and hence surplus- value, is only created during working time. During the circulation of capital this value, and with it the surplus- value which serves to expand capital, is simply circulated. Hence it becomes clear that surplus-value is only created by labour within the concrete and material process of production and not by capital-in-circulation. The circulation of capital therefore acts merely to distribute value and surplus-value that has already been produced in production.

Thus, surplus-value, and the consequent expansion of capital, stands not as the mysterious product of abstract time as such, but as the product of labour time. Of course, those capitals that have longer turnover periods will demand greater profits but such profits emerge from the redistribution of surplus- value between capitals and are not due, as it may at first seem, from the mysterious creation of surplus-value out of mere abstract time.

Later in Part II (in chapter 16 to be precise) Marx presses home this point by deriving the expression for the annual rate of surplus-value. With this derivation Marx takes the first step towards unveiling the relationship between the quantitative production of surplus-value and its redistribution as profit through the general annual rate of profit. But this is only the first step since the question of the distribution of surplus-value as profit properly belongs to Volume III.(8)

ii) The material forms of productive-capital: fixed and circulating capital From the perspective of money-capital then, the multiplicity of material and concrete forms productive-capital must assume are simply dissolved in the overall turnover period of the circuit of capital. The categories and forms of production are thereby conflated into those of capital-in-circulation readily apparent in the profit and loss accounts of the individual capitalist and hence proclaimed the sole truth of the matter by vulgar economists.

Against this perspective of money-capital stands that which arises from the circuit of productive-capital itself, and which, as we have already indicated, was adopted by classical political economy. From this perspective of P...P', what is important is the development of the concrete and material forms through which wealth is actually produced, the accumulation of 'real' productive capital, which is concealed from view by the immediately apparent monetary forms that this wealth assumes in circulation and exchange.

For Marx, it was the very adoption of this perspective which enabled classical political economy to penetrate beneath the superfical categories common to vulgar economy to grasp essentials of the capitalist mode of production, and hence to discern labour as the source of value. Indeed, it was in adopting this perspective that, for Marx, made classical political economy 'scientific'.

Yet this one-sided perspective imposed its own limitations on the perceptions of classical political economy. Firstly, by focusing on the material production of wealth, the perspective of productive-capital over looks the importance of the social form that this wealth takes. As a result social relations are reduced to either natural or technical relations which obscure the historical specifity of the social relations of capitalism. Secondly, as with the perspective of money- capital, the perspective of productive-capital conflates the process of production with that of circulation and exchange. The movement P...P' is not simply a movement of circulation but one of expansion through the accumulation of surplus-value in the form of newly created productive capacity. For Marx, both these limitations of the perspective of productive capital were not only closely connected to each other, but also the cause of serious confusions within classical political economy with regard to the question of labour as the source of both value and profits. Confusions that led to the numerous inconsistencies of Smith and the violent contradictions of Ricardo. Let us consider this further.

From the perspective of productive-capital we begin and end with the concrete material forms capital must assume as 'real capital' producing 'real' wealth. Production is therefore seen as primarily as a material process within which various elements of production are combined to produce material use- values, rather than with the production as a process of valorization. The question that then arises is how are these elements of this real production process subsumed within the overall movement of capital?

In subsuming the elements of production, productive-capital must necessarily fall into three parts, each subsuming one of the three elements of the material process of labour: labour, instruments of labour, and the object of labour (i.e. raw and auxiliary materials).(9) As we saw in chapter 8, in Volume I, where Marx was primarily concerned with the production of surplus-value these three parts of productive-capital become grouped between that which acts to produces new values (i.e. labour), and that whose value is merely passed on (i.e. objects and instruments of labour). In terms of overall circulation of capital, however, the situation is different.

Firstly, labour and the objects of labour are consumed in production. They become embodied in the material form of the final product. As such they can be seen to circulate with the circulation of the final product. They therefore stand as the material forms of circulating capital. Secondly, the instruments of labour -- tools, machinery, buildings etc. -- remain in production retaining their material form. They do not become embodied in the material form of the final product, and they therefore do not appear to be circulated with the final product. They therefore stand as the material form of fixed capital. So as productive-capital, capital comes to assume the two distinct material forms of fixed capital and circulating capital.

From the perspective of productive-capital it may appear that, since only circulating capital seems to enter the process of circulation, circulating capital is identical to capital-in-circulation. Indeed, it was such a confusion between circulating capital and capital-in-circulation that for Marx so bedevilled Adam Smith's account of the matter.

For Marx, it is not the production as a material process that distinguishes fixed and circulating capital as forms of productive-capital but production as a process of valorization. The difference between these two forms of productive-capital is not how the elements of production are materially embodied into the final product as such, but rather how these different material elements of production restrict the transmission, and thus the circulation, of the value of productive-capital into its commodity and money forms. As Marx goes onto argue against Adam Smith's attempt to distinguish between fixed and circulating capital: This difference in the behaviour of the elements of productive capital in the labour-process forms however only the point of departure of the difference between fixed and non-fixed capital, not this difference itself.

That follows from the fact alone that this different behaviour exists in equal measure under all modes of production, capitalist or non-capitalist. To this different behaviour of material elements corresponds however the transmission of value to the product, and this in turn corresponds the replacement of value by the sale of the product. That and that alone is what constitutes the difference in question. Hence capital is not called fixed because it is fixed in instruments of labour but because a part of its value laid out in instruments of labour remains fixed in them, while the other part circulates as a component part of the product. (Capital II, p. 201) What Smith failed to see, with his fetishization of the materiality of the forms of productive-capital, is that through the wear and tear of the instruments of labour, which eventually leads to their replacement, the value frozen in the material form of fixed capital is slowly released. If a production process is to be maintained not only must the sale of the commodities produced replace the value of raw materials and labour-power consumed in the production process, but it must also bring in a value that can be set against the total value eventually required to replace the instruments of labour. So that over the life-time of a particular instrument of labour its entire value must be passed, and thus circulated, in the value of the commodities it has over time served to produce.

For Marx then, it is not that the value of fixed capital does not circulate, and thereby does not become part of capital-in- circulation (i.e. C' -- M' -- C'), but that it is circulated bit by bit over several production cycles. So all of the productive-capital, whether fixed or circulating, is part of the overall process of circulation and we cannot simply equate capital-in-circulation with circulating capital as Smith is prone to do. Indeed: In opposing circulating capital to fixed, no emphasis is placed on the fact that this opposition exists solely because it is that constituent part of productive capital which must be wholly replaced out of the value of the product and must therefore fully share in its metamorphoses, while this is not so in the case of the fixed capital. Instead the circulating capital is jumbled together with those forms which capital assumes on passing from the sphere of production to that of circulation, as commodity-capital and money-capital.

