Surplus value

Mehrwert, m. surplus value, mehrwertig, a. multivalent, polyvalent. Mehrzahl,/. majority plurality plural, mehrzellig, a. multicellular. 

The immediate form in which the problem presents itself is this. How is the capital consumed in production replaced in its value out of the annual product, and how is the movement of this replacement intertwined with the consumption of surplus-value by the capitalists and of... 

Marx therefore develops a macroeconomic approach to establishing the conditions under which the economic system can reproduce itself one in which individual commodities are both produced and sold in the market place. To achieve this task, Marx collects industrial activities into two great departments of production. Department 1 produces means of production, capital goods that replace the constant capital (C,) used up in production. Department 2 produces consumption goods that take the form of variable capital (V ,) consumed by workers, and are also consumed by capitalists out of the surplus value (St) extracted from the production process. As a starting point for this analysis, Marx assumes that capitalists consume all of their surplus value. Hence, the system does not grow, since none of the surplus is set aside for capital expansion. All available resources are devoted to either consumption or the renewal of constant capital. This is the case of simple reproduction. 

Marx also assumes the rate of surplus value (the ratio of St to VJ is the same in both departments. In Department 1, for example, 1,000 units of variable capital are employed at a rate of surplus value of 100 per cent, which generates 1,000 units of surplus value. Each worker performs an hour of labour for himself and an additional hour for the capitalist. The total amount of living labour performed (2,000) is added to the amount of constant capital (4,000) used up, to give a total value produced in Department 1 (W ) of 6,000. Similarly, Department 2 uses 2,000 units of constant capital, 500 units of variable capital, and extracts 500 emits of surplus value to yield a total value (W2) of 3,000. The general formula for calculating total values, Wt = Ct + IT +. S., is captured in Table 2.1. 

Second, the other 4,000 units of means of production, produced in Department 1, are required to replace used-up constant capital in Department 1. In Department 2, the 500 emits of variable capital and 500 units of surplus value are also produced and used up in Department 2 by its... 

Yet Adam Smith put forward this fanciful dogma, which is still believed to this day... according to which the entire value of the social product resolves itself into revenue, i.e. into wages plus surplus-value, or as he expresses it, into wages plus profit (interest) plus rent. 

Whereas Moseley (1998 160) has argued that the refutation of Adam Smith is the most important immediate purpose of Marx s reproduction tables , others, as we have seen, emphasized their importance in addressing the issue of how surplus value is realized. The key role of consumption is illustrated sharply by the scheme of simple reproduction, since all of the surplus value is consumed by capitalists. 

Simple reproduction is oriented by nature to consumption as its aim. Even though the squeezing out of surplus-value appears as the driving motive of the individual capitalist, this surplus-value - no matter what its proportionate size - can be used here, in the last analysis, only for his individual consumption. 

Although under expanded reproduction surplus value is directed to more productive uses, Marx argues that the underlying role of consumption under simple reproduction is still a key part of the process of expanded reproduction. 

The most developed expanded reproduction schema is referred to by Marx as schema (B) of the First Example in section 3 of chapter 21, Capital, volume 2 (ibid. 586-9). This is shown in Table 2.2, the numbers representing a modification of the simple reproduction table. The same assumptions are maintained as under simple reproduction, apart from relaxation of the restriction that all surplus value be allocated to capitalist consumption. 

The key difference is that Department 1 produces 6,000 units of capital goods, but only 5,500 are required to replace constant capital in the two departments.3 Department 2 now requires 1,500 units of capital goods in order to replace the amount it uses up. But Department 1 continues to produce a surplus of 2,000 units of capital goods (equivalent to 1,000 variable capital plus 1,000 surplus value) over and above the 4,000 it needs to replace constant capital. Therefore, the mutual exchange that took place between the two departments under simple reproduction, where surplus consumption goods were swapped for surplus capital goods, is only partially fulfilled. Marx (1978 587) explains that in each period of production the surplus of capital goods produced by Department 1 remains to be realized .4... 

In the large body of work that has explored the relationship between the systems of Marx and Keynes,5 there is no established understanding of the role played by the multiplier. This can be illustrated by some of the more recent attempts to interpret the multiplier from a Marxian perspective. Two main topics of concern are (1) the role of the multiplier in the reproduction schema and (2) the way in which Marx s category of surplus value relates to the structure of the multiplier. The following brief consideration of this recent literature provides the backdrop to a full critique, in which some of its limitations will be addressed. 

