Introduction: What is Surplus Value?
What is surplus value? To understand this fundamental Marxian concept it is important first to be clear what value and the commodity, labour power are.
Unlike modern economists, Marx uses a labour theory of value to study economic relations and to explain the class struggle between the working class and the capitalist class over the intensity and extent of exploitation.
Value is determined by the amount of socially necessary labour embodied in a commodity. Socially necessary labour time corresponds to normal production conditions with average skill and intensity of labour.
All serious economists had a labour theory of value. Marx called these economists the “Classical School”. These classical economists included David Ricardo, who applied a theory of value in his book “On the Principles of Political Economy and Taxation” (1817).
Although Marx was influenced by Ricardo, he rejected the attempt to discover universal economic laws which are unchanging over time or social systems. For Marx, capitalism and its economic categories were historically specific. A future socialist system would have no commodities, no buying and selling, no labour market, no classes and class relationships. These were all economic categories associated with the profit system
And unlike, David Ricardo, Marx applied the labour theory of value to labour itself. For Marx, Labour power, under capitalism, is a commodity like any other, with a use-value and an exchange-value.
Labour power, or the ability of a worker to work, has a use for the capitalist or they would not buy it, and it has an exchange value in as much as a worker sells their labour power for a wage and salary. Workers need wages to buy food, pay the rent and mortgages and to buy other necessary commodities in order to survive.
The value of labour power, according to Marx’s theory of value, is determined by the socially necessary labour time embodied in this peculiar commodity, to produce and reproduce the workers and their families, as an exploited class.
On the value of labour power Marx remarked:
“The value of labour power is determined as in the case of every other commodity by the labour time necessary for the production, and consequently also the reproduction, of this special article. So far as it has value, it represents no more than a definite quantity of the average labour of society incorporated into it” (Capital vol. 1, p.81).
Therefore, labour power, as the most important commodity of all, is like all other commodities, subject to the labour theory of value for the determination of its value.
Capitalist exploitation involves the contradiction – labour is free under the profit system but is exploited through the dispossession of the working class of the means of production and distribution. The contradiction can only be resolved by a socialist majority establishing the common ownership and democratic control of the means of production and distribution by all of society. Then, and only then, would there be free and voluntary labour producing directly to meet social need.
Until socialism is established workers cannot produce directly to what society needs nor take directly from what is produced. Workers are imprisoned within the deliberate rationing of the wages system. What workers receive in their pay packet is not enough to lead worthwhile lives and flourish as human beings. Wage slavery springs to mind.
Class Exploitation
All class societies exploit. There was exploitation in ancient Greece and Rome during the period of chattel slavery. There was exploitation by the Lord and Bishops against the serfs during feudalism. And now there is exploitation in capitalism by a capitalist class minority, over a working class majority.
Exploitation in capitalism is more difficult to see than in previous class systems. You can see a slave producing goods and services for free, you can see the buildings where the surplus grain produced by the serfs was kept for the benefit of the lord of the manor. Slaves were bought and sold. Serfs had to carry out free time or services for the Lord.
However, the working class are also exploited. Today we take the buying and selling of labour power for granted. To sell someone’s ability to work on the labour market appears natural. The reality of class exploitation – of a few getting hold of additional value created by the working class majority – is hidden from view. Beneath the apparent equality of the contract between capitalist and worker there is class exploitation.
Class exploitation is a necessary feature of capitalism: its life blood. The working class is not exploited because of cheating, low wages, and ruthless, bullying employers. The working class is exploited because, in the process of commodity production, the workers are paid the value of their labour power but the employer gets the use of this commodity to create an additional value.
Marx gave this definition of labour power. By Labour power Marx meant:
“…the aggregate of those mental and physical capabilities existing in the physical form, the living personality, of a human being, capabilities which he sets in motion whenever he produces a use-value of any kind” (Capital Vo.1 Ch.6, p.270 Penguin ed.).
The working class not only produces a value equivalent to their wage but a surplus value which is the basis of the capitalist profit. Profit, as surplus value, is made in production and realised in circulation.
Surplus value appears in the form of the unearned income of rent, interest and profit. Surplus value as profit also provides for the up-keep of the capitalist state through taxation on the capitalist class.
The origin, nature and distribution of what Marx called “surplus-value” plays an important role in his analysis and critique of capitalism. In the first volume of Capital, Marx devotes chapter 6 of the book to the sale and purchase of labour-power and then pens three complete sections to give a detailed understanding of surplus-value. In Part Three he looks at the production of absolute surplus value, in part 4 the production of relative surplus value and in part 5 the production of absolute and relative surplus-value.
