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Valorisation

Valorisation

The Valorisation of capital is a concept created by Karl Marx in his critique of political economy. The German original term is "Verwertung von Kapital" or "Kapitalverwertung" but this is difficult to translate, and often wrongly rendered as "realisation of capital", "creation of surplus-value" or "self-expansion of capital".

Definition

Marx introduces the concept in chapter 7 of the first volume of Das Kapital. The capitalist production process, he argues, is both a labor process creating use-values and a value-creation process through which new value is created. However, value creation is not what the capitalist aims at. The capitalist wants his capital to increase. This means that the worker must create more value for the capitalist than he (or she) receives as wage from the capitalist. The worker must create not only new value but surplus value. A value creation process which goes beyond the point at which the worker has just created the equivalent of the value of his own labour power is a valorisation process, not just a value creation process. Valorisation thus specifically describes the increase in the value of capital assets through the application of living, value-forming labour in production. The "problem" of valorisation is: how can labor be applied in production so that capital value grows? How can assets be invested productively, so that they gain value rather than lose it?

The mysteries of capital's growth

When a worker is put to work on a commercial basis, he initially produces a value equal to what it costs to hire him. But once this value has been created, and the work continues, he begins to valorise capital, i.e. increase its value. Marx claims however that this process, whereby capital grows in value through human activity in production, becomes obscured and hidden in the theories of economics. The "fetish" of capital reaches its culmination when it appears that capital grows of its own accord without anybody doing anything. In that case, people are no longer able to perceive or understand the connection between human activity which forms new value, and the increase in the value of their assets. If Kapitalverwertung is translated as "self-expansion of capital", this actually conveys the exact opposite of what Marx intends: after all, the expansion of capital is not automatic, it requires human work to expand it.

Valorisation and management theory

By contrast, in management theory, analysts are extremely aware of value adding activities occurring when factors of production are withdrawn from the market in order to produce new outputs with them. Yet, because perceptions of value growth are based on the relationship between input costs and sales revenue, revealed by accounts, the central role of living labour in conserving, transferring and creating value is still obscured. The official story is that the factors of production all add value to the new output. In a sense this is true, since living labor conserves and transfers value from materials and equipment to the new product. But without the active human subject, no new value is created at all, and capital assets lose value.

Devalorisation

The opposite process is devalorisation ("Entwertung") which refers to the process whereby production capital invested loses part or all of its value, because labor is withdrawn, or because output cannot be sold, or sold at the intended price, or because more modern production techniques devalue older equipment. Typically what happens in a severe economic crisis is that the real cost structure of production is realigned with market prices. In Marx's terms, productivity growth has changed product-values in different sectors, but it is only after quite some time that prices adjust to changed underlying values. In that case, devalorisation may occur quite rapidly: capital assets are suddenly worth less.

Valorisation and the realisation of capital

Valorisation of capital is for Marx not at all the same as the "realisation of capital". Value may be added in the production process, but this additional value may not be realised unless the outputs are sold at a favorable price. At an unfavourable price, output is sold without increasing capital assets. So, new value added in production may be lost to the producer or owner, when the new product is traded. In reality, Marx argues, the valorisation of capital in one enterprise is dependent on the valorisation of many related enterprises, since they all influence each other with respect to costs, values and prices. When all is said, the preservation and increase of capital value is a purely social phenomenon.

Capital

:This article concerns places that serve as centers of government and politics. For alternative meanings see capital (disambiguation) In politics, a capital (also called capital city or political capital — although the latter phrase has an alternative meaning based on an alternative meaning of "capital") is the principal city or town associated with its government. It is almost always the city which physically encompasses the offices and meeting places of the seat of government and fixed by law. The word capital is derived from the Latin caput meaning "head," and the related term capitol refers to the building where government-business is chiefly conducted. Seats of government in major substate jurisdictions are usually called "capitals", but at lower administrative subdivisions, terms such as county town, county seat, or borough seat are also used. As the focal point of power for the country or region, the capital naturally attracts the politically motivated and those whose skills are needed for efficient administration of government such as lawyers, journalists, and public policy researchers. Older capitals have often developed into prime economic, cultural, or intellectual centers as well. Such is certainly the case with Paris and Buenos Aires among national capitals, and Irkutsk or Salt Lake City in their respective state or province. Such concentration may be controversial. The siting of Brasília in Brazil's heartland was done in order to bring progress to the interior of the country, since the old capital, Rio de Janeiro, along with entire Southeastern Brazil was already crowded. The government of South Korea announced in 2004 it would move its capital from Seoul to Yeongi-Gongju — even though the word Seoul itself means "capital" in the Korean language. The convergence of political and economic or cultural power is by no means universal. Traditional capitals may be economically eclipsed by provincial rivals, as occurred with Thebes by Alexandria, Nanjing by Shanghai, or Edinburgh by Glasgow. The decline of a dynasty or culture could mean the extinction of its capital city as well, as occurred with Babylon and Cahokia. And many modern capital cities, such as Abuja and Ottawa, were deliberately fixed outside existing economic areas, and may not have established themselves as new commercial or industrial hubs since.

Multiple capitals

:See also: List of multiple capitals A number of cases exist where states or other entities have multiple capitals. In South Africa, for example, the administrative capital is Pretoria, the legislative capital is Cape Town, and the judicial capital is Bloemfontein, the outcome of the compromise that created the Union of South Africa in 1910. In others, the "effective" and "official" capital may differ for pragmatic reasons, resulting in a situation where a city known as "the capital" is not, in fact, host to the seat of government:
- Yamoussoukro was designated the national capital of Côte d'Ivoire in 1983, but as of 2004 most government offices and embassies were still located in Abidjan
- Sucre is still the constitutional capital of Bolivia, but most of the national government long abandoned that region for La Paz
- Amsterdam is the nominal national capital of the Netherlands even though the Dutch government and supreme court are both located in The Hague. In such cases, the city housing the administrative capital is usually understood to be the "national capital" among outsiders. For instance, Santiago is understood to be the capital of Chile even though its Congress is in Valparaiso.

