Welcome to Chapter 4!
This is one of the shortest chapters in the book, but probably one of the most important. Up to this point we have approached the concept of money as a mechanism of the transfer of value in circulation, and hoarding being what occurs when that money is taken out of circulation. Most anti-capitalists I have spoken to over the years utilize the terms capital and money interchangeably, but there is actually a really nuanced distinction between the two that has some profound impacts on the ways that economics functions on an ontological level.
This initial formulation, of money as a mechanism of transference, is able to explain how the structure of commodities, as material objects alienated from themselves and valued abstractly and quantitatively, allows for exchange and circulation to occur. It is even able to discuss certain aspects of the commodity form, such as the fact that the materiality of the object disappears in commodity circulation. This is all well and good when we are merely trying to discuss the ways in which commodities are bought and sold.
This formulation hits a distinct limit, however. Within this mechanism there is no way to explain the movement of money within a process of circulation in which money itself is the outcome, and not circulation. This is a structure that we call capitalism, and the nuanced shifts between capital and money interact with this initial formulation to allow us to explain much more complex phenomena, like credit, stocks, investments and so on.
That is what we will be discussing for this week, how money differs from capital, and how that distinction comes to shape some pretty critical elements of the discourse on capitalism.
Oh, I figured I should mention, I published my first article on economics, centered around the Chinese housing market, the collapse of Evergrande, the paradoxes of global economics at present and how this could all combine to generate economic crisis conditions globally. If any of you are interested you can find it here:
- Marx begins this chapter by restating a core, and often misunderstood point; that the core of capital resides in commodity circulation, and thus the commodity form, of which production is only a part. This firmly positions the point of intervention broadly, on a wide social scale, at innumerable nodes, with not all of these existing within the realm of commodity production. I repeat this point often, but it is critical in the actual task we are undertaking here, which is not merely to read and understand Capital, or to even understand capitalism, but to identify and locate effective points of intervention within that circulation. Those that want to confine this to workerism are completely missing the vast array of terrain outside of the mechanisms of production (which is a question that in itself has been vastly disrupted in the move away from purely industrial production).
Commodity circulation forms the ontological core of capitalism, as we have been discussing, and this is embodied in the commodity form itself, the paradoxical construction of a material object in which its material particularity is irrelevant. It is in this process of rendering all things equivalent, and able to only be differentiated by magnitude or quantity, that the commodity gets displaced from itself, its material form is rendered irrelevant and it is reduced purely to a means through which value is transported between transactions.
The paradoxical construction of the commodity, and the alienation of the object from its own conditions of possibility, forms the foundations of the abstraction of the object, which allows for it to come into contact with all other commodity flows, and have those flows all function as a movement of value, regardless of the materiality marginalized by that abstraction. Without this dual removal (from itself as an object and from its conditions of possibility), the entire attempt to discuss circulating value, which is a precursor for capital, would be incomprehensible. The social and historical manifestations this ontological alienation finds its expression in circulation, and by extension production.
“If we disregard the material content of the circulation of commodities, i.e. the exchange of the various use-values, and consider only the economic forms brought into being by this process, we find that its ultimate product is money. This ultimate product of commodity circulation is the first form of appearance of capital” (247).
- Money and capital are not purely equivalent terms. In its most basic form money only refers to the mechanism through which abstract value is transported through circulation outside of the commodity. In this form, where money is used to facilitate commodity circulation, where money has a direct use-value as a mechanism of exchange, it remains only money. When money is used to purchase or produce commodities purely for for the sale of the object, without this implying that the money acquired stays within circulation, it already functions as capital.
In this process where money is used to acquire the commodity for sale the commodity itself, as a material object, vanishes from relevance, and becomes nothing other than a mechanism through which value is transferred as well. Functionally what occurs at this point is that money is being traded for a different quantity of money. To put this another way, when we are engaged in circulation purely for the ability to extract value from the transaction, separate from the use of that value, what occurs is that the shape of the commodity and its material existence cease to matter, and what happens is that value is used to acquire the commodity, which results in getting value back from the sale of the commodity. In this scenario the commodity exists as a mechanism through which magic occurs, a mechanism through which one can “make” money. Money, when it is used in this form is capital.
Marx uses the example of buying bushels of corn. Say someone buys a bushel of corn for $100, and then they turn around and sell it for $110. What has occurred here is that $100 has become $110 simply by shifting form from money to commodity and back to money again. The materiality of the commodity can be anything in this space, all that matters is that it conveys value from money to money.
The quantities of money that are moved through in this process must be different between the beginning of circulation and the end of the circuit; if they were the same there would be no point in engaging in the activity. Capital only functions as capital due to a differential between money invested and the quantity of money acquired in exchange.
“In the circulation C-M-C, the money is in the end converted into a commodity which serves as a use-value; it has therefore been spent once and for all. In the inverted for M-C-M, on the contrary, the buyer lays out money in order that, as a seller, he may recover money. By the purchase of his commodity he throws money into circulation, in order to withdraw it again by the sale of the same commodity. He releases the money, but only with the cunning intention of getting it back again. The money is therefore not spent, it is merely advanced” (249).
