 The particular form in which commercial and money-dealing capitals accumulate money will be discussed in the next part. It is self-evident from what has gone before that nothing could be more absurd than to regard merchant's capital, whether in the shape of commercial or of money-dealing capital, as a particular variety of industrial capital, such as, say, mining, agriculture, cattle-raising, manufacturing, transport, etc., which are side lines of industrial capital occasioned by the division of social labour, and hence different spheres of investment. The simple observation that in the circulation phase of its reproduction process every industrial capital performs as commodity-capital and as money-capital the very functions which appear as the exclusive functions of the two forms of merchant's capital, should rule out such a crude notion. On the other hand, in commercial and money-dealing capital the differences between industrial capital as productive capital and the same capital in the sphere of circulation are individualised through the fact that the definite forms and functions which capital assumes for the moment appear as independent forms and functions of a separate portion of the capital and are exclusively bound up with it. The transmuted form of industrial capital and the material differences between productive capitals applied in different branches of industry, which arise from the nature of these various branches, are worlds apart. Aside from the crudity with which the economist generally considers distinctions of form, which really concern him only from their substantive side, this misconception by the vulgar economist is explained on two additional counts. First, his inability to explain the peculiar nature of mercantile profit; and, secondly, his apologetic endeavours to deduce commodity-capital and money-capital, and later commercial capital and money-dealing capital as forms arising necessarily from the process of production as such, whereas they are due to the specific form of the capitalist mode of production, which above all presupposes the circulation of commodities, and hence of money, as its basis. If commercial capital and money-dealing capital do not differ from grain production any more than this differs from cattle-raising and manufacturing, it is plain as day that production and capitalist production are altogether identical, and that, among other things, the distribution of the social products among the members of a society, be it for productive or individual consumption, must just as consistently be handled by merchants and bankers as the consumption of meat by cattle-raising and that of clothing by their manufacture.  The great economists, such as Smith, Ricardo, etc., are perplexed over mercantile capital being a special variety, since they consider the basic form of capital, capital as industrial capital, and circulation capital (commodity-capital and money-capital) solely because it is a phase in the reproduction process of every capital. The rules concerning the formation of value, profit, etc., immediately deduced by them from their study of industrial capital, do not extend directly to merchant's capital. For this reason, they leave merchant's capital entirely aside and mention it only as a kind of industrial capital. Wherever they make a special analysis of it, as Ricardo does in dealing with foreign trade, they seek to demonstrate that it creates no value (and consequently no surplus-value). But whatever is true of foreign trade, is also true of home trade. Hitherto we have considered merchant's capital merely from the standpoint, and within the limits, of the capitalist mode of production. However, not commerce alone, but also merchant's capital, is older than the capitalist mode of production, is, in fact, historically the oldest free state of existence of capital. Since we have already seen that money-dealing and the capital advanced for it require nothing more for their development than the existence of wholesale commerce, and further of commercial capital, it is only the latter which we must occupy ourselves with here. Since merchant's capital is penned in the sphere of circulation, and since its function consists exclusively of promoting the exchange of commodities, it requires no other conditions for its existence aside from the undeveloped forms arising from direct barter outside those necessary for the simple circulation of commodities and money. Or rather, the latter is the condition of its existence. No matter what the basis on which products are produced, which are thrown into circulation as commodities whether the basis of the primitive community, of slave production, of small peasant and petty bourgeois, or the capitalist basis, the character of products as commodities is not altered, and as commodities they must pass through the process of exchange and its attendant changes of form. The extremes between which merchant's capital acts as mediator exist for it as given, just as they are given for money and for its movements. The only necessary thing is that these extremes should be on hand as commodities, regardless of whether production is wholly a production of commodities, or whether only the surplus of the independent producers' immediate needs, satisfied by their own production, is thrown on the market. Merchant's capital promotes only the movements of these extremes, of these commodities, which are preconditions of its own existence. The extent to which products enter trade and go through the merchants' hands depends on the mode of production, and reaches its maximum in the ultimate development of capitalist production, where the product is produced solely as a commodity, and not as a direct means of subsistence. On the other hand, on the basis of every mode of production, trade facilitates the production of surplus-products destined for exchange, in order to increase the enjoyments, or the wealth, of the producers (here meant are the owners of the products). Hence, commerce imparts to production a character directed more and more towards exchange-value. The metamorphosis of commodities, their movement, consists 1) materially, of the exchange of different commodities for one another, and 2) formally, of the conversion of commodities into