What is Surplus Value?
Surplus value is an economic theory used by the German philosopher and economist Karl Marx to condemn capitalist-style economic systems. It is the difference between a worker’s wage and the price of a good or service produced by that worker. This theory is based on the fact that workers provide value through the labor used to produce goods and services. Marx also believed that other economic concepts, such as capitalism or imperialism, did not properly value the workers to produce goods or the surplus value created by their labor.
This type of value does not relate to the actual value of a physical economic resource or good. This added value is realized through the labor needed to produce the resource or good, which increases the value of the item above its original cost. Marx believed that individual workers and their productivity is what really determined the value of consumer goods or services.
The amount of labor used to produce a good or service is how Marx believed profit could be accumulated in the economy. The surplus value concept used by Marx stated that workers not only create economic value through the wages paid to them, but also through the additional value of transforming economic resources into valuable products. This allowed economies to experience more profit through producing goods, rather than simply earning income from the sale of property. Marx believed this additional income could be used to benefit individual works by allowing them to keep a certain amount of their value added through labor.
Marx developed the economic formula known as the label theory of value based on his belief in surplus value. This formula was used to determine how much value an individual worker’s labor provided in the economic environment. The basic formula for this theory was to divide the total profits from goods sold by the total cost of wages paid to produce those goods. The result of this formula is the rate of surplus value, which Marx believed should be appropriated from companies to the employees. Businesses should able to maximize the rate of surplus value by paying sufficient wages to workers for a set amount of hours, with the expectation of a set amount of productivity. Underpaying workers would allow companies to exploit the labor force while demanding the same amount of productivity. This would drive down the surplus value of goods produced and weaken the overall economy, according to Marx’s theory.
@Esther11: You say: “The extra wages they get with surplus value show the worker that he is valued, but he has no opportunity to progress to a better job.”
I think either you’re missing the point or don’t understand the whole concept of surplus value. What someone like me is saying is that the entire notion of paying someone wages equal to a mere fraction of the value of their labor while the business owner uses the difference between the two (the surplus value) to pay his operating expenses and keeps the remainder as profit, amounts to nothing short of the exploitation of the worker because he or she is putting into a company far more than what he or she is getting out of it in wages.
What I am saying is that the only humane economic model would be direct worker ownership of the businesses. The workers, who would still have to cover their overhead costs, would nevertheless be taking home much more money than they are now because everything the owner had pocketed as profits would be rolled back to the worker-owners. Workers would thus have every reason to show initiative and suggest new ideas because, unlike with capitalism, if the business increases its profits this quarter by 20 percent, the workers would actually see the difference in the money they take home because they would be getting the profits.
With capitalism, the average worker has no incentive to suggest new ideas or show initiative because they know it’s only going to increase profits for someone else, the business owner, and that they as workers will gain basically nothing out of it. For example, Dollar Tree’s profits keep increasing quarter after quarter. Does that mean that Dollar Tree’s workers’ wages keep increasing quarter after quarter because the company is doing so well? Of course not. They’re still making minimum wage while the shareholders of Dollar Tree are buying new yachts and new vacation homes in the Hamptons.
You say, “I’m sure most of us are glad we live in a free enterprise, capitalistic society. Karl Marx ideas don’t sound so good. “
Speak for yourself. “Free enterprise” for whom? “Free enterprise” equals the freedom of those with capital to exploit those without it. It equals the freedom of a business owner to pay his workers a tiny fraction of the value of their labor while he pockets the profits and the workers can’t barely make ends meet. A great example of “free enterprise” is Wal-Mart, the largest business in the country, which is currently holding a food drive for its own workers because so many of them aren’t making enough money to feed themselves. Why is the largest employer in the nation staffed by so many people who are forced to use food stamps to stave off starvation? You can thank good old free enterprise for that.
I mean no offense, but people who are glad we live in a capitalistic society are people who don’t know that they’re being ripped off out of most of the value of their labor.
Surplus value is the huge gap between the value a worker’s labor adds to a company per hour versus the tiny wage a worker is paid for that labor. Its existence is confirmed by common sense. A worker who is paid $8/hour is adding to that company several times that amount in value per hour by his or her labor. It is through this surplus value that the business owner is able to pay his overhead costs (building rent, utilities etc.) and take home a tidy profit. The business owner can only cut corners so much in other areas (e.g. going with a cheaper distributor, buying cheaper raw materials to turn into finished goods, locating at a lower-rent site etc.) before it becomes impossible to reduce his operating expenses any further. Without surplus value from his workers he wouldn’t be able to stay in business or make a profit, thus he wouldn’t remain a business owner for long because he wouldn’t bother to.
