Jerry Jones
This is the first of three articles making the case for a revolutionary new (Marxist) approach to the analysis of economic development that gets to the bottom of what drives the process forward and what holds it back. It focuses on the key role played by surplus labour − that is, labour performed over and above that required for current consumption. I show that it is what happens to surplus labour, once it has been performed, and how it is utilised, that determines the course economic development takes, and who benefits. Karl Marx in Capital identified surplus labour as the origin of the surplus value that generates the profits of capitalists in the capitalist mode of production − that it is the appropriation of the surplus labour performed by the workers employed by capitalists that generates the surplus value and that gives rise to their profits. This laid the basis for his detailed analysis of the dynamics of the capitalist mode of production. However, as will become apparent, I use the concept in a more general way, not dissimilar to how Marx used it in a number of his notebooks.
In this article, I start by describing the main elements of the economic theory I am putting forward. It can be applied to any economic system, including a socialist economy based on common ownership. Next, I use this new theoretical approach to analyse the dynamics of the current capitalist/imperialist system and the cause(s) of the perennial economic crises that are endemic to capitalism. In the second article, I apply the theory to the analysis of economic policies since the 1940s and their consequences. I show that the current neoliberal policies we have been forced to live with since the 1980s are both a response to, and a cause of, the ongoing crises of the current capitalist/imperialist system. I then speculate on whether we might be moving towards the ultimate crisis of capitalism, which, indeed, could threaten the very existence of human life.
In the third article, I assume that human intelligence will prevail, and that class struggle will lead to the emergence of a new socialist mode of production based upon common ownership as envisaged by the Labour Party in its original constitution – which was jettisoned by New Labour in the 1990s. I will use this new theoretical approach to show that under such a system the factors causing economic crises could more or less be a thing of the past, such that economic (and human) development could finally become a smooth ongoing process thus able to realise its full potential. I will also suggest the kind of economic policies needed at national and international levels to achieve that goal – some of which could be introduced even now.
Investment and surplus labour
I start from the basis that all economic development, whatever the economic system, depends first and foremost on investment – that is, labour performed to establish new economic activities that produce a new stream of goods or services. Note that “investment” is used here in its proper economic sense. This is quite different from popular usage of the word emanating from the financial press in the sense of the buying and selling shares, bonds and other financial assets, which, in the last analysis, is merely a glorified system of gambling – punters seeking financial gains without having to do any work – and which, if anything, has an adverse impact on the process of economic development.
Real investment depends on people performing – or, more precisely, surplus labour. If labour were performed purely to produce or supply what is currently consumed, it would not result in an increased or more diversified output, or the technological developments upon which economic development depends. Investment in new productive activities is often thought of in terms of money or capital, but its origin always is surplus labour. This is best illustrated by way of an example that does not involve money (see box). This shows that investment in new productive activities – or its financing – depends not on money or capital, but on labour being performed over and above that required to fulfil immediate consumption needs. In other words, it depends on the performing of surplus labour. In a money economy, money facilitates the process, but the surplus labour first has to be performed in order to create the money or capital that is to be invested. Investment can, of course, also be financed through credit. Credit is equivalent to surplus labour that has not yet been performed, but which has to be performed in due course in order to repay the debt that arises.
Investment without involving money
Consider a community or group of people wishing to irrigate their farms from a nearby source of water. One way would be for the people to construct a system of canals and furrows in their spare time – for example, in afternoons or evenings after completing their daily farming activities, or during slack seasons of the agricultural cycle. Once the irrigation system had been created, the people would have a more reliable and productive farm system, maybe producing three or four times as much as before, and in more variety, especially if, say, two crops per year could be cultivated on the same land. Economic development would have happened because there would be more products available for consumption, in greater diversity, and perhaps a surplus that could be traded with other communities, thus further diversifying consumption. Furthermore, local resources, including land, water and human labour power, would be used more effectively. All that would have been achieved without money. How would it have been financed? None other than through people performing labour during what otherwise would have been their leisure time, over and above that needed to satisfy their immediate or most basic needs. In other words, it would have been financed by the surplus labour they had performed.
