Part 2: The Transformation of Money into Capital 

Chap 4: The General Formula for Capital 
While money and the circulation took the form of C-M-C; so that commodities were made for a socially useful end, exchanged for money, which was then used to buy another commodity; there is an inverse form- M-C-M, where money is used to purchase a commodity, which is then resold for money. The first is selling in order to buy, the second is buying in order to sell. The distinction is that the first is motivated by a desire for the commodity, the second is motivated by the desire for money.  

It would be pointless to go through this if one ended up with the same amount of money, so the process is done in order to try and make a profit. But Marx sees something more insidious. Money circulates in both C-M-C, and M-C-M cycles, but the expenditure of money in CMC cycles has nothing to do with its reflux, whereas in MCM, the whole point is the reflux of the money. Consumption is the point of CMC, exchange value is the point of MCM. 

But as mentioned earlier, MCM would be pointless unless it were for a profit, or what Marx terms surplus-value. He assigns the sale for profit as MCM’. 

In the CMC cycle, the final goal is the satisfaction of needs by purchasing use-value. But the point of the MCM’ cycle is the accrual of capital, and the one engaged in this is a capitalist. For Marx, one becomes a capitalist in the unceasing pursuit of more profit. 

Chap 5: The Contradictions in the General Formula 
Marx notes that in an exchange of commodities, for example, a wine producer exchanges an equal amount with a corn producer, this exchange produces no increase of exchange value. The same holds true even if we use money in between. The wine producer can sell $100 dollars of wine to then buy $100 worth of corn. No increase in exchange value has occurred. Marx puts it another way: the exchange of commodities in an exchange of equivalents, not a method of increasing value. 

Marx then takes issue with economists who claim that the usual circulation of commodities produces surplus value. He claims that they are confusing use-value and exchange value. He cites Condillac who explains that no exchange takes place unless the buyer is convinced he is getting something worth ‘more’ than what he gave up. In basic terms- the buyer of wine would rather have the wine than either the corn or the money. Marx points out that while the buyer of wine sees a higher use-value in having the wine, there is no increase in exchange value, so still, there is no increase in surplus value. 

Marx furthermore posits that even in a case where the seller finds a buyer who overpays by 10%, resulting in 10% more for the seller, the seller in turn may overpay elsewhere by 10%, in which case we still don’t have surplus value. Marx goes through various iterations of this, but essentially, system-wide, you can’t simply overcharge or underpay your way to surplus value, so circulation per se can’t explain surplus value. 

Marx notes that capital can’t arise from circulation, AND it’s equally impossible for it to rise apart from circulation. The transformation of money into capital must have its starting point in the exchange of equivalents must buy at their value, and sell and their value, and still withdraw more value from circulation than he started with. 

Chap 6: The Sale and Purchase of Labor Power 
The change of money into capital, says Marx, can’t occur in the circulation of money, which is the exchange of equivalents. The change must take place in the commodity itself, but not its value. The place to extract value is in labor-power.  

Labor power can be a commodity if the owner of it is willing to sell. He enters into an agreement with the buyer. He must be free to do so. The second condition is that beyond being able to sell his labor power, he must be compelled to do it. Such a man doesn’t possess the means of production. He must be both free to sell his power, and have no other real commodity to sell, nothing else with which to get money. 

Marx goes into the fact that if labor is to be maintained, certain physical needs must be met: clothing and food and basic necessities so that the laborer can repeat the process of a day’s labor the next day. 

He includes even replacement means- workers having kids so the workers can be replaced, in this equation, of which the minimum is called subsistence. Returning to an earlier concept, Marx also notes that labor, like any other commodity that remains unsold, is nothing.