Surplus Value And All That

Originally published May 5, 1986









BACK IN ONE of my early columns I threatened to say something about Marx’s theory of surplus value, and today I’m going to do it. If we keep our voices down, we may be able to make a few observations before the comrades accuse us of not commanding the literature and the Birchites accuse us of thinking.

Marx’s argument, stretching over Parts III, IV and V of Capital, turns on the notion that “The value of a day’s labor-power amounts to … the means of subsistence that are daily required for the production of labor-power. …” This is the exchange-value of labor-power and is what the worker is paid. But the use-value, or what the capitalist gets out of it, is very much greater (Marx usually estimates double), and the difference between the two is the surplus value the worker creates that the capitalist appropriates.

You will see at once that Marx has mixed apples and oranges. His workers sell their services at cost (apples), while his capitalist sells the product for whatever the market will bear (oranges). If both services and product were sold at cost, there would be no surplus value. If both services and product were sold at the market price, competition would theoretically force them back to cost, and again there would be no surplus value.

Competition doesn’t work as it is famed to do (see “Unthinkable Thoughts on Competition,” NL, April 2, 1984). In fact, today in the United States the sum of proprietors’ income, personal rental income, and personal dividend income is about 10 per cent of total personal income. (Were we to include personal interest income, the figure would jump to about 25 percent. From the point of view of an entrepreneur, though, interest is an expense, not part of a surplus. On the other hand, a large but undeterminable portion of proprietors’ income should be classified as wages rather than profit.)

Marx’s difficulty, which he shares with all economists of a materialist or realist persuasion, is that he wants to consider everything except cost as some unreal flim-flam. And he particularly wants the capitalist’s property to be a thing – a machine you can touch or land you can walk on.

Yet property is not and never has been a thing. It is, instead, a bundle of rights (see “Life, Liberty and Property,” NL, July 11-25, 1983). Different societies emphasize different bundles. Thus in the ancient world the household (the paterfamilias or patron, his family, his clients, his slaves) was the locus of power. Property was personal – by persons and in persons – and aspects of that arrangement survive to this day. In the medieval world, military power also a survivor – became crucial. In the early modern world, the factory came to the fore, and at present we are ruled by finance.

These distinctive emphases are close to what Marx meant by the modes (as distinguished from the means) of production. Although his need to see always in materialist terms skewed his analysis, he was insightful in recognizing that each society’s characteristic form of property engrosses the special rewards of the society and is protected by its legal and political organization. For this reason he noted at the start of the Grundrisse that J. S. Mill and his predecessors were wrong in claiming that an economy’s production of goods and consumption of goods are two different (and ahistorical) questions.

And for this reason he attacked Ferdinand Lassalle and the Social Democrats, who advocated “a fair distribution of the proceeds of labor.” In Critique of the Gotha Program [Marx] replied: “Any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production …. The capitalist mode of production, for example, rests on the fact that the material conditions of production are in the hands of non-workers in the form of property in capital and land, while the masses are only owners of the personal condition of production, of labor-power. If the elements of production are so distributed, then the present day distribution of the means of consumption results automatically.”

There was a time – roughly the time of Marx’s life – when the material means of production did indeed dominate society. Factories were in the field (as Carey McWilliams said) as well as in buildings with smokestacks. Today, though the factories still exist, the ruling power is finance. The current observation, that we are moving from a production economy to a service economy, is true but superficial. There are no special rights attaching to service; there is, in our society, a special and encompassing bundle of rights attaching to finance, to money. Marx said money was a “purely ideal or mental” form of value. It certainly is, but it is not therefore imaginary or secondary or part of some sort of superstructure. This ideal form of value is now the ruling bundle of rights in our society. The owners of this bundle derive therefrom their claim to be entitled to the special rewards of the system.

Every system generates special rewards – rewards that go beyond what is necessary for the system’s day-to-day operation. How these surpluses are used is a question in macroeconomics (for a clear explanation thereof, I refer you to Profits and the Future of American Society by S. Jay Levy and David A. Levy). Why these surpluses are generated is a question in microeconomics.

More than that, it is a question in the philosophy of history. Since there is a present (otherwise, what are we doing?), there are both past and future, from which the present is distinguished. Whatever else you say about the future, you must say it is constitutionally unknowable. As Keynes concluded in his Treatise on Probability, “we simply do not know.” If we could know the future, it would then be the same as the present and the past.

A consequence of the unknowability of the future is the generation of surpluses or windfalls or profits. These cannot be contracted for (as wages and interest are); they are what is left over after all expenses are paid. Because what’s to come is still unsure, we can face the future with confidence only if we have sufficient resources to meet any eventuality. But what is sufficient for any eventuality is more than enough for most eventualities; and what is, most of the time, more than enough, becomes the surplus that every system generates if it is to survive.

Thus in the Middle Ages, the military power required to keep the peace in a given valley was much less than that needed to defend the valley from outside marauders. Yet even though the marauders appeared infrequently, the lord undertaking the valley’s defense had to have more than enough power for ordinary use. This surplus power took the form of a stronger and more magnificent castle, more and better equipped retainers, more impressive ceremonial displays, occasional forays to defend the domain by pushing its borders outside the limits of the valley, dynastic alliances with strategically placed peers … All of these emblems of power were at the same time the characteristic luxury or surplus goods of the society, and were exclusively enjoyed by those who wielded the power in the society.

SUCH INFLUENCE of the unknowable in our lives is pervasive. Thomas Hobbes saw it as the fear of death, which leads to “a perpetual and restless desire of power after power. And the cause of this,” he wrote, “is not always that a man hopes for a more intensive delight than he has already attained to, but because he cannot assure the power and means to live well … without the acquisition of more.” Or as Fritz Fischer has shown in a series of groundbreaking books, the leaders of pre-World War I Germany saw their options as “world power or decline.”

Likewise, it is often said that a business firm must expand or wither away. Even if it wants to stand pat, it cannot precisely anticipate its future business and so may find business booming and profits burgeoning. Alternatively, there is the risk that sales will be down and profits negative. Prudence dictates at least a defensive expansion – a drive for a larger market share, introduction of a new product, whatever. In any case, if expansion does result, its benefits accrue exclusively to the owners of the enterprise. It is an extra dividend or a capital gain.

The owners do not, however, necessarily accept the possible losses. The first sufferers are the firm’s workers, whose pay is cut, and some of whom are fired. Aside from the firing, it was not different for the underlings of an unsuccessful medieval lord. They were squeezed to rebuild the lord’s power, and this was reasonable because the lord – and the lord alone – maintained the peace. Without him there was anarchy, sometimes savagery. In the same way, without an ongoing enterprise, the workers have no jobs at all.

We are back in a familiar bind. If things turn out well, the owners of an enterprise get capital gains and other surplus or unearned income. If things turn out badly, the workers get fired. These outcomes are not inherent in any system, but the problem is inherent in every system, because it is inherent in life itself. The obvious solution is to unify society and make owners and workers the same people. Socialism does this, up to a point, but the dictatorship of the proletariat – that is, of the party – shows no sign of withering away. What is left? Well, if you have paid attention to previous lectures, you know that the answer is some form of employee ownership.

The New Leader

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