Chapter 17: Commercial Profit

We saw in Volume 2 that the pure functions of capital in the circulation sphere create neither value nor surplus-value.* These ‘pure functions’ are the operations which the industrial capitalist has to undertake firstly to realize the value of his commodities, and secondly to transform this value back into the commodities’ elements of production, the operations for effecting the metamorphoses of commodity capital, C′–M–C, i.e. the acts of sale and purchase. On the contrary, it was shown that the time these operations require sets limits to the formation of value and surplus-value, objectively as far as the commodities are concerned and subjectively as regards the capitalist. What applies to the metamorphosis of commodity capital as such is naturally not changed in any way when a part of this capital assumes the form of commercial, commodity-dealing capital, and the operations which effect the metamorphosis of commodity capital come to appear as the special business of a special section of capitalists, or as the exclusive function of one portion of the money capital. The metamorphosis of commodity capital C′–M–C consists of the sale and purchase of commodities, and if these operations are not such as to create any value or surplus-value for the industrial capitalists themselves, they cannot possibly do so when they are performed by other persons instead. Moreover, if we consider the portion of the total social capital that must always be in existence as money capital if the reproduction process is not to be interrupted by the process of circulation but rather to be continuous, then if this money capital creates neither value nor surplus-value, it cannot acquire such properties if, instead of being put into circulation by the industrial capitalist, it is always put into circulation by a special division of capitalists, to perform the same functions. The manner in which commercial capital can be indirectly productive, and the extent of this, have already been indicated, and we shall go into this in more detail later.

Commercial capital, therefore, stripped of all the heterogeneous functions that may be linked to it, such as storage, dispatch, transport, distribution and retailing, and confined to its true function of buying in order to sell, creates neither value nor surplus-value, but simply facilitates their realization, and with this also the actual exchange of the commodities, their transfer from one hand to another, society’s metabolic process. And yet, since the circulation phase of industrial capital forms just as much a phase in the reproduction process as production does, the capital that functions independently in the circulation process must yield the average profit just as much as the capital that functions in the various branches of production. If commercial capital were to yield a higher average profit than industrial capital, a part of industrial capital would change into commercial capital. If it yielded a lower average profit, the opposite process would take place. No species of capital finds it easier than commercial capital to change its function and designation.

Since commercial capital does not itself produce any surplus-value, it is clear that the surplus-value that accrues to it in the form of the average profit forms a portion of the surplus-value produced by the productive capital as a whole. The question now is this. How does commercial capital attract the part of the surplus-value or profit produced by productive capital that falls to its share?

It is a mere semblance that commercial profit is just a supplement, a nominal increase in the price of commodities above their value.

It is clear that the merchant can obtain his profit only from the price of the commodities he sells, and also that this profit which he makes on the sale of his commodities must be equal to the difference between his purchase price and his sale price; it must be equal to the excess of the latter over the former.

It may well happen that additional costs (costs of circulation) go into the commodity after its purchase and before its sale, though it is equally possible for this not to be the case. If such costs are involved, it is clear that the excess of the sale price over the purchase price does not just represent pure profit. To simplify the investigation, however, we assume to start with that no costs of this nature are involved.

For the industrial capitalist, the difference between the sale price and the purchase price of his commodities is the difference between their price of production and their cost price, or, if we consider the social capital as a whole, the difference between the value of these commodities and their cost price for the capitalists, which is further resolved into the difference between the total quantity of labour objectified in them and the quantity of paid labour objectified in them. Before the commodities that the industrial capitalist buys are put back on the market again as commodities for sale, they pass through the production process, and it is here alone that the component of their price that will later be realized as profit is produced. The situation with the commodity dealer is somewhat different. He has commodities in his possession only as long as they are in their circulation process. He simply continues the sale of them begun by the productive capitalist, the realization of their price, and so he does not make them undergo any intervening process in which they might absorb new surplus-value. All the industrial capitalist does in circulation is realize a surplus-value or profit that has already been produced; the merchant, on the other hand, does not merely realize his profit in and through circulation, he also makes it there. This appears to be possible only because he sells commodities which were sold to him by the industrial capitalist at their prices of production – or, if we take the commodity capital as a whole, at their values, i.e. at more than these prices of production, making a nominal addition to their prices; looking at this again from the point of view of the total commodity capital, because he sells them at more than their value and pockets the difference between their nominal value and their real value, i.e. sells them dearer than they are.

The form of this addition is very simple to understand. Say for instance that a yard of linen costs 2 shillings. If I am to make 10 per cent profit on re-selling it, I must add one-tenth to its price and so I sell the yard at 2s. 2 2/5d. The difference between its actual price of production and its sale price is then 2 2/5d., and this is a profit of 10 per cent on 2 shillings. In point of fact I sell the yard of linen to its buyer at a price that is really the price of 1 1/10 yards. Or, what comes to the same thing, it is just as if I sold the buyer only 10/11 yards for 2 shillings and kept 1/11 for myself. In fact I can buy back 1/11 of a yard with the 2 2/5d., taking the price per yard at 2s. 2 2/5d. This would simply be a roundabout way of sharing in the surplus-value and surplus product by making a nominal increase in the prices of commodities.

