Marx proceeds on the basis of a number of simplifying assumptions, such as that commodities are sold at their exchange-values; he does not, for now, consider the effect of competition between capitals; and nor does he consider the effect of credit. Yet, he recognises that all these things, along with the fact that not only are producers and consumers not coterminous categories, but consumers do not simply break down into the two categories of workers and capitalists either.
“The first category, that of the consumers (whose revenues are in part not primary, but secondary, derived from profit and wages), is much broader than the second category [producers], and therefore the way in which they spend their revenue, and the very size of the revenue give rise to very considerable modifications in the economy and particularly in the circulation and reproduction process of capital.” (p 493)
Marx first turns to Say's Law, which was actually developed by James Mill, but was adopted by Ricardo from Say. The basic argument of Say's Law is that there cannot be overproduction, because supply creates its own demand. The underlying assumption is that producers only produce things for one of two reasons. Either they want to consume what they have produced themselves, or secondly they want to exchange what they have produced for some other commodity they desire to consume. On this basis, the driving force of all production, including capitalist production, is consumption; producers only produce in order to consume.
This is set out in a quote from Ricardo that is repeated in whole or in part, by Marx, several times in his refutation of this concept. Ricardo says,
““M. Say,” writes Ricardo in Chapter XXI (“Effects of Accumulation on Profits and Interest”), “has…most satisfactorily shewn, that there is no amount of capital which may not be employed in a country, because demand is only limited by production. No man produces, but with a view to consume or sell, and he never sells, but with an intention to purchase some other commodity, which may be immediately useful to him, or which may contribute to future production. By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some other person. It is not to be supposed that he should, for any length of time, be ill-informed of the commodities which he can most advantageously produce, to attain the object which he has in view, namely, the possession of other goods; and, therefore, it is not probable that he will continually” (the point in question here is not eternal life) “produce a commodity for which there is no demand.” ([David Ricardo, On the Principles of Political Economy, and Taxation, London, 1821,] pp. 339-40.)” (p 493-4)
The problem with this argument is that it implies an economy not just prior to capitalism, but one even before generalised commodity production, and the existence of money! It implies an economy based largely on direct production of products for consumption and barter. It is, of course, true that in such an economy people would only produce what they wanted to consume or what they thought they could exchange for other commodities they wanted to consume, but that has absolutely nothing to do with the situation under capitalist production. The capitalist certainly does not produce commodities for their own direct consumption, but nor does the capitalist produce in order to exchange those goods for others they wish to consume either. The capitalist produces for one reason, and one reason only, and that is to produce profit. Even Adam Smith understood this. He writes that the butcher, the baker and the candlestick maker do not supply goods out of some altruistic desire to fulfil the consumption needs of their customers, but only out of their own self-interest, to be able to make profits from such activity.
It is, of course, the case, that capitalists produce goods and services that they think they will be able to sell, and hopefully sell at the highest prices, but, that is only to affirm the nature of the commodity itself as being a fusion of both use value and exchange-value. No product can have value if it is not itself a use value, and consequently no commodity can have exchange-value unless it too has use value. The capitalist only produces use values that meet consumers' needs, because that is the condition for them also realising the exchange-value, and so the surplus value of the commodity. But, it is the desire to obtain that exchange-value, and thereby the surplus value, that drives the capitalist not the desire to produce use values, so as to fulfil consumption needs. If that were not the case, crises would not be possible. Capitalist firms would continue to churn out commodities to meet the unfulfilled needs of millions of citizens, without regard to whether doing so produced a profit or not.
But, Ricardo's argument fails for a further reason, which is that, in a money economy, the producer of commodities does not produce them simply in order to exchange them for commodities for their own personal consumption. The capitalist produces commodities to be sold so that the money received from their sale can again be turned into money-capital, and then metamorphosed once more into productive-capital.
The capitalist, rather than producing to sell to consume, produces so as to sell, so as to be able to produce once more, on a larger scale. But, even prior to capitalist production, the fact that, in a money economy, the two actions of production and consumption are separated means that someone who produces and sells thereby obtains money from the sale, but is under absolutely no compulsion, as is the case with barter, to then use this money in order to buy, to consume!
A miser, for example, may produce and sell, and then simply hoard the money they obtain in exchange. But, even if the hoarding of this money is only a temporary situation, it means that the necessary flow of value, along with the metamorphosis of the commodity breaks down. A produces and sells to B, and obtains an amount of money, but then does not circulate that money back to B, so that B's production cannot be sold. It has been overproduced. Ricardo does not see this, because for him the process of production and exchange is viewed essentially still in these terms of barter, with money only intervening as a means of facilitating the process of circulation. He fails to understand the nature of money. Missing from Ricardo's analysis is the role of money also as means of payment and store of value. So, Ricardo does not recognise that when A sells to B, the money they receive may not be used to buy commodities from B, but may be used to make a payment to cover some previous debt, to pay taxes and so on. But, A may simply hoard the money, as a store of value. They may do that as a miser, or, alternatively, the fact that money acts as a store of value also thereby means that it can be hoarded, and then turned into money-capital.
And, in fact, Marx points out that the normally consistent Ricardo finds himself being tricked by the generally inconsistent Say, because having followed Say into the idea that overproduction is impossible, and that, therefore, there were no limits to the accumulation of capital, Ricardo notes,
““Is the following quite consistent with M. Say’s principle? “The more disposable capitals are abundant in proportion to the extent of employment for them, the more will the rate of interest on loans of capital fall.’ (Say, Vol. II, p. 108.) If capital to any extent can be employed by a country, how can it be said to be abundant, compared with the extent of employment for it?” ([Ricardo], l.c., p. 340, note.)” (p 494)
How indeed?
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