Surplus Value
►1. The rate of surplus value is surplus labor time divided by necessary labor time, or the ratio of surplus value to wages. An increase in the productivity of labor, such as shortening the labor time necessary to produce a given set of use-values or substituting existing products with new cheaper ones with the same use-value, will initially cause an increase in the rate of surplus value. When labor time is shortened but the surplus value of what is being produced remains the same, then the total amount of wages is decreased. Mathematically, it is obvious that this increases the rate of surplus value. The organic composition of capital is the value of constant capital, or materials and fixed costs embodied in production, divided by the variable capital, or wages. When there is an increase in the productivity of labor, the total wages of production decreases, and this causes the organic composition of capital to increase. An increasing organic composition means that the industry is going from a more labor intensive industry to a more capital intensive one. The rate of profit is the surplus value divided by the total capital invested in production, or in other words, the value embodied in the individual commodities that
It is also necessary to take into consideration the counteracting influences, such as relative overpopulation or foreign trade, which basically act to either keep down the organic composition of capital or increase the rate of surplus. The Physiocrats' explanation for the origin of surplus is that it is only obtainable through agricultural production. This idea is termed "unequal exchange. The proletariats are the people of such a society that make up the working class and must sell their capacity to work to the ruling class. Marx argued that unequal exchange is a "zero-sum game," meaning that for every gain in an unequal exchange, there is a loss to someone else. This is where Marx derived his law that shows a tendency for the rate of profit to fall due to growing productivity of labor and socialization. The formula for the rate of profit includes two important variables: organic composition of capital and the rate of surplus value. Marx explains economic surplus value as the result of unpaid labor time. Because the demand of labor-power, part of the driving force behind the revolutionizing of the bourgeoisie's means of production (increasing organic composition), is consequently increasing, wages will increase and capitalist profitability (rate of profit) will begin to decline. One view is that Marx did recognize these variables but simplified the formula because the changes in organic composition are so much larger than the changes in the rate of surplus value relatively. In this case the source of the surplus arises during production, but realized during equal exchange. " Karl Marx did not agree with this explanation. The only way that this surplus can be transferred to the industrial sector then is through the Mercantilists' theory of unequal exchange by the exploitation of farmers. The driving force behind capital revolution is competition.
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