London 22 April 1868.

Dear Fred,

I have started working again, and it is going well. Only I must limit the working time, for after about 3 hours my head begins to buzz and prickle. I shall now briefly communicate to you a “trifle” that occurred to me while merely glancing at the manuscript section of mine on the rate of profit. In this way one of the most difficult questions is simply resolved. The question is namely how it can happen that, with a falling value of money, or gold, the rate of profit rises, and with a rising value of money it falls. Assume the value of money falls by ⅒. Then, other circumstances remaining the same, the price of commodities rises by ⅒. If, on the other hand, the value of money rises by ⅒, then, other circumstances remaining the same, the price of commodities falls by ⅒. If, with a falling value of money, the price of labour does not rise in the same proportion, then it falls; the rate of surplus-value would rise, and therefore, all other things remaining the same, the rate of profit. This rise of the latter – so long as the ascendant oscillation in the value of money continues – is due solely to a fall in wages, and this fall to the circumstance that the change in wages accommodates itself only slowly to the change in the value of money. (Thus at the end of the 16th and in the 17th century.) If, conversely, with a rising value of money, 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 with a falling, and its fall with a rising value of money, are xxx, under these circumstances, both due solely to the fact that the price of labour has not yet been equilibrated with the new value of money. The phenomena (and their explanation has long been known) cease once the price of labour and the value of money have been equilibrated. Here 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 ratio thus remains the same. Hence no change in the rate of surplus-value or rate of profit can take place. Against this the specialists who concern themselves with the history of prices prove, by facts. Their explanations are mere phrases. The whole difficulty rests on a confusion of 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 ⅒, wages rise from 100 £ (say for 100 men) to 110, and the surplus-value likewise to 110. The same total quantity of labour that was previously expressed in 200 is now expressed in 220 £. Hence, if the price of labour has equilibrated with the value of money, the rate of surplus-value can neither rise nor fall through any change in the value of money. But assume that the elements, or some elements, of the constant part of capital fall in value as a result of the growing productivity of the labour of which they are the products. If the fall in their value is greater than the fall in the value of money, then their price will fall, despite the fallen value of money. If their fall in value corresponded only to the fall in the value of money, their price would remain unchanged. Let us take the latter case. Thus, for instance, let a capital of 500 in a particular branch of industry be composed of 400c + 100v (I think in Volume II I shall write 400c etc. instead of c 400 etc., as that is less cumbersome. What do you think?), then, with a rate of surplus-value of 100%, we have: 400c + 100v + 100m = 100/500 = 20% rate of profit. If the value of money falls by ⅒, and wages therefore rise to 110, the surplus-value does the same. If the money price of the constant capital remains the same, because the value of its component parts falls by ⅒ as a result of increased productivity of labour, we now have: 400c + 110v + 110m, or 110/510 = 21 29/50% rate of profit, which would thus have risen by about 1½%, while the rate of surplus-value, 110m/110v, is 100% as before. The rise in the rate of profit would be greater if the value of the constant capital fell more rapidly than the value of money, and smaller if it fell more slowly. But it will continue as long as any fall in the value of the constant capital takes place, so that the same mass of means of production does not cost 440 £ instead of the former 400 £. That, however, especially in industry proper, the productivity of labour receives an impulse from the falling value of money, the mere swelling of money prices, and the general international hunt for the increased quantity of money, is a historical fact, and to be demonstrated particularly for 1850 – 1860. The reverse case is to be developed analogously. To what extent now, in the one case, the rise of the rate of profit with a falling value of money, and, in the other, the fall of the rate of profit with a rising value of money, affect the general rate of profit will depend partly on the relative extent of the particular branches of production in which the change takes place, partly on the duration of the change, for the rise and fall of the rate of profit in particular branches of industry require time to infect the others. If the oscillation lasts only a relatively short time, it remains local.

Salut. I am sending you the “Courrier” and Nain Jaune, which Lafargue sent me.

Salut
D
KM