The term refers to the disbursements caused by the circulation process.
How do Circulation Expenses work?
Circulation Expenses apply primarily within the capital circulation process, highlighting that capitalist expenditures aren't limited to the investments it makes to purchase means of production and hire labor-power. Thus, to apply the capital circulation process within the first and third phases of the capital movement cycle, additional expenses are required. It requires two Acts:
- Act D-M, where the workforce and means of production are acquired. It is said to be the department that hires the workforce, which has the corresponding staff, dependencies, etc.
- Act M'-D,' which maintains a special staff of workers and commercial employees, creates stores, other commercial establishments, and warehouses. The claim requires high expenses. The provision of the products to consumers may require certain expenses for transport, communications, etc.
Example of Circulation Expenses
An investor can decide to get into a business or investment. For instance, XYZ company wants to venture into the production of building materials. Of course, company XYZ will undergo many expenses, starting from production factors (land, labor, capital, and entrepreneurship) and other necessities.
With these requirements, XYZ company will be able to run its circulation expenses. However, the business expenses are in two-phase, which is a change in value and productive capital.
Types of Circulation Expenses
Circulation expenses split into two groups: liquid/net circulation expenses and supplementary circulation expenses.
Liquid/net circulation expenses are capital expenditures associated with the method of circulation itself, that's, those required by changes within the sorts of value. They're liable for capital expenditures for hiring labor (workers and employees) engaged in purchasing and selling merchandise, reclamation expenses, etc.
Supplementary circulation expenses are those associated with the extension of the production process within the sphere of circulation. These expenses arise from the transport, packaging, classification, and storage of the products. This kind of expenditure's characteristic feature is that the work invested within the aforementioned processes is productive and creates a brand new value. It compensates the equivalent of the value of the hired labor force and forms a surplus value for the capitalist.
Significance of Circulation Expenses
Below are some of the significance of circulation expenses.
- Circulation expenses help in covering all the expenses made in an exceedingly business without errors.
- The expenses add surplus value to the economy.
- As capitalism develops, therefore, the circulation expenses result in growth and development.
- The theory of capitalist production, the periodic economic crises, the fiercely competitive struggle among capitalists for the sales markets make, under capitalism, increases circulating expenses spontaneously.
- In today's capitalist world, circulation expenses account for a few thirds of the sum of retail trade and fall heavily on the people's broad masses.
- Large reserves are kept within the circulation sphere to save lots of material and monetary resources.
History of Circulation Expenses
Circulation expenses started from the circulation and meaning of money with some theoretical resources. In the theory of value, Marx analyzes how money arises through commodities exchange. He explains the MDM formula, where commodity M exchanges for an additional M and money D acts as a medium of exchange between them, equivalent but qualitatively different, as long as they have different use-values. It is often what he calls "simple mercantile exchange" (IMS).
According to a structuralist perspective by Barros de Castro and Lessa in 1993, money's essential properties are a standard denominator of values, payment method, and a store of value. In this sense, the primary function of money is to measure the value of products, which becomes indispensable as soon as production distances itself from the target of directly satisfying needs. That is, there's a separation between production for self-consumption and production for circulation as merchandise.