Understanding The Concept Of Surplus Value In A Capitalist Economy

What is Surplus Value?

Discuss about the Political Economy for Undistributed Profits and Total Rents.

The concept of surplus value was advanced by the celebrated economist, Karl Marx. It refers to the sum of distributed and undistributed profits, total rents, total interests, total taxes on production and also various incomes from leasing, licensing, royalties, and various honorariums (Aarker , 2014, p. 46).

Karl Marx viewed the presence of surplus value as an indicator of social productivity levels managed by the working population in a capitalistic economy. Surplus value may also be seen as the monetary valuation of the surplus labor in such an economy (Baudrilad, 2016, p. 132).

Surplus value is the wellspring of collection or speculation support for the economy. Surplus esteem is critical to capital proprietors in connection to utilization because of their enormous capital collection. Surplus can be estimated as the aggregate increment in the estimation of capital resources stock in the whole bookkeeping time frame. Such an expansion, in this way, is the measure of financial energy of a given nation (Bowles, 2013, p. 165).

Surplus esteem may too be viewed as the stream of aggregate receipt as reserved by capital proprietors as for responsibility for resources. It considers both the undistributed business wage and the circulated persona salary (Bowles, 2013, p. 231).

Karl Marx showed that the idea of the surplus is the spirit and the core of the industrialist economy. Marx noted in his overview that the underlying foundations of all issues are the free enterprise, where people secretly claim the methods for creating products and ventures in the economy (Bowles, 2013, p. 187).

We can have either absolute surplus or relative surplus. Absolute surplus may be gotten by increasing the total amount of time applied by a worker in incoming yielding task. This gives a room for the highly paid workers to work lesser hours and on the other hand make the lower class work more (Esping-Andersen, 2013, p. 98).

In contrast, relative surplus is arrived at by decreasing the cost of wages, preventing the increases in wages and decreasing the wages themselves. This is only attainable up to a specific point though. Relative surplus is also possible to be arrived at by increasing the intensity and efficiency of laborers in the firm (Gilpin, 2014, p. 243).

The following are some of the explanations given for the existence of a surplus in a capitalist economy; 

In a country, surplus value can assume three forms or a combination of some or all of them. They include the straight forward unpaid surplus labor. This was specifically common in the old times until the 18^th century mostly in some parts of Asia when slave trade was widely practiced. The masters who owned slaves used to measure their amount of wealth by the quantity of surplus labor they had because they never paid the workers or rather the slaves for the services that these slaves used to offer (Hall, 2015, p. 154).

Forms of Surplus Value

In the recent days, there exists an incentive drawn by paying a worker only a small proportion of the total value of the product. This difference which is unpaid is valued as the surplus labor. To sum it up, we can say that the surplus value is derived from the income remaining after the working class has gotten the payment for their services offered. (Foley, 2015, p. 187)

Surplus value can also take the form of goods that are earmarked by the ruling class, according to Meissner J. Maurice. It is also the same case with feudalism, a case whereby the medieval lease is typically paid with a specific measure of create known as the deliver lease. Because of this, it can appear as current leftovers, for example, sharecropping. This is known as capital benefits. In an inside and out sense, capital this capital benefit has a shared view with unpaid work and alternate kinds of surplus item (Gilpin, 2014, p. 112).

The additional that remaining parts subsequent to settling up rental expenses and the work expenses to the laborer is the thing that constitute the excess. As indicated by Karl Marx, the surplus esteem is only a general classification that portrays the presence of the normal intrigue and furthermore those that live over this surplus esteem (Hall, 2015, p. 243).

Surplus value as indicated by wealth can also depict the struggle among the majority of people in various economic classes as a result of the rich in the society keeping the surplus value untapped. They do so because this surplus value to them measures their wealth, be it idle or being extravagantly spent (Gilpin, 2014, p. 176). 