money by sale, and of money into commodities by purchase. And the function of merchant's capital resolves itself into these very acts of buying and selling commodities. It therefore merely promotes the exchange of commodities; yet this exchange is not to be conceived at the outset as a bare exchange of commodities between direct producers. Under slavery, feudalism and vassalage (so far as primitive communities are concerned) it is the slave-owner, the feudal lord, the tribute-collecting state, who are the owners, hence sellers, of the products. The merchant buys and sells for many. Purchases and sales are concentrated in his hands and consequently are no longer bound to the direct requirements of the buyer (as merchant). But whatever the social organisation of the spheres of production whose commodity exchange the merchant promotes, his wealth exists always in the form of money, and his money always serves as capital. Its form is always M C M'. Money, the independent form of exchange-value, is the point of departure, and increasing the exchange-value an end in itself. Commodity exchange as such and the operations effecting it separated from production and performed by non-producers are just a means of increasing wealth not as mere wealth, but as wealth in its most universal social form, as exchange-value. The compelling motive and determining purpose are the conversion of M into M + M. The transactions M C and C M', which promote M M', appear merely as stages of transition in this conversion of M into M + M. This M C M', the characteristic movement of merchant's capital, distinguishes it from C M C, trade in commodities directly between producers, which has for its ultimate end the exchange of use-values. The less developed the production, the more wealth in money is concentrated in the hands of merchants or appears in the specific form of merchants' wealth. Within the capitalist mode of production i.e., as soon as capital has established its sway over production and imparted to it a wholly changed and specific form merchant's capital appears merely as a capital with a specific function. In all previous modes of production, and all the more, wherever production ministers to the immediate wants of the producer, merchant's capital appears to perform the function par excellence of capital. There is, therefore, not the least difficulty in understanding why merchant's capital appears as the historical form of capital long before capital established its own domination over production. Its existence and development to a certain level are in themselves historical premises for the development of capitalist production 1) as premises for the concentration of money wealth, and 2) because the capitalist mode of production presupposes production for trade, selling on a large scale, and not to the individual customer, hence also a merchant who does not buy to satisfy his personal wants but concentrates the purchases of many buyers in his one purchase. On the other hand, all development of merchant's capital tends to give production more and more the character of production for exchange-value and to turn products more and more into commodities. Yet its development, as we shall presently see, is incapable by itself of promoting and explaining the transition from one mode of production to another. Within capitalist production merchant's capital is reduced from its former independent existence to a special phase in the investment of capital, and the levelling of profits reduces its rate of profit to the general average. It functions only as an agent of productive capital. The special social conditions that take shape with the development of merchant's capital, are here no longer paramount. On the contrary, wherever merchant's capital still predominates we find backward conditions. This is true even within one and the same country, in which, for instance, the specifically merchant towns present far more striking analogies with past conditions than industrial towns. The independent and predominant development of capital as merchant's capital is tantamount to the non-subjection of production to capital, and hence to capital developing on the basis of an alien social mode of production which is also independent of it. The independent development of merchant's capital, therefore, stands in inverse proportion to the general economic development of society. Independent mercantile wealth as a predominant form of capital represents the separation of the circulation process from its extremes, and these extremes are the exchanging producers themselves. They remain independent of the circulation process, just as the latter remains independent of them. The product becomes a commodity by way of commerce. It is commerce which here turns products into commodities, not the produced commodity which by its movements gives rise to commerce. Thus, capital appears here first as capital in the process of circulation. It is in the circulation process that money develops into capital. It is in circulation that products first develop as exchange-values, as commodities and as money. Capital can, and must, form in the process of circulation, before it learns to control its extremes the various spheres of production between which circulation mediates. Money and commodity circulation can mediate between spheres of production of widely different organisation, whose internal structure is still chiefly adjusted to the output of use-values. This individualisation of the circulation process, in which spheres of production are interconnected by means of a third, has a two-fold significance. On the one hand, that circulation has not as yet established a hold on production, but is related to it as to a given premise. On the other hand, that the production process has not as yet absorbed circulation as a mere phase of production. Both, however, are the case in capitalist production. The production process rests wholly upon circulation, and circulation is a mere transitional phase of production, in which the product created as a commodity is realised and its elements of production, likewise created as commodities, are replaced. That form of capital merchant's capital which developed directly out of circulation appears here merely as one of the forms of