This is the realization of commercial profit by an addition to the price of commodities, as it presents itself at first sight. And in fact the whole idea that profit is derived from a nominal increase in commodity prices, or by selling them above their value, arises from the viewpoint of commercial capital.

When we look more closely, however, we soon see that this is just an illusion. And, assuming the predominance of the capitalist mode of production, this is not the way commercial profit is realized. (What we are dealing with here is always the average, and not individual cases.) Why do we assume that the merchant can only realize a profit of say 10 per cent on his commodities by selling them at 10 per cent above their prices of production? Because we have assumed that the producer of these commodities, the industrial capitalist (and it is he, as the personification of industrial capital, who always faces the outside world as ‘the producer’), has sold them to the merchant at their price of production. If the purchase prices that the merchant pays for commodities are equal to their prices of production, and in the last analysis therefore to their values, so that the production price, and in the last instance the value of commodities, expresses the cost price to the merchant, then in fact the excess of his sale price over his purchase price – and this difference forms the only source of his profit – must be an excess of its commercial price over its production price, and in the last analysis the merchant sells all commodities above their values. But why did we assume that the industrial capitalist sold commodities to the merchant at their prices of production? Or rather, what was involved in this assumption? That merchant’s capital (and here we are still dealing with this only as commercial, commodity-dealing capital) does not enter into the formation of the general rate of profit. In explaining the general rate of profit, we necessarily proceeded from this assumption, firstly because merchant’s capital as such did not yet exist for us and secondly because the average profit, and therefore the general rate of profit, had necessarily to be developed as an equalization of the profits or surplus-values that are actually produced by industrial capitals in different spheres of production. In connection with commercial capital, on the other hand, we are dealing with a capital that takes a share in profit without participating in production. It is now necessary, therefore, to supplement the earlier presentation.

Let us assume that the total industrial capital advanced during the year is 720_c + 180_ν = 900 (say in millions of pounds sterling), and that s′ = 100 per cent. The product is then 720_c + 180_ν + 180_s. If we call this product or the commodity capital produced C, then its value or price of production (since the two coincide when we take the totality of commodities) = 1,080 and the rate of profit on the total capital of 900 is 20 per cent. This 20 per cent, as explained already, is the average rate of profit, since here we are reckoning surplus-value not on this or that capital of particular composition, but rather on the total industrial capital with its average composition. So C = 1,080 and the rate of profit is 20 per cent. But we are now going to assume that besides this industrial capital of 900 there is also a commercial capital of 100, taking the same proportionate share in profit according to its size. According to our assumptions, this is one-tenth of a total capital of 1,000. It thus takes a one-tenth share in the total surplus-value of 180 and gets a profit rate of 18 per cent. The profit to be divided among the remaining nine-tenths of the total capital is now only 162, or similarly 18 per cent on the capital of 900. Thus the price at which C is sold to the merchants by the holders of this industrial capital of 900 is 720_c + 180_ν + 162_s = 1,062. If the merchant adds to his capital of 100 the average profit of 18 per cent, he sells the commodities at 1,062 + 18 = 1,080, i.e. at their price of production, or, taking the commodity capital as a whole, at their value, even though he only makes his profit in and through circulation and only by the excess of his sale price over and above his purchase price. If he still does not sell the commodities above their value or price of production, this is precisely because he bought them from the industrial capitalists below their value or price of production.

Commercial capital thus contributes to the formation of the general rate of profit according to the proportion it forms in the total capital. If the average rate of profit is 18 per cent in the case we are considering here, it would be 20 per cent if one-tenth of the total capital were not commercial capital and the general rate of profit were not consequently reduced by one-tenth. We thus obtain a stricter and more accurate definition of the production price. By price of production we still understand, as before, the price of the commodity as equal to its cost (i.e. the value of the constant and variable capital it contains) plus the average profit on this. But this average profit is now determined differently. It is determined by the total profit that the total productive capital produces; but it is not calculated just on this total productive capital alone, so that, if this is 900, as above, and the profit is 180, the average rate of profit would be 180/900 = 20 per cent; it is calculated, rather, on the total productive and commercial capital together, so that if 900 is productive and 100 commercial capital, the average rate of profit is 180/1.000 = 18 per cent. The price of production is therefore k (the cost) + 18 per cent, instead of k + 20 per cent. The average rate of profit already takes into account the part of the total profit that accrues to commercial capital. The real value or production price of the total commodity capital is therefore k + p + m (where m is commercial profit). The price of production, i.e. the price at which the industrial capitalist sells as such, is therefore less than the real production price of the commodity; or, if we consider all commodities together, the price at which the industrial capitalist class sells them is less than their value. In the above case, therefore, 900 (cost) + 18 per cent of 900, or 900 + 162, = 1,062. Now since the merchant sells at 118 commodities that cost him 100, he still adds 18 per cent; but because the commodities that he bought at 100 are worth 118, he does not sell them above their value. In future we shall keep the expression ‘price of production’ for the more exact sense just developed.* It is clear then that the industrial capitalist’s profit is equal to the excess of the production price of his commodity over its cost price and that, as distinct from this industrial profit, commercial profit is equal to the excess of the sale price over the commodity’s production price, which is its purchase price for the merchant; but the real price of the commodity = its production price + the commercial profit. Just as industrial capital only realizes profit that is already contained in the value of the commodity as surplus-value, so commercial capital does so only because the whole of the surplus-value or profit is not yet realized in the price of the commodity as realized by industrial capital.39 The merchant’s sale price is higher than his purchase price not because it is above the total value, but rather because his purchase price is below this total value.

