The point I make in my book, in relation to diversification, is different. It starts from the reality of generalised overproduction, as described by Marx, and of Marx's analysis of demand as being heterogeneous. It becomes impossible to raise demand, for a whole series of existing commodities, without reducing their market prices by so much that, at their current market value/price of production, this market price fails to cover the cost of production, and thereby reproduce the consumed capital. This is particularly the case in conditions where capital accumulation has expanded to such an extent that labour reserves are used up, wages have risen, and profits have been squeezed, and also where this rise in wages, has led workers to raise their consumption of a whole range of these staple goods, and so where they can only be encouraged to expand their consumption of them further by larger and larger falls in their market price.
At this point, as Marx sets out in Capital II, workers may begin to consume some luxury products previously only the preserve of the middle class, capitalists or landlords. But, their consumption of these commodities is limited, because either workers wages must rise more substantially, or the prices of these luxuries must fall far more, before workers can consume them in significant quantities. At the same time, the rise in wages, and fall in profits, rents and interest means that the exploiters have less revenue to spend on those same luxury items. Only if some new technological development causes the value of these luxury items to fall to a degree that a new market opens up for them, or if a whole range of new types of commodity, with a market value low enough that workers can use their wages to buy them in significant quantities, is the problem of overproduction resolved by an increased diversification of production.
The only way for capital to proceed is then to introduce new labour-saving technologies that reduce the unit values of such commodities. But, this is generally aimed at producing the existing volume of output at lower cost, and higher profits, rather than expanding output. In conditions where labour-saving technology results in workers being laid off that is all the more the case, because the corollary is a reduction in the growth of aggregate demand, so that economic growth stagnates. That is a common factor in the Winter phase of the long wave, during which this intensive accumulation predominates. But, this process also means that new lines of production begin to arise, particularly developing around those very technologies that have been introduced to provide new labour-saving machines. As completely new types of commodity, the elasticity of demand for them is such that a small fall in their market price results in large rises in demand, and as production of them rises, their market value falls, as economies of scale are obtained, prompting even greater demand.
Commodities which were once luxury items, the preserve of the rich, become mass produced and fall in value, bringing them within the reach of groups of workers. That happened after WWII (though the process had actually begun by the middle of the 1930's), with motor cars, TV's, domestic appliances, and so on, and even with houses themselves, as workers began to buy houses on new suburban estates, produced by new lower cost, mass production methods. The consumption of food and other basic items does not decline, for workers, as these new commodities enter their consumption, which is another reason that demand for these basic items does not rise significantly, and the intensive accumulation results in a continual absolute displacement of labour from these spheres, most notably in agriculture, although a similar pattern has been seen, since the 1980's, in manufacturing industry, with service industry now accounting for around 80% of the economy.
As these new commodities are introduced, they also provide the basis for the existing commodities values to be realised, as Marx sets out in The Grundrisse, in relation to the Civilising Mission of Capital, and as he also described in Capital III, Chapter 14.
“On the other side, the production of relative surplus value, i.e. production of surplus value based on the increase and development of the productive forces, requires the production of new consumption; requires that the consuming circle within circulation expands as did the productive circle previously. Firstly quantitative expansion of existing consumption; secondly: creation of new needs by propagating existing ones in a wide circle; thirdly: production of new needs and discovery and creation of new use values. In other words, so that the surplus labour gained does not remain a merely quantitative surplus, but rather constantly increases the circle of qualitative differences within labour (hence of surplus labour), makes it more diverse, more internally differentiated. For example, if, through a doubling of productive force, a capital of 50 can now do what a capital of 100 did before, so that a capital of 50 and the necessary labour corresponding to it become free, then, for the capital and labour which have been set free, a new, qualitatively different branch of production must be created, which satisfies and brings forth a new need. The value of the old industry is preserved by the creation of the fund for a new one in which the relation of capital and labour posits itself in a new form.)
(Grundrisse, Chapter 8)
“On the other hand, new lines of production are opened up, especially for the production of luxuries, and it is these that take as their basis this relative over-population, often set free in other lines of production through the increase of their constant capital. These new lines start out predominantly with living labour, and by degrees pass through the same evolution as the other lines of production. In either case the variable capital makes up a considerable portion of the total capital and wages are below the average, so that both the rate and mass of surplus-value in these lines of production are unusually high. Since the general rate of profit is formed by levelling the rates of profit in the individual branches of production, however, the same factor which brings about the tendency in the rate of profit to fall, again produces a counterbalance to this tendency and more or less paralyses its effects.”
(Capital III, Chapter 14)
As Marx set out earlier, in opposition to Ricardo, this evening out of the general rate of profit, here, is an evening out in an upward direction, as these higher rates of profit in the new spheres, lead to a higher general rate of profit. And, as these new higher profit spheres, become an increasingly important proportion of the total social capital, so they result in a higher general rate of profit, even if the rate of profit in their own sphere, itself might fall.
“Over-production is specifically conditioned by the general law of the production of capital: to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labour with the given amount of capital, without any consideration for the actual limits of the market or the needs backed by the ability to pay; and this is carried out through continuous expansion of reproduction and accumulation, and therefore constant reconversion of revenue into capital, while on the other hand, the mass of the producers remain tied to the average level of needs, and must remain tied to it according to the nature of capitalist production.” (p 554)
The point being, however, that what physically constitutes those basic needs changes over time. A motor car, a mobile phone, and so on did not even exist in Marx's time, even as items of luxury consumption for the rich, and yet now constitute a part of the necessary consumption of workers, not only in developed economies, but many developing economies too.
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