Capital as symbol

With the rise of modern empires and the nation-state, the capital city has become a symbol for the state and its government, and imbued with political meaning. Unlike medieval capitals, which were declared wherever a monarch held his or her court, the selection, relocation, founding, or capture of a modern capital city is an emotional affair. For example:
- Ruined and almost uninhabited Athens was made capital of newly independent Greece with the romantic notion of reviving the glory of the ancients;
- Peter I of Russia moved his government to Saint Petersburg to give the Russian Empire a western orientation, while Kemal Atatürk did the same by ironically moving east to Ankara, away from Ottoman Istanbul;
- The selection or founding of a "neutral" city, one unencumbered by regional or political identity, represented the unity of a new state with Madrid in Spain, Washington, D.C. in the United States, and Canberra in Australia among others;
- During the American Civil War, tremendous resources were expended to defend Washington, D.C. from Confederate attack even though the small federal government could have been moved relatively easily in the era of railroads and telegraph.
- Berlin has risen from the ashes of World War II (Stunde Null) to become the new/old capital city of the third most prosperous nation in the World, Germany.

The effects of the capital

The capital city is almost always the main target in a war, as capturing it usually guarantees capture of much of the enemy government, and victory for the attacking forces. In the tradition of drama, capital cities are usually associated with high stake final battles, such as in the Lord of the Rings series where the forces of Mordor besiege the Gondorian capital of Minas Tirith; it is assumed if the city falls, Gondor falls with it. In old China, the relatively fragile dynasties could easily be toppled with the fall of their capital. In the Three Kingdoms period, both Shu and Wu fell when their respective capitals of Cheng Du and Jian Ye fell. The Ming were destroyed when the Manchus took their seat of power, and this pattern endlessly repeats itself in Chinese history. In the West, things were vastly different. The Byzantine Empire lasted for nearly 60 years after Crusaders took their capital city of Constantinople. The American revolutionaries lost their capital of Philadelphia, but survived the blow.

Largest national capital cities

Some of the largest cities in the world are not national capitals. The largest national capitals on each continent, by urban/metropolitan area population, are:
- Africa: Cairo (11,146,000)
- Asia: Tokyo (35,237,000)
- Europe: Moscow (13,600,000)
- North America: Mexico City (17,809,471)
- Oceania: Wellington (367,600)
- South America: Buenos Aires (13,349,000)

Lists of capitals

- Lists of national capitals
- by name
- by country (with also the largest city)
- by continent and country
- List of historical national capitals
- List of capitals of subnational entities
- List of multiple capitals
- List of countries that have the name of their capital included in their name
- List of countries whose capital is not their largest city Category:Capitals Category:Political geography als:Hauptstadt ko:수도 ja:首都 ms:Ibu negara simple:Capital (city) th:เมืองหลวง zh-min-nan:Siú-to·

Political economy

Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. It developed in 18th century as the study of the economies of states (also known as polities, hence the word "political" in "political economy"). In contradistinction to the theory of the Physiocrats, in which land was seen as the source of all wealth, political economists proposed the labour theory of value (first introduced by John Locke, developed by Adam Smith and later Karl Marx), according to which labour is the real source of value. Political economists also attracted attention to the accelerating development of technology, whose role in economic and social relationships grew ever more important. In the late 19th century, the term "political economy" was generally superseded by the term economics, which was used by those seeking to place the study of economy on a mathematical and axiomatic basis, rather than studying the structural relationships within production and consumption. (See marginalism, Alfred Marshall) In the present, political economy refers to a variety of different, but related, approaches to studying economic behavior, which range from combining economics with other fields, to using different fundamental assumptions which challenge those of orthodox economics:
- Political economy is most commonly used to refer to interdisciplinary studies that draw on economics, law and political science in order to understand how political institutions and the political environment influence market behavior.
- Within political science, the term refers to modern liberal, realist, marxian, and constructivist theories concerning the relationship between economic and political power among states. This is also of concern to students of economic history and institutional economics.
- "International political economy" (IPE) is an interdisciplinary field comprising a variety of approaches that are concerned with international trade and finance, and state policies that affect international trade, such as monetary and fiscal policy. In the U.S. these approches are associated with the journal International Organization, which became the leading journal of international political economy in the 1970s under the editorship of Robert Keohane; subsequent editors Peter J. Katzenstein and Steven Krasner. They are also associated with the journal The Review of International Political Economy (RIPE), which is edited by both British and U.S. scholars.
- Economists often associate the term with approaches using game theory.
- Others, especially anthropologists, sociologists and geographers, use the term "political economy" to refer to neo-Marxian approaches to development and underdevelopment set forth by Andre Gunder Frank and Immanuel Wallerstein.

History of the term

The term political economy originally meant the study of the conditions under which production was organized in the nation-states of the new-born capitalist system. The term was first used in England in the 18th Century, to replace the earlier approach of the (French) physiocrats. The main exponents of Political Economy are Adam Smith, David Ricardo and Karl Marx. In 1805 Thomas Malthus became Britain's (and possibly the world's) first professor of political economy at the East India Company College at Haileybury in Hertfordshire. By the second half of the 19th century, laissez-faire theorists started to argue that the state should not regulate the market; that politics and markets operated according to different principles; and that political economy should be replaced by two separate disciplines, Political science and Economics, in a move that has been seen, especially by Marxist thinkers, as the beginning of the fragmentation of social science. Around 1870 neoclassical economists such as Alfred Marshall began using the term economics instead of "political economy." Institutions which taught politics and economics jointly, such as Oxford University, did not adopt this terminological preference and appointed the mathematical economist Francis Edgeworth to the Drummond Chair of Political Economy in 1891. The term "liberal" during the 18th and 19th centuries meant the removal of barriers to trade and capitalist economic activity. This included ideas such as reduction of tariffs, standardized systems of weights and measurements, the metric system, central banking and the establishment of a gold standard to facilitate trade. These theories were part of the move to the first age of Globalization based on the theory of comparative advantage put forward by Ricardo. The present-day term "classical liberal" refers to 19th century liberalism. At the same time with the rise of classical liberalism, and in opposition to it, the theories of socialism and communism developed, which stated that unregulated ("laissez-faire") capitalism, the kind of system advocated by the classical liberals, could not correctly allocate resources and products without resulting in unsustainable misery for the vast majority of the people. In the socialist school, the most important thinker was Karl Marx. Marx regarded himself as being in the tradition of Adam Smith, focusing on the labour theory of value, on structures of production and the struggle to control those structures (which he named "class struggle"). Political Economy remained in use for the study of economies seen through the lens of government action, even though many economists also study the effects of government.

