In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to manufacture it: i.e. the amount raised through sale of the product minus the cost of the materials, plant and labour power. The concept originated in Ricardian socialism, with the term "surplus value" itself being coined by William Thompson in 1824; however, it was not consistently distinguished from the related concepts of surplus labour and surplus product. The concept was subsequently developed and popularised by Karl Marx. Marx's formulation is the standard sense and the primary basis for further developments, though how much of Marx's concept is original and distinct from the Ricardian concept is disputed (see § Origin). Marx's term is the German word "Mehrwert", which simply means value added (sales revenue minus the cost of materials used up), and is cognate to English "more worth". It is a major concept in Karl Marx's critique of political economy, underpinning a variety of his theories related to the function of capitalism and the exploitation of the working class. Conventionally, value-added is equal to the sum of gross wage income and gross profit income. However, Marx uses the term Mehrwert to describe the yield, profit or return on production capital invested, i.e. the amount of the increase in the value of capital. Hence, Marx's use of Mehrwert has always been translated as "surplus value", distinguishing it from "value-added". According to Marx's theory, surplus value is equal to the new value created by workers in excess of their own labour-cost, which is appropriated by the capitalist as profit when products are sold. Marx thought that 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 labour, 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). The concept is closely connected to producer surplus.
Origin By the Age of Enlightenment in the 18th century the French physiocrats were already writing on the hypothesis that surplus value that was being extracted from labour by "the employer, the owner, and all exploiters" although they used the term net product. The concept of surplus value continued to be developed under Adam Smith who also used the term "net product" while his successors the Ricardian socialists, began using the term "surplus value" decades later, after its coinage by William Thompson in 1824:
Two measures of the value of this use, here present themselves; the measure of the labourer, and the measure of the capitalist. The measure of the labourer consists in the contribution of such sums as would replace the waste and value of the capital by the time it would be consumed, with such added compensation to the owner and superintendent of it as would support him in equal comfort with the more actively employed productive labourers. The measure of the capitalist, on the contrary, would be the additional value produced by the same quantity of labour in consequence of the use of the machinery or other capital; the whole of such surplus value to be enjoyed by the capitalist for his superior intelligence and skill in accumulating and advancing to the labourer his capital or the use of it.
William Godwin and Charles Hall are also credited as earlier developers of the concept. Early authors also used the terms "surplus labour" and "surplus produce" (in Marx's language, surplus product), which have distinct meanings in Marxian economics: surplus labour produces surplus product, which has surplus value. Some authors consider Marx as completely borrowing from Thompson, notably Anton Menger:
... Marx is completely under the influence of the earlier English socialists, and more particularly of William Thompson. ... [T]he whole theory of surplus value, its conception, its name, and the estimates of its amounts are borrowed in all essentials from Thompson's writings. ... Cf. Marx, Das Kapital, English trans. 1887, pp. 156, 194, 289, with Thompson, Distribution of Wealth, p. 163; 2nd ed. p. 125. ... The real discovers of the theory of surplus value are Godwin, Hall, and especially W. Thompson.
This claim of priority has been vigorously contested, notably in an article by Friedrich Engels, completed by Karl Kautsky and published anonymously in 1887, reacting to and criticising Menger in a review of his The Right to the Whole Produce of Labour, arguing that there is nothing in common but the term "surplus value" itself. An intermediate position acknowledges the early development by Ricardian socialists and others, but credits Marx with substantial development. For example:
What is original in Marx is the explanation of the manner in which surplus value is produced.
Johann Karl Rodbertus developed a theory of surplus value in the 1830s and 1840s, notably in Zur Erkenntnis unserer staatswirthschaftlichen Zustände (Toward an appreciation of our economic circumstances, 1842), and claimed earlier priority to Marx, specifically to have "shown practically in the same way as Marx, only more briefly and clearly, the source of the surplus value of the capitalists". The debate, taking the side of Marx's priority, is detailed in the Preface to Capital, Volume II by Engels. Marx first elaborated his doctrine of surplus value in 1857–58 manuscripts of A Contribution to the Critique of Political Economy (1859), following earlier developments in his 1840s writings. It forms the subject of his 1862–63 manuscript Theories of Surplus Value (which was subsequently published as Capital, Volume IV), and features in his Capital, Volume I (1867).
Theory The problem of explaining the source of surplus value is expressed by Friedrich Engels as follows:
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