 The movements of commodity-capital have been analysed in Book II. To take the total capital of society, one part of it always made up of different elements and even changing in magnitude always exists in the form of commodities on the market, to be converted into money. Another part exists on the market in the form of money, to be converted into commodities. It is always in the process of this transition, of this formal metamorphosis. Inasmuch as this function of capital in the process of circulation is at all set apart as a special function of a special capital, as a function established by virtue of the division of labour to a special group of capitalists, commodity-capital becomes commercial capital. We have explained (Book II, Chapter VI, "The Costs of Circulation,") to what extent the transport industry, storage and distribution of commodities in a distributable form, may be regarded as production processes continuing within the process of circulation. These episodes incidental to the circulation of commodity-capital are sometimes confused with the distinct functions of merchant's or commercial capital. Sometimes they are, indeed, practically bound up with these distinct, specific functions, although with the development of the social division of labour the function of merchant's capital evolves in a pure form, i.e., divorced from those real functions, and independent of them. Those functions are therefore irrelevant to our purpose, which is to define the specific difference of this special form of capital. In so far as capital solely employed in the circulation process, special commercial capital, partly combines those functions with its specific ones, it does not appear in its pure form. We obtain its pure form after stripping it of all these incidental functions. We have seen that the existence of capital as commodity-capital and the metamorphosis it undergoes within the sphere of circulation in the market as commodity-capital a metamorphosis which resolves itself into buying and selling, converting commodity-capital into money-capital and money-capital into commodity-capital that this forms a phase in the reproduction process of industrial capital, hence in its process of production as a whole. We have also seen, however, that it is distinguished in its function as a capital of circulation from its function as productive capital. These are two different and separate forms of existence of the same capital. One portion of the total social capital is continually on the market in the form of capital of circulation, passing through this process of transmutation, although for each individual capital its existence as commodity-capital, and its metamorphosis as such, merely represent ever-vanishing and ever renewed nodal points i.e., stages of transition in the continuity of its production process, and although the elements of commodity-capital in the market vary continuously for this reason, being constantly withdrawn from the commodity-market and equally periodically returned to it as new products of the process of production. Commercial capital is nothing but a transmuted form of a part of this capital of circulation constantly to be found in the market, ever in the process of its metamorphosis, and always encompassed by the sphere of circulation. We say a part, because a part of the selling and buying of commodities always takes place directly between industrial capitalists. We leave this part entirely out of consideration in this analysis, because it contributes nothing to defining the conception, or to understanding the specific nature of merchant's capital, and because it has furthermore been exhaustively treated for our purpose in Book II. The dealer in commodities, as a capitalist generally, appears on the market primarily as the representative of a certain sum of money, which be advances as a capitalist, i.e., which he wants to turn from x (its original value) into x + Dx (the original sum plus profit). But it is evident to him not being just a capitalist in general, but rather a special dealer in commodities that his capital must first enter the market in the form of money-capital, for he does not produce commodities. He merely trades in them, expedites their movement, and to operate with them he must first buy them, and, therefore, must be in possession of money-capital. Suppose that a dealer in commodities owns 3,000 which he invests as a trading capital. With these 3,000 he buys, say, 30,000 yards of linen from some linen manufacturer at 2s. per yard. He then sells the 30,000 yards. If the annual average rate of profit = 10% and he makes an annual profit of 10% after deducting all incidental expenses, then by the end of the year he has converted his 3,000 into 3,300. How he makes this profit is a question which we shall discuss later. At present, we intend to consider solely the form of the movements of his capital. With his 3,000 he keeps buying linen and selling it; he constantly repeats this operation of buying in order to sell, M C M', the simple form of capital as it obtains entirely in the process of circulation, uninterrupted by the production process, which lies outside its own movement and function. What is now the relation of this commercial capital to commodity-capital as a mere form of existence of industrial capital? So far as