The scope of political economy

Political economy is centrally focused on the development of the polity. It pays particular attention to whether the polity is running a surplus or a deficit, since in the view of most political economy, any deficit must be met by selling assets, such as gold or other capital, to other polities - or by some form of borrowing or externalization. Political economy, then, studies the mechanism of human activity in organizing material, and the mechanism of distributing the surplus or deficit that is the result of that activity. Note the difference between this paradigm and that of economics which sees human wants as unlimited, resources as generically scarce, historical context as not particularly important, and income distribution issues as less important than efficiency and growth. While for some there is no difference between the two terms, for others the difference is one of basic method. Economics studies trade-offs through measurable values, whereas political economy focuses on structural relationships. However, there is no generally accepted distinction between these terms, and they are most often used on a case by case basis.

Central concepts of political economy

Political economy studies the means of production, specifically capital, and how this manifests itself in economic activity. Whereas economics focuses on price, and sees production and consumption as "effects" on price, political economy sees economics as a manifestation of underlying reality which is effected by policy and law. The division into "use value" and "exchange value" makes a clear distinction between what would now be called "value" and "price" or "capital value" and "commodity value", in contrast to the denial of intrinsic values separate from prices in, for example, neoclassical economics. In political economy, labour is used to mean human activity which produces change, and capital is the means by which the change from that labour is made greater. The results of labour are commodities which are traded and consumed, which leads to the problem of disposal of the results of consumption. Private exchange occurs in the market, and is based on a legal framework of possession and title, this is also called the private sector. Government exchange occurs through politics, and influences market decisions through policy. The government as a player in the market economy is called the public sector. Political economy in its normative form focuses on the necessities of production, exchange, consumption and disposal, referred to as infrastructure. In its descriptive form it focuses on the classification and detailing of the workings of production, for example as in David Ricardo in On the Principles of Political Economy [http://www.econlib.org/library/Ricardo/ricP.html]. Political economy, because it is concerned with a view of underlying reality, is often required to be multi-disciplinary in its approach. Political economy often talks in terms of "systems" of economy, either Wallerstein's world system or emergent systems, and the free market is often an important subject of discussion.

Production

In political economy, production refers to the use of labour, with the aid of capital, to create a determinate and recognizable thing which has use, or utility (see Utilitarianism). Studying the relationship of production is crucial to political economy, since economics only recognizes general demand, while production is often bottlenecked by specific resources, and political activity is often centered around securing of resources perceived to be creating a bottleneck. Political economy views production as the central activity of an economy, and views the labour available as the ultimate bottleneck for state activity. The polity must supply its needs from its available stock of labour, and thus must have sufficient capital available to allow that labour to be sufficient. Thus the basic equation of political economy may be phrased as: Labour involves not only time in the abstract sense, but the realities of human beings, both as social and economic beings. The basic formula of political economy was described by Adam Smith in his The Wealth of Nations: capital(labour) - investment - consumption = surplus/deficit Capital is the function, into which is put labour. Investment is the amount spent developing the stock of capital, and consumption is the use of utility. A polity which has a surplus is then able to buy assets or capital from abroad, or increase investment or consumption. A polity where investment and consumption taken together are greater than the production will run a deficit, and must borrow or sell assets to make up the difference. The study of production then focuses on how capital interacts with labour, in the broad, rather than narrow sense. This is because labour must, to make use of capital, have the necessary skills and social infrastructure. In Marxian terms, social infrastructure is referred to as consciousness and societies with sufficient social infrastructure to produce what they consume and control their own capital are said to have the "objective" basis for production.

Capital

Capital may be said to be any tool which increases the ability of labour to organize material into usable form. Physical capital refers to tangible objects which, when employed, allow greater production. Intellectual capital refers to concepts, ideas, designs, theories and information which allows an individual to act with greater effectiveness. Physical capital implies an intellectual capital required to use it. Human capital can be described as the readiness of labour to use capital, and includes education, social norms, ethical understanding, networks of relationship and communication, health and general well being. Capital can be for positive production, but, in political economic terms, weapons are also capital. States pursue political economy, in no small degree, to be able to produce the capital of projecting power and force. Often the projection of force is to acquire resources required for production, or the opening of labour to be utilized in production, or to open markets for the results of national production.

Transport

Labour and resources need to be able to get to capital, and commodities need to be moved to where they can be exchanged and consumed. This creates the need for transport - of people, things and information. The need to move labour and resources to within range of capital is seen in the creation of transport grids, such as trains and roads. The need to coordinate production is seen in the creation of communication grids.

Exchange

From the view of political economy, exchange is the process where the producers of commodities or investment exchange with consumers. Each producer is also a consumer, and each consumer is also a producer. The market provides a mechanism for exchange, and money provides a medium of exchange. Consequently, the dynamics of monetary policy are a central focus of much of political economy. The infrastructure of exchange determines the range of market possibilities. Political economy views the long term goal of economic activity as the successive creation of economic rules of order that maximize human comfort and longivity. The market is essential to the division of labor at the heart of political economy. Adam Smith enumerates early in The Wealth of Nations a list of requirements for the functioning of a market, which include stability of exchange and expected rates of profit in various enterprises. The mechanisms of exchange are generally studied through a framework rooted in economics.

