London, 30 April 1868. Dear Fred,

For the case under discussion, it makes no difference whether M m (the surplus-value) is quantitatively greater or smaller than the surplus-value produced in the branch of production itself. E.g., if 100 m = 400 c + 100 v = 20%, and this becomes, in consequence of a fall in the value of money by 1/10, 110 m = 400 c + 110 v (on the assumption that the value of the constant capital falls), it then makes no difference whether the capitalist producer pockets only half of the surplus-value he himself produces. For the rate of profit for him = 55 m / (400 c + 110 v), greater than previously 50 m / (400 c + 100 v); m is retained here in order to show qualitatively, in the expression itself, where profit comes from. It is, however, in order that you know the method of development of the rate of profit. I shall therefore indicate the course to you in the most general outlines.

In Book II, as you know, the circulation process of capital is presented under the presuppositions developed in Book I. Thus the new form determinations that arise from the circulation process, such as fixed and circulating capital, turnover of capital, etc. Finally, in Book I we content ourselves with assuming that, when £100 are turned into £110 in the valorisation process, these find on the market the elements into which they are reconverted. Now, however, we investigate the conditions of this finding, i.e. the social intertwining of the different capitals, parts of capital and revenue (=m) with one another. In Book III we then arrive at the conversion of surplus-value into its different forms and mutually separated components.

I) Profit is at first for us only another name or another category for surplus-value. Since, owing to the form of wages, the whole of labour appears as paid, the unpaid part of it necessarily appears to arise not from labour but from capital, and not from its variable part but from the total capital. Hence surplus-value assumes the form of profit, without there being any quantitative difference between the one and the other. It is merely the illusory phenomenal form of the same.

Furthermore, the portion of capital consumed in the production of the commodity (the capital advanced for its production, constant and variable, minus the part of the fixed capital that is indeed employed but not consumed) now appears as the cost price of the commodity; for, from the standpoint of the capitalist, the part of the commodity’s value that costs him is its cost price, whereas the unpaid labour contained in it does not enter into its cost price from his standpoint. Surplus-value = profit now appears as the excess of its selling price over its cost price.

If we therefore call the value of the commodity W and its cost price K, then W = K + m, hence W – m = K, hence W > K. The new category of cost price is very necessary in the detail of the later development. From the outset it follows that the capitalist can sell the commodity at a profit below its value, provided only that it is above its cost price, and this is the fundamental law for understanding the equalisations brought about by competition.

If profit is thus at first only formally different from surplus-value, the rate of profit, on the other hand, is at once really different from the rate of surplus-value, for in the one case m/v, in the other m/(c+v), from which it follows from the outset, since m/v > m/(c+v), that the rate of profit is less than the rate of surplus-value, unless c = 0. Taking into account what is developed in Book II, however, it follows that we have to calculate the rate of profit not on an arbitrary, e.g. weekly commodity product, but that m/(c+v) here means the surplus-value produced during the year in relation to the capital advanced during the year (as distinct from the capital turned over). m/(c+v) here therefore is the annual rate of profit.

We then first investigate how different turnover of capital (partly dependent on the ratio of circulating to fixed components of capital, partly on the number of turnovers of the circulating capital in the year, etc., etc.) modifies the rate of profit, given a constant rate of surplus-value. But, the turnover being presupposed and m/(c+v) given as the annual rate of profit, we investigate how this can change, independently of changes in turnover and changes in the rate of surplus-value and even of its mass.

Since m, the mass of surplus-value, = the rate of surplus-value multiplied by the variable capital, if we call the rate of surplus-value r and the rate of profit p’, p’ = r · v/(c+v). Here we have 4 quantities, p’, r, v, c, with any 3 of which we can operate, always seeking the 4th quantity as unknown. This yields all possible cases concerning the movements of the rate of profit, insofar as they are different from the movement in the rate and, to a certain extent, even from the mass of surplus-value. This was naturally inexplicable to all previous economists.

The laws thus found, e.g. very important for understanding the influence of the price of raw material on the rate of profit, remain valid whatever the manner in which the surplus-value is later distributed among the producer, etc. This can only change the phenomenal form. They moreover remain directly applicable, if m/(c+v) is treated as the ratio of the socially produced surplus-value to the social capital.

II.) What in I) was treated as movements — be it of a capital in a particular branch of production, be it of the social capital — movements by which its composition, etc., changes — is now conceived as differences in the masses of capital invested in the different branches of production.

It is then found that, the rate of surplus-value, i.e. the exploitation of labour, being presupposed as equal, the production of value and therefore the production of surplus-value and therefore the rate of profit are different in different branches of production. But from these different rates of profit competition forms a mean or general rate of profit. This, reduced to its absolute expression, can be nothing but the surplus-value (annually) produced by the capitalist class in relation to the capital advanced in its social scope. E.g. if the social capital = 400 c + 100 v and the surplus-value annually produced from it = 100 m, then the social composition of the social capital = 80 c + 20 v and that of the product (in percentages) = 80 c + 20 v / + 20 m = 20% rate of profit. This is the general rate of profit.

