The capitalist has money/capital (M) to begin with, the capitalist then buys ( C ) commodity, labor or raw materials. Which is turned into a product and that product gains more value making it worth more money (M), thus maintaining the cycle of capitalist increasing their wealth.
M-C-M’ formula illustrates the process with which the capitalist maintains and accumulates their wealth by means of capital accumulation cycle. The cycle is initiated by investment of M (Money) in purchasing C (Commodities)—raw material, machinery, and labor power—to produce products or services. The commodities are then sold to achieve M’ (More Money), and in this M’ the original money as well as extra surplus value (profit) is included. The idea of this cycle is that capitalists need to receive more value from production than they initially invested.
Exploitation of labor is one of the most significant things about it, as capitalists only pay the laborers less than what the work is worth. For example, the laborer might be paid for working eight hours, but what the laborer produces is worth more than what is paid. This surplus value is amassed by the capitalist to be invested and circulated again to repeat itself on a growing scale. Capitalists also exploit to extract maximum profit through downsizing, speedups, contract labor, and wage depression to extract maximum surplus to keep costs and attain maximum surplus.
This cyclical process of M-C-M’ enables the capitalists to amass wealth and have economic power, while the workers, who receive only wages and no surplus value, are dependent upon selling their labor to survive. With time, this widens the economic gap, as wealth in the hands of the owners of the means of production grows further, contributing towards consolidation of the capitalist class’s influence in society.
Respond to the following question: Explain M-C-M’ to show how capitalists maintain and increase their wealth.
A capitalist remains wealthy by using the formula M-C-M’. The wealthy person already has money (M), that they possess from previous wealth or earnings which they use to purchase commodities (C) that are necessary for production, such as buildings, tools, raw materials, equipment, and labor power. Labor power is the most crucial commodity because it is what creates new value. Workers sell their labor in exchange for wages, but their work generates more value than what they are paid. After purchasing the means of production and labor, the capitalist then produces a product and sells or resells it for a value greater than the cost of production. This sale returns more money to the capitalist than they initially invested, and this increase in money is (M’)—the surplus value.
Most of the capitalist’s profit comes from surplus value, which is the unpaid labor from workers. This surplus labor is the additional time workers work after they have already earned their wages during part of their shift. Therefore, capitalists maintain and increase their wealth by exploiting the working class. As society progresses, the constant capital (such as raw materials and equipment) remains largely the same, but it is the variable capital—the wages paid to workers—that ultimately increases the capitalist’s wealth and surplus.
1- M-C-M’ refers to M for money, C for commodity and, M’ for money at the end of the transaction. The diagram used refers to how capitalists maintain and increase their wealth by circulating money in this system. Reading 5.1 refers to cloth weavers as means of commodity. Instead of personal use, cloth is made to resell into clothing and other goods to increase profit. Doubling the value since there is labor placed into the product and creates a loop for more money made by capitalists.
Labor power is another factor that adds to the surplus value, M’ in the diagram. The estimated amount of man power needed to be paid in order to produce something also takes money out of production. That is why capitalists deliberately plan ahead to lower costs of production to try and come up with a surplus value that is reasonable to them. Maintaining high wealth means cutting corners in some areas from what a lot of products say today. Seeing appliances from the 1950’s in comparison to today is a good example of how M-C-M’ has become an issue for consumers. Since capitalists want consumers to keep coming and buying again, many products do not have a life time warranty. Nor hold up to high standards than back in the day.
To better understand what M-C-M’ means, let’s take a look at the preceding diagram of C-M-C which stands for Commodity – Money – Commodity.
C-M-C was the main way of trade before the introduction of capitalism. In these settings, people would sell their own-made commodity, made with their own labor and their own means of production like cattle and land. For these commodities they received money, which in turn they would give away in order to get some other commodity which they wanted and someone else had produced with their own labor. For most of history, this is what trade looked like, and it can also be called Small-scale commodity production. Basically, the production of a commodity for the sake of obtaining another commodity of equal value.
With the rise of Capitalism, a new vision was born – buying in order to sell. Those who already had a fair amount of money ‘bought‘ other people’s time and labor and had them producing commodities for them. Those who worked for them basically ‘sold’ their labor power to the owners of the factory/workshop. The commodities that the owners now had, were produced for the owners for a friction of the price that they paid for the labor. They then could sell it for a higher price than what was paid for the workers, thus making profit. The workers added value to the products they made, and the owners sold the product, profiting from the surplus value which they created.
