Marxian economics Marxian economics, or the Marxian school of economics, is a heterodox school of political economic thought. Its foundations can be traced back to Karl Marx's critique of political economy. However, unlike critics of political economy, Marxian ...

, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to the owner of that product to manufacture it: i.e. the amount raised through sale of the product minus the cost of the materials, plant and labour power. The concept originated in

Ricardian socialism Ricardian socialism is a branch of classical economic thought based upon the work of the economist David Ricardo (1772–1823). The term is used to describe economists in the 1820s and 1830s who developed a theory of capitalist exploitation from ...

, with the term "surplus value" itself being coined by William Thompson in 1824; however, it was not consistently distinguished from the related concepts of

surplus labor Surplus labour (German: ''Mehrarbeit'') is a concept used by Karl Marx in his critique of political economy. It means labour performed in excess of the labour necessary to produce the means of livelihood of the worker ("necessary labour"). The "su ...

and

surplus product Surplus product (german: Mehrprodukt, links=no) is an economic concept explicitly theorised by Karl Marx in his critique of political economy. Roughly speaking, it is the extra goods produced above the amount needed for a community of workers to ...

. The concept was subsequently developed and popularized by

Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...

. Marx's formulation is the standard sense and the primary basis for further developments, though how much of Marx's concept is original and distinct from the Ricardian concept is disputed (see ). Marx's term is the German word "''Mehrwert''", which simply means

value added In business, total value added is calculated by tabulating the unit value added (measured by summing unit profit sale price and production cost">Price.html" ;"title="he difference between Price">sale price and production cost], unit depreciation ...

(sales revenue minus the cost of materials used up), and is

cognate In historical linguistics, cognates or lexical cognates are sets of words in different languages that have been inherited in direct descent from an etymological ancestor in a common parent language. Because language change can have radical ...

to English "more worth". It is a major concept in

's critique of political economy. Conventionally, value-added is equal to the sum of gross wage income and gross profit income. However, Marx uses the term ''Mehrwert'' to describe the yield, profit or return on production capital invested, i.e. the amount of the increase in the value of capital. Hence, Marx's use of ''Mehrwert'' has always been translated as "surplus value", distinguishing it from "value-added". According to Marx's theory, surplus value is equal to the new value created by workers in excess of their own labor-cost, which is appropriated by the capitalist as profit when products are sold."...It was made clear that the wage worker has permission to work for his own subsistence—that is, to live, only insofar as he works for a certain time gratis for the capitalist (and hence also for the latter's co-consumers of surplus value)..." Karl Marx,
Critique of the Gotha Programme''. Sec.II
/ref> Marx thought that the gigantic increase in wealth and population from the 19th century onwards was mainly due to the competitive striving to obtain ''maximum surplus-value from the employment of labor'', resulting in an equally gigantic increase of

productivity Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production process ...

and capital resources. To the extent that increasingly the economic surplus is convertible into money and expressed in money, the amassment of wealth is possible on a larger and larger scale (see

capital accumulation Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the fo ...

and

). The concept is closely connected to

producer surplus In mainstream economics, economic surplus, also known as total welfare or total social welfare or Marshallian surplus (after Alfred Marshall), is either of two related quantities: * Consumer surplus, or consumers' surplus, is the monetary gain ...

Origin

By the

Age of Enlightenment The Age of Enlightenment or the Enlightenment; german: Aufklärung, "Enlightenment"; it, L'Illuminismo, "Enlightenment"; pl, Oświecenie, "Enlightenment"; pt, Iluminismo, "Enlightenment"; es, La Ilustración, "Enlightenment" was an intel ...

in the 18th century the French

physiocrats Physiocracy (; from the Greek for "government of nature") is an economic theory developed by a group of 18th-century Age of Enlightenment French economists who believed that the wealth of nations derived solely from the value of "land agricultu ...

were already writing on the surplus value that was being extracted from labor by "the employer, the owner, and all exploiters" although they used the term ''net product''. The concept of surplus value continued to be developed under

Adam Smith Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——� ...

who also used the term "net product" while his successors the

Ricardian socialists Ricardian socialism is a branch of classical economic thought based upon the work of the economist David Ricardo (1772–1823). The term is used to describe economists in the 1820s and 1830s who developed a theory of capitalist exploitation fro ...

, began using the term "surplus value" decades later after its coinage by William Thompson in 1824.