What the competition among the masses of capital inhabiting the different spheres of production and differently composed strives for, is capitalist communism, namely that the mass of capital belonging to each sphere of production, in the proportion in which it forms part of the total social capital, snatches an aliquot part of the total surplus-value. This however is only achieved if, in each sphere of production [[under the above presupposition that the total product, total capital = 80 c + 20 v, and the social rate of profit = 20 m / (80 c + 20 v)]], the annual commodity product is sold at cost price + 20% profit on the capital value advanced (regardless of how much of the advanced fixed capital enters into the annual cost price or not). For this to happen, however, the determination of the prices of commodities must diverge from their values. Only in those branches of production in which the percentage composition of capital is 80 c + 20 v does the price K (cost price) + 20% on the capital advanced coincide with their value. Where the composition is higher (e.g. 90 c + 10 v), this price stands above their value; where the composition is lower (e.g. 70 c + 30 v), it stands below their value. The price thus equalised, which distributes the social surplus-value equally among the masses of capital in proportion to their size, is the price of production of commodities, the centre around which the oscillation of market prices moves. The branches of production in which a natural monopoly exists are, even if their rate of profit is higher than the social one, from this

The equalisation process exempted. This will be important later for the development of ground-rent. In this chapter, then, we must develop further the various grounds for equalisation between the different investments of capital, which appear to the vulgar as so many sources of the origin of profit. Further: the changed form of appearance which the still valid and previously developed laws concerning value and surplus-value now assume after the transformation of values into prices of production. III) Tendency of the rate of profit to fall with the progress of society. This already follows from what was developed in Book I concerning the change in the composition of capital with the development of the social productive power. This is one of the greatest triumphs over the *pons asini* of all previous economics. IV.) So far we have only dealt with productive capital. A modification now enters through merchant capital. According to the previous assumption, the productive capital of society = 500 (millions or milliards, *n’importe*). Namely: 400 c + 100 v / + 100 m. p’, the general rate of profit, = 20%. Now suppose that merchant capital = 100. Then the 100 m is to be calculated on 600 instead of 500. The general rate of profit is therefore reduced from 20% to 16⅔%. The price of production (for the sake of simplification we shall here assume that the whole of the 400 c, i.e. the fixed capital entirely included, enters into the cost price of the annually produced mass of commodities) is now = 583⅓. The merchant sells at 600 if we disregard the fixed component of his capital, and realises therefore 16⅔% on his 100, as much as the productive capitalists, or, in other words, appropriates ⅙ of the social surplus-value. The commodities are sold *en masse* and on a social scale – at their value. His £100 (apart from the fixed component) serve him only as circulating money capital. What the merchant swallows in addition is either simple fraud, or speculation on the fluctuations of commodity prices, or, in the case of the real retailer, wages, even if for lousy unproductive labour, under the form of profit. V.) We have now reduced profit to the form in which it practically appears, according to our assumptions to 16⅔%. Now the division of this profit into profit of enterprise and interest. Interest-bearing capital. The credit system. VI) Transformation of surplus profit into ground-rent. VII.) Finally we have arrived at the forms of appearance which serve the vulgar as their starting point: ground-rent originating from the earth, profit (interest) from capital, wages from labour. From our standpoint, however, the matter now looks different. The apparent movement is explained. Furthermore, the A. Smithian idiocy that has become the cornerstone of all previous economics – that the price of commodities consists of those 3 revenues, i.e. only of variable capital (wages) and surplus-value (ground-rent, profit (interest)) – is overthrown. The total movement in this apparent form. Finally, since those 3 (wages, ground-rent, profit (interest)) are the revenue sources of the 3 classes of landowners, capitalists and wage-labourers – the class struggle as the conclusion, in which the movement and dissolution of the whole shit resolves itself.

Our young couple returned last week, very love-sick. Accommodation for them near Primrose Hill, where they moved in this evening. Enclosed letters from Kugelmann, etc. Sent to Schily what he wanted, but not in the childish way he demanded. In a few days I shall be 50. If that Prussian lieutenant said to you: “Already 20 years in service and still a lieutenant,” I can say: Half a century on my back, and still a pauper! How right my mother was! “If Karl had made capital, instead of etc.” Salut D KMarx. Of the carbuncle only the merest trace on the right loin, but it will probably disappear without a trace. Ernest Jones has disgraced himself by his feeble defence and *nisi prius* defence-style of Burke. Burke at least scored a triumph by forcing the old ass Bramwell to throw off the hypocrisy of temper and let his base cur’s soul freely shoot its career.