But both forms, commodity-capital as well as money- capital, are carriers of the value of both the fixed and circulating component parts of productive-capital. Both of them are capital of circulation, as distinguished from productive capital, but not circulating (fluent) capital as distinguished from fixed capital. (Capital II, p. 203) So in brief we have: Productive Capital > Capital-in Circulation / \ / \ fixed- circulating- commodity- money- capital capital capital capital

Smith's confusion, however, became further compounded with his failure to distinguish the production of surplus-value from the simple transmission of value.

As we have already noted, it was vital for Marx that the process through which surplus-value is produced, and with it capital expanded, is kept distinct from the process through which capital is circulated. Yet from the perspective of productive-capital, as with the perspective of money-capital, these two processes are taken at one and the same time. They consequently become conflated with each other.

For Marx, in terms of the production of surplus-value and the consequent expansion of capital, in subsuming the material process of labour, productive-capital assumes two antithetical material forms of variable and constant capital. Variable capital subsumes the material element labour, which is the active elements that acts to create and preserve value, while constant capital subsumes the instruments and objects of labour which do not act to create of preserve value. All this we saw in Marx's theory of surplus-value in Volume I.

Now, in terms of the process of the overall circulation of capital, the elements of the material labour process become regrouped into a new antithesis within the material forms of productive-capital; fixed and circulating capital. Labour is now grouped with the objects of labour in that its value is circulated within every production cycle, which is then counterposed to the instruments of labour whose value circulates only piecemeal over several production cycles. This is represented in diagram (9.1).

Figure 9.1

From the perspective arising form the circuit of productive- capital Smith could only fall into a mire of confusion which, as Marx points out, has important consequences: ...owing to the wholly erroneous explanation that profit is made by fixed capital staying in the process of production, and by circulating capital leaving it and being circulated, and also on the account of the identity of form assumed in the turnover by the variable capital and the circulating constituent of constant capital, their essential difference in the process of self-expansion and of the formation of surplus-value is hidden... the entire secret of capitalist production is obscured still more. The common designation of 'circulating capital' abolishes this essential difference. Political Economy subsequently went still farther by holding fast not to the antithesis between variable and constant capital but to the antithesis between fixed and circulating capital as the essential and sole delimitation. (Capital II, p. 203) Yet, as Marx indicates here, it was not merely Smith who fell foul of this confusion but classical political economy as a whole. Including even Ricardo, since he too remained within the perspective of productive-capital: In Ricardo the uncritical adoption of the Smithian confusion is more disturbing not only than in the later apologists, in whom the confusion of ideas is rather something not disturbing, but than in , Smith himself' because Ricardo, in contrast to the latter, is more consistent and incisive in his analysis of value and surplus-value. and indeed upholds the esoteric Smith against the exoteric Smith. (Capital II, p. 223) Whereas it suited apologists of the capitalist mode of production to confuse labour as the source of value, and whereas Smith 'esoterically' upheld labour as the source of value only to 'exoterically' reject it once he could not immediately reconcile it to the readily apparent categories of circulation, Ricardo had maintained a consistent commitment to a labour theory of value. Yet in inheriting Smith's confusion of variable capital with circulating capital, in maintaining the confusion of the process of the production of surplus- value with that of the overall circulation of capital, Ricardo's labour theory of value ran into insurmountable problems that eventually led to its downfall.

Ricardo, unlike Smith, did recognize that in the material form of fixed capital productive-capital did circulate. Yet this was not enough. He still conflated the production of value with the circulation of value and thus still confused variable capital with circulating capital, and he still sought to immediately identify value, a category of production, with price, a category of circulation.

In recognizing the circulation of fixed capital Ricardo was then able to differentiate different capitals according to their durability. Those composed of a high proportion of fixed capital would take a longer time to circulate than those with a low proportion of fixed capital. But by conflating production with circulation, confusing circulating capital with variable capital, and price with value, Ricardo was then led to ask what effect would occur on relative prices if there was a general rise in wages. The answer being that those capitals employing more labour, that is those with less durable capitals (since labour was confused with circulating capital), would find their prices rising relative to those capitals employing a high proportion of fixed capital.

This directly contradicted Ricardo's labour theory of value which sought to immediately identify the labour embodied in a commodity -- its value -- with its relative price. Ricardo was thereby forced to admit that labour was not the sole source of value. That prices, and therefore profits, were also determined independently of labour by the durability, or composition, of capital.

For Marx, however, value and surplus-value are produced in the process of production, through the antithesis of variable and constant capital, and then, through the antithesis of circulating and fixed capital, are redistributed through the process of circulation in the form of price and profit. The readily apparent categories of price and profit cannot be collapsed into those of value and surplus-value. The determination of prices and profits by value and surplus-value is mediated by circulation which serves to redistribute value and surplus-value.(10) iii) The discontinuous forms of capital-in-circulation: latent capital We have seen how, in subsuming the multiplicity of particular production processes, the movement of capital assumes its material and concrete content. And we have seen how Marx, against the one-sided perspectives of bourgeois political economy, derived the particular material and temporal forms of productive-capital that congeal out of the overall circulation of capital.

Indeed, as the most material and concrete form of capital, productive-capital stands as the primary discontinuity within the overall movement of capital. It is the material recalcitrance of production that repeatedly stands in the way of the smooth circulation of capital. It is production that poses the ever present threat of the dissipation of capital's value into the multiplicity of concrete and material use- values that it must subsume.

Yet, as Marx goes onto to show in chapter 15 of Volume II, not only does the circulation of capital posit production as its primary discontinuity, which then becomes subsumed within its overall movement, but equally the continuity of production must at the same time posit circulation as discontinuity. From this congeals the specific form of halted capital-in- circulation which Marx terms latent or suspended capital For Marx, with the development of the specifically capitalist mode of production that emerges with the real subsumption of labour to capital, the continuity of production becomes a vital factor in the enormous development of the social productivity of social labour. With large scale mechanized production systems it becomes far more important to keep the production process in motion rather than incur the huge delays and losses that result from stopping and starting the production line. Continuity of production therefore becomes a crucial and distinguishing factor of capitalist production.

To maintain the continuity of the capitalist production process it is necessary that at the end of each production period the raw materials and labour-power is present in sufficient quantities with which to immediately recommence the next production cycle. However, the commodity-capital produced at the end of any particular production period cannot immediately assume the form of productive-capital with which to recommence production. It has to circulate as commodity- and money-capital -- as capital-in-circulation -- before it can return as productive-capital. Capital-in-circulation therefore stands as an unavoidable delay which threatens the very continuity of capitalist production.

How is this discontinuity posed by capital-in-circulation overcome? Marx answers this question by making the simplifying assumptions 1) that fixed capital is of no consequence and 2) that the production and circulation period of a particular capital is constant. He then considers three possible cases: 1) The production period equals the circulation period.

2) The production period is greater than the circulation period.

3) The production period is less than the circulation period.