William Godwin William Godwin (3 March 1756 – 7 April 1836) was an English journalist, political philosopher and novelist. He is considered one of the first exponents of utilitarianism and the first modern proponent of anarchism. Godwin is most famous fo ...

and Charles Hall are also credited as earlier developers of the concept. Early authors also used the terms "

" and "surplus produce" (in Marx's language,

), which have distinct meanings in Marxian economics: surplus labor ''produces'' surplus product, which has surplus value. Some authors consider Marx as completely borrowing from Thompson, notably Anton Menger: This claim of priority has been vigorously contested, notably in an article by

Friedrich Engels Friedrich Engels ( ,"Engels"
''

Karl Kautsky Karl Johann Kautsky (; ; 16 October 1854 – 17 October 1938) was a Czech-Austrian philosopher, journalist, and Marxist theorist. Kautsky was one of the most authoritative promulgators of orthodox Marxism after the death of Friedrich Engels in ...

and published anonymously in 1887, reacting to and criticizing Menger in a review of his ''The Right to the Whole Produce of Labour'', arguing that there is nothing in common but the term "surplus value" itself. An intermediate position acknowledges the early development by Ricardian socialists and others, but credits Marx with substantial development. For example:

Johann Karl Rodbertus Johann Karl Rodbertus (August 12, 1805, Greifswald, Swedish Pomerania – December 6, 1875, Jagetzow), also known as Karl Rodbertus-Jagetzow, was a German economist and socialist and a leading member of the ''Linkes Zentrum'' (centre-left) in ...

developed a theory of surplus value in the 1830s and 1840s, notably in ''Zur Erkenntnis unserer staatswirthschaftlichen Zustände'' (''Toward an appreciation of our economic circumstances'', 1842), and claimed earlier priority to Marx, specifically to have "shown practically in the same way as Marx, only more briefly and clearly, the source of the surplus value of the capitalists". The debate, taking the side of Marx's priority, is detailed in the Preface to ''Capital, Volume II'' by Engels. Marx first elaborated his doctrine of surplus value in 1857–58 manuscripts of ''

A Contribution to the Critique of Political Economy ''A Contribution to the Critique of Political Economy'' (german: Zur Kritik der Politischen Ökonomie) is a book by Karl Marx, first published in 1859. The book is mainly a critique of political economy achieved by critiquing the writings of th ...

'' (1859), following earlier developments in his 1840s writings. It forms the subject of his 1862–63 manuscript ''

Theories of Surplus Value ''Theories of Surplus Value'' (german: Theorien über den Mehrwert) is a draft manuscript written by Karl Marx between January 1862 and July 1863. It is mainly concerned with the Western European theorizing about ''Mehrwert'' (added value or s ...

'' (which was subsequently published as ''

Capital, Volume IV ''Das Kapital'', also known as ''Capital: A Critique of Political Economy'' or sometimes simply ''Capital'' (german: Das Kapital. Kritik der politischen Ökonomie, link=no, ; 1867–1883), is a foundational theoretical text in materialist phi ...

''), and features in his ''

Capital, Volume I ''Capital. A Critique of Political Economy. Volume I: The Process of Production of Capital'' (german: Das Kapital. Kritik der politischen Ökonomie Erster Band. Buch I: Der Produktionsprocess des Kapitals) is the first of three treatises that ma ...

'' (1867).

Theory

The problem of explaining the source of surplus value is expressed by

Friedrich Engels Friedrich Engels ( ,"Engels"
''

labor power Labour power (in german: Arbeitskraft; in french: force de travail) is a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do work, labour power, from the physical act of ...

, and secondly to distinguish between ''absolute surplus value'' and ''relative surplus value''. A worker who is sufficiently productive can produce an output value greater than what it costs to hire him. Although his wage seems to be based on hours worked, in an economic sense this wage does not reflect the full value of what the worker produces. Effectively it is not labour which the worker sells, but his capacity to work. Imagine a worker who is hired for an hour and paid $10 per hour. Once in the capitalist's employ, the capitalist can have him operate a boot-making machine with which the worker produces $10 worth of work every 15 minutes. Every hour, the capitalist receives $40 worth of work and only pays the worker $10, capturing the remaining $30 as gross revenue. Once the capitalist has deducted fixed and variable operating costs of (say) $20 (leather, depreciation of the machine, etc.), he is left with $10. Thus, for an outlay of capital of $30, the capitalist obtains a surplus value of $10; his capital has not only been replaced by the operation, but also has increased by $10. This "simple" exploitation characterizes the realization of ''absolute surplus value'', which is then claimed by the capitalist. The worker cannot capture this benefit directly because he has no claim to the means of production (e.g. the boot-making machine) or to its products, and his capacity to bargain over wages is restricted by laws and the supply/demand for wage labour. This form of exploitation was well understood by pre-Marxian Socialists and left-wing followers of Ricardo, such as

Proudhon Pierre-Joseph Proudhon (, , ; 15 January 1809, Besançon – 19 January 1865, Paris) was a French socialist,Landauer, Carl; Landauer, Hilde Stein; Valkenier, Elizabeth Kridl (1979) 959 "The Three Anticapitalistic Movements". ''European Socia ...

, and by early labor organizers, who sought to unite workers in unions capable of

collective bargaining Collective bargaining is a process of negotiation between employers and a group of employees aimed at agreements to regulate working salaries, working conditions, benefits, and other aspects of workers' compensation and rights for workers. The ...

