But, the claim, put forward by the Left Keynesians, under the guise
of Marxism, that crises are caused by this low level of wages, or
under consumption caused by them, is equally false, equally remote
from what Marx actually said. The argument they put forward is
essentially this. Capitalism is forced to keep workers wages low,
and to reduce them where possible, in order to maximise profits.
But, that means that workers do not have enough money to buy the
things that they, as workers, produce for the capitalist, and which
he seeks to sell. Marx never made this argument. What Marx and
Engels actually said was,
“There would be absolute over-production of capital as soon as
additional capital for purposes of capitalist production = 0. The
purpose of capitalist production, however, is self-expansion of
capital, i.e., appropriation of
surplus-labour, production of surplus-value, of profit. As soon as
capital would, therefore, have grown in such a ratio to the labouring
population that neither the absolute working-time supplied by this
population, nor the relative surplus working-time, could be expanded
any further (this last would not be feasible at any rate in the case
when the demand for labour were so strong that there were a tendency
for wages to rise); at a point, therefore, when the increased capital
produced just as much, or even less, surplus-value than it did before
its increase, there would be absolute over-production of capital;
i.e., the increased capital C + ΔC would
produce no more, or even less, profit than capital C before its
expansion by ΔC.”
Orthodox economics describes this as a situation where the Marginal
Cost of Production i.e. the cost of producing 1 additional unit of
output, is greater than the Marginal Revenue (price) obtained by
selling that additional unit. In other words, it is not a matter
that workers do not have enough wages to buy the available
commodities. In fact, as can be seen from the above, the situation
that is being described is one where Capital has expanded i.e. large
numbers of the available workforce have been employed, even to the
point whereby wages have risen significantly. The problem is that
they do not have sufficient funds, or else choose not, to buy the
available commodities, at prices that will enable Capital to replace
the capital consumed in their production. In fact, it is quite
possible that it is because wages and living standards have risen,
that workers decide not to spend more of their money on simply buying
more of the commodities that make up their normal consumption. If
Capital wants to persuade them to buy more of these commodities, it
may have to reduce their prices, even below their values. In other
words, Marx understood clearly the principle of price elasticity of
demand. That is that at different levels of demand, the amount by
which price has to be reduced, to bring about a given increase in
demand, varies. It also varies from one type of commodity to
another. Marx writes,
“It would seem, then, that there is on the side of demand a
certain magnitude of definite social wants which require for their
satisfaction a definite quantity of a commodity on the market. But
quantitatively, the definite social wants are very elastic and
changing. Their fixedness is only apparent. If the means of
subsistence were cheaper, or money-wages higher, the labourers would
buy more of them, and a greater social need would arise for them,
leaving aside the paupers, etc., whose demand is even below the
narrowest limits of their physical wants. On the other hand, if
cotton were cheaper, for example, the capitalists' demand for it
would increase, more additional capital would be thrown into the
cotton industry, etc.” (Capital Vol III p188)
Elsewhere, Marx points out that where workers wages rise, they may
buy more Sheffield cutlery, but he says, their demand for such
cutlery will not rise in the same proportion as their wages, because
each workers' family only requires a certain amount of cutlery,
however cheap it might be, or however well paid they are!
Suppose, workers' consumption of food is relatively high, as is their
consumption of motor cars. If the price of food falls by 10%,
workers' might increase their demand for food by 8%, because food is
a basic requirement for consumption. However, if the price of cars
falls by 10%, workers' demand for cars might only increase by 2%. In
either case, the higher workers' existing living standards, the more
they already consume of these commodities, the more likely they are
to require prices to be reduced by greater percentages to encourage
them to spend their wages, than if their wages and living standards
are low. The more Capital expands, the higher its demand for
labour-power, and the higher tends to be the level of wages and
living standards.
This is completely different to workers not having high enough wages
to buy the available goods on the market. Its possible that if
prices fell far enough, Capitalists could sell all of their surplus
production. The point is, however, having done so, could they then
buy in all of the necessary materials and so on, to continue
production at the same level!
This can be seen quite easily. Take the example, of the Sinclair C5.
The company built a number of these vehicles, which consumed a
certain quantity of Constant capital in the form of materials
required to produce it, machines required to process that materials,
buildings in which these activities were undertaken, and in Variable
Capital, in the shape of assorted workers who performed the necessary
labour. Having done so, they found that they could not sell them.
It wasn't because workers wages were to low to buy them. It was
because no one really wanted them! The company possibly could have
got rid of them if it reduced the price enough, but that does not
solve the problem.
Suppose, the costs of the Constant Capital comes to £10,000, whilst
the cost of Variable Capital comes to £5,000, in order to produce 15
C5's. That means the Cost of producing each machine is £1,000.
Normally, the capitalist would expect to make a profit on top of
this. However, suppose that having put them on sale at £1,000,
there are no takers. The company reduces the price to £800, and
manage to sell 3 of them. They reduce the price further to £700 and
sell another 4. In order to sell the rest they have to reduce the
price to £400. They have made £8,400 from the sale. But, in order
to produce another 15, they are still faced with having to pay out
£10,000 for Constant Capital, because there is no reason their
suppliers will sell their commodities to them for less than their
value, and similarly they will still have to pay out £5,000 in
wages.