Marx thought that his theory of surplus-value his most important contribution to the economic analysis of capitalism. In a letter to Engels he wrote:
“The best points in my book are: 1. (this is fundamental to all understanding of the facts) the two-fold character of labour according to whether it is expressed in use-value or exchange-value, which is brought out in the very First Chapter; 2. the treatment of surplus-value regardless of its particular forms as profit, interest, ground rent, etc. This will be made clear in the second volume especially. The treatment of the particular forms in classical political economy, where they are forever being jumbled up together with the general form, is an olla potrida (rotten pot of stew)” (Marx, letter to Engels of 24 August 1867).
Labour Power
To grasp the ideas of surplus value first requires an understanding of labour power, the commodity the working class sells the capitalist in exchange for a wage and salary.
At the beginning of chapter 6 of Capital, Marx gives a definition of labour-power. In the chapter “The Sale and Purchase of Labour-Power” he wrote:
“We mean by labour-power, or labour-capacity, the aggregate of those mental and physical capabilities existing in the physical form, the living personality, of a human being, capabilities which he sets in motion whenever he produces a use-value of any kind” (p. 270).
Marx made plain that workers do not sell their labour but their labour power. Although labour is the substance and labour-time the measure of value, labour itself has no value – only labour power has value.
The value of labour power is the amount of socially necessary labour time embodied in the commodities the worker and his family must consume to produce and reproduce themselves as an exploited class.
The capitalist pays the worker according to the exchange value but obtains the use value of the labour power. Labour power is a peculiar commodity in that the value it creates in production, is in excess of its own value.
As surplus labour, surplus value arises as the difference between the length of the working day, say eight hours, over which the worker is contractually obliged to labour for the employer, and the socially necessary number of hours, say five, during which the worker can produce the commodities necessary to maintain and reproduce their labour power.
Another way of looking at the exploitation of labour power is that what the capitalist pays the worker is the equivalent to five hours’ work, whereas the worker’s labour is performed over the entire length of the working day of eight hours. The difference between the eight and five hours is the three hours of unpaid labour. This is the source of the capitalist’s profit.
Surplus Value
Marx defined surplus value under capitalism in the following way:
“The exact form of this process is therefore M-C-M’ where M’ = M + AM = the original sum advanced plus an increment. This increment or excess over the original value I call surplus value. The value originally advanced therefore, not only remains intact while in circulation, but ads to itself a surplus value or expands itself. It is this movement that turns it into capital” (Capital vol1 p 71).
The existence of surplus value comes from the unique commodity, labour power.
Marx wrote:
“In order to extract value out of the consumption of a commodity our friend, the money-owner, must be lucky enough to find, within the sphere of circulation, on the market, a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an objectification of labour, and hence a creation of value” (Capital Vol. 1, Chapter IV, p.270).
The value of labour power is determined by the value of commodities in the subsistence basket required for the maintenance of the worker and the means of reproducing more workers. It varies between countries and over time.
Marx continued:
“The value of labour-power is determined, as in the case of every other commodity, by the labour-time necessary for the production and consequently also the reproduction, of this specific article.” (Capital vol 1, ChVI, p274).
These means of subsistence must include:
“..the sum of the means of subsistence necessary for the production of labour-power must include the means necessary for the worker’s replacement, i.e. his children, in order that this race of peculiar commodity-owners may perpetuate its presence on the market, the means necessary for the labourer’s substitutes, i.e., his children, in order that this race of peculiar commodity-owners may perpetuate its appearance in the market…” (Capital vol 1, Ch.VI, p275).
For educated skilled workers like mathematicians and engineers, we must add the costs of education in terms of the value of commodities. Marx explained:
“..the costs of education vary according to the degree of complexity of the labour-power required. These expenses (…) form a part of the total value spent in producing it.” (Capital vol. 1 Ch VI, p.276).
Unlike other commodities, the value of labour power has a ‘moral’ and “social” element in it, which would vary from country to country and over time. Marx stated:
“In contrast therefore, with the case of other commodities, the determination of the value of labour-power contains a historical and moral element. Nevertheless, in a given country, at a given period, the average quantity of the means of subsistence necessary for the labourer is a known datum” (Capital Vol. 1 Ch VI, p. 171).
Surplus value, then, is surplus labour or unpaid labour. More precisely it is class exploitation.
It is important to note that the subsistence level is not a physical minimum. Marx rejected the “Iron theory of wages”.
The subsistence level increases over time due to the class struggle and the needs of capitalists to have an educated and healthy working class to exploit.
