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What is ‘surplus value’?

The MARX MEMORIAL LIBRARY explains one of the most fundamental concepts of Marxism

LABOUR (work, the production of useful goods and services) is a characteristic of our species. And in all types of class society, exploited workers produce more use values than they consume themselves.  

They are exploited because the difference — the “surplus” — is appropriated by the ruling class, whether slave-owners, feudal lords or capitalists.

In pre-capitalist societies exploitation is open and direct; the surplus is extracted by the compulsions of ownership (slaves) or feudal law (serfs). 

But in capitalism, exploitation is hidden. All goods and services, including the capacity to work, become commodities sold in the market.  

They therefore acquire an exchange value, determined by the amount of labour time that was necessary to produce them.  
Workers sell their capacity to work — what Marx called their “labour power” — to the capitalists who own the means of production without which no work can be done.  

If they ‘freely” sell their labour power for wages that reflect its exchange value (its market price) how can they be exploited?  
Marx answered this question using the concept of surplus value.

Under capitalism, workers sell their labour power on average at around the cost of its reproduction — what it takes to sustain themselves and their families (including the next generation of workers).  

But their work produces commodities with a greater exchange value than their wages. The difference between the value that workers produce and what they receive, directly or indirectly, is called “surplus value” and it is appropriated by the capitalist employer.

The actual process of exploitation is not simple. It depends on how much value the capitalist can get those who have sold their labour power to produce in a given time and how large a surplus they can extract. Neither of these is fixed — they vary over time and place.  
Marx and Engels were not the first to put forward a labour theory of value, which was developed by the earlier classical economists Adam Smith and his successor David Ricardo.  

Marx and Engels’s contribution was to distinguish between labour (productive work) and “labour power” (the ability to work).  

It is their labour power that workers sell to capitalists, not their labour, as earlier economists had proposed. 

This is a powerful distinction. When capitalists buy labour power, it becomes their commodity to “consume.” And they “consume” it by putting it to work in a production process. This creates commodities of more value than the value of labour power. Capitalists buy labour power but they get labour. When they sell its outputs, they recover their input costs (wages, raw materials, depreciation of machinery) and more. This “more” is surplus value, the difference in value between labour power and labour.

There is no individual injustice here. Even if all commodities are sold at prices reflecting their values, exploitation exists and surplus value is produced.  

And money as a token of value can obscure the fundamental nature of exploitation because each transaction appears at an individual level as a free and equal exchange.  

“Surplus value” can be a confusing term. The German term “mehrwert” translates literally as “more value” or “added value” (sales revenue less the cost of inputs).  

Marx adopted the term to apply to the profit or return on capital invested. That is why Marx’s use of mehrwert has always been translated as “surplus value” to distinguish it from “value-added.”

One of the consequences of Marx and Engels’s development of the labour theory of value was that liberal economists, concerned to obscure the revolutionary implications of surplus value, abandoned value theory altogether.  

They substituted a set of new economic concepts, including theories of price formation based on marginal utility.  

Surplus value can be extracted by the capitalist in different forms.

Part may be taken in rent by the owners of land, buildings or machinery. Part may be taken as interest by banks. Part may be taken by the state as taxes — only a fraction of which is returned to workers in the form of a “social wage” (education, health services, pensions etc paid for through taxes and itself the result of working-class struggle and always under attack).  

Most of surplus value goes as profit to the owners of capital, for their own consumption or to be invested as new capital — to make more profit.  

Profit as the realisation of surplus value in money is almost always distanced in place and time from the site of its creation.  
If you are an individual craftsperson, making something for your employer to sell, the value you create and the profit they make may be obvious.  

But surplus value in almost all enterprises today is generated collectively — by workers (from a few to many thousands) doing a variety of jobs.  

If you work with others in a factory or an office, whether it’s making cars, preparing food or dealing with the IT or paperwork, you only make a tiny fraction of the whole product.  

Similarly, if you’re employed in transport, distribution, sales or maintenance, your work may be just as essential but it may be virtually impossible to work out what value you individually create.  

And if you provide a service — from accountancy through marketing to zoological research, the value you generate beyond what you receive as wages may go through several transformations and be realised in money terms in a number of different ways. 

Even if you are genuinely self-employed (much self-employment is fictitious, to avoid firms complying with employment legislation) or if you work in the public sector or for a non-profit organisation, you still generate surplus value, albeit indirectly.  

As a self-employed contractor your income has to finance your consumption and your investment in your business.  

You may name your fee and “choose” your client (though your customer probably has a greater choice of whom to employ and what to pay).  

But your consumption is only a fraction of the value of your labour time, and even if your product may not directly profit your client, its value will be realised in a number of different ways downstream, as rent, interest, or as profit for suppliers etc. Conceptually, you are exploiting yourself!

And if you work for a social enterprise, whether it’s a charity, a co-operative or a public authority, your pay, together with the social wage that you and your family receive, is only a fraction of total social labour time.  

Under capitalism you are still, technically, exploited, because you receive a wage for your labour power, not your labour.  

The difference here from private-sector work is that your unpaid labour is not directly monetised — hence the continual pressures for privatisation and contracting out of public service provision.  

However rent, interest and other costs to your employer mean that your work is still realising profit for others.

In Britain today around 46 per cent of total national production is taken as rent, interest or profit — ie as realised surplus value.  

This represents the “rate of exploitation” (a topic we’ll examine in more detail in a separate answer) and it has increased sharply (from around 30 per cent) since the 1970s. 

Past answers in this series can be found on the Marx Memorial Library website on tinyurl.com/MarxistQA.

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