Monopoly capital and the economic surplus

What is the economic surplus?

Marx's surplus value is the value workers create beyond the equivalent of their wages, a concept measured in labour time. In The Political Economy of Growth (1957) the American Marxist economist Paul Baran set out a related concept measured instead in the output and consumption of society as a whole, the "economic surplus". He distinguished three kinds. The actual economic surplus is the difference between society's actual current output and its actual current consumption, and is identical to current saving or accumulation. The potential economic surplus is the difference between the output that could be produced in a given natural and technical environment with the help of employable productive resources and what might be regarded as essential consumption. The planned economic surplus, a category that could only be put into practice in a rationally planned socialist society, is the difference between society's "optimum" output and some chosen "optimal" volume of consumption.

Take numbers assumed for illustration. A country could produce 1,000 a year if it used all its plant and labour, but actually produces 800. People actually consume 600, of which 500 is consumption genuinely needed for a decent life. The actual economic surplus is then 800 − 600 = 200, but the potential economic surplus is 1,000 − 500 = 500. The gap of 300 is lost in idle factories and unemployed workers and in consumption beyond need. Baran and Sweezy held that the irrationality of monopoly capitalism shows itself precisely in this gap.

Monopoly Capital defines the economic surplus most simply as "the difference between what a society produces and the costs of producing it". The size of the surplus is an index of how much freedom a society has to accomplish whatever goals it sets itself, and its composition shows how it uses that freedom: how much it invests, how much it consumes and in what forms, and how much it wastes. Some scholars saw the concept as a break with Marx's theory of value, but Baran and Sweezy, and later authors, argued that it is consistent with the labour theory of value and supplements the category of surplus value.

Why does the surplus tend to rise under monopoly capitalism?

Under the competitive capitalism Marx and Lenin analysed, firms cut prices to take each other's markets. Baran and Sweezy argued that the twentieth-century American economy was driven by oligopoly, a few giant corporations sharing the market, which avoid ruinous price wars, keep prices high and compete instead through cost cutting, advertising and marketing. Productivity rises and costs fall, but prices do not, so the surplus grows. Baran called this the "law of rising surplus" and claimed that in the stage of monopoly capitalism it supersedes the classical Marxist law of the tendency of the rate of profit to fall.

The problem is what to do with the surplus. Capitalist luxury consumption cannot rise as fast as the surplus, and monopoly conditions narrow the outlets for productive investment: a firm that already shares the market only lowers prices by adding capacity, and without rivals it has little reason to scrap existing machinery early. The unabsorbed surplus therefore shows up less as recorded profit than as idle capacity, unemployment and waste, and the economy tends towards stagnation.

Where is the surplus absorbed?

Baran and Sweezy looked at the problem of surplus absorption under five heads. First, capitalist luxury consumption cannot rise as fast as the surplus. Second, the sales effort (advertising, sales promotion, frequent model changes) is an important outlet for giant firms engaged in non-price competition, but adds no use value and may be treated as waste. Third, civilian government spending that competes with private business is resisted by capitalists as a threat to their class interests and power. Fourth, military spending does not clash with capitalist interests and through imperialism enlarges them, so it can expand to a degree civilian spending cannot. Fifth, spending on finance absorbs part of the surplus and boosts the economy, at the cost of mounting debt and greater long-term instability.

The analysis leads to a critique of the irrationality of American society: basic needs of human development such as education and housing go unmet, while belligerent militarism and consumerism are cultivated with great effort for profit. Baran and Sweezy saw the system's weakest link in the revolt of peripheral countries against the domination of monopoly capital, mirrored inside the United States by the resistance of peoples of colour, a critical part of the working class.

Who developed the theory, and when?

Baran was born in 1909 in Mykolaiv in the Russian Empire, was associated with the Frankfurt Institute for Social Research in Germany, emigrated to the United States in 1939 and became a full professor at Stanford in 1951. The Political Economy of Growth used the surplus concept to analyse underdeveloped countries; it sold over 50,000 copies and was translated into eight languages. At Harvard Sweezy wrote The Theory of Capitalist Development (1942), which laid foundations for American Marxian economics, and in 1949 he founded the socialist magazine Monthly Review with Leo Huberman; Baran helped set its direction from the start. The two were writing Monopoly Capital together when Baran died of a heart attack in 1964; Sweezy finished it and published it under both names with Monthly Review Press in 1966. The book is credited with shifting the attention of Marxist theory from the assumption of a competitive economy to the monopolistic economy of the giant corporations that dominate modern accumulation, and it played a leading part in the intellectual development of the New Left in the 1960s and 1970s. Harry Braverman's Labor and Monopoly Capital (1974) came from the same press.

How did the Monthly Review school continue?

Harry Magdoff, who replaced Huberman in 1969, and Sweezy analysed the "financial explosion" that emerged from the 1970s as a response to stagnation. John Bellamy Foster, editor from 2000, and his colleagues explained the 2008 financial crisis and the Great Recession with the analysis of Monopoly Capital and extended the theory with concepts such as "monopoly-finance capital", the internationalisation of monopoly capital and the globalisation of the reserve army of labour. In treating financialisation as a response to the stagnation tendency of monopoly capital, this current parts ways with Marxist crisis theories that put the falling rate of profit first.

What criticisms did it meet?

The most frequent criticism is that the theory leans on the underconsumptionist reasoning that goes back to Hobson: that consumption cannot absorb society's total output. Marxists who see the tendency of the rate of profit to fall as the root cause of crises (Paul Mattick and Andrew Kliman among them) treated the book critically, and some held that the surplus concept departs from the theory of value. Another point of dispute was that, whereas classical theorists of imperialism such as Bukharin saw monopoly as intensifying competition, Baran and Sweezy saw it as effectively suppressing price competition.