capital occurring in its reproduction process. The law that the independent development of merchant's capital is inversely proportional to the degree of development of capitalist production is particularly evident in the history of the carrying trade, as among the Venetians, Genoese, Dutch, etc., where the principal gains were not thus made by exporting domestic products, but by promoting the exchange of products of commercially and otherwise economically undeveloped societies, and by exploiting both producing countries. Here, merchant's capital is in its pure form, separated from the extremes the spheres of production between which it mediates. This is the main source of its development. But this monopoly of the carrying trade disintegrates, and with it this trade itself, proportionately to the economic development of the peoples, whom it exploits at both ends of its course, and whose lack of development was the basis of its existence. In the case of the carrying trade this appears not only as the decline of a special branch of commerce, but also that of the predominance of the purely trading nations, and of their commercial wealth in general, which rested upon the carrying trade. This is but a special form, in which is expressed the subordination of merchants to industrial capital with the advance of capitalist production. The behaviour of merchant's capital wherever it rules over production is strikingly illustrated not only by the colonial economy (the so-called colonial system) in general, but quite specifically by the methods of the old Dutch East India Company. Since the movement of merchant's capital is M C M', the merchant's profit is made, first, in acts which occur only within the circulation process, hence in the two acts of buying and selling; and, secondly, it is realised in the last act, the sale. It is therefore profit upon alienation. Prima facie, a pure and independent commercial profit seems impossible so long as products are sold at their value. To buy cheap in order to sell dear is the rule of trade. Hence, not the exchange of equivalents. The conception of value is included in it in so far as the various commodities are all values, and therefore money. In respect to quality they are all expressions of social labour. But they are not values of equal magnitude. The quantitative ratio in which products are exchanged is at first quite arbitrary. They assume the form of commodities inasmuch as they are exchangeables, i.e., expressions of one and the same third. Continued exchange and more regular reproduction for exchange reduces this arbitrariness more and more. But at first not for the producer and consumer, but for their go-between, the merchant, who compares money-prices and pockets the difference. It is through his own movements that he establishes equivalence. Merchant's capital is originally merely the intervening movement between extremes which it does not control, and between premises which it does not create. Just as money originates from the bare form of commodity-circulation, C M C, not only as a measure of value and a medium of circulation, but also as the absolute form of commodity, and hence of wealth, or hoard, so that its conservation and accumulation as money becomes an end in itself, so, too, does money, the hoard, as something that preserves and increases itself through mere alienation, originate from the bare form of the circulation of merchant's capital, M C M'. The trading nations of ancient times existed like the gods of Epicurus in the intermediate worlds of the universe, or rather like the Jews in the pores of Polish society. The trade of the first independent flourishing merchant towns and trading nations rested as a pure carrying trade upon the barbarism of the producing nations, between whom they acted the middleman. In the pre-capitalist stages of society commerce ruled industry. In modern society the reverse is true. Of course, commerce will have more or less of a counter-effect on the communities between which it is carried on. It will subordinate production more and more to exchange-value by making luxuries and subsistence more dependent on sale than on the immediate use of the products. Thereby it dissolves the old relationships. It multiplies money circulation. It encompasses no longer merely the surplus of production, but bites deeper and deeper into the latter, and makes entire branches of production dependent upon it. Nevertheless this disintegrating effect depends very much on the nature of the producing community. So long as merchant's capital promotes the exchange of products between undeveloped societies, commercial profit not only appears as out-bargaining and cheating, but also largely originates from them. Aside from the fact that it exploits the difference between the prices of production of various countries (and in this respect it tends to level and fix the values of commodities), those modes of production bring it about that merchant's capital appropriates an overwhelming portion of the surplus-product partly as a mediator between communities which still substantially produce for use-value, and for whose economic organisation the sale of the portion of their product entering circulation, or for that matter any sale of products at their value, is of secondary importance; and partly, because under those earlier modes of production the principal owners of the surplus-product with whom the merchant dealt, namely, the slave-owner, the feudal lord, and the state (for instance, the oriental despot) represent the consuming wealth and luxury which the merchant seeks to trap, as Adam Smith correctly scented in the passage on feudal times quoted earlier. Merchant's capital, when it holds a position of dominance, stands everywhere for a system of robbery, so that its development among the trading nations of old and modern times is always directly connected with plundering, piracy, kidnapping slaves, and colonial conquest; as in Carthage, Rome, and later among the Venetians, Portuguese, Dutch, etc. The development of commerce and merchant's capital gives rise everywhere to the tendency towards production of exchange-values, increases its volume, multiplies it, makes it cosmopolitan, and develops money into world-money. Commerce, therefore, has