Commercial capital is involved in the equalization of surplus-value that forms average profit, therefore, even though it is not involved in the production of this surplus-value. The general rate of profit thus already takes account of the deduction from the surplus-value which falls to commercial capital, i.e. a deduction from the profit of industrial capital.

It follows from the preceding:

(1) The bigger commercial capital is in comparison with industrial capital, the smaller the rate of industrial profit, and vice versa.

(2) It was shown in Part One that the rate of profit is always expressed in a lower figure than the rate of actual surplus-value, i.e. it always underestimates the exploitation of labour. In the above case, for example, we have 720_c + 180_ν + 180_s, a rate of surplus-value of 100 per cent expressed in a profit rate of only 20 per cent. This difference is still greater in so far as the average profit itself, taking into account the share that accrues to commercial capital, is that much smaller, here 18 per cent instead of 20 per cent. The average rate of profit for the directly exploiting capitalist thus makes the rate of profit appear smaller than it actually is.

Assuming that all other circumstances are the same, the relative size of commercial capital (though retail traders, a hybrid species, form an exception) will be in inverse proportion to the speed of its turnover, i.e. in inverse proportion to the overall vigour of the reproduction process. In the course of scientific analysis, the formation of the general rate of profit appears to proceed from industrial capitals and the competition between them, being only later rectified, supplemented and modified by the intervention of commercial capital. In the course of historical development, the situation is exactly the reverse. It is commercial capital which first fixes the prices of commodities more or less according to their values, and it is the sphere of circulation that mediates the reproduction process in which a general rate of profit is first formed. Commercial profit originally determines industrial profit. It is only when the capitalist mode of production has come to prevail, and the producer has himself become a merchant, that commercial profit is reduced to the aliquot share of the total surplus-value that accrues to commercial capital as an aliquot part of the total capital concerned in the process of social reproduction.

In the supplementary equalization of profits brought about by the intervention of commercial capital, we saw that no additional element goes into the value of the commodity for the money capital that the merchant advances, and that the addition to the price, whereby the merchant makes his profit, is simply the portion of commodity value that productive capital has not included in the production price of the commodity, and has in fact left out. The case of this money capital is similar to that of the industrial capitalist’s fixed capital. In so far as it is not consumed, its value does not constitute an element of the commodity’s value. In the price the merchant pays for the commodity capital, he replaces its production price, = M, in money. His sale price, as analysed above, = M + Δ M, this Δ M representing the addition to commodity price determined by the general rate of profit. When he sells the commodity, he receives back the original money capital he advanced for its purchase and this Δ M as well. We can see here again how his money capital is nothing more than the commodity capital of the industrial capitalist turned into money capital, which can no more affect the value of this commodity capital than if the latter were sold directly to the final consumer instead of to the merchant. All that actually happens is that the final consumer’s payment is anticipated. But this is correct only if, as we have so far assumed, the merchant has no expenses, i.e. if he does not have to advance any other capital, circulating or fixed, in the process of commodity metamorphosis, buying and selling, besides the money capital he advanced to buy the commodity from its producer. This is not the case, however, as we saw in discussing the costs of circulation (Volume 2, Chapter 6). And these costs of circulation represent in part costs that the merchant has to reclaim from other agents of circulation and in part costs that arise directly from his specific business.

Whatever kind of circulation costs these may be, whether they arise from the business of the merchant pure and simple and belong therefore to the merchant’s specific circulation costs, or whether they represent charges arising from belated production processes that are inserted within the circulation process, such as dispatch, transport, storage, etc., they always require on the part of the merchant, besides the money capital advanced in commodity purchase, an additional capital that is advanced in purchase and payment for these means of circulation. In so far as this cost element consists of circulating capital, it goes completely into the sale price of the commodities as an additional element, while in so far as it consists of fixed capital, it goes in according to the degree of its depreciation; but in so far as these are purely commercial costs of circulation, this element forms only a nominal value and not a real addition to commodity value. Whether circulating or fixed, however, this entire additional capital goes into the formation of the general rate of profit.

