The Circulation of Capital

There is a distinction between the wider and the narrower sense. The circulation of capital in a wider sense includes the contents of Capital, Vol. 2, i.e., the circuit and turnover of capital as well as the reproduction of the aggregate social capital. The circulation of capital in a narrower sense includes only the continuous circuit of capital.

Marx explained the circulation of capital as follows: The transformation of a sum of money into means of production and labor-power is the first phase of the movement undergone by the quantum of value which is going to function as capital. It takes place in the market, within the sphere of circulation. The second phase of the movement, the production process, is complete as soon as the means of production have been converted into commodities whose value exceeds that of their component parts, and therefore contains the capital originally advanced plus a surplus-value. These commodities must then again be thrown into the sphere of circulation. They must be sold, their value must be realized in money, this money must be transformed once again into capital, and so on, again and again. This cycle, in which the same phases are continually traversed in succession, constitutes the circulation of capital.

The circulation of capital differs from simple commodity circulation, the formula of which is: commodity–money–commodity (M–C–M); and the formula of the circulation of capital is: money–commodity–appreciated money (M–C–M'). The former is selling in order to buy, with the purpose of obtaining use-values to satisfy one’s own needs; the latter is buying in order to sell, with the purpose of obtaining surplus-value. The circulation of simple commodities reflects the relations of commodity exchange between commodity producers, while the circulation of capital reflects the relations of exploitation of the proletariat by the bourgeoisie. It is an important theory for examining the process of reproduction of capital.