Essay: What, according to Marx, is the significance of surplus value in the capitalist production of commodities?
Karl Marx, between 1857 and 1867, developed his celebrated economic theory rubric with two major aims: grasping the characteristics that distinguish capital from all the other forms of wealth and gaining an insight to the process of capitalistic exploitation in the context of production and mechanisms for appropriation of the surplus value resulting thereof.
Even though he didn’t coin the term, Karl Marx developed the concept of surplus value in economics. Surplus value equals the sum of both distributed and undistributed profits, net rents, net interests, net taxes on production as well as various receipts from leasing, licensing, royalties and some honorariums. However, Marx lays a lot of emphasis on profit, rent and interest.
Surplus value, according to Karl Marx, can be viewed as the potential indicator of social productivity levels attained by the working population in a capitalistic economy. It may also be viewed as the monetary valuation of the surplus labour in a capitalistic economy. As the name suggests, it is the source of accumulation or investment fund for the society or nation at large. Surplus value is significant to capital owners in terms of consumption as a result of their huge capital accumulations. In circumstances where a country is threatened by the onset of an inflationary trend, the surplus value can be hoarded to control a constant or increasing inflationary trend. Capitalistic economies compete in production and sale of goods and services as a sign of economic prowess. As a result, surplus value can be measured as the aggregate increase in the value of capital assets stock throughout a given accounting period. This increase, therefore, is the measure of economic strength of a country.
Surplus value may also be viewed as the flow of net income as appropriated by owners of capital with respect to ownership of the assets. It comprises of both undistributed business income and distributed personal income. This will also include both incomes generated from property and production income. The higher the surplus value the higher the net income. This will help the government to determine the standard of living enjoyed by its citizens.
Karl Marx says that the concept of surplus value is not only inevitable under a capitalistic system but it’s also the soul and heart of a capitalistic economy. In the ancient times, the capitalistic employer actually occupied a very powerful position. He/she exercised a lot of personal initiative in the early historical stages such as production, recruitment of workers and retaining of such workers. In any capitalistic system, any attempt to acquire surplus value plays an invaluable role in production of commodities.
Marx conducted a survey and concluded that the root of all evil is the act of men and women owning private means of producing goods and services. However, he proposed a tough and rather mountainous measure that the industrial worker would use to prevent unscrupulous ownership of private property by the emerging capitalists. He proposed that in order to prevent the tyranny of private property ownership, individual workers should seize the government by use of force before using the state to expropriate ownership of capital.
Absolute surplus value can be obtained increasing the total amount of time that a worker applies in productive work, usually hours worked per week in the modern day. This allows the highly paid workers to work fewer hours as those of the lower class work more. On the other hand, the relative surplus value is obtained by reducing the cost of wages, curbing increases in wages and reducing the wages themselves. However, it can only be allowed to a certain point. Relative surplus value can also be attained by increasing the intensity and productivity of labourers in the firm.
Amidst massive criticism particularly from proponents of the capitalist theory, Karl Marx presents an argument that brings out the significance of the surplus value in the capitalistic of production of commodities including:
An Indicator of Wealth
The surplus value of a country can take three forms or a combination of some or all of them. These include the straightforward surplus labour that is unpaid. This was particularly common in the ancient times up to the 18th century in some parts of Asia when slave trade was prominent. Slave owners could measure their wealth by the amount of surplus labour they have because they don’t pay the workers (slaves) for the services offered. In the modern day, there is an incentive received by paying the worker a small percentage on the total value of the product. The difference unpaid is valued as surplus labour. In other words, the surplus value is created on the income left once the working class has received payment for their services.
According to Meisner J. Maurice, 1989, surplus value can also take the form of goods that are appropriated by the ruling class. These are products of the surplus labour that has been invested by the capital owner. This is the same case with feudalism where the feudal rent is usually paid with a specific amount of produce referred to as produce rent. Thus, it can take the form of modern remnants like sharecropping. It is referred to as capital profits. To the capitalist, the surplus value becomes quite essential in either what amounts to capital profit or the social surplus product. In a deeper sense, capital profit has a common foundation with unpaid labour and other forms of the surplus product.