Marx describes this kind of situation. The Exchange Value of
commodities is determined by the socially necessary labour-time
required for their production. But, this is not just a question of
the commodity being produced using the average productivity of
labour, and the average level of machinery etc. it also requires that
there is sufficient demand for all of the output produced at this
average level of efficiency. This is an application of the Law of
Value, which has operated throughout Man's History, whereby available
social labour-time is allocated according to what society determines
as being its requirements. Under capitalism, because this is done
via the market, and involves Capitalists producing commodities ahead
of them being consumed, the question of whether social labour-time
has been so allocated can only be determined after the event i.e. if
these produced commodities find a market.
If they do not, then Marx says, the labour-time used in their
production was not socially necessary. The labour-time used in the
production of the Constant Capital, which was used in the production
of these commodities, along with the labour-power that was used to
transform this Constant Capital into the end commodity, was wasted.
It has to be subtracted from the labour-time actually used up, in
calculating the actual value of the commodities produced. Because,
Capitalism, unlike every other form of production in Man's history
produces commodities without knowing if they are wanted or not, it
inevitably leads to a perpetual overproduction and under production
of commodities, which means that market prices for these commodities
are perpetually either above or below their Price of Production
(Price of production is the Cost of production of the commodity plus
the average rate of profit). By this means, the perpetual shortages
and gluts that Capitalism entails, for different commodities, are
rationed out.
Marx calls these crises, which affect individual Capitals, partial
crises of overproduction. But, for the same reasons such crises can
break out as general crises of overproduction. That is not a crisis
caused, as in the case of the C5's, because workers/consumers simply
do not want a particular commodity at all, but because they do not
want to buy any more, of a range of these commodities, at prices that
enable Capital to increase profits. Yet, this is an inevitable
consequence of each Capital trying to revolutionise production to
reduce its costs, and in consequence of Capital as a whole massively
expanding production. Think of Marx's example of the Sheffield
Cutlery. The Sheffield manufacturers each wanted to reduce their
costs, because in doing so, they could make bigger profits, and grab
a bigger market share. So, they introduced new machines, and
techniques that could double or treble their output, and reduce the
individual cost of each knife, fork and spoon. But, because they all
did this, the output of cutlery doubled and trebled, and the Price of
Production of cutlery fell along with it, so the advantage that each
firm thought it was gaining was lost anyway. But, with the output of
cutlery now trebled and even with more workers employed in the
economy, at higher wages, there is only so much of this cutlery that
the workers want to buy. The raising in productivity that increased
the output might have reduced the Price of Production of the cutlery
by half, which reduces the market price by the same amount. Yet,
even at this lower price, there might only be a demand for twice the
previous output. So, the market price has to fall below the price of
production to clear the market.
So long as this applies only to one or a few industries such
situations are only a problem for the Capitalists that own those
firms. But, if that industry dominates the economy as textiles did
in the early part of the 19th Century in Britain, or if
this situation affects a large number of industries, then instead of
the crisis being a partial crisis of overproduction, it becomes a
generalised crisis of overproduction. Marx describes precisely that
condition of the textile industry in Britain in the 1840's. The
first economic crisis of Capitalism occurred in 1825. It was no
coincidence that it happened then, because it coincided with the
application on a large scale of machine industry, and of steam power.
In the 1840's, however, this was magnified. As the productive power
of the British textile industry soared, its ability to produce vast
amounts of cheap cloth soared with it. On the back of that, Britain
flooded the world market with its textiles, and the glut was such
that it took three years to clear. British textile manufacturers
could not sell their output on global markets at any price. As a
consequence, they saw no point in employing workers, or buying cotton
and wool to produce cloth they could not sell.
Workers were thrown out of work, and starved in their tens of
thousands. Far more than the Depression of the 1930's, it
demonstrated the falsity of the ideas of market economics, and of
Say's Law, that markets clear if left to their own devices. Faced
with starvation, workers were prepared to work at any wage, but, even
so, employers were not prepared to pay them even those wages, when
they had no possibility of selling their output on world markets. As
with Irish workers and peasants during the famine, workers sought to
emigrate, whilst employers, worried about a shortage of Labour, when
the crisis ended, tried to prevent them. The employers brought the
dragoons and military into northern towns and cities to put down
demonstrations by starving workers.
So, the crisis of overproduction has nothing to do with under
consumption by workers. Even Marxists misinterpret what Marx and
Engels said in this regard. They said,
“Over-production of capital, not of individual commodities —
although over-production of capital always includes over-production
of commodities — is therefore simply over-accumulation of
capital...
The same
occurs when there is an over-production of commodities, when markets
are overstocked. Since the aim of capital is not to minister to
certain wants, but to produce profit, and since it accomplishes this
purpose by methods which adapt the mass of production to the scale of
production, not vice versa, a rift must continually ensue between the
limited dimensions of consumption under capitalism and a production
which forever tends to exceed this immanent barrier. Furthermore,
capital consists of commodities, and therefore over-production of
capital implies over-production of commodities. Hence the peculiar
phenomenon of economists who deny over-production of commodities,
admitting over-production of capital.”
