Surplus Product - Classical Economics

Classical Economics

In classical political economy, as Marx describes in Theories of Surplus Value, the "surplus" referred to an excess of gross income over cost, which implied that the value of goods sold was greater than the value of the costs involved in producing or supplying them. That was how you could "make money". The surplus represented a net addition to the stock of wealth. A central theoretical question was then to explain the kinds of influences on the size of the surplus, or how the surplus originated, since that had important consequences for the funds available for re-investment, the wealth of nations, and (especially) economic growth.

This was theoretically a confusing issue, because sometimes it seemed that a surplus arose out of clever trading in already existing assets, while at other times it seemed that the surplus arose because new value was added in production. In other words, a surplus could be formed in different ways, and one could get rich either at the expense of someone else, or by creating more wealth than there was before. This raised the difficult problem of how, then, one could devise a system for grossing and netting incomes & expenditures to estimate only the value of the new additional wealth created by a country. For centuries, there was little agreement about that, because rival economists each had their own theory about the real sources of wealth-creation.

Political economy was originally considered to be a "moral science", which arose out of the moral and juridical ambiguities of trading processes themselves. Since trade always involves two or more parties with their own interests in the matter, the meanings of that trade can be construed in different ways by different stakeholders, and they can evolve across time. If that is the case, the economic meanings of trade are never completely fixed once and for all. Such ambiguities gave rise to many different interpretations of what "fair trade" or "just trade"(and therefore trade of benefit to society) might be considered to be. For a long time, it was very difficult for economic theorists to separate out the moral judgement about different kinds of trade, from a scientific appraisal of the actual objective processes of trade, because commerce was dominated by legal codes and religion. But in addition it was analytically difficult to take the step from the incomes of individuals, the immediate source of which was rather obvious, to a consideration of the incomes of groups, social classes and nations. Somehow, a "system of transactors" showing aggregate sales and purchases, costs and incomes had to be devised, but just exactly how that system was put together, could differ a great deal, depending on "from whose point of view" the transactions were considered. The Physiocratic school, for example, believed that all wealth originated from the land, and their social accounting system was designed to show this clearly.