Surplus Value

Surplus value is a term introduced by Karl Marx in his work Capital. This concept is one of the central elements of his economic theory. According to Marx,
surplus value is the difference in labor value that is appropriated by the capitalist in the process of capitalist production.

Important! Surplus value is not the same as added value, and these terms should be distinguished.

Key Principles of the Theory of Surplus Value

To understand the significance of this term, it is necessary to consider the fundamental principles on which Marx’s economic views are based:

• The value of a commodity depends exclusively on the amount of labor invested in it. Marx does not take into account the influence of supply and demand.
• Production costs are referred to by Marx as "necessary labor," and he argues that everything exceeding this cost is the result of the capitalist appropriating
  the product of someone else's labor.
• The source of profit (surplus value) is the result of the capitalist appropriating the labor of the worker, who works beyond the "necessary time."

Marx views value as embodied labor. However, he was neither the first nor the only economist to analyze the value of goods based on labor costs. It is
also recommended to study the works of Adam Smith and David Ricardo, who significantly influenced the development of economic thought.

This labor theory of value was used to determine prices under socialism—exclusively based on incurred costs. However, modern economists have abandoned
this theory of value because it does not take into account market factors such as demand, competition, and subjective consumer assessments.

The Concept of Surplus Value

If the value of a product is determined solely by the labor invested in it, then it is necessary to explain the difference between the actual price at which the product
is exchanged for another good or for money. Therefore, Marx introduces the concept of "surplus value". This is the excess of the value of a product over the cost
of the labor, raw materials, and other expenses required for its production.

According to Marx, the source of surplus value is the capitalist using labor power for a longer time than is required to reproduce its own value. He believed that
a worker’s wage only covers basic necessities, while the surplus value created by the worker benefits the capitalist.

Marx also considered profit, interest, rent, taxes, excises, and duties as forms of surplus value redistribution. Thus, surplus value is spread among all agents
of capitalist production.

The Source of Surplus Value

According to Marx, the source of surplus value is exclusively the sphere of production. It arises in any type of production and serves as the basis for taxation
and capital accumulation. Under capitalism, it takes the form of profit, which becomes the primary goal of production for capitalists.

However, in the modern world, economists consider surplus value not only in the context of industrial production but also in the service sector, financial capital,
and intellectual labor. Innovations, branding, and marketing can also create surplus value, which was not fully accounted for in Marxist theory.

Methods of Increasing Surplus Value

When analyzing ways to increase surplus value, Marx identified two main methods:

1. Absolute surplus value – created by increasing the duration of working hours beyond the "necessary reproduction time."
2. Relative surplus value – created by reducing the cost of labor and "shortening necessary production time" through increased labor productivity.

Modern capitalist economies more often use methods of increasing relative surplus value by introducing new technologies, automation, improving labor organization,
 and reducing costs.

Marxist Critique of Capitalism

According to Marx, the exploitation of the working class is a fundamental characteristic of capitalist production. The capitalist aims to maximize profit by
increasing surplus value through various means.

This leads to:

• Increased social inequality.
• A decrease in the real value of workers' wages.
• Growing tensions between labor and capital.
• Overproduction crises due to workers’ inability to afford the goods they produce.

Marx predicted that such contradictions would lead to a crisis of the capitalist system and the inevitable transition to a socialist society, where the means of
 production would belong to society and surplus value would be redistributed in the interests of all citizens.

Formula for the Rate of Surplus Value

Marx proposed a formula for the rate of surplus value, which expresses the degree of worker exploitation:

where:

• p' – rate of surplus value (degree of exploitation);
• m – surplus value;
• v – variable capital (wages of workers).

The higher the ratio m/v, the stronger the exploitation of labor.