So, what is it about capitalist production that makes such crises inevitable? Quite simply put, it is a question of scale, of the mass production that industrial capitalism with the advent of machine production entails. Under petty commodity production the direct producers continue to produce the large majority of their output for their own consumption, or to be directly exchanged with other such producers, for the particular use values they required. In other words, they produce a set of use values required for their own consumption, and part of their output of these use values constitutes surplus production, for example, they may produce a range of arable crops, but will not require all of their output of these crops for their own consumption. It is only surplus production from this standpoint. But, they will have other use values which they require for their own subsistence. They may require beer – particularly in conditions when fermented drinks were the only safe way of consuming water – and so exchange a part of their surplus production of arable crops for beer, another part for agricultural implements to replace those worn out, and so on. Even when money, therefore, replaces barter as the means for effecting these exchanges, the production of each small producer is geared only to meeting their own immediate needs for consumption, and to reproduce those items of means of production required to achieve it. They will usually even know the other market participants with whom they will exchange these commodities.
But, as Marx says, its not as though, even during such times, there were not people who went bankrupt. Indeed, it is the failure of such individuals that leads them to have to become wage labourers, or to succumb to the merchant capitalists under the Putting Out System. The difference is that, when such people go bust, it has no possibility of causing some wider social crisis. The difference with developed capitalist production is that it is also synonymous with the development of commercial and bank credit. A failure of one or several large businesses, who then fail to make payments, results in what Marx calls a crisis of the second form, whereby there is a cascade of payments failures.
Moreover, even under the earlier forms of capitalist production, of handicraft production and manufacture, prior to large-scale machine production, the expansion of production develops more or less in parallel with the natural increase in population. The consequence is that the market expands at the same pace as production. As soon as machine production begins to dominate, this condition breaks down. As firms produce on an increasingly large scale, in order to gain efficiency and competitive advantage, the separation of production and consumption that arises with all commodity production and exchange takes on a different character, quantity turns into quality. Huge amounts of production are created speculatively, in the expectation of the market expanding to absorb this ever increasing volume of production. But, as soon as this expansion is frustrated, a crisis inevitably sets in. Whether this crisis is simply a partial crisis, restricted to this particular sphere, or whether it is, or turns into, a generalised crisis, depends upon the specific conditions under which it arises.
So, Marx says, because capitalist producers make the assumption of an expanding market, they operate themselves on the basis of capital accumulation and expanded reproduction.
As he says in Capital III, describing this process, in contrast to Ricardo's theory that capitalist farmers will only accumulate on the basis of higher agricultural prices, capital is led by competition to accumulate, whether prices or the rate of profit is rising or not, and if it results in overproduction they blame their competitors not themselves.
“Although considerable rise or fall in market-prices affects the volume of production, regardless of it there is in agriculture (just as in all other capitalistically operated lines of production) nevertheless a continuous relative over-production, in itself identical with accumulation, even at those average prices whose level has neither a retarding nor exceptionally stimulating effect on production. Under other modes of production this relative overproduction is effected directly by the population increase, and in colonies by steady immigration. The demand increases constantly, and, in anticipation of this new capital is continually invested in new land, although this varies with the circumstances for different agricultural products. It is the formation of new capitals which in itself brings this about. But so far as the individual capitalist is concerned, he measures the volume of his production by that of his available capital, to the extent that he can still control it himself. His aim is to capture as big a portion as possible of the market. Should there be any over-production, he will not take the blame upon himself, but places it upon his competitors. The individual capitalist may expand his production by appropriating a larger aliquot share of the existing market or by expanding the market itself.”
(Capital III, Chapter 39)
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