Surplus Value in a Nutshell

Take all the money you need to survive and add it up. Call this amount X. X is the lower limit of your financial ability to sustain just yourself. It's what you need for food shelter and the basic necessities of life. X is actually quite a low number. The only people who make anything close to X in the United States are migrant workers, and even they make more than X which is the reason why they come to the US seeking work, because back home in Mexico, Guatemala and various other depressed countries, X is significantly lower than it is in the United States and even a little money to send home makes a huge difference in the lives of those living in the abject poverty of the developing world. But I digress. We need to focus on X.

So now suppose that you are entering the labor market. The labor market, without other regulation, is largely like any other market. The prices are controlled by supply and demand. If your ability to produce in whatever job you are seeking is roughly on par with the average entry level worker in the labor market, then the supply for the sort of labor you offer is very high. In fact, it will almost always exceed demand. What this means is that for the Average Worker AW with no special skills that increase his ability to produce above and beyond that of any other average entry level worker, the labor market exerts constant downward pressure on wages due to competition and limited demand.

The situation is slightly different for a Skilled Worker SW. SW is in a better situation because SW has skills that make his output greater than that of AW. What this means is that if SW and AW work for the same amount of time, SW will produce a greater absolute output than will AW. Accordingly, SW will be able to demand higher wages in the labor market. However, there is a limit on SW's ability to exploit this ability to produce more which is the competition from other skilled workers. This also exerts downward pressure on skilled workers.

The widget that SW and AW produce will always require a similar amount of work to produce, of course, which means that whether The Management (MGMT) hires 1 SW or 2 AWs to produce the product is a matter of whether 1 SW costs more or less than the 2 AWs, and this also exerts downward pressure on SW's wages.

The only floor for this downward pressure ever is X. No one can ever take less than X or they will die.

MGMT, meanwhile, has a single, overriding goal, and that is to make a profit on the sale of its widgets. Widget sales, like all products, are again controlled by supply and demand. THose rules will set the price at which widgets can be sold and, without expanding the model greatly to deal with issues of market manipulation (which, ultimately, don't change the analysis), MGMT's profits will always just be the difference between what it can sell the widget for, and the costs it takes to bring the widgets to market. Those costs can be minimized through investment in equipment and commodity pricing being reduced for large scale purchases. Which means that the ultimate floor that remains uncontrolled by MGMT at all times remains X. Therefore it is in MGMTs interest to keep any wages it pays as close to X as possible while maintaining sufficient production to meet all of the demand for its widgets.

What does this mean for AW and SW? Well, it means that in either case AW and SW are taking the raw materials that are purchased at a minimum price and are adding value to them such that MGMT can bring them to market and realize a profit. But where does this profit come from? It comes from the fact that the value of AW and SW's labor is recognized by the market setting its price, but AW and SW are able to be paid wages significantly less than that value because of the downward pressure on wages toward X that is exerted by the labor market.

Therefore at least some of the profits made by MGMT come because AW and SW are not being paid what their labor is actually worth as measured in the increased value of MGMTs widgets. Taking into account that there is a limit to the mass buying power and technological innovation in production methods allowing AW and SW to use MGMTs equipment to increase their power of production, there remains this gap no matter how you look at it inherent in all profits.

This gap can be measured simply as the difference between the actual price of the widget and the cost of the labor taken to produce the widget. That is the profit that capital gets to keep. That is what profit in capitalism is, the exploitation of labor through insufficient wages.

Remember that the next time you look at your paycheck. Remember it when you see that the company you work for is grossly profitable. That money going into the hands of the owners of the company is only there because they didn't pay you for the full value of your services.

Now explain to me again how these people are job creators?


"The widget that SW and AW

"The widget that SW and AW produce will always require a similar amount of work to produce, of course, which means that whether The Management (MGMT) hires 1 SW or 2 AWs to produce the product is a matter of whether 1 SW costs more or less than the 2 AWs, and this also exerts downward pressure on SW's wages."

But this implies that 2 AWs can do the work of 1 SW which is clearly false in most industries, unless you train the AWs and then they will become SWs. Eg. someone who has never learned computer programming can't do a computer programmer's job unless they are trained in it, and then they become computer programmers.

in that case 2 AWs might be

in that case 2 AWs might be two community college nerds who are desperate for work, and 1 SW might be an experienced programmer with a masters degree in computer engineering and 20 years experience. Here, SW's training and experience will no doubt let him complete the work in less time than the 2 AWs, which is why he is compensated more. It doesn't change the fact, however, that if two AWs can do the same work in more time but not so much more time that their two wages combined will be more than SW, the rational capitalist will shitcan SW. And this fact is what produces the downward pressure of SWs wages.