One of the questions Marx addresses in volume one of Capital is basically how does money create money, or rather, how do people with a relatively large amount of money use that money to get more money?
They do so by buying things then selling them for more than they bought for.
This is represented in the series M-C-M’ where “M” represents money, “C” represents a commodity or commodities, “M’ ” represents more money than “M”, and the dashes represent exchanges. It can’t be the case that everyone buys for cheap then sells at a mark up, because if everyone marks up then there’s no ability to buy for cheap, and no way to make M’, more money.
The surplus comes from the specific type of ‘thing’ purchased by the owner of money, the commodity labor power. Labor power is the capacity to work. So the constitutive exchange in capitalism is the exchange between the owner of money and the owner of labor power: M-C(lp). Now, of course the owner of money also owns his or her own labor power as well. The difference between those who come to market with M and those who come to market with C(lp) is that the former have another option, they can buy C(lp) with their money instead of sell their labor power. The owners of C(lp) don’t have that option, as they own little or nothing else.
The series M-C-M’ then, in the form characteristic of capitalism, is more like M-C(lp)-M’. That is, the owner of money buys labor power, then makes more money. This is because the worker who sells labor power to the employer is set to work. The commodity produced by the worker is the property of the employer. This commodity is sold after it’s produced. The employer makes more money in the sales of commodities produced than he or she spends on wages. If this were not the case, the employer would go out of business, as sometimes happens.
The series M-C-M’ can be specified further now. It looks like this: M-C(lp)-C’-M’. “C’ ” is a total quantity of commodities worth more than the initial commodity, C(lp), which is sold for more money than the initial monetary expense, M, wages used to purchase C(lp). Specifying further, the series looks like this:
C(lp)-M- (lp+mp+rm) - C’-M’
The parenthetical section “lp+mp+rm”, between the purchase of C(lp) and the sale of a commodity produced, is the direct process of production, the waged workplace. The terms stand for labor power, means of production, and raw materials. Labor power is the workers ability to work. Means of production are the materials used to carry out production - tools, facilities, buildings, and so on. Raw materials are the materials worked upon which get turned into the finished product. So, for example, in a kitchen at a restaurant, “lp” is the labor power of the cooks, “mp” is the cooking utensils and grill or stove etc as well as the building and its amenities, and “rm” is the unprepared food which gets turned into a meal. To produce the new commodity, C’, the labor power must be set to work, work must be imposed upon the worker by the employer.
This series happens in time and often occurs relatively successfully, judged from the perspectives of the owners of money; money is spent (M) and ends up producing more money (M’). There is a return on investment, so to speak. Things can and do go wrong, however, at every point of the series. Sometimes the owner of money doesn’t find an owner of labor power to exchange with or to exchange with at the desired or adequate rate. Sometimes something is wrong with or goes wrong with the means of production or raw materials. Sometimes labor power is not successfully put to work or put to work at the rate that the employer wants or needs. And sometimes the owner doesn’t find a buyer for the commodity or commodities produced at the end, C’, or doesn’t find a buyer for enough of them. Each of these moments requires a successful encounter.
This series contains another series. The exchange “M-C(lp)” is, for the owner of money, the purchase of a factor of production, although a particularly important one. The exchange looks different for the owner of labor power. For the owner of labor power, this exchange is the sale of their ability to work, which means it begins with what they take to market, their labor power. C(lp)-M. Furthermore, this sale is made in order to get money to buy things they want and need to subsist, the means of subsistence, “ms.” This series extends, then, one more term: C(lp)-M-C(ms). The need to get means of subsistence is the motivation for the owner of labor power appearing in the market in the first place as a seller.
The fact that means of subsistence takes the form of a commodity, that “ms” exists as “C(ms),” is important. A commodity is something that one purchases with money. Essentially, the existence of means of subsistence as a commodity means that one generally doesn’t get what one wants and needs without paying for it. There are, of course, many exceptions. People get many things they want and need without buying them, or without buying them for money. On the other hand, a number of things that are very much needed - housing, healthcare, food - and things that are often very much wanted - many forms of entertainment (television, movies, sporting events) and education - are not available or are less available without money to buy them.
Since access to much of means of subsistence generally requires money, the owner of labor power needs money if he or she wants means of subsistence. The primary way that most people get money when they don’t have it is by selling their labor power as a commodity. In a nutshell, the existence of means of subsistence as a commodity is one of the impetuses behind the existence of labor power as a commodity, it is the reason why owners of labor power try to sell their labor power in the market.