Consumption

Consumption is the realization of utility which is the output of production or the enhancement of productivity. This can manifest itself as the consumption of commodities (goods) or as liesure, health, freedom, or longivity. As "goods" are consumed there is a return of material organized by production back to a state of being unusable.

Disposal

Disposal is the least glamorous area of political economics, but in many respects the most vital. People produce waste. Waste, if allowed to accumulate, creates disease and other undesirable effects. Providing the infrastructure of removing that waste, or neutralizing its harmful effects, is a large fraction of the history of urban development. As Fiorello LaGuardia famously remarked "there is no Republican or Democratic way to collect the trash on time". Sewage systems, garbage collection, clean air laws and recycling are all results of the need to dispose of after effects, and take up a significant fraction of the political life of most localities. On the scale of political economy, wastes produced often require more space or expertise than can be managed locally. Green economics and other fields of study that concentrate on externalization of costs focus heavily on the carry capacity of ecological systems and the effect of human activity in them, this includes the effects in human terms of global warming, ecological diversity, soil erosion, water quality, epidemiology and pollution.

Disciplines which relate to political economy

Because political economy is not a unified discipline, there are a variety of studies that use the term which have overlapping subject mater, but radically different viewpoints. Sociology is the study of the effects of involvement in society on individuals as members groups, and how this changes their ability to function. Many sociologists begin from a framework of production determining relationship drawn from Karl Marx. Anthropology often studies political economy by studying the relationship between the world capitalist system and local cultures. Psychology is frequently the fulcrum around which political economy centers, in that it deals with decision making, not as being a black box whose effects are seen only in price decisions, but as being a source of study, and therefore the assumptions in a model of political economy. History since it documents change over time, is often used as a means of arguing in political economy, and often historical works have a framework of political economy which they assume or argue as the basis for the narrative structure. Economics, because it studies activity and price relationships and the effects of scarcity, grew out of political economy. It is often used in political economy to argue policy effects and study the results of actions, and it is often in opposition to political economy, in that many, if not most, practicing economists see political economy as being a hindrance to the operation of economic forces. From the point of view of political economy, economics is a branch of the entire study, and economics has, at its basis, a theory of political economy which should be open to examination. Law since it concerns the creation of policy, or the mediation of policy ends through political acts which have specific individual results, is seen, in political economy, as both political capital and social infrastructure, on one hand - and as the result of the sociology of a society on the other. Ecology is often involved in political economy, because human activity is one of the single largest effects on the environment, and because it is the suitability of the environment for human beings which is one of the central concerns of most human beings. The ecological effects of economic activity on the environment have spurred the creation of a great deal of research studying means of changing the incentives balance of the market economy. This work is particularly controversial in its interaction with economics, since it questions the fundamental econometric assumptions of market economics and their basic validity. See the commons.

General paradigms of political economy

Political economists are divided over the nature of two paradigms: the paradigm of distribution and the paradigm of production. These paradigms may be related, especially at the extremes, but there are a vast number of individuals who hold almost diametrically opposite views on these two paradigms in the same context.

Paradigms of distribution

Societies produce more than isolated individuals, and labour with the aid of capital produces more than labour alone. Societies also generate more waste, and capital makes demands for investment and organization. The first can be referred to as the social surplus and capital surplus respectively, and the second as social costs and capital requirements. One of the most important social costs is war. Indeed the difference between political economy and economics is that, in economics, war is a temporary alteration in price variation, the old joke being that "World War III, should it come, will be noted in two sentences in the Wall Street Journal, with an article inside on its effect on soybean futures." The paradigms of political economy may be classified based on their view of distributing the social costs and benefits, and the capital costs and benefits. Libertarianism: Libertarianism denies that there is any significant difference between capital surplus and social surplus: it claims that all improvements to productivity are capital surplus and belong to the individual. Libertarianism further contends that by paying for inputs, an individual has already paid for the social cost of their activity, and that to avoid disutility, individuals will rationally trade effects of economic activity that are adverse. Libertarians, therefore, generally believe in an absolute standard of value, generally the gold standard. They point to John Locke, Thomas Jefferson, Adam Smith and Ralph Waldo Emerson as antecedents, and argue that they are merely continuing "classical liberalism". In the libertarian framework, since there is no social surplus, any attempt to distribute is unjustified - that is, economics is separate from the political sphere. Libertarianism's main school of thought was the Austrian School of economists, and found expression in laissez-faire economics. Libertarians may be said to be economic and social extreme individualists. Important, or at least widely cited, thinkers in Libertarian thought include Ayn Rand, Friedrich von Hayek, Franz Oppenheimer and Ludwig von Mises. Liberalism: Liberalism believes that capital surplus should accrue to the individual, but that social surplus and cost should be distributed as widely as feasible within the context of maintaining the individuals' expectation to the surplus of their own efforts. Liberals therefore support state intervention in political economy to measure and distribute social costs and benefits. Many thinkers are, therefore, held in common between libertarianism and liberalism - since when the social surplus is perceived of as being low, or in particular areas, liberals believe that there is nothing to distribute. Liberals also agree with Conservatives about the need to protect against the ill effects of social disorganization, even though the manner of doing so differs. Liberalism sees the expansion of individual rights (from the philosophy of Jean-Jacques Rousseau and Thomas Jefferson) as being the entitlement to a certain reasonable standard of life for all members of society. From the pragmatic viewpoint, this is the necessity of human capital sufficient to engage in the full range of production. Liberalism has been proposed by such thinkers as John Dewey, John Rawls, Isaiah Berlin, economists such as John Maynard Keynes and educators such as Mortimer Adler. Conservatism: Conservatism believes that capital surplus accrues to the individual, and that there is little or no social surplus, but that there are significant social costs, which must be distributed across the society. Examples of this include military service, standards of personal morality and charity. Conservative thought became established in English philosophy with the work of Thomas Hobbes, but became a political doctrine with Edmund Burke. Conservatism in the modern period looks to libertarian economic thinkers, but toward the absolute need for social structure enforced by normative institutions such as religion and nationalism. Prominent modern schools of Conservative thought include the work of Leo Strauss in the USA. Socialism: Socialism believes that the ratio of capital surplus to social surplus is very low, that most of the surplus involved in human production is predicated on the producer being a member of society, and therefore argues for social control of the means of production and an egalitarian distribution of wealth, in order to provide benefits to all members of a society. Socialism evolved from critiques of human misery in the late 18th century, such as those of the political philosopher Fourier. In the view of the socialists, the market could never efficiently distribute the social surplus, and private ownership merely substituted one form of tyranny for another (the tyranny of the capitalists replaced the tyranny of feudal lords). In the present day, many social democratic parties believe in some form of socialism which requires that corporations and major public works be guided by political as well as economic factors, for social goals. In addition, most socialists adhere to some form of utilitarian philosophy, which states that the best form of society is the one that produces the best results for the greatest number of its members. Communism: Communism believes that there is no difference between capital surplus and social surplus, which is a view it shares with libertarianism. But, in the reverse of the libertarian viewpoint, it argues that all surplus is socially created. The most prominent communist thinker was Karl Marx, who was the founder of the school of thought known as Marxism. Other important Marxists include Friedrich Engels, Vladimir Lenin and Leon Trotsky.