The purely commercial costs of circulation (i.e. excluding the costs of dispatch, transport, storage, etc.) are the costs that are necessary to realize the value of the commodity, whether transforming it from commodity into money or from money into commodity – to effect its exchange. In this connection we ignore completely any eventual production processes that continue during the act of circulation and can exist quite separately from commerce as such; as for instance the transport industry proper and the dispatch of goods can be completely separate from trade, as branches of industry, and actually are so. Goods for purchase and sale may also be kept in docks and other public storage areas, with the costs arising from this being charged to the merchant by third parties, in so far as he has to advance them. All this is to be found in the wholesale trade proper, where commercial capital appears in its purest form, hardly mixed up at all with other functions. The haulier, the railway director and the shipowner are not ‘merchants’. The costs we are considering here are those of buying and selling. We have already noted earlier that these break down into accounting, book-keeping, marketing, correspondence, etc. The constant capital required for this consists of offices, paper, postage, etc. The other costs are reducible to variable capital that is advanced for commercial employees. (Dispatch charges, transport costs, advances of customs duties, etc. may partly be considered as advanced by the merchant in the purchase of commodities, and hence going into his purchase price.)

All these costs are incurred not in the production of the commodities’ use-value, but rather in the realization of their value; they are pure costs of circulation. They do not come into the immediate production process, but they do come into the circulation process and hence into the overall process of reproduction.

The only part of these costs that concerns us at this point is that laid out as variable capital. (Also to be investigated are, firstly, how the law that only necessary labour goes into commodity value applies in the circulation process. Secondly, how accumulation appears in the case of commercial capital. Thirdly, how commercial capital functions in the actual overall process of social reproduction.)

These costs arise from the economic form of the product as a commodity.

If the labour-time that the industrial capitalists themselves lose in selling their commodities directly to one another – i.e. in objective terms the commodities’ circulation time – does not add any value to these commodities, it is clear that this labour-time does not change its character by devolving on the merchant instead of the industrial capitalist. The transformation of commodities (products) into money and of money into commodities (means of production) is a necessary function of industrial capital and hence a necessary operation for the capitalist, who is in fact simply personified capital, capital endowed with its own consciousness and will. But these functions neither increase value nor create surplus-value. The merchant, by performing these operations and carrying on the functions of capital in the circulation sphere after the productive capitalist has ceased to do this, simply takes the place of the industrial capitalist. The labour-time that these operations cost is being employed on necessary operations in the reproduction process of capital, but it does not add any extra value. If the merchant did not perform these operations (and so did not spend the labour-time they require), he would not be using his capital as a circulation agent of industrial capital; he would not be continuing the function that the industrial capitalist has abandoned, and hence would not share as a capitalist, and in proportion to the capital he advanced, in the mass of profit produced by the industrial capitalist class. Thus the merchant capitalist does not need to employ any wage-labourers in order to take a share in this mass of surplus-value, to valorize his advance as capital. If his business and his capital are small, he may himself be the only worker employed. He is paid by the part of the profit that accrues to him from the difference between the purchase price of the commodities and their real price of production.*

On the other hand, in this case, if the capital advanced by the merchant is small, the profit he realizes may not be any greater than the wage of a better-paid skilled worker; it may even be less than this. And in point of fact, functioning alongside him are the direct commercial agents of productive capitalists – buyers, salesmen, commercial travellers – receiving the same income or higher, whether in the form of a wage or a share in the profit made on each sale (commission, percentage). In the one case the merchant pockets the commercial profit as an independent capitalist; in the other case the direct employee of the industrial capitalist is paid a part of the profit in the form of either a wage or a proportionate share in the profit of the industrial capitalist whose agent he is, and in this case his principal pockets both the industrial and the commercial profit. But in all these cases, even though the income the circulation agent receives may appear to him as a simple wage, as payment for the work he has performed, and even though, where it does not take this form, the size of his profit may still be only equivalent to the wage of a better-paid worker, this income still derives solely from the commercial profit. This results from the fact that his labour is not value-creating labour.

The fact that the circulation operation is prolonged means for the industrial capitalist, (1) a personal loss of time, in so far as he is prevented from performing his own function as director of the production process; (2) an extended stay of his product, in its money or commodity form, in the circulation process, a process in which it is not valorized and in which the immediate process of production is interrupted. If this is not to be interrupted, either production must be cut back or additional money capital must be advanced so that the production process can continue on the same scale. In each case, what this amounts to is that either a smaller profit is made with the former capital or additional money capital has to be advanced in order to make the previous profit. This is just the same if the merchant replaces the industrial capitalist. Instead of the industrial capitalist spending more time on the circulation process, the merchant now spends this time; instead of his being forced to advance additional capital for circulation, the merchant advances it; or, what comes to the same thing, whereas previously a substantial portion of the industrial capital was constantly entering and leaving the circulation process, now the merchant’s capital is cooped up there permanently. And whereas previously the industrial capitalist made a smaller profit, now he has to abandon a part of his profit completely to the merchant. In so far as commercial capital remains confined to the limits within which it is necessary, the distinction is simply that this division of capital’s function enables less time to be devoted exclusively to the circulation process, and less additional capital advanced for it, so that the reduction in the total profit which now takes the form of commercial profit is less than it would be otherwise. If, in the above example, 720_c + 180_ν + 180_s, together with a commercial capital of 100, leaves the industrial capitalist a profit of 162 or 18 per cent, thus bringing about a deduction of 18, then the additional capital needed to do without the independent operations of commercial capital might perhaps be 200, and we would then have a total advance of 1,100 by the industrial capitalist instead of 900, so that the surplus-value of 180 would represent a profit rate of only 16 4/11 per cent.

