I The distinction between commercial and industrial capital
Merchant’s capital, be it in the form of commercial capital or of money-dealing capital, is not differentiated from different branches of industrial capital – mining, agriculture, stock-raising, manufacture, transport, etc. – as these latter are from each other. These branches are branches resulting from a social division of labour and represent particular spheres of investment for industrial capital in general. Neither is it the case that the distinction between merchant’s capital and industrial capital is the same as that between the operation of industrial capital in production and its operation in circulation. In the latter case, the specific forms and functions assumed by industrial capital in circulation are so assumed only temporarily; in the former they have become separated off and exist as capital completely confined to the sphere of circulation.

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I The nature of money-dealing capital
In the case of merchants’ capital, the commercial functions of industrial capital assumed an autonomous existence in the form of capital which was independently functioning in its own right. Now, insofar as a part of industrial capital (as well as commercial capital) assumes the technical movements undergone by money in the circulation process of industrial and commodity-dealing capital in autonomous form, we can speak of the existence of money-dealing capital, money-dealing insofar as it fulfils the technical functions of money in the circulation of capital, and capital insofar as it ‘performs these operations of the reproduction process for the whole of the remaining capital’, i.e. as ‘movements of a now independent part of the industrial capital in the course of its reproduction process.’

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I The distinction between the turnover of commercial capital and that of industrial capital

As we have seen, the turnover of industrial capital is composed of the unity of production and circulation; it consequently embraces the entire process of production.

The turnover of commercial capital, on the other hand, is the movement of autonomous commodity capital, and, as such, represents the first phase in the commodity metamorphosis, C – M. The merchant buys, M – C, then sells, C – M in constant repetition. In circulation, the metamorphosis of industrial capital presents itself as C1 – M – C2: the money realised by the sale of C1 (the commodity product) is used to buy C2, new means of production. In this exchange of ClC2, the same money changes hands twice, mediating the exchange of two different kinds of commodities. The merchant’s case, however, is different: for her it is the same commodity that changes hands twice (in the movement M – C – M’) and it is now the commodity that mediates the reflux of money.

The number of turnovers of a given commercial capital is analogous to the repeated circuits of money as a simple means of circulation. Just as a given sum of money circulating ten times buys ten times its value in commodities, so the same money capital belonging to the merchant, say £100, will buy ten times its value in commodities, in other words realising a total commodity capital ten times its value, i.e. £1,000.

But there is also a difference. In the circulation of money, the same money passes through different hands; in the case of the merchant, however, the same money capital, independently of the money in which it consists, repeatedly buys and sells commodity capital, returning to the same owner as value plus surplus-value, i.e. as M + ΔM. It is in this sense that its turnover is a turnover of capital. More money is always withdrawn from circulation than is put in.

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In the sphere of circulation capital creates neither value nor surplus-value but carries out the operations of the realisation of the value of commodities, and the transformation of this value back into the elements of production. These operations however require time and in function of this set limits to the formation of value and surplus-value. This applies equally to when industrial capital itself carries out these operations, as to when these functions are appropriated through a division of labour within total capital by merchants’ capital (irrespective of the fact, as we have seen, that commercial capital may be indirectly productive).

Commercial capital, therefore, creates neither value nor surplus-value; rather it simply facilitates their realisation. But, given that the circulation of industrial capital forms as necessary a part of the reproduction process as does production, commercial capital, the capital that functions independently in the circulation process, must, as must all capital, yield an average profit.

If commercial capital were to yield a higher average profit than industrial capital, a part of industrial capital would change into commercial capital. If it yielded a lower average profit, the opposite process would take place. No species of capital finds it easier than commercial capital to change its function and designation.

Hence, since commercial capital does not produce any surplus-value of its own, the surplus-value that accrues to (as average profit) must come from the surplus-value produced by productive capital as a whole. We are going to investigate how this happens. In doing so, we shall first look at commercial profit, disregarding the costs of circulation, and then we shall look at the costs of circulation, which break down into material costs, and social costs, respectively the constant capital advanced by the commercial capitalist, and the variable capital, wages paid to commercial workers.

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‘Commercial capital’ and ‘money-dealing capital’ are subdivisions of what Marx calls ‘merchant’s capital’ (or ‘trading capital’). ‘[M]odern economics, [...] even its best representatives, lump trading capital and industrial capital directly together and in fact completely overlook trading capital’s characteristic peculiarities.’

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1  General Considerations

1 If the rate of surplus-value, δ, = s/v  , and the rate of profit, π, = s/(c + v)  , then, unless c  = 0, i.e. all the capital advanced is advanced as wages, δ > π . In addition, as we have seen, even a rising rate of surplus-value tends to accompany a falling rate of profit. A fall in the rate of profit would only be a consequence of a falling rate of surplus-value if either the ratio between constant and variable capital remained unchanged or if the former was falling with respect to the latter. Thus if capitalists are accumulating surplus-value as constant capital, and the organic composition is rising, the fall in the rate of profit is not caused by a fall in the rate of exploitation of labour.

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Marx opens the chapter with the following comment:

If we consider the enormous development in the productive powers of social labour over the last thirty years alone, compared with all earlier periods, and particularly if we consider the enormous mass of fixed capital involved in the overall process of social production quite apart from machinery proper, then instead of the problem that occupied previous economists, the problem of explaining the fall in the profit rate, we have the opposite problem of explaining why this fall is not greater or faster. Counteracting influences must be at work, checking and cancelling the effect of the general law and giving it simply the character of a tendency; which is why we have described the fall in the general rate of profit as a tendential fall.

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