Paradigms of production

The ability of some individuals to create capital or perform work with a far greater impact on society than others creates the question of the basis on which production should be measured. Individualism: Individualist paradigms state that the single person, with his or her will and his or her own desires, is the basis of production, and that only individual accomplishment and happiness matter. Society is an instrument in so far as it produces individual happiness or utility. In addition, the individualist paradigm relies on the assumption that individual contributions to production are always measurable, so it makes sense to view one individual's contribution as separate from those of others. Communitarianism: Communitarian paradigms state that it is the action of a group, with particular exceptional individuals, which forms the basis of production. Communitarian thinkers work in concepts such as inter-subjectivity and the dynamics of group production. The individual, within a community, is considered to be the basic unit. Collectivism: Collectivist paradigms state that it is impossible to show with any degree of precision what the contribution of each individual is, and all artifacts and accomplishments must therefore be regarded as the result of a group effort. The two issues of production and distribution generally move in this same direction. However, this is far from being always the case. It is entirely possible, for example, to take the stance of an individualist, and then conclude that individuals will be happiest in a communist society.

The market

One of the central conflicts in political economy is, of course, the role and functioning of the market economy in society. It is here where the broad range of paradigmatic assumptions collide, and on particular issues, individuals and groups with widely differing views will find common intellectual and practical political cause. In the political world, the fulcrum is on the ownership of capital surplus and production. In the context of political economy, capitalism takes on a very broad meaning: the focus of the state on the maintaining and creating of capital and the means of its utilization. Many paradigms use the word in a much narrower context to mean private ownership and the self-justifying results of market operation, and deny that any other use of the word is appropriate. However, the vast majority of governing and major opposition parties in the industrialized world see the maintaining of capital capability as an area for legitimate state interest, and therefore maintain that government intervention in the market to prevent its disintegration, and even to promote certain aspects of its advancement is a proper use of state power. Socialism, viewed as a system of political economy, states that the forms of production (on which labour is dependent to sell to) should be maintained, or overseen, by political power, and generally state power, in order to give their benefits to the many rather than the few. This brings socialism into conflict with ideologies in the classical liberal tradition, which believe that production for capital profit is best left in private hands. Communism sees the necessity of social control over all surplus generating activity. Communist parties exist in most industrialized nations, while communist revolutionary movements are more common in less industrialized ones. Within the paradigm of communism there are a host of particular theories. Not all Marxist theories are communist, and not all communists are necessarily Marxist in their orientation.

External links

- [http://cepa.newschool.edu/het/ History of Economic Thought] - This compendium hosted by the New School has collected bios on over 500 economists and introductions to many schools of thought.
- [http://csf.colorado.edu/ipe/ Global Political Economy Net] Mailing lists and other reference material by scholars of "The Global Political Economy"
- [http://www.transhumanist.com/volume4/space.htm Political Economy of Space Development]
- [http://www.shef.ac.uk/uni/academic/N-Q/perc/ New Political Economy Research Center, University of Sheffield].
- [http://www.kluweronline.com/issn/1043-4062/contents Constitutional Political Economy] Most recent issues online.
- [http://www.gmu.edu/jbc/ George Mason University: Buchanan Center for Political Economy]
- [http://www.umass.edu/peri/ Political Economic Research Institute, University of Massachusetts, Amherst] Category:Political economy ko:정치경제학

Surplus value

Surplus value is a concept created by Karl Marx in his critique of political economy, where its ultimate source is claimed to be unpaid surplus labour performed by the worker for the capitalist, serving as a basis for capital accumulation. The German equivalent word "Mehrwert" means simply value-added, but in Marx's value theory, the extra or surplus-value has a specific meaning, namely the amount of the increase in the value of capital upon investment, i.e. the yield regardless of source or form. The problem of explaining the source of surplus value is expressed by Frederick Engels as follows: "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"." [http://www.marxists.org/archive/marx/works/1877/anti-duhring/ch19.htm] Marx himself regarded the reduction of profit, interest and rent income to surplus-value, and surplus value to surplus labour as one of his greatest theoretical achievements. For Marx, 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). In the Communist Manifesto, Marx and Engels wrote: "The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of nature's forces to man, machinery, application of chemistry to industry and agriculture, steam navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalization or rivers, whole populations conjured out of the ground -- what earlier century had even a presentiment that such productive forces slumbered in the lap of social labor?"

