Crisis Theories: Profit Squeeze

Basic formula of capitalist production

The basic formula of capitalist production is M-C..P..C’-M’. An industrial capitalist begins with a sum of money M. He or she must then find on the market the elements of productive capital—both constant capital in the form of factory buildings, machinery, and raw and auxillery materials and labor power, the only commodity that produces surplus value. The productive capital, both constant and variable, is represented by C.

Next, the industrial capitalist must bring the elements of C together in the act of production, represented by the letter P. It is during the process of production that the capital of the industrial capitalist is expanded through the absorption of surplus value. Marx called this the “self-expansion of capital,” or in some translations the “valorization” of capital. Remember, the actual “self-expansion of capital” comes from the variable capital alone.

When the process of production has been completed, the capitalist possesses a sum of commodities that have a greater value than either M, the money capital, or C, the commodity elements of the productive capital that the industrial capitalist started out with.

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