the linen manufacturer is concerned, he has realised the value of his linen with the merchant's money and thereby completed the first phase in the metamorphosis of his commodity-capital its conversion into money. Other conditions being equal, he can now proceed to reconvert this money into yarn, coal, wages, etc., and into means of existence, etc., for the consumption of his revenue. Hence, leaving aside the revenue expenditure, he can go on with his process of reproduction. But while the sale of the linen, its metamorphosis into money, has taken place for him, as producer, it has not yet taken place for the linen itself. It is still on the market as commodity-capital awaiting to undergo its first metamorphosis to be sold. Nothing has happened to this linen besides a change in the person of its owner. As concerns its purpose, as concerns its place in the process, it is still commodity-capital, a saleable commodity, with the only difference that it is now in the merchant's hands instead of the manufacturer's. The function of selling it, of effecting the first phase of its metamorphosis, has passed from the manufacturer to the merchant, has become the special business of the merchant, whereas previously it was a function which the producer had to perform himself after having completed the function of its production. Let us assume that the merchant fails to sell the 30,000 yards of linen during the interval required by the linen manufacturer to bring another 30,000 yards to market at a value of 3,000. The merchant cannot buy them again, because he still has in stock the unsold 30,000 yards which have not as yet been reconverted into money-capital. A stoppage ensues, i.e., an interruption of reproduction. The linen producer might, of course, have additional money-capital at his disposal, which he could convert into productive capital, regardless of the sale of the 30,000 yards, in order to continue the production process. But this would not alter the situation. So far as the capital tied up in the 30,000 yards of linen is concerned, its process of reproduction is, and remains, interrupted. It is, indeed, easily seen here that the merchant's operations are really nothing but operations that must be performed at all events to convert the producer's commodity-capital into money. They are operations which effect the functions of commodity-capital in the circulation and reproduction processes. If it devolved upon the producer's clerk to attend exclusively to the sale, and also the purchase, instead of an independent merchant, this connection would not be obscured for a single moment. Commercial capital is, therefore, nothing but the producer's commodity capital which has to undergo the process of conversion into money to perform its function of commodity-capital on the market the only difference being that instead of representing an incidental function of the producer, it is now the exclusive operation of a special kind of capitalist, the merchant, and is set apart as the business of a special investment of capital. This becomes evident, furthermore, in the specific form of circulation of commercial capital The merchant buys a commodity and then sells it: M C M'. In the simple circulation of commodities, or even in the circulation of commodities as it appears in the circulation process of industrial capital, C' M C, circulation is effected by each piece of money changing hands twice. The linen manufacturer sells his commodity-linen, converting it into money; the buyer's money passes into his hands. With this same money he buys yarn, coal, labour, etc. expends the money for reconverting the value of linen into the commodities which make up its production elements. The commodity he buys is not the same commodity, not the same kind of commodity which he sells. He has sold products and bought means of production. But it is different with respect to the movements of merchant's capital. With his 3,000 the linen merchant buys 30,000 yards of linen; he sells the same 30,000 yards of linen in order to retrieve his money-capital ( 3,000 and the profit) from circulation. It is not the same pieces of money, but rather the same commodity which here changes places twice; the commodity passes from the seller into the hands of the buyer, and from the hands of the buyer, who now becomes seller, into those of another buyer. It is sold twice, and may be sold repeatedly through the medium of a series of merchants. And it is precisely through this repeated sale, through this two-fold change of place of the same commodity, that the money advanced for its purchase by the first buyer is retrieved, its reflux to him effected. In one case, C' M C effects the two-fold change of place of the same money, the sale of a commodity in one form and the purchase of a commodity in another. In the other case, M C M' effects the two-fold change of place of the same commodity, the withdrawal of advanced money from circulation. It is evident that the commodity has not been finally sold when it passes from the producer into the hands of the merchant, in that the latter merely carries on the operation of selling or effects the function of commodity-capital. But at the same time it is evident that what is C M, a mere function of his capital in its transient form of commodity-capital for the productive capitalist, is