If a law was passed making it mandatory for business owners to pay their workers equal to 80 percent of their value added, for example, a worker adding $50 in value per hour would have to be paid a wage of $40/hour, and the business owner wouldn’t be able to meet overhead costs or take home a profit. So instead of paying a worker $40/hour in wages for $50 in value added, the business owner is paying them, for example, $7.25 or $8/hour or as little as he can get away with paying them for their $40 in value added, meaning the owner can meet overhead costs and still make a sizeable profit at the expense of the worker who is working his guts out to make someone else wealthier.
This is how capitalism works. Those with the capital exploit those who lack the capital to be able to exploit others. And without surplus value, the capitalist economic model would go belly up in a week or less. It’s not hyperbole to say that a worker adding value to his employer at a rate of $35 or $40 per hour but getting paid $7.25 or $8/hour to perform that labor is being exploited. It’s just honestly calling the situation what it is: exploitation of the worker by the capitalist. To the capitalist, it is a necessary exploitation as without it he wouldn’t be able to remain a capitalist. The worker has no choice in the matter, as his or her options are limited to going to work somewhere else and getting exploited at about the same rate, just moving the problem elsewhere. Someone is not going to be able to go down the street and make significantly higher wages for doing the same job. Business owners generally know what the going rate is for wage labor in their area and don’t exceed it for obvious reasons.
Before someone says, “But the business owner founded that business. Shouldn’t he be allowed to make most of the money off of it?”, I will answer them by asking another question: just how long is someone, just because they already had the capital, inherited it or borrowed the capital to start the business supposed to be allowed to take advantage of someone else’s lack of opportunities before enough is enough? What keeps that business a continuing enterprise instead of a boarded-up storefront? The fact that years ago someone had the money and the idea to found it? Or the fact that ever since then, day in and day out, for years the workers there have been adding value to it at a rate far higher than their tiny wages and keeping the business going with their sweat and labor, all so someone else can get rich off of it while the workers are lucky to be able to make ends meet?
“Well the worker can work hard and save their money and work their way up until they have enough money socked away to start their own business and then they can be the boss and tell others what to do and pay them what they feel like paying them while they (the owner) gets wealthier and wealthier off of the workers’ sweat and labor.” Aside from this being an unrealistic proposition for the vast majority of workers who will never be able to put aside a fraction of the money it would take to start their own business and never have the credit to be able to borrow that kind of money, what does this scenario (of being exploited for a while then eventually becoming the exploiter to take advantage of others) resemble more than anything else? It resembles the generational cycle of child abuse.
Telling a worker to just keep a stiff upper lip and keep being exploited until they can somehow magically afford to become an exploiter themselves is like telling an eight-year-old, “Well, I know it stinks being molested every day by your dad but cheer up, eventually you’ll be an adult with kids of your own and then you’ll be the molester and get to inflict crippling emotional and physical pain on someone else instead of having it done to you.”
Since this worker-saves-money-and-becomes-a-business-owner-himself scenario is the best argument anyone can make for why capitalism is supposedly not as horrific as people with common sense and a conscience make it out to be, anyone who looks at the matter objectively can easily see that capitalism is a morally bankrupt economic model.
We see then that capitalism by its nature revolves around the exploitation of the workers by the business owners, that it literally could not function without this exploitation. Because of this it does not deserve to exist and belongs in a museum next to feudal absolutism and Cro-Magnon man. As the only people in this world who won’t exploit the workers are the workers themselves (as nobody is going to exploit themselves) capitalism needs to be replaced with direct worker ownership of the businesses, where each worker is a part-owner of the business he or she works at, all the profits being rolled back to the workers.
Bottom line: Direct worker ownership of the businesses, something that will have to come through the assistance of a truly representative government that uses its coercive powers of taxation, legislation and if necessary the police and military, to reorient society in such a manner that it finally is based around what is best for the average worker instead of the average Rockefeller, will give us emancipation. Capitalism is nothing but glorified slavery.
Surplus value is the huge gap that exists between the value a worker's labor adds to a company versus the small wage he or she is paid to perform that labor.
