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Determining the source of social surplus was the most important scientific and political question classical political economists addressed. The Physiocrats claimed that nature was the source of all social surplus (all other products simply circulated in the economy as an exchange of equivalents). Adam Smith maintained that the division of labor in manufacturing was the source of social surplus, suggesting that any tariffs or impediments to industry would restrict the wealth of nations. Karl Marx developed a theory of ”surplus value” – Mehrwert (literally more-value) – by focusing on capitalist production.
Marx accepted British political economists’ argument that a product’s ”value” is based on the number of hours of labor required for its production. Whether it is agricultural work, raw material extraction, or the fabrication of manufactured goods, a given product contains a theoretically calculable amount of socially necessary, simple, abstract labor time. This calculation includes the value of the raw materials and labor power congealed within it and a portion of the value of the machinery, facility and power costs, and other inputs transferred piecemeal into the product during manufacture.
Marx’s theory has four key premises. First, on the whole, all commodities exchange as equivalents of value. Surplus does not arise through unfair or unequal exchange. Second, while workers do not have direct access to the means of production or the requisites needed to live, they are free to sell their ability to do work (or labor power) in order to survive. Third, like every commodity, labor power has a particular value; its value is equivalent to that of the value of the goods needed to produce and maintain labor power (the socially determined requisites needed to function as a worker). Finally, workers and employers exchange equivalents – workers agree to work a specified period of time in return for their labor power’s full value. Employers do not create surplus value by paying below workers’ value.
Working under conditions their employers determine, at some point in the workday workers will have congealed, in the products they produce, a specific number of hours of socially necessary, simple, abstract labor equivalent to the value of their labor power. But workers do not stop production at that point; they were hired to work a full workday.
During this next phase of the workday, as they produce additional products, workers are still congealing value – hours of socially necessary, simple, abstract labor – into products producing ”more value” (i.e., ”surplus value”) for which the capitalist does not have to compensate the workers since they had already agreed to a wage equivalent to the value of their labor-power – additional compensation would remunerate workers above the value of their labor-power. Employers may increase that surplus value by extending the working day’s length (increasing absolute surplus value) or intensifying production to reduce the time required to cover the value of labor power (increasing relative surplus value).
The key to surplus value is the unique ability of labor power, in a system of equivalent exchange, to produce, over the course of a workday, more value than the value exchanged with the worker (the bearer of labor power). According to Marx, labor power is the sole source of surplus value and thus workers and their labor power are the source of social surplus in capitalist societies.
- Marx,K. (1935) Wage-Labor and Capital, trans. J. L. Joynes. Charles H. Kerr & Co., Cooperative, Chicago.
- Marx, K. (1976)  Capital, 4th edn., vol. 1, trans. B. Fowkes. Penguin, Harmondsworth.