, in order to gain a share of profits and limit the length of the working day. ''Relative'' surplus value is not created in a single enterprise or site of production. It arises instead from the total relation between multiple enterprises and multiple branches of industry when the necessary labor-time of production is reduced, effecting a change in the value of labor-power. For example, when new technology or new business practices increase the productivity of labor a capitalist already employs, or when the commodities necessary for workers' subsistence fall in value, the amount of socially necessary labor-time is decreased, the value of labor-power is reduced, and a relative surplus value is realized as profit for the capitalist, increasing the overall general rate of surplus value in the total economy.

Definition

''Total'' surplus-value in an economy (Marx refers to the ''mass'' or volume of surplus-value) is basically equal to the sum of net distributed and undistributed

profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property) A profit (short for ...

, net

interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is disti ...

, net rents, net

tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or ...

on production and various net receipts associated with

royalties A royalty payment is a payment made by one party to another that owns a particular asset, for the right to ongoing use of that asset. Royalties are typically agreed upon as a percentage of gross or net revenues derived from the use of an asset o ...

licensing A license (or licence) is an official permission or permit to do, use, or own something (as well as the document of that permission or permit). A license is granted by a party (licensor) to another party (licensee) as an element of an agreeme ...

, leasing, certain honorariums etc. (see also

value product The ''value product'' (VP) is an economic concept formulated by Karl Marx in his critique of political economy during the 1860s, and used in Marxian social accounting theory for capitalist economies. Its annual monetary value is approximately equa ...

). Of course, the way generic profit income is grossed and netted in social accounting may differ somewhat from the way an individual business does that (see also

Operating surplus Operating surplus is an accounting concept used in national accounts statistics (such as United Nations System of National Accounts (UNSNA)) and in corporate and government accounts. It is the balancing item of the Generation of Income Account i ...

). Marx's own discussion focuses mainly on profit, interest and rent, largely ignoring taxation and royalty-type fees which were proportionally very small components of the national income when he lived. Over the last 150 years, however, the role of the state in the economy has increased in almost every country in the world. Around 1850, the average share of government spending in

GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...

(See also

Government spending Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual ...

) in the advanced capitalist economies was around 5%; in 1870, a bit above 8%; on the eve of World War I, just under 10%; just before the outbreak of World War II, around 20%; by 1950, nearly 30%; and today the average is around 35–40%. (see for example Alan Turner Peacock, "The growth of public expenditure", in ''Encyclopedia of Public Choice'', Springer 2003, pp. 594–597).

Interpretations

Surplus-value may be viewed in five ways: * As a component of the new

, which Marx himself defines as equal to the sum of labor costs in respect of capitalistically productive labor (

variable capital Constant capital (c), is a concept created by Karl Marx and used in Marxian political economy. It refers to one of the forms of capital invested in production, which contrasts with variable capital (v). The distinction between constant and vari ...

) and surplus-value. In production, he argues, the workers produce a value equal to their wages plus an additional value, the surplus-value. They also transfer part of the value of fixed assets and materials to the new product, equal to economic depreciation (consumption of fixed capital) and

intermediate goods Intermediate goods, producer goods or semi-finished products are goods, such as partly finished goods, used as inputs in the production of other goods including final goods. A firm may make and then use intermediate goods, or make and then sell, o ...

used up (

constant capital Constant capital (c), is a concept created by Karl Marx and used in Marxian political economy. It refers to one of the forms of capital invested in production, which contrasts with variable capital (v). The distinction between constant and vari ...

inputs). Labor costs and surplus-value are the monetary valuations of what Marx calls the

necessary product Surplus product (german: Mehrprodukt, links=no) is an economic concept explicitly theorised by Karl Marx in his critique of political economy. Roughly speaking, it is the extra goods produced above the amount needed for a community of workers t ...

and the

, or paid labour and unpaid labour. * Surplus-value can also be viewed as a flow of net income appropriated by the owners of capital in virtue of asset ownership, comprising both distributed personal income and undistributed business income. In the whole economy, this will include both income directly from production and property income. * Surplus-value can be viewed as the source of society's ''accumulation fund'' or ''investment fund''; part of it is re-invested, but part is appropriated as personal income, and used for consumptive purposes by the owners of capital assets (see

); in exceptional circumstances, part of it may also be hoarded in some way. In this context, surplus value can also be measured as the increase in the value of the

stock In finance, stock (also capital stock) consists of all the Share (finance), shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which owners ...

of capital assets through an accounting period, prior to distribution. * Surplus-value can be viewed as a social relation of production, or as the monetary valuation of

surplus-labour Surplus labour (German: ''Mehrarbeit'') is a concept used by Karl Marx in his critique of political economy. It means labour performed in excess of the labour necessary to produce the means of livelihood of the worker ("necessary labour"). The "su ...

– a sort of "index" of the balance of power between social classes or nations in the process of the division of the social product. * Surplus-value can, in a developed capitalist economy, be viewed also as an indicator of the level of social

that has been reached by the working population, i.e. the net amount of value it can produce with its labour in excess of its own consumption requirements.