If the industrial capitalist who is his own merchant has advanced – besides the additional capital with which he buys new commodities before his product, which is still in circulation, has been transformed into money – still further capital in order to realize the value of his commodity capital, i.e. for the circulation process (office expenses and wages for commercial employees), then, although this certainly forms additional capital, it does not form any more surplus-value. It must be replaced out of the commodities’ value, for a portion of this value must be reconverted back into these circulation costs, even if no additional surplus-value is formed in this way. As far as the total social capital is concerned, what this amounts to is that a part of this capital is required for secondary operations that are not a part of the valorization process, and that this part of the social capital has to be constantly reproduced for this purpose. In this way, the profit rate for both individual capitalists and the industrial capitalist class as a whole is reduced, a result that follows from every injection of additional capital in so far as this is required to set the same amount of variable capital in motion.

If these additional costs that are bound up with the circulation business as such are taken over from the industrial capitalist by the merchant, there is still this reduction in the profit rate, but to a lesser extent and in a different manner. What happens now is that the merchant advances more capital than would be necessary if these costs did not exist, and that the profit on this additional capital raises the total commercial profit, so that commercial capital enters together with industrial capital into the equalization of the average rate of profit on a greater scale, and the average profit falls. If, in our above example, a further additional capital of 50 was advanced for the costs in question, besides the commercial capital of 100, the total surplus-value of 180 would now be distributed between a productive capital of 900 and a commercial capital of 150, making a total of 1,050. The average rate of profit would thus fall to 17 1/7 per cent. The industrial capitalist sells the commodities to the merchant at 900 + 154 2/7 = 1,054 2/7, and the merchant sells them for 1,130 (1,080 + 50 for expenses that he has to recover). It must be assumed that the division between commercial and industrial capital involves a centralization of trading costs and a consequent reduction in them.

The question now arises as to the position of the commercial wage-labourers employed by the merchant capitalist, in this case the dealer in commodities.

From one point of view, a commercial employee of this kind is a wage-labourer like any other. Firstly, in so far as his labour is bought with the merchant’s variable capital, not with money that he spends as revenue; it is bought, in other words, not for a personal service but for the purpose of valorizing the capital advanced in it. Secondly, in so far as the value of his labour-power, and therefore his wage, is determined, like that of all other wage-labourers, by the production and reproduction costs of this particular labour-power and not by the product of his labour.

But there is necessarily the same difference between him and the workers directly employed by industrial capital as there is between industrial capital and commercial capital, and consequently between the industrial capitalist and the merchant. Since the merchant, being simply an agent of circulation, produces neither value nor surplus-value (for the additional value that he adds to commodities by his expenses is reducible to the addition of previously existing value, even though the question still arises here as to how he maintains and conserves the value of this constant capital), the commercial workers whom he employs in these same functions cannot possibly create surplus-value for him directly. Here, just as with the productive workers, we assume that wages are determined by the value of labour-power, i.e. the merchant does not enrich himself by a deduction from wages, so that in reckoning his costs he does not put down an advance for labour that he only pays in part. In other words, he does not enrich himself by cheating his clerks, etc.

The problem that arises in connection with these commercial workers is by no means that of explaining how they directly produce profit for their employers, even though they do not directly produce surplus-value (of which profit is simply a transformed form). This question has in fact already been resolved by the general analysis of commercial profit. Just as industrial capital makes its profit by selling labour that is already contained and realized in the commodity, labour for which it has not paid an equivalent, so commercial capital makes a profit by not paying productive capital in full for the unpaid labour contained in the commodity (in so far as the capital laid out in order to produce the commodity functions as an aliquot part of the total industrial capital), and, as against this, itself receiving the additional portion which it has not paid for once the commodity has been sold. Commercial capital’s relationship to surplus-value is different from that of industrial capital. The latter produces surplus-value by directly appropriating the unpaid labour of others. The former appropriates a portion of this surplus-value by getting it transferred from industrial capital to itself.

It is only by way of its function in the realization of values that commercial capital functions as capital in the reproduction process, and therefore draws, as functioning capital, on the surplus-value that the total capital produces. For the individual merchant, the amount of his profit depends on the amount of capital that he can employ in this process, and he can employ all the more capital in buying and selling, the greater the unpaid labour of his clerks. The very function by virtue of which the commercial capitalist’s money is capital is performed in large measure by his employees, on his instructions. Their unpaid labour, even though it does not create surplus-value, does create his ability to appropriate surplus-value, which, as far as this capital is concerned, gives exactly the same result; i.e. it is its source of profit. Otherwise the business of commerce could never be conducted in the capitalist manner, or on a large scale.