Marx was equally explicit that this subsistence was not a physical minimum. He remarked:
“The ultimate or minimum limit of the value of labour-power is formed by the value of the commodities which have to be supplied every day to the bearer of labour-power, the man, so that he can renew his life process. That is to say, the limit is formed by the value of the physically indispensable means of. If the price of labour-power falls to this minimum, it falls below its value, since under such circumstance it can be maintained and developed only in a crippled state and the value of every commodity is determined by the labour-time required to provide it in its normal quality” (Capital vol 1, Ch.6, p276-277).
There is nothing in Capital to suppose Marx believed the amount of the workers pay would become worse and worse and, as a class, they would all end up in a “crippled state”.
Absolute and Relative Surplus Value
Surplus value is all about class exploitation. The production of surplus value is directly related to the rate of exploitation of workers in the workplace (total surplus value divided by wages).
There are essentially two ways to increase this rate.
- Increasing the length of the working day (absolute surplus value).
- Decreasing the value of labour power, i.e., decreasing necessary labour (relative surplus value).
Absolute surplus value can be increased by an extension of the working day, the intensity of work, overtime (paid or not), “management restructuring” and making fewer workers work more for less, limiting breaks and so on. Nevertheless, this increasing of the length of the working day by employers depends on the relative strengths of the capitalist class and the working class.
Workers need rest and leisure, too much pressure at work can mean physical and mental illness. And there is also the limit of 24 hours imposed by the working day.
Workers, although engaged in a constant struggle for more wages can also struggle for more time off, better working conditions, trade union representation and other benefits if the class struggle tilts in their favour.
As Marx wrote:
“Hence, in the history of capitalist production, the establishment of a norm for the working day presents itself as a struggle between collective capital, i.e., the class of capitalists, and collective labour, i.e. the working class” (Capital vol.1, Ch.X, p344).
The production of relative surplus value, however, doesn’t suffer from these limitations, making it the main way of increasing surplus value for the capitalist.
Relative surplus value is produced through the reduction of the value of labour power (variable capital) by means of improvements in the production of commodities which form part of the subsistence basket of the working class.
In this case, with the working day and wage remaining the same, the value of labour power falls, leaving a higher surplus value.
There are several ways to achieve this result, such as introduction of better machinery, a better organization of the workplace, and so on. Increasing productivity also increases surplus value and profit.
Rate of Surplus Value
In developing his theory of surplus value, Marx gave a definition of the rate of surplus value, or the rate of exploitation.
He first distinguished between constant capital and variable capital.
Constant capital includes raw materials and machinery. They are called constant capital because they simply transfer their value to the final commodity.
The value of raw materials gets transferred in full to the final commodity, while only a fraction of the value of fixed capital (machinery) gets used up in the process of commodity production and transferred to the final commodity.
Variable capital refers to that part of capital which alters in value during the process of commodity production, namely labour power
The rate of surplus value or the rate of exploitation is defined as the ratio of surplus value to the value of variable capital.
The rate of surplus value can be defined as:
S’(V) = surplus value/ variable capital = surplus value/ value of labour power = surplus labour/necessary labour.
With these equations Marx was able to show “capital in motion” as it moved from one economic crisis to the next; from one cycle of class exploitation to the next.
This class exploitation is possible for one essential reason: the unequal social relationship between capital and labour, which is masked by the formal exchange relationship between them.
The underlying social reality, highlighted by, Marx, is in reality an unequal relationship between the class of capitalists, who monopolise the means of production and distribution and who buy and exploit labour-power with money capital, and the disposed class of workers, who are forced to sell their ability to work in order to survive.
Conclusion
Political economy or economics is not a particularly exciting subject. The 19th century critic, Thomas Carlyle thought economics was the “dismal science”. But it is important to understand capitalism in order to reject it in a revolutionary way.
Marx’s critique of capitalism, using his theory of value to explain class exploitation and the class struggle deserves an audience. It is important that workers understand that they have diametrically opposed interests to that of the capitalist class and its political agents.
The value of labour-power, therefore, comes back down to that of a social relation – ultimately of a class struggle between the working class and the capitalist class; a struggle for higher wages and better working conditions on the side of the workers, and greater profits on the side of the capitalists.
Marx explained why workers are forced to defend their interests in trade unions and in strike action. He showed the limitations of trade union action. He set out to show why capitalists try to increase the intensity and extent of exploitation. And he explained why workers are more successful at certain stages of the trade cycle than at others.
More importantly, Marx showed why capitalism can never be run in the interest of the working class. While the capitalist class own and control the means of production and distribution to the exclusion of the majority of society, the working class will be exploited and never have their needs met. It will always be second best or not at all. Therefore, workers have no choice but to democratically and politically join together and organise into socialist political parties to replace the worldwide profit system with: “an association, in which the free development of each is the condition for the free development of all” (Communist Manifesto).