Equalization of rates

Marx believed that the long-term historical tendency would be for differences in rates of surplus value between enterprises and economic sectors to level out, as Marx explains in two places in ''Capital'' Vol. 3: Hence, he assumed a uniform rate of surplus value in his models of how surplus value would be shared out under competitive conditions.

Appropriation from production

Both in

Das Kapital ''Das Kapital'', also known as ''Capital: A Critique of Political Economy'' or sometimes simply ''Capital'' (german: Das Kapital. Kritik der politischen Ökonomie, link=no, ; 1867–1883), is a foundational theoretical text in materialist phi ...

and in preparatory manuscripts such as the ''Grundrisse'' and ''Results of the immediate process of production'', Marx asserts that commerce by stages transforms a non-capitalist production process into a capitalist production process, integrating it fully into markets, so that all inputs and outputs become marketed goods or services. When that process is complete, according to Marx, the whole of production has become simultaneously a labor process creating use-values and a

valorisation In Marxism, the valorisation or valorization of capital is the increase in the value of capital assets through the application of value-forming labour in production. The German original term is "''Verwertung''" (specifically ''Kapitalverwertung'') ...

process creating new value, and more specifically a surplus-value appropriated as net income (see also

). Marx contends that the whole purpose of production in this situation becomes the growth of capital; i.e. that production of output becomes ''conditional'' on

. If production becomes unprofitable, capital will be withdrawn from production sooner or later. The implication is that the main driving force of capitalism becomes the quest to maximise the appropriation of surplus-value augmenting the stock of capital. The overriding motive behind efforts to economise resources and labor would thus be to obtain the maximum possible increase in income and capital assets ("business growth"), and provide a steady or growing return on investment.

Absolute vs. relative

According to Marx, ''absolute surplus value'' is obtained by increasing the amount of time worked per worker in an accounting period. Marx talks mainly about the length of the working day or week, but in modern times the concern is about the number of hours worked per year. In many parts of the world, as productivity rose, the workweek decreased from 60 hours to 50, 40 or 35 hours. ''Relative surplus value'' is obtained mainly by: * reducing wages — this can only go to a certain point, because if wages fall below the ability of workers to purchase their means of subsistence, they will be unable to reproduce themselves and the capitalists will not be able to find sufficient

. * reducing the cost of wage-goods by various means, so that wage increases can be curbed. * increasing the productivity and intensity of labour generally, through mechanisation and rationalisation, yielding a bigger output per hour worked. The attempt to extract more and more surplus-value from labor on the one side, and on the other side the resistance to this exploitation, are according to Marx at the core of the conflict between

social classes A social class is a grouping of people into a set of hierarchical social categories, the most common being the upper, middle and lower classes. Membership in a social class can for example be dependent on education, wealth, occupation, incom ...

, which is sometimes muted or hidden, but at other times erupts in open class warfare and

class struggle Class conflict, also referred to as class struggle and class warfare, is the political tension and economic antagonism that exists in society because of socio-economic competition among the social classes or between rich and poor. The forms ...

Production versus realisation

Marx distinguished sharply between value and

price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in th ...

, in part because of the sharp distinction he draws between the ''production of surplus-value'' and the ''realisation of profit income'' (see also

value-form The value-form or form of value (german: Wertform) is a concept in Karl Marx's critique of political economy. Marx's account of the value-form is differently adopted in later forms of Marxism, in the Frankfurt School and in post-Marxism. When so ...

). Output may be ''produced'' containing surplus-value (

), but ''selling'' that output (realisation) is not at all an automatic process. Until payment from sales is received, it is uncertain how much of the surplus-value produced will actually be realised as profit from sales. So, the magnitude of ''profit realised'' in the form of money and the magnitude of ''surplus-value produced'' in the form of products may differ greatly, depending on what happens to market prices and the vagaries of supply and demand fluctuations. This insight forms the basis of Marx's theory of market value,

prices of production Prices of production (or "production prices"; in German ''Produktionspreise'') is a concept in Karl Marx's critique of political economy, defined as "cost-price + average profit". A production price can be thought of as a type of supply price for p ...

and the tendency of the rate of profit of different enterprises to be levelled out by competition. In his published and unpublished manuscripts, Marx went into great detail to examine many different factors which could affect the production and realisation of surplus-value. He regarded this as crucial for the purpose of understanding the dynamics and dimensions of capitalist

competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indiv ...

, not just business competition but also competition between capitalists and workers and among workers themselves. But his analysis did not go much beyond specifying some of the overall outcomes of the process. His main conclusion though is that employers will aim to maximise the productivity of labour and economise on the use of labour, to reduce their unit-costs and maximise their net returns from sales at current market prices; at a given ruling market price for an output, every reduction of costs and every increase in productivity and sales turnover will increase profit income for that output. The main method is ''mechanisation'', which raises the

fixed capital In accounting, fixed capital is any kind of real, physical asset that is used repeatedly in the production of a product. In economics, fixed capital is a type of capital good that as a real, physical asset is used as a means of production which i ...

outlay in investment. In turn, this causes the unit-values of commodities to decline over time, and a ''decline of the average rate of profit'' in the sphere of production occurs, culminating in a crisis of

, in which a sharp reduction in productive investments combines with mass unemployment, followed by an intensive rationalisation process of take-overs, mergers, fusions, and restructuring aiming to restore profitability.