Just as the unpaid labour of the worker creates surplus-value for productive capital directly, so also does the unpaid labour of the commercial employee create a share in that surplus-value for commercial capital.

The difficulty is rather as follows. Since the labour-time and labour of the merchant himself is not value-creating labour, even though it procures him a share in the surplus-value already produced, what is the situation with the variable capital that he lays out on the purchase of commercial labour-power? Should this variable capital be included as part of the cost of the outlay of the commercial capital the merchant has advanced? If not, this would seem to contradict the law of the equalization of the profit rate; what capitalist would advance 150, if he could reckon only 100 of it as capital advanced? If it is included, however, this would seem to contradict the very nature of commercial capital, since this kind of capital does not function as capital by setting the labour of others in motion, in the manner of industrial capital, but rather by itself working, i.e. itself performing the functions of buying and selling, and it is precisely in this way that it transfers to itself a part of the surplus-value the industrial capital has created.

(The following points have therefore to be investigated: the merchant’s variable capital; the law of necessary labour in the circulation sphere; how the work of the merchant maintains the value of his constant capital; the role of commercial capital in the overall reproduction process; and finally the division into commodity capital and money capital on the one hand and into commercial capital and money-dealing capital on the other.)

If each merchant possessed only the amount of capital that he was personally able to turn over by his own work, there would be an infinite fragmentation of commercial capital, a fragmentation which would necessarily increase with the progress of the capitalist mode of production and in the same measure, since the productive capital would produce on a larger and larger scale and would operate with larger and larger quantities. This would mean a growing disproportion between the two forms of capital. To the same extent as capital was centralized in the sphere of production, it would be decentralized in the sphere of circulation. In this way, the purely commercial business of the industrial capitalist and his purely commercial tasks would be infinitely expanded, in as much as he would have to deal with 100 or even 1,000 different merchants. The result would be the loss of a large part of the advantage that derives from the autonomous position of commercial capital; and besides the purely commercial costs, the other costs of circulation – those of grading, dispatch, etc. – would also grow. This is how industrial capital would be affected. Let us now consider the commercial capital; in the first place, how commercial work proper would be affected. It takes no more time to reckon with large figures than with small. It takes ten times longer to make ten purchases of £100 than one purchase of £1,000. It takes ten times as much correspondence work, paper and postage to write to ten small merchants as to one big one. A well-defined division of labour in the commercial office, where one person keeps the books, another the cash-box, a third writes letters, this one buys, another sells, that one travels, etc., spares a tremendous amount of labour-time, so that the number of workers involved in wholesale trade is in no way proportionate to the comparative scale of the transactions. In commerce, in fact, far more than in industry, the same function takes the same amount of labour-time whether it is performed on a large or small scale. Thus concentration historically appears in commerce earlier than in the industrial workshop. There are also the expenses for constant capital. A hundred small offices cost infinitely more than one big one, a hundred small warehouses more than a big warehouse, etc. Transport costs, which commerce is concerned with at least as costs to be advanced, also grow with this fragmentation.

The industrial capitalist would have to spend more labour and incur greater circulation costs on the commercial side of his business. The same commercial capital, if divided between many small merchants, would require many more workers to carry out its functions, on account of this fragmentation, and besides this a larger commercial capital would be required to turn over the same commodity capital.

Let us call the total commercial capital directly invested in the buying and selling of commodities B, and the corresponding variable capital laid out for payment of the commercial assistants b. B + b will necessarily be less than the total commercial capital B would be if each merchant struggled by without assistance, i.e. if one portion was not invested as b. But we have still not finished with this problem.

The price at which the commodities are sold must be sufficient (1) to pay the average profit on B + b. This is already explained by the fact that B + b is always a reduction on the original B and represents a smaller commercial capital than would be needed without the b. But this sale price must also be sufficient (2) to replace, besides the seemingly additional profit on b, also the wages paid, the merchant’s actual variable capital = b. It is this latter that creates the difficulty. Does b form a new component of the price, or is it simply a part of the profit made with B + b that appears as wages as far as the commercial employees are concerned and appears to the merchant himself as simply the replacement of his variable capital? In the latter case, the profit which the merchant makes on the capital B + b that he advances would be equal simply to the profit that accrues to B, according to the general rate of profit, b being paid in the form of wages, but without this yielding any profit.

It all boils down to finding the limits of b (in the mathematical sense). We must first define the problem more precisely. Let us call the capital directly laid out on buying and selling commodities B, the constant capital utilized for this function K (the material expenses involved) and the variable capital that the merchant lays out b.

