The General Formula For Capital by Karl Marx

Presented by Jahin Imtiaz

Karl Marx (1818-1883):

German philosopher, economist, sociologist and revolutionary socialist.

Karl Marx was raised in trier. Studied political economy and Hegelian philosophy. Karl Marx was known as the “father of communism”. He was also known for his theories about society,

economics and politics-collectively understood as Marxism.

He made the Communist Manifesto.

Marxism Marxism is the theory based on the ideas of the philosopher

Karl Marx. Marxism is known as a “conflict theory”, because it states

that society is in conflict with each other and Marxism claims that this conflict is between the Rich and the Poor.

He named the poor working class people the “Proletariat” and the middle class factory owners the “Bourgeoisie”.

Karl Marx didn’t like the way the working class people( proletariat) were treated by the middle class factory owners( bourgeoisie). They had horrible work hours, working conditions and very low pay. It was because the bourgeoisie wanted to have the maximum profits out of their product. So children were often used as cheap labor.

Cont. Marx suggested that at some point the working class would realize that they

have the power to change things. Through education and personal development, some members of the Proletariat would begin to understand the system better. Marx believed that such radical change could only come about through revolution. In place of capitalism a new system would be established where all people would be treated equally. And all factories and businesses would be owned by everyone. In another words, they would be communally owned. Marx called this system Communism.

Types of Circulation

C-C (commodity to commodity ) C-M-C( commodity to money and money to commodity) M-C-M( money to commodity and commodity to money)

C-C Circulation

The system of exchanging commodity for commodity directly without using a medium is known as Barter system.

In that system, buyer exchange the goods he has for the goods he need. Suppose you are a fisherman and you need some chickens. So you will go to someone who has chickens and also wants fish. You will exchange your fish for the chickens. This exchanging system is no longer valid in our current economic system. Because-

1. There needs to be a “double coincidence of wants”. You often don’t need what the other person has. 2. There is no common measure of value. So you can’t say how many fish is equal to how many chicken. 3. Difficulty in storing wealth.

C-M-C circulation

In order to solve the problems of C-C circulation, we need something as a medium of exchange which is scarce, fungible, durable, storable, portable, easy to identify and hard to fake. Money meets all this requirements better than anything else. That’s why we started using money as a medium of our exchange system.

In C-M-C circulation, we sell in order to buy. That means our commodity goes through two phases- sale and buy. When we sale, our commodity transforms into money. And when we buy, this money transforms again into commodity.

In C-M-C circulation, we exchange commodities which have the same value in market.

M-C-M circulation In M-C-M circulation, we buy in order to sell. Which means the transformation of

money into commodity and the transformation of commodities back again into money.

In M-C-M circulation, money is exchanged for money, which makes no sense. Because, you are investing money taking all the risks of losing your money only to end up with the same amount of money.

But this circulation makes sense when you have a profit ∆M. This profit is called surplus value.

That poses a big question, where does that surplus value come from ?

M-C-M circulation In M-C-M circulation, we buy in order to sell. Which means the transformation of

money into commodity and the transformation of commodities back again into money.

In M-C-M circulation, money is exchanged for money, which makes no sense. Because, you are investing money taking all the risks of losing your money only to end up with the same amount of money.

But this circulation makes sense when you have a profit ∆M. This profit is called surplus value.

That poses a big question, where does that surplus value come from? The answer is a commodity which has the capacity to produce more value than

it itself has. And it is labor power. As I mentioned earlier, industry owners try to pay the workers as low as they can to maximize the profit. Using technology also increases the profit.

Common Characteristics of C-M-C and M-C-M

Both circulation has two antithetical phase- sale (C-M) and purchase (M-C).

Both consists of a buyer and a seller.

In both cases, commodity and money is exchanged.

Differences between C-M-C and M-C-M

C-M-C circulation begins with a sale and ends with a purchase. On the other hand, M-C-M circulation begins with a purchase and ends with a sale.

In C-M-C, the movement of circulation is brought about by the intervention of money and in M-C-M, by a commodity.

In the circulation of C-M-C, money is converted into commodity, which is then spent once for all.

But in M-C-M circulation, the buyer use money to buy a commodity so that he can sell it with a profit. So the money is not spent. It is merely advanced in another circulation.

Cont.

In C-M-C circulation, the medium off the exchange, which is money, vanishes in the final phase of the circulation. It serves only as a medium.

On the other hand, in M-C-M circulation, money ends the movement only to begin another circulation. So the end of one M-C-M circulation generates the next circulation and it continues so on.

In the C-M-C circulation, the person who possess the money aims at expanding the value more and more. He never aims at a single transaction. He uses the money and the profit again and again like a never ending process to become richer every time.So M-C-M is actually the general formula for capital.

THE END