A Letter From Marx To Engels In 1868 On The Transformation Problem

In this letter, Marx outlines the three volumes of Capital. I know about this letter from Fred Moseley's Money and Totality (2016). Is this where scholars learned about Marx's mother (-in-law?) saying, "If only Karl had accumulated capital instead of writing about it"? The context is a discussion, in a couple of previous letters, of the effects of inflation on the rate of profits. This letter is more evidence that Marx was quite conscious of the transformation problem. (Theories of Surplus Value is definitive evidence.) I think Marx's distinction between vulgar and classical political economy, on commodity fetishism, on the illusions created by competition is central to his political economy. It is not an idea to be found in Ricardo. Marx also has a more elaborate taxonomy of capital than Ricardo does.

London

30 April 1868

Dear Fred,

For the CASE under discussion it is immaterial whether m (the surplus value) is quantitatively > or < than the surplus value created in the given branch of production itself. E.g., if 100m/(400c + 100v) = 20%, and this becomes, owing to a fall in the value of money by 1/10, = 110m/(400c + 110v) (assuming that the value of the constant capital sinks), it is immaterial if the capitalist producer pockets only half of the surplus value which he himself produces. For the rate of profit for him then = 55m/(400c + 110v) > than the former 50m/(400c + 100v). I retain m here in order to show qualitatively in the expression itself where the profit comes from.

But it is proper that you should know the method by which the rate of profit is developed. I shall therefore give you the process in the most general outline. In Book II, as you know, the process of circulation of capital is presented on the basis of the premisses developed in Book I. I.e. the new determinations of form which arise from the process of circulation, such as fixed and circulating capital, turnover of capital, etc. Finally, in Book I we content ourselves with the assumption that when, in the valorisation process, 100 pounds becomes 110 pounds, it finds the elements into which it is converted anew already in existence in the market. But now we investigate the conditions under which these elements are to be found in existence, that is to say, t he social intertwining of the different capitals, of parts of capital and of REVENUE (=m).

In Book III we then come to the conversion of surplus value into its different forms and separate component parts.

I. Profit is for us, for the time being, only another name for or another category of surplus value. As, owing to the form of wages, the whole of labour appears to be paid for, the unpaid part of it seems necessarily to come not from labour but from capital, and not from the variable part of capital but from the total capital. As a result, surplus value assumes the form of profit, without there being any quantitative difference between the one and the other. It is only an illusory manifestation of surplus value.

Further, the part of capital consumed in the production of a commodity (the capital, constant and variable, advanced for its production, minus the utilised but not consumed part of fixed capital) now appears as the cost price of the commodity, since for the capitalist that part of the value of the commodity that it costs him is its cost price, while the unpaid labour contained in the commodity does not enter into its cost price, from his point of view. The surplus value = profit now appears as the excess of the selling price of the commodity over its cost price. Let us call the value of the commodity W and its cost price K; then W = K + m, therefore W — m = K, therefore W > K. This new category, cost price, is very necessary for the details of the later analysis. It is evident from the outset that the capitalist can sell a commodity at a profit below its value (as long as he sells it above its cost price), and this is the fundamental law for comprehending the equalisations effected by competition.

Therefore, while profit is at first only formally different from surplus value, the rate of profit is, by contrast, at once really different from the rate of surplus value, for in one case we have m/v and in the other m/(c + v), from which it follows from the outset, since m/v > m/(c + v), that the rate of profit < than the rate of surplus value, unless c = 0.

In view of what has been developed in Book II, it follows, however, that we cannot compute the rate of profit on the commodity product of any period we select, e.g. that of a week, but that m/(c + v) denotes here the surplus value produced during the year in relation to the capital advanced during the year (as distinct from the capital turned over). Therefore, m/(c + v) stands here for the annual rate of profit.

Then we shall first examine how variations in the turnover of capital (partly depending on the relation of the circulating to the fixed portions of capital, partly on the number of times the circulating capital turns over in a year, etc., etc.) modify the rate of profit while the rate of surplus value remains the same.

Now, taking the turnover as given, and m/(c + v) as the annual rate of profit, we examine how the latter can change, independently of changes in the rate of surplus value, and even of its total amount.

Since m, the total amount of surplus value, = the rate of surplus value multiplied by the variable capital, then, if we call the rate of surplus value r and the rate of profit p', p' = rv/(c + v) Here we have the 4 quantities p', r, v, c, with any 3 of which we can work, always seeking the 4th as unknown. This covers all possible cases of movements in the rate of profit, in so far as they are distinct from the movements in the rate of surplus value and, TO A CERTAIN EXTENT, even in its total amount. This has, of course, hitherto been inexplicable to everybody.

The laws thus found - very important, e.g., for understanding how the price of the raw material influences the rate of profit - hold good no matter how the surplus value is later divided among the producer, etc. This can only change the form of appearance. Moreover, they remain directly applicable if m/(c + v) is treated as the relation of the socially produced surplus value to the social capital.

II. What were treated in I as movements, whether of capital in a particular branch of production or of social capital - movements changing its composition, etc. - are now conceived as differences of the various masses of capital invested in the different branches of production.

