Letter to Friedrich Engels, April 22, 1868

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To Engels in Manchester

London, 22 April 1868

Dear Fred,

I have resumed work, and it’s going well. Only I have to limit the working time, for after about 3 hours my head starts to buzz and prickle. I shall now tell you briefly a ‘morsel’ which occurred to me when I was just glancing at the part of my manuscript about the rate of profit [Marx has in mind the beginning of the manuscript of Book III of Capital, written in 1864-65. See Engels’ Preface to Volume III of Capital]. It provides a simple solution to one of the most difficult questions. The question is how it can happen that as the value of money, or gold, falls, the rate of profit rises; and that it falls with the rise in the value of money.

Let us assume the value of money falls by 1/10. Then, other things remaining equal, the price of commodities rises by 1/10.

If, on the other hand, the value of money rises by 1/10, then the price of commodities falls by 1/10, other things remaining equal.

Given a fall in the value of money, the price of labour, unless it rises in the same proportion, falls, the rate of surplus value rises, and therefore, all other things remaining the same, the rate of profit rises too. This rise of the latter — as long as the descendant oscillation in the value of money continues — is due solely to the fall in wages, and this fall is due to the fact that the change in wages is slow. to match the change in the value of money. (As was the case at the end of the 16th and in the 17th century.) Conversely, if, with the value of money rising, wages do not fall in the same proportion, the rate of surplus value falls, and therefore, caeteris paribus, the rate of profit.

These two movements, the rise in the rate of profit when money falls in value, and its fall when the value of money rises, are, under these circumstances, both due solely to the fact that the price of labour has not yet been adjusted to the new value of money. These phenomena (and how they are explained has long been known) cease after the adjustment of the price of labour to the value of money.

This is where the difficulty begins. The so-called theorists say: As soon as the price of labour corresponds to the new value of money, e.g. has risen with the falling value of money, both profit and wages are expressed in so much more money. Their relation thus remains the same. Therefore there can be no change in the rate of profit. The specialists who concern themselves with the history of prices reply to this with facts. Their explanations are mere phrases.

The whole difficulty arises from confusing the rate of surplus value with the rate of profit. Let us assume that the rate of surplus value remains the same, e.g. 100%. Then, if the value of money falls by 1/10, wages of £100 (say for 100 men) rise to 110 and surplus value likewise to 110. The same total quantity of labour, formerly expressed in 200, is now expressed in £220. If the price of labour is adjusted to the value of money, the rate of surplus value can neither rise nor fall as the result of any change in the value of money. Assume, however, that the elements, or some elements, of the constant part of capital were to fall in value owing to the growing productivity of labour, whose products they are. If the fall in their value is greater than the fall in the value of money, their price will fall, despite the drop in the value of money. If the fall in their value only corresponded to the fall in the value of money, then their price would remain unchanged. Let us assume the latter case.

For instance, in a certain branch of industry the capital of 500 is composed of 400c + 100v, so with a rate of surplus value of 100% we have: 400c+100v | + 100m = 100/500 =20% rate a profit (in Volume II I intend to use 400c, etc., instead of c/400 , etc., as it is less complicated. Qu'en penses tu?). If the value of money falls by 1/10, then wages rise to 110 and ditto surplus value. If the money price of the constant capital remains the same because the value of its component parts has fallen by 1/10 as a result of the increased productivity of labour, then now: 400c+100v | +110m or 110/510 = 21 29/50 % rate of profit, which would therefore have risen by about 1 1/2 %, while the rate of surplus value, 100m/110v , remains as before 100%.

The rise in the rate of profit would be greater if the value of the constant capital sank faster than the value of money, and less if it sank more slowly. It will continue as long as any fall in the value of the constant capital is taking place, i.e. as long as the same quantity of means of production does not cost £440 where it formerly cost £400.

And it is an historical fact, and can be specially demonstrated from the years 1850-1860, that the productivity of labour, especially in industry proper, receives an impetus from the falling value of money, the mere inflation of money prices, and the general international rush for the increased quantity of money.

The opposite case can be developed in an analogous manner.

The extent to which, in one case, the rise of the rate of profit with the sinking value of money, and, in the other, the sinking of the rate of profit with the rising value of money, affect the general rate of profit will depend partly upon the relative size of the particular branch of production in which the change takes place, and partly upon the length of the change, for the rise and fall of the rate of profit in particular branches of industry takes time to infect the other branches. If the oscillation lasts a relatively short time, it remains local.

I am sending you the Courrier and Nain jaune which Lafargue sent me.

Salut.

Your
K. M.

[c stands for constant capital, v for variable capital, m for surplus value]