Definition of surplus value

Total surplus-value in an economy (Marx refers to the mass or volume of surplus-value) is basically equal to the sum of net distributed and undistributed profit, net interest, net rents, net tax and various net receipts associated with royalties, licensing, leasing, certain honorariums etc. (see also value product). However Marx's own discussion focuses mainly on profit, interest and rent, largely ignoring taxation and royalty-type fees which were proportionally very small components of the national income when he lived. To illustrate, in the Netherlands the government tax take as a fraction of GDP was about 4% in 1850 compared to 39% in 2002. Accurate measures of net tax yield are not easy, because the state both "taketh and giveth away" in a complex series of transfers. Of course, the way generic profit income is grossed and netted in social accounting may differ somewhat from the way an individual business does that (see also Operating surplus).

Five interpretations of surplus value

Surplus-value may be viewed in five ways:
- as a component of the new value product, which Marx himself defines as equal to the sum of labor costs in respect of capitalistically productive labour (variable capital) and surplus-value. In production, he argues, the workers produce a value equal to their wages plus an additional value, the surplus-value. They also transfer part of the value of fixed assets and materials to the new product, equal to economic depreciation (consumption of fixed capital) and intermediate goods used up (constant capital inputs). Labor costs and surplus-value are the monetary valuations of what Marx calls the necessary product and the surplus product, or paid labour and unpaid labour.
- Surplus-value can also be viewed as a flow of net income appropriated by the owners of capital in virtue of asset ownership, comprising both distributed personal income and undistributed business income. In the whole economy, this will include both income directly from production and property income.
- Surplus-value can be viewed as the source of society's accumulation fund or investment fund; part of it is re-invested, but part is appropriated as personal income, and used for consumptive purposes by the owners of capital assets (see capital accumulation); in exceptional circumstances, part of it may also be hoarded in some way). In this context, surplus value can also be measured as the increase in the value of the stock of capital assets through an accounting period, prior to distribution.
- Surplus-value can be viewed as a social relation of production, or as the monetary valuation of surplus-labour - a sort of "index" of the balance of power between social classes or nations in the process of the division of the social product.
- Surplus-value can, in a developed capitalist economy, be viewed also as an indicator of the level of social productivity that has been reached by a population.

Five measures of the rate of surplus value

According to Marx's theory of exploitation, living labour at an adequate level of productivity is able to create and conserve more value than it costs the employer to buy; which is exactly the economic reason why the employer buys it, i.e. to preserve and augment the value of the capital at his command. Thus, the surplus-labour is unpaid labour appropriated by employers in the form of work-time and outputs, on the basis that employers own and supply the means of production worked with. The commercial function of labour is only to conserve their value, add value to them, and transfer value. According to Marx's labor theory of value, human labor is the only source of net new economic value, but is also indispensable for the conservation and transfer of economic value (maintenance and redistribution of capital assets). Asset revaluations according to this theory only redistribute claims to product-value which has already been created previously. The rate of surplus-value in production is defined by Marx as the volume of surplus-value produced by the workforce divided by the variable capital (or labour-costs) expended to produce it (the ratio S/V). This is very roughly equivalent to the profits/wages ratio, though there is debate in Marxian economics about what exact profit and wage measures should be used. After all, total labour costs often involve far more than wage payments, and profits can be "grossed" and ""netted" in different ways. Alternative measures Marx cites are:
- surplus value divided by the value of labour-power,
- surplus labour divided by necessary labour
- [the value of] unpaid labour divided by [the value of] paid labour, expressible in hours worked or money units
- the surplus product divided by necessary product. (see Das Kapital, vol. 1, chapter 28). The five measures of the rate of surplus value mentioned do not all refer to the same thing exactly (see further rate of exploitation and surplus product). However, the basic meaning of the rate of surplus value is always the rate of exploitation of living labour-capacity, i.e. the net yield obtained from the employment of living labour. Marx usually assumed in his models that the rate of surplus-value would be the same in all industries, different rates being equalised to a general norm in an open market for capital and labour. In reality, this is probably not the case, i.e. the rates may vary. Some authors have interpreted this "rate of exploitation" as a purely economic or commercial concept (in the sense of "labor utilisation", the use of a resource) while others see it primarily as a moral or political concept referring to the domination of a social class which commands labour in virtue of ownership of capital assets.

Complicating factors in assessing surplus value

Complicating factors in assessing surplus-value are:
- state intermediation, where profit and wage income is taxed on the one side, and supplemented on the other with subsidies and grants of various kinds;
- employee and employer contributions to social security and health schemes (wage costs and total labour costs may not be equal);
- price inflation applying to wage goods, profit and capital goods;
- creative accounting and tax avoidance or evasion techniques which misrepresent how much value has really been created.
- income obtained from what Marx called "fictitious capital" or what now are often called "bubble" phenomena.
- unsold inventories of net outputs which contain surplus-value. These phenomena often make it difficult to calculate what the real net wage income is, and what the real net profit income is; there may be a very significant difference between gross income and disposable income. In modern society, the complexity of transactions can often seem almost inpenetrable or opaque. People may become less concerned with issues of exploitation, rather their concern may just simply be with defending their entitlement to a secure real net income ("take home pay") from the work they do, or from any other source. How the exchange between capital and labour happens to be viewed, depends greatly on the balance of power between employers and employees, and on the ability for all parties to the exchange to make gains from the trade in human labor. People would not usually trade unless they made a positive gain by it, but obviously the gains could be very unequally distributed among different parties to the trade. The more real net income capitalists and workers lose, the more concerned they become about fair exchange and exploitation.

