Surplus-Value is Inefficiency
We can reduce all sorts of costs, just by getting rid of a ruling minority
“Efficiency” is code. It can be applied to every process, and is fetishized for its ability to increase profit. Why does our dominant mode of production reward efficiency? It’s a remarkably simple formula:
R.M. + L.-P. = A.V.
Raw Materials plus Labor-Power equals Absolute Value. That is, the Absolute Value of a commodity equals the cost of the raw materials and labor-power required to produce it.
(Quick note: Commodities in a capitalist economy have multiple values—an Absolute Value, an Exchange Value, a Surplus-Value realized in exchange, and a Use-Value. Objects not produced for exchange or use by another are not commodities.)
Every other economic system produces value; no other economic system produces commodities. That is the defining feature of capitalism. It operates by treating labor as a commodity: labor-power. Capitalism makes all people into sellers, and those who have no collection of things to sell, are coerced to sell their ability to work itself, their labor-power.
But selling a commodity for its Absolute Value (break-even) is insufficient to produce capital. Capital can only be produced in exchange when the Exchange Value is realized (literally made real). The Exchange Value must exceed the Absolute Value—the margin of excess is called Surplus-Value. While there are costs imposed upon capital for producing surplus-value (taxes, depreciations), in shorthand the surplus-value goes entirely to capital.
So we expand the formula to look like this:
(R.M. + L.-P. = A.V) + S.-V. = E.V.
(Raw Materials plus Labor-Power equals Absolute Value), plus Surplus-Value equals Exchange Value.
And this formula is where the capitalist finds what seems to be a natural incentive for efficiency: The Profit Motive.
Let’s say one owns a shoe factory, and every pair of shoes costs $5 in Raw Material and $5 in Labor-Power to produce. The Absolute Value on that pair of shoes is $10. But selling those shoes for $10 only pays for their production; it produces no capital. For that, a Surplus-Value is added, say $10. The pair of shoes sells for $20. All of the Surplus-Value goes to the factory owner. He (and about 90% of the time the owner is male) collects $10 in Surplus-Value for every $5 in labor-power he purchases.
When the factory owner buys a machine that doubles the rate of productivity, he is mechanizing for greater efficiency. Workers will be able to produce twice as many pairs of shoes in the same amount of time. They receive no increase in pay, though, because their job just got easier by the calculations of the business. Do the employees enjoy a workday cut in half due to this new machine? Of course not. That is not where the efficiency is to be found. Instead, it is found here:
R.M. ($10) + L.-P. ($5) = $15 A.V. + $25 S.-V. = $40 E.V. for two pair of shoes.
Twice the Raw Material plus the same amount of Labor-Power equals $15 in Absolute Value. The doubling of productivity allows for an increase in Surplus-Value to $25, over the $10 attained via exchange the day before.
The ratio of the cost of Labor-Power to the Surplus-Value realized is 1:2 in the first case and 1:5 in the second.
By doubling the rate of production while keeping wages steady, PROFIT MORE THAN DOUBLES.
Efficiency. Or, as Marx put it the Rate of Exploitation.
Double the rate of production again and the formula becomes:
$20 + $5 = $25 + $55 = $80 for four pair of shoes. The Rate of Exploitation goes to 1:11, again more than doubling when doubling the rate of production. All that needs to be done is to keep wages stagnant while increasing production and the amount of capital expands in greater and greater ratios.
Do this to a nation over the course of two generations and that means every hour of every day capital is increasing exponentially over the cost of (pay for) labor-power, and thus the earnings of all those who sell their ability to work to survive.
The kicker is that all this “efficiency” is done in the name of a contradictory, and thus inefficient economic form. Surplus-value is an inefficiency, adding costs to social necessities. The “profit motive” makes everything more expensive than it would otherwise be. All this surplus could be returned to the people who produced it, and all it would cost society is massive inequities that result in unnecessary suffering.
All capitalists understand economies of scale. Institutions operating at a sufficient size for a market are able to procure Raw Materials in the largest volumes (and thus lowest cost-per-item) and offer the lowest prices to consumers. Public institutions operating on a large scale and without a demand for profit will always be able to underprice for-profit enterprises. With a single-payer health care system, almost all profit will be driven from patient services and we would expect per capita expenditures to fall. If the chart above is a reliable indicator, it would be a nationwide decline of about 40%.
That inefficiency produces billionaires and leaves patients fighting bureaucracies intentionally designed to thwart expenditures, specifically to the benefit of those billionaires, personally and as a social class.
I can see why the Ruling Class in the United States has historically been scared shitless of the empirical analysis of the production and distribution of value: It’s not a good look for them.
This is why I call “efficiency” a code.
“Efficiency” presumes a goal and a method, and can only be measured in comparison. It is not an independent indicator, like temperature alone can tell us whether water will be solid, liquid, or vapor. Efficiency is relative because goals are socially determined and comparisons cannot be made with a single case.
The particular goals that will be pursued are a topic for another day. Though they have not been officially determined, they will largely include decreased expenditures on social support programs. There will be no cuts to military spending or expectation that capital (“business”) shall pay a greater tax rate. “Efficiency” really means “austerity for the bottom 90%.”