Marx and Surplus Value
Marx’s development of surplus value to understand the class struggle did not come out of nowhere.
An intuitive understanding of surplus was understood by the utopian socialists who preceded Marx.
The idea that landlords and capitalists received unearned income from the value of the commodity produced by the worker was known to Thomas Hodgkin. He remarked that “In this case which is at present the case, the labourers must share their produce with unproductive idlers (POPULAR POLITICAL ECONOMY London 1827 p. 245).
In his book “A HISTORY OF ECONOMIC THOUGHT”, I. I. Rubin recalls one anonymous pamphlet, published in 1821, which brought all forms of unearned income together under one category although he used interest to cover this unearned income not the phrase “surplus value” (Pluto Press 1989 p. 350).
The same concept of surplus value can be found in the writings of William Thompson who wrote:
“There can be no other source of profit than the value added to the raw material by the labour, guided by skill, expended on it. The materials, the buildings, the machinery, the wages, can add nothing to their own value. The additional value proceeds from labour alone” (AN INQUIRY INTO THE PRINCIPLES OF THE DIDTRIBUTION OF WEALTH MOST CONDUCIVE TO HUMAN HAPPINESS, 1824 p. 127).
However, the mistake of these earlier Socialists was to think that the socially necessary labour that went into the value of a commodity could be expressed in terms other than money.
It was Marx who gave surplus value its clear meaning in commodity production and exchange for profit.
Marx believed that the discovery of surplus value was one of the more important points arising out of his studies of capitalism. In a letter to Engels he wrote:
“..The best points in my book are: 1) the two-fold character of labour, according to whether it is expressed in use value or exchange value…;2) the treatment of surplus value independently of its particular forms as profit, interest, rent, etc…(MARX-ENGELS CORRESPONDENCE p. 180 Moscow1975).
The origin, nature and distribution of surplus value in CAPITAL VOLUME I (Lawrence and Wishat 1970) offer valuable insights into why the class struggle takes place. Important readings are set out in the chapters; The Buying and Selling of Labour Power (ch. VI p164-171), The Labour Process and the Process of Producing Surplus-Value (ch. VII pp 173-192), and The Rate of Surplus Value (p. 204-221).
The chapter “The Buying and Selling of Labour Power” is the easiest of the there to read and is the shortest.
Capitalists and workers meet “freely” on the labour market and the workers sell their labour power or ability to work to the employers in exchange for a wage or a salary.
The capitalist pays the worker according to the value of the worker’s labour power. The worker’s labour power is like every other commodity; it possesses a use-value and an exchange value. It has a use value for the capitalist buying the commodity, labour power and an exchange value for the worker selling his ability to work in the form of a wage or salary.
The value of labour power is determined like any other commodity, by the amount of socially necessary labour embodied in it.
What forms the value of labour power? The value of labour power is the amount of socially necessary labour equal to the value of the commodities the worker needs to produce and reproduce himself and his family.
The capitalist pays the worker according to the exchange value of labour power in the form of wages, but the employer obtains the use value of the commodity labour power which he puts to work with raw materials and means of production to produce commodities for profit.
The distinction between the use value and exchange value of the commodity labour power is important for an understanding of the production of surplus value in the productive process. The commodity labour power has the peculiar characteristic of being able to produce a value greater than the value equivalent to the worker’s wage or salary. This additional value created for free by the worker, Marx called surplus value.
Exploitation and Production
Capitalist production takes place for exchange, profit and capital accumulation. Capitalists only engage in production to sell commodities to make a profit. Accumulation of more and more capital is what the capitalist is interested in.
The question Marx asked is how do capitalists make their profit? Marx is not interested in the profit of one capitalist or group of capitalists. He wants to know where profit comes in terms of aggregate profits, say all the profits made by all the capitalists during a financial year.
At the level of aggregate profits it does not matter whether cheating takes place or the skill as a businessman allows one capitalist to steal a march over other capitalists and make more profit at their expense. What is clear to Marx is that in aggregate, circulation cannot explain the existence of profits.
