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«Preliminary notes on the surplus approach to value and distribution1 0. Introduction The “social surplus” is defined generally as a quantum of ...»

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Preliminary notes on the surplus approach to value and distribution1

0. Introduction

The “social surplus” is defined generally as a quantum of wealth, value, and/or product over and

above that necessary for a social system to reproduce itself. In this sense it can be conceived as the

residual after the societal necessaries have been properly accounted for and deducted out of total

end-of-period gross output. Letting A stand for these societal necessaries at the beginning of the round of social reproduction (t0) and Q stand for total gross output emergent at the end of this round, the surplus (Y) can be seen as resulting from the difference between Q and A. This

simplistic interpretation is depicted in Figure 1:

Figure 1: Societal reproduction and the social surplus as a residual t0 ante ex t0 post ex Round of societal reproduction (t0) Social surplus = Y A Q : Y=Q-A The above definition and characterization is purposely vague with respect to the composition of the necessaries, gross output, and social surplus, and below we return to this definition with more precision. The surplus component has been alternatively termed the net product, value added, net productivity, gross profits, and shares of remunerated national income. It has been defined in different contexts as both excluding as well as including wages. It has been conceived as the fund from which distributed revenues partake, and is also the source of capital accumulation and growth in subsequent rounds (t+1 ; t+2, …) of social reproduction.

That the social surplus so defined exists represents the hallmark of modern capitalistically-oriented and market-dominated socio-economic systems due precisely to the sheer enormity of net productivity associated with this mode of production. This is not to suggest that in earlier historical epochs a social surplus did not exist – certainly as far back as when human civilization emerged out of the hunting and gathering stages the social surplus (whether explicitly recognized or not) was the source of net wealth, thus allowing for the construction of Babylonian hanging gardens and Egyptian pyramids, etc. However what is indisputable is the fact that the growth in net wealth became exponential in capitalistically-oriented systems of production and distribution, and that the surplus available here for whatever ends dwarfs that engendered in any previous socio-economic system. Hence the need arises to provide some explanations, and this is where economic theory enters into the discussion.

1PRELIMIARY AND UNFINSIHED DRAFT. Scott Carter, Department of Economics, The University of Tulsa, Tulsa, Oklahoma (scott-carter@utulsa.edu). Please do not quote without permission. All of Sraffa’s archival material is copyright by his Literary Executor, Pierangelo Garegnani, and requires explicit permission. I would like to thank Professor Garegnani for permission to quote from this material for this draft. Paper presented at the AJES workshop… At the risk of severe over-simplification, we can speak of two broad approaches to the social surplus in capitalistic and market oriented systems, each couched within one of two respective theoretical paradigms of value and distribution. The more recent (temporally-speaking) or “modern” of the two is the marginalist or neoclassical approach to value and distribution.2 This approach of course currently remains the dominant one in economic theory. Net productivity is in this paradigm recognized, however it is not referred to as a “surplus”3; rather the opposing forces of demand and supply especially of the “factors of production” capital (K) and labor (L) are seen to “naturally” (i.e.

“imperfections” cast aside) come into equilibrium such that remuneration of each factor corresponds to its (marginal) productivity. The upshot is that due to the (marginal) productivity of each factor and especially that of capital (human, physical, or entrepreneurial), social net wealth increases, where wages accrue to labor and profits accrue manna-like to the owners of the various forms of capital. The theorem of product-exhaustion (again “imperfections” notwithstanding) ensures that each factor is paid according to its contribution to the net-wealth creation process and this pinnacle system is conceived as the societal expression of “human nature”, the best-of-allpossible worlds fundamentally of harmony and not of discord.

On the other hand, the surplus approach to value and distribution, although not called by that name at the time (see note 2 regarding Garegnani’s coining of this term in 1958), represents the older tradition in political economy the origins of which we can trace to the groundbreaking circular flow interpretation of the Physiocrat Francois Quesnay’s and his famous Tableau Economique which first 2 We trace the specific language and juxtaposition of the two “approaches”, the dominant marginalist approach and the alternative surplus approach, to Professor Garegnani’s (1958) Cambridge Ph.D. thesis A problem in the theory of distribution from Ricardo to Wicksell, written under the “successive supervision” of Piero Sraffa and Maurice Dobb. In the Preface to

that document we read the following expression of thanks:

“I wish here to thank Mr. Sraffa and Mr. Dobb who have successively supervised my work during the terms of research I spent in Cambridge. My debt to them is double since it regards not only the guidance and encouragement they have given me in the course of preparation of the dissertation, but it refers also to the fact that the interpretation advanced here of the connection between Ricardo’s theory of value and his theory of distribution, and, more generally, my interest in the subject, owe much to sections IV and V of the introduction to the Principles written by Mr. Sraffa with the collaboration of Mr. Dobb and contained in Vol. I of their edition of Ricardo’s Works” (Garegnani, 1958, pp. ii-iii).