Let us consider each of these in turn. 1) In the first case Marx points out that an individual capital need only break up into two distinct parts. While one part is in the process of circulation the other will act as productive-capital. If they both begin their separate processes at the same time then, since both are of equal length, they will both finish their respective processes at the same time. Hence, that part which was acting as capital- in-circulation will return to the forms of productive-capital required to recommence production just at the moment when the other part of capital, having completed its time in production, is set to enter circulation. Thus the continuity of production, and of circulation, is assured.

We may illustrate this as follows: Capital in phase one: C' -- M' -- C'\ C'.......C'.......P.......C'

Capital in phase two C' -- M' -- C'/ That part of capital in phase one begins in circulation. After proceeding through the twin acts of exchange (C' -- M' -- C') it returns in the material form required to recommence production just as that part of capital in phase two is set to leave production. Then, while the capital in phase two passes through the forms of circulation, that part in phase one continues production in the form of productive capital.

So in the case in which production time is the same as circulation time capital can split into two phases each alternating between production and circulation as if they were two independent capitals. It is not so simple as this once we come to consider the second and third cases.

2) Let us take Marx's example where the production period is twice the length of the circulation period; the former being taken as six weeks and the latter being taken as three weeks. And further suppose that the total capital advanced is £900. Again capital will split up into two distinct parts or phases in order to maintain the continuity of production. But these two parts will no longer be equal. Firstly, £600 will be thrown into production as productive-capital, which after six weeks will emerge in the form of £600s worth of commodities to be sold. As this £600 leaves production the other £300 will be used to sustain production for a further three weeks until the original £600 returns from circulation to recommence production itself. So, at the end of nine weeks £300 will have been committed to production for three weeks and £600 will have returned from circulation.

Yet to complete the second production period, which is not due to finish until week twelve, only a further £300 is required. The remaining £300 must therefore be held in hand, either as money-capital or as a stock of commodities required for production. It is only at the end of the second production period that this suspended or latent capital need be converted into actually functioning productive-capital so as to maintain production for a further three weeks until the capital involved in the second production period can return to sustain the remainder of the third production cycle (see diagram 9.2)

Figure 9.2

From this we can see how periodically capital must become temporally fixed in the form of commodity-capital or money- capital in order to sustain the continuity of production. This, as Marx points out is also true in general for the third case where the production is less than the time of circulation.

3) Let us consider the example of a capital in which the production period is four weeks while the circulation period is six weeks, giving an overall turnover period of ten weeks. Further let us suppose that, as before, £100 is needed to sustain production for each week.

With this example we find that £400 must be advanced for the first production period at the end of which this capital, in the form of freshly produced commodities, leaves production and enters circulation. Since none of this capital will return until the end of the tenth week a further £600 will have to be advanced to sustain production in the intervening six weeks: £400 to start the second production period and £200 to cover the first two weeks of the third production period.

So, at the end of the tenth week the original £400 returns from circulation. £200 of this is then used to complete the third production period while the other £200 is held aside as latent capital until the end of week twelve when it can be set in motion once more to start the fourth production cycle. Then, at the end of week fourteen, the £400 used to set in motion the second production cycle returns. Again £200 is immediately thrown into production so as to complete the fourth production cycle, while the remaining £200 is held in hand as latent capital waiting until it can commence the next production cycle at the end of the sixteenth week.

As in the previous case, in general the continuity of production requires that capital-in-circulation becomes frozen temporally as latent capital. However, Marx shows that in this general case, in which the production time is less than the circulation time, their is a special exception to this rule. Namely where the circulation period is an exact multiple of the production period. In such cases the return of capital from circulation can always be timed so as to coincide with the recommencement of production and therefore there is no need to hold aside a sum of latent capital to bridge the gap between the start of production and the end of the coincident circulation cycle.

Taken altogether we can therefore deduce that it is only in the rather exceptional circumstances where the circulation period is equal to, or else an exact multiple of, the production period, that there will be no need for the discontinuity of latent capital to ensure the continuity of capitalist production. In general, the continuity of production will demand the periodic stagnation of a part of capital-in-circulation as latent capital. What is more, although such latent-capital congeals out of the movement of capital-in-circulation and can therefore take the form of money or commodities, Marx observes that, since labour-power cannot be stored and the storage of the means of production may well be costly, latent capital will predominantly take the form of money-capital.

iv) A brief consideration of the the final two chapters of Part II So, with the substantiation of the circulation of capital that is considered in Part II, we have seen how the continuity of the overall circulation of capital demands discontinuities in both its phase of production, and in its phase of circulation and exchange. However, so far in Part II, Marx has only considered circulation in abstraction from the expansion of capital. The circulation of surplus-value that is to be capitalized has been ignored. This, as we have seen, was necessary, not only as a means to simplify his exposition, but so that Marx could clearly and unambiguously press home the distinction between the production and circulation of surplus- value that was so vital if he was to overcome the confusion within bourgeois political economy on this matter. Now, having done this, Marx, in the final chapters of Part II, is in a position to consider the question of the circulation and capitalization of surplus-value that will bring Part II to its completion.

Yet what we find in these chapters (16 and 17) is a very muddled and disjointed exposition that is marked by numerous digressions and false starts. An exposition that is clearly in a raw state, and one that is far from being brought to an adequate form for presentation, even when compared to earlier chapters in Part II. Given such difficulties in Marx's exposition here it is of little surprise that this section of Volume II has often been passed over by commentators. While we ourselves do not intend to disentangle Marx's line of argument in these two chapters in any great detail, it is perhaps informative to briefly consider the methodological difficulties that Marx faced at this point in his exposition.

It is perhaps no accident that Marx should have encountered difficulties in bringing to the point of presentation the analysis of these concluding chapters of Part II of Volume II. By bringing into consideration the circulation and capitalization of surplus-value, Marx's analysis of the substantiation of the circulation of capital in terms of a particular circuit of capital comes to point beyond itself. Indeed, as soon the particular circuit of capital is considered as a particular capitalization of surplus-value the individual circuit is brought into an explicit connection with the total social capital. It therefore can no longer be considered simply in isolation; rather it begins to emerge as a particularization of social capital. As such the material considered in these chapters repeatedly comes to anticipate the analysis of Part III of Volume II. But this is not all that we find anticipated in these very transitional chapters..

In chapter 16 Marx sets out to consider the effect of turnover on the accumulation of a particular circuit of capital. As a means to find a starting point with which to deal with this question, Marx begins his investigation by raising the problem of the apparent paradox that emerges with regard to the divergence between the simple and annual rates of surplus-value which arises between two capitals of differing turnover periods. The example which Marx considers in order to work out his solution to this paradox is as follows: Capital A consists of £500 in variable capital that is turned over once every five weeks. While Capital B in contrast consists of £5,000 which is turned over once every 50 weeks (or once a year -- assuming a 50 week year). Both these capitals are assumed to have the same simple rate of surplus- value of 100 per cent, and, for the sake of simplicity, both are assumed to have a circulation time equal to zero. Under such assumptions it appears that Capital A will produce £5000 over a year in surplus-value, and will therefore have an annualized rate of surplus-value equal to 1,000 per cent (i.e. £5,000s/£500v). However, although Capital B has the same simple rate of surplus-value as Capital A, its annualized rate of surplus-value will work out as only 100 per cent (i.e. £5,000s/£5,000v).

