Nowadays the volume of world trade grows significantly faster than GDP, suggesting to Marxian economists such as Samir Amin that surplus-value realised from commercial trade (representing to a large extent a transfer of value by intermediaries between producers and consumers) grows faster than surplus-value realised directly from production.

Thus, if we took the final price of a good (the cost to the final consumer) and analysed the cost structure of that good, we might find that, over a period of time, the direct producers get less income and intermediaries between producers and consumers (traders) get more income from it. That is, control over the access to a good, asset or resource as such may increasingly become a very important factor in realising a surplus-value. In the worst case, this amounts to parasitism or extortion. This analysis illustrates a key feature of surplus value which is that it accumulated by the owners of capital only within inefficient markets because only inefficient markets - i.e. those in which transparency and competition are low - have profit margins large enough to facilitate capital accumulation. Ironically, profitable - meaning inefficient - markets have difficulty meeting the definition a free market because a free market is to some extent defined as an efficient one: one in which goods or services are exchanged without coercion or fraud, or in other words with competition (to prevent monopolistic coercion) and transparency (to prevent fraud).

[edit] Measurement

The first attempt to measure the rate of surplus-value in money-units was by Marx himself in chapter 9 of Das Kapital, using factory data of a spinning mill supplied by Friedrich Engels (though Marx credits "a Manchester spinner"). Both in published and unpublished manuscripts, Marx examines variables affecting the rate and mass of surplus-value in detail.

Some self proclaimed Marxist thinkers like Geoffrey Pilling and Ira Gerstein have argued that surplus value "cannot be measured", but that was demonstrably not the view of Marx and Engels themselves. The real question was how accurately it could be measured, and this depended on the publicly available data. We can develop statistical indicators of trends, without mistakenly conflating data with the real thing they represent, or postulating "perfect measurements or perfect data" in the empiricist manner. If theory is not disciplined by valid data, it becomes metaphysical, rather than being scientific.

Since the pioneering studies by Marxian economists like Eugen Varga, Charles Bettelheim, Joseph Gillmann, Edward Wolff and Shane Mage, there have been numerous attempts by Marxian economists to measure the trend in surplus-value statistically using national accounts data. The most convincing modern attempt is probably that of Professors Anwar Shaikh & Ahmet Tonak [1].

Usually this type of research involves reworking the components of the official measures of gross output and capital outlays to approximate Marxian categories, in order to estimate empirically the trends in the ratios thought important in the Marxian explanation of capital accumulation and economic growth: the rate of surplus-value, the organic composition of capital, the rate of profit, the rate of increase in the capital stock, and the rate of reinvestment of realised surplus-value in production.

The Marxian mathematicians Emmanuel Farjoun and Moshé Machover argue that "even if the rate of surplus value has changed by 10-20% over a hundred years, the real problem [to explain] is why it has changed so little" (quoted from The Laws of Chaos; A Probabilistic Approach to Political Economy (1983), p. 192). The answer to that question must, in part, be sought in artifacts (statistical distortion effects) of data collection procedures. Mathematical extrapolations are ultimately based on the data available, but that data itself may be fragmentary and not the "complete picture".

Experienced financial analysts are, however, liable to shake their heads at these kinds of Marxian empirical estimates from official data. As regards total profit volume, statisticians use survey data, administrative records, and tax data to estimate it, consistent with a standard definition of gross product and capital transactions. But this may include or exclude items at variance with real business practice. Some types of transactions are disregarded, while imputations are made for other transactions. Almost always tax data is the main source of generic profit estimates, but tax data typically understate true profitability.

Or, if the rate of profit is measured as a ratio between the total profit component in value added and fixed capital, what is ignored is that capital assets include more than fixed assets, and that profit income includes more than the value added component. So to assess profit volume or profitability, really the problem has to be looked at using a variety of different measures and a variety of difference sources (national accounts data, tax data, direct surveys, company reports and circumstantial evidence).

As against that, it can also be shown statistically that most time series of different profit measures from different sources will show the same historical trends (see e.g. the research by Dumenil & Levy).

[edit] Different concepts of surplus

In neo-Marxist thought, Paul A. Baran for example substitutes the concept of "economic surplus" for Marx's surplus value. In a joint work, Paul Baran and Paul Sweezy define the economic surplus as "the difference between what a society produces and the costs of producing it" (Monopoly Capitalism, New York 1966, p. 9). Much depends here on how the costs are valued, and which costs are taken into account. Piero Sraffa also refers to a "physical surplus" with a similar meaning, calculated according to the relationship between prices of physical inputs and outputs.

