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Absolute and Relative Surplus-Value

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It’s crucial to examine the distinction between absolute and relative surplus-value. Otherwise it’s quite easy to become confounded by one of the dominant motors working on our society, a motor that is in its innermost dynamics seemingly strives against itself. Absolute surplus-value is that earned by simply increasing the amount of labor that goes into production, for instance by increasing the length of working hours or by adding another hand to the assembly line, while relative surplus-value is that garnered by increasing the ‘productivity’ of a given unit of labor time, by increasing the amount of value produced by the same of amount of labor. Some archetypal techniques of increasing relative surplus-value might be the organization of labor along assembly-lines, which replaced craft-production, or the implementation of mechanized power, the use of printing presses, automation, computing, etc. What is significant about these technologies is that they reduce the amount of labor necessary to produce a given use-value, an item that fulfills a given social need; it seems reasonable to assume that their implementation would then decrease the length of a work day and an increase in leisure. But this is not the case. We should wonder why, should we not?

The answer lies in the peculiar nature of capitalist exchange, a nature determined by the use of waged labor. By treating people’s labor power as a commodity, and ‘acquiring’ it in an exchange, capitalists are able to own everything that a worker produces during a work day. Considering this product relative to that of other firms, whose wages are subject to market conditions and so tend to fall into an equilibrium rate, it becomes clear that if the owners of Firm A can pay its workers the going wage and receive more product it will have more profit than Firm B, who pays its workers the going rate and receives less. So, there is an enormous incentive to find new ways to increase the productivity of labor-time under capitalism; this drives its incessant reorganizations and perpetual ‘progress’. At the same time, there is a tension against allocating more of the surplus-value to labor, for, if that were done, then the investment would not have increased a firms profit ratio relative to other firms. Firms that cannot compete in time will be engulfed by those that can. So there must ever be an effort to increase the overall value-production in a society without allocating more of that value to the workers who produce it.

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16 Responses

  1. In fact, though, there is a tendency for wages to rise in line with labour productivity. Over the long run the profit share has stayed fairly constant rather than rising (though it trends up and down - in the advanced capitalist countries it’s been rising slowly since the 1980s, and before that had been falling slowly). This means the rate of surplus value has stayed fairly constant. Competition has cheapened some commodities and made others more expensive in value terms.

  2. Thanks Mike. Why do you think it is that wages rise along with productivity? Part of the necessary balancing act between what is produced and what can be bought?

    If the rate of surplus value has remained more or less the same, then the increasing difference between the super-rich and the super-poor has more to do with a question of scale, no? More ownership concentrated in fewer hands?

    Also, what are the periodicals to watch on things like this, apart from Monthly Review and New Left Review? I read those, but they are more or less generalist and don’t tend to get into statistical nitty-gritty to try and put a quantitative measure on things like surplus-value.

  3. What tends to keep exploitation rate constant apart from labor struggles, I mean.

  4. Hey JCD,
    As for what keeps wages rising: There is no hard rule that wages keep up with labour productivity, as we can see from the last couple of decades. I would say there’s a tendency for wages to rise not only from labour organisation but from the competition between capitals for workers. Maybe you can link it back to absolute and relative surplus value - while there is a large reserve army of labour that can be absorbed into the capitalist labour force, competition for workers is not so intense so wages will not tend to rise so fast. But when the whole population is absorbed, it is a different story.

    The limit to the rate of growth of wages is just as important. Labour productivity is a limit. When the limit is breached the profit share falls and probably also the profit rate, so investment is likely to fall, unemployment to rise, and wage growth to slow down again. That’s why the ‘reserve army of labour’ is functional for capitalism.

    There’s nothing intrinsic in capitalism that makes wages and labour productivity grow at the same rate, rather it all oscillates because wage growth and productivity growth are determined by different forces, though in the long run they can’t get too far out of whack and crisis restores the balance. I would argue that state macroeconomic policy as we know it today aims to stabilise that reserve army at a point where wage growth will not test the limit set by productivity growth. This is the meaning of the NAIRU.

  5. Yeah I would say rising income inequality over the past few decades is partly about increasing concentration of wealth, and therefore incomes derived from it, and partly about a rise in the rate of surplus value - because in fact the wage share has declined since the 1970s. There’s also been a big increase in inequality among wage/salary earners. James Galbraith’s book from the late 1990s I think, ‘Created Unequal’ has good data on the latter. Also see Dumenil and Levy in NLR a couple of years back on ‘Neoliberal Income Trends’.

    Increasing wealth inequality is a different story again. Wealth is a stock so it can have a trend independent of income flows. (e.g., your life savings has no necessary relation to your income today, though it reflects (1) the past income you saved it out of and (2) market valuations of future income flows (from shares, bonds, rent etc).) Wealth stocks naturally magnify income inequalities because higher proportions are saved out of higher incomes.

    The market value of the stock of wealth has increased dramatically in the neoliberal decades. Most of it is owned by very wealthy people. The bottom 20-40% don’t own much at all, or have negative wealth (debt).

  6. As for periodicals - unfortunately there’s nothing from the left any more regular than NLR or Monthly Review (I also think the UK’s ISO journal is quality). Doug Henwood’s Left Business Observer is great but it only comes out a couple of times a year. You have to get the mainstream papers and magazines and read against the grain.

    Economics is my academic discipline so I spend a lot of time on it - you probably have better things to do! But I grit my teeth, hold my nose and read the Economist each week, and my daily paper is the local financial paper, the Australian Financial Review. Most of the business news is skippable, not of much consequence, but the economic and financial news is useful. I also try to keep up with Australian central bank and Treasury statements and publications.