M C M', a specific increase in the value of his advanced money-capital, for the merchant. One phase of the metamorphosis of commodities appears here in respect to the merchant in the form of M C M', hence as evolution of a distinct kind of capital. The merchant finally sells his commodity, that is, the linen, to the consumer, be it a productive consumer (for instance, a bleacher), or an individual who acquires the linen for his private use. The merchant thereby recovers his advanced capital (with a profit), and can repeat his operation anew. Had the money served merely as a means of payment in purchasing the linen, so that the merchant would have had to pay only after six weeks, and had he succeeded in selling before this term was out, he could have paid the linen manufacturer without advancing any money-capital of his own. Had he not sold it, he would have had to advance his 3,000 on the date of expiration, instead of on delivery of the linen. And if a drop in the market-prices had compelled him to sell below the purchase price, he would have had to make good the shortage out of his own capital. What is it, then, that lends to commercial capital the character of an independently operating capital, whereas in the hands of the producer who does his own selling it is obviously merely a special form of his capital in a specific phase of the reproduction process during its sojourn in the sphere of circulation? First: The fact that commodity-capital is finally converted into money, that it performs its initial metamorphosis, i.e., its appropriate function on the market qua commodity-capital while in the hands of an agent other than the producer, and that this function of commodity-capital is effected by the merchant in his operations, his buying and selling, so that these operations assume the appearance of a separate undertaking distinct from the other functions of industrial capital and hence of an independent undertaking. It is a distinct form of the social division of labour, so that part of the function ordinarily performed as a special phase of the reproduction process of capital, in this case circulation, appears as the exclusive function of specific circulation agent distinct from the producer. But this alone would by no means give this particular business the aspect of a function of a specific capital distinct from, and independent of, industrial capital engaged in the process of reproduction; indeed, it does not so appear in cases where trade is carried on by travelling salesmen or other direct agents of the industrial capitalist. Therefore, there must be a second element involved. Second: This arises from the fact that in his capacity as an independent circulation agent, the merchant advances money-capital (his own or borrowed). The transaction which for industrial capital in the reproduction process amounts merely to C M, i.e., converting commodity-capital into money-capital, or mere sale, assumes for the merchant the form of M C M', or purchase and sale of the same commodity, and thus of a reflux of money-capital which leaves him in the purchase, and returns to him in the sale. It is always C M, the conversion of commodity-capital into money-capital, which for the merchant assumes the form of M C M, inasmuch as he advances capital to purchase commodities from their producers; it is always the first metamorphosis of commodity-capital, although for a producer, or for industrial capital in process of reproduction, the same transaction may amount to M C, to a reconversion of money into commodities (means of production), to the second phase of the metamorphosis. For the linen producer, the first metamorphosis was C M, the conversion of his commodity-capital into money-capital. For the merchant the same act appears as M C, as a conversion of his money-capital into commodity-capital. Now, if he sells this linen to a bleacher, it will mean M C, i.e., the conversion of money capital into productive capital, this being the second metamorphosis of his commodity-capital for the bleacher, while for the merchant it means C M, the sale of the linen he had bought. But in fact it is only at this point that the commodity-capital produced by the linen manufacturer has been finally sold. In other words, this M C M of the merchant represents no more than a middleman's function for C M between two manufacturers. Or let us assume that the linen manufacturer buys yarn from a yarn dealer with a portion of the value of the sold linen. This is M C for him. But for the merchant selling the yarn it is C M, the resale of the yarn. As concerning the yarn in its capacity of commodity-capital, it is no more than its final sale, whereby it passes from the sphere of circulation into that of consumption; it is C M, the consummation of its first metamorphosis. Whether the merchant buys, or sells to the industrial capitalist, his M C M, the circuit of merchant's capital, always expresses what is just C M, or simply the completion of its first metamorphosis, with regard to the commodity-capital, a transient form of industrial capital in process of reproduction. The M C of merchant's capital is C M only for the industrial capitalist, not for the commodity-capital produced by him. It is but the transfer of commodity-capital from the industrial capitalist to the circulation agent. It