The gains which were made through the ‘buying’ of others’ labor power and selling of the finished products after the added value, is what brings us back to the diagram of M-C-M’.
The money that was used to buy others’ time and labor was used to create commodity and then the commodity was sold in order to gain more money. So at the end, the final purpose of the process is to gain more money then there was in the first place.
Another way to distinguish between the two diagrams of C-M-C and M-C-M’ is the ‘final product’ or actually the final purpose of the whole process. At the end, C-M-C’s purpose is to obtain a commodity of equal value as the one that was sold in the first step, making no gain in the process. On the other hand, the purpose of the M-C-M’’s is to have more money at the end than there was at the first step or the beginning.
Capitalists maintain and increase their wealth by always keeping a surplus value at the final product. It means that as long as they keep buying people’s labor for less than what they sell their final commodity at, they will always increase their wealth and they will maintain it.
The diagram M-C-M, Money-Commodity-Money, explains how capitalist build their wealth. M means money which is the money capitalist use to invest in commodities. C means commodity which the capitalist uses money to purchase commodities like raw materials, labor power, and machinery. M means more money which is the profit capitalist make from selling these commodities at a higher price than their original investments which generates more wealth.
M-C-M’ is the original capital formula, illustrating how capitalists accumulate and maintain their wealth. It begins with M (Money), which the capitalists use to purchase C (Commodities) in the form of raw materials and labor power. These commodities are used for production, and the produced commodities are sold at a higher price, thereby generating M’ (Money with surplus value), which is greater than the initial M.
Surplus value is the key to this process. It is obtained through labor. Labor power is purchased by capitalists from workers for wages. Workers produce value, though, more than their wages. The remainder, or surplus value, is what causes capitalist profit to arise. It is due to surplus labor that workers labor more than what it takes to produce value equivalent to their wages. For example, if a worker’s wage covers four hours of labor, but he works eight, then the other four hours yield excess value which the capitalist retains as profit.
This process turns money into capital. Money in itself is not money-making, but if invested in production by purchasing labor power and means of production becomes capital, which generates surplus value. Capitalists invest this surplus once more into production, purchasing more labor power and raw materials, always making money.
Unlike C-M-C, in which producers sell a commodity to buy what they need, capitalists operate with M-C-M, in which money is invested not for use but to generate even more money. Through the mechanism of reinvestment, the capitalist class is guaranteed to always accumulate more wealth while workers are trapped relying on wages. It is through this that the capitalist class can consolidate and expand its economic power.
1. The M-C-M diagram explains how capitalists make and grow their wealth through three steps:
M: It all starts with money. The capitalists would put their money to work to invest in the kind of business that would allow them to buy everything they needed to produce goods for selling.
C: It is with that money that workers are employed and the materials and machines are bought to make up the products. These products are what they sell in the market.
M: And so, when the products are manufactured, they are sold for a price more than the cost of making them. The balance between the selling price and cost becomes the profit.
2. Following this cycle, capitalists tend to reinvest their profits for the growth of their businesses. They might create or develop new products expand their areas of operation or upgrade their technology so that they could manufacture the goods more efficiently.
This is associated, to a great extent, with how they pay their workers. Usually, wages paid to workers are less than the value of what they generate such that what is left is profit for the capitalists. This is how capitalists keep accumulating wealth over time.
To put it once more, the M-C-M process cycle comprises turning the initial money into goods that yield more money and reinvesting that profit to generate further wealth accumulation. This cycle is really important in understanding how wealth builds up in a capitalist economy.
The diagram M-C-M can be explained as the general formula of capital which means Money-Commodity-Money. Therefore, (M) represents money that capitalist earned/savings which then buys the commodities (C ) such as raw materials, machinery, factories/buildings and labor power which are produced by capitalist. (M) represents more money which is basically the profit that was made when an item is sold however, capitalists can maintain and increase their wealth by making profits and paying workers less and that is implementing the surplus value “Without surplus value the capitalists could not have come into being, nor could they survive, so that it is always in their interests to seek to increase it either by playing on relative or absolute surplus value.”
The graphic M-C-M depicts how capitalists preserve and grow their wealth through a cycle of investment and profit production. The capitalist begins by using M (money) to purchase C (commodities), which may include labor, raw materials, and production-related instruments. After then, products or services are made using the commodities. M (more money) is the result of the items being sold for money than the capitalist initially invested after they are made. By reinvesting profit from the sale, the capitalist can continue the cycle and eventually increase their wealth. By paying workers less than the value they produce and keeping the difference as surplus value that is reinvested to increase wealth, capitalists are able to earn profit.
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