General Formula of Capital and Its Contradiction

M–C–M’ (Money–Commodity–Money) is abbreviated as the “general formula of capital”. This is the most abstract general form of the movement of capital including industrial capital, commercial capital and interest-bearing capital. The general formula of capital has chosen the form of money-circulation of capital, the money at the front and back ends are different amounts, and advancing a certain amount of M results in recovering more money, i.e., M’, which realizes the valorization of value [also translated as “expansion of value”] and reflects the most essential features of the movement of capital in a concentrated manner.

There is a difference between the general formula of capital and the commodity circulation (C–M–C). In its pure form, the latter is an exchange of equivalents. Whether money is transformed into commodities or commodities into money, there is only a change in the form of value of commodities, and there is no increase in value, i.e., non-equivalents are exchanged, and we still have no surplus-value.

The two also have different forms of circulation. C–M–C, there are commodities at both ends, money acts only as an intermediary, is money as money; M–C–M’, there is an unequal amount of money at both ends, money is money as capital, and commodities act only as intermediaries.

This gives rise to the contradiction of the general formula of capital: there is a contradiction between the principle of exchange of equal values of commodities, which is pursued in the circulation of commodities, and the valorization of value in the movement of capital, i.e., money as capital. The contradiction lies in the fact that the money-owner must both to buy his commodities at their value, sell them at their value, and yet at the end of the process receive a greater value than that which was paid in advance.

Marx has solved this contradiction: Capital cannot therefore arise from circulation, and it is equally impossible for it to arise apart from circulation. It must have its origin both in circulation and not in circulation. The money-owner, i.e., the capitalist, must buy in circulation such a particular commodity, “its use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labor, and, consequently, a creation of value.” This commodity is labor-power, i.e., human labor-capacity, the aggregate of physical and mental faculties set in motion in the process of labor. Its value is the wage, which is determined by the labor-time necessary for the production and reproduction of this particular commodity, and which pursues the principle of exchange of equal values in the labor-power market. What is decisive, however, is that the process of consumption of the unique use-value of this commodity, i.e., labor-power, is at the same time the process of production of commodity value and surplus-value. It can be seen that only when the product of labor is separated from the labor of the laborer himself, when the objective conditions of labor are separated from the subjective labor-power, and only when the possessor of the means of production and means of life, i.e., the money-owner, has to find in the commodity market a free worker who sells his own labor-power, does capital arise, the money-owner becomes a capitalist, and the money as money is transformed into the money as capital. The contradiction of the general formula of capital has thus been solved.