The Process of Circulation of Capital (Capital Vol. II). Karl Marx

      As soon as M' or C' have become fixed in the relation of M plus m, or C plus c, in other words, as soon as they become parts of the relation between capital-value and its offspring surplus-value, they give expression to this relation either in the form of money or of commodities, without changing the nature of the relation itself. This relation is not due to any qualities or functions of either money or commodities as such. In both cases the characteristic quality of capital, that of being a value generating more value, is expressed only as a result. C' is always the product of the function of P, and M' is always merely a form of C' changed in the cycle of industrial capital. As soon as the realized money-capital begins its special function as money-capital anew, it ceases to express the capital-relation conveyed by the formula M' equal to M plus m. After M...M' has been completed and M' begins the cycle anew, it no longer figures as M' but as M, even if the entire capital-value contained in M' is capitalized. The second cycle begins in our case with a money-capital of 500 pounds sterling, instead of 422 pounds in the first cycle. The money-capital, which opens the cycle, is larger by 78 pounds sterling than before; this difference exists in the comparison of one cycle with another, but it does not exist within each cycle. The 500 pounds sterling advanced as money-capital, 78 pounds of which formerly existed as surplus-value, do not play any different role than some other 500 pounds sterling by which another capitalist opens his first cycle. The increased P' opens a new cycle as P, just as P did in the simple reproduction P...P.

      In the stage M'—C'{^LPm, the increased magnitude is indicated only by C', but not by L' and PM'. Since C is the sum of L and Pm, the term C' indicates sufficiently that the sum of the L and Pm contained in it is greater than the original P. In the second place, the terms L' and PM' would be incorrect, because we know that the growth of capital implies a change in the relative proportions of the values composing it, and that, with the progressive changing of this proportion, the value of Pm increases, while that of L always decreases relatively, if not absolutely.

III. Accumulation of Money

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      Whether or not m, the surplus-value transformed into gold, is immediately combined with the circulating capital-value and is thus enabled to enter into the cycle together with the capital M in the magnitude of M', depends on circumstances which are independent of the mere existence of m. If m is to serve as money-capital in a second independent business, to be run by the side of the first, it is evident that it cannot be used for this purpose, unless it is of the minimum size required for it. And if it is intended to use it for the extension of the original business, the condition of the substances composing P and their relative values likewise demand a minimum magnitude for m. All the means of production employed in this business have not only a qualitative, but also a definite quantitative relation toward one another. These proportions of the substances and of their values entering into the productive capital determine the minimum magnitude required for m, in order to be capable of transformation into additional means of production and labor-power, or only into means of production as an addition to the productive capital. For instance, the owner of a spinning loom cannot increase the number of his spindles without at the same time purchasing a corresponding number of carders and preparatory looms, apart from the increased expense for cotton and wages, which such an extension of his business demands. In order to carry this out, the surplus-value must have reached a considerable figure (one pound sterling per spindle is generally assumed for new installations). So long as m does not reach this figure, the cycle of the original capital must be repeated several times, until the sum of the successively produced surplus-values m can take part in the functions of M, in the process M'—C'{^LPm. Even mere changes of detail, for instance, in the spinning machinery, made for the purpose of making it more productive, require greater expenditures for spinning material, preparatory looms, etc. In the meantime, m is accumulated, and its accumulation is not its own function, but the result of repeated cycles of P...P. Its own function consists in persisting in the form of money, until it has received sufficient additions from the outside by means of successive cycles of utilization of capital to have acquired the minimum magnitude necessary for its active function. Only when it has reached this magnitude, can it actually serve as money-capital and eventually take part in the functions of the active money-capital M as its accumulated part. But until that time it is accumulated and exists only in the form of a hoard in a process of gradual growth. The accumulation of money, the formation of a hoard, appears here as a process which accompanies temporarily the accumulation by which industrial capital expands the scale of its productive action. This is a temporary phenomenon, for so long as the hoard remains in this condition, it does not perform the function of capital, does not take part in the process of utilization, and remains a sum of money which grows only by virtue of the fact that other money, existing without the initiative of the hoard, is thrown into the same safe.

      The form of a hoard is simply the form of money not in circulation. It is money interrupted in its circulation and stored up in the form of money. As for the process of forming a hoard, it is found in all systems of commodity-production, and it plays a role as an end in itself only in the undeveloped, precapitalist forms of this production. In the present case, the hoard assumes the form of money-capital, and goes through the process of forming a hoard as a temporary corollary of the accumulation of capital, merely because the money here figures as latent money-capital, and because the formation of a hoard as well as the surplus-value hoarded in the form of money represent a functionally prescribed and preliminary stage required for the transformation of surplus-value into capital actually performing its functions. It is this end which gives it the character of latent money-capital. Hence the volume, which it must have acquired before it can take part in the process of capital, is determined in each case by the values of which the productive capital is composed. But so long as it remains in the condition of a hoard, it does not perform the functions of money-capital, but is merely sterile money-capital; its functions have not been interrupted, as in a previous case, but it is as yet incapable of performing them.

      We are here discussing the accumulation of money in its original and real form of an actual hoard of money. But it may also exist in the form of mere outstanding money, of credits granted by a capitalist who has sold C'. As concerns its other forms, where this latent money-capital exists in the meantime in the shape of money breeding more money, such as interest-bearing deposits in a bank, in drafts, or in bonds of some sort, these do not fall within the discussion at this point. Surplus-value realized in the form of money then performs special capital-functions outside of that cycle of industrial capital which originated it. In the first place, these functions have nothing to do with that cycle of industrial capital as such, in the second place they represent capital-functions which are to be distinguished from the functions of industrial capital and which are not yet developed at this stage.

IV. Reserve Funds.

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      In the case which we have just discussed, surplus-value in the form of a hoard represents accumulated funds, a money-form temporarily assumed by the accumulation of capital and to that extent a condition of this accumulation. However, such accumulated funds may also perform special services of a subordinate nature, that is to say they may enter into the circulation-process of capital, even if this process has not assumed the form of P—P', in other words, without an expansion of capitalist reproduction.

      If the process C'—M' is prolonged beyond its normal size, so that commodity-capital meets with abnormal obstacles during its transformation into the money-form, or if, after the completion of this transformation, the price of the means of production into which the money-capital is to be transformed has risen above the level occupied by it in the beginning of the cycle, the hoard held as accumulated funds may be used in the place of money-capital, or of a part of such capital. In that case, the accumulated funds of money serve as reserve funds for the purpose of counterbalancing disturbances of the circulation.

      When in use as such a reserve fund, accumulated money differs from the fund of purchase or paying media discussed in the cycle P—P'. These media are a part