Chapter 5: Contradictions in the General Formula

Submitted by libcom on August 10, 2005

Outline of Marx's Discussion

Problem: explain source of prime in M', i.e., expanded value in the formula M-C-M'
Expanded value
: does not originate in exchange
: taken in the aggregate can not originate in cheating
: therefore, the expanded value must originate outside exchange

Having arrived at the general formula for capital M - C - M' through the analysis of circulation, Marx must now explain the source of the prime in M'. In this chapter he begins that explanation negatively by showing that the prime (designating surplus value) cannot originate within the circulation process. And if that is the case, then clearly we must turn elsewhere (to the sphere of production) for an answer. This chapter amounts therefore to a transitionary chapter between the analysis of circulation and that of production --the sphere of labor-- the only sphere in which surplus labor as surplus value could originate. (Note: if we keep in mind, from our studies of primitive accumulation and chapters 1-3, the understanding that value is work, then it is obvious that surplus value or surplus work could only originate in the sphere of production --which is the sphere of work-- since circulation by definition is the sphere of exchange pure and simple). Let us however follow Marx's reasoning by which he moves us beyond circulation.

Marx begins by noting that M - C - M' contradicts all the laws of exchange, value, money, etc. already developed. Why? Presumably because C - M' is unequal exchange. What goes?

First he looks at the inverted order of succession and asks if this can be the source? That is to say that we have M - C and then C - M' rather than C - M, M - C. After running through the process M - C and C - M' from the point of view of both buyer and seller at each step, he concludes that in terms of what actually happens the order is irrelevant , the actual acts are still those of simple commodity circulation. Therefore the question must be reposed:

"We must rather look to see whether this simple circulation, by its nature, might permit the valorization of the values [increase in magnitude of value] entering into it and consequently the formation of surplus value."

To answer this question he begins with:

1. The analysis of simple exchange: C - C wherein money appears only as money of account --to name price-- but does not enter into exchange. In this case Marx argues that in terms of use-value it can be said that each side gains because it gains more than it might otherwise have been able to produce [this is basically the argument of comparative advantage]. But in terms of exchange-value there is no reason to think that any gain has been made -assuming equal exchange of values.

2. Next he places money in the middle as means of circulation, i.e., C - M - C. While this makes sale and purchase distinct acts, it does not change the fact that equivalents are exchanged --as we have already seen in Chapters 1 - 3. All that happens is a change in form and such a change "does not imply any change in the magnitude of the value."

At this point Marx then reverses his line of reasoning, to work backwards from the conclusion to point out logical inconsistencies. He says "let us therefore assume an exchange of non-equivalents" We have two possibilities:

1. Suppose the seller sells his/her commodities above their value, i.e., 110 instead 100. If all sellers do this, then when the sellers become buyers, they lose the 10 gained. In the aggregate prices rise 10% but there is no net gain.

2. Suppose the buyer buys below value. If all do this then this buyer has already lost [in C - M, M - C] before buying and there is no net gain.

What Marx then goes on to argue is that if there is unequal exchange, i.e., someone sells above value and gets away with it, then there has merely been a redistribution of value that already exists. If there is a class that consistently buys without selling and is cheated therein, then he points out they must be getting their money from taxes, expropriation, etc., so the selling class is just getting back some of its own, previously stolen money. Moreover, cheating which does produce a redistribution does not raise the total quantity of value in circulation: "The sum of the values in circulation can clearly not be augmented by any change in their distribution"

In illustrating this argument he uses an example from the colonialism of antiquity: the towns of Asia Minor paid money tribute to Rome and then cheated them when selling the Romans supplies, etc. They "swindled back from their conquerors a portion of the tribute in the course of trade. Yet for all that, the provincials remained the ones who had been cheated. Their goods were still paid for with their own money." In other words there had been a one-way transfer of real wealth to the Romans. The same might be said concerning the relationship between the working class and capital. No matter how much the working class may cheat capital, either through the exchange LP - M (in which the working class can cheat by failing to provide LP in P) or through M - C(MS) via shoplifting, changing price tags, or what have you, as long as capital achieves some degree of surplus value and reinvestment, it is the working class which is, in the end, been cheated -- out of that part of its life realized in surplus value (surplus work), on the one hand, and out of that part of its life lost in the reproduction of labor power as such.

Therefore, Marx concludes, whether we are speaking of merchants capital M - C - M' or even of usurer's capital M - M', it is clear that the increase in value cannot arise in circulation, at least not in the aggregate (there can be redistribution), and it is equally clear that "something must take place in the background which is not visible in the circulation itself."

Marx at this point throws us into the world of production. Yet he does not immediately end the chapter. He goes on to spell out the paradoxical situation that there must be equal exchange, exchange of equivalents, and yet the capitalist must "at the end of the process withdraw more value from circulation than he threw into it at the beginning. His emergence as a butterfly must, and must not, take place in the sphere of circulation." Again he evokes the metamorphosis whose final product is the butterfly/capitalist. But mainly he seems insistent on making the point that his explanation for surplus value is not cheating and must not be interpreted as such.
Concepts For Review
equal exchange
cheating in exchange

Questions For Review

1. Trace and explain Marx's explanation as to why the prime in M' does not originate in circulation.

2. If we keep in mind that value is work and surplus value must be surplus work, then why is it obvious that surplus value does not originate in circulation?

3. Suppose there is cheating in exchange, say of peasants by a government set on extracting a surplus. Does this mean that surplus value, in this case, originates in exchange?

4. What does cheating do, if it does not create surplus value?

5. Give some examples of cheating in exchange from the world today as you know it.

6. What are the contradictions in the general formula of capital?