Relation to taxation

Government tax vs dividends and buybacks

In general, business leaders and investors are hostile to any attempts to encroach on total profit volume, especially those of government

taxation A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or ...

. The lower taxes are, other things being equal, the bigger the mass of profit that can be distributed as income to private investors. It was ''tax revolts'' that originally were a powerful stimulus motivating the bourgeoisie to wrest state power from the feudal

aristocracy Aristocracy (, ) is a form of government that places strength in the hands of a small, privileged ruling class, the aristocrats. The term derives from the el, αριστοκρατία (), meaning 'rule of the best'. At the time of the word ...

at the beginning of the capitalist era. In reality, of course, a substantial portion of tax money is also ''redistributed'' to private enterprise in the form of government contracts and subsidies. Capitalists may therefore be in conflict among themselves about taxes, since what is a cost to some, is a source of profit to others. Marx never analysed all this in detail; but the concept of surplus value will apply mainly to taxes on gross income (personal and business income from production) and on the trade in products and services. Estate duty for example rarely contains a surplus value component, although profit could be earned in the transfer of the estate. Generally, Marx seems to have regarded taxation imposts as a "form" which disguised real product ''values''. Apparently following this view,

Ernest Mandel Ernest Ezra Mandel (; also known by various pseudonyms such as Ernest Germain, Pierre Gousset, Henri Vallin, Walter (5 April 1923 – 20 July 1995), was a Belgian Marxian economist, Trotskyist activist and theorist, and Holocaust survivor. He f ...

in his 1960 treatise ''Marxist Economic Theory'' refers to (indirect) taxes as "arbitrary additions to commodity prices". But this is something of a misnomer, and disregards that taxes become part of the normal cost-structure of production. In his later treatise on

late capitalism Late capitalism, late-stage capitalism, or end-stage capitalism is a term first used in print by German economist Werner Sombart around the turn of the 20th century. In the late 2010s, the term began to be used in the United States and Canada to ...

, Mandel astonishingly hardly mentions the significance of taxation at all, a very serious omission from the point of view of the real world of modern capitalism since taxes can reach a magnitude of a third, or even half of GDP (see E. Mandel, ''Late Capitalism''. London: Verso, 1975).For example in the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and No ...

alone 75% of all taxation revenue comes from just three taxes

Income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Ta ...

National insurance National Insurance (NI) is a fundamental component of the welfare state in the United Kingdom. It acts as a form of social security, since payment of NI contributions establishes entitlement to certain state benefits for workers and their famili ...

and

VAT A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the en ...

which in reality is 75% of the GDP of the country.

Relation to the circuits of capital

Generally, Marx focused in

on the new surplus-value generated by production, and the distribution of this surplus value. In this way, he aimed to reveal the "origin of the wealth of nations" given a capitalist mode of production. However, in any real economy, a distinction must be drawn between the primary circuit of capital, and the secondary circuits. To some extent,

national accounts National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry ...

also do this. The primary circuit refers to the incomes and products generated and distributed from productive activity (reflected by

). The secondary circuits refer to trade, transfers and transactions occurring ''outside'' that sphere, which can also generate incomes, and these incomes may also involve the realisation of a surplus-value or profit. It is true that Marx argues no net additions to value can be created through acts of exchange, economic value being an attribute of labour-products (previous or newly created) only. Nevertheless, trading activity outside the sphere of production can obviously also yield a surplus-value which represents a ''transfer'' of value from one person, country or institution to another. A very simple example would be if somebody sold a second-hand asset at a profit. This transaction is not recorded in gross product measures (after all, it isn't new production), nevertheless a surplus-value is obtained from it. Another example would be capital gains from property sales. Marx occasionally refers to this kind of profit as ''profit upon alienation'', alienation being used here in the juridical, not sociological sense. By implication, if we just focused on surplus-value newly created in production, we would ''underestimate'' total surplus-values ''realised as income'' in a country. This becomes obvious if we compare census estimates of income & expenditure with GDP data. This is another reason why surplus-value ''produced'' and surplus-value ''realised'' are two different things, although this point is largely ignored in the economics literature. But it becomes highly important when the real growth of production stagnates, and a growing portion of capital shifts out of the sphere of production in search of surplus-value from other deals. Nowadays the volume of world

trade Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market. An early form of trade, barter, saw the direct exch ...

grows significantly faster than

, suggesting to Marxian economists such as

Samir Amin Samir Amin ( ar, سمير أمين) (3 September 1931 – 12 August 2018) was an Egyptian-French Marxian economist, political scientist and world-systems analyst. He is noted for his introduction of the term Eurocentrism in 1988 and considered ...

