A Simple Model of the Surplus Approach to Value, Distribution, and Growth

The Social Surplus Defined The "social surplus" is defined generally as a quantum of (new) wealth, value, and/or product over and above that necessary for a social system to reproduce itself. 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 (1) stand for these societal necessaries at the beginning of the round of social reproduction (to) and Q stand for total gross output emergent at the end of this round, the surplus (Y) can be seen as the difference between Q and A. This simplistic interpretation is depicted in Figure 1. [FIGURE 1 OMITTED] The surplus component has been alternatively termed the net product, value added, 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.sub.+1]; [t.sub.+2], ...) of social reproduction. The existence of surplus so defined is the hallmark of modern capitalist socio-economic systems; the net productivity associated with this mode of production is enormous. This is not to suggest that in earlier historical epochs a social surplus did not exist. From the moment when human civilization emerged out of the hunting and gathering stage the social surplus was the source of net wealth, it was what enabled the construction of Babylonian hanging gardens and Egyptian pyramids. However, what is indisputable is that the growth in net wealth that is the surplus--became exponential in capitalisticallyoriented systems of production and distribution, dwarfing the surpluses engendered in any previous socio-economic system. Economic theory aims, in part, to explain the phenomenal ability of capitalism to generate and accumulate large social surpluses. We 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 (see Garegnani 1984). The more recent or "modern" of the two is the marginalist or neoclassical approach to value and distribution. This approach remains the dominant one in economic theory. Net productivity here is recognized; however, it is not referred to as a "surplus"; "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--that is quanta of "satisfaction" that accrue to the respective individual "demanders" and "suppliers." The opposing forces of demand and supply especially of the "factors of production" seen to "naturally" (imperfections cast aside) come into equilibrium such that remuneration of each factor corresponds to its (marginal) productivity. Increases in social net wealth are due to the (marginal) productivity of each factor, especially that of capital (human, physical, or entrepreneurial). Wages accrue to labor and profits accrue to the owners of the various forms of capital. Euler's theorem ensures that, under perfect competition, each factor is paid according to its contribution to net-wealth creation. This theory conceives the market the societal expression of human nature, and as a fundamentally harmonious mechanism. On the other hand, the surplus approach to value and distribution represents the older tradition in political economy the origins of which we can trace to the circular flow of the Francois Quesnay's famous Tableau Economique. Despite the feudal residue of its treatment of agriculture as the sole "productive" sector--as the only source of the surplus product--on a fundamental plane the Tableau contains insights that remain relevant. Modern developments to the surplus approach begin with the publication of Piero Sraffa's (1960) thin but quite terse and somewhat cryptic book Production of Commodities by Means of Commodities: Prelude to a Critique of Economic Theory. …