a more or less dissolving influence everywhere on the producing organisation, which it finds at hand and whose different forms are mainly carried on with a view to use-value. To what extent it brings about a dissolution of the old mode of production depends on its solidity and internal structure. And whither this process of dissolution will lead, in other words, what new mode of production will replace the old, does not depend on commerce, but on the character of the old mode of production itself. In the ancient world the effect of commerce and the development of merchant's capital always resulted in a slave economy; depending on the point of departure, only in the transformation of patriarchal slave system devoted to the production of immediate means of subsistence into one devoted to the production of surplus-value. However, in the modern world, it results in the capitalist mode of production. It follows therefrom that these results spring in themselves from circumstances other than the development of merchant's capital. It is in the nature of things that as soon as town industry as such separates from agricultural industry, its products are from the outset commodities and thus require the mediation of commerce for their sale. The leaning of commerce towards the development of towns, and, on the other hand, the dependence of towns upon commerce, are so far natural. However, it depends on altogether different circumstances to what measure industrial development will go hand in hand with this development. Ancient Rome, in its later republican days, developed merchant's capital to a higher degree than ever before in the ancient world, without showing any progress in the development of crafts, while in Corinth and other Grecian towns in Europe and Asia Minor the development of commerce was accompanied by highly developed crafts. On the other hand, quite contrary to the growth of towns and attendant conditions, the trading spirit and the development of merchant's capital occur frequently among unsettled nomadic peoples. There is no doubt and it is precisely this fact which has led to wholly erroneous conceptions that in the 16th and 17th centuries the great revolutions, which took place in commerce with the geographical discoveries and speeded the development of merchant's capital, constitute one of the principal elements in furthering the transition from feudal to capitalist mode of production. The sudden expansion of the world-market, the multiplication of circulating commodities, the competitive zeal of the European nations to possess themselves of the products of Asia and the treasures of America, and the colonial system all contributed materially toward destroying the feudal fetters on production. However, in its first period the manufacturing period the modern mode of production developed only where the conditions for it had taken shape within the Middle Ages. Compare, for instance, Holland with Portugal. And when in the 16th, and partially still in the 17th, century the sudden expansion of commerce and emergence of a new world-market overwhelmingly contributed to the fall of the old mode of production and the rise of capitalist production, this was accomplished conversely on the basis of the already existing capitalist mode of production. The world-market itself forms the basis for this mode of production. On the other hand, the immanent necessity of this mode of production to produce on an ever-enlarged scale tends to extend the world-market continually, so that it is not commerce in this case which revolutionises industry, but industry which constantly revolutionises commerce. Commercial supremacy itself is now linked with the prevalence to a greater or lesser degree of conditions for a large industry. Compare, for instance, England and Holland. The history of the decline of Holland as the ruling trading nation is the history of the subordination of merchant's capital to industrial capital. The obstacles presented by the internal solidity and organisation of pre-capitalistic, national modes of production to the corrosive influence of commerce are strikingly illustrated in the intercourse of the English with India and China. The broad basis of the mode of production here is formed by the unity of small-scale agriculture and home industry, to which in India we should add the form of village communities built upon the common ownership of land, which, incidentally, was the original form in China as well. In India the English lost no time in exercising their direct political and economic power, as rulers and landlords, to disrupt these small economic communities. English commerce exerted a revolutionary influence on these communities and tore them apart only in so far as the low prices of its goods served to destroy the spinning and weaving industries, which were an ancient integrating element of this unity of industrial and agricultural production. And even so this work of dissolution proceeds very gradually. And still more slowly in China, where it is not reinforced by direct political power. The substantial economy and saving in time afforded by the association of agriculture with manufacture put up a stubborn resistance to the products of the big industries, whose prices include the faux frais of the circulation process which pervades them. Unlike the English, Russian commerce, on the other hand, leaves the economic groundwork of Asiatic production untouched. The transition from the feudal mode of production is two-fold. The producer becomes merchant and capitalist, in contrast to the natural agricultural economy and the guild-bound handicrafts of the medieval urban industries. This is the really revolutionising path. Or else, the merchant establishes direct sway over production. However much this serves historically as a stepping-stone witness the English 17th-century clothier, who brings the weavers, independent as they are, under his control by selling their wool to them and buying their cloth it cannot by itself contribute to the overthrow of the old mode of production, but tends rather to preserve and retain it as its precondition. The manufacturer in the French silk industry and in the English hosiery and lace industries, for example, was thus mostly but nominally a manufacturer until