Marx puts it this way:
“Turn and twist as we may, the fact remains unaltered. If equivalents are exchanged, no surplus value results, and if non-equivalents are exchanged, still no surplus value. Circulation, or the exchange of commodities, begets no value” (p. 160-161).
The existence of surplus value comes from the existence of a unique commodity, labour power:
“in order to be able to extract value from the consumption of a commodity, our friend, Moneybags (the capitalist), must be so lucky as to find, within the sphere of circulation, in the market, a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labour, and, consequently, a creation of value.
(CAPITAL VOL 1 Ch. VI p. 164).
The value of labour power is determined by the value of commodities needed for the maintenance of the workers and the means for reproducing more workers, commodities like food, transport, shelter, clothes and so on.
“The value of labour-power resolves itself into the value of a definite quantity of the means of subsistence. It therefore varies with the value of these means or with the quantity of labour requisite for their production” (loc cit Ch. VI p. 169).
The means of subsistence must also include:
“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” (loc cit, Ch. VI p. 168).
The costs of education for educated skilled labour also have to be taken into account:
“The expenses of education, (…), enter pro tanto into the total value spent in its production” (loc cit, Ch. VI, p.168-169).
Unlike other commodities, the value of labour power has a moral and historical element in it which would vary from country to country and over time. The moral element has nothing to do with ethics but rather things related to the quality of life. In Marx’s day, Trade Unions in Germany pressed for material and moral demands. This underscores the fact that labour power is a unique commodity.
“In contradistinction therefore to the case of other commodities, there enters into the determination of the value of labour-power 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 practically known” (p. 168).
For Marx the subsistence level is not a physical minimum. He did not hold to an “iron law of wages”. The subsistence level increases over time largely due to the success in the class struggle by the working class in securing higher wages and better working conditions. Also, the workers have been better trained and better housed which also has a bearing on the increase in the subsistence level; elements which Marx remarked were “moral” and “historical”.
Marx states quite clearly that the subsistence level is not a physical minimum. He writes:
“The minimum limit of the value of labour-power is determined by the value of commodities, without the daily supply of which the labourer cannot renew his vital energy, consequently by the value of those means of subsistence that are physically indispensable. If the price of labour-power falls to this minimum, it falls below its value, since under such circumstances it can be maintained and developed only in a crippled state, But the value of every commodity is determined by the labour-time requisite to turn it out so as to be of normal quality”(loc cit p, 169).
The worker has sold his labour power to the capitalist. The capitalist now has control over the worker’s labour power for say 8 hours a day. The worker has exchanged his labour power for a wage and the capitalist makes him produce commodities for sale on the market for a profit.
Because the capitalist owns the means of production the commodities produced by the worker are also owned by the capitalist.
Say that it takes fours hours to produce the value of the wage needed to buy the subsistence commodities the worker and his family need to live on. Marx called this “necessary labour time”. However, in the example, the worker has to continue working for another four hours. This Marx called “surplus labour time”. Surplus labour time is the period when the working class are contributing to the total pool of surplus value.
In this surplus labour time the worker continues to create value which is contained within the commodities he makes. Marx called the additional value created by the worker “Surplus value”. The commodity is then sold on the market and he realises a profit. This profit is the unpaid wealth created by the worker through exploitation of his labour power in the productive process.
Marx was able to give a measure of the rate of exploitation under capitalism as the ratio between surplus value to the value of labour power (S/V).
If a worker spends 30 hours of a forty hour week on necessary labour, and 10 hours on surplus labour, the rate of exploitation can be given as 10/30 or 67%.
Capital: Constant and Variable Capital
The aim of the capitalist is to end up with more money capital than he began with. Capitalism is a dynamic process and in this process the worker’s labour power also become capital.
The aim of the capitalist is to end up with more money capital than he began with. Capitalism is a dynamic process and in this process the worker’s labour power also become capital.