As Marx finally shows, after numerous numerical examples, the solution to this apparent paradox is simple enough once the distinction is made between capital advanced and capital employed. In the case of Capital A the £500 of money-capital originally advanced is converted into productive-capital every five weeks at the end of which it returns as another £500 of money-capital. Hence the £500 originally advanced is employed ten times during the year meaning that over a year Capital A has employed £5,000 worth of capital which has produced £5,000 of surplus-value. In contrast, the £5,000 advanced by Capital B has been only employed once during the year and hence the annual capital employed is also £5,000 which has also produced £5,000 worth of surplus-value. Although Capital B originally advances more capital it does not produce proportionately more surplus-value because its prolonged period of production requires it to hold back a large part of this advance as idle money-capital before it can be productively employed. This idle money-capital is only gradually converted into productive- capital over the course of an entire year, rather than over five weeks as with case of Capital A.

What, it may be asked, is the significance of this example? Through the solution to this apparent paradox Marx comes to make the important distinction between the advance of capital and its actual employment, which in turn allows him to show how the expanded circulation of surplus-value is necessarily interrupted or delayed by the varying turnover periods of particular circuits of capital. Hence we find one more example of how the specific characteristics of a particular circuit of capital require discontinuities within the overall continuity of capital's circulation.

However, this line of investigation leads Marx off at various tangents that can be seen to point beyond the immediate theoretical concerns of Volume II. By taking as his starting point the example of the two individual capitals, that are the same except for the fact of having different turnover periods, Marx, for the sake of illustration, comes to conflate the analysis of an individual capital -- which properly belongs to Volume III -- with an analysis of particular circuits of capital. As a consequence, Marx is easily led not only into seeing an individual circuit as the particularization of social capital, but also into opposing the individual capital to the total social capital. Hence he is led towards raising such questions as how the individual capitals came by their money-capital advances; and thus to further questions of borrowing, money markets and credit, all of which properly belong to Volume III.

But more than this, at the end of chapter 16, Marx's analysis briefly opens out onto the question of crisis, as he considers how the withdrawal of commodities and money due to the need to hold advanced capital idle impacts on the overall circulation of total capital. But in raising the issues of credit, foreign trade, crisis and so forth is a hopelessly premature digression. Marx is eventually obliged to break off and make a fresh start in chapter 17, which is then in turn disrupted by digressions and as such also proves to be a false start.

Yet it may be said that, for all the false starts and digressions that we find in these two chapters, we are at least able to gain a glimpse, as we did with the Grundrisse, of Marx still in the process of closing off tangential questions, including those of rupture and crisis, so that he could order his presentation. But perhaps more than this, we also gain an indication of how close to the surface these questions of rupture and crisis are coming within Volume II. How near they are to eruption. A point that we shall develop in more detail in our subsequent consideration of the final part of this volume.

v) Conclusion The movement of the particular capital therefore brings with it the periodic hoarding and dishoarding of money. The formal possibility of the independent existence of money which emerged in Volume I with money being withdrawn from the circulation of commodities as a hoard now re-emerges within the very circulation of capital. With latent capital this independent existence of money, distinct from circulation and production, finds its material content in the continuity of the particular production process. But does not the independent existence of money-capital point towards the relative autonomy of its movement as it did formally for money in Volume I? Does this relative autonomy of the abstract money-form of capital from its more concrete forms suggest a cleavage between them which may then eventually lead to rupture and crisis!? Indeed it does, but only tangentially for Marx's principal line of theoretical development at this point.

Latent capital stands as the temporary form in which capital- in-circulation congeals as a necessary interruption in the overall circulation of capital. Insofar as it allows the continuity of production to proceed, and that it eventually circulates itself as productive-capital, it is a discontinuity that is eventually resolved into the overall movement of capital. But as a discontinuity, latent capital contains the possibility of rupture; of the independent movement of money -- capital that, in the form of what Marx latter calls fictitious capital, may overstep the limits of real production to cause crisis. But as such it stands as the counterpart of fixed capital.

Fixed capital itself stands as the temporary form in which productive-capital -- capital-in-production -- congeals as a necessary interruption in the overall circulation of capital. Insofar as it allows the continuity of the overall circulation capital by slowly passing on its value through the wear and tear and eventual obsolescence of its material forms, it is, like latent capital, a discontinuity that is eventually resolved into the overall continuity of the movement of capital. But it still stands as a necessary discontinuity, and as such it contains within it the possibility of rupture.

Fixed capital is capital frozen in the material form of the means of production. Although, as capital, it ultimately exists as a sum of value, it is a value that is not repeatedly validated through exchange. It is rather a sum of value that can only be imputed through its gradual depreciation. Fixed capital finds its immediate existence as the complex set of productive use-values within which it is incarnated. In fact, even though for a number of reasons, such as changes in market demand or technological change, fixed capital may become partly or completely devalorized it may still function as a set of use-values within the production process. Unlike circulating capital, fixed capital's function as a productive set of use values can therefore obtain a relative autonomy from its essential function as self-expanding value. As such, fixed capital posits the possibility of a divergence between its productive use-values and its value whose unity can only be reimposed through rupture and crisis.

Marx, however, is not at this point primarily concerned with such possibilities of divergence and crisis. As we have seen, Marx's principal concern is to derive the material and temporal forms that arise out of the overall circulation of capital as categories that are sharply distinct from those that arise out of production itself. His main aim is to make clear, against all the confusion endemic to bourgeois political economy, that the overall circulation of value and surplus-value is radically distinct from their production. Surplus-value can only be crated in production through the exploitation of living labour, and is merely redistributed through the overall circulation of capital. In pressing home this point Marx is able to dismiss all the contentions of political economy that serve to obscure the source of profit that arise from the analytical conflation of production with circulation. Marx is thereby able to underpin his essential conclusion of Volume I that profit arises out of the exploitation of labour.

Yet in pressing home this point Marx is obliged to stress capital as the unity of production and exchange. It is only through this emphasis on capital as the unity of production and exchange that Marx could clearly distinguish the production of surplus-value from the circulation of capital. Any concerted pursuit of the question of rupture and crisis would have raised the question of devalorization and the destruction of surplus-value that would of only caused untold confusion within his current exposition.

So even though in deriving the categories of circulation Marx repeatedly posits the discontinuity within circulation, he is ultimately obliged to resolve this discontinuity within the overall continuity of circulation which comes to express the unity of production and exchange.