is not until the merchant's capital closes C M that functioning commodity-capital performs its final C M. M C M amounts solely to two C M's of the same commodity-capital, two successive sales of it, which merely effect its last and final sale. Thus, commodity-capital assumes in commercial capital the form of an independent type of capital because the merchant advances money-capital, which is realised and functions as capital only by serving exclusively to mediate the metamorphosis of commodity-capital, its function as commodity-capital, i.e., its conversion into money, and it accomplishes this by the continual purchase and sale of commodities. This is its exclusive operation. This activity of effecting the circulation process of industrial capital is the exclusive function of the money-capital with which the merchant operates. By means of this function he converts his money into money-capital, moulds his M into M C M, and by the same process converts commodity-capital into commercial capital. So long and so far as commercial capital exists in the form of commodity-capital, it is obviously nothing else from the standpoint of the reproduction process of the total social capital but a portion of industrial capital in the market in process of metamorphosis, which exists and functions as commodity-capital. It is therefore only the money-capital advanced by the merchant which is exclusively destined for purchase and sale and for this reason never assumes any other form but that of commodity-capital and money-capital, never that of productive capital, and is always confined to the sphere of circulation of capital it is only this money-capital which is now to be regarded with reference to the entire reproduction process of capital. As soon as the producer, the linen manufacturer, has sold his 30,000 yards to the merchant for 3,000, he uses the money so obtained to buy the necessary means of production, so that his capital returns to the production process. His process of production continues without interruption. So far as he is concerned, the conversion of his commodity into money is accomplished. But for the linen itself, as we have seen, its metamorphosis has not yet taken place. It has not yet been finally reconverted into money, has not yet passed as a use-value into either productive or individual consumption. It is now the linen merchant who represents on the market the same commodity-capital originally represented by the linen manufacturer. For the latter the process of transformation has been curtailed, only to be continued in the merchant's hands. Had the linen producer been obliged to wait until his linen had really ceased being a commodity, until it has passed into the hands of its ultimate buyer, its productive or individual consumer, his process of reproduction would have been interrupted. Or, to avoid interrupting it, he would have had to curtail his operations, to convert a smaller portion of his linen into yarn, coal, labour, etc., in short, into the elements of productive capital, and to retain a larger portion of it as a money reserve, so that with one portion of his capital on the market in the shape of commodities, another would continue the process of production; one portion would be on the market in the form of commodities, while the other returned in the form of money. This division of his capital is not abolished by the merchant's intervention. But without it the portion of money reserve in the capital of circulation would always have to be greater in relation to the part employed in the form of productive capital, and the scale of reproduction would have to be restricted accordingly. Instead, however, the manufacturer is enabled to constantly employ a larger portion of his capital in the actual process of production, and a smaller portion as money reserve. On the other hand, however, another portion of the social capital, in the form of merchant's capital, is kept continually within the sphere of circulation. It is employed all the time for the sole purpose of buying and selling. Hence there seems to have been no more than a replacement of persons holding this capital in their hands. If, instead of buying 3,000 worth of linen with the purpose of selling it again, the merchant had applied these 3,000 productively, the productive capital of society would have increased. True, the linen manufacturer would then have been obliged to hold back a larger portion of his capital as money reserve, and likewise the merchant, now transformed into an industrial capitalist. On the other hand, if the merchant remains merchant, the manufacturer saves time in selling, which he can devote to supervising the production process, while the merchant must apply all his time to selling. If merchant's capital does not overstep its necessary proportions, it is to be inferred, 1) that as a result of the division of labour the capital devoted exclusively to buying and selling (and this includes not only the money required to buy commodities, but also the money which must be invested in labour to maintain the merchant's establishment, and in his constant capital-the storehouses, transport, etc.) is smaller than it would be if the industrial capitalist were constrained to carry on the entire commercial part of his business on his own; 2) that because the merchant devotes