Origin of the forms of surplus-value in trade

Surplus-value is not a fixed category but a dialectical, developing one, because the forms in which new value is created and appropriated, and the way the burdens of productive work are shifted between strata of the population, change over time. There is obviously a big difference between simple commodity producers exchanging agricultural surpluses in a village market, and "fast money" in today's global money markets. Historically, Marx argues, surplus-value originated outside production in the first commercial forms of exchange - usury, merchant, rentier and bank capital and their associated lending operations. Thus, the first forms of surplus-value include (leaving aside extortion and robbery etc.) profits from simple commodity production, merchants' profit from "buying cheap and selling dear" or unequal exchange, certain types of rent imposed on production, and interest on loans extended by financiers, bankers and usurers. In Europe, "share" certificates of the joint-stock type date from the 16th century. In ancient and feudal society, the ability to appropriate surplus-value from trade in commodities and capital was usually strongly regulated, and limited by the state and religious authorities; a universal market where almost everything could be bought and sold freely using money did not exist. Originally, as Marx explicitly notes, commercial trade emerged at the boundaries of economic communities based on a non-capitalist mode of production, and it is only when commerce begins to dominate and regulate the bulk of production itself, that it becomes clearer that the ultimate source, or substance, of all surplus-value is really surplus-labour. The processes whereby capitalist commerce conquers direct control of production are however very lengthy and complicated ones; all kinds of socio-economic obstacles ("market rigidities") must be cleared away, and new institutions created, before all the necessary factors of production can be freely bought and sold as inputs and outputs. A good example of that is modern China.

Appropriation of surplus-value from production

Both in Das Kapital and in preparatory manuscripts such as the Grundrisse and Results of the immediate process of production, Marx shows how commerce by stages transforms a non-capitalist production process into a capitalist production process, integrating it fully into markets, so that all inputs and outputs become marketed goods or services. When that process is complete, the whole of production has become simultaneously a labor process creating use-values and a valorisation process creating new value, and more specifically a surplus-value appropriated as net income (see also capital accumulation). In fact, Marx argues that the whole purpose of production in this situation becomes the growth of capital, i.e. that production of output becomes conditional on capital accumulation. If production becomes unprofitable, capital will be withdrawn from production sooner or later. This means, systemically, that the main driving force of capitalism becomes the quest to maximise the appropriation of surplus-value augmenting the stock of capital. The overriding motive behind efforts to economise resources and labor is to obtain the maximum possible increase in income and capital assets ("business growth"), and provide a steady or growing return on investment.

Absolute and relative surplus value

According to Marx, absolute surplus value is obtained by increasing the amount of time worked per worker in an accounting period. Marx talks mainly about the length of the working day or week, but in modern times the concern is about the number of hours worked per year. In many parts of the world, as productivity rose, the working classes forced a reduction in the workweek, from 60 hours to 50, 40 or 35 hours; but casualisation and flexibilisation of working hours also permits higher paid workers to work less (a fact of concern to statesmen who worry about international competitiveness, i.e. if we don't work harder our country will lose business). Relative surplus value is obtained mainly by
- reducing wages — this can only go to a certain point, because if wages fall bellow the ability of workers to purchase their means of subsistence, they will be unable to reproduce themselves and the capitalists will not be able to find sufficient labor power.
- reducing the cost of wage-goods by various means, so that wage increases can be curbed.
- increasing the productivity and intensity of labour generally, through mechanisation and rationalisation, yielding a bigger output per hour worked. The attempt to extract more and more surplus-value from labor on the one side, and on the other side the resistance to this exploitation, are according to Marx at the core of the conflict between social classes, which is sometimes muted or hidden, but at other times erupts in open class warfare and class struggle. Marxists will often spout rhetoric about class struggle, but in reality there is a big difference between class conflict and class struggle. A class conflict may exist and fester for a long time, without classes being able and willing to organise any mass struggle actively. Employers may provoke a strategic fight in order to demolish workers' militancy in a critical area; or, mass revolts of workers are sparked off by moral outrage about some event, or because conditions have become intolerable. No easy generalisations are possible, especially because the moods, feelings and inclination to act of social classes can change very rapidly; bursts of mass action can take most people by surprise.

Production versus realisation of surplus-value

Marx distinguished sharply between value and price, in part because of the sharp distinction he draws between the production of surplus-value and the realisation of profit income. Output may be produced containing surplus-value (valorisation), but selling that output (realisation) is not at all an automatic process. Until payment from sales is received, it is uncertain how much of the surplus-value produced will actually be realised as profit from sales. So, the magnitude of profit realised in the form of money and the magnitude of surplus-value produced in the form of products may differ greatly, depending on what happens to market prices and the vagaries of supply and demand fluctuations. This insight forms the basis of Marx's theory of market value, prices of production and the tendency of the rate of profit of different enterprises to be equalised by competition. In his published and unpublished manuscripts, Marx went into great detail to examine many different factors which could affect the production and realisation of surplus-value. He regarded this as crucial for the purpose of understanding the dynamics and dimensions of capitalist competition, not just business competition but also competition between capitalists and workers and among workers themselves. But his analysis did not go much beyond specifying some of the overall outcomes of the process. His main conclusion though is that employers will aim to maximise the productivity of labour and economise on the use of labour, to reduce their unit-costs and maximise their net returns from sales at current market prices; at a given ruling market price for an output, every reduction of costs and every increase in productivity and sales turnover will increase profit income for that output. The main method is mechanisation, which raises the fixed capital outlay in investment. In turn, this causes the unit-values of commodities to decline over time, and a decline of the average rate of profit in the sphere of production occurs, culminating in a crisis of capital accumulation, in which a sharp reduction in productive investments combines with mass unemployment, followed by an intensive rationalisation process of take-overs, mergers, fusions, and restructuring aiming to restore profitability.

