Surplus Value

Where does profit come from?

A merchant buys cotton for £100 and sells it for £110, keeping £10. In chapter 4 of Capital, volume I, Marx wrote this movement as M–C–M′ (money–commodity–more money): more money comes back than was laid out, and this is the movement of capital. "This increment or excess over the original value I call surplus value." The value originally advanced not only maintains itself in circulation but increases its magnitude, adds a surplus value, and this movement turns it into capital.

Dieses Inkrement oder den Überschuß über den ursprünglichen Wert nenne ich - Mehrwert (surplus value).

But there is a riddle. If all commodities exchange at their values, equal for equal, value cannot grow in circulation: what one person gains by selling dear another loses, and nothing increases for society as a whole. How can the capitalist end up with more value than he started with while equivalents are exchanged?

How does the peculiar commodity labour-power solve the riddle?

Marx's answer is that there is on the market a peculiar commodity whose very use creates value: labour-power. "By labour-power or capacity for labour we understand the aggregate of the physical and mental capabilities existing in the body, the living personality, of a human being, which he sets in motion whenever he produces a use-value of any kind." What the worker sells is not labour but the capacity to work for a given time.

Marx gave the arithmetic with a spinning example. If the daily value of labour-power is three shillings, that is because the means of subsistence that keep the worker alive for a day take half a day's labour. But "the fact that half a day's labour is necessary to keep him alive for 24 hours does not in any way prevent him from working a whole day." The value of labour-power and the value it creates in the labour process are two different magnitudes, and this difference was what the capitalist had in view when he bought it. He paid full value for cotton, spindles and labour-power and sells the yarn at its value: "equivalent was exchanged for equivalent." Yet 27 shillings have become 30. "The trick has at last succeeded: money has been converted into capital."

Das Kunststück ist endlich gelungen. Geld ist in Kapital verwandelt.

The working day thus falls into two parts: "necessary labour" time, in which workers produce the equivalent of the value of their labour-power, and "surplus labour" time, in which they work beyond it for the capitalist. Just as value must be grasped as congealed labour time, Marx said, surplus value must be grasped as congealed surplus labour time. And he added that surplus labour existed under slavery and feudalism too: "What distinguishes the various economic formations of society, for example a society based on slave labour from one based on wage labour, is only the form in which this surplus labour is extracted from the immediate producer, the worker." Under wage labour the extraction is invisible because the wage appears to pay for the whole working time.

Nur die Form, worin diese Mehrarbeit dem unmittelbaren Produzenten, dem Arbeiter, abgepreßt wird, unterscheidet die ökonomischen Gesellschaftsformationen, z.B. die Gesellschaft der Sklaverei von der der Lohnarbeit.

What are the rate of surplus value and absolute and relative surplus value?

Marx divided capital into constant capital (c), spent on means of production, and variable capital (v), spent on labour-power. Since only labour-power creates new value, surplus value (s, Marx's m) must be compared with variable capital alone. The rate of surplus value s/v is the ratio of surplus to necessary labour and "the exact expression of the degree of exploitation of labour-power by capital, or of the worker by the capitalist". In Marx's example, if £410 of constant and £90 of variable capital yield £90 of surplus value, the usual reckoning gives 90 out of 500, or 18 per cent, but the rate of surplus value is 90 out of 90, or 100 per cent: the worker spent half the day working for the capitalist.

Die Rate des Mehrwerts ist daher der exakte Ausdruck für den Exploitationsgrad der Arbeitskraft durch das Kapital oder des Arbeiters durch den Kapitalisten.

The capitalist can increase surplus value in two ways. "The surplus value produced by prolonging the working day I call absolute surplus value; the surplus value arising from the curtailment of the necessary labour time and the corresponding change in the relative magnitudes of the two parts of the working day I call relative surplus value." The nineteenth-century struggles over the Factory Acts and the length of the working day were fights over absolute surplus value; mechanisation, which raises productivity, cheapens the means of subsistence and so lowers the value of labour-power, is the road of relative surplus value.

These concepts connect with others in Capital. The ratio c/v of constant to variable capital is the organic composition of capital, and surplus value measured against total capital c+v is the rate of profit. When the organic composition rises, the rate of profit falls even if the rate of surplus value stays the same: the law of the tendency of the rate of profit to fall. Profit, interest and rent, which Marx treated in the posthumously published volume III of Capital, are all forms in which society's total surplus value is divided among industrial capitalists, money capitalists and landlords.

Did Marx discover it first?

The term "surplus value" predates Marx: the Ricardian socialist William Thompson coined it in 1824. In his 1885 preface to volume II of Capital Engels answered the priority dispute with an analogy from the history of chemistry. Priestley and Scheele produced oxygen without knowing what they had produced; Lavoisier recognised it as a new element and set chemistry on its feet. "Marx stands in the same relation to his predecessors in the theory of surplus value as Lavoisier stood to Priestley and Scheele." That surplus value consists of the product of labour for which no equivalent is paid was known before Marx; but the classical economists only studied the proportion in which the product is divided between workers and owners of the means of production, while the socialists found the division unjust and looked for utopian remedies, and both stayed trapped in the economic categories they had inherited.

Wie Lavoisier zu Priestley und Scheele, so verhält sich Marx zu seinen Vorgängern in der Mehrwertstheorie.

Marx first worked out his theory of surplus value in the manuscripts of 1857–1858, and in the manuscript of 1862–1863, Theories of Surplus Value, he examined the theories of his predecessors from Smith and Ricardo on; Karl Kautsky later edited it for publication as a kind of fourth volume of Capital. In Socialism: Utopian and Scientific Engels summed up: "These two great discoveries, the materialist conception of history and the revelation of the secret of capitalist production through surplus value, we owe to Marx. With them socialism became a science." In 1913 Lenin wrote that "the doctrine of surplus value is the cornerstone of Marx's economic theory."

Diese beiden großen Entdeckungen: die materialistische Geschichtsauffassung und die Enthüllung des Geheimnisses der kapitalistischen Produktion vermittelst des Mehrwerts verdanken wir Marx.

How do surplus value, profit and value added differ?

Profit in everyday speech is not the same as surplus value. Surplus value is the whole part of society's newly produced value that does not go to the workers; the profit a firm enters in its books is a part of it, and a part redistributed through competition and prices of production at that. The German original Mehrwert simply means "more value", and in German today it also appears in words like Mehrwertsteuer, value-added tax. Value added in national accounts is the sum of wage and profit income, so in Marx's terms it comes close to the new value made up of variable capital plus surplus value. How to measure surplus value in actual statistics, and how to count the share the state collects in taxes, remain open questions in the empirical research of Marxian economics.