M–C–M′ explains how capitalists use money to try to make more money. The first M stands for the money an owner starts with. C stands for the commodities they buy, such as materials, equipment, and labor power. Labor power is a person’s ability to work. The last M′ means the money received after selling the finished products. The goal is for this amount to be larger than what the owner originally spent.

For example, imagine someone owns a company that makes backpacks. The owner pays for fabric, zippers, sewing machines, and workers’ labor power. The supplies and machines are part of the means of production. However, these things cannot make backpacks by themselves. Workers have to cut the fabric, sew the pieces together, and attach the zippers. Their actual work is called labor.

In Marx’s explanation, labor creates new value. Materials and machines pass their existing value into the products as they are used. Workers add new value, but they do not receive all of it in their paychecks. The value they create beyond their wages is called surplus value. This is the source of the capitalist’s profit.

As a simple example, suppose the materials and the use of equipment cost $600, and workers receive $400 in wages. The owner has spent $1,000 altogether. If the finished backpacks sell for $1,300, and those are all the costs, the owner ends up with $300 more than they started with. In this example, M is $1,000 and M′ is $1,300. The extra $300 goes to the owner rather than being added to the workers’ wages.

The owner can then put some of that extra money back into the business. They might buy more supplies, get more machines, or hire more workers. This allows the process to happen again on a larger scale. The main goal is to keep increasing the money invested. This helps explain how capitalists can maintain and grow their wealth through owning businesses and using other people’s labor. Growth is not guaranteed, though, because the products still have to sell for enough money to cover costs and leave a profit.