Question

Why do profits require surplus values? Why are profits central to the functioning of capitalism?

Answer 1

Surplus value is needed to compete the circuit of the Capitalism which is M?C?M^/. In which M is the money invested by the capitalist for the production of C goods that it needs to sell so that the M^/ obtained by selling is higher than M.

Profit generation is central to the functioning of Capitalism as it ensures the continuous growth in the system. Since, the factors of production (capital and labor) need to be compensated for their contribution towards production, so the capitalist is always faced with the problem of ensuring that the compensation to the factors don’t eat up all the revenue generated.

Surplus value is the amount of compensation to the factors of production (generally the labor) that is not paid but is retained by the capitalist for investment and further expansion of the production process.

In the absence of profit the circuit of the Capitalist system will not be completed and the production process will stop.