March 7th, 2012 by Paul Jorion | Print HOW IS THE AMOUNT OF SURPLUS VALUE DETERMINED

An English translation by Jean-Loup Komarower of the post QUESTIONS À RÉSOUDRE (V) COMMENT SE DÉTERMINE LE SURPLUS

A set of inputs contribute to the production process: the labour provided by workers, the raw materials used, capital investment. A surplus value arises from this operation, mostly thanks to world ebullition under its two aspects: on the one hand, sun, rain, wind, mineral resources, fossil energy, and on the other hand the collective effect or “benefit from coordination” that was brought to our attention by Proudhon. By taking advantage of the institution of private property, a few of the stakeholders are able to immediately assert their rights to these different components of ebullition on the strength of a title.

What characterizes the created surplus value? It is made up from the difference between sale price and costs. The “sale price” is obtained on the primary market: when the merchandise is sold for the first time, either directly to a consumer, or more commonly nowadays to an intermediary. Computation of the costs depends on whether one considers a specific type of contributions to be “essential” in nature –because these contribution are considered to be indispensable and therefore to hold an “objective” value – or whether, on the contrary, one considers as arbitrary the value allocated to this type of contributions because they are in fact without authentic impact on the production process. Let’s quote here Proudhon’s words in a letter addressed to Madame d’Agoult about his father and the manner in which the latter disregarded profit: “Do you happen to know, madam, what my father was ? Well, he was just an honest brewer whom you could never persuade to make money by selling above cost price. Such gains, he thought, were immoral. ‘ My beer,’ he would always remark, ‘costs me so much, including my salary. I cannot sell it for more.’ What was the result ? My dear father always lived in poverty and died a poor man, leaving poor children behind him” (Correspondance, vol. ii, p. 239; quoted by Gide and Rist 1913 : 293).

A contribution that is recompensed, but is not “essential” will be rewarded during redistribution of the created wealth on the strength of a favourable power balance that imposes its recognition. Thus the coordination and control emanating from the company manager may be considered more as impediments than advantages due to the resentment they cause –which would tend to be confirmed by the experience of companies with weak or even non-existent hierarchies.

An additional difficulty however makes this question nearly insoluble: the power balance between the parties will contribute by its own existence to the notion formed by the parties involved (investors, managers, employees) of whether a specific type of contribution deserves remuneration or not.

Lastly, there is yet another dimension to this difficulty: the sale price similarly has no hard, objective evaluation. It is determined in a universe of competition between producers, where items sell or do not sell at some specific price, depending on the presence on the market of equivalent items between which potential buyers can choose.

The difference between sale price and cost of merchandise, which defines the surplus value created during production depends therefore on competition between producers of similar merchandise. Once that difference between sale price and cost has been established on a primary market, it becomes the focus of a contest between groups of stakeholders who can claim a part of that surplus value. Each group puts forward the “essentiality” of its own contribution in order to pretend that its value corresponds to the hard reality of the cost of its input, rather than to the market vagaries of the difference between costs and sale price.

Gide, Charles and Charles Rist, A history of economic doctrines from the time of the physiocrats to the present day, Richard R. translator, Boston : D. C. Heath, 2nd edition 1913

One Comment

  1. Jens Bos

    A very good triplet of articles, indeed, one can put ones question marks to the fairness of “profit” But then, I think, how otherwise could one save for investments to be done in order to supply the jobs people need to feed themselves?

    For instance in the current Euro situation, apparently it will get more and more difficult for the Southern nations to obtain credit to be able to survive.

    If they would have made profit (a surplus, in stead of a deficit on their accounts) they could easily invest in projects like these:

    – but then in Southern Europe- , which would generate top class high tech employment in the whole of Europe, cables, solar cells, power plants, distribution, suply the whole of Europe with clean energy and considerably reduce the pressure on our trade balance with the rest of the world (The use of oil)

    Or for Northern Europe a different technique, but the same result:

    Now we might have to finance it through QE, to which I do not have many objections, except for the fact that we will have to see to it that this will not create inflation in the fields of income and cost of living) but otherwise it could have been paid out of the non deficits in the governmental households……borrowing on the open market, would not be wise…..

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