- As such, the core differentiation point between capital and money flows along around questions of circulation, of which production is a part. This introduces a tension that we see play out in a myriad of ways within everyday life in the 21st Century. Money becomes capital to the degree that money becomes an end in itself, to the degree that the objective is money itself, and not the use-value of money as a mechanism of purchase. This firmly attaches capital to accumulation, by definition, and as such, constructs capital as a flow of circulation which then pulls money out of circulation. It is only here that we start to see phenomena, such as the accumulation of wealth and wealth stratification, where accumulation exceeds the ability of commodities to circulate. At the end of this process, in theory, is the possibility of one person dominating all economic assets, but in that space commodity circulation ceases to occur. So, on this level, the very structure of capital itself exists as a self-destructive paradox in which the more capital functions as capital, and not as money, the less likely it is that commodity circulation can continue within a capitalist context.
We saw this dynamic play itself out in the formation of the New Deal, for example. The New Deal was an attempt to restart commodity circulation after the Great Depression, and construct a mechanism to always preserve the ability of consumers to spend by providing subsidies and social assistance. The Great Depression was largely caused, or at least heavily facilitated by, the fact that preceding the Depression the US saw the worst stratification of wealth in its history, with the exception of right now. In that condition there were not enough consumers (people with money) to be able to sustain the economy when the stock market crashed due to the failure of over-leveraged investments.
The Depression posed a systemic risk to capitalism as a result of the collapse of the consumer. The New Deal was structured specifically to build what they referred to as a “stable consumption index”, namely a base amount of consumer spending guaranteed by government programs that companies could base investment decisions around. By providing programs like the GI Bill, Welfare and Section 8 the state was able to keep consumers spending money by providing the money they would spend. In other words, the New Deal was less of a move toward some sort of odd market socialism, and a lot more about providing subsidies to companies through subsidizing consumption.
It is at this point that we start to see commodity circulation metastasize into capitalism through the medium of abstract value. To the degree that capital functions to extract money through commodity sale, and to store that money as an end in itself, then necessarily, to the degree that capital functions, the conditions of possibility for existence is fundamentally bound up in the conditions of circulating abstract value. This interplays with the core of the commodity form, the rendering equivalent of all things as quantities, which already displaces the conditions of existence away from materiality and into the circulation of abstract value. In this structure all activity becomes premised on exchange-value, rather than just exchange, or the use of money. The world floats into the background entirely.
“The process M-C-M does not therefore owe its content to any qualitative difference between its extremes, for they are both money, but solely to the quantitative changes. More money is finally withdrawn from circulation than was thrown into it at the beginning...The value originally advanced, therefore, not only remains intact while in circulation, but increases its magnitude, adds to itself a surplus-value, or is valorized. And this movement converts it into capital” (251-252).
- The process starts to approach a limitlessness. When accumulation enters stasis in the hoard, technically capital is timeless within an infinite hoard, removing it from history in an active sense. We see this with Bitcoin, for example, where coin can persist indefinitely as long as there is still a blockchain in operation, regardless of whether anyone can actually access it. It is in this limitlessness that money itself changes form, from a mechanism of exchange where the result is use-value, both for money and the object, into a form in which money, like the commodity, ceases to matter in its physical shape and use. As such, it becomes nothing but a mechanism through which value is circulated, but is not value itself.
This means that with the emergence of capital value becomes decoupled from money, and starts to function as an autonomous element, one separated from history and the world, and one that comes to determine the possibilities in the world to the degree that it functions. In other words, value is no longer tied to money, and money itself becomes confined to the use and physical manifestation of the means of circulation. This is the only context that we can understand things like credit cards, stock trading, derivatives, fractional reserve banking and so on; these are all mechanisms of value transfer that exist outside of the constructs of money in its physical sense (its not like you get a bag with thousands of dollars in it when you get a car loan, for example).
The most obvious manifestation of this is fractional reserve banking, which is what the entirety of the economy functions based on. Let's take a situation in which I run a small bank with one customer that deposits $100. The next day someone comes in and asks for a $10 loan, which will be, say, $12 after interest. Obviously the bank only has the money of the other customer. So, the way that banks create debt begins with essentially borrowing from the accounts of their depositors. In this case we take $10 from customer 1s account and give it to customer 2. That is all fine unless customer 1 comes and asks for all of their money back, at which point you have an issue; this is what happens when there are runs on the banks. But, for the bank they just performed a magic trick. Rather than having $100 in assets, or the actual $90 that they physically have access to, now they have $112 dollars of assets, the $100 in that account and the $12 the bank will receive in payment for the loan. In this process $22 was manifested out of thin air. This is how the amount of money in circulation grows, and this is also why weird Ron Paul people complaining about the Federal Reserve controlling currency have no idea what they are talking about.
“In truth, however, value is here the subject of a process in which, while constantly assuming the form in turn of money and commodities, it changes its own magnitude, throws off surplus-value from itself considered as original value, and thus valorizes itself independently. For the movement in the course of which it adds surplus-value is its own movement, its valorization is therefore self-valorization” (255).