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Surplus value is a central concept in Karl Marx's critique of political economy.
Marx did not himself invent the term, he developed the concept. "Surplus value"
is a translation of the German word "Mehrwert", which simply means value
added (sales revenue less the cost of materials used up). Conventionally, value-
added is equal to the sum of gross wage income and gross profit income.
However, Marx's use of this concept is different, because for Marx, the
Mehrwert refers to the yield, profit or return on production capital invested, i.e.
the amount of the increase in the value of capital. Hence, Marx's use of
Mehrwert has always been translated as "surplus value", distinguishing it from
"value-added". According to Marx's theory, surplus value is equal to the new
value created by workers in excess of their own labour-cost, which is
appropriated by the capitalist as profit when products are sold.
Marx thought that the gigantic increase in wealth and population from the 19th
century onwards was mainly due to the competitive striving to obtain maximum
surplus-value from the employment of labor, resulting in an equally gigantic
increase of productivity and capital resources. To the extent that increasingly
the economic surplus is convertible into money and expressed in money, the
amassment of wealth is possible on a larger and larger scale (see capital
accumulation and surplus product).
Theory
The problem of explaining the source of surplus value is expressed by Friedrich
Engels as follows:
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"Whence comes this surplus-value? It cannot come either from the buyer buying
the commodities under their value, or from the seller selling them above their
value. For in both cases the gains and the losses of each individual cancel each
other, as each individual is in turn buyer and seller. Nor can it come from
cheating, for though cheating can enrich one person at the expense of another, it
cannot increase the total sum possessed by both, and therefore cannot augment
the sum of the values in circulation. (...) This problem must be solved, and it
must be solved in a purely economic way, excluding all cheating and the
intervention of any force — the problem being: how is it possible constantly to
sell dearer than one has bought, even on the hypothesis that equal values are
always exchanged for equal values?"
Marx's solution was to distinguish between labor-time worked and labor power.
A worker who is sufficiently productive can produce an output value greater
than what it costs to hire him. Although his wage seems to be based on hours
worked, in an economic sense this wage does not reflect the full value of what
the worker produces. Effectively it is not labour which the worker sells, but his
capacity to work.
Imagine a worker who is hired for an hour and paid $10. Once in the capitalist's
employ, the capitalist can have him operate a boot-making machine using which
the worker produces $10 worth of work every fifteen minutes. Every hour, the
capitalist receives $40 worth of work and only pays the worker $10, capturing
the remaining $30 as gross revenue. Once the capitalist has deducted fixed and
variable operating costs of (say) $20 (leather, depreciation of the machine, etc.),
he is left with $10. Thus, for an outlay of capital of $30, the capitalist obtains a
surplus value of $10; his capital has not only been replaced by the operation, but
also has increased by $10.