The under consumptionists, and the opponents of the under
consumptionists interpret this as meaning that the market is limited
in its dimensions because of the limited means of workers. But, that
is not what it means. In principle, the market could be expanded
whatever the level of wages and consumption of workers. For example,
Capitalists could simply increase their own consumption out of their
increased profits. In practice, that is not a solution, because the
tiny number of Capitalists even with their grossly exaggerated forms
of consumption cannot continue to consume more and more of society's
output. More importantly, such unproductive consumption is at odds
with the very nature of Capitalism. As Marx puts it,
“It will never do, therefore, to represent capitalist production
as something which it is not, namely as production whose immediate
purpose is enjoyment or the manufacture of the means of enjoyment for
the capitalist. This would be overlooking its specific character,
which is revealed in all its inner essence.”
Moreover, the other form of expenditure by Capitalists – Productive
Consumption – itself is constrained within limits determined by the
level of final demand. Huge increases in productivity in cotton
production, might reduce its price significantly, and encourage
textile manufacturers to buy more of it. But, if those textile
manufacturers feel that there is a limit to how much cloth they can
sell, there is no reason why they will buy more cotton, or machines
to spin it etc.
In other words, what Marx and Engels are saying is not that the
market is limited by the available money in workers pockets to spend,
but that it is limited by how much of any of these things people
actually want to buy. You can persuade them to buy more, but only
reducing the price by bigger and bigger amounts. There is a simple
solution to this. Again, it involves the application of the Law of
Value. Marx in Capital describes the application of the Law of Value
in relation to Robinson Crusoe,
“Moderate
though he be, yet some few wants he has to satisfy, and must
therefore do a little useful work of various sorts, such as making
tools and furniture, taming goats, fishing and hunting... In spite of
the variety of his work, he knows that his labour, whatever its form,
is but the activity of one and the same Robinson, and consequently,
that it consists of nothing but different modes of human labour.
Necessity itself compels him to apportion his time accurately between
his different kinds of work. Whether one kind occupies a greater
space in his general activity than another, depends on the
difficulties, greater or less as the case may be, to be overcome in
attaining the useful effect aimed at. This our friend Robinson soon
learns by experience, and having rescued a watch, ledger, and pen and
ink from the wreck, commences, like a true-born Briton, to keep a set
of books. His stock-book contains a list of the objects of utility
that belong to him, of the operations necessary for their production;
and lastly, of the labour time that definite quantities of those
objects have, on an average, cost him. All the relations between
Robinson and the objects that form this wealth of his own creation,
are here so simple and clear as to be intelligible without exertion,
even to Mr. Sedley Taylor. And yet those relations contain all that
is essential to the determination of value.”
This is what all societies do in one form or another. Capitalism
does it via the market, and for the reasons set out above, it only
knows whether it has allocated the available labour-time
appropriately if the commodities produced can be sold at their prices
of production. Where they cannot, it means that some resources have
to be withdrawn from producing those commodities, and diverted to
producing some other type of commodity, the demand for which has not
been satisfied. Assuming that is, that any such commodity, or set of
commodities exists! At certain times, society has little problem in
this regard. New inventions, or new applications of old inventions
not only create new ways of producing – creating a demand from
manufacturers for these new machines etc – but also lead to the
development of whole ranges of new types of commodities, and even
industries based upon them. So, when massively increased output has
satisfied the demand for many of the established range of
commodities, and Capital cannot employ more workers, more capital in
this production profitably, it is able to continue expanding,
continue creating additional Surplus Value, by instead investing in
production of these new types of commodity.
Provided there are enough of these new commodities, and new
industries to soak up the surplus capital, then the problem of
overproduction disappears. Consumption of the old commodities
continues, but instead of continually expanding beyond what can be
consumed at prices that create profits, it remains at lower levels.
Meanwhile, the production of the new commodities, employs workers,
creates a demand for new types of machines, for raw materials, and so
on. The incomes generated, in turn create demand both for the new
commodities, and for the old commodities.
These periods where Capital is able to move into these new types of
production are those periods of Long Wave Boom. In each of these
periods, such as towards the end of the 19th Century, when
whole new industries developed that employed masses of unskilled and
semi-skilled workers, or in the post-war period when new industries
in chemicals, electronics and automobiles developed, or like now when
whole new industries in micro-electronics, bio-technology, space
science, genetics and so on are developing, not only do we see a
growth of these new industries, but we see a growth also of trade on
the back of it, an expansion of the employment of labour, and
frequently the development of whole new geographic areas, as the
leading edge of where this development occurs.
But, by the same token, it is those periods outside the Long Wave
Boom, the periods of Long Wave downturn, where there is a shortage of
new types of commodities, new types of industries to be developed,
which mean that this overproduction cannot be resolved by Capital
expanding into new areas. It is then that the crisis of
overproduction becomes chronic, and leads to high and persistent
levels of unemployment, which in turn reduces the demand for
commodities, and which creates the impression of under consumption.
In Part 3, I will look at how all of this relates to the current
situation.
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