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circuit of capital

  The continuous transformation of capital into various forms: money, commodities, labour power, and means of production. Capital circulates into and out of the means of production and labour power in order to generate surplus value (see accumulation). As money, capital is advanced to purchase raw materials, the means of production (machinery, physical plant, etc.), and labour power which, when combined in production, results in a commodity that can then be exchanged back for money capital. Marx (1987, ch. 4) summarized the circulation of capital as the \'expanded general formula of capital\', which he denoted symbolically as follows:

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where M is the money capital advanced, C represents the commodities purchased for productive consumption (LP = labour power, MP = means of production), P is the production processes, C′ are the commodities produced for sale, M′ is the money received in exchange for commodities C′, and δM = M′ — M (i.e. the surplus value: cf. Marxian economics).

Capital investment involves a circuit insofar as some of the M′ redeemed after the first production period is reinvested in a second round of production. To the degree that the quantity of advanced capital increases with each circuit of capital, accumulation takes place. In practice the circulation of capital is quite complex and at times regionally specific, but as Leyshon and Thrift (1997) have argued, the mores governing its circulation in the form of money have become more similar across geographical boundaries (cf. money and finance, geography of). Generally speaking, the circulation of money capital can be theorized as follows. In addition to direct investment in production, money capital may be: exchanged in a capital market; \'diverted\' towards state functions of regulation and control; invested in the development of technology and science; or devoted to social expenditures such as education, health, welfare, and the military (cf. welfare state). All of these activities help in different ways to reproduce capital in its expanded form. Although circulating in economic terms, capital may necessarily be \'fixed\' in the built environment, for example, as factories, roads, or fields; or it may be deployed in the \'consumption fund\' to produce commodities for the reproduction of labour power, whether spatially fixed, as in houses, or not, as in cars.

The circulation of capital presupposes the specific social relations of capitalism, i.e. labour and capital, or competitions between individual capitals. Economic crisis arises when the circulation of capital is halted or circumscribed. This can occur at any point in the circuit: money capital or labour power may be scarce or too expensive; existing means of production may be no longer competitive; final commodities may not sell in sufficient quantities or at a sufficient price (overproduction); or the rate of profit may have fallen too low to allow sufficient reinvestment. Where the circuit of capital is broken, this may lead to a \'switching crisis\', in which capitalists switch investment from one circuit to another; for example, from industrial production to the built environment. To the extent that specific circuits of capital dominate certain regional economies, this can lead to regional crises. Crisis becomes global when insufficient profitable circuits exist for capital switching (Harvey, 1982).

The circuit of capital is central to understanding the geography of capitalism. Circuits of capital both produce the geographical structure of circulation and are at the same time constrained by it (Harvey, 1982; Lefebvre, 1991; Smith, 1990). (NS)

References Castells, M. 1996: The rise of the network society. Volume 1. Oxford: Blackwell. Harvey, D. 1982: The limits to capital. Oxford: Blackwell. Lefebvre, H. 1991: The production of space, trans. D. Nicholson-Smith. Oxford: Blackwell. Leyshon, A. and Thrift, N. 1997: Money/ Space: geographies of monetary transformation. London: Routledge. Marx, K. 1987: Capital, volume I. New York: International Publishers. Smith, N. 1990: Uneven Development: nature capital and the production of space, 2nd edn. Oxford: Blackwell.



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