Thus, for example, capital becomes partly halted in production as fixed capital, but only temporarily. Through the provisions for wear and tear and the eventual replacement of its material form, fixed capital eventually leaves production and circulates within the realm of exchange. The continuity of overall circulation is thereby maintained. There is no question at this point of investigating the possible devalorization of fixed capital or its possible role in crisis. What is important for Marx here, as we have seen, is to avoid the confusion of the circulatory antithesis of fixed and circulating capital with that of the productive antithesis of constant to variable capital.

So, here in Part II of Volume II Marx's emphasis remains on the unity of capital; of capital as the unity of production and exchange. The question of rupture and crisis remains submerged as a mere possibility tangential to the principal line of theoretical development. We must now follow this line of development to the final part of Volume II.

C) Part III: the particularization of social capital In Part II of Volume II Marx showed how the formal movement of capital became substantiated by subsuming the multiplicity of particular production processes. Now, in Part III, Marx turns round to consider how the circulation of this multiplicity of particular capitals comes to constitute the particularization of the circulation of social capital.

i) The circulation of revenue and capital Following an introduction which includes an extensive digression on the question of money, the implications of which we shall return to in due course, Marx begins with a rather lengthy critique of Adam Smith's theory of the circulation of the national income.

For Smith, the total value produced within an economy must equal its total revenue, since the cost of production for one producer is a revenue for another. Hence, translated into Marx's terms, while the value produced by an individual capital is: w = s + v + c The total value produced in the economy as a whole is: W = S + V Where W, is the total value of commodities produced, S is the total surplus-value and V is the total variable capital. This will in turn equal the total revenue received by the three great classes in society. V will equal the total value of wages paid to the working class, while S will equal the total value received by the propertied classes in the form of rent to the landlords and profits and interest to the capitalists.

But it may well be asked what happens to the value of constant capital in the value produced by each individual capital? Smith has a rather ingenious reply to this question by examining the composition of the value of constant capital itself. Constant capital will comprise commodities produced by another capital whose value will also break up into the value of its own means of production and the revenues of profit, rent and wages that are derived from it.

So we have: c = s' + v' + c' But this is not all. The value of the constant capital, c', used up in the production of the means of production destined for the first capital considered, will also break up into three parts, two representing revenue and the third representing constant capital. We therefore have: c' = s'' + v'' + c'' And so on. With each step back the amount of constant capital becomes smaller, so that eventually, if we trace the value of the commodity back far enough it will all be resolved into the value of the various revenues represented by s and v.

By shuffling constant capital out of the equation it appears that capitalist production is merely a means for the generation of revenues which sustain the various classes of society, since all we are left with ultimately is the total circulation of revenue. The circulation, not only of constant capital but of capital as such, simply disappears in the light of the economy taken as a whole. Such a disappearance of the circulation of capital was of little concern for Smith, since, like all classical political economists, Smith was ultimately concerned with how the value of a commodity came to be distributed as class revenues.

For Marx, however, this disappearance was of vital importance. Unlike Smith, Marx could not uncritically accept that the process of capitalist production and circulation was simply a means through which the revenues of the three great classes emerged. Rather, for Marx, the purpose of capitalist production and exchange was nothing other than the self- expansion of capital. Capital was a self-mediating process that had itself as its own means and ends. From such a perspective revenues were merely epicycles that were necessary for the overall circulation of capital. Hence, for Marx, capital could not be simply reduced to a source of revenue.

So how was it possible for Smith to simply reduce the circulation of capital to the simple circuits of revenue? As Marx makes clear, revenue is not simply a return to 'a factor of production' but, in contrast to capital expenditure, is a return which is spent on consumption that has no immediate purpose in either preserving or else expanding value. Thus insofar as rents and profits are frittered away on the personal consumption of landlords and capitalists, then surplus-value enters circulation as revenue. Furthermore, although wages are advanced by the capitalist to replace the variable portion of her capital, in the hands of the worker wages are spent as revenue to meet the worker's immediate needs and purposes.

Even though the sustenance of both the worker and the capitalist is necessary for capitalism this purpose is not immediate but is rather mediated through the needs and wants of the worker and capitalist. To this extent Smith was correct to take both s and v as revenues, as they indeed are if it is assumed there is no reinvestment of surplus-value, and if the advance of wages by the capitalist as replacement of variable capital is ignored. The real problem for Smith was the constant capital part of the value of the commodity which, by serving to directly replace the value of the means of production used up in production, immediately served to preserve the value of capital and thus could not be so simply reduced to a circuit of revenue.

Yet, as we have seen, Smith neatly sidestepped this problem by simply shuffling out constant capital in his calculations of the economy as a whole. However, as Marx seeks to press home, this trick of tracing the value of commodity back either into its primordial past or else to some mythical labour process in which there is no constant capital is spurious. By considering the value composition of the commodity in terms of all the value ever created, Smith not only overlooks the fact value must be repeatedly revalidated in the market if it is to remain preserved, he also obscures the distinction between value created in a given period and the value preserved. By reducing all value to that created we obviously end up with only S and V.

But what more than anything else demonstrated the spuriousness of Smith's argument was the fact that, during any period of time, a large proportion of social labour has to be devoted to producing means of production, rather than the means of consumption which can be brought with revenues. If the total value only consisted of revenues then all these industries devoted to producing means of production would never be able to find a buyer.

As a consequence, Marx was led to consider the division of the total social capital into two departments; Department I which is devoted to producing means of production and Department II which is devoted to producing the means of consumption. In making this division, Marx was not only able to provide a basis on which to overcome the confusion of Smith, but, as we shall now see, he was also able to begin to raise important questions concerning how it is possible for the total social capital to reproduce itself out of the multiplicity of particular circuits.

ii) The schemas of simple reproduction

So, Marx divides the total social capital into two departments. Department I includes all those capitals which produce the means of production. Department II includes all those capitals that produce means of consumption. The total value of the commodities produced by each department can then be represented as follows: Department I: Iw = Is + Iv + Ic Department II: IIw = IIs + IIv + IIc The first problem is that at the of the production period in Department I, the value representing both wages and propertied income (i.e. Iw and Is) is in the material form of means of production not means of consumption necessary to satisfy the needs of the workers and capitalists in that department. However, at the same time the capitalists in Department II will find themselves in possession of commodities representing the value of their constant capital but in the material form of means of consumption. Since workers and capitalists in Department I can no more eat coal to survive as the capitalist in Department II can run their factories on cakes and buns, the only solution is for these two departments to exchange commodities.

So, if these two sets commodities are to be exchanged in accordance with their values the two departments must be in proportion to each other such that we have: IIc = Iv + Is If we assume that both the value composition of capital and the rate of exploitation are uniform across the two departments then the proportion of abstract social labour that must be employed in the two departments (which we shall take as being equal to the ratio of the total values produced by them, i.e. W = Iw/IIw) to ensure the smooth reproduction of the total social capital can be expressed as follows: W = k / (e + 1) Here, then, we have the first condition of proportionality that must arise to ensure the simple reproduction of social capital. Yet there is no guarantee that this condition will be met. On the contrary it must arise spontaneously out of the competition between capitals and, as can be seen, any alteration in the rate of exploitation or in the value composition of capital will upset any equilibrium established on the basis of this proportionality.

