Karl Marx, the father of communism, said that surplus value is created by the difference between the value of labor and the value of the goods produced by that labor. He said that capitalism exploits workers by paying them less than the value of their labor.
The term “surplus value” refers to the difference between the value of labor and the value of the goods produced by that labor. In other words, a worker’s labor is worth more than what he or she produces in a given period of time.
This is how capitalists make their money: They take advantage of this difference in value to make more money than they put into their business. They do this by paying workers less than what their work is worth and then selling the products or services for more than they cost to produce.
Marx argued that capitalists, or owners of capital, benefit from this exploitation because they receive part of this excess value as profit. He called this exploitation “surplus value” because capitalists get an extra amount for something they didn’t pay for.
In other words, capitalists take what would otherwise be profit for themselves and transfer it to workers in the form of wages — so they can sell their products at a lower price than competitors’ products.
The reason this works is that we live in a world where most people don’t have enough money to buy everything they need and want. So even though people are producing more than they consume (in other words, creating surplus value), they still need jobs so they can earn enough money to buy food, clothing and other necessities.