the middle of the 19th century. In point of fact, he was merely a merchant, who let the weavers carry on in their old unorganised way and exerted only a merchant's control, for that was for whom they really worked. This system presents everywhere an obstacle to the real capitalist mode of production and goes under with its development. Without revolutionising the mode of production, it only worsens the condition of the direct producers, turns them into mere wage-workers and proletarians under conditions worse than those under the immediate control of capital, and appropriates their surplus-labour on the basis of the old mode of production. The same conditions exist in somewhat modified form in part of the London handicraft furniture industry. It is practised notably in the Tower Hamlets on a very large scale. The whole production is divided into very numerous separate branches of business independent of one another. One establishment makes only chairs, another only tables, a third only bureaus, etc. But these establishments themselves are run more or less like handicrafts by a single minor master and a few journeymen. Nevertheless, production is too large to work directly for private persons. The buyers are the owners of furniture stores. On Saturdays the master visits them and sells his product, the transaction being closed with as much haggling as in a pawnshop over a loan. The masters depend on this weekly sale, if for no other reason than to be able to buy raw materials for the following week and to pay out wages. Under these circumstances, they are really only middlemen between the merchant and their own labourers. The merchant is the actual capitalist who pockets the lion's share of the surplus-value. Almost the same applies in the transition to manufacture of branches formerly carried on as handicrafts or side lines to rural industries. The transition to large-scale industry depends on the technical development of these small owner-operated establishments wherever they employ machinery that admits of a handicraft-like operation. The machine is driven by steam, instead of by hand. This is of late the case, for instance, in the English hosiery industry. There is, consequently, a three-fold transition. First, the merchant becomes directly an industrial capitalist. This is true in crafts based on trade, especially crafts producing luxuries and imported by merchants together with the raw materials and labourers from foreign lands, as in Italy from Constantinople in the 15th century. Second, the merchant turns the small masters into his middlemen, or buys directly from the independent producer, leaving him nominally independent and his mode of production unchanged. Third, the industrialist becomes merchant and produces directly for the wholesale market. In the Middle Ages, the merchant was merely one who, as Poppe rightly says, "transferred" the goods produced by guilds or peasants [Poppe, Geschichte der Technologie seit der Wiederherstellung der Wissenschaften bis an das Ende des achtzehnten Jahrhunderts, Band I, G ttingen. 1807, S. 70. Ed.] The merchant becomes industrialist, or rather, makes craftsmen, particularly the small rural producers, work for him. Conversely, the producer becomes merchant. The master weaver, for instance, buys his wool or yarn himself and sells his cloth to the merchant, instead of receiving his wool from the merchant piecemeal and working for him together with his journeymen. The elements of production pass into the production process as commodities bought by himself. And instead of producing for some individual merchant, or for specified customers, he produces for the world of trade. The producer is himself a merchant. Merchant's capital does no more than carry on the process of circulation. Originally, commerce was the precondition for the transformation of the crafts, the rural domestic industries, and feudal agriculture, into capitalist enterprises. It develops the product into a commodity, partly by creating a market for it, and partly by introducing new commodity equivalents and supplying production with new raw and auxiliary materials, thereby opening new branches of production based from the first upon commerce, both as concerns production for the home and world-market, and as concerns conditions of production originating in the world-market. As soon as manufacture gains sufficient strength, and particularly large-scale industry, it creates in its turn a market for itself, by capturing it through its commodities. At this point commerce becomes the servant of industrial production, for which continued expansion of the market becomes a vital necessity. Ever more extended mass production floods the existing market and thereby works continually for a still greater expansion of this market for breaking out of its limits. What restricts this mass production is not commerce (in so far as it expresses the existing demand), but the magnitude of employed capital and the level of development of the productivity of labour. The industrial capitalist always has the world-market before him, compares, and must constantly compare, his own cost-prices with the market-prices at home, and throughout the world. In the earlier period such comparison fell almost entirely to the merchants, and thus secured the predominance of merchant's capital over industrial capital. The first theoretical treatment of the modern mode of production the mercantile system proceeded necessarily from the superficial phenomena of the circulation process as individualised in the movements of merchant's capital, and therefore grasped only the appearance of matters. Partly because merchant's capital is the first free state of existence of capital in general. And partly because of the overwhelming influence which it exerted during the first revolutionising period of feudal production the genesis of modern production. The real science of modern economy only begins when the theoretical analysis passes from the process of circulation to the process of production. Interest-bearing capital is, indeed, likewise a very old form of capital. But we shall see later why mercantilism does not take it as its point of departure, but rather carries on a polemic against it. 
Economic Manuscripts: Capital, Vol.3, Chapter 20