This very rise in wages causes workers living standards and consumption to rise. It is no coincidence, therefore, that, as Marx points out, crises of overproduction arise not when consumption is falling, or inadequate, but when it is rising, and already at high levels. Not only does the tight labour market cause wages to rise, but increased consumption by workers, particularly of the staple wage goods, that this makes possible, increases the price elasticity of demand for these commodities. Any increase in their price causes a sharp reduction in their demand from workers, who during such times, are already using some of their increased wages to purchase other “luxury” commodities, as an alternative to simply buying more of the same.
“The working-class (now actively reinforced by its entire reserve army) also enjoys momentarily articles of luxury ordinarily beyond its reach, and those articles which at other times constitute for the greater part consumer “necessities” only for the capitalist class. This on its part calls forth a rise in prices.”
(Capital II, Chapter 20)
Profits are thereby squeezed here by a number of factors. Firstly, the exhaustion of the available labour supplies, causes wages to rise, thereby reducing the rate of surplus value directly. At this point of the cycle, the ability to reduce unit costs via higher productivity from the introduction of new technologies, has also been exhausted, so increased demand for end products, which causes the demand for materials to rise, leads to rising material prices, that are passed on in greater proportion to unit production costs. However, because commodity prices are already high at this point of the cycle, and because workers consumption of wage goods is high, due to their increased wages, the price elasticity of demand for these wage goods is high. Capital finds it cannot pass on these higher unit costs on to final market prices, because it would lead to a sharp fall in demand, as workers shift their spending to alternative “luxury” goods.
“If the price of raw material rises, it may be impossible to make it good fully out of the price of the commodities after wages are deducted. Violent price fluctuations therefore cause interruptions, great collisions, even catastrophes, in the process of reproduction.”
(Capital III, Chapter 6)
Unable to pass on these higher unit costs to final market prices, especially as capital needs high levels of demand to justify high levels of production, to maintain efficiency, capital is forced to absorb some of these higher costs of production, out of the produced surplus value. It is not that surplus value has not been produced, and indeed produced in ever larger quantities, but that it cannot be realised, both because wages rise above the value of labour-power, and because market prices fall below the price of production. As Marx puts it, the conditions of production of surplus value, and realisation of that surplus value, are not the same, and indeed can be contradictory to each other.
“The creation of this surplus-value makes up the direct process of production, which, as we have said, has no other limits but those mentioned above. As soon as all the surplus-labour it was possible to squeeze out has been embodied in commodities, surplus-value has been produced. But this production of surplus-value completes but the first act of the capitalist process of production — the direct production process. Capital has absorbed so and so much unpaid labour. With the development of the process, which expresses itself in a drop in the rate of profit, the mass of surplus-value thus produced swells to immense dimensions. Now comes the second act of the process. The entire mass of commodities, i.e. , the total product, including the portion which replaces the constant and variable capital, and that representing surplus-value, must be sold. If this is not done, or done only in part, or only at prices below the prices of production, the labourer has been indeed exploited, but his exploitation is not realised as such for the capitalist, and this can be bound up with a total or partial failure to realise the surplus-value pressed out of him, indeed even with the partial or total loss of the capital. The conditions of direct exploitation, and those of realising it, are not identical. They diverge not only in place and time, but also logically.”
(Capital III, Chapter 15)
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