But this is not the only condition of proportionality that Marx identifies. A further problem arises within this 'schema of simple reproduction' with the division of Department II into two subdepartments: Department IIa which produces the means of subsistence, the necessities of life mainly consumed by the workers, and Department IIb, which produces luxury goods for the consumption of the propertied classes.

Now at the end of each production period workers in Department IIa will be able to buy back with the wages they have received the means of consumption they have just produced. But workers in Department IIb will find the means of consumption they have produced to be of a kind too expensive and frivolous for their own immediate needs. At the same time, capitalists in Department IIa will find the commodities in their possession too basic to meet their tastes in contrast to those in Department IIb who will be able to buy back the commodities for their own personal consumption directly from their own subdepartment.

So alongside the exchange between Department I and Department II there arises a necessary exchange between the two subdepartments of Department II. Thus we have: IIas = IIbv But the workers and capitalists in Department I must also obtain their required means of consumption from the respective subdepartments of Department II. We therefore also have the exchange equations: IIac = Iv and IIbc = Is Together these constitute what we may term the second conditions of proportionality that must hold to allow the simple reproduction of social capital. A condition that clearly complicates that of the first. But this is not all. Marx identifies a third set of conditions that arises with the division of Department I into two subdepartments. But before we can consider this third set of conditions it is necessary to look at the role of money in the exchange between the two departments of social capital.

As we have seen, IIc = Iv + Is expresses the necessary value relation that must hold in the exchange between the two departments necessary for the smooth reproduction of social capital. But as such it expresses a two-fold social process. Firstly, a set of concrete use-values contained in those commodities produced in Department I are to be exchanged for another set of concrete use-values contained in the commodities produced in Department II. But for such an exchange to take place these use-values must be made commensurate with each other as equal quantities of value. They thereby come to express themselves in the common and external measure of value -- money.

However, it is not sufficient for money to act as a simple measure of value; it must also be present to enact the necessary transfers to bring these exchanges about. It must act as a means of circulation. Money must therefore act as both a measure of value and a means of circulation in order to bring about this exchange between departments. But this mediation can all too easily be eclipsed in its result.

Any society with a division of labour at all developed will involve a separation between the production of means of production and the production of means of consumption and as such will require a transfer of use-values analogous to those that we have identified. A transfer that we shall denote as: I > < II Such a transfer is transhistorical in that it can be applied to most modes of production. Taken as a result it is easy to reduce the exchange IIc = Is + Iv to this transhistorical expression above. But because capitalism is based on the separation of the direct producers from the means of production, the division of labour between these two departments takes on a special social significance and is therefore far from being an arbitrary analytical division. Furthermore, the transfer is brought about through the exchange of commodities; that is through a determinate equality of values. It is not sufficient for each department to have use-values the other requires for reproduction; it is also necessary that each department has the money to make the transfer of these commodities as values.

Marx repeatedly stresses the historical specificity of the 'schemas of reproduction', a point often overlooked by many commentators, and he endeavours to investigate the role money plays in mediating the exchanges between the two departments. Thus Marx takes the example of a social capital made up as follows: Iw = 4000c + 1000v + 1000s and IIw = 2000c + 500v + 500s If each unit of value is expressed as £1 then the exchange IIc = Is + Iv can be brought about through the mediation of money by a given sequence of exchanges. Assuming that Department I capitalists begin with £1000 in cash and Department II with £500 in cash then Marx proposes the following possible sequence of exchanges: 1) I pays £1000 in money for labour-power, hence for commodities equal to £1000. 2) The labourers buy with their wages amounting in money to £1000 articles of consumption from II; hence equal to £1000.

3) With the £1000 received from the labourers II buys means of production of the same value from I; hence commodities of equal value. In this way the £1000 has returned to I as the money- form of its variable capital. 4) II buys £500 worth of means of production from I, hence commodities equal to £500.

5) With the same £500 I buys articles of consumption from II; hence commodities equal to £500 6) With these same £500 II buys means of production from I; hence commodities equal to £500. 7) With the same £500 I buys articles of consumption from II; hence commodities equal to £500. (Capital II, p. 420) With this sequence of purchases and sales the necessary exchange of commodities is accomplished and the capitalists in Department I find themselves ending up in possession of £1000 in cash they originally advanced, while those in Department II find themselves once again in possession of £500 in cash.

With this example, Marx is able to illustrate how the circulation of commodities necessary for the reproduction of social capital requires a counter-circulation of money to bring it about. What is more this circulation of commodities requires a certain sequence of monetary exchanges if it is to be repeatable, a sequence that could at any point break down or become disordered.

With the exchanges that we have so far identified, which emerged between the two departments and between the subdepartments of Department II, the circulation of money is immediately connected with the circulation of commodities. This is not the case now that we consider the third conditions of proportionality that emerge with the division into subdepartments of Department I.

Marx divides Department I into two subdepartments such that Department Ia produces instruments of production that are to serve as fixed capital, while Department Ib produces objects of labour which are destined to serve as circulating constant capital. This division further implies that the constant capital employed in Department II must be divided between that which is fixed capital and that which is circulating capital.

Within the exchange IIc for Is + Iv capitalists in Department II will seek to obtain fixed capital from Department Ia to replace that which has become worn out, as well as circulating constant capital from Department Ib to replace that which has been consumed during production. Thus just as with the division of Department II into two subdepartments we obtain a further set of value equations that must be satisfied in order to ensure the reproduction of social capital. But this is not all. We have a further problem concerning the reflux of money.

As before capitalists in Department II will sell means of consumption to Department I with a total value of Is + Iv which should then leave them in possession of a sum of money sufficent to buy back from Department I means of subsistence worth IIc. However, capitalists in Department II will not immediately need to replace all of their constant capital that they have employed during the previous production period. Indeed, they will only need to buy that part represented by circulating constant capital. The amount of money they receive which accounts for the depreciation of their fixed capital will be set aside in an amortization fund. Only when the instruments of labour used need replacing will the money in this fund be used to buy commodities from Department Ia.

So we find money being salted away in Department II in the form of amortization funds. Yet the capitalists in Department Ia need this money not only so that they can pay their workers wages, but also to provide themselves with means of consumption. Without this money, neither the capitalists nor the workers will be able to purchase their means of consumption from Department II. Department II will therefore find itself facing a shortfall in the reflux of money coming back to it from Department I. With reproduction of Department Ia impeded so the reproduction of social capital as a whole becomes imperilled.

