where does the surplus go?

That's a very important question, title. When I was younger and dumber than I was now (an Enthusiastic Youngster), I would have struggled to answer this question. And yet it is a very important question to understand the actual mechanics of capitalism, which are the mechanics of the world. One more unkind than me could use it as some kind of a "gotcha" question. "You call yourself a socialist? Where does the surplus value go?" But I am older and kinder, so I will not do that.

Now, the most basic understanding of Marxist socialism, the "pop understanding" that you will see bandied about on Reddit or Tumblr, is that workers create products by working for a company, the company sells their products for their full value and gives the workers a wage that is necessarily less than what that was. The difference between what is paid to the workers for their work and what is earnt by the company for their product is the profit for the company, in money terms, or surplus value in terms of labour. So far so good.

But the key question is: what is this profit used for? In other words, where does the surplus go? Naively, one might think that this is simply set aside for the consumption of the capitalists; that is, for the luxury yachts and displays of conspicuous consumption that we all love to moralise about. But this is of course not true, as can be proven by the fact that the yacht industry is not economically significant.

Rather, we must look at the fundamental logic of Capital, which is this: M-C-M'. That is, money (M) is advanced in order to eventually get more money (M') by the use of some commodity (C) bought with the advanced money. For merchant capital this is arbitrage: One buys a commodity in a market where it is cheap and sells it in a market where it is expensive. For industrial capital, the capital which characterises our society, labour-power is the commodity which is bought.

So the fundamental logic of capital is one of accumulation: money begets money. And like all social logics, this is enforced via the social relations of capitalism. If a capitalist firm does not accumulate, if it does not grow, it cannot keep up with its competition, first of all in a purely business sense where it cannot produce enough to keep up with demand, and second of all in the sense that if it does not grow, or grows insufficiently, it is no longer an attractive investment for capitalists (for one wants to invest in the firms with the greatest ROI), and hence it raises less money, and hence grows less, and so on and so forth. (We can see this in the many many instances of stock prices plummeting precipitously at news, not that a firm has stopped growing, but that it has grown less than projected!)

So where does the profit go? It goes back in the cycle. M-C-M'-C'-M''-C''-M'''-C'''-... on and on forever. Any profit that is made is plowed straight back into reinvestment. From this fact we can understand a lot about the current economic system.

It implies crises: All commodities must be bought to provide a profit to the maker. So when capitalist accumulation continues apace, more and more commodities are produced as a result: but there are only so many people in the world, each paid only so much money, so the market inevitably at some point cannot "absorb" all of the production. Some remains unbought, does not provide a profit, and an economic downturn begins. This is only made worse by the fact that, in the short term, capitalists have a vested interest in reducing the wages of those they employ, in order to increase their individual profit as a firm; but in the long term, a general reduction in wages only results in a contraction of the market and a decline in profit.

It also implies bubbles. Capitalists prefer to invest in vehicles with the largest return on interest. But traditional industrial capital is limited in its expansion by basic physical realities: there are only so many machines, we can only make so many more in this time, there is only this much labour force, etc. Though of course there has to be industrial capital for capitalism (people need to eat, wear clothes, etc) capitalists in general prefer to invest in capital that promises to deliver massive returns on investment, unlimited massive expansion. Take for example the cryptocurrency bubble of right now: cryptocurrencies promise massive returns on investment, so they are getting massive amounts of investment. But there isn't really a way to produce massive returns on investment generally: the average return on investment has to be, by definition, the rate of growth of the entire world-economy's production, so as soon as too many people get in on the investment the bubble must "pop", since the world-economy's growth is objectively limited. How then does crypto deliver, for a while, on such massive returns? In essence, it is a ponzi scheme: each investor is paid his (yes, his) dividend out of the investment of the next round of investors, until there are no more rounds and the last people who bought are left "holding the bag". This doesn't have to be an intentional scam; indeed, many legitimate businesses have been the subject of such a bubble, although on the stock market (as in cryptocurrency) it is not really the business itself that is producing the seemingly fraudulent return on investment but the wild speculation of investors; that is, rather than the business itself taking more investors' money and giving the previous investors their dividend, the prospective investors actually buy stocks/crypto/NFTs directly from the previous investors. The business/coin itself is, ideally/officially, not involved at all, and hence everything is "above board." (Legitimate businesses, when they are the subject of a speculative bubble, can often continue on after the bubble pops with a more-or-less regular valuation and growth rate; crypto has no value proposition other than a speculative one.)

There is much more that can be said, but I shall finish this article since it is midnight. Good night everybody.