Capital III, Chapter 15 - Part 16

Overproduction constitutes a crisis for capitalism for exactly the reason that Marx described in the previous section – production has occurred, the workers have been exploited and produced a surplus value (usually at such points a large surplus value) but not all of the output can be sold, or it can be sold only at prices below the cost of production, so the produced surplus value cannot be realised. Too much social labour-time was spent on its production, because, as Marx points out, the determination of that is not just in terms of the time required for each commodity unit, but for the mass of such units. Each unit may have been produced using the minimum amount of labour-time possible, but if 1,000 units are produced, and only 500 units can be sold, at their market value, half the time spent on their production was not socially necessary. Robinson might produce 200 fish in just 4 hours, but if after the 100th fish, he feels sick at the thought of eating another, he has wasted 2 hours of his labour-time.

The fact that, in a capitalist economy, this point might be reached, even where there are thousands of people who could consume the surplus production, if only they had the means to buy them, is irrelevant, because, as Marx points out, capitalism only knows one kind of demand, and that is effective demand, i.e. the ability to back it up with the ability and willingness to pay the market value. As Marx says, overproduction is always, under capitalism, only relative, it is an overproduction at certain prices. If prices were lower, more would be demanded, but if prices were lower, they may not cover the cost of reproducing the consumed capital.

As Marx points out, to understand this its important to understand the nature of demand under capitalism as,

“...consumer power based on antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum varying within more or less narrow limits.” (p 244)

That is, for any particular commodity, there may be thousands who would buy it if they had the means to do so, or if its price were lower, whilst simultaneously there are thousands who have the means to buy more, but who choose not to, because their demand, at current prices, is already sated, and they choose to use any further reduction in its price to save money rather than to expand their demand. In other words, this is the situation Marx described earlier that there is no reason to buy six knives when only one is required, just because the price has fallen. In fact, as Marx points out that situation can apply to all, or the majority, of commodities simultaneously. It only requires that consumers prefer to hold money rather than to spend it, buying commodities.

“At a given moment, the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities, in other words the motive to turn the commodity into money, to realise its exchange-value, prevails over the motive to transform the commodity again into use-value.” (TOSV2 p 505)

The contradictory forces arising out of this process of rising social productivity not only exist simultaneously, one pulling in one direction, one in another, but they also interact on each other.

“The two movements not only go hand in hand, but mutually influence one another and are phenomena in which the same law expresses itself. Yet they affect the rate of profit in opposite ways.” (p 247)

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