The economic surplus is the difference between what a society can produce, its potential output, and the necessary costs it must incur in producing this output, its essential consumption. There are two kinds of economic surplus namely; consumer surplus and producer surplus. The concepts of consumer surplus and producer surplus are extremely useful for analyzing a wide variety of economic issues. Consumer surplus refers to the financial gain of an item, which the customer has bought. For example, a consumer who is used to buying milk at $10 dollars now buys it at seven dollars due to a price cut. In this case, the buyer is at a surplus of $3 since he was ready to spend the original amount, that is, $10. This paper is an explanation of the concept of economic surplus and how different political and economic systems shape the nature of class relations (capitalists/workers; slave owners/slaves; serfs/feudal property owners) and the ways in which the surplus is extracted. Economic progress requires that at the initial stages, at any rate, a high proportion of this surplus be channeled into productive investment.
Capitalism is an economic system whereby the capitalists, often from the upper class, own the means of production and lease it out for profit. In order not to lose their stature as capitalists, the wealthy capitalists reinvest their profit, which in turn grows their investment. Competition among capitalists is a major factor that contributes to the spread of capitalism. In addition, the fierce competition from other wealthy families has forced them to reinvest most of their profits to prolong their means of earning income. In capitalism, a small group of people has ownership and control of the means for producing and distributing goods. These include, but are not limited to, land, factories, technology, and transport system. Capitalism is an effective organizational model whereby there are multiple competing interests vying for limited resources and where the productive use of resources is not constrained according to a superseding consideration such as morality and social value, among others.
Capitalism is a class society whereby one group, capitalists, has a claim to the product produced by another by virtue of their ownership of the means of production, as well as the place where the product is produced. Those under the management of the capitalists are paid to produce goods and services, which are in turn sold in order to make profit. This class division is the essential feature of capitalism. Capitalists own mass communications media, and hence, they influence the public opinion to their favor. Moreover, they have control of investments, and therefore, they control the fate of the economy. In the event that they do not agree with a government policy, they can undertake a capital strike (stop investing). In addition, the surplus product in capitalist societies is invested so as to increase the productive capacity of the society due to competitive pressures (Bowles 59). As such, it acts as the engine that drives the rapid change that is witnessed in the system (Bowles 59).
The economic surplus is the real income exceeding the essential consumption necessary for the reproduction of the labor force in a society, that is, the flow of goods and services that are available for capital formation (Somel 1). There is an intense competition for profits between capitalists, which leads the capitalist class to invest the surplus and revolutionize production in order to survive (Bowles 38). Although the capitalist elite enjoy more lavish lifestyles than in feudalism or other systems, this requires investment. Other societies only encourage consumption (Bowles 38). In capitalist societies, people tend to put in extra effort to have a better lifestyle. Given this ownership of the workplaces, they can control and direct the labor process (Bowles 63). Thus, they hire direct producers to oversee the process of production in exchange for wage labor. Because capitalism is an economic and not a political system, it can coexist with a variety of different political systems (Bowles 63). It is not a complete set of rules for organizing a society but only a set of rules governing certain activities in society (Bowles 63). Hence, capitalism does not necessarily guarantee that democracy (Bowles 63). Consequently, Fascism and various other forms of dictatorship have flourished in capitalist countries.
The surplus product is important because it can be used in several different ways that affect the economy (Bowles 63). Without it, everyone would have to engage in productive work all the time (Bowles 63). Often, a corporation must pay rent (payment for the use of real estate used during production), interest (payment made by a corporation to owners of its bonds or to those who have loaned it money), taxes (payment to the government), and dividends (a payment made by the corporation to an owner of a share of its stock) (Bowles 63). The level and distribution of surplus between producers and consumers are often determined by the nature of the shift of the supply and demand curves by price elasticity and the minimum bid price (Rivas 8). Moreover, the growth of demand should be considered in the long-term analyses because it influences the level of economic surplus (Rivas 8). The economic surplus approach permits the estimation of the economic benefits generated by the adoption of technological innovations, compared to the situation before (without) the adoption, whereby only the traditional technology was available (Wander 2). In the context of underdevelopment, the surplus shows the potential for capital formation and helps to gauge what part of this potential is utilized (Somel 14). According to Bowles, “those who control surplus also wield political power, since they can influence government’s decisions and unequal power in national and international bargaining conflicts” (59).
In my opinion, the ideal political-economic system is the laissez-faire capitalism. It is a system whereby the governing authority does not have any control over the economic affairs of that state. Moreover, in this system, the government is majorly tasked with the duty to protect the rights of the people. A political economy does not accept the simple distinction between normative and positive economics (Bowles 63). Moreover, According to Bowles,” the political economy assesses an economic system using the values of efficiency, fairness, and democracy” (63). The Neoclassical economic theory focuses on long-term solutions to economic problems. Moreover, the neo-classical method assumes that economies will always adjust to the shifting economic environments to provide the optimum outcome at a new equilibrium.
An explanation of the concept of economic surplus and how different political and economic systems shape the nature of class relations and the ways in which the surplus is extracted has been presented. Also, how capitalists influence the factors of production has been explored.
Bowles, Samuel, Richard Edwards, and Frank Roosevelt. Understanding capitalism. Harper Collins College, 1993. Retrieved from: http://sttpml.org/wp-content/uploads/2014/08/UnderstandingCapitalismInstructorsManual.pdf
Rivas Rios, Libardo, et al. “Economic surplus analysis model (MODEXC).” (1999). Retrieved from: https://cgspace.cgiar.org/bitstream/handle/10568/53987/MODEXCI.pdf?sequence=1
Somel, Cem. “Estimating the surplus in the periphery: an application to Turkey.” Cambridge Journal of Economics 27.6 (2003): 919-933.
Wander, Alcido Elenor, et al. “Using the economic surplus method to assess economic impacts of new technologies: case studies of Embrapa.” Embrapa Caprinos e Ovinos-Artigo em Anais de Congresso (ALICE). In: CONFERENCE ON INTERNATIONAL AGRICULTURAL RESEARCH FOR DEVELOPMENT, 2004, Berlin. Book of abstracts… Berlin: International Research on Food Security, Natural Resource Management and Rural Development, 2004. 10 f. Disponível em: http://www. tropentag. De/2004/proceedings., 2004.