Surplus and Capital, Part One

Tracing Surplus and the formation of Capital in a "Landed" Society.
by Gene DeNardo
(liberal)
Friday, February 20, 2009

"Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration."          Abraham Lincoln

One can find countless explanations for the origin of Capital, but there can be only one true source. For Capital to exist there must be a surplus. There must be more than what is needed immediately, above what is needed for consumption. Something must be available, a result of previous production that advantages or aids in future endeavor. It is that extra production bonus above the level of sustenance that provides the material that we refer to as Capital.

It is sometimes erroneously believed that Capital never came into being until the advent of Capitalism itself. Surplus creation has been around since humans roamed the earth. The direction and use of that surplus defines the system not the other way around. It is the surplus that enables the workings of Capitalism; in no way does Capitalism itself create the surplus. Humans create surplus, Capitalism is a specific method of directing the surplus just as the Feudal System was a method of directing the surplus from the Serfs to the Noble Class.

Where this surplus originates, where it is created is a very important factor. If we are proponents of Capitalism as opposed to say Socialism, there must be some inherent justice within the system that cannot be found otherwise. Since the basis of this system is Capital, it formation and distribution, it would be enlightening to attempt to recreate scenarios that depict its origin and to deduct the source of surplus.

Land and the resource it contains is the basis for any economic system, indeed is the basis for existence itself. All comes from the land and eventually, sad for us, goes back there. Because of this, there are only two possible situations man can find himself in, in relation to land:

1. Landed with free access to land without restriction.

2. Isolated from land, with land controlled by some, whether many or few.

We will start with free access to the land. Let's take for granted the unlimited available of land for all. One is able to attain the amount of land that would sustain oneself and one's family.

If an "average" amount of daily labor on this land produced sustenance, then it would follow that the great majority of people would be satisfied in their basic needs.

With unlimited availability of the resource and "average" labor input, we would find "surplus" occurring on certain parcels. This would be due to the super productivity of the particular parcel or land itself. The first most obvious origin of surplus is the productivity of the land.

If we find an average production of four bushels of grain [which we deem sufficient for sustenance] and a specific parcel that produces five with the same labor, we have a one bushel surplus. It should be noted also that the one extra bushel will tend to represent "rent" as the availability of land decreases.

For this surplus to be "capital" it must not be consumable in the present and really must not be part of future allotments of consumption. It is rather something than can be put back in to "increase or enable" future production.

If only one "Capitalist" possesses this surplus, does it have a "value"? It has no value to those who have sufficient sustenance. They would only have reason to exchange if they received a "bonus" or more than the level of sustenance in return. The owner of capital will receive less than he gives and has no economic reason to complete the transaction.

Division of labor is a mute point here as we can assume exchange between those on sustenance level accomplishes the identical end of providing a variety of goods and gives no advantage to the owner of capital.

Human productivity being what it is, there will be those who will not be able to sustain. Despite a day's labor or lack of it, they will fall short. The surplus, which up to this point is of little value to its owner, represents survival to the less fortunate or those with less aptitude.

You might ask why wouldn't those with low labor productivity choose land with high output to attain their sustenance level? We will ignore that "garden of Eden" scenario since we would have nothing then to discuss or argue about! Instead, we use a natural "taking" of land; the land of highest output is usually claimed first and eventually what follows is some segment of the population with a combination of land productivity and labor productivity that doesn't meet sustenance, no matter the "quantity" of land.

The owner of this surplus now has a few options. Humans through time will exhaust all options. They seem to act every way possible within any predetermined situation.

Our Capitalist may be charitable. He may see no purpose other than distributing the surplus to bring his neighbors to a level of sustenance receiving nothing but good will in return.

He may decide to do nothing. He may just let the surplus bring no value, acting as if it was never created.

Or, perhaps more commonly, he would wish to receive reciprocation. What he will receive is the question, those lacking have only land and labor. Of what value is their labor? Since their labor is below the average level of sustenance his own land must be highly productive to justify employing their labor to advantage on his property. If this in actuality is possible, is there any economic justification for him to award them anything above their basic level of sustenance? Since he has a monopoly on capital the answer would be no.

If in fact their labor is not employable, then forfeiting their land would be the only option. This is beyond our basic premises since we have assumed infinite availability of land, but the consequences are daunting and has been played out in history repeatedly.

There are other methods of producing surplus and it is highly unlikely barring force, that surplus would be monopolized to such an extent. One may add a greater quantity of labor to the land, producing above sustenance level. Or, more intelligent labor could be utilized, increasing production using the same quantity of labor. In this manner, surplus can be created out of the quantity or quality of labor applied.

With our Capital monopoly removed we have several owners of surplus. Still, since we are assuming equitable transactions, where each party receives equal value, our Capitalists have no reason to trade within themselves. And since those at the sustenance level are satisfied they have no reason to trade for surplus without receiving more in exchange to bring them above the level of sustenance, which our Capitalists have no reason to do.

This again leaves possible trade of Capital between those owning surplus and those lacking full sustenance. The five hundred year old question is "Is there a point at which the competition for labor will economically justify awarding enough surplus to bring less productive labor to the level of sustenance or beyond?" If this is true, then the existence of Capital within a "landed" economic system brings greater prosperity to all.

If intelligent labor [or technology] can be transferred through the use of Capital to the less productive labor, there will be the possibility that sustenance can be met and surplus can be compounded. This may produce a "return" on the Capital and a reason for its continued existence. This is an application of specialization that can only be instituted through the distribution of Capital by exchange or charity. For this to occur the Capital "seedbed" so to speak, must be fertile. The less productive a people are as a whole and the closer to the original Capital monopoly described, the more susceptible to exploitation the system becomes. It is the fine line drawn between concentration of surplus and natural distribution. One ferments oppression and one foments freedom.

Would there be any economic reason in this situation to award labor in an amount beyond the level of sustenance? The answer would lie in the supply of labor; as long as there is available labor below the level of sustenance the answer is no. Once sustenance is reached, labor can demand as much of the surplus the Capitalist will part with and still feel himself to be compensated enough to complete the enterprise.

Does it seem overly difficult for Capital to have a positive effect in our examples? There is good reason for this.

The examples take place in a "landed" world. This necessitates a direct connection to the resource by all. Wealth creation is defined much differently when all have access to the source of all wealth, the earth. This is not an example we are familiar with!

We are solely dealing with the creation of "real" Capital or surplus. We have left no room in our discussion for fraudulent claims of surplus through pretend accounting or money creation. There is no medium of exchange and therefore no misrepresentation of value. It is either there or it isn't.

In Part Two we will explore surplus in relation to limited resource or land; the inability of all to claim land and some resulting situations. Where surplus originates, where it goes and what it helps accomplish are instrumental to understanding accumulation and distribution of Capital. We can claim no system to be working properly or to be successfully fulfilling its purpose unless its fundamental properties are sound.

Related Articles by Author:

Banking Part One: Origins and Purpose

Is There A Just Tax?

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©2009 Gene DeNardo, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Friday, February 20, 2009
Last modified: Friday, February 20, 2009

The views expressed in this article are those of Gene DeNardo only and do not represent the views of Nolan Chart, LLC or its affiliates. Gene DeNardo is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.

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