that surplus-value realised from commercial trade (representing to a large extent a transfer of value by intermediaries between producers and consumers) grows faster than surplus-value realised directly from production. Thus, if we took the final price of a good (the cost to the final consumer) and analysed the cost structure of that good, we might find that, over a period of time, the direct producers get less income and intermediaries between producers and consumers (traders) get more income from it. That is, control over the ''access'' to a good, asset or resource as such may increasingly become a very important factor in realising a surplus-value. In the worst case, this amounts to

parasitism Parasitism is a close relationship between species, where one organism, the parasite, lives on or inside another organism, the host, causing it some harm, and is adapted structurally to this way of life. The entomologist E. O. Wilson has ...

extortion Extortion is the practice of obtaining benefit through coercion. In most jurisdictions it is likely to constitute a criminal offence; the bulk of this article deals with such cases. Robbery is the simplest and most common form of extortion, al ...

. This analysis illustrates a key feature of surplus value which is that it accumulated by the owners of capital only within ''inefficient'' markets because only inefficient markets – i.e. those in which transparency and competition are low – have profit margins large enough to facilitate capital accumulation. Ironically, profitable – meaning inefficient – markets have difficulty meeting the definition a

free market In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ...

because a free market is to some extent defined as an efficient one: one in which goods or services are exchanged without coercion or fraud, or in other words with competition (to prevent monopolistic coercion) and transparency (to prevent fraud).

Measurement

The first attempt to measure the rate of surplus-value in money-units was by Marx himself in chapter 9 of ''

'', using factory data of a spinning mill supplied by

Friedrich Engels Friedrich Engels ( ,"Engels"
''

empiricist In philosophy, empiricism is an epistemological theory that holds that knowledge or justification comes only or primarily from sensory experience. It is one of several views within epistemology, along with rationalism and skepticism. Empiri ...

manner. Since early studies by Marxian economists like

Eugen Varga Eugen Samuilovich "Jenő" Varga (born as Eugen Weisz, November 6, 1879 in Budapest – October 7, 1964 in Moscow) was a Soviet economist of Hungarian origin. Biography Early years He was born as Jenő Weiß (Hungarian orthography: Weisz) in a p ...

, Charles Bettelheim, Joseph Gillmann, Edward Wolff and Shane Mage, there have been numerous attempts by Marxian economists to measure the trend in surplus-value statistically using national accounts data. The most convincing modern attempt is probably that of Anwar Shaikh and Ahmet Tonak. Usually this type of research involves reworking the components of the official measures of gross output and capital outlays to approximate Marxian categories, in order to estimate empirically the trends in the ratios thought important in the Marxian explanation of

and

economic growth Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...

: the rate of

surplus-value In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to the owner of that product to manufacture it: i.e. the amount raised through sale of the product minus the cost ...

, the

organic composition of capital The organic composition of capital (OCC) is a concept created by Karl Marx in his theory of capitalism, which was simultaneously his critique of the political economy of his time. It is derived from his more basic concepts of 'value composition o ...

, the

rate of profit In economics and finance, the profit rate is the relative profitability of an investment project, a capitalist enterprise or a whole capitalist economy. It is similar to the concept of rate of return on investment. Historical cost ''vs.'' market ...

, the rate of increase in the capital stock, and the rate of reinvestment of realised surplus-value in production. The Marxian mathematicians Emmanuel Farjoun and Moshé Machover argue that "even if the rate of surplus value has changed by 10–20% over a hundred years, the real problem o explainis why it has changed so little" (quoted from ''The Laws of Chaos: A Probabilistic Approach to Political Economy'' (1983), p. 192). The answer to that question must, in part, be sought in artifacts (statistical distortion effects) of data collection procedures. Mathematical extrapolations are ultimately based on the data available, but that data itself may be fragmentary and not the "complete picture".

Different conceptions

In neo-Marxist thought, Paul A. Baran for example substitutes the concept of "

economic surplus In mainstream economics, economic surplus, also known as total welfare or total social welfare or Marshallian surplus (after Alfred Marshall), is either of two related quantities: * Consumer surplus, or consumers' surplus, is the monetary gain ...

" for Marx's surplus value. In a joint work, Paul Baran and

Paul Sweezy Paul Marlor Sweezy (April 10, 1910 – February 27, 2004) was a Marxist economist, political activist, publisher, and founding editor of the long-running magazine ''Monthly Review''. He is best remembered for his contributions to economic theory ...

define the economic surplus as "the difference between what a society produces and the costs of producing it" (''Monopoly Capitalism'', New York 1966, p. 9). Much depends here on how the costs are valued, and which costs are taken into account.

