The exuberance causes additional new capitals to be formed. Some of these will be created by workers themselves, thereby removing them from the labour market, but either way, these new capitals will provide a new demand for labour-power to be withdrawn from the market. Most of these new capitals, as was seen earlier, will fail, precisely because they are small. But, some will not. Some may succeed, because they have been started up using some new, more efficient method of production that gives them an advantage over existing capitals; some will succeed because they are producing some new use value, that captures a share of the market.
This can then materialise in various forms. Some of the new capital continues to operate only as means of production. That is it continues to produce commodities that are thrown on to the market, but no surplus value is created in this production. If the individual capital succeeds in making a profit, it is only because it has been successful in buying its inputs at prices below the market values; because it succeeds in swindling its workers, suppliers or consumers in some way.
But, more often, such small capitals not only cannot produce surplus value, they produce even less than the average capital employed in the same production. If they continue to operate, it is on the basis of producing no surplus value, and realising no profits. It is often only the very small scale of operation that allows this to continue for any length of time. This was described by Marx in Capital I, in relation to those small enterprises, sweat shops, where not only were the workers super exploited, but the owners of such enterprises worked themselves for below the value of labour-power. It is a typical situation for some peasant farmers, share croppers and so on. During this period, not only will any workers be asked to accept lower wages etc. but the owner, who is often still a worker of some kind, will not only accept lower wages themselves, but they may keep the business going by drawing on their own savings and assets to add capital, in the hope of better times ahead.
For those who are really just self-employed workers – as was the case with the hand-loom weavers, for example, this becomes particularly acute, as not only does their profit disappear, but their wages also fall below the level of subsistence. Its on this basis, that the 160,000 or more “zombie firms”, reliant on state handouts, in the form of subsidies to their workers, survive today.
In reality, this is capital that is not acting as capital, but only as means of production. But, some of this new capital does act as capital, does act to produce surplus value, for the reasons described above. To this extent, it replaces a portion of the existing capital. Again that may appear in two ways. On the one hand, a new efficient capital might take the place of an old inefficient capital, particularly where they are of a similar size. The former then produces a surplus value that can be realised in the commodities it produces and sells at the market value, but the latter now cannot, because its output has been replaced by that of the new capital. On the other, it may take the place of just a portion of some larger capital, which finds that it cannot make the same profit on all of its output as before. That may be because a portion of its output is produced inefficiently, or because although its output overall is more efficient than the average, it is not as efficient as the new smaller capital. The latter cannot replace all of the capital of the former, because its too small, but it can replace a portion of equal size.
“In reality, it would appear that a portion of the capital would lie completely or partially idle (because it would have to crowd out some of the active capital before it could expand its own value), and the other portion would produce values at a lower rate of profit, owing to the pressure of unemployed or but partly employed capital. It would be immaterial in this respect if a part of the additional capital were to take the place of the old capital, and the latter were to take its position in the additional capital. We should still always have the old sum of capital on one side, and the sum of additional capital on the other.” (p 252)
In fact, under these conditions, not only will the rate of profit fall, but the mass of profit may fall too, because the continued accumulation of capital, beyond the point where it can add surplus value, causes wages to rise so much that the rate of surplus value falls more than the quantity of variable capital employed rises. In fact, this situation that causes a crisis of overproduction is quite different to the conditions that Marx describes for the Law of The Tendency for The Rate of Profit to Fall. Marx makes clear that for the latter to occur, the rate of surplus must rise (the consequence of rising productivity that is the corollary of the rising organic composition of capital, and the mass of profit is rising). However, the conditions described that lead to a crisis of overproduction, are that the rate of surplus value is declining, because increased accumulation has caused wages to rise, and the elasticity of demand to rise, as higher wages cause higher levels of consumption. Rather than the mass of surplus value, rising, as is the case with the Law of Falling Profits, it is falling, squeezed by these higher wages, and the inability to pass on higher input costs. But, even if the quantity of surplus value does not fall, and if the rate of profit on the capital actually employed does not fall, the overall rate of profit must fall, because the total mass of capital, i.e. including that part which has been accumulated, but which does not act as capital, has risen. The same mass of profit, therefore, measured against an increased mass of capital, must result in a lower rate of profit.
“If a total capital of 1,000 yielded a profit of 100, and after being increased to 1,500 still yielded 100, then, in the second case, 1,000 would yield only 66⅔. Self-expansion of the old capital, in the absolute sense, would have been reduced. The capital = 1,000 would yield no more under the new circumstances than formerly a capital = 666⅔.” (p 252)