The replacement of B presents no difficulty at all. For the merchant it is simply the realized purchase price, or the price of production for the manufacturer. The merchant pays this price, and on resale he receives back B as a portion of his sale price; and besides this B, the profit on B, as already explained. Say that the commodity costs £100, and the profit on it is 10 per cent. The commodity is then sold at 110. The commodity still costs 100, as before, so that the commercial capital of 100 only adds 10 to it.

If we now take K, this is at most as large as, though in actual fact it is smaller than, the portion of constant capital that the producer would need for selling and buying; this would of course be in addition to the constant capital he uses directly in production. None the less, this part must always be recovered in the price of the commodity, or, what comes to the same thing, a corresponding part of the commodity must always be spent and reproduced in this form – taking the total social capital as a whole. This part of the constant capital advanced would have the same constricting effect on the profit rate as does all constant capital directly invested in production. In as much as the industrial capitalist hands over the commercial side of his business to the merchant, he does not need to advance this portion of capital. Instead of him, it is the merchant who advances it. Yet this is really only an advance in name, in as much as the merchant neither produces nor reproduces the constant capital that he uses (his material expenses). The production of these appears therefore as a separate business of certain industrial capitalists, or at least a part of their business, so that these play the same role as those supplying constant capital to the producers of means of subsistence. The merchant thus receives firstly the replacement for this constant capital, and secondly the profit on it. On both counts, the profit of the industrial capitalist is reduced. But because of the concentration and economy that results from the division of labour, this reduction is less than it would be if he had to advance this capital himself. The reduction in the profit rate is less, because the capital advanced in this way is less.

Formerly, the sale price amounted to B + K + the profit on (B + K). After what was said before, this part of the sale price presents no difficulty. But now we have also b, or the variable capital advanced by the merchant.

The sale price now becomes B + K + b + the profit on (B + K) + the profit on b.

B only replaces the purchase price, and it does not add anything to this price besides the profit on B. K not only adds the profit on K, but also K itself; but K + the profit on K, the part of the circulation costs advanced in the form of constant capital + the corresponding average profit, would be greater in the hands of the industrial capitalist than in the hands of the commercial capitalist. The reduction in the average profit takes this form, that the full average profit is calculated after the deduction of B + K from the industrial capital advanced. However, this deduction from the average profit for B + K is paid to the merchant, so that it appears as the profit of a special capital, commercial capital.

But the situation is different with (b + the profit on b), or, in the case given here, since we have assumed a profit rate of 10 per cent, b + .1/10b. And this is where the real difficulty lies.

What the merchant buys with b, according to our assumptions, is merely commercial labour, i.e. labour needed for the functions of capital circulation, C–M and M–C. But commercial labour is the labour that is always necessary for a capital to function as commercial capital, for it to mediate the transformation of commodities into money and money into commodities. It is labour that realizes values but does not create any. And only in so far as a capital performs these functions – i.e. in so far as a capitalist performs these operations and this labour with his capital – does this capital function as commercial capital and take part in settling the general rate of profit, by drawing its dividends from the total profit. In (b + the profit on b), however, it seems that first the labour is paid (since it comes to the same thing whether the industrial capitalist pays the merchant for his own labour or for that of his employees), and secondly the profit on the payment for this labour that the merchant himself would have had to perform. Commercial capital seems to receive firstly the repayment of b and secondly the profit on it; this arises because it firstly gets paid for the labour by way of which it functions as commercial capital, and secondly gets paid the profit because it functions as capital, i.e. in its capacity as a functioning capital it performs labour that is paid for in profit. This is the question which we have to resolve.

Let us take B = 100, b = 10 and the rate of profit = 10 per cent. We put K = 0, so as to avoid unnecessarily reintroducing an element of the purchase price that does not belong here and has already been dealt with. The purchase price would then be (B + profit on B) + (b + profit on b) = B + Bp′ + b + bp′ (where p′ is the rate of profit), = 100 + 10 + 10 + 1 = 121.

But if the merchant did not lay out this b on wages – since b is paid simply for commercial labour, i.e. for labour needed to realize the value of the commodity capital which industrial capital puts on the market – the matter would stand as follows. To buy or sell B = 100, the merchant gives up his time, and we shall assume that this is the only time available to him. The commercial labour represented by b = 10, if it were not paid as wages but rather by way of profit, would presuppose another commercial capital of 100, since 10 per cent of this gives b = 10. This second B = 100 would not go additionally into the price of the commodity, but the 10 per cent certainly would. There would therefore be two operations at 100, giving 200, buying commodities for 200 + 20 = 220.

Since commercial capital is nothing at all but the form in which a part of the industrial capital functioning in the circulation process has become autonomous, all questions relating to it must be resolved in this way: the problem must at the outset be put in the form in which the phenomena peculiar to commercial capital do not yet appear independently but are still in direct connection with industrial capital, of which commercial capital is a branch. Commercial capital, with an office instead of a workshop, function continuously in the circulation process. And so the b that is at issue here must firstly be investigated on the spot, in the commercial office of the industrial capitalist himself.

