II
Chapters Three and Four, dealing with monopoly capitalism, call for a clarification of the argument. The required modifications are not far-reaching, but may add—I hope—to its consistency and persuasiveness. My views on this vast subject have crystallized in the course of extensive work undertaken jointly with Paul M. Sweezy; the results of our studies and discussions will be presented in a book which we hope to complete in the near future. What follows in this section is confined therefore to only two points which the reader should bear in mind when turning to the relevant part of this volume.
I have argued above that it is necessary to probe deeper than the readily observable surface with regard to the problem of consumer sovereignty. This is at least equally true when it comes to what I consider to be the key to the understanding of the general working principles of capitalism: the concept of the “economic surplus.” That I was unable to explain it sufficiently well is apparent from the fact that a critic as eminent as Nicholas Kaldor failed to grasp its meaning and significance.15
The root of the trouble is that Mr. Kaldor, like all other economists spellbound by the surface appearances of the capitalist economy, insists on identifying the economic surplus with statistically observable profits. If such an identification were legitimate, there would be no need to introduce the term “economic surplus,” and—what is obviously more important—there might be no justification for speaking about rising surplus. The crux of the matter is, however, that profits are not identical with the economic surplus, but constitute—to use what has become now a hackneyed metaphor—merely the visible part of the iceberg with the rest of it hidden from the naked eye. Let us recall that at an early stage of the development of political economy (and capitalism) the relevant relations were seen much more clearly than they are at the present time. An intense theoretical struggle was fought, in fact, to establish that the rent of land (and interest on money capital) are not necessary costs of production but components of the economic surplus. At a later phase, however, when the feudal landlord and moneylender were replaced by the capitalist entrepreneur and banker, their returns were “purged” of the surplus “stigma” and became promoted to the status of necessary prices of scarce resources or of indispensable rewards for “waiting,” “abstinence,” or “risk-taking.” In fact, the very notion “economic surplus,” still prominent in the writings of John Stuart Mill, was declared non grata by the new economic science which proclaimed any and every outlay as “necessary” as long as it received the stamp of approval from the revealed preferences of consumers operating in a competitive market.
The situation became more complicated with the proliferation of monopoly; and a number of economists—beginning with Marshall but later on inspired primarily by the work of Pigou—who conducted their investigations from the vantage point of competitive capitalism found it impossible to treat monopoly profits as necessary costs of production.16 This was undoubtedly an important step forward; it constitutes, however, only the beginning of what needs to be understood. For monopoly capitalism generates not only profits, rent, and interest as elements of the economic surplus, but conceals an important share of the surplus under the rubric of costs. This is due to the ever-widening gap between the productivity of the necessary productive workers and the share of national income accruing to them as wages.
A simple numerical illustration may be helpful here. Assume that in period I, 100 bakers produce 200 loaves of bread, with 100 loaves constituting their wages (one loaf per man), and 100 loaves being appropriated by the capitalist as surplus (the source of his profit and his payment of rent and interest). The productivity of the baker is two loaves per man; the share of surplus in national income is 50 percent, and so is the share of labor. Now consider period II in which the productivity of the baker has increased by 525 percent to 12.5 loaves and his wage has risen by 400 percent to five loaves per man. Assume further that now only 80 bakers are employed in baking, producing altogether 1,000 loaves while the remaining 20 are engaged as follows: five men are commissioned to change continually the shapes of the loaves; one man is given the task of admixing with the dough a chemical substance that accelerates the perishability of bread; four men are hired to make up new wrappers for the bread; five men are employed in composing advertising copy for bread and broadcasting same over the available mass media; one man is appointed to watch carefully the activities of other baking companies; two men are to keep abreast of legal developments in the antitrust field; and finally two men are placed in charge of the baking corporation’s public relations. All of these individuals receive also a wage of five loaves per man. Under these new circumstances, the total output of 80 bakers is 1,000 loaves, the aggregate wage of the 100 members of the corporation’s labor force is 500 loaves, and profit plus rent plus interest are 500 loaves.17 It might seem at first that nothing has changed between period I and period II except for the increase of the total volume of output. The share of labor in national income has remained constant at 50 percent, and the share of surplus does not appear to have varied either. Yet such a conclusion, though self-evident from the inspection of customary statistics, would be wholly unwarranted and in fact would merely serve to demonstrate how misleading such statistical inferences can be. For the statistical fact that the shares of labor and capital have not changed from period I to period II is irrelevant so far as our problem is concerned. What has happened, as can be readily seen, is that a share of the economic surplus, all of which in the earlier period was available to the capitalist as profit and for payment of land rent and interest, is now used to support the costs of a non-price-competitive sales effort, is—in other words—wasted.18
In the light of this, it should be clear that Mr. Kaldor’s and other critics’ contention that my admission of the validity of the thesis that the share of wages in income remained more or less constant over a number of decades is wholly incompatible with my maintaining the theory of the rising surplus—that this contention reflects merely their own failure to understand the surplus concept. A constant, and indeed a rising, share of labor in national income can coexist with rising surplus simply because the increment of surplus assumes the form of an increment of waste. And since the “production” of waste involves labor, the share of labor may well grow if the share of waste in national output is increasing. Treating productive and unproductive labor indiscriminately as labor and equating profits with surplus obviously obscure this very simple proposition.
Several objections to the above could be raised. In the first place, it could be (and is being) asserted that there is no point in distinguishing between productive and unproductive labor or between socially desirable output and waste since there is no possibility of making these distinctions “objective” and precise. The correctness of the latter assertion can be readily granted. But that brandy and water mixed in a bottle cannot be separated, and that it may be impossible to establish accurately the proportions in which the two liquids are combined, does not alter the fact that the bottle contains both brandy and water and that the two beverages are present in the bottle in some definite quantities. What is more, to whatever extent the bottle may be filled, it can be safely asserted that in the absence of one or the other ingredient of the mix, it would be less full than in its presence. That we cannot at the present time neatly separate the wheat from the chaff, i.e., identify unequivocally the dimensions of the socially desirable output and of the economic surplus in our economy, is in itself an important aspect of the economic and social order of monopoly capitalism. Just as the problem of consumer sovereignty is not whether a commissar should screen existing consumers’ wants and impose on them standards of good taste, but rather how to attain a social and economic order which will lead to the emergence of a differently oriented individual with different wants and different tastes, so it reflects a complete misunderstanding of the issue to demand from the critical economist that he present a comprehensive compilation of the existing number of unproductive workers and the existing volume and forms of waste. Apart from the, by no means trivial, fact that under prevailing conditions there is not (and cannot be) available the amount and kind of information and knowledge that would permit the drawing up of such a