Marx's theory is confirmed by common sense. Think about it: If a worker being paid $8/hour only adds value to his employer at a rate of $8 per hour he or she would be fired. There has to exist a huge gap between the value a worker's labor adds per hour to that company versus the small wage he or she is paid for that labor, otherwise the company would go out of business because the business owner wouldn't be able to pay his overhead costs (building rent, utilities etc.) AND take home a tidy profit. They can only economize so much on other factors like selecting a cheaper-rent location, buying cheaper raw materials with which to produce finished goods, going with a cheaper distributor etc. The lion's share of the money needed for the operation of that business and for the business owner's profit is from expecting and getting $20 or $30 or $40 worth of value added per hour from his worker that he is paying $7.25 or $8/hour to perform that labor.
Without this surplus value that business owner wouldn't be able to meet his overhead costs and wouldn't make any profit, thus he wouldn't remain a business owner for long because he wouldn't bother to. If for example a law was passed making it mandatory that workers have to be paid 80% of the value they add to their company, e.g. a worker adding value at a rate of $50 per hour would have to be paid $40/hour for their labor, capitalism would go belly up in about a week or less. It is not hyperbole at all to say that a worker adding value at a rate of several times their wage is being exploited.
We see then that capitalism by its nature could not function without the daily exploitation of wage labor by business owners. As an economic model it doesn't work unless there is a huge gap between what a worker puts into a company with his or her labor value versus what that worker gets out of a company in wages. This is why capitalism is a horrendous and inhumane economic model that belongs in a museum next to feudal absolutism and Cro-magnon man.
As the only people in this world who will not exploit the workers are the workers themselves (as nobody will exploit themselves) the only humane economic model is direct worker ownership of the businesses, in which each worker is a part-owner, gets his or her fair share of the profits and has a direct stake in the success of that business. Not government ownership of businesses ostensibly "in the name of the workers" but a government that acts in a caretaker role to transfer ownership of the businesses, through legislation, taxation and if necessary the police and military, directly to the workers who work there. Only with direct worker ownership will workers finally get something out of their labor commensurate with what they put into it. Even then it will be impossible for workers to get 100% of their value added because they will still have to account for overhead costs but if they are part-owners 100% of the profits would go to payroll thus they will be compensated for their efforts in a MUCH fairer manner than if they are an exploited wage laborer taking home only the crumbs that the business owner throws them so the business owner can keep the profits for himself.
Before anyone says "But the business owner founded that business... shouldn't he be able to pay his workers only a tiny wage and keep the profits for himself?" I have to ask them this question: how long is a business owner supposed to be allowed to exploit his workers simply because he already had the capital, inherited the capital or borrowed it with which he started the business? How long are his workers supposed to work their guts out to make the business owner wealthier and let themselves be taken advantage of? Someone who is a business owner is someone who has had opportunities in life that his workers haven't had. How long is a fair amount of time for him to be able to take advantage of his workers' lack of opportunities? His business wouldn't stay open for a week without him ripping off his workers out of the vast majority of their labor value so what makes that business a continuing enterprise and not a boarded-up storefront in the first place? The fact that someone had the money and the idea to found the business years ago? Or the fact that day in and day out, year after year his workers are keeping it going though their sweat and labor and adding value to the business at a much higher rate than they're being compensated for? Under capitalism the workers have no alternative but to sell their labor on an hourly basis and work their guts out so someone else who has had more opportunities in life can get richer and richer at their expense.
The bottom line is this: Direct worker ownership will give us emancipation. Capitalism is just glorified slavery.
In the economic theories of Marx, the worker is valued and also the work that he does. However, I can't see any way that workers could show any initiative and to suggest new ideas. The pay is about the same, at least for work in any one company. I don't know if they would get raises for how long they have been on the job.
The extra wages they get with surplus value show the worker that he is valued, but he has no opportunity to progress to a better job.
I'm sure most of us are glad we live in a free enterprise, capitalistic society. Karl Marx ideas don't sound so good.
This surplus value theory developed by Karl Marx is difficult to understand, especially since most of us are used to capitalism.
I think he is trying to show that his theory gives workers a chance to share a portion of the profits. The workers are paid a fair wage, but are expected to be productive, in order to earn some profit share.
If all the workers in a company are paid the same and productivity was the same, the system would be fair for all.
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