Today, this role of surplus labour in economic development is not so obvious because surplus labour mostly ends up in the form of money, as savings or capital. However, this does not change the fact that economic development cannot happen without surplus labour being performed. Once that is realised, it opens up a whole new approach to explaining the course economic development takes at different times, and who benefits. Another factor obscuring the process is the fact that, once surplus labour has been performed and turned into a money form, it is highly fungible. That is, it can readily be appropriated by some people from those who have performed it without it being realised, people normally not even being aware that they perform surplus labour, let alone how it might be appropriated. As will be discussed shortly, this appropriation of surplus labour in terms of economic development has far-reaching consequences. But before that, a note of clarification is needed regarding the meaning of economic development.
What is economic development?
First and foremost, economic development is obviously about expanding the capability of producing and supplying more goods and services in increasing diversity in response to people’s ever-changing needs and wants. In other words, it is about economic growth. But it is more than that. Economic growth is merely a measure of the expansion of goods and services being made available, whether or not they are useful to society, or superfluous, and irrespective of their possible adverse impact on society or the environment. Economic development (as used in the current context), on the other hand, has the additional implication that it is economic growth that is geared to improving social welfare, the natural environment, and people’s capabilities – “giving people the freedom to choose the lives they value”. This implies also that economic development involves a political choice of what to produce or supply, a choice that would reflect, among other things, the class structure of a society (an issue beyond the scope of this article).
Economic demand
Economic development does not only depend on investment. There would be no point in investing in new productive activities if no-one wanted the resulting products. For there to be investment, there have to be enough people wanting or ‘demanding’ the new products that would become available. But it requires more than that. There have to be enough people wanting the new products and with the economic means to procure them – able to afford them. This is what I mean by economic demand. There has to be economic demand for the particular goods or services for there to be investment in their production or supply. This can refer to specific goods or services that are, or could be made, available, or to goods and services in general in an economy as a whole. If not obvious from the context, when referring to the latter, I use the phrase overall economic demand (which is roughly equivalent to the less precise phrase aggregate demand used by some economists). It should be noted also, about which more later, that the distribution of economic demand within a society would reflect its class structure and the distribution of income, which would tend to skew investment towards the production and supply of goods and services favoured by the better-off.
The trade-off between investment and economic demand
To sum up so far, for economic development to happen, there has to be both investment and economic demand. Economic demand for particular goods or services, and overall economic demand for goods and services in general, stimulates investment in new productive activities that enables their production or supply to meet that demand. Meanwhile, investment in new productive activities creates new employment opportunities, and the means for those employed to procure goods or services produced or supplied by others, thus generating new economic demand. In short, economic demand stimulates investment and investment creates new economic demand, thus driving forward the process of economic development.
However, in an economy as a whole, there is a trade-off between the two. That is because both investment and economic demand derive from labour, such that if more labour performed in an economy is surplus labour upon which investment depends, the less will be the labour performed that generates new economic demand, and vice versa. In terms of money, both economic demand and investment would derive from income – money that people, enterprises, nations or whatever receive from labour performed. Economic demand would derive from income that is spent on consumption. And investment would derive from income not yet spent, or, in other words, from savings, or if on a larger scale, capital. In an economy as a whole, the more that people (and enterprise or nations) spend on consumption, the less are the savings available for investment, and vice versa.
A consequence of this trade-off, is that if either investment or economic demand gets too far ahead of the other, economic development will be held back, either because investment had been insufficient to provide goods or services for which there is economic demand, or because economic demand was insufficient to provide markets for goods and services capable of being produced or supplied. In short, optimising the process of economic development is highly dependent on an optimal balance being struck between investment and economic demand.
The appropriation of surplus labour
In most economies to date, it is economic demand that is the one that tends to be deficient or left behind – often to a considerable extent, especially under the current imperialist/capitalist system. That is because, under such a system, a large part of the surplus labour that most people perform is appropriated by others, which is at the expense of economic demand. As noted already, this is facilitated by the fact that most people are not even aware that they perform surplus labour, let alone how it might be appropriated. And those doing the appropriating, normally, are oblivious of the fact that that is what they are doing – at least not in those terms.