Nowadays we find that a number of countries have shifted from the traditional communism to modern capitalism. In the modern days, there are quite a number of laws governing the nature, supply and availability of labor as a factor of production in the economy. This is to say that there is no slave trade or rather free labor that used to be exploited in the past (Kalecki, 2013, p. 143).

The modern day employer must therefore be ready to incur some good cost if they want to access labor. The amount that the employer pays has a direct influence on the quantity and productivity of labor. It is however possible for the capitalist employer to take advantage of improper screening loopholes and harbor some low quality labor (Lewis, 2014, p. 132).

Surplus Value and Capital Accumulation

According to Karl Marx, productive labor produces the surplus in the economy. Productive labor can be defined as the wage-labor capable of being exchanged against variable capital. The variable capital on the other hand is that percentage of capital that is spent on wages (Wallerstein, 2015, p. 193).

In a capitalist point of view therefore, productive labor will often produce more than the adequate amount in order to repay the capital. The excess in this capital therefore is what constitute the surplus value. If there exists a substandard quantity of labor employable, there would be a decrease in the surplus value gotten from and sometimes there would be completely no surplus (Aarker , 2014, p. 132).

 Take an example of a firm whereby 28 units of labor are needed to produce a surplus of 28 and each and every laborer produces each of these surplus value.it means that the capitalist would require 28 laborers to arrive at his aspirations, assuming that no crises comes up during that period. (Bowles, 2013, p. 176)What happens when now the employer has only 24 laborers. This indicates that the surplus value attainable would only be 24, indicating a drop of 4 units of the surplus value. This shows that the quantity of labor can be an indicator of the surplus value in the capitalist economy which produces goods.

In the same firm we could be having 6 employees producing only half a unit of surplus value and the rest producing a unit each. This would mean that the total surplus would be 25 units. This is an indication that the productivity or quality of labor being provided the six underperforming employees are so low. The firm can therefore decide to transfer them and recruit more productive employees. The firm could also shift their roles or give them more training. And in extreme cases, the firm could retrench them. This tells us that the quality of labor is a clear indicator of surplus in the capitalist economy (Marx, 2015, p. 178).

According to Karl Marx, capitalist production means all the activities that produce, transport and store the commodities. Only productive labor is capable of moving the value that has been engraft in production materials together with creating a new value. Marx argues that the unproductive labor merely involves circulation of activities and therefore do not necessarily encompass the creation of any new value out of it. This could be referred to as the redundant employees or rather the ghost workers in an organization. 

Surplus Value and Raw Materials

Neoclassical economists explain that the profit that is earned plays a very small role in determining and measuring the dynamics that comes with a capitalist economy and specifically in the production of commodities for the purpose of selling or exchanging (Gilpin, 2014, p. 187).

Karl Marx explains that the ability of the economy’s capitalist to accumulate wealth is indicated by the surplus value. If therefore a firm accumulates low surplus, capital attainable would be low also.

In a capitalist economy, money to capital conversion is often achieved when the laws of economic relating to commodities production are adhered to (Wallerstein, 2015, p. 198).

The first of these laws takes note of that the item created has a place with the industrialist and not the laborer. The second law, which is the most vital of all, expresses that the estimation of the last item includes a surplus that costs the laborer some vitality, aptitudes and time.it is however taken as the entrepreneur's property (Soros, 2015, p. 139).

Raw materials tend to be improperly assessed. When we employ low quality raw materials in production, then the surplus value too would be low. Most firms usually purchase low quality raw materials in their attempts to cut cost of production. This, however, leads to low surplus in the end. Adequacy, sufficiency and efficiency of capital indicate a surplus depending on the industry and the economic sector involved (Baudrilad, 2016, p. 265).

The presence of a surplus can be shown by the standards of living in a capitalist economy. This can be explained by the values of the GDP and the net national income that remains after all the factors of production are paid for. It can also be explained by the disposable incomes of workers after they have incurred the basic expenses of life (Aarker , 2014, p. 213)

Karl Marx was so much against the subdivision of the society into the rich and the poor. Capitalism undoubtedly generates a lot of money to the capitalist. It however leaves the workers so poor. It means that the capitalist joins the wealthy class in the economy while the workers are left in the middle and the low class in the society as dedicated by their qualifications and training. This is often the source of animosity between the haves and the have nots. (Bowles, 2013, p. 103).