The excess that remains after paying up rental costs and the cost of labour to the worker becomes the surplus. Karl Marx treated the surplus value just as a general category that explains existence of the common interest as well as those that live above the surplus value. And as an indicator of wealth, the surplus value also explains the struggle amongst many people in economic classes because the rich in society are keeping the surplus value idle. This surplus value measures their wealth; whether it is idle or spent luxuriously.
An Evaluator of Labour Quality and Quantity
Many countries of the world have turned from traditional communism to modern capitalism. Currently, there are several laws governing the nature and supply and availability of labour in an economy. For instance, one could buy several slaves in the past as capital for his business but these days, slave trade is a bygone. This means that the modern day employer must incur a relatively huge cost in order to gain access to labour. And the more the employer pays, the higher the quality and productivity of labour. However, it is possible for the capitalistic employer to harbour some low quality labour when proper screening is not done.
According to Karl Marx, it is productive labour that produces surplus value. Productive labour is the wage-labour that can be exchanged against variable capital. Variable capital is defined as that portion of capital that is spent on wages (Konstantin Kurtovic Val’tukh, 1987). Therefore, according to the capitalist’s mind, productive labour will produce beyond the amount that is adequate to repay back the capital. The excess on capital is referred to as surplus value. This is the rip off for the capitalist. If the quality and quantity of labour employed are substandard, the surplus value attained would be little or no surplus value at all could be attained.
In a firm where 20 units of labour are required to produce a surplus value of 20 and each labourer produces a unit of labour; the capitalist needs 20 labourers to achieve the target assuming there are no emergencies during the working period. In case the employer has only 18 workers, it means that he would only be able to produce 18 units of surplus value. And this indicates a drop of 2 units in the surplus value. This essentially means that the surplus value can be used to indicate the quantity of labour in a capitalistic economy that produces commodities.
If in the same firm 4 employees can only produce 0.5 units of the surplus value each while the rest are capable of producing 1 unit each, the company will attain 18 units of the surplus value. This will be an indicator that the productivity or quality of labour supplied by the four employees or low. Therefore, the firm can use this to take an action such as transferring them, shifting roles, training them or retrenching them when there is no option left. This is a pointer to the fact that the surplus value is an undisputable indicator of the quality of labour supplied by the employees.
Marx says that only that portion of productive labour contributes to productive labour. Capitalistic production actually refers to all those activities that produce, transport and finally store the final commodities. It is only productive labour that can transfer value that has been embedded in production materials and also creating new value. He points out that unproductive labour actually involves the circulating activities and doesn’t necessarily involve creation of new value. In modern day economics, this can be classified into disguisedly employed persons and the redundant employees in an organisation.
Classical economists have raised questions on Marx’s criticism of the capitalist’s nature of paying off just a small incentive for the high quality of labour provided. He terms this as exploitation of those of the lower social class in the society. However, the argument is that the capitalist needs an incentive for his hard-earned capital. That is the reason why another man will continue to work for another man without necessarily complaining. Other critics also confuse labour that is exchanged for capital against labour that is exchanged for revenue. It would be wrong to say that labour has been replaced by the consumers’ revenue.
A Measure of the Efficiency and Adequacy of Capital
According to neoclassical economists, the profit earned plays a very negligible role in determination and measurement of the dynamics involved in a capitalistic economy particularly in production of commodities for sale or exchange. However, experiments carried out in several countries indicate that the profit earned plays a significant role in determination of a capitalistic economy’s dynamics. This is in line with the traditional Marxian theory of surplus value and classical economics.
The surplus value, according to Karl Marx, indicates the ability of an economy’s capitalist class of accumulating capital. If the surplus value attained by the firm is low, they will not be able to access adequate capital. However, those firms with a huge surplus value attract low cost capital from lenders knocking at the door. The surplus value also affects the expectations and consequently the decisions made by the capitalist. If the surplus value anticipated would be low, the capitalist may close down the business and venture into something else.
Karl Marx says that capital consists of raw materials, tools and the means of subsistence. There is no practical difference between capital and other parts of wealth. However, the manner in which it is employed determines whether it can be classified as tools, raw materials or just a means of subsistence. The means of subsistence lies in the mind of the labourer who is seeking a living. Marx explained variable capital as that part of capital consumed by labourers in their day to day provision of services.