In the case of employers, for instance, they would no doubt be conscious of the fact that they profit from employing people, but not realise that the profit derives from appropriating the surplus labour performed by the workers they employ – that is, the labour they perform over and above that which could have gone towards what they might have wanted to consume. Similarly, traders would be aware that they profit from buying cheap and/or selling dear, but not aware that it derives from the appropriation of the surplus labour of sellers (by paying them less than the value of the labour they used to produce the product), or from their customers, who overpay, which is equivalent to the appropriating of their surplus labour that they could have been used in other ways.
The same applies to bankers, who appropriate surplus labour from borrowers through high interest rates, and from savers who receive interest payments at much lower rates. And it applies to landlords, or owners of other assets, who appropriate surplus labour through excessive rents. Furthermore, landowners and monopoly owners of other assets, including special skills, benefit from economic rent, which is the excess income generated by an asset that has a limited supply but is in high demand – land being the prime example: “they don’t make it any more”. The owners of such assets benefit from what amounts to the appropriation of surplus labour from society as a whole.
To sum up, the main mechanisms by which surplus labour may be appropriated are through employment, trade, interest and rent – and, more often than is commonly realised, through fraud and corruption. Any or all of these mechanisms may be taking place simultaneously, thus multiplying the extent to which surplus labour may be appropriated.
How much surplus labour is appropriated by any of these mechanisms depends on the relative bargaining positions of the parties involved. In the case of employment, for example, it would depend on how much pay workers have been able to squeeze from their employers, and the ‘going rate’ of wages for a particular skill – which again would be determined by the relative bargaining positions of the workers employed and their trade unions. In a given locality, this would be affected by such factors as: the balance between supply and demand for particular skills; whether or not workers are organised in trade unions; the general level of employment or unemployment; and the extent to which there may be collusion (tacit or otherwise) among employers to keep wages lower than they might otherwise have been.
In the case of trade, the capacity of traders to appropriate surplus labour from suppliers or customers would depend on factors such as: the supply situation of the products being traded relative to economic demand for the products; how dependent sellers are on the traders to find markets for their products; and the extent of competition among suppliers, traders and final consumers. And if traders are in a weak bargaining position, they may end up having their surplus labour appropriated by their suppliers or customers. Similar arguments apply to the other ways in which surplus labour may be appropriated.
The appropriation of surplus labour internationally
The mechanisms by which surplus labour may be appropriated internationally are similar to those operating within countries – that is through employment, trade, interest and rent (and through fraud and corruption) – except that those doing the appropriating reside in another country.
The appropriation of surplus labour internationally began in earnest some 500 years ago following the discovery of the sea route from Europe to Asia via the Cape of Good Hope. This enabled the shipment of cotton textiles, spices, and other commodities avoiding the routes overland which greatly added to costs, as governments and merchants whose land the routes passed through demanded their cut. The new route allowed the shipowners and their associates based in Europe to charge the same high prices, so that all the profit now went to them. This benefited the countries in which they were based, at the expense of the countries or territories where the items were produced and through which the items previously passed.
Over the next few centuries, this profiteering – this appropriation of surplus labour from the rest of the world – escalated dramatically: first, when trade morphed into downright plunder; second, through the slave trade and the extreme exploitation of slave labour in the Americas; and third, European colonial occupation of territories all over the world; all of which was aided by the superior military technology of countries in Europe, largely paid for out of surplus labour appropriated from the rest of the world.
Furthermore, it was this large-scale accumulation of surplus labour appropriated from the rest of the world ending up as capital that helped to finance the industrial revolution, first in Britain, and subsequently in other European countries. Meanwhile, economic development in the rest of the world tended to stagnate – or worse, go into reverse – precisely because the surplus labour performed by their peoples was being appropriated abroad on such a large scale. The main exceptions were Japan, whose political system and military prowess prevented European penetration, and territories where Europeans settled after suppressing indigenous populations.