Capital in production can be distinguished in the following way;
First; constant capital. Constant capital refers to the money capital spent on buying raw materials, equipment, buildings, machinery and so on. Marx referred to these means of production as constant capital because their value does not increase during production. Marx refereed to it as “dead labour”, that is, past exploitation.
Second; variable capital. Variable capital refers to the money capital spent on buying the commodity labour power from the working class. Marx called it variable capital because it produces a surplus value in the productive process.
Increasing Surplus Value.
Surplus value can be increased in two ways. First, by an increase in the working day; and, second, by reducing the proportion of the day that is spent by workers producing value to equate with their wages.
Marx used two terms to express this increase in surplus value; absolute surplus value and relative surplus value.
Absolute surplus value is an increase in surplus value through the lengthening of the working day although if workers reduce their productivity or become ill by an increase in exploitation the capitalist loses out.
Where, in recent years, capitalists have been successful in extending absolute surplus value is in reducing the lunch hour to ½ an hour or to a sandwich is eaten while work continues and not paying the working class for this time. Another success in increasing exploitation is the use of fear. In some companies workers come in early and leave late for no more wages or salaries because of a fear of losing a job. Others take work home with them working for their employer in their own time. This can be seen in the rush hour with workers using lap-top computers on the train to work free for their employer.
According to the TUC (GUARDIAN 04.01.08) about 5 million workers in Britain are putting in almost £5,000 a year in unpaid overtime. Of course the TUC has no understanding of exploitation and Marx’s distinction between necessary and surplus labour time. However the process of exploitation can be felt in the real lives of workers by the actions of employers trying to get more and more surplus time from them.
The TUC is an example of a worker’s organisation who fails to explain to its members the reality of capitalism, its exploitation and the reason for trade unions in the class struggle.
Instead of recognizing the employers as an exploiting class the TUC has a longstanding commitment to partnerships between unions and employers. The TUC believes, erroneously, that “partnerships at work can deliver higher productivity, improved performance and successful changes to workplace organization” (www.tuc.org.uk). Of course employers want greater productivity, better performance from the workers and changes in the organization that will increase exploitation and increase profits. Has it ever occurred to the TUC that where one class own the means of production and the other class is exploited there can never be a partnership?
As Marx noted in Capital:
“He, who before was the money-owner, now strides in front as a capitalist; the possessor of labour power follows as his labourer. The one with an air of importance, smirking, intent on business; the other timid and holding back, like one who is bringing his own hide to market and has nothing to expect but-a hiding” ( Ch vi p172)
This does not underscore the effectiveness of trade union action favourable circumstances in the class struggle. Trade Unions may be able to bargain back some of the surplus value that would otherwise be extracted from workers. By combining together, workers may be able to prevent some surplus from being created (limiting hours of work) or bargain higher wages. Those workers that are able to do this may reduce the surplus going to capital. On the other hand, capitalists may be able to reorganize production so that these workers are more productive, and capitalists continue to make profits while workers are more highly paid.
Relative surplus value refers to an increase in surplus value through reducing the time taken up by “necessary” labour. The period of the working day given over to producing surplus vale is therefore increased.
In the case of relative surplus value, capitalists try to increase productivity.
Two major methods of accomplishing this can be considered, (a) means which lower the cost of subsistence, and (b) reorganization of work within the circuit of capital itself.
a. Cheapening variable capital. If food, shelter and clothing can be produced with less labour, then the cost of workers' subsistence declines and capitalists need not devote spend as much capital to variable capital. The wage bill declines. In Marx’s day the development of agriculture, cheaper food imports, free trade, the development of mass textile production, the breaking of the monopoly power of the guilds and trading companies, and improvements in transportation all played a role in cheapening the cost of workers' subsistence.
b. Changing Conditions of Production. This method has a more direct impact on the conditions of work, and has more direct relevance for class relations and class struggles. There are many ways of reorganizing work, and each reorganization by capitalists is an attempt to increase the rate of surplus value; that is the ration of surplus value to variable capital (s/v).
