Circuits of Capital

When you stand on a city corner, in the parking lot of a factory, in a farmer's field, in the aisle of a supermarket, or even in your own living room, everything else you can see is a node in the circuit of capital. That capital circulates—that capital must circulate—seems obvious enough when seen from the viewers' gallery at a stock exchange or when looking at exchange rate and balance of payment statistics in the business pages of a newspaper, but must that be the case in these other places? In fact, everything you see and experience—the geography of the world—is influenced by the rhythms of capital circulation. Geography is built through circulating capital, and even in the most natural of landscapes your very ability to view it (or not) is defined by whether and how capital has circulated.

Circuit of capital refers, at its most basic level, to the movement of capital:

where M is the money capital used to purchase the means of production (MP) and labor power (LP), C is the resulting commodity, and M′ is the money received when the commodity is sold. ΔM indicates the surplus value produced in the production process.

There are several things to notice here. First, labor power in capitalism is itself a commodity and must be[Page 39] purchased. Therefore, some capital, in the form of wages, circulates in the hands of workers, who then (among other things) form a market for goods produced, returning capital back to the production process or diverting it to other capitalists who build their homes, finance their loans, repair their cars, and so on. The circuit of capital must take account of this form of circulation with all of the risks and diversions (e.g., savings) associated with it. Second, the means of production include a range of commodities from the buildings and machines to the raw materials that go into making the finished product. In each of these commodities, some portion of circulating capital is “frozen” for a period of time (relatively short for raw materials, potentially very long for buildings and machinery). Capital frozen in buildings, parking lots, and so on is critical to the circuit of capital. But such frozen capital is at risk for constant devaluation by innovation and obsolescence, economic crisis, and so on.

Third, some necessary “fixing” of capital that makes the circuit of capital possible—in roads, rails, power grids, dams, and so on, together with institutions necessary for the reproduction of labor power—is too massive for a single capitalist to undertake. Some surplus capital is diverted to the state or various consortia of capitalists to undertake such massive projects. Fourth, because of the need for massive public works to spread the risk of long-term investments and to “rationally” allocate other surplus capital not reinvested in the production that gives rise to it, financial institutions and capital markets arise. These, of course, are crucial and are the most obvious nodes for the circuit of capital, but they are also a function of the circuit through the production process itself (even if they also determine the where and how of much production through interest rates, loan approval algorithms, etc.).

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