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Surplus Value

Categories: Home -> Political Science

Last updated: 2026-08-26

This article is part of the Intermediate course on Libertarianism and the Austrian School of Economics -> Marxism

Note:

To understand this concept better it would be advisable to have first read the following concepts of the Basic Course on Libertarianism and the Austrian School of Economics-> Module 1: Required foundational topics

The philosophical basis of Liberty

Philosophical basis of the Collectivisms

Surplus Value

Surplus value (or surplus-value) is, for Marx, the value that the worker creates above the value of his own labor power. It is the difference between what the worker produces and what he receives as a wage. According to him, that difference is the source of all profit, interest, and rent under capitalism, and constitutes the specific form of exploitation of this mode of production.

Example of this idea:

  • 1 worker works 4 hours, earns $30 for his work building a product.
  • The employer sells that product for $100
  • The $70 difference is the "surplus value" generated by the worker, which was appropriated and exploited by the employer.

The starting point: it is not “labor” that is sold, but labor power

Marx insists on a distinction he considers decisive. The worker does not sell his labor (which once it begins no longer belongs to him), but his labor power: his capacity to work for a determined period of time.

The value of that labor power is the cost of the goods necessary for the worker and his family to maintain and reproduce themselves (food, housing, clothing, etc.). The capitalist pays that value in the form of a wage.

But labor power has a peculiarity that no other commodity has: when it is used, it can create more value than it itself costs. That difference is surplus value.

Necessary labor and surplus labor

Marx divides the working day into two parts:

  • Necessary labor: the hours the worker takes to produce a value equivalent to his wage.
  • Surplus labor: the rest of the working day. That extra value does not belong to the worker; the capitalist appropriates it.

Simple example: if the worker needs 4 hours to produce the equivalent of his daily wage and works 8, the remaining 4 hours generate surplus value. The rate of surplus value (degree of exploitation) would in this case be 4/4 = 100 % (surplus value / variable capital).

Two ways of increasing surplus value

Marx distinguishes two historical forms:

  • Absolute surplus value: the working day is lengthened or labor is intensified without increasing the wage. The limit is physical and political (struggles for the 8-hour day, etc.).
  • Relative surplus value: necessary labor time is reduced through increases in productivity (machinery, organization, technology). The worker produces his wage in fewer hours and, even if the working day is not lengthened, surplus labor increases. This is, for Marx, the properly capitalist form and the one that explains the technical development of the system.

Constant capital (machines, raw materials) only transfers its value to the product; it does not create new value. Only variable capital (wages) generates surplus value, because only living labor creates it.

The critique from the Austrian School

Eugen von Böhm-Bawerk (1851-1914) and the Austrian School of Economics consider that this whole construction rests on a prior error: the Labor Theory of Value.

If value is not an objective substance embodied by living labor, but a Subjective judgment of individuals (Marginal Utility), then “surplus value” as an extraction of value created exclusively by the worker ceases to make sense.

The main points of the critique:

Value travels from the future to the present:

An entrepreneur can spend millions of hours of labor and resources manufacturing a good, but if in the end final consumers do not desire it or do not value its utility for the future, that product will be worth absolutely zero. It is consumers’ valuations regarding future utility that determine the value of everything that came before.

The capitalist assumes the risks

The worker sells a present service: hours of work. In exchange he receives a contractual payment, relatively certain and near in time. Even if the merchandise remains in the warehouse, that week’s or that month’s wage has already been paid. The worker does not return it if the product is not sold.

The capitalist (or the entrepreneur who uses others’ capital) advances wages, raw materials, and machines before knowing whether anyone is going to want the product, at what price, with what competition, and with what changes of tastes or technology. That future result is not a statistical “risk” easy to insure. It is uncertainty: not all possible states nor their probabilities are known in advance.

If he is right, a positive residual remains (profit). If he fails, he loses the capital he advanced, including the wages he already paid. The asymmetry is clear:

  • The worker is paid even if the plan was a mistake.
  • The owner of the capital absorbs the error.

The capitalist "advances wages" for a "possible future product"

The capitalist does not keep an “unpaid surplus.” He advances wages and means of production now in order to obtain a future product.

There is Time Preference: present goods are worth more than the same goods in the future.

The wage is the discounted present value of the future product of labor.

To demand that the worker receive today the total value of what will be sold in months or years would be to ask the capitalist to deliver to him more than the labor is worth at the moment of payment.

This article is part of the Intermediate course on Libertarianism and the Austrian School of Economics -> Marxism

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Categories: Home -> Political Science

Last updated: 2026-08-26

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