The significance of the mass of surplus value

Most Marxist discussions focus on the rate of surplus value, but for businessmen, the growth of the mass of surplus-value, or the profit volume produced (denoted here as P) is just as important, or even more important. The growth of P depends on the growth of the volume of output in an accounting period, and the volume of sales turnover. We can illustrate the point with a simplified example. If:
- K = total capital invested
- P = total net profit volume realised
- r = the rate of profit (i.e. P/K), and assuming (perhaps unrealistically) that a sum equal to P is reinvested (with or without the aid of credit) with zero price inflation, we can construct a series of annual business results, starting off with K= 1 million and r = 10% where the profit rate declines by a constant 0.1% per annum:
- year 1: K = 1,000,000; P = 100,000; r = 10%
- year 2: K = 1,100,000; P = 108,900; r = 9.9%
- year 3: K = 1,208,900; P = 118,472; r = 9.8% We see here that within two years at least, an 18.5% increase in annual profit volume has occurred, even although the rate of profit decreased by 0.2%. In other words, there's nearly one-fifth more income to disburse to the owners of the capital, although the rate of return fell slightly. What this simplistic example really implies is that, provided market sales keep growing and business expands, a slight fall in the profit rate on capital may not be a point of concern. After all, capital assets have grown, but more importantly, the total volume of revenue that can be distributed has grown. However, if the total profit volume created in a capitalist economy stops growing, this becomes a real problem (as highlighted by Henryk Grossman). Because in that case, profitability must fall across the board, and business income is reduced everywhere. In some Marxist crisis theories (e.g. by Grossmann and Paul Mattick), the root cause of economic crisis is precisely that the growth of profit volume is eclipsed by the decline of the profit rate in production, the result being that the total profit volume that can be distributed stagnates or falls. The overall implication is that market expansion is critical for the total volume of surplus-value that can be distributed as profit. Total business income can increase, even although the profit rate on capital invested falls.

Surplus value and taxation

In general, business leaders and investors are hostile to any attempts to encroach on total profit volume, especially those of government taxation. The lower taxes are, other things being equal, the bigger the mass of profit that can be distributed as income to private investors. It was tax revolts that originally were a powerful stimulus motivating the bourgeoisie to wrest state power from the feudal aristocracy at the beginning of the capitalist era. In reality, of course, a substantial portion of tax money is also redistributed to private enterprise in the form of government contracts and subsidies. If that had not been the case, the tax take would never have been permitted to rise to a quarter or a third of gross product. Capitalists may therefore be in conflict among themselves about taxes, since what is a cost to some, is a source of profit to others. Marx never analysed all this in detail; but the concept of surplus value will apply mainly to taxes on gross income (personal and business income) and the trade in products & services. Estate duty for example rarely contains a surplus value component, although profit could be earnt in the transfer of the estate. Generally, Marx seems to have regarded taxation imposts as a "form" which disguised real product values. Apparently following this view, Ernest Mandel in his 1960 Marxist treatise refers to (indirect) taxes as "arbitrary additions to commodity prices". But this is something of a misnomer, and disregards that taxes become part of the normal cost-structure of production. In his later treatise on late capitalism, Mandel astonishingly hardly mentions the significance of taxation at all, a very serious omission from the point of view of the real world of modern capitalism.

Surplus value and the circuits of capital

Generally, Marx focused in Das Kapital on the new surplus-value generated by production, and the distribution of this surplus value. In this way, he aimed to reveal the "origin of the wealth of nations" given a capitalist mode of production. However, in any real economy, a distinction must be drawn between the primary circuit of capital, and the secondary circuits. To some extent, national accounts also do this. The primary circuit refers to the incomes and products generated and distributed from productive activity (reflected by GDP). The secondary circuits refer to trade, transfers and transactions occurring outside that sphere, which can also generate incomes, and these incomes may also involve the realisation of a surplus-value or profit. It is true that Marx argues no net additions to value can be created through acts of exchange, economic value being an attribute of labour-products (previous or newly created) only. Nevertheless trading activity outside the sphere of production can obviously also yield a surplus-value which represents a transfer of value from one person, country or institution to another. A very simple example would be if somebody sold a second-hand asset at a profit. This transaction is not recorded in gross product measures (after all, it isn't new production), nevertheless a surplus-value is obtained from it. Another example would be capital gains from property sales. Marx occasionally refers to this kind of profit as profit upon alienation, alienation being used here in the juridical, not sociological sense. By implication, if we just focused on surplus-value newly created in production, we would underestimate total surplus-values realised as income in a country. This becomes obvious if we compare census estimates of income & expenditure with GDP data. This is another reason why surplus-value produced and surplus-value realised are two different things, although this point is largely ignored in the economics literature. But it becomes highly important when the real growth of production stagnates, and a growing portion of capital shifts out of the sphere of production in search of surplus-value from other deals. 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.

Measurement of surplus value

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 otherwise intelligent 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. 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).

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). 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 he 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." (see also relations of production). 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".

Criticism of Marx's concept

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). 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.

The moral and power dimension of surplus value

A typical textbook-type example of an alternative interpretation to Marx's is provided by Lester Thurow. "In a capitalistic society", he argues in an Concise Encyclopedia of Economics article, "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 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. That was the main reason why 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 enforcable accounting system.

References

- [http://www.marxists.org/archive/marx/works/1863/theories-surplus-value/ Theories of Surplus-Value (1863)]
- [http://www.marxists.org/archive/marx/works/1865/value-price-profit/index.htm Value, Price and Profit (1865)]
- [http://www.marxists.org/archive/marx/works/1867-c1/index.htm Capital, Volume 1], [http://www.marxists.org/archive/marx/works/1885-c2/index.htm Volume 2], [http://www.marxists.org/archive/marx/works/1894-c3/index.htm Volume 3] [http://www.marxists.org/archive/marx/works/1894-c3/supp.htm#intro]
- Anwar Shaikh & Ahmet Tonak, Measuring the Wealth of Nations
- Anwar Shaikh papers: http://homepage.newschool.edu/%7eAShaikh/
- 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: http://home.mtholyoke.edu/~fmoseley/fred.html
- Gerard Dumenil & Dominique Levy papers: http://www.jourdan.ens.fr/~levy/
- Steve Keen, Debunking Economics; The Naked Emperor of the Social Sciences. London: Zed Press, 2004. http://www.debunking-economics.com/
- Ernest Mandel, Marxist Economic Theory, Vol. 1.
- 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. Category:Marxism Category:Marxist theory ja:剰余価値