Value Added - Marxist Interpretation

Marxist Interpretation

Karl Marx's concept of the value product is similar to the national accounting concept of net national product, or net value added, since it is the value of the gross product minus expenditure on constant capital, where the latter refers to the costs of intermediate products and depreciation. In turn, value added is equal to the sum of variable capital (labor's compensation) and surplus-value (pre-tax profit income). The argument is that labor creates a new value (value added) that covers the cost of both its own wages (payment for workers' ability to do labor, i.e. for their labor power) and surplus-value (property income). In Marx's example in his Das Kapital, workers exert enough labor-time during a working day to pay for the cost of reproducing their ability to work during that day (their labor-power) and then did extra work (surplus-labor) to pay incomes to capitalists, land-owners, and the like. As labor is the active and conscious factor in the production process, capital goods ("means of production") and gifts from nature ("land," natural resources) only facilitate labor's transformation of raw materials into other products, raising labor's physical productivity (its ability to produce use-values) and its value-productivity (its ability to produce use-values that can be sold for money).

In contrast, Neoclassical economics regards the incomes constituting added value as the reward for services rendered. In his critique of political economy, Marx saw incomes as results of production under conditions of capitalist exploitation. The capitalist class control over the production process and the growth of the economy (capital accumulation) gives them the power to claim the benefits of the extra labor done by the workforce. This is enforced by the normal existence of mass unemployment, what Marx called the "reserve army of labor."