(EPE, pp. 1134-1137)
In capitalist systems, the ECONOMIC SURPLUS -- the amount of aggregate output in excess of what is necessary for the 'subsistence' of the productive workforce -- appears mainly in the form of commodities, i.e., goods and services produced for sale in markets. The market value of these is the economy's aggregate SURPLUS VALUE, and the latter is equivalent, at least as a first approximation, to the total of property income in the economy: Measuring the amount of aggregate output necessary for the subsistence of the productive workforce by the aggregate of labor income (wages and salaries, plus benefits), the rest of aggregate income -- i.e., property income as the sum of gross rent, interest and profit -- must be equivalent to the the excess of aggregate output above the 'necessary product'.
Yet there is far more here than a mere accounting equivalence. Property income is, by definition, received by virtue of owning property: rent is received from the ownership of land or natural resources, interest is received by virtue of owning financial assets, profit is received from productive capital ownership. Property income is not received in return for any productive activity performed by its recipients. Although mainstream economists have studiously avoided confronting this fact, even the U.S. Internal Revenue Service refers to property income as "unearned". Since such income is not an equivalent return for any productive activity, receiving property income is equivalent to being entitled to a portion of the aggregate output of others' productive activity. That is, the workforce produces the output, but surrenders a portion of it to people who have nothing to do with production. Since it is arguable that this occurs by virtue of a social system to which those in the workforce have never given their full consent, i.e., that of private property -- since, in other words, it occurs by virtue of a structure of social POWER to which arguably the workforce is subject [see also ECONOMIC POWER] -- property income is the fruit of EXPLOITATION. The fact that it is essential to CAPITALISM makes that system a CLASS system in no basic way different from other historical examples such as SLAVERY and FEUDALISM.
Of course, in part the issue is not one of property income per se but of its distribution. For example, were property income to be received by people solely in proportion to their productive labor -- perhaps by having income-earning property be distributed in proportion to people's labor income -- then the case that such income is exploitative would fail: Assuming that each person's labor income were in proportion to his/her contribution of productive activity (no small assumption itself -- see WAGE DETERMINATION, POLITICAL ECONOMY OF), each person would receive in addition a share of the economic surplus in proportion to that contribution as well. Alternatively, were property income instead to be equally distributed among the population -- for example, by means of a democratic state owning all income-earning property and distributing a 'surplus value dividend' on it to all citizens equally (perhaps in the form of public goods) -- then too the case would fail. But income-earning property is, of course, privately owned and extremely unevenly distributed [see INEQUALITY OF INCOME, WEALTH & POWER].
Given that fact, attempts at rationalizing property income on grounds that property owners make other kinds of productive contributions besides labor are simply of no avail. For example, it is often argued that profit recipients provide organizational, managerial and supervisory contributions -- yet these activities are rewarded not by profit but by labor income, specifically, managerial salaries. Risk-bearing, another 'productive contribution', is indeed rewarded by a premium of interest above the risk-free interest-rate -- but cannot at all rationalize the risk-free portion of interest income itself. Entrepreneurial innovation is rewarded by profit income, but only when the innovator owns the productive capital involved -- as is clearly shown by the large proportion of innovative activity that today yields profit to firm owners but merely routine salary income to the innovators themselves in RESEARCH & DEVELOPMENT WITHIN FIRMS. Land rent and interest income do serve the economic function of an effective mechanism for rationing land and capital use -- but by no means does that imply that land and financial asset owners make any productive contribution for which they are receiving a return (nor that this particular rationing mechanism is the best available either). Property income is received for owning property, not for performing productive services, as any honest heir may attest.
This and other related issues arising around the concept of surplus value, are often obscured by the complexities of property income in reality today. For one thing, conceptual distinctions among the types of property income -- rent, interest and profit -- often do not conform neatly with their real-world counterparts. For example, a considerable portion of the "profit" income of real-estate and development companies, and of mining, extraction and forestry firms, is actually rent income. Similarly, a great portion of the "profit" received by corporate share-holders as dividends is better understood to be merely interest income, since share-holders who have no control in their firms are, in effect, merely providers of finance.
