Chapter 5: Contradictions in the General Formula

Outline of Marx's Discussion


Having arrived at the general formula for capital M – C – M' through the analysis of circulation, Marx now addresses the source of the prime in M' (where M' > M. He argues that the increased value cannot originate within the circulation process. Therefore, we must turn elsewhere (to the sphere of production) for an answer. This chapter provides a transition between the analysis of circulation and that of production—the sphere of labor. If we keep in mind, from our studies of primitive accumulation and Part I, chapters 1-3, the understanding that value is work-for-capital as social control, then it is obvious that surplus value or surplus work can only originate in the sphere of production. However, let us follow Marx's reasoning.

He begins by noting that M – C – M' contradicts all the laws of exchange, value, money, etc. already developed. How? Presumably because C – M' is unequal exchange. What gives?

First he looks at the inverted order of succession, M – C and then C – M', rather than C &ndash M, M ‐ C and asks if this can be the source? After tracing the process M – C and C – M' from the point of view of both buyer and seller at each step, he concludes that the order is irrelevant, the actual acts are still those of simple commodity circulation. “We must rather look to see whether this simple circulation, by its nature, might permit the valorization of the values [increase in magnitude of value] entering into it and consequently the formation of surplus-value.”(1)

To answer this question he begins with: simple exchange: C – C wherein money appears only as money of account—to name price—but does not enter into exchange. In this case Marx argues that in terms of use-value it can be said that each side gains because it gains more use-value than it might otherwise have been able to produce This is basically Ricardo's argument about comparative advantage. But, assuming equal exchange of values, there is no reason to think that any gain has been made.

Next, he places money in the middle, as means of circulation, i.e., C -– M – C. While this makes sale and purchase distinct acts, it does not change the assumption that equivalents are exchanged, as we have already seen in Part I, Chapters 1 - 3. Changes in form do not "imply any change in the magnitude of the value."(2)

At this point Marx then reverses his line of reasoning, to work backwards from the conclusion to point out logical inconsistencies. He writes, "It is true that commodities may be sold at prices which diverge from their values." (3) If so, we have two possibilities:

1. Suppose the seller sells commodities above their value, i.e., 110 instead 100. If all sellers do this, then when the sellers become buyers, they lose the 10 gained. In the aggregate prices rise 10% but there is no net gain in value.

2. Suppose the buyer buys below value. If all do this then this buyer has already lost (in C – M, M – C) before buying and there is no net gain.

If there is unequal exchange, someone sells above value and gets away with it, then that merely redistributes value that already exists. If there is a class that consistently buys without selling and is cheated therein, then they must be getting their money from taxes, expropriation, etc., so the selling class is just getting back some of its own, previously stolen money. Moreover, cheating can produce a redistribution, it does not raise the total value in circulation: "The sum of the values in circulation can clearly not be augmented by any change in their distribution."(4)

In illustrating this argument he uses an example from the colonialism of antiquity: the towns of Asia Minor paid money tribute to Rome and then cheated them when selling the Romans supplies, etc. They "swindled back from their conquerors a portion of the tribute in the course of trade. Yet for all that, the provincials remained the ones who had been cheated. Their goods were still paid for with their own money." (5) In other words, there had been a one-way transfer of real wealth to the Romans. The same might be said concerning the relationship between the working class and capital. No matter how much the working class may cheat capital, either through the exchange LP – M (in which the working class can cheat by failing to work) or in M – C(MS) via shoplifting, changing price tags, or what have you, as long as capital achieves some degree of surplus value and reinvestment, it is the working class which is, in the end, being cheated—out of that part of its life realized as surplus-value (surplus work) and out of that part of its life spent in the reproduction of labor-power.

Therefore, Marx concludes, whether we are speaking of merchants' capital M – C – M' or even of usurer's capital M – M', the increase in value cannot arise in circulation, at least not in the aggregate (there can be redistribution), and "something must take place in the background which is not visible in the circulation itself." (6)

Therefore, Marx us to the world of production. Yet he does not immediately end the chapter. He goes on to spell out the paradoxical situation that even with equal exchange, exchange of equivalents, the capitalist must "at the end of the process withdraw more value from circulation than he threw into it at the beginning." Applying his biological metaphor of metamorphosis to the holder of money striving to turn into a capitalist, he notes that a "money-owner" is only a capitalist in larval form . . . His emergence as a butterfly must, and must not, take place in the sphere of circulation." (7)

Concepts For Review

    equal exchange
    cheating in exchange

Questions For Review

1. Trace and explain Marx's explanation as to why the prime in M' does not originate in circulation.

2. If we keep in mind that value is work-for-capital and surplus-value must necessarily be surplus work, then why is it obvious that surplus-value does not originate in circulation?

3. Suppose there is cheating in exchange, say of peasants by a government set on extracting a surplus. Does this mean that surplus-value, in this case, originates in exchange?

4. What does cheating do, if it does not create surplus value?

5. Give some examples of cheating in exchange from the world today as you know it.

6. What are the contradictions in the general formula of capital?


1 Capital, Vol. I, p. 259.

2 Ibid., p. 260.

3 Ibid., p. 261.

4 Ibid., p. 265.

5 Ibid.

6 Ibid., p 268.

7 Ibid., p. 269.