In these theories, surplus product and surplus value are equated, while value and price are identical, but the distribution of the surplus tends to be separated theoretically from its production; whereas Marx insists that the distribution of wealth is governed by the social conditions in which it is produced, especially by property relations giving entitlement to products, incomes and assets (see also relations of production).

In Capital Vol. 3, Marx insists strongly that

"the specific economic form, in which unpaid surplus labour is pumped out of direct producers, determines the relationship of rulers and ruled, as it grows directly out of production itself and, in turn, reacts upon it as a determining element. Upon this, however, is founded the entire formation of the economic community which grows up out of the production relations themselves, thereby simultaneously its specific political form. It is always the direct relationship of the owners of the conditions of production to the direct producers -- a relation always naturally corresponding to a definite stage of the methods of labour and thereby its social productivity -- which reveals the innermost secret, the hidden basis of the entire social structure, and with it the political form of the relation of sovereignty and dependence, in short, the corresponding specific form of the state. This does not prevent the same economic basis -- the same from the standpoint of its main conditions -- due to innumerable different, empirical circumstances, natural environment, racial relations, external historical influence, etc. from showing infinite variations and gradations in appearance, which can be ascertained only by analysis of the empirically given circumstances."

This is a substantive - if abstract - thesis about the basic social relations involved in giving and getting, taking and receiving in human society, and their consequences for the way work and wealth is shared out. It suggests a starting point for an inquiry into the problem of social order and social change. But obviously it is only a starting point, not the whole story, which would include all the "variations and gradations".

[edit] Criticism

The most fundamental criticism of Marx's theory of value is offered by Austrian economics, which holds that the value is purely subjective, and cannot be derived from labor, surplus or otherwise. The labor itself can be productive, resulting in creation of goods which are desired by other people, or destructive, merely wasting resources on creation of goods nobody wants - this phenomenon was quite evident in the socialist economies. Thus, we can say if something has value only by observing voluntary exchange between people. When such exchange is prevented, there is no way to tell if the labor is creative or destructive, and so it is impossible to direct the efforts towards creation of value. This impossibility of economic calculation was famously proposed by Ludwig von Mises in 1929 as the reason for imminent failure of socialist economies, in stark contrast to predictions of Marx's theory.

Some economic historians argue that Marx did not discover the concept of surplus-value, because other political economists (e.g. Karl Rodbertus-Jagetzow) had already discovered it first. There is some truth in this, but as against that, Marx only claimed that he had theoretically refined and systematised existing notions of added value, removing inconsistencies and apologistic theories (he himself claimed little originality, and normally carefully documented "who said it first"; he was among the first economic thinkers to use an extensive apparatus of footnotes - see Karl Marx and World Literature, by S. S. Prawer. New York: Oxford University Press, 1977). His theoretical presentation is far superior though to that of his contemporaries, as economic historians acknowledge.

A substantive, foundational criticism of Marx's concept of the surplus product and surplus-value was made by Harry W. Pearson in the 1950s in his essay, "The economy has no surplus". Another modern, more sophisticated critique of the concept is by Helen Boss (see references).

An alternative criticism is by Steve Keen, who argues that the economy does have a surplus, but that it can arise from numerous different sources. Specifically, he claims that "mathematics and Marx's philosophy confirm that surplus value - and hence profit - can be generated from any input to production" (Debunking Economics, p. 298). Thus Marx's view that economic value is a human attribution or comparison, and that only human labour can conserve, transfer and create value is rejected.

[edit] Morality and power of surplus value

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A typical textbook-type example of an alternative interpretation to Marx's is provided by Lester Thurow. He argues in an Concise Encyclopedia of Economics article: "In a capitalistic society, profits - and losses - hold center stage." But what, he asks, explains profits?

There are five reasons for profit, according to Thurow:

• capitalists are willing to delay their own personal gratification, and profit is their reward.
• some profits are a return to those who take risks.
• some profits are a return to organizational ability, enterprise, and entrepreneurial energy
• some profits are economic rents - a firm that has a monopoly in producing some product or service can set a price higher than would be set in a competitive market and, thus, earn higher than normal returns.
• some profits are due to market imperfections - they arise when goods are traded above their competitive equilibrium price.

The problem here is that Thurow doesn't really provide an objective explanation of profits so much as a moral justification for profits, i.e. as a legitimate entitlement or claim, in return for the supply of capital.

He adds that "Attempts have been made to organize productive societies without the profit motive (...) [but] since the industrial revolution... there have been essentially no successful economies that have not taken advantage of the profit motive." The problem here is again a moral judgement, dependent on what you mean by success. Some societies using the profit motive were ruined; profit is no guarantee of success, although you can say that it has powerfully stimulated economic growth.