International trade has continued to benefit what became the advanced capitalist countries at the expense of the rest of the world, because the advanced capitalist countries are where most of the profit from international trade – the surplus labour appropriated by those involved in international trade – ends up. Other ways in which surplus labour continues to be appropriated internationally are through foreign investment and foreign lending, which benefit the advanced capitalist countries because they are where the transnational corporations involved are based and therefore where most of the profits end up.
The appropriation of surplus labour versus surplus value
As noted earlier, Marx identified the appropriation of the surplus labour performed by workers employed in capitalist enterprises as the origin of the surplus value that is the source of their profits. However, in my theoretical approach, I stop short at the point where the appropriated surplus labour becomes surplus value, because that makes it possible to go beyond the (pure) capitalist mode of production, thus creating the basis for analysing more complex social formations such as the current capitalist/imperialist system of exploitation and other economic systems, including one based on common ownership. It allows one to analyse the effects on economic outcomes of surplus labour being appropriated not only through the capitalist production of commodities, which was the focus of Marx, but also though trade, interest and rent (and through fraud and corruption), as well as what the effect would be of creating an economic system that did not involve the appropriation of surplus labour, such as in a future socialist mode of production based on common ownership. In Capital, Marx treated the profits of traders, banks and landlords as their appropriation of a portion of the surplus value (surplus labour) appropriated by capitalists involved in the production process, whereas, as will become clear in what follows, for the purposes of analysing the mechanisms of exploitation under the current capitalist/imperialist system it is more appropriate to separate out those different ways in which surplus labour may be appropriated – including the extent to which it is appropriated across national boundaries.
The economic consequences of the appropriation of surplus labour
The most obvious is that economic development has benefited some people and some countries very much more than others. It has led to some people – those appropriating the surplus labour performed by others the most – becoming excessively wealthy at the expense of other people whose surplus labour to a greater or lesser extent is appropriated, which, in effect, prevents them from realising the full benefits of their labour. It is also why some countries became wealthy at the expense of other countries left behind, whose economic development has been held back precisely because the surplus labour performed by their peoples that could have contributed to investment and economic demand, and boosted their economic development, has been appropriated abroad, ending up benefiting the countries where the appropriated surplus labour ends up. In short, it is the large-scale appropriation of surplus labour from those performing it – indeed, on a larger scale than ever – that is the underlying cause of the huge inequalities in the world and why millions of people continue live in abject poverty, in spite of the major advances in technology and the productivity of labour, and the means being available to eliminate poverty and the suffering to which it gives rise once and for all.
Moreover, the appropriation of surplus labour has had a cumulative effect because those doing the appropriating – individual people, corporations, countries – can invest the appropriated surplus labour in the form of capital in activities that allow them to appropriate surplus labour performed by others all the more. For example, corporations can invest in machinery that can allow workers to become more productive without workers being paid more in return for their higher productivity. Transnational corporations can invest in less developed countries where wages are low, and transfer the higher profits to the advanced capitalist countries where they are mostly based, at the expense of the workers employed and the countries where the investments had taken place.
However, the economic consequences of the appropriation of surplus labour go far beyond the inequality to which it gives rise. It holds back the whole process of economic development because of the impact the appropriation of surplus labour has on the trade-off between investment and economic demand. Thus, when surplus labour is appropriated on a large scale, investment – or more precisely, the capital derived from the appropriated surplus labour that becomes available for investment – tends to grow too much at the expense of economic demand. A considerable part of that capital (surplus labour), therefore, ends up either being invested in productive activities for which there is an insufficient market, which gives rise to crises of overproduction or overcapacity. Or, it ends up not being invested at all, accumulating as surplus capital unable to find profitable investment opportunities. The result in both cases is that a significant portion of the surplus labour that people perform is wasted, not contributing either to investment or economic demand, thus holding back economic development.
Meanwhile, in the absence of other outlets, the accumulating surplus capital ends up being ‘invested’ in various kinds of financial assets that are traded (gambled) in financial markets. As noted earlier, this is not investment at all in any economic sense. It does not result in the production or supply of new goods or services that people need or want, nor does it contribute to the process of economic development. Indeed, it may hold it back. For instance, it may be that the profits to be had from speculative ‘investment’ in financial markets are such that this attracts capital (surplus labour) away from less profitable but more useful investment in the production and supply of real goods and services that people need or want that might otherwise have taken place.
