Surplus value is an economic theory used by the German philosopher and economist Karl Marx to condemn capitalist-style economic systems. It is the difference between a worker’s wage and the price of a good or service produced by that worker. This theory is based on the fact that workers provide value through the labor used to produce goods and services. Marx also believed that other economic concepts, such as capitalism or imperialism, did not properly value the workers to produce goods or the surplus value created by their labor.
This type of value does not relate to the actual value of a physical economic resource or good. This added value is realized through the labor needed to produce the resource or good, which increases the value of the item above its original cost. Marx believed that individual workers and their productivity is what really determined the value of consumer goods or services.
The amount of labor used to produce a good or service is how Marx believed profit could be accumulated in the economy. The surplus value concept used by Marx stated that workers not only create economic value through the wages paid to them, but also through the additional value of transforming economic resources into valuable products. This allowed economies to experience more profit through producing goods, rather than simply earning income from the sale of property. Marx believed this additional income could be used to benefit individual works by allowing them to keep a certain amount of their value added through labor.
Marx developed the economic formula known as the label theory of value based on his belief in surplus value. This formula was used to determine how much value an individual worker’s labor provided in the economic environment. The basic formula for this theory was to divide the total profits from goods sold by the total cost of wages paid to produce those goods. The result of this formula is the rate of surplus value, which Marx believed should be appropriated from companies to the employees. Businesses should able to maximize the rate of surplus value by paying sufficient wages to workers for a set amount of hours, with the expectation of a set amount of productivity. Underpaying workers would allow companies to exploit the labor force while demanding the same amount of productivity. This would drive down the surplus value of goods produced and weaken the overall economy, according to Marx’s theory.