all his time exclusively to this business, the producer is able to convert his commodities more rapidly into money, and, moreover, the commodity-capital itself passes more rapidly through its metamorphosis than it would in the hands of the producer; 3) that in viewing the aggregate merchant's capital in its relation to industrial capital, one turnover of merchant's capital may represent not only the turnovers of many capitals in one sphere of production, but the turnovers of a number of capitals in different spheres of production. The former is the case when, for instance, the linen merchant, after buying the product of some linen manufacturer with his 3,000, sells it before the same manufacturer brings another lot of the same quantity to market, and buys, and again sells, the product of another, or several other, linen manufacturers, thus effecting the turnovers of different capitals in the same sphere of production. The latter is the case if, for example, the merchant after selling his linen buys silk, thus effecting the turnover of a capital in a different sphere of production. In general, it may be noted that the turnover of industrial capital is limited not by the time of circulation alone, but also by the time of production. The turnover of merchant's capital dealing in one kind of commodity is not merely limited by the turnover of a single industrial capital, but by that of all industrial capitals in the same branch of production. After the merchant has bought and sold the linen of one producer he can buy and sell that of another, before the first brings another lot to the market. The same merchant's capital may, therefore, successively promote the different turnovers of capitals invested in a certain branch of production, with the effect that its turnover is not identical with the turnovers of a sole industrial capital, and does not therefore replace just the single money reserve which that one industrial capitalist would have had to hold in petto. The turnover of merchant's capital in one sphere of production is naturally restricted by the total production of that sphere. But it is not restricted by the scale of production, or the period of turnover, of any one capital of the same sphere, so far as its period of turnover is qualified by its time of production. Suppose, A supplies a commodity requiring three months for its production. After the merchant has bought and sold it, say, in one month, he can buy and sell the same product of some other manufacturer. Or after he has sold, say, the corn of one farmer, he can buy and sell that of another with the same money, etc. The turnover of his capital is restricted by the mass of corn he is able to buy and sell successively within a certain period, for instance, in one year, while the turnover of the farmer's capital is, regardless of the time of turnover, restricted by the time of production, which lasts one year. However, the turnover of the same merchant's capital may equally well effect the turnovers of capitals in different branches of production. In so far as the same merchant's capital serves in different turnovers to transform different commodity-capitals successively into money, buying and selling them one after another, it performs the same function in its capacity of money-capital with regard to commodity-capital, which money in general performs by means of the number of its turnovers in a given period with regard to commodities. The turnover of merchant's capital is not identical with the turnover, or a single reproduction, of an industrial capital of equal size; it is rather equal to the sum of the turnovers of a number of such capitals, whether in the same or in different spheres of production. The more quickly merchant's capital is turned over, the smaller the portion of total money-capital serving as merchant's capital; and conversely, the more slowly it is turned over, the larger this portion. The less developed production, the larger the sum of merchant's capital in its relation to the sum of the commodities thrown into circulation; but the smaller in absolute terms, or in comparison with more developed conditions, and vice versa. In such undeveloped conditions, therefore, the greater part of the actual money-capital is in the hands of merchants, whose fortune constitutes money wealth vis- -vis the others. The velocity of circulation of the money-capital advanced by the merchant depends 1) on the speed with which the process of production is renewed and the different processes of production are linked together; and 2) on the velocity of consumption. To accomplish the turnover we have examined above, merchant's capital does not first have to buy commodities for its full amount of value, and then to sell them. Instead, the merchant performs both movements simultaneously. His capital then breaks up into two parts. One of them consists of commodity-capital, and the other of money-capital. He buys and converts his money into commodities at one place. Elsewhere, he sells and converts another part of his commodity-capital into money. On one side, his capital returns to him in the form of money-capital, while on the other he gets commodity-capital. The larger the portion in one form, the smaller the portion in the other. This alternates and balances itself. If the use of money as a medium of