Value. Profit. Surplus Value. Contradiction Between Rate of Profit and Surplus Value 12 27 2023

It is essential to understand what the concept value represents, if you want to begin to understand political economy. What seems rather straightforward becomes tied up and difficult to understand the deeper one goes in it.

Adam Smith in his Wealth of Nations in 1775 showed he understood the importance of value, and its connection to the labour process. Value is the entire amount of labour time required to produce a product, whether or not it is paid for. David Ricardo noted this in Principles of Political Economy and Taxation 1817, in chapter one. He owes much to Adam Smith though, which formed the basis for his work.

Adam Smith understood the law of value, but could not directly put forward its inner essence, the presence of surplus value, the unpaid section of the product’s production. The fact it is not paid changes nothing in its value, but by connecting profit with surplus value, as Adam Smith did, confuses what surplus value is.

Because profit is the unpaid labour of the worker, the unpaid section offer workday, it was easy to overlook the contradiction, and lump all of capital that produced this unpaid labour into profit. Surplus value , onto other hand, is the relationship of the worker, wage labour, to the owner of capital. It is calculated by the amount of labour present in the product, paid and unpaid. Profit is the unpaid labour calculated in the entire expenditure including the machinery and raw materials.

This shows that the rate of surplus value can be very different when machinery becomes very advanced, compared to more mundane labour, with many workers but less machinery. The profit rate is higher where more manual labour is used than the sector of production where the labour uses more machinery. This is due to the profit rate being calculated onto total capital expenditure, the ratio of surplus value to the amount of product produced.

Machinery does not create surplus value, only labour can do this. Harnessing natural processes is not what creates the unpaid section of the workday, the value of a commodity is the amount of labour time required to produce it. Less labour is required to produce the product under conditions of modern industry. It requires more souls to produce the product without machinery, with a lower rate of surplus value, but at a higher rate of profit, as the machinery that is calculated with the variable capital, the cost of labour, lower for the owner of large means of production. Even a higher rate of surplus value is obscured when the total value of all the machinery and raw materials are calculated with cost of machinery, the constant capital. The profit rate falls.

Our other producer, whose rate of profit is the average rate, now has a larger section of his expenditure on raw labour. The product was worth more, its value falls with the constant march forward of modern industry. which reduces the amount of labour required to produce the commodity. The person with the machinery can now undersell his competitor, lowering the cost of the product, and the amount of unpaid labour accruing to the individual commodity.

It may seem the more primitive production is making more surplus value, but the cost of this is translated in the product, which falls with machinery becoming more advanced. The sector the machinery is unleashed on shows less profit, as the cost of the machinery is attached to the expenditure, but the surplus value rate can rise, Even if the worker receives higher wages, it is still cheaper to employ him with the help of machinery than without. The profit rate may have been higher prior to the introduction of the machinery, but productivity was lower. With the introduction of machinery, the worker creates more with less labour, resulting in more surplus value. But profit does not show this. This is the contradiction Adam Smith left us, which couldn’t be solved until the surplus value was directly examined. It wasn’t until about 1863 until profit and surplus value would be directly differentiated by Karl Marx, who would eventually cause revolution in the 20th century with his work. It is still causing revolution, and the theory of value still stands.

The study of political economy has to start with the theory of value. The value of the product is the amount of labour time required to produce it, and even if it were all paid labour (which it is not) its value would still be the amount of labour required to produce it. It changes nothing if it is not paid for. It just means part of the commodity is not owned by the worker, rather its production creates the compulsion for him to continue laboring, and the harder the labour the more surplus value, and the less and less chance of the worker to ever be able to buy the machinery he is harnessed to. The harder he works the less control his environment he gets. But if anything this reaffirms the law of value; his labour is still creating the value of the commodity, it is just that more is shared with the capitalist when machinery is more advanced.

The interesting thing is Smith and Ricardo grasped surplus value, yet Ricardo calls it profit. Both see the surplus value; they grasp it is present and can even see the theory of value, yet still do not directly differentiate between profit and surplus value. Ricardo should lave grasped this, but did not. Apparently a half a century more of industrial capitalism was required to unravel what was left to us from Adam Smith and Ricardo. Both were brilliant, a definite study, but inadequate to understanding the difference between surplus value and profit. You have to study Karl Marx to understand this latter difference.

The question what value is has yet to be common knowledge, which should tell us something. Someone doesn’t like the conclusions this brings forward. In many regions of Europe, the study of Marxism is illegal. And this in societies that lived under revolution for decades. They seem to be trying to put the genie back in the bottle, often violently. A universal suffrage minus the workers party, is practiced. There are whole institutions dedicated to removing Marx from political economy, some even purporting to be places of higher learning.

But for all their efforts, the theory of value remains. And the contradiction between the rate of profit and the rate of surplus value remains, becoming more important than ever as of late.

Nicholas Jay Boyes
Milwaukee Wisconsin
American Democratic Republic
12 27 2023