The Transformation of Money Into Capital - Essay Example

Marx Introduction In Das Kapital Karl Marx penetratingly revealed the inter-workings of the capitalist system on a scale that rivaled Adam Smith; however, for Marx the ultimate conclusion was far more pessimistic. This essay considers one of the foundational elements of Marx’s economic theory, namely the transformation of money into capital. It considers the commodity production process, the creation of surplus-value, and finally examines why Marx believed these were unhealthy social processes that would lead to the self-destruction of the capitalist economic system. Transformation of Money into Capital For Marx one of the foundational elements of the capitalist economic structure is the circulation and exchange of commodities. Marx states that “the circulation of commodities is the starting-point of capital” (Medema & Samuels, pg. 282). Marx doesn’t dwell on the emergence of capital but notes that at starting point of the process capital exists in the form of money. The difference between ‘money’ and ‘money that is capital’ is found in the way these entities circulate. For Marx, the simplest form of circulation he labels ‘C-M-C’ (commodity – money – commodity), or ‘selling in order to buy’. This form is contrasted against a form of circulation he terms ‘M-C-M’ (money – commodity – money), or ‘buying in order to sell’. In ‘M-C-M’ the money that circulates is, “thereby transformed into, becomes capital, and is already potentially capital” (Medema & Samuels, pg. 381). Marx breaks down the specific transformative occurrences that occur in the M-C-M process. In the M-C phase money is used to purchase a commodity. In the succeeding C-M phase the commodity is exchanged back again. While it is not necessary for a profit to be made on the original money (M) exchange for it to be termed capital, Marx notes that this is obviously the intention behind the exchange, “I purchase 2000 lbs. of cotton for ($)100 and resell the 2000 lbs. of cotton for ($)110” (Medema & Samuels, pg. 382). Marx deliberates on the similarities and differences between M-C-M exchange and C-M-C exchange. He notes that while the general exchange processes – money into commodity and commodity into money – are the same, there are some notable differences. In the first place the end result is the recovery of money, whereas in C-M-C the end result is a use-value. That is, while the C-M-C process ends in consumption, the M-C-M process ends in the accumulation of an exchange value. In a highly notable passage Marx discusses the nature by which ‘surplus-value’ arises in terms of the commodity exchange process. As mentioned earlier money in M-C-M exists as capital since it is involved in the exchange process, but surplus-value only arises when there is a profit that is obtained from the exchange. Marx writes, “The cotton that was bought for $100 is perhaps resold for $100 + $10 or $110...This increment or excess over the original value I call ‘surplus value’ (Medema & Samuels, pg. 382). This process of accumulating exchange values can be perpetuated infinitely and it is this process of transforming money into capital that distinguishes the individual or business entity as distinctly a ‘capitalist’. For Marx, it’s this ability of money to beget itself that underlines the transformative process. He writes, “we then arrive at these two propositions: Capital is money: Capital is commodities” (Medema & Samuels, pg. 382). Commodity Production Process & Surplus-Value: An Unhealthy Social Process Marx argues that the capitalist isn’t concerned with accumulating use-values, but rather the capitalist’s primary motivation is the increasing accumulation of exchange values. Throughout much of Marx’s writing this is portrayed as an unhealthy process (indeed, he even believes that it will cause the eventual ruin of the entire economic system). While Marx acknowledges that the process itself is beneficial as it leads to the eventual disintegration of the capitalist system, it is unhealthy as in a sense a sort of unconscious miser. Marx writes, “Only as a personification of capital is the capitalist respectable. As such, he shares with the miser an absolute drive towards self-enrichment. But what appears in the miser as the mania of an individual is in the capitalist the effect of a social mechanism of which he is merely a cog” (Marx, pg. 2). While past understandings of the economic system, notably Ricardo, believed that as wages increased the population would increase and drive the cost of labor down, Marx argues that it’s not the increased population, but the gradually integration of human machinery that drives labor costs down (Heilbroner 1999). The challenge for the capitalist system then is that surplus-value or profit is best achieved from the exploitation of human labor, yet they must reduce the labor and incorporate machinery to maintain adequate production. Marx states that, “the capitalist gets rich...at the same rate as he squeezes out labor-power from others and compels the worker to renounce all enjoyments in life” (Marx, pg. 741). What is evident here is that on one hand the worker is increasingly exploited for their labor, while at the same time the capitalist must incorporate machinery that reduces their profits as well. In all of this Marx implements religious imagery to parallel the capitalist’s drive towards the accumulation of wealth with a sort of perverted life meaning. For Marx, this drive towards the accumulation of surplus-values has no direction and he seems to indicate that in unhealthy ways the capitalist system is a sort self-perpetuating castle in the sky that will eventually come crashing down. While he acknowledges that there are periods when workers who have been thrown out of employment will be forced to accept sub-value wages, and as machines are dumped and obtained by other capitalists (progressively larger corporations/conglomerates) at bargain values, there will be periods were capital profits rise; ultimately, however the system will crash down again, until it destroys itself. Conclusion Ultimately for Marx the destruction of the capitalist system should lead to the more progressive structure of communism. Writers note, however, that Marx gave little indication of how this new communist state would be structured and function. (Heilbroner 1999) He does indicate that individual is a product of their economic environment and that in order for this communist economic change to occur it would need to be accomplished through the conscious and collective effort of society. (Screpanti and Stefano Zamagni 2005) While it’s clear that many of Marx’s most doomsday predictions have been thwarted by progressive measures to combat dysfunctions in the capitalist economic, with the irrational nature of the recent economic crash and similar failures of the economic system, one must wonder if ultimately Marx’s prognostications will not be realized in such a utopian communist ideal, but in the post-capitalist system that has occurred in China and other parts of the world. References Steven G. Medema and Warren J. Samuels, The History of Economic Thought: A reader. (NewYork: Routledge,2003) Robert L. Heilbroner, The Worldly Philosophers. (New York:Touchstone, 1999) Ernesto Screpanti and Stefano Zamagni, An outline of the History of Economic Thought, 2nd Edition. (Oxford, UK: Oxford University Press, 2005) Read More