How the effects of the appropriation of surplus labour may be offset
Notwithstanding the appropriation of surplus labour over the centuries, economic development, obviously, has made huge advances. Indeed, economic development – the production and supply of goods and services that people need and want, and technology – accelerated dramatically under capitalism even as surplus labour was being appropriated on an ever-larger scale. But the process has been erratic, sometimes moving forward more rapidly, at other times much more slowly – and, on occasion giving rise to economic crises when the process might go into reverse, leading to fewer goods or services being produced and supplied. And, as noted above, it has been extremely uneven in the sense that it has hugely benefited some people, and some countries, at the expense of others, precisely because of the ongoing large-scale appropriation of surplus labour taking place both within countries and internationally.
The question is, how is it possible that economic development has advanced to such an extent, albeit unevenly, when surplus labour continues to be appropriated on an ever-larger scale at the expense of economic demand, which, as just explained, is what holds back economic development? It is because there are various ways by which economic demand may be extended, thus offsetting (up to a point) the effect of the appropriation of surplus labour, including:
- The “trickle-down effect”, which describes the extent to which those appropriating surplus labour spend the surplus labour they have appropriated on the consumption of what may be described as ‘upmarket’ or ‘luxury’ goods and services;
- Credit, which enables people and businesses to buy things that they would not otherwise have been able to afford (in effect, as noted already, making use of surplus labour before it has been performed);
- Government expenditure on public services and social welfare, or investment in infrastructure or other economic activities;
- Technological developments that diversify the goods and services capable of being produced or supplied, thus creating new economic demand;
- Technological developments that raise the productivity of labour – which make goods and services cheaper than otherwise, thus creating economic demand for other products;
- Workers successfully bargaining for higher wages, which gives them more purchasing power.
In all these cases, acting together or separately, the generated additional economic demand creates new investment and employment opportunities. This, in turn, generates further growth of economic demand when the newly employed workers spend their wages, and new economic demand for the inputs required, both of which stimulate new rounds of investment, and so on. At the same time, the new investment opportunities can make use of at least some of the appropriated surplus labour accumulating as surplus capital, so that less is squandered on speculative activities.
However, under the current system, those offsets have their limitations. In the case of ‘trickle down’, for instance, those appropriating surplus labour may reach the limits of their capacity to consume, or run out of the time available for consumption. In the case of credit, banks (or other lenders) run out of people with sufficient collateral (the capacity to repay) to lend to. In addition, as more and more people become involved in repaying their debts, this ends up being at the expense of economic demand. In the case of government expenditure, depending on what it is spent on, this is limited by the revenue governments need to collect for it to be sustainable, and by the extent to which it might give rise to inflation, thus reducing or eliminating its stimulating effect on economic demand.
The others are limited by the extent to which surplus labour continues to be appropriated at the expense of economic demand – often, in many cases, to an ever-increasing extent. For instance, technological developments that raise the productivity of labour, as implied already, more often than not allow the capitalist owners of enterprises to appropriate surplus labour at the expense of economic demand all the more, because the wages of the workers employed do not increase in line with their higher productivity. Furthermore, because technological developments allow more to be produced or supplied with a smaller workforce, many workers may end up becoming unemployed or having to make do with lower-paid jobs – both of which, of course, depress overall economic demand. Meanwhile, the bargaining positions of workers are limited by the fact that they lose wages when taking any industrial action to advance their conditions of employment – which could mean defaulting on debts, or in an extensive dispute, even losing their homes – as well as by various labour laws introduced over the years that restrict the sort of actions workers and their trade unions can take.
