[13. The Expansion of the Market Does Not Keep in Step with the Expansion of Production. The Ricardian Conception That an Unlimited Expansion of Consumption and of the Internal Market Is Possible]
As production increases, the market must increase, so as to absorb all of this additional production. Moreover, as described earlier, seeking a solution for this problem in terms of exports or a wider market is ultimately a dead end. The market can be extended to an international or global market, and within the global market, new regions can be drawn in. But, ultimately, this only reproduces the problems of production rising faster than the market, on a larger scale, converting all such crises into global crises.
“The market expands more slowly than production; or in the cycle through which capital passes during its reproduction—a cycle in which it is not simply reproduced but reproduced on an extended scale, in which it describes not a circle but a spiral—there comes a moment at which the market manifests itself as too narrow for production. This occurs at the end of the cycle. But it merely means: the market is glutted. Over-production is manifest. If the expansion of the market had kept pace with the expansion of production there would be no glut of the market, no over-production.” (p 524)
Ricardo admits that the market must expand with production, with the accumulation of capital, but believes, on the basis of Say's Law, that it does. Smith never knew any crises of overproduction, seeing only credit and banking crises, but he saw, in the development of the colonial market, the potential that the internal market could be glutted. There are elements of Smith's view in those theories of imperialism which suggest that capital is forced to invest overseas because of the impossibility of producing or realising profit, at home, due to the Law of the Tendency for the Rate of Profit to Fall. But, this is wrong. Ricardo is right, Marx says, when he argues, as against Smith, that the solution must reside in the expansion of the market itself, and not merely in its extension on a wider geographical basis. Capital does not invest overseas because it must do so, but only because it finds it more profitable to do so.
“The admission that the market must expand if there is to be no over-production, is therefore also an admission that there can be over-production. For it is then possible—since market and production are two independent factors—that the expansion of one does not correspond with the expansion of the other; that the limits of the market are not extended rapidly enough for production, or that new markets— new extensions of the market—may be rapidly outpaced by production, so that the expanded market becomes just as much a barrier as the narrower market was formerly.” (p 525)
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