Lianos (1979) provides an accessible insight into how the multiplier can be located in the reproduction schema. By focusing specifically upon Department 1 he states, it is convenient to assume a one sector economy (ibid. 407). Only information from Department 1 of the example used by Marx (Table 2.2) is included in the Lianos reproduction schema, as shown in Table 2.3. The key modification which enables a translation to Keynesian economic categories is to interpret all value added, variable capital plus surplus value, as net income (T,) for Department 1. Assuming away for the moment the problems associated with Adam Smith s dogma, this income is net of constant capital. The net income of the one-good economy is 2,000, consisting of 1,000 units of variable capital and 1,000 units of surplus value. 

On this interpretation b represents the labour-output ratio (L/y) multiplied by the consumption per unit of labour ratio (B/L).7 This expression, it can be argued, represents the value of labour power - the labour embodied in the commodity bundle required to reproduce each unit of labour. Since the propensity to consume is a pure number (money/money), decomposition makes it possible to show that it is identical to the value of labour power (labour/labour), which is also a pure number. An examination of equation (2.1), therefore, reveals that the value of labour power itself (not its monetary expression) appears as the core component of the Keynesian income multiplier. This represents a more revealing insight into the structure of class relationships, with Marx s theory of surplus value directly represented in the denominator of the multiplier. Since the component b is the value of labour power, the denominator —b is the share of surplus value, the proportion of labour time extracted as surplus value. This interpretation of the multiplier penetrates beneath the surface of monetary economic categories as considered by De Angelis, to the Marxian labour categories. 

To begin the analysis, Marx s numerical example of expanded reproduction can be recast as an input-output framework. Table 2.4(a) re-expresses the numerical elements of Table 2.2 as an input-output table. The advantage of this table is that it shows explicitly how Marx assumes capitalists spend their 1,750 units of surplus value on 500 units of new constant capital (dC), 150 new variable capital (clV) and 1,100 capitalist consumption (u). 

In this input-output format, elements of Table 2.4 can be read either along the rows as outputs of a particular department, or column-wise as inputs to that department. For example, reading row-wise, Department 2 produces 1,000 units of consumption goods for Department l s workers, 750 for itself, 150 for additional variable capital and 1,100 for capitalist consumption. Reading column-wise, Department 2 uses inputs of 1,500 constant capital from Department 1 and 750 of consumption goods from itself. The surplus value element of 750 is viewed as an input of value added to Department 2. For both departments, inputs and outputs are in balance, as shown by the identical column and row sums (6,000 and 3,000). 

The role of Marx s category of surplus value can therefore be identified in a macro scalar multiplier without the restrictive assumption of a one-good model. This scalar multiplier captures the inter-departmental structure of the reproduction schema without constant capital being assumed away. A formal model of aggregate demand in the reproduction schema is developed, which retains the simplicity of the Keynesian multiplier together with Marx s value categories. 

A first step in the analysis is to show explicitly how the elements of surplus value are allocated. Marx s numerical example of expanded reproduction (Table 2.2) can be explored in more detail by distinguishing, for each sector i, between capitalist consumption (uj, incremental changes in constant capital (cfQ and changes in variable capital (eft)). Numerical values for these terms are displayed in Table 3.1. In Department 1, for example, one half of the extracted surplus value of 1,000 is invested in the expansion of capital, with 400 directed to new constant capital and 100 to new variable capital. The remaining 500 units of surplus value are consumed by Department 1 capitalists. 

Table 3.1 The allocation of surplus value in the two-sector schema...

The simple answer to this question is that the extra money is provided by the unproductive personal expenditure of the capitalist. The capitalist consumes the same 1,000 as the volume of surplus value. This 1,000 is converted into money with the money that he threw into circulation not as capitalist, but as consumer, i.e. did not advance, but actually spent (ibid. 410). Moreover, this consumption is financed out of the capitalist s own money hoard it means nothing more than that he has to cover his individual consumption for the first year out of his own pocket (ibid. 409). 

It was assumed in this case that the sum of money that the capitalist casts into circulation to cover his individual consumption until the first reflux of his capital is exactly equal to the surplus-value that he produces and hence has to convert into money. This is obviously an arbitrary assumption in relation to the individual capitalist. But it must be correct for the capitalist class as a whole, on the assumption of simple reproduction. It simply expresses the same thing as this assumption implies, namely that the entire surplus-value is unproductively consumed. 

Since there is no expansion of the capital stock under simple reproduction, all surplus values are directed to unproductive expenditure, but at the same time capitalists enable this mass of surplus value to be realized by casting the money for unproductive expenditure into circulation. 

As far as the additional money capital is concerned, that required for the function of the increased productive capital, this is supplied by the portion of realised surplus-value that is cast into circulation by the capitalists as money capital, instead of as the money form of revenue. 

Under expanded reproduction, surplus value is clearly realized by capital investment and capitalists consumption. Hence for Sardoni (1989 214), Capitalists profits therefore now depend on their consumption and investment expenditure, just as in Kalecki s analysis. There is strong evidence for the Kalecki principle, that capitalists earn what they spend, operating in Marx s analysis of expanded reproduction. 

