In his general critique of capitalism, Marx defined surplus value as the amount of the increase in the value of capital upon investment. Surplus value can take the form of profit, interest, or rent. The source of surplus value is the so-called ‘unpaid’ surplus labor of a working individual. With the increase in wealth and population during the 19th century, capitalists were able to maximize the value of their capital through the employment of surplus labor. According to Marx, surplus labor is simply the extra labor available in the market paid below the market price.
Here, Marx assumed that labor, like any other capital, is convertible to money. Hence, a general increase in the value of a capital upon investment may also be caused by a relative decline in the market price for surplus labor. Unlike rent, profit or interest, the price of surplus labor is sunk, that is, incorporated into the finished product. The quantity of finished products sold in the market is tantamount to the quantity of labor imputed to the production of the good. Marx argued: “Only as a personification of capital is the capitalist respectable.
As such, he shares with the miser an absolute drive towards self-enrichment. But what appears in the miser as the mania of an individual is in the capitalist the effect of a social mechanism in which he is merely a cog. Moreover, the development of capitalist production makes it necessary to constantly to increase the amount of capital laid out in a given industrial undertaking …” (Marx, 739). According to Marx, surplus value originated outside capitalist production – in the earliest forms of commercial exchange.
The first forms of surplus value were as follows: profits from commodity production, trade profits, and interests on loans imposed by bankers, lenders, and financiers. Surplus value acquired from surplus labor did not yet exist because the earlier forms of production did not necessitate the creation of a labor market. At the beginning of the 18th century, the non-capitalist mode of production was slowly being replaced by the capitalist mode of production. By the beginning of the 19th century, the transformation was complete. The capitalist mode of production, according to Marx is characterized by:
1) creation of use-values and valorization processes (creation of surplus-value appropriated as net income); 2) diversification of production (stages in production were segregated); 3) discrimination in labor pricing (labor becomes a commodity to be exchange and priced in the market); 4) capital accumulation (the whole purpose of production is the reproduction of new capital – from surplus value); 5) and capitalist ownership of the means of production (finished products as well as all rudimentary of the production process are owned by capitalists).