Thurow goes on to note that "When it comes to actually measuring profits, some difficult accounting issues arise." Why? Because after deduction of costs from gross income, "It is hard to say exactly how much must be reinvested to maintain the size of the capital stock". Ultimately, Thurow implies, the tax department is the arbiter of the profit volume, because it determines depreciation allowances and other costs which capitalists may annually deduct in calculating taxable gross income.

This is obviously a theory very different from Marx's. In Thurow's theory, the aim of business is to maintain the capital stock. In Marx's theory, competition, desire and market fluctuations create the striving and pressure to increase the capital stock; the whole aim of capitalist production is capital accumulation, i.e. business growth maximising net income. Marx argues there is no evidence that the profit accruing to capitalist owners is quantitatively connected to the "productive contribution" of the capital they own. In practice, within the capitalist firm, no standard procedure exists for measuring such a "productive contribution" and for distributing the residual income accordingly.

In Thurow's theory, profit is mainly just "something that happens" when costs are deducted from sales, or else a justly deserved income. For Marx, increasing profits is, at least in the longer term, the "bottom line" of business behaviour: the quest for obtaining extra surplus-value, and the incomes obtained from it, are what guides capitalist development (in modern language, "creating maximum shareholder value").

That quest, Marx notes, always involves a power relationship between different social classes and nations, inasmuch as attempts are made to force other people to pay for costs as much as possible, while maximising one's own entitlement or claims to income from economic activity. The clash of economic interests that invariably results, implies that the battle for surplus value will always involve an irreducible moral dimension; the whole process rests on complex system of negotiations, dealing and bargaining in which reasons for claims to wealth are asserted, usually within a legal framework and sometimes through wars. Underneath it all, Marx argues, was an exploitative relationship.

That was the main reason why, Marx argues, the real sources of surplus-value were shrouded or obscured by ideology, and why Marx thought that political economy merited a critique. Quite simply, economics proved unable to theorise capitalism as a social system, at least not without moral biases intruding in the very definition of its conceptual distinctions. Hence, even the most simple economic concepts were often riddled with contradictions. But market trade could function fine, even if the theory of markets was false; all that was required was an agreed and legally enforceable accounting system. On this point, Marx probably would have agreed with Austrian school economics -no knowledge of "markets in general" is required to participate in markets.

[edit] See also

[edit] References

• Theories of Surplus-Value (1863)
• Value, Price and Profit (1865)
• Capital, Volume 1, Volume 2, Volume 3 [2]
• Anwar Shaikh & Ahmet Tonak, Measuring the Wealth of Nations
• Anwar Shaikh papers [3]
• G.A. Cohen (1988), History, Labour and Freedom: Themes from Marx, Oxford University Press
• Shane Mage, The Law of the Falling Tendency of the Rate of Profit; Its Place in the Marxian Theoretical System and Relevance to the US Economy. Phd Thesis, Columbia University, 1963.
• Fred Moseley papers: [4]
• Gerard Dumenil & Dominique Levy papers [5]
• Steve Keen, Debunking Economics; The Naked Emperor of the Social Sciences. London: Zed Press, 2004.[6]
• Emmanuel Farjoun and Moshe Machover, Laws of Chaos; A Probabilistic Approach to Political Economy, London: Verso, 1983. [7]
• Ernest Mandel, Marxist Economic Theory, Vol. 1 and Late Capitalism.
• Harry W. Pearson, "The economy has no surplus" in "Trade and market in the early empires. Economies in history and theory", edited by Karl Polanyi, Conrad M. Arensberg and Harry W. Pearson (New York/London: The Free Press: Collier-Macmillan, 1957).
• Paul A. Baran, The Political Economy of Growth.
• Piero Sraffa, Production of Commodities by means of commodities.
• Michal Kalecki, "The Determinants of Profits", in Selected Essays on the Dynamics of the Capitalist Economy 1933-1970.
• John B. Davis (ed), The economic surplus in advanced economies. Aldershot, Hants, England/Brookfield, Vt., USA : Elgar, 1992.
• Anders Danielson, The economic surplus : theory, measurement, applications. Westport, Connecticut: Praeger, 1994.
• Helen Boss, Theories of surplus and transfer : parasites and producers in economic thought. Boston: Hyman, 1990.

[edit] External links

• 'The Concepts of Alienation and Surplus-value, a Brief Look'

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Tags: Marx, surplus, capitalist, economy, capital, theory, labour