Seventeen months later, he told Sorge: ‘The second volume will provoke great disappointment, because it is purely scientific and does not contain much material for agitation.’ Finally, on 13 November 1885, he wrote to Danielson: ‘I had no doubt that the second volume would afford you the same pleasure as it has done to me. The developments it contains are indeed of such superior order that the vulgar reader will not take the trouble to fathom them and to follow them out. This is actually the case in Germany where all historical science, including political economy, has fallen so low that it can scarcely fall any lower. Our Kathedersozialisten have never been much more, theoretically, than slightly philanthropic Vulgärökonomen, and now they have sunk to the level of simple apologists of Bismarck’s Staatssozialismus. To them, the second volume will always remain a sealed book… Official economic literature observes a cautious silence with regard to it.’1

These predictions were to be verified far beyond Engels’s fears. In fact, ten years passed before two young Russian Marxists – Tugan-Baranowski followed by S. Bulgakov – made the first application of the main conceptual innovations of Volume 2. And it took nearly another decade for these concepts finally to penetrate Germany and the Western world, through an international debate in which Tugan-Baranowski – albeit for the moment continuing to call himself a Marxist – began to revise some of Marx’s key theories.2 Volume 2 of Capital has indeed been not only a ‘sealed book’, but also a forgotten one. To a large extent, it remains so to this very day.

Grave misunderstandings arise, however, if the reader attempts to pass straight from Volume 1 to Volume 3, under-estimating the key place of Volume 2 in the monumental theoretical construction. Marx himself quite precisely clarified this place, in a letter sent to Engels on 30 April 1868: ‘In Book I… we content ourselves with the assumption that if in the self-expansion process £100 becomes £110, the latter will find already in existence in the market the elements into which it will change once more. But now we investigate the conditions under which these elements are found at hand, namely the social intertwining of the different capitals, of the component parts of capital and of revenue (= s).’3 This intertwining, conceived as a movement of commodities and of money, enabled Marx to work out at least the essential elements, if not the definitive form of a coherent theory of the trade cycle, based upon the inevitability of periodic disequilibrium between supply and demand under the capitalist mode of production. To forget this role of Volume 2 and jump to Volume 3 carries the danger of evacuating all problems specific to the inner contradictions of the commodity – problems of the market, of the realization of value and surplus-value, etc. – which, although touched upon in Volume 1, are only fully developed in Volume 2. We may even say that it was only by dealing with the reproduction of capital in its totality that Marx could bring out in their full complexity the inevitable contradictions of the basic cell of capitalist wealth – the individual commodity.

The ‘intertwining of the different capitals, of the component parts of capital and of revenue’ – that dual movement of both specific use-values and exchange-values, of supply and demand – also enabled Marx to develop an analysis of the reproduction of capitalist economy and bourgeois society in its totality. Of course, in this achievement, which is one of the greatest in the whole of social science, Marx did not have to start out from scratch; he was able to base himself above all on Quesnay’s Tableau économique.4 Nor should it be claimed that Marx solved ‘all’ problems of reproduction. In particular, he left only an unfinished sketch of the section on expanded reproduction and had no time to work on the vexed question of how it can attain occasional equilibrium while encompassing the famous ‘laws of motion’ of capital (especially those outlined in Volume 3: rising organic composition of capital; increasing rate of surplus-value; competition leading to concentration and centralization and to renewed competition, in spite of the tendency of equalization of the rate of profit; tendency of the average rate of profit to decline). Nevertheless, Volume 2 may be seen in a very real sense as the predecessor and initiator of modern aggregation techniques, which were sometimes even directly inspired by the book. On the road from Quesnay through Marx, Walras, Leontiev and Keynes, the leap forward made by Marx is immediately apparent. And the movement away from Marx in neo-classical and vulgar ‘macro-economics’ contains elements of enormous regression, of which contemporary economists are only now slowly beginning to take note.5

Volume 2 of Capital carries the subtitle: The Process of Circulation of Capital, while Volume 1 was subtitled: The Process of Production of Capital. At first sight, the distinction is clear. Volume 1 is centred around the factory, the workplace. It explains the character of the production of commodities under capitalism as both a process of material production and one of valorization (i.e. production of surplus-value).6 Volume 2, by contrast, is centred around the market-place. It explains not how value and surplus-value are produced, but how they are realized. Its dramatis personae are not so much the worker and the industrialist, but rather the money-owner (and money-lender), the wholesale merchant, the trader and the entrepreneur or ‘functioning capitalist’. More broadly defined than simple industrialists, entrepreneurs are those capitalists who, having a certain amount of capital at their disposal (whether they own or borrow it is irrelevant here), try to increase that capital through the purchase of means of production and labour-power, the production and then the sale of commodities, the reinvestment of part of realized profit in additional machinery, raw materials and labour-power, and the production of an increased quantity of commodities.

The role of workers in Volume 2 will cause some surprise, both to non-Marxist readers heavily armed with current academic preconceptions of Marx as ‘an outdated and typically nineteenth-century economist’, and to dogmatic pseudo-Marxists whose understanding of Marx is based more on second-hand vulgarizations than on the genuine article. For if workers appear at all in Volume 2, it is essentially as buyers of consumer goods and, therefore, as sellers of the commodity labour-power, rather than as producers of value and surplus-value (although, of course, this latter quality, established in Volume 1, remains the solid foundation on which the whole of the unfolding analysis is based).

However, in order to grasp the deeper significance of the concept ‘process of circulation of capital’, as well as the exact place of Volume 2 in Marx’s overall analysis of the capitalist mode of production attempted in his three-volume magnum opus, we have to understand the inner connection between the production of value and its realization. Commodity production is the expression of a specific form of social organization, which encompasses a basic contradiction. On the one hand, human production has outgrown the primitive form of subsistence-farming and handicrafts, which prevailed in more or less isolated communities of producer-consumers. The progress of the division of labour and labour productivity, as well as the growth of transport and communications, have steadily increased the range and depth of human interdependence.