  7. Hey again JCD,
    It’s come to my attention that I could be wrong about this tendency of wages to rise idea! At least about the US (which I think is where you are) since the 1970s. I did say the profit share has been rising since the 1980s but I may have underestimated how much! Average (private, non-agricultural) hourly earnings in the US peaked in 1978 (at $8.67 in 1982 money), troughed in 1994-95 ($7.53 in 1982 money), and have yet to catch up to the 1978 level. You can get this data from the Economic Report of the President.

    My mistaken impression seems to come from my own research focusing on the postwar boom, and possibly from living in Australia… but now I have to go recheck my assumptions about here too!

    But jesus, that’s a bad deal! That means no real gains for the average American over thirty years.

  8. Thanks Mike. Yea, I was thinking that starting with the neo-liberal turn in the US wages have decreased (in real terms). I think I read this in a Dean Baker post and then subconsciously linked it to some of the broader trends discussed in A Brief History of Neoliberalism.

    This could be applied to the net debt of the average person in the States, no? As their real income stayed the same over the last 30 years or so, more and more intricate credit schemes have been put into place to allow them to live a more or less comfortable lifestyle — or one that would have been above what their wages could have bought — the upshot of which being that they turned their property over to a bank upon their death. In effect they work 40 - 50 years and at the end of it own nothing. Scandalous, really.

    Thanks for the articles. As a non-economist, or something of a dabbler, I take all the pointers I can get.

  9. I like your blog, you have a lot of ideas.

    Capitalist production is a reflection of the organization of the underlying legal theory, IMO. It basically comes down to what sorts of rights people have.

    The capitalist can organize capital and labor inasmuch as he/she is allocating resources in such a way that is profitable. What’s missing is the fact that labor can organize itself and choose to accept or reject the capitalists’ proposals. Capital is no good without some sort of labor input and management. Yet labor (and I think it should be considered a commodity, except in a unique way) needs to organize itself. Capitalists are in collusion all the time, and cheating happens. So it is with laborers. There is a fundamental tension as to what the price of labor ought to be.

    Rising productivity of labor is generally due to capital accumulation, and human capital development. Workers who operate expensive capital are usually paid more. Their productivity raises the capitalists’ profits, which they can then bargain for higher real wages.

    [i]Yeah I would say rising income inequality over the past few decades is partly about increasing concentration of wealth, and therefore incomes derived from it, and partly about a rise in the rate of surplus value - because in fact the wage share has declined since the 1970s.[/i]

    I’m not sure what he’s saying here. Surely your own flows are not dependent on your own wealth stocks. At any rate, I would point out that this fits well with my story, since as GINI coefficients have risen over time, so labor organization has decreased.

  10. Hey Acumensch,

    Wealth stocks are linked to income flows to the extent that they’re not cash balances, consumer durables and dwellings, since they are valued on the basis of their expected income streams, capital gains and liquidity services. Wealthy people tend to derive income flows from their wealth unless they just live in it, are holding it in the hopes of selling it for more later, or keep it stored under the matress. Therefore a higher concentration of wealth tends to perpetuate income inequality.

  11. Acumensch: I think you are somewhat correct in saying that capitalism is a result of legal structures and rights, etc., but I think that you are also essentializing and setting outside of history two things: exchange and the value of labor. Exchange as we know it in our societies is bound up with wage-labor, which did not exist in the same way much beyond 3-400 years ago. It’s relatively new in human history. And it is dangerous to essentialize the value of labor, since then it becomes difficult to get a grip on why it is that when I ply my efforts to make, say, a chair, it is not ‘worth my time’, so the saying goes: this is because of the momentary arrangement of our society (including technological, geopolitical, etc, factors) is such that it is ‘worthless’ to waste one’s time making a chair when an automated factory, overseen by another person for the same amount of time, could produce 10,000.

    Capitalism is what it is because of the way that owners of private property are related to owners of labor. Of course, both of these things, categories of ownership, are constituted legally and do not simply reflect ‘the way things are’. And we can look to the instantiation of legal codes that gave, say, English lords legal ownership over land previously held in common — the Enclosures, which were predicated on violence — and then look at how these legal structures became invisible reinforcements and promotors of capitalism as it functions.

    Looking at things this way, we see that the capitalist isn’t successful because he has some ability to release the innate profitably latent in commodities as such, but that commodities are particular to a set of social relations — the total legal, interpersonal, historic conglomerate of capitalist society — which is predicated on the appropriation of surplus-value via private ownership of the means of production. Sure, labor of necessity must play a role in the production of surplus-value, but because of its position within the structure of capitalist society it is necessarily disadvantaged.

    Productivity is important for profits insofar as it produces a relative surplus-value: insofar as one capitalist firm can outproduce another. The quest for ever greater productivity across the board in capitalist industries leads to other problems, like crises of overproduction: when, because so many widgets are being produced by so many firms, no firm can be profitable because the exchange-value of widgets falls. And then you have the peculiar condition where a society could produce more use-values, but it won’t, because of the dictates of the necessity of realizing surplus-value.

  12. Hey JCD,
    I missed the comment about debt yesterday… From my impression (again I could be wrong when it comes to the US) the rise in debt has been dominated by high-income households and has been tied to house-buying. It’s partly a consequence of the financial system being able to push more funds into mortgages because the originators can bundle them up and sell them on - they don’t require a long-term irreversible commitment of funds by the lender anymore. I don’t think low-income people can borrow more than they can repay for any length of time, certainly not for 30 years.

    I imagine a lot of people have seen their incomes rise over the period, by individually moving from low-income jobs to higher-income jobs over their working lives. Of course for an awful lot of people it never ends up happening to any great extent. But it’s the possibility that keeps people from getting too angry about the average.

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