Capital II, Chapter 16 - Part 11

At the end of Part 10, the problem of democratic planning at a detailed level, was outlined, because of the inevitable gap that would exist between the verbally derived macro decisions about what to produce, as against the billions of micro decisions, of consumers, about what they actually wanted to consume. Effective planning could only be outline, indicative planning rather than detailed, and would need to develop gradually and organically, based on the growing integration of the individual production plans of the workers' co-operative enterprises.

But, capitalism does not allocate available social labour-time efficiently either. More so in Marx’s time than today, when large scale production has become planned and regulated, and when the national economy itself has been subject to similar planning and regulation.

“On the one hand pressure is brought to bear on the money-market, while on the other, an easy money-market calls such enterprises into being en masse, thus creating the very circumstances which later give rise to pressure on the money-market. Pressure is brought to bear on the money-market, since large advances of money-capital are constantly needed here for long periods of time. And this regardless of the fact that industrialists and merchants throw the money-capital necessary to carry on their business into speculative railway schemes; etc., and make it good by borrowing in the money-market.” (p 319)

This demonstrates the differences and similarities of today compared with Marx's time. Today, we have the easiest money market of all time. Yet, the very largest enterprises, that have billions of dollars on their balance sheets, do not spend it to increase their production, to increase their profits. Why? Because these large corporations do not base their decisions on immediate market signals, as they did in Marx’s day, but on planned investment covering many years. That itself is based on complex market research, demographics and so on. Unlike the kind of small firms of Marx’s day, these large companies are able to judge whether an increase in production is capable of being absorbed by the market or not, and so whether it will be profitable or not.

If not, or economic or political uncertainty gives doubt about whether it will be profitable or not, there is no reason they will invest in additional production. In Marx’s day, when the economy was booming, the myriad of small companies sought to increase their profits and market share by ramping up production to meet the increased demand and benefit from the higher prices. As each did so, the potential arose for the market to become oversupplied. Then, each firm tried to retain its market share by producing even more, and selling it at lower prices. Such crises of overproduction always arose on the back of periods of prosperity and rising consumption, contrary to the belief of the underconsumptionists, that crises erupt because of inadequate consumption.

Instead, today, crises arise because the big companies bring about planned reductions in output, or simply fail to expand, to prevent such overproduction. But, in doing so, they reduce the level of aggregate demand in the economy, setting in place its own downward spiral of economic activity.

Similarly, the many small firms that continue to exist, remain prone to the kind of overproduction Marx refers to. In the last ten years, at least, very easy money-markets have led to the establishment of many small businesses that really should not have been created. In Britain, they form part of the 150,000 known zombie companies, only able to repay the interest, rather than the capital on their loans, and some even struggling to cover the interest. It is a similar thing to 1 million plus zombie mortgages, where the borrower has only managed to pay the interest on their loan, and has no means to repay the capital sum, and is thereby likely to lose their house. 

As in Marx’s day, this easy money is used for speculation, be it in property, as above, or to blow up share and bond price bubbles, which themselves detract from productive investment.

Once commodity capital has been realised via the sale of
commodities, the money that results is only potential
money-capital.  Marx says that simple reproduction remains
a major part of expanded reproduction.  In other words, a
large part of the money goes to cover the unproductive
consumption of the capitalists and other exploiters.  The money
first goes into bank deposits, from where it can enter the circuit
of capital again, or else it can be used for consumption, or else
become simply fictitious capital continually circulating around
the property, bond and share markets, blowing up speculative
bubbles.

“On the other hand pressure on society’s available productive capital. Since elements of productive capital are for ever being withdrawn from the market and only an equivalent in money is thrown on the market in their place, the effective demand rises without itself furnishing any element of supply. Hence a rise in the prices of productive materials as well as means of subsistence. To this must be added that stock-jobbing is a regular practice and capital is transferred on a large scale. A band of speculators, contractors, engineers, lawyers, etc., enrich themselves. They create a strong demand for articles of consumption on the market, wages rising at the same time. So far as foodstuffs are involved, agriculture too is stimulated. But as these foodstuffs cannot be suddenly increased in the course of the year, their import grows, just as that of exotic foods in general (coffee, sugar, wine, etc.) and of articles of luxury. Hence excessive imports and speculation in this line of the import business. Meanwhile, in those branches of industry in which production can be rapidly expanded (manufacture proper, mining, etc.), climbing prices give rise to sudden expansion soon followed by collapse. The same effect is produced in the labour-market, attracting great numbers of the latent relative surplus-population, and even of the employed labourers, to the new lines of business.” (p 319)

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