In a capitalistic economy, conversion of money to capital is usually achieved when economic laws related to production of commodities are adhered to. The first law states that the product belongs to the capitalist not the worker. The second and most important law states that the value of the end product includes a surplus value that costs the capitalist nothing while it costs the labourer energy, time and skills. However, it is always accounted as the property of the capitalist.
According to Karl Marx, if the capital employed is adequate then a higher surplus value will be obtained. This is true especially because is if you have 30 labourers and 30 units of capital that can result in 15 units of surplus value then you will achieve the maximum results if all other factors of production are working efficiently. However, if only 20 units of capital are available then some of the workers will not be effectively utilized. This will ideally mean that the surplus value will reduce to 15. In a survey conducted in China between 1978 and 2004, the rate of surplus value was actively affected by the capital employed.
A part of the capital that is usually not assessed properly is raw materials. If the raw materials are of low quality then the surplus value will be proportionally low. In an attempt to minimize production expenses, many companies tend to purchase cheap raw materials all the time. However, this has also meant lost opportunities in a comparatively low surplus value. Efficiency in management of all forms of capital is also needed. A high surplus value, depending on the type of industry and economic sector, can point to adequacy, sufficiency and efficiency and capital.
As a Measure of the Standard of Living in a Country
The surplus has been tipped as a potential measure of the standard of living of the country. This is long protracted from the values of Gross Domestic Product and the net national income retained after payment for all the factors of production. It also includes the disposable incomes of the labourers after they have met the basic expenses of life. It always starts from categorisation of the society into different social classes.
Karl Marx heavily criticized the notion of dividing the society into haves and have-nots. Marx said that even though capitalism generates a lot of money for the capitalist, it leaves the labourer poor and enunciated. This means that the capitalist joins the wealthy class while the labourer, depending on their qualifications, joins the middle class or low class in the society. This is often a source of conflict between the rich and poor in the society.
However, when the department of planning applies the surplus value well, it will measure the purchasing power of its citizens by looking at the disposable incomes and the nature of goods and services consumed. The expenditure of companies and various in addition to the surplus value derived from operations can be used to determine the level of economic growth of the country and the standard of living of its citizens.
A Measure of Tax Attributable to the Government
Entrepreneurs do pay a proportion of their surplus value to the central government. However, many of them usually don’t want to pay tax and therefore attempt to evade. Tax revolts were common originally and they majorly contributed to the uprising of bourgeoisie that took power from feudal aristocracy. However, a great portion of taxes in several countries is redistributed to the capitalists in the form of subsidies and contracts so that they can expand their businesses and create more employment opportunities.
Surplus value results from the gross income generated from business income and personal activities in any state. Even though it wasn’t clearly brought out by Marx, it is clear that about a third of the taxes attributable to a country are derived from the surplus value generated by manufacturers and many business owners. However, there are some portions of incomes attributable to tax that don’t generate a surplus value including rent.
In planning ahead, the government usually uses economic indices from the surplus values of previous years to determine the expected revenue in taxes in the coming years. This helps capitalistic governments to come up with proper development plans for the economy.
The production of commodities in a capitalistic state is the major source of income for the citizens. It also signifies the wealth of a country in terms of machinery, raw materials, skilled and unskilled labour and consumption of the final products thereof. Thus, the surplus value is very significant to investors and the government. If the surplus value in a particular industry is large then the government will tend to offer more subsidies in order to attract foreign investors. The surplus value also helps the developers of commodities to improve them in order to meet the specific tastes and preferences of the consumers.
Alfred Saad Filho, 2002, The Value of Marx: Political Economy for Contemporary Capitalism, 1st edn, Routledge, New York, USA
Barry Hindess, 1975, Precapitalist Modes of Production, 1st edn, Routledge & Kegan Paul Ltd, Boston, USA
Emmanuel, Andrew. 1972, Unequal Exchange: A Study of the Imperialism of Trade. New York, USA: Monthly Review Press (translated from the 1969 French original)
Konstantin Kurtovic Val’tukh, 1987, Marx’s Theory of Commodity and Surplus Value: Formalised Exposition, 1st edn, Progress Publishers, Moscow, Russia
Meisner J. Maurice, 1989, Marxism and Capitalism in the People’s Republic of China, 2nd edn, University Press of America, USA
Paul Zarembka & Radhika Desai, 2011, Revitalizing Marxist Theory for Today’s Capitalism, 1st edn, Emerald Group Publishing Limited, New York, USA