In the global economy as a whole, all of those offsetting factors are in a continuous state of flux, sometimes combining to bring investment and economic demand more into balance, thus driving economic development forward at a faster rate, and at other times combining to have the opposite effect. It is the ebb and flow of their effects and interactions that explains why economic development to date has tended to occur in fits and starts or waves. Economic crises arise or come to a head when those offsetting factors no longer work. Crises get resolved when one or other of those factors begin to operate again, normally after a period of so-called ‘creative destruction’ when economically ‘less efficient’ enterprises fold. This reduces or eliminates the problems of overproduction or overcapacity – a major characteristic of economic crises which would have arisen from insufficient growth of economic demand in the previous period. This then creates space for the enterprises that managed to survive to expand, thus contributing towards resolving the crisis. ‘Creative destruction’ is, of course, a cold euphemism for the very real destruction of people’s lives arising from the loss of livelihoods, perhaps even their homes, or access to basic foods. It is, indeed, a major indictment of the current capitalist system that this happens. Moreover, such crises represent a huge waste of the surplus labour that had been performed to create those assets now destroyed. This goes some way towards explaining why economic development under capitalism has been held back and plagued by recurring economic crises.
In short, the large-scale appropriation of surplus labour from those who have performed it begins to explain why economic development under the current capitalist/imperialist system has not only benefited some people and some countries very much at the expense of others, but also why economic development has constantly been held back and been subject to frequent economic crises, thus unable to realise its full potential.
Notes and references
1 Not to be confused with surplus labour power. Thus, “surplus labour” is often used incorrectly − including by economists, even self-described Marxists, who should know better − to describe a situation of too many people for the work available, or, in other words, in the sense of unemployment or underemployment. This is not surplus labour, but surplus labour power − that is, the capacity to perform labour. If people are unemployed, obviously, they cannot perform labour, and therefore cannot be performing surplus labour. Surplus labour can only be the result of labour having actually been performed!
2 Marx, Grundrisse: Foundations of the Critique of Political Economy (Rough Draft), M Nicolaus, transl, Penguin Books, Harmondsworth, 1973.
3 A stated in its Clause IV: “…to secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, and the best obtainable system of popular administration and control of each industry or service”. This was adopted at the Labour Party Conference in 1918, with the words “distribution and exchange” being added in 1929. See K Coates, Common Ownership: Clause IV and the Labour Party, Spokesman, Nottingham, 1995.
4 This also includes expenditure on such things as: maintenance; the construction of buildings and other infrastructure required to establish new productive activities; the manufacture and acquisition of equipment or materials required; research and the development of new technologies, new products and new services; and education and training, healthcare, and public services in general.
5 See below and, in more detail, the second article in this series.
6 A Sen, Resources, Values and Development, Basil Blackwell, Oxford, 1984; A Sen, Development as Freedom, Random House, London/New York, 1990.
7 Many economists use the term ‘effective demand’ rather than ‘economic demand’, but I prefer the latter as it is more precise.
8 For example, Jeff Bezos, founder of Amazon, had a vague notion of this when, after completing his space flight in July 2021, he thanked Amazon workers and customers for making it all possible ….
9 Attributed to Mark Twain (1835-1910). In fact, under the current capitalist/imperialist system, the appropriation of surplus labour through rent has become increasingly dominant. See B Christophers, Rentier Capitalism: Who Owns the Economy and Who Pays for It?, Verso, London/New York, 2020.
10 See for example, J Hickel, D Sullivan and H Zoomkawala, ‘Plunder in the Post-Colonial Era: Quantifying drain from the Global South through unequal exchange, 1960-2018’, in New Political Economy, Vol 26, Issue 6, 2021, pp 1030-1047. The authors do not invoke the concept of surplus labour, but they provide the empirical evidence as a measure of the extent to which it is appropriated through international trade
11 To be discussed in more detail in the second article in this series.
12 In fact, Marx, in Grundrisse, used the phrase “surplus labour” more generally without referring to surplus value. For instance, he talked about the appropriation of surplus labour through international trade:
“…nations may continually exchange with one another, may even continually repeat the exchange on an ever-expanding scale, without for that reason necessarily gaining in equal degrees. One of the nations may continually appropriate for itself a part of the surplus labour of the other, giving back nothing for it in exchange…”
(op cit, p 872)
Leave a reply