Whichever interpretation is correct, Kalecki s silence on the labour theory of value leaves open the theoretical possibility that its relevance can be fruitfully explored. To relate Kalecki s model of reproduction to Marx s theory, a reconfiguration is required of the definition of profits. The problem, as we have seen, is that Kalecki s model requires a gross definition of profits that is different from Marx s category of surplus value. The Kalecki principle has not been precisely demonstrated in the context of Marx s reproduction schema, in which surplus value is the key category of analysis. 

The Keynesian multiplier has as its constituent elements the Marxian term representing the share of surplus value e and the Kalecki multiplier 1/1 A. 

Although it has been shown that Nell s (2004) model of the circulation of money bears some resemblance to Marx s system, two key issues remain to be resolved. First, in adopting the Kalecki schema of intersectoral flows (Table 4.1), Nell narrowly associates accumulation with the production of means of production (capital goods). There is no mention of the accumulation of consumption goods, which are placed at the centre of Marx s reproduction schema. Second, the role of Marx s category of surplus value is obscured in the Kalecki table. As demonstrated in Chapter 3, for the... 

Following the approach worked out in Chapter 3, Table 4.1 shows that in the Kalecki-type formulation profits in each sector are defined in gross terms, consisting of expenditure on the replacement of existing constant capital and its expansion (C, + e/C.) whereas in Table 4.2 profits (/() are defined in net terms (dC, + dV,). The latter definition of profits is consistent with Marx s interpretation, with the total increment of capital identical to the volume of surplus value, after accounting for the replacement of current inputs of constant and variable capital. 

As discussed earlier, in relation to the single swap approach, it may also be posited that capitalists advance the amount M —M required to purchase the total increment of capital. In addition to funding the production of this capital increment, the monetary advance allows the realization of the volume of surplus value required for its production. Capitalists earn a net volume of profits (surplus value) that is driven by increments dC = dC, + dC2 and dV =dV, + dV2 of constant and variable capital respectively. Ignoring for simplicity the role of capitalist consumption, the total volume of surplus value P = dV + dC is driven by capitalist requirements for new constant and variable capital. 

Under simple reproduction, the amount of money required for circulation is constant. Capitalists allocate all of their surplus value to personal consumption, feasting in luxury instead of investing in expansion. Since there is no room for the economy to grow, there is no demand for the money hoard to grow. Output is static, with the same volume of commodities reproduced each year, serviced by the same money hoard. 

The conclusion drawn by Foley is that new borrowing is required to meet this shortfall. There is a paradox of borrowing, the borrowing requirement contrasting with the received opinion in Marxist circles that all investment is drawn from an existing pool surplus value.1 With B(t) defined as new capital borrowing (ibid. 89), capital outlays under expanded reproduction are met by setting... 

Table 5.1 shows the two-department expanded reproduction schema over five years.2 The familiar assumption of a constant rate of surplus value of 100 per cent is maintained, together with a 4 1 ratio of constant to variable capital in Department 1 and a 2 1 ratio in Department 2. Constant capital inputs are non-durable, used up dining a single period of production, and 1 of output is assumed equal to a unit of labour. 

Key to this economy s capacity to expand is the production of sufficient surplus value to invest in additional units of capital. Marx assumes that a half of surplus value in Department 1 is invested in this way. For year 1 this means that 500 of the total 1,000 units of surplus value produced in Department 1 are directed to 400 units of new constant capital and 100 units of new variable capital. In year 2 constant capital expands from 4,000 to 4,400 units, and variable capital from 1,000 to 1,100 units, maintaining the 4 1 ratio between constant and variable capital. A new position of balance is established by also maintaining Department 2 at its original 2 1 ratio. 

The abstract starting point for Marx s monetary theory of crisis is provided in chapter 17 of Theories of Surplus Value part 2. Here Marx explores the role of money under simple circulation (M-C-M). Money provides the starting point and end point of the circuit of commodities. Capitalists use money to purchase commodities (M-Q in order to carry out production, and must find an outlet to sell their commodities to a buyer willing to spend the right amount of money (C-M). This separation of purchase from sale is fraught with the possibility of breakdown. 

The mutual exchange condition for simple reproduction, established in Table 6.1(a), is that Department 2 exchanges 2,000 units of consumption goods for 2,000 units of means of production produced by Department 1. These 2,000 units of means of production are represented in Table 6.1(b) as used-up constant capital C2. Similarly, the 2,000 units of consumption goods are purchased in Department 1 out of variable capital Vx and surplus value A. Hence the condition for simple reproduction can be expressed as... 

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