3 Indeed “surplus” in this approach is conceived not in terms of net wealth creation, but rather in terms of “extra” satisfaction gained, seen in the concepts of consumer surplus and producer surplus – i.e. quanta of “satisfaction” that accrue to the respective individual “demanders” and “suppliers”, where it is maintained that the quantities bought and sold to the left of the equilibrium position are from the perspective of the consumers done so at prices lower than they would be willing to spend and from the perspective of the producers higher than the firms would be willing to sell (hence each agent left of the equilibrium position gained “surplus satisfaction” in that they are able to buy and sell favorably when compared to their “willingness” to do so). An exception to this is the case of the discriminating monopolist with complete knowledge of each respective individual’s reservation price wherein the allocation of goods remains exactly the same as that of competitive equilibrium, yet the “surplus” accrues exclusively to the discriminating monopolist as opposed to the consumer. We trace the origin of this notion of “surplus”, especially “consumer surplus”, to Alfred Marshall’s Principles (book iii, chapter iv, p. 124 and Appendix K), although Hicks (1939, Value and Capital, Note to Chapter II) refers to Dupuit (1844) as the “original inventor” (Hicks, 1939, p. 38). In his Note Hicks makes a great deal of the difference between Dupuit’s and Marshall’s conceptions of consumer surplus especially as regards the latter’s assumption of the constant marginal utility of money (see Marshall’s Principles, Mathematical Appendix, p. Note VI, p.


appeared in 1758.4 Despite its feudal remnants with respect to the identification of agriculture as the sole “productive” sector in the sense that newly created output was (erroneously) seen to emanate exclusively there – the surplus of which the Physiocrats coined the “gift of nature” - on a more fundamental plane the Tableau remains in our opinion hands down more relevant than marginalist approaches that eschew the inter-industrial and inter-sectoral character of modern capitalistic market-oriented socio-economic systems of production and distribution, or if you will social provisioning.

In this essay we explore some recent developments in the surplus approach to value and distribution especially as regards developments out of the unpublished papers of Piero Sraffa whom has been regarded as the theoretician responsible for the rehabilitation of the surplus approach.

1. The Surplus Approach in the Physiocrats, Classical Theory, and Marx

As indicated in the Introduction, we trace the origin of the Classical surplus concept to the Physiocrats and especially Franςois Quesnay’s Tableau. The groundbreaking character of Physiocratic thought and Quesnay’s table cannot be underestimated. Writing in pre-revolutionary France, Quesnay, his close disciple Mirabeau, and other adherents to the Physiocratic school (often derided as a “sect” by those who do not sympathize with its tenets5) developed the first formal economic model of an integrated economic system.6 At the heart of the Physiocratic doctrine was

the concept of the produit net, or net product. We read from Meek’s account:

4 “Quesnay…brought out three successive ‘editions’ of the Tableau in 1758-59; Mirabeau published a lengthy ‘Explanation’ of the Tableau in the Sixth Part of his Friend of Mankind in 1760; in Rural Philosophy (1763), an important joint product of the efforts of Mirabeau and Quesnay, the form of the Tableau was altered and still more varied uses found for it; and Quesnay, towards the end of his career as an economist, elaborated the Tableau further and employed it as a tool for the analysis of certain specific economic problems…” (Meek, 1962 [2003], pg. 28).

5 This is especially true for Schumpeter (1954), who writes:

“[T]he group [of Physiocrats] really reduces to one man, Quesnay,…other members of the group…were…disciples, nay, pupils of Quesnay in the strictest and most meaningful sense these terms will bear – disciples who absorbed and accepted the mater’s teaching with a fidelity for which there are only two analogues in the whole history of economics: the fidelity of the orthodox Marxists to the message of Marx and the fidelity of the orthodox Keynesians to the message of Keynes. They were a school by virtue of doctrinal and personal bonds, and always acted as a group, praising one another, fighting one another’s fights, each member taking his share in group propaganda. They in fact illustrate the nature of that sociological phenomenon to perfection had they not been something more than a scientific school” they formed a group united by what amounted to a creed; they were indeed what they had been so often called, a Sect” (Schumpter, 1954, pp. 223-4).

Fox-Genovese (1976) takes a very similar position:

“Any comprehensive study of the physiocratic sect will have to take account of [the] psychological tensions in evaluating the unusual strength of the ties binding the members of the Secte to the master, and the related evidence of sibling rivalry that surfaces in the disciples’ correspondence with and about each other” (The origins of physiocracy, pg. 19; note the lower-case “p”).

We are of the position that both of these sentiments are rather harsh, and are of the opinion more in line with that articulated by Ronald Meek (2002 [1962]), Gianni Varga (1987), and John Eatwell’s (1987) Forward to Varga’s account that the Physiocratic doctrine represented a significant advance and in certain aspects remains more advanced than that of Smith and Ricardo and the Classical school. This latter interpretation of course resonates with the opinion of Marx, to which we comment further below.

6 “[T]he laws governing the particular type of exchange economy [were that] which the Physiocrats concerned themselves…to be ascertainable, therefore it was necessary to put these variables into a manageable form – in other “[T[he Physiocrats…endeavoured to discover some key variable…causing an expansion or contraction…in the general level of economic activity. The variable which they hit upon was, as well as the capacity…to yield a ‘net product’, i.e. a disposable surplus over necessary cost” (Meek, 1962 [2003], pg. 19).

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