Piero Sraffa Piero Sraffa (5 August 1898 – 3 September 1983) was an influential Italian economist who served as lecturer of economics at the University of Cambridge. His book ''Production of Commodities by Means of Commodities'' is taken as founding the ne ...

also refers to a "physical surplus" with a similar meaning, calculated according to the relationship between prices of physical inputs and outputs. In these theories,

and surplus value are equated, while value and price are identical, but the ''distribution'' of the surplus tends to be separated theoretically from its ''production''; whereas Marx insists that the distribution of wealth is governed by the social conditions in which it is ''produced'', especially by property relations giving entitlement to products, incomes and assets (see also

relations of production Relations of production (german: Produktionsverhältnisse, links=no) is a concept frequently used by Karl Marx and Friedrich Engels in their theory of historical materialism and in ''Das Kapital''. It is first explicitly used in Marx's publish ...

). In ''Kapital'' Vol. 3, Marx insists strongly that This is a substantive – if abstract – thesis about the basic

social relations A social relation or also described as a social interaction or social experience is the fundamental unit of analysis within the social sciences, and describes any voluntary or involuntary interpersonal relationship between two or more individuals ...

involved in giving and getting, taking and receiving in human

society A society is a group of individuals involved in persistent social interaction, or a large social group sharing the same spatial or social territory, typically subject to the same political authority and dominant cultural expectations. Soc ...

, and their consequences for the way work and wealth is shared out. It suggests a ''starting point'' for an inquiry into the problem of

social order The term social order can be used in two senses: In the first sense, it refers to a particular system of social structures and institutions. Examples are the ancient, the feudal, and the capitalist social order. In the second sense, social order ...

and

social change Social change is the alteration of the social order of a society which may include changes in social institutions, social behaviours or social relations. Definition Social change may not refer to the notion of social progress or sociocult ...

. But obviously it is ''only'' a starting point, not the whole story, which would include all the "variations and gradations".

Morality and power

A textbook-type example of an alternative interpretation to Marx's is provided by

Lester Thurow Lester Carl Thurow (May 7, 1938 – March 25, 2016) was an American political economist, former dean of the MIT Sloan School of Management, and author of books on economic topics. Education Born in Livingston, Montana, Thurow received his B.A ...

. He argues: Thurow, Lester C. (2008)
"Profits"
''Concise Encyclopedia of Economics''.

Liberty Fund Liberty Fund, Inc. is an American private educational foundation headquartered in Carmel, founded by Pierre F. Goodrich. Through publishing, conferences, and educational resources, the operating mandate of the Liberty Fund was set forth in an u ...

. "In a capitalistic society, profits – and losses – hold center stage." But what, he asks, explains profits? There are ''five'' reasons for profit, according to Thurow: * capitalists are willing to delay their own personal gratification, and profit is their reward. * some profits are a return to those who take risks. * some profits are a return to organizational ability, enterprise, and entrepreneurial energy * some profits are economic rents – a firm that has a monopoly in producing some product or service can set a price higher than would be set in a competitive market and, thus, earn higher than normal returns. * some profits are due to market imperfections – they arise when goods are traded above their competitive equilibrium price. The problem here is that Thurow doesn't really provide an objective

explanation An explanation is a set of statements usually constructed to describe a set of facts which clarifies the causes, context, and consequences of those facts. It may establish rules or laws, and may clarify the existing rules or laws in relatio ...

of profits so much as a

moral A moral (from Latin ''morālis'') is a message that is conveyed or a lesson to be learned from a story or event. The moral may be left to the hearer, reader, or viewer to determine for themselves, or may be explicitly encapsulated in a maxim. ...

justification for profits, i.e. as a legitimate entitlement or claim, in return for the supply of capital. He adds that "Attempts have been made to organize productive societies without the profit motive (...) utsince the industrial revolution... there have been essentially no successful economies that have not taken advantage of the profit motive." The problem here is again a

judgement, dependent on what you mean by success. Some societies using the profit motive were ruined; profit is no guarantee of success, although you can say that it has powerfully stimulated economic growth. Thurow goes on to note that "When it comes to actually measuring profits, some difficult accounting issues arise." Why? Because after deduction of costs from gross income, "It is hard to say exactly how much must be reinvested to maintain the size of the capital stock". Ultimately, Thurow implies, the

department is the arbiter of the profit volume, because it determines

depreciation In accountancy, depreciation is a term that refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the ...

allowances and other costs which capitalists may annually deduct in calculating taxable gross income. This is obviously a theory very different from Marx's. In Thurow's theory, the aim of business is to ''maintain'' the capital stock. In Marx's theory,

, desire and market fluctuations create the striving and pressure to ''increase'' the capital stock; the whole aim of capitalist production is

, i.e. business growth maximising net income. Marx argues there is no evidence that the ''profit'' accruing to capitalist owners is ''quantitatively connected'' to the "productive contribution" of the capital they own. In practice, within the capitalist firm, no standard procedure exists for measuring such a "productive contribution" and for distributing the residual income accordingly. In Thurow's theory, profit is mainly just "something that happens" when costs are deducted from sales, or else a ''justly deserved'' income. For Marx, increasing profits is, at least in the longer term, the "bottom line" of business behaviour: the quest for obtaining extra surplus-value, and the incomes obtained from it, are what guides capitalist development (in modern language, "creating maximum shareholder value"). That quest, Marx notes, always involves a

power Power most often refers to: * Power (physics), meaning "rate of doing work" ** Engine power, the power put out by an engine ** Electric power * Power (social and political), the ability to influence people or events ** Abusive power Power may ...