How can this discontinuity in the reproduction of social capital that arises with the production of fixed capital be overcome? The reflux of money can only be restored with the eventual purchase of fixed capital from Department Ia by capitalists in Department II. Indeed, periodically capitalists in Department II will have to make such purchases out of their amortization funds as fixed capital wears out and needs replacing. What is therefore required to sustain the smooth reproduction of the social capital is that money that is hoarded in the form of amortization funds is cancelled out by the dishoarding that arises from the purchase of new items of fixed capital.

So, abstracting from such complications as credit, in any one period Marx divides the capitalists in Department II into two sections. Section One will include all those capitalists replacing their fixed capital by buying commodities from Department Ia, while Section Two will include all those simply sinking money into their amortization funds. The money being withdrawn from circulation by Section Two must now be offset by that being dishoarded by those in Section One.

So, with this third set of conditions, we not only require a given set of proportionalities to arise between the various departments and subdepartments in any given period but also over different periods of time as well! Such exacting conditions become even more complex once we move onto consider the 'schema of expanded reproduction'.

So, we have identified three sets of conditions of proportionality that must hold to ensure the simple reproduction of the social capital. These conditions still hold for the expanded reproduction of capital but are slightly modified due to the capitalization of surplus-value. We shall follow Marx and just consider the modification of the first set of conditions for the sake of simplicity.

With the expansion of capital the surplus-value in each department must become divided into that part which is to be capitalized and that part which will be retained as the revenue for the capitalists. That part which is to be capitalized will be further divided into that part which will provide for the additional variable capital and that part which will call forth additional constant capital. We therefore have: s = as + bs and as = Dc + Dv Where, s is the total surplus-value, as is that part which is capitalized and bs is that part which is to be spent as revenue, with Dc and Dv being the value of additional constant and variable capital respectively.

Since that part of the surplus-value which is to be capitalized will include a part which is no longer exchanged for the means of consumption the original exchange IIc = Is + Iv becomes: IIc + IIDc = Iv + IDv + Ibs or IIc + IIDc = Iv + IDv + (Is -- IDc) That is, Department II, if it is to expand its scale of production, must not only replace the means of production it has used up in the current production period but must also capitalize part of its surplus-value in the form of additional means of production to the tune of IIDc which can only be obtained from Department I. Department I, for its part, will now need to secure additional means of consumption for its additional workers to a value of IDv if it is to expand its own scale of production. However, since only a part of its surplus-value will now be spent as revenue, the rest being used to expand the scale of production in the form IDv and IDc, Department I will need to purchase a diminished value, Ibs, of means of consumption from Department II in order to satisfy the personal requirements of its capitalists.

Yet this is not all. With the simple reproduction of capital, once the first set of conditions of proportionality had been established in any given period they were the same for all subsequent periods so long as nothing else changed. But now both departments must not only be proportionate in any one period, they must grow in proportion, such that the conditions of proportionality are satisfied in each subsequent period even if the rate of exploitation and the value compositions of capital remain constant in both departments.

Thus with the 'schema of expanded reproduction', the first set of conditions of proportionality that arose with the simple reproduction of capital becomes modified both synchronically and diachronically. Similar modifications can be taken to apply to the other two sets of conditions of proportionality -- though we do not propose to elucidate these here. But what is more, specific to the expanded reproduction of capital, Marx identifies a fourth set of conditions of proportionality that must be satisfied.

Any particular production process requires a minimum set of productive use-values to set it in motion. Half a factory is of no more use in producing either real material wealth or surplus-value than no factory at all. Indeed, even a whole factory is of little use if it does not house tools and machinery required in the production process or does not have a supply of raw materials and labour to set production in motion. The combined value of this minimum set of productive use-values defines the minimum quantum of capital required to expand a particular production process. As capitalist production develops, production is carried out on an ever larger scale and consequently the minimum quantum required to expand production will tend grow larger.

Now, with the expanded reproduction of capital, surplus-value must be capitalized so as to set more production processes in motion. But it can become capitalized as productive-capital only insofar as it is sufficient to meet its own particular capital quantum. With the tendency for the minimum quantum of capital to rise, many individual capitals will produce insufficient surplus-value in any given production period to meet such quantitative requirements for immediate capitalization. Instead surplus-value will have to be accumulated over several production periods as potential money- capital. This money-capital will be hoarded in the form of an investment fund until it is of sufficient size to be converted into new productive-capital.

Here we have an analogous problem to that which we encountered with fixed capital, which arose once we made the distinction between the two subdepartments of Department I. The circulation of money becomes halted by temporarily taking the form of a hoard -- in this case in the form of an investment fund. As a result there arises the possibility that those in Department I will be unable to sell what they have produced and will as a result be unable buy what they require in order to sustain production from Department II. In fact, in this case, it will be those in Department I producing additional means of production (i.e. IDc), rather than those exclusively in Department Ia, that will immediately face the problem of a shortfall in demand due to the withdrawal of money from circulation.

As before the solution is to recognize that the hoarding arising from investment funds is counterbalanced by a dishoarding from such funds. So, following Marx, we can divide capitalists into two sections. In Section A we have all those capitalists which are currently sinking their surplus-value into investment funds and who are therefore withdrawing money from circulation. Conversely, in Section B we have all those capitalists that are currently in the process of converting there investment funds into productive- capital and thereby releasing their hoarded money into circulation. As with the third set of conditions of proportionality, what is required is that these two sections of capital are such that the hoarding by one section is exactly offset by the hoarding of the other. So the amount being sunk into investment funds by Section A must be equal to that being paid out on new investment by Section B.

With this necessary proportionality between Section A and Section B we have the fourth set of conditions of proportionality, which like the third set must be reproduced over time as individual capitals making up these two sections change from period to period. We need not examine any further Marx's analysis and illustration of the 'schema of expanded reproduction' with which he concludes Volume II. What is important is that it can be clearly seen that the exacting and complex conditions of proportionality that arise with the 'schemas of simple reproduction' become further compounded in their expanded form which applies to the normal development of the capitalist mode of production. We shall draw the implications of this with the conclusion of our consideration of Volume II, but before this we must briefly consider the Marx's repeated insistence on considering the role of money that we find throughout Part III.

iv) A short note on the importance of money We have seen how, through his 'schemas of simple and expanded reproduction', Marx has established the necessary conditions of proportionality necessary for the smooth reproduction of social capital. However, at this point it should also be noted that throughout Part III Marx repeatedly returns to the question of money in the reproduction of social capital. As we have already seen, Marx insists on recognizing the importance of the fact that the circulation of commodities both between and within the various departments of social capital that ensure its reproduction requires a counter- circulation of money. The mutual exchange of commodities both within and between departments can only be carried out by a coresponding flux and reflux of money.

However, insofar as the conditions of proportionality hold such that social reproduction remains in 'equilibrium', money appears in the series of exchanges only fleetingly. It acts simply as a means of circulation which does little more than oil the wheels of the reproduction process. It is this that leads many Marxist 'economists' to over look the importance of money in Marx's 'schemas of reproduction'. Indeed, for those who would look to the 'schemas of reproduction' as evidence of Marx as some kind of general equilibrium theorist, money becomes reduced to nothing more than a mere numeraire.

