The heart of Capital is an explanation of where profit comes from. Marx's answer, the theory of surplus value, is his most important and most debated economic idea.
Commodities
Capital begins with the commodity: a thing produced to be sold. Every commodity has two sides:
- Use value: its usefulness, what it does for the person who uses it. A coat keeps you warm.
- Exchange value: what it trades for on the market, usually expressed as a price.
A coat and a quantity of wheat have completely different uses, yet they trade in definite ratios. Marx asked what they have in common that makes them comparable. His answer: both are products of human labor.
The labor theory of value
Following the classical economists Adam Smith and David Ricardo, Marx held that the value of a commodity is determined by the socially necessary labor time required to produce it: the time it takes a worker of average skill and intensity, using the normal technology of the day. A careless worker who takes twice as long does not make a coat twice as valuable. Prices go up and down with supply and demand, but Marx argued they move around this underlying value.
Labor power
Marx's key move was to distinguish labor (the actual work done) from labor power (a person's capacity to work, which they sell to an employer for a period of time). Under capitalism, labor power is itself a commodity. Its value, like any commodity's, is the labor time needed to produce it: the cost of the food, housing, clothing and training that keep a worker able to work and raise the next generation. That is roughly what wages pay for.
Where profit comes from
Here is the core argument. Suppose a worker's daily wage covers the value of what they need to live, and producing that much value takes four hours of work. But the employer has bought the worker's labor power for a full eight-hour day. In the remaining four hours, the worker produces new value that the employer keeps. Marx called this extra value surplus value, and it is, in his account, the source of all profit, interest and rent.
Marx summed up the capitalist's activity with a formula: M to C to M′. Money (M) buys commodities (C), including labor power and materials, which are turned into goods sold for more money (M′) than was spent. The only input that can create more value than it costs, Marx argued, is labor power.
Exploitation as a technical term
Marx called the taking of surplus value exploitation. He meant this first as a description, not an insult: the worker produces more value than they receive. It can happen with a fair contract, legal wages and a polite boss. In Marx's view, the exchange looks equal on the surface (a day's wage for a day's work) while hiding an unequal relationship underneath. He called the ratio of surplus value to wages the rate of surplus value, or rate of exploitation.
Constant and variable capital
Marx divided an employer's spending into two parts. Constant capital is spent on machines, buildings and materials; it passes its existing value into the product but adds nothing new. Variable capital is spent on wages; it is “variable” because labor power produces more value than it costs. This distinction becomes important in Level 6.
Why it matters
If this theory is right, profit is not a reward for risk or management alone but rests on unpaid labor, and the conflict between classes is built into production itself. That is why critics have focused so much attention on the labor theory of value, as Level 8 explains.
Worked example: one working day
Let us put numbers on the theory, in Marx's own simplified style. A furniture workshop employs a carpenter for an eight-hour day at a wage of $120. In those eight hours, using $100 of wood and wear on tools, she builds two chairs that sell for $160 each, or $320 in total.
- Constant capital (wood and tools used up): $100. This value is transferred into the chairs; it adds nothing new.
- Variable capital (wages): $120.
- Total value of the chairs: $320. New value added by her labor: $320 minus $100 = $220.
- Surplus value kept by the owner: $220 minus $120 = $100.
The rate of surplus value is $100 divided by $120, about 83 percent. In Marx's terms, of her eight hours, roughly four hours and twenty minutes reproduce the value of her wage, and the rest is unpaid surplus labor.
A mainstream economist would describe the same workshop differently: the owner earns a return for supplying tools, taking the risk that chairs will not sell, organizing production and waiting to be paid. The disagreement is not about the arithmetic. It is about whether that $100 is best explained as a reward for the owner's contribution or as value produced by the carpenter and kept by the owner.