Marx’s theory of distribution
According to the theory of Marx, the value of a commodity is determined by the labour time
involved in its production. Labour alone is the source of value or the ultimate source of all
values.
Labour produces more output than required for minimum subsistence. This forms the basis of
the theory of surplus value, which explains the distribution of national income into wages and
profits of labourers and capitalists respectively.
The total value of output is composed of three elements:
surplus value created over
constant capital (C), i.e., variable capital (V), i.e., the minimum subsistence wage
the value of capital and value of labour in or labour power, which is
raw material production taken by the capitalists as
profit.
Total value output = C + V+ S
According to Marx, the net output has only two elements which are the variable capital and
surplus value. As such, net output = V + S
The ratio of S/V is called the rate of exploitation by Marx. It represents the ratio of profits share
to wage share in national income. When the ratio of S to V increases, the rate of exploitation
increases. When it decreases, the share of labour in national income increases.
Forces at work in the capitalist system result in a higher rate of exploitation of labour due to
capitalist competition. Capitalists who own material means of production compete with each
other to increase the rate of exploitation. The capitalist sector grows at the expense of the non-
capitalist sector. The rate of exploitation or surplus value is increased by them in three ways:
Increasing intensity of
Lengthening the working Increase the productivity
labour, by making wage
days, which leads to of workers through
labourers work harder in
increased output technical progress
given working time
Therefore, labour creates more value than its own cost (i.e., subsistence wage). The
surplus that emerges is expropriated by the capitalists. It constitutes profits of the
capitalists, which represents the exploitation of labour done through the ownership of
non-human means of production (i.e., capital). Surplus value is the source of all profits,
determining profit share in total national income.
Technical progress is possible through capital accumulation, along with the development
of the capitalist system. As a result, exploitation increases for increased surplus value.
Therefore, the relative share of labour goes on decreasing in the National Income. This
leads to deterioration in the living conditions of the working class, which is called the law
of increasing misery of the working class.
1
Misery results in the failure of real wages to increase with the increase in productivity. Although
the relative profits share increases, the rate of profit decreases. This leads to the ultimate
collapse of capitalism. Marx explained it on the basis of the organic composition of capital
(OCC), i.e., the ratio of capital to total capital (C+V)
OCC = C/ C+V
The rate of profit equals the ratio of surplus value (S) to total capital (C+V), i.e., the rate of
profit is equal to S/C+V. If S/V (rate of exploitation) remains constant, the rate of profit will
decrease if the organic composition of capital (C/C+V) increases. According to Marx, the rate
of profit will decrease in a capitalist economy, due to capital accumulation and the consequent
increase in OCC. That is, as more capital is accumulated and the capital-output ratio increased
due to the adoption of capital-intensive production techniques, the rate of profit will fall.
2
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