Capital III, Chapter 18 - Part 3

If the economy is weak then aggregate demand will necessarily be weak, because producers will not demand large quantities of inputs, because they only require them in order to meet their own production needs. Fewer workers will be employed, and wages will be lower, so the demand for wage goods will be weak.

But, its possible that the economy could be vibrant, and yet aggregate demand could begin to decline. As Marx says, in Theories of Surplus Value, all that is required for a general over production is that the demand for money is greater than the demand for other commodities. In other words, that the savings rate rises. There are a number of ways this could manifest itself, without necessarily causing an immediate crisis.

For example, if the rate of profit is high, suppliers may choose to sacrifice a portion of that profit in order to reduce selling prices and thereby continue production at existing levels. This is particularly likely, where, as Marx describes in Capital III, Chapter 6, it is not technically possible to produce on a reduced scale, or to do so would significantly raise costs. In this case, the same or larger quantities of commodities are sold, but at market prices below market values, so that the money value of aggregate demand falls, and the value of savings rises.

The other option is that production is maintained at existing levels by producers using credit to finance it. However, if the lack of aggregate demand is not just a temporary phenomenon, for example, caused by fear amongst consumers, this will only exacerbate the problem, because it will mean that the saving first assumes the form of an increase in inventories, which then causes a fall in market prices, to clear surplus stocks.

But, Marx also sets out, in Theories of Surplus Value, how disparities in productivity, between different industries, can result in a lack of sufficient demand for some commodities.

“By the way, in the various branches of industry in which the same accumulation of capital takes place (and this too is an unfortunate assumption that capital is accumulated at an equal rate in different spheres), the amount of products corresponding to the increased capital employed may vary greatly, since the productive forces in the different industries or the total use-values produced in relation to the labour employed differ considerably. The same value is produced in both cases, but the quantity of commodities in which it is represented is very different. It is quite incomprehensible, therefore, why industry A, because the value of its output has increased by 1 per cent while the mass of its products has grown by 20 per cent, must find a market in B where the value has likewise increased by 1 per cent, but the quantity of its output only by 5 per cent.”

(Theories of Surplus Value 3, p 118-9)

But, it is this separation of production and consumption, inherent in commodity production and exchange, and driven to unprecedented levels by capitalism, and symbolised in the separation of merchant and productive capital, that is the basis of crises, as Marx sets out.

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