circulation combines with its use as a means of payment and the attendant development of the credit system, then the money-capital part of merchant's capital is reduced still more in relation to the volume of the transactions this merchant's capital effects. If I buy 3,000 worth of wine on three months' credit and sell all the wine for cash before this term expires, I do not need to advance a single penny for these transactions. In this case it is also quite obvious that the money-capital, which here acts as merchant's capital, is nothing more than industrial capital in its money-capital form, in its process of reflux in the form of money. (The fact that the manufacturer who sold 3,000 worth of wine on three months' credit may discount his promissory note at the banker's does not alter the matter at all and has nothing to do with the merchant's capital.) If market-prices should fall in the meantime by, say, 1/10, the merchant, far from making a profit, would recover only 2,700 instead of 3,000. He would have to put up 300 out of his own pocket. These 300 would serve merely as a reserve to balance the difference in price. But the same applies to the manufacturer. If he himself had sold at falling prices, he would likewise have lost 300, and would not be able to resume production on the same scale without reserve capital. The linen merchant buys 3,000 worth of linen from the manufacturer. The latter pays, say, 2,000 of the 3,000 for yarn. He buys this yarn from a yarn dealer. The money which the manufacturer pays to the yarn dealer is not the linen dealer's money, for the latter has received commodities to this amount. It is the money-form of the manufacturer's own capital. Now in the hands of the yarn dealer these 2,000 appear as returned money-capital. But to what extent are they that as distinct from the 2,000 representing the discarded money-form of the linen and the assumed money-form of the yarn? If the yarn dealer bought on credit and sold for cash before the expiration of his term of payment, then these 2,000 do not contain one penny of merchant's capital as distinct from the money-form which the industrial capital itself assumes in the course of its circuit. In so far as commercial capital is not, therefore, just a form of industrial capital in the merchant's hands as commodity- or money-capital, it is nothing but that portion of money-capital which belongs directly to the merchant and circulates in the purchase and sale of commodities. On a reduced scale this portion represents that part of capital advanced for production which should always have to be in the hands of the industrialist as money reserve and means of purchase, and which should always have to circulate as his money-capital. This portion, on a reduced scale, is now in the hands of merchant capitalists and performs its functions as such in the process of circulation. It is that portion of the total capital which, aside from what is expended as revenue, must continually circulate on the market as a means of purchase in order to maintain the continuity of the process of reproduction. The more rapid the process of reproduction, and the more developed the function of money as a means of payment, i.e., the more developed the credit system,  the smaller that portion is in relation to the total capital. Merchant's capital is simply capital functioning in the sphere of circulation. The process of circulation is a phase of the total process of reproduction. But no value is produced in the process of circulation, and, therefore, no surplus-value. Only changes of form of the same mass of value take place. In fact, nothing occurs there outside the metamorphosis of commodities, and this has nothing to do as such either with the creation or change of values. If a surplus-value is realised in the sale of produced commodities, then this is only because it already existed in them. In the second act, the re-exchange of money-capital against commodities (elements of production), the buyer therefore does not realise any surplus-value either. He merely initiates the production of surplus-value through exchanging his money for means of production and labour-power. But so far as these metamorphoses require circulation time time during which capital does not produce at all, least of all surplus-value it restricts the creation of values, and the surplus-value expresses itself through the rate of profit in inverse ratio to the duration of the circulation period. Merchant's capital, therefore, does not create either value or surplus-value, at least not directly. In so far as it contributes to shortening the time of circulation, it may help indirectly to increase the surplus-value produced by the industrial capitalists. In so far as it helps to expand the market and effects the division of labour between capitals, hence enabling capital to operate on a larger scale, its function promotes the productivity of industrial capital, and its accumulation. In so far as it shortens circulation time, it raises the ratio of surplus-value to advanced capital, hence the rate of profit. And to the extent that it confines a smaller portion of capital to the sphere of circulation in the form of money-capital, it increases that portion of capital which is engaged directly in production.
Economic Manuscripts: Capital, Vol.3, Chapter 16