Merchant’s Capital
This chapter and the next one outline Marx’s theory of capital within the sphere of exchange. In earlier chapters, the focus has primarily been on the role of capital in producing surplus value, with exchange as a necessary but hardly explored complement. However, the analysis of profits, interest and crises requires close study of capitalist activity other than in production, but in close relationship with the earlier topics of study. This chapter explains the category of merchant’s capital. Chapter 12 investigates interest-bearing capital.
Marx’s Category of Merchant’s Capital
One of the themes running through Marx’s treatment of capital in exchange is that there is a crucial distinction to be made between money as money and money as capital (see Chapters 4 and 12). Money functions as money when it acts as a means of exchange between two agents, mediating commodity exchange irrespective of the position of those agents in the circulation of capital – whether they be capitalists engaging in production or capitalists and workers engaging in consumption. Hence, the role of money as money is understood by reference to simple commodity circulation, C – M – C. By contrast, money as capital is understood by reference to the circuit of capital, M – C … P … C’ – M’, where money is employed for the specific purpose of producing surplus value.
There is a definite relation between the two functions of money in capitalism, since simple commodity circulation and industrial production are closely connected. For example, a worker sells labour power and buys a bicycle. This has the form of simple commodity circulation, C – M – C. Both phases of C – M – C, namely C – M and M – C, are present if viewed from the standpoint of the worker. But from the standpoint of the capitalists, C – M – C is the other way round, with first the sale of the bicycle, C – M, and then the purchase of labour power, M – C. What is C – M for one agent is M – C for another. Further, the use of money both as money and as capital can involve credit relations, as money is lent and borrowed to facilitate the acts of exchange. In his treatment of merchant’s capital, Marx analyses in detail the operation of money as money.
Marx’s treatment of merchant’s capital is an abstract one. Although capitalist production and trade are closely intermingled, they are structurally distinct, and Marx identifies a tendency towards the separation of these activities in the economy. This real tendency must be captured in theory in order to comprehend the specific nature of merchant’s capital, which is directed towards the carrying out of exchange alone.
Apart from distinguishing between industrial capital, which produces surplus value, and merchant’s capital, which circulates it and facilitates the transition between the commodity and money forms of capital (indirectly increasing the mass of surplus value produced by industrial capital), Marx points out that merchant’s capital itself tends to be divided into two forms: commercial capital (buying and selling of commodities) and money-dealing capital, or MDC (the handling of money).
With the development of production, the acts of buying and selling become the specialised tasks of particular capitalists (for example, transport, storage, wholesale and retailing). Industrial capitalists increasingly rely upon specialised merchant capitalists to undertake the realisation of (surplus) value. Furthermore, certain functions arising from commodity production become the specialised activity of money dealers. These include bookkeeping, the calculation and safeguarding of a money reserve, and the roles of cashiers and accountants.
Marx adds that merchant’s capital is subject to competitive mobility between itself and industrial capital (industrial capitalists can move into trading, as is currently shown by the ubiquity of direct sales on the internet, and vice versa, for example, when large retailers contract manufacturers to produce ‘own brand’ goods). Consequently, the rate of return on merchant’s capital tends to become equal to the rate of profit on industrial capital, even though the former does not itself produce surplus value, which can only be created by productive labour engaged by industrial capital (see Chapter 3).
The intervention of merchant’s capital modifies the formation of prices of production, since capital advanced in the buying and selling of commodities does not produce surplus value, but tends to share equally in the surplus value distributed as profits. From the point of view of the commercial capitalists, the labour power purchased by them seems to be productive, because it is bought with variable capital with the intention of valorising the capital advanced. However, what it creates is not surplus value, but merely the ability of the commercial capitalists to appropriate part of the surplus value produced by industrial capital. In other words, the merchant’s costs (and profits on them) are not an addition to value, and commercial capital does not determine the price at which commodities are sold. Commercial profits are made up by merchants buying commodities below their prices of production, and selling them at their prices of production (see Chapter 10).
Suppose, initially, that trading is costless and that merchants simply advance money of an amount B to perform their functions. Using the usual notation, the total capital advanced is now C + V + B, and the general rate of profit is r = S ⁄ (C + V + B). The industrialists sell commodities to merchants at prices below values, at an aggregate price (C + V) (1 + r). In turn, the merchants add their profits to form the total selling price (C + V) (1 + r) + Br = C + V + (C + V + B) r. But (C + V + B) r = S, so that the total selling price equals C + V + S, which is the total value produced.