The amount of idle time can be reduced, or the intensity of the work can be increased by running machines faster or forcing workers to do more operations per unit of time. The use of machines themselves may make workers more productive, in that they are using more past labour. The setup and organization of the work may be changed so that less labour time is involved in producing the object. The division of labour and technical change may proceed to do the same.
Conclusion
Marx’s theory of surplus value explained the class struggle under capitalism. It explained why workers were forced into trade unions to struggle for higher pay and better working conditions. It explains the obsession of employers and governments with productivity. It explains the capitalist media’s hostility to workers struggling for more pay. And it explains the actions of capitalists and their State against the working class.
The capitalist class can offer no other explanation than to castigate “greedy” workers for asking for more pay; writing off trade unions as “a monopoly” and to see any threat to their interests, their privilege and their ownership of the means of production as “the politics of envy”. They can offer no objective account of the class struggle. They can deny it, pretend the working class does not exist, but it exists day in and day out and the only coherent account is the one given by Marx.
That is why the capitalist class and its agent so fear Marx. They cannot leave him alone. Even the SUN recently tried to slur his reputation by claiming that a revolutionary associate of Marx was a distant relation to Victoria Beckham. So what?
And the capitalist class have ever right to fear Marx. He showed that the working class do not need the capitalist class. The latter are irrelevant parasites living off the unearned income of rent, interest and profit. The capitalist class are not the wealth creators. Instead the wealth creators are the working class. And instead of working for the interest of the capitalist class workers should be acting in their own class interests by consciously and politically abolishing capitalism and replacing it with Socialism.
Appendices
1). To understand the usefulness of looking at figures in the aggregate a comparison can be made with cricket. It is only by studying the aggregate of all runs made by batsmen in 2008 that a comparison can be made with all the runs made by batsmen in 2007. At the level of an aggregate score of runs it does not matter, whether one batsman scored 2000 runs or another only six, or whether 18 batsmen were given lbw unfairly while 24 batsmen were lucky to remain at the crease through unobservant umpires. What matters is the aggregate of runs scored so that a comparison can be made with previous aggregate scores of runs in previous cricket seasons.
2). Although we do not know if Marx ever watched cricket it seems that the journalist, Robert Winder has not read Marx. Here is Winder writing in the NNEW STATESMAN:
One of my favourite statistics of the past few years was the one that revealed the basketball ace Michael Jordan was paid more money for endorsing Nike shoes than the company's 30,000-strong workforce of cobblers in far-off Indonesia. It seemed, on the face of it, exotically indecent - a really dismal unfairness. But that could well be an abstract and utopian view: in practical terms, who was being unfair to whom, exactly? Maybe Marx was wrong about the surplus value of labour: in this case, the value of the shoes clearly did not reside in the industrious care that went into their manufacture. No one wore Nike trainers because they admired the artistry of those quick-fingered Indonesian stitchers. If anything, Jordan's fee was an understatement of his value to the company. In the ghoulish logic of market forces, it was only thanks to him that those busy Indonesians were employed at all (29 January 2001).
It is useful to note in relation to Marx’s account of surplus value, how the agents of the capitalist class distort Marx.
Winder confuses value with price; surplus value with profit and has no understanding of Marx’s theory of value as it is applied to productivity.
Nor is the process of exploitation of the “quick-fingered” workers in Indonesia anything to do with being paid a pittance in relation to the fee Mr Jordon received for endorsing a pair of running shoes.
He also misunderstands that Marx was dealing with aggregate profits, so what Jordon was being paid was irrelevant. Note too, the “commonsense” usage of the word “value” by Winder in relationship to Jordon’s importance to Nike rather than the scientific use of the word “value” by Marx to mean the objective expenditure of socially necessary labour time.
Then there is the morality imputed to the wages system by Winder when he states: “who was being unfair to whom, exactly?” Marx did not make moral judgements about class exploitation. What he did say to the working class was not to see the wages system in terms of fairness or unfairness but instead to abolish it as an impediment on the productive powers of society to meet the needs of all people.