More critical, of course, are complexities in the broader categorical distinction between labor and property income. For example, given top-level managers' control over the productive capital of their firms, the income-earning property they receive as bonuses (in the form of stock options) above and beyond their already large "salaries" represents a portion of their firms' profits -- yet for the same reason some portion of their salaries too is actually "profit" rather than labor income [see OWNERSHIP/CONTROL OF CORPORATION]. And because at the same time middle- and lower-level managers and other employees do not have control over their firm's productive capital, much of the "profit-sharing" income often paid to these groups is actually labor income [see WORKER PARTICIPATION IN CAPITALIST FIRMS]. Similarly, some portion of the "proprietors' income" of small business owners who work in their own firms is actually labor income rather than profit.
Such complexities make the empirical measurement of surplus value quite difficult, of course. There is, moreover, the problem of PRODUCTIVE VS. UNPRODUCTIVE LABOR. A large portion of the activities involved in ADVERTISING AND SALES EFFORT, for example, is plainly unproductive, being devoted not to the provision of goods or services but to inducing people to purchase commodities they would not otherwise purchase. Thus the labor incomes received in these industries ought to be treated not as part of the 'necessary product' but as entitlements to a portion of the aggregate economic surplus created by others' productive labor, i.e., as part of surplus value. On reflection, there is perhaps a great deal of unproductive labor in modern capitalism. A large part of business management has nothing to do with organizing production, but exists instead for the extraction of labor from employees who lack work incentives on account of the ALIENATION of work-life in capitalism. Much of legal and judicial activity should be treated similarly: in part, these serve merely to bolster the capitalist system by 'correcting' some of the social problems arising as a consequence of CLASS and of pervasive 'pecuniary emulation'. Similarly, government WELFARE STATE activities employ income redistribution as a means of correcting the social problems of class. And many government provided "public goods" are dubious as well: environmental pollution prevention and clean-up activities, for example, represent not the production of goods but the correction of "bads" arising from capitalist industry [see NET SOCIAL WELFARE & INDEX OF SUSTAINABLE ECONOMIC WELFARE]; and other "public goods", e.g., MILITARY SPENDING, would seem to have more to do with bolstering the nation's capitalist class than with providing generally useful products or services.
Measuring the extent of these unproductive economic activities is clearly problematic, and has made empirical estimations of aggregate surplus value enormously difficult. There have been some important successes, however [Shaikh; Moseley; Gilman], and despite the difficulties the concept of surplus value is crucial not merely for substantiating the general perspective of critical political economy but for comprehending the specific functioning of the capitalist economy as well.
This is so because surplus value is, by its very definition, both the source of the investment capital needed for ECONOMIC GROWTH and the substance of the rewards of that growth in capitalism. Thus the 'rate of surplus value' (or 'rate of exploitation') -- the ratio "S/V" of aggregate surplus value to the value of the 'necessary product' -- is a basic determinant of both the economy's growth prospects and the profitability of capitalist investment [see REPRODUCTION, SIMPLE & EXTENDED; KALDOR-PASINETTI MODELS OF GROWTH/DISTRIBUTION]. And the specific forms of appropriation and disposition of surplus value importantly determine the rate of its reinvestment back into capital accumulation and the directions which that accumulation takes. Thus the appropriation of surplus value in the form of rent income in the Third World is arguably a major cause of underdevelopment in those countries [e.g., STRUCTURALIST THEORY OF DEVELOPMENT]. And, of course, the division of corporate profit between dividends, top-managerial salaries and bonuses, retained earnings, taxes and unproductive expenditures is a major determinant of the rate and directions of capital accumulation in advanced countries.
In the name of avoiding the unsettling issue of exploitation, mainstream neo-classical economists thus have done themselves a great disservice by abandoning the concept of surplus value: it is absolutely essential for comprehending the real nature and logic of the capitalist market economy.