The situation is slightly more complex when the merchants incur costs other than the simple advance of money. These costs might include means of production used in the process of circulation (trucks, shops, and so on), and variable capital advanced as wages. Let these costs be Km. Following the above procedure, industrialists sell to merchants below value, at (C + V) (1 + r). The merchants earn the average profit rate on their money advances B, as before, and recover their costs Km, together with profit on them. Since total value is equal to the total selling price, C + V + S = (C + V) (1 + r) + Br + Km (1 + r). This yields r = (S – Km) ⁄ (C + V + B + Km). Not surprisingly, the commercial capital advanced, Km, is reflected in the denominator; moreover, as an additional cost, it also appears in the numerator as a deduction from total surplus value.
Merchant’s Capital at a More Complex Level
The theoretical distinction between industrial and merchant’s capital is simple enough in principle, once we accept the distinction between the spheres of production and exchange in the circuits of industrial capital. But matters are not so simple in practice. For historically, and continuing to the present day, there are what might be termed ‘hybrids’ cutting across these distinctions. Some industrialists might undertake sales on their own account rather than relying upon specialised merchants serving the trade as a whole. Some merchants might also play a hand in organising production, as in the putting-out system or, more recently, the way in which clothing retailers draw upon a host of more or less sweated labour. Are these industrial or merchant’s capital, or neither, or both?
More generally, we often find that industrialists engage simultaneously in different types of production, commerce and financial management – for example, large automobile manufacturers offering consumer credit. These overflows across boundaries do not deny the analytical distinction between production and exchange. However, they indicate that classification problems often cannot be pre-emptively resolved in theory, but only through detailed empirical investigation. Allocation of specific units of capital to one or another of the categories identified above depends essentially on the extent to which it is normal for these activities to be undertaken independently within the spheres of production or exchange (thereby setting standards for ‘hybrids’, where capitals are not necessarily uniquely assigned to one sphere or the other). Also, as already hinted, since the division and allocation of industrial and merchant activity is subject to change, it is important to assess the dynamics of the relationship between the two and whether specific forms are transitional to more stable arrangements. This situation is common throughout the history of capitalism, as traders become producers, or take responsibility for production or, vice versa, as producers take on responsibility for their own sales efforts. Currently, this is particularly significant in light of the rise of subcontracting, franchising and, most importantly, the way in which credit and finance are involved across both production and sales.
Perhaps an analogy will help. Take the self-employed. What is their status? They do not appear to be exploited wage workers. But what if their earnings are equivalent to those of a skilled (or even unskilled) wage earner, and they work just as long hours, and, possibly, for the same company, often without job security, pensions and other contractual rights? In this case, the self-employed are wage workers in disguise and are likely to be highly exploited, despite their apparent ‘autonomy’. There might also be self-employed whose earnings exceed value produced (for example, top accountants and lawyers whose income and status are similar to those of managers or small capitalists).
This latter example indicates that classification problems and the presence of hybrid categories do not invalidate abstract analysis. Indeed, they make it even more essential, to avoid a descent into ever more refined description. However, in order to proceed further the limits to abstract analysis must also be acknowledged, and reference must be made to empirical realities. In this relationship, the abstract categories provide the basis on which increasingly complex empirical outcomes can be understood. Exactly the same principle applies to the distinctions between the spheres of production and exchange, and between industrial and merchant’s capital. These points have been belaboured at some length here not to unravel the conundrums around merchant’s capital, but primarily because they are significant for the more complex case of money and interest-bearing capital, examined in Chapters 12 and 14.
The relationship between abstract categories and their more complex, and often hybrid, empirical forms is of great relevance for the study of contemporary capitalism. Whether supermarkets deliver the goods they have sold – in which case transport is part of (unproductive) merchant’s capital – or subcontract delivery to a logistics firm (productive capital operating within the sphere of exchange) might appear to be of marginal significance other than to those involved. But the unprecedented expansion of credit, and of financial services more generally, in the current period of capitalism has meant that private finance has become heavily involved in the provision of pensions and housing, health, education and welfare. Such material developments require that basic abstract categories of analysis are clearly delineated and related to the evolving forms of capitalism (see Chapter 14).
Although the power of retailers is often highlighted, especially in analyses based on global value chains and production networks, the Marxist literature on merchant’s capital remains limited, and controversy has centred on whether merchant activity is productive or not (see Chapter 3). Karl Marx’s theory is developed in Marx (1981a, pt.4). The interpretation in this chapter draws upon Ben Fine (1988) and Ben Fine and Ellen Leopold (1993, especially ch.20); see also Duncan Foley (1986, ch.7). For some critical analysis of global value chains and of ‘store wars’, see Ben Fine (2013).