Right from the beginning, this office is always infinitesimally small in relation to the industrial workshop. Yet it is evident none the less that, as the scale of production is expanded, the commercial operations that the circulation of industrial capital requires are increased, both those required to sell the product in the form of commodity capital and those required to transform the money thus obtained back into means of production, as well as to keep the accounts for the whole process. Price calculation, book-keeping, fund management and correspondence are all part of this. The more the scale of production grows, the greater are industrial capital’s commercial operations, although the increase is by no means in the same proportion, and the greater also the labour and other circulation costs involved in the realization of value and surplus-value. It is necessary therefore to employ commercial workers who make up a proper commercial office. The expenditure on this, even though incurred in the form of wages, is distinct from the variable capital laid out on the purchase of productive labour. It increases the outlays of the industrial capitalist, the mass of capital he has to advance, without directly increasing the surplus-value. For this is an outlay for labour employed simply in realizing values already created. Just like other outlays of the same kind, this too reduces the rate of profit, because the capital advanced grows, but not the surplus-value. The surplus-value s remains constant, but the capital advanced C still grows from C to Δ C, so that the profit rate s/C is replaced by the smaller profit rate s/C + Δ C. The industrial capitalist therefore attempts to keep these circulation costs to a minimum, just as he does his outlay on constant capital. Industrial capital therefore does not behave towards its commercial employees as it does to its productive wage-labourers. The more of the latter are employed, with other circumstances remaining the same, the more massive is production and the greater the surplus-value or profit. Conversely, however, the greater the scale of production and the greater the value and surplus-value to be realized, the greater therefore the commodity capital produced, the more, accordingly, do office expenses grow in absolute terms, even if not relatively, and provide the occasion for a particular kind of division of labour. The extent to which profit is the prerequisite for these outlays is shown among other things by the way that, as commercial salaries increase, a part of these is often paid as a percentage of the profit. It lies in the nature of the thing that a labour that consists simply in intermediary operations, involving partly the calculation of values, partly their realization, and partly again the transformation of the money realized back into means of production, a labour whose scope thus depends on the magnitude of values produced and to be realized – that a labour of this kind functions not as the cause of the respective magnitudes and amounts of these values, as does directly productive labour, but is rather a consequence of them. It is similar with the other costs of circulation. If there is much to be weighed, measured, packed and transported, there must be plenty there in the first place. The amount of packing and transport work, etc. depends on the mass of the commodities that are objects of this activity and not the other way round.

The commercial worker does not produce surplus-value directly. But the price of his labour is determined by the value of his labour-power, i.e. its cost of production, although the exercise of this labour-power, the exertion, expenditure of energy and wear and tear it involves, is no more limited by the value of his labour-power than it is in the case of any other wage-labourer. His wage therefore does not stand in any necessary relationship to the amount of profit that he helps the capitalist to realize. What he costs the capitalist and what he brings in for him are different quantities. What he brings in is a function not of any direct creation of surplus-value but of his assistance in reducing the cost of realizing surplus-value, in so far as he performs labour (part of it unpaid). The commercial worker proper belongs to the better-paid class of wage-labourer; he is one of those whose labour is skilled labour, above-average labour. His wage, however, has a tendency to fall, as the capitalist mode of production advances, even in relation to average labour. Firstly, because the division of labour within the commercial office means that only a one-sided development of ability need be produced and that much of the cost of producing this ability to work is free for the capitalist, since the worker’s skill is rather developed by the function itself, and indeed is developed all the more quickly, the more one-sided the function becomes with the division of labour. Secondly, because basic skills, knowledge of commerce and languages, etc., are reproduced ever more quickly, easily, generally and cheaply, the more the capitalist mode of production adapts teaching methods, etc. to practical purposes. The general extension of popular education permits this variety of labour to be recruited from classes which were formerly excluded from it and were accustomed to a lower standard of living. This also increases supply, and with it competition. With a few exceptions, therefore, the labour-power of these people is devalued with the advance of capitalist production; their wages fall, whereas their working ability increases. The capitalist increases the number of these workers, if he has more value and profit to realize. The increase in this labour is always an effect of the increase in surplus-value, and never a cause of it.39 [a]

A certain duplication consequently takes place. On the one hand the functions of commodity capital and money capital (and consequently also of commercial capital) are general formal determinations of industrial capital. On the other hand, special capitals, and consequently also a special set of capitalists, are exclusively engaged in these functions; and these functions develop into special spheres for the valorization of capital.

It is only with commercial capital that the commercial functions and circulation costs acquire autonomy. The aspect of industrial capital that pertains to circulation consists not only in its regular forms of commodity capital and money capital, but also in the commercial office alongside the workshop. But with commercial capital this acquires autonomy. For the latter, the commercial office forms its only workshop. The part of capital applied in the form of the circulation costs appears much greater with the wholesale merchant than with the industrialist, because besides the business office that goes together with every industrial workshop, the part of capital that has to be employed in this way by the overall class of industrial capitalists as a whole is now concentrated in the hands of individual merchants By taking charge of the circulation function, they also take over the circulation costs that arise from it.