relationship between different social classes and nations, inasmuch as attempts are made to force ''other'' people to pay for costs as much as possible, while maximising one's own entitlement or claims to ''income'' from economic activity. The clash of economic interests that invariably results, implies that the battle for surplus value will always involve an irreducible

dimension; the whole process rests on complex system of negotiations, dealing and bargaining in which reasons for claims to wealth are asserted, usually within a legal framework and sometimes through wars. Underneath it all, Marx argues, was an exploitative relationship. That was the main reason why, Marx argues, the real sources of surplus-value were shrouded or obscured by

ideology An ideology is a set of beliefs or philosophies attributed to a person or group of persons, especially those held for reasons that are not purely epistemic, in which "practical elements are as prominent as theoretical ones." Formerly applied prim ...

, and why Marx thought that

political economy Political economy is the study of how economic systems (e.g. markets and national economies) and political systems (e.g. law, institutions, government) are linked. Widely studied phenomena within the discipline are systems such as labour m ...

merited a critique. Quite simply, economics proved unable to theorise capitalism as a ''social system'', at least not without moral biases intruding in the very ''definition'' of its conceptual distinctions. Hence, even the most simple economic concepts were often riddled with contradictions. But market trade could function fine, even if the ''theory'' of markets was false; all that was required was an agreed and legally enforceable accounting system. On this point, Marx probably would have agreed with

Austrian School The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result exclusively from the motivations and actions of individuals. Austrian schoo ...

economics – no knowledge of "markets in general" is required to participate in markets.

Notes

References

''Theories of Surplus-Value'' (1863)

* Anwar Shaikh and Ahmet Tonak, ''Measuring the Wealth of Nations'' * Anwar Shaikh paper

* G. A. Cohen (1988), ''History, Labour and Freedom: Themes from Marx'',

Oxford University Press Oxford University Press (OUP) is the university press of the University of Oxford. It is the largest university press in the world, and its printing history dates back to the 1480s. Having been officially granted the legal right to print books ...

* Shane Mage, ''The Law of the Falling Tendency of the Rate of Profit; Its Place in the Marxian Theoretical System and Relevance to the US Economy''. Phd Thesis,

Columbia University Columbia University (also known as Columbia, and officially as Columbia University in the City of New York) is a private research university in New York City. Established in 1754 as King's College on the grounds of Trinity Church in Manhatt ...

, 1963. * Tatyana Volkova and Felix Volkov,
What Is Surplus Value?
' (Moscow:

Progress Publishers Progress Publishers was a Moscow-based Soviet publisher founded in 1931. Publishing program Progress Publishers published books in a variety of languages: Russian, English, and many other European and Asian languages. They issued many scientific b ...

), 1987.
Fred Moseley papers

Gerard Dumenil and Dominique Levy papers
* Steve Keen, ''Debunking Economics; The Naked Emperor of the Social Sciences''. London: Zed Press, 200
Economics: Debunking Economics Overview
* Emmanuel Farjoun and Moshe Machover, ''Laws of Chaos; A Probabilistic Approach to Political Economy'', London: Verso, 1983. * Ian Wright
iwright – Probabilistic Political Economy "Laws of Chaos" in the 21st Century.
*

, Marxist Economic Theory, Vol. 1 and Late Capitalism. * Harry W. Pearson, "The economy has no surplus" in "Trade and market in the early empires. Economies in history and theory", edited by Karl Polanyi, Conrad M. Arensberg and Harry W. Pearson (New York/London: The Free Press: Collier-Macmillan, 1957). * Paul A. Baran, The Political Economy of Growth. *

, ''Production of Commodities by means of commodities''. *

Michał Kalecki Michał Kalecki (; 22 June 1899 – 18 April 1970) was a Polish Marxian economist. Over the course of his life, Kalecki worked at the London School of Economics, University of Cambridge, University of Oxford and Warsaw School of Economics a ...

, "The Determinants of Profits", in ''Selected Essays on the Dynamics of the Capitalist Economy 1933–1970''. * John B. Davis (ed), The economic surplus in advanced economies. Aldershot, Hants, England/Brookfield, Vt.: Elgar, 1992. * Anders Danielson, The economic surplus : theory, measurement, applications. Westport, Connecticut: Praeger, 1994. * Helen Boss, Theories of surplus and transfer : parasites and producers in economic thought. Boston: Hyman, 1990.

External links

'The Concepts of Alienation and Surplus-value, a Brief Look' (Archive.org)
{{DEFAULTSORT:Surplus Value Theory of value (economics) Marxian economics