Then it turns out that, assuming the rate of surplus value, i.e. the exploitation of labour, 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 varying rates of profit a mean or general rate of profit is formed by competition. This rate of profit, expressed absolutely, can be nothing but the surplus value produced (annually) by the capitalist class in relation to the total of social capital advanced. E.g., if the social capital = 400c + 100v, and the surplus value annually produced by it = 100m, the composition of the social capital = 80c + 20v, and that of the product (in percentages) = 80c + 20v | +20m = 20% rate of profit. This is the general rate of profit.

What the competition among the various masses of capital — invested in different spheres of production and differently composed — is striving for is capitalist communism, namely that the mass of capital employed in each sphere of production should get a fractional part of the total surplus value proportionate to the part of the total social capital that it forms.

This can only be achieved if in each sphere of production (assuming as above that the total capital = 80c + 20v and the social rate of profit = 20m/(80c + 20v) the annual commodity product is sold at cost price + 20% profit on the value of the capital advanced (it is immaterial how much of the advanced fixed capital enters into the annual cost price or not). But this means that the price determination of the commodities must deviate from their values. Only in those branches of production where the percentual composition of capital is 80c + 20v will the price K (cost price) + 20% on the capital advanced coincide with the value of the commodities. Where the composition is higher (e.g. 90c +10v), the price is above their value; where the composition is lower (e.g. 70c + 30v), the price is below their value.

The price thus equalised, which divides up the social surplus value equally among the various masses of capital in proportion to their sizes, is the price of production of commodities, the centre around which the oscillation of the market prices moves.

Those branches of production which constitute a natural monopoly are exempted from this equalisation process, even if their rate of profit is higher than the social rate. This is important later for the development of rent.

In this chapter, there must be further developed the various causes of equalisation of the various capital investments, which appear to the vulgar conception as so many sources of profit.

Also to be developed: the changed form of manifestation that the previously developed and still valid laws of value and surplus value assume now, after the transformation of values into prices of production.

III. The tendency of the rate of profit to fall as society progresses. This already follows from what was developed in Book I on 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 [asses' bridge] of all previous political economy.

IV. Until now we have only dealt with productive capital. Now there enters modification through merchant capital.

According to our previous assumption the productive capital of society = 500 (millions or billions, n'importe [it doesn't matter]). And the formula was 400c + 100v + 100m. The general rate of profit, p', = 20%. Now let the merchant capital = 100.

So, the 100m has now to be calculated on 600 instead of 500. The general rate of profit is thus reduced from 20% to 16 2/3%. The price of production (for the sake of simplicity we will assume here that all of the 400c, i.e. the whole fixed capital, enters into the cost price of the annual output of commodities) now=583 1/3. The merchant sells at 600 and therefore realises, if we ignore the fixed portion of his capital, 16 2/3% on his 100, as much as the productive capitalists; or, in other words, he appropriates 1/6 of the social surplus value. The commodities — en masse and on a social scale - are sold at their value. His 100 pounds (apart from the fixed portion) only serve him as circulating money capital. Whatever the merchant swallows over and above that, he gets either simply by trickery, or by speculation on the oscillation of commodity prices, or, in the case of the actual retailer, as wages for labour - wretched unproductive labour that it is - in the form of profit.

V. We have now deduced profit to the form in which it appears in practice, according to our assumptions 16 2/3%. Next comes the division of this profit into entrepreneur's gain and interest. Interest-bearing capital. The credit system.

VI. Transformation of surplus profit into rent.

VII. At last we have arrived at the forms of manifestation which serve as the starting point in the vulgar conception: rent, coming from the land; profit (interest), from capital; wages, from labour. But from our standpoint things now look different. The apparent movement is explained. Furthermore, A. Smith's nonsense, which has become the main pillar of all political economy hitherto, the contention that the price of the commodity consists of those three revenues, i.e. only of variable capital (wages) and surplus value (rent, profit (interest)), is overthrown. The entire movement in this apparent form. Finally, since those 3 items (wages, rent, profit (interest)) constitute the sources of income of the 3 classes of landowners, capitalists and wage labourers, we have the class struggle, as the conclusion in which the movement and disintegration of the whole shit resolves itself.

Our young couple [Paul and Laura Lafargue] back again since last week, very love-sicK. Apartment for them near Primrose Hill, where they moved in this evening.

Enclosed letters from Kugelmann, etc. I have sent Schily what he wanted, but not in the childish way he requested. In a few days I shall be 50. As that Prussian lieutenant said to you: '20 years of service and still lieutenant'. I can say: half a century on my shoulders, and still a pauper. How right my mother was: 'If only Karell had made capital instead of etc'.

Salut.

Your

K. Marx

Of carbuncles only a very small trace on the right thigh, but will probably vanish without trace.

Ernest Jones has made a fool of himself by his lukewarm and nisi priiis [half-hearted] way of defending Burke. Burke has at least won a victory in forcing the old jackass Bramwell to abandon the hypocrisy of TEMPER, and allowing his mean dog's soul to rampage free of carrière [reins].

Here we see that, for Marx, prices of production reflect the redistribution of surplus value. Marx takes cost prices as untransformed values throughout. Ho also brings up the tendency of the rate of profit to fall. Following Okishio, I do not think this law follows from Marx's premises. Marx describes what Resnick and Wolff call subsumed class processes. Finance shares in surplus value through interest payments. Landlords can obtain absolute and relative rent. And retailers, employing unproductive labor, obtain a return to their capital, which Marx does not count as productive capital. I think this outline is consistent with the order of presentation Marx discusses in the introduction to the Grundrisse.