If the surplus value is applied well, it could be indicated by the purchasing power of the citizens. By looking at their disposable incomes and the types of goods and services they consume.

Surplus Value and Standard of Living

Firms’ expenditures together with the surplus value gotten from its operations can be important tools in finding out the extent of economic growth in a capitalist economy. The high standards of living could be a clear indication of a surplus. (Esping-Andersen, 2013, p. 163) 

Business people do pay part of their surplus to the central government. A number of them however attempt to get involved in tax evasion as they often do not want to pay taxes (Weber, 2013). A huge percentage of taxes is however, given out to the capitalists in form of subsidies and contracts to enable them expand their businesses and come up with more employment opportunities. (Gilpin, 2014, p. 199).

Gross income that comes from business receipts and personal activities in any economy leads to surplus value. Almost one third of the taxes attributable to a given state emanates from the surplus value that comes from mostly the manufacturers and other business owners (Schumpeter , 2013).

In its forward planning, the government employs economic indices derived from the surplus values of the previous years to arrive at the expected revenue in taxes in the years to come. This aids the capitalistic governments in coming up with meaningful development plans for the economy. (Foley, 2015, p. 312)

Relative costs- an increase in costs will in most cases reduce the profits. This constitutes the labor costs, the cost of raw materials and the cost of rent. Take a case whereby a devaluation of the exchange rate increases the cost of imports and hence increasing costs to the companies who import the raw materials (Foley, 2015, p. 176).

Management- successful management is very critical for the future growth and profitability of any firm. Poor management often lead to reduction in worker morale which then harms customer service and worker turnout (Gilpin, 2014, p. 172).

Objectives of a firm- not all business entities are profit oriented. Some simply seek to expand their market shares. In such a case, profits will be traded for a gain in the market share. (Lewis, 2014, p. 99).

Economies of scale-entities with high fixed costs will require high production in order to benefit from the economies of scale and also to do its production on the minimum efficient scale. If it fails to do this, the average cost will be too high and thus low profitability (Foley, 2015, p. 187).

The state of the economy- if the economy is doing good and there is a boom, the demand will increase and this would increase the average rate of profits. (Passiouras, 2015, p. 103)

The degree of competition- if a firm enjoys a monopoly power then there is little or no competition (Soros, 2015). The demand in this case becomes inelastic and therefore profits can be increased by increasing the prices. On the other hand, if the competition is stiff in the economy, the profits will be a bit low (Marx, 2015, p. 231). This is because consumers would only be purchasing from cheapest firms.

Conclusion

The concept of surplus in an economy has been an issue of discussion for quite sometime. For there to be prosperity in an economy, there should be balance between surplus and deficiency for the purposes balance in trade.  

References 

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Bowles, S. (2013). Schooling in capitalist America. Haymarket .

Esping-Andersen, G. (2013). The three worlds of welfare capitalism. John Wiley and sons.

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Gilpin, R. (2014). The challenge of global capitalism. New York: Macmillan.

Hall, P. A. (2015). Varieties of capitalism: An outlook in the economic surplus. oxford: oxford university press.

Kalecki, M. (2013). Selected essays on the dynamics of the capitalst economy. OXOFRD: Oxford University Press.

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Marx, K. (2015). A contribution to the critique of political economy. New York: Palgrave Macmillan.

Passiouras, S. (2015). Factors influencing profitability. research in international business and finance, 21(2), 220-240.

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Soros, G. (2015). The crisis of global capitalism. New York: Macmillan.

Wallerstein, I. (2015). The capitalist world economy. Cambridge university press.

Weber, M. (2013). The protestant ethic and the spirit of capitalism. Oxford: Macmillan.