Yet we can see that in repeatedly returning to a consideration of money throughout Part III, Marx was seeking to aviod this error of reducing money to simply its function as a means of circulation even though his main analysis at this point tends to impose such a reduction, albeit provisionally. However, as we have seen with regard to fixed capital and the accumulation of given quanta of new capital, even in the 'schemas of reproduction' we can see money beginning to emerge in its third function as both a hoard and a means of payment. The development this third function becomes even more important once these conditions of proportionality are taken not to apply. This is indicated in Marx's numerous digressions into the question of money and credit that punctuate the text of Part III, and which, indeed, often open out onto the question of rupture and crisis.

But all such digressions are tangential at this point. Marx is primarily concerned with the possibility of the reproduction of social capital -- with capital's coherence -- he has yet to develop his monetary theory of credit and can only go as far as to consider money as commodity-money. As such Marx is constrained in developing the third function of money, let alone the question of crisis and rupture. All he can do is indicate the implied third function of money and allude to the possibilities of crisis and rupture. Yet with Marx's repeated diagressions on money in Part III we can see the increasing tensions within the text that are pointing towards such tangential questions.

Conclusion So, in conclusion, what is perhaps most striking in our consideration of Marx's 'schemas of reproduction' is the very precariousness of the conditions of social capital's reproduction. As we have seen, the reproduction of social capital, with capital as the unity of production and exchange, depends on a series of highly restrictive and exacting conditions of proportionality holding between the various departments and sections that together make up social capital as a whole. These conditions are not imposed prior to the overall circulation of capital but must arise spontaneously out of this very process itself. Indeed, these conditions can only be established de facto as the result of the competitive and chaotic interaction of many-capitals. In such circumstances it would seem unlikely that any of these conditions of proportionality necessary for the smooth reproduction of social capital would ever be satisfied other than by pure accident, and even then not for long.

It would appear then that in delineating the possibility of the overall circulation of social capital Marx comes to posit its very impossibility.(11) We find ourselves back in a similar position to that which we were in at the end of Marx's analysis of the circulation of money and commodities in Volume I, except that now we are at a more concrete level of analysis. The discontinuities which we found earlier in Volume II, which congealed in such forms as latent and fixed capital for example, now threaten to disrupt the overall movement of capital. We face the possibility of the divergence between the movement of capital-in-circulation and capital-in-production (money-capital versus productive- capital) and thus the possibility of their forcible reunion through the destruction and devalorization of capital. That is we face the possibility of rupture and crisis in the movement and overall circulation of capital.

Indeed, the question of rupture and crisis seems imminent. It appears to be on the verge of breaking through into the text of Capital. But once more Marx cannot countenance such an event at this point in his exposition. It is still tangential to Marx's principal line of theoretical development. In order to uncover how far the conditions of proportionality may arise spontaneously out of competition and the consequences if they do not, it would be necessary to examine this competition between the multiplicity of individual capitals itself. But Marx at this point is not yet in a position to do so. He has yet to consider how surplus- value takes the distributional forms of profit, rent and interest; and he has yet to consider the singularity or individuality of capital that must be understood before he could contemplate considering such competition between the multiplicity of capitals. All this belongs to Volume III and beyond.

However, as we shall see in the next chapter, the question of rupture and crisis that has been brought to imminence in Volume II begins to surface more and more violently in the final volume of Capital. Yet even there it has to be confined to the margins of the text.

Notes

1. See Luxemburg (1963).

2. We shall consider the controversy concerning the solution to the 'transformation problem' in chapter twelve.

3. It is perhaps important to stress here that the closure of rupture and crisis is intrinsically linked to that of the closure of the counter-dialectic of class struggle as two aspects of a two-fold closure. However, for the purposes of our exposition here we have separated them out as if they were in fact independent of each other. This should be borne in mind by the reader.

4. Most Marxist presentations of Capital which seek to stress that it is a critique of political economy rather than simply an exposition of Marx's 'economics' rarely go beyond Volume I. Indeed many do not get beyond the first chapter of the first volume. A full consideration of all three volumes has therefore been mainly left to Marxist 'economists' who have tended to overlook importance of Volume II, particularly Parts I & II. Indeed, it has been only when confronting the more concrete questions, such as the globalisation of capital, that the categories of the three industrial circuits of capital have been brought into play as important tools of analysis. One exception to this is Desai who has placed the three circuits of industrial capital in a central position in his understanding of the political economy of Marx. See Desai (1979).

5. The Physiocrats were a school of French economists who were the early precursors to Classical Political Economy. Their importance for Marx was that they were the first to grasp the economy as a system of circulation and reproduction and also the first to theorize labour (albeit only agricultural labour) as the sole source of value. For Marx's critique of the Physiocrats, see (TSV I).

6. The theory of capital as simply a matter of abstract time, and the consequent theories of capital as merely an expression of the 'round-a-boutness' of production, was most clearly set out by the Austrian School of neo-Classical economics, the most notable of whom being Bohm-Bawerk. For a modern re-statement of such theories see Hicks (1973). Also to see the continuing importance of such theories to the more sophisticated and advanced of modern neo-Classical theory see the introduction to Bliss (1975).

7. Of course the distinction between the time of circulation and the time of production may not be so clear cut in practice. For Marx transport, by materially transforming a products use-value by changing its physical location, was part of production and hence the socially necessary time required to transport commodities from where they are produced to where they are to be consumed is part of the time of production. But it may also be part of these commodities time of circulation. Hence in practice production time and circulation time may overlap. This of course facilitates the confusion that arises from the perspective of money-capital that turnover time is essentially all the same.

8. We shall return to consider the formation of the annual rate of profit in more detail in chapter ten.

9. See the Chapter on the labour-process in Volume I of Capital and our consideration of it in the previous chapter.

10 For an analysis of the relation of fixed and circulating capital and the formation of prices and profits, see Shortall (1986).

11. This aspect of the 'impossibility of capitalism' that becomes apparent with the schemas of the reproduction of capital and the very precariousness of their conditions of proportionality is brought out by Rosa Luxemburg's theory of imperialism. See Luxemburg (1963 & 1972). For Luxemburg, the increasing value composition of capital inherent within the process of capital accumulation could only serve to continually disrupt the conditions of proportionality required for the smooth expanded reproduction of social capital and would, as a consequence, perpetually plunge capitalism into a crisis of underconsumption. The only resolution to this 'impossibility of capital accumulation' was through the imperialist expansion of capitalism and the annexation of pre- capitalist social formations into the world capitalist system. See Bukharin's critique of this thesis of the essential 'impossibility of capitalist accumulation' -- Imperialism and the Accumulation of Capital' -- translated and published in Luxemburg (1972).