Capitalism is defined by Marx as a ‘self expanding system’, necessitating a source of surplus value. A commodity is produced to be exchanged, as, when in circulation, a profit is yielded which requires explanation (M-C-M+). Ricardo and Smith both argued that labour produced value; however, they failed to account for how profit is derived from the labour process (Schmitt; 1987, 102).
Marx assumed that trade is based on the exchange of equivalents (Marx; CI, 343); meaning profit is generated under optimal and ‘free’ conditions. The ‘riddle’ that Marx attempts to solve is: how is it possible (without scarcity of goods or manipulation of buyers) to generate profit? (Schmitt 1987; 101) The answer, for Marx, resides in the material conditions of capitalism, where workers commodify their labour power in order to subside, selling it to the capitalist. When labour is sufficiently productive an output is produced with greater exchange value than the cost of labour. The labourer works beyond the necessary time to pay for his subsistence (which is socially defined though abstract labour (Schmitt; 1987, 75)). There can be no doubt that such a process yields surplus value. However, this does not establish that it is the only source.
Marx’s labour theory of value attempts to show that labour is both the unifying principle and the subjective ‘unseen’ social element determining exchange value. However, both these conditions can be satisfied through positing demand as the basis of value (Wolff; 1985, 109). Marx’s argumentation is weak; no necessary connection between labour and exchange value is established, leading some to question its necessity for Marx’s theory. So, are there other sources of surplus value?
Machinery, and tools of production do not create surplus value; they are a product of previous labour which store value, passing their value onto the finished commodities; they are ‘dead’ or ‘constant’ capital. Only labour (variable capital) can produce a surplus as human agency either stores the value in machinery or extracts it; in the process boosting efficiency and profit margins.
As King and Ripstein (1987) argue labour is not necessarily the sole source of surplus value. If, for example, an industry is predicated upon manual labour and one owner (in order to boost profits) ingeniously utilizes nature (like a waterfall powering a mill) in the production process, yet still sells their commodity at industry rates, then a greater surplus value is created without the use of labour, thus there seems to be a ‘natural production agent’ (14). Yet, this process does not factor in a distinction between producing physical surplus and producing surplus value. Surplus value is generated by departing from the socially defined industry standard.
The ‘peculiarity’ to human labour as the only source of surplus value is due to the social conditions of (abstract) labour; the detachment of the labour from produce (the fetishism of commodities) forms the basis from which capitalists can extract surplus value as it is this relationship that separates the worker from the right to benefit from his surplus labour, forcing the labourer to sell their commodity without profit. Labour is the only commodity that will be sold under such conditions and thus the source of surplus value.
 In optimal conditions supply and demand are balanced creating at an equilibrium price, which is equal to exchange value (Schmitt; 1987, 98).