The potential for such overproduction always exists, and is a feature of the long wave cycle, as I have described elsewhere. For long periods, during the Winter/stagnation phase of the cycle, the demand for primary products is subdued, because of the stagnant nature of the economy. Primary product prices are relatively low, and any additional output is derived from existing mines, quarries, farms etc. There is no incentive for investment in additional exploration or development. But, when the Spring phase of the long wave cycle begins the demand for these primary products rises sharply. The technological development produced in industry that began to be rolled out (intensive accumulation), in the latter part of the Autumn/crisis phase of the cycle, and continues through the Winter phase, now means that, as economic activity rises more quickly, the demand for primary products rises sharply. When spinning machines are introduced more extensively, for example, the demand for cotton rises much more quickly than when it is spun by hand. The inability of existing primary production to meet the demand, therefore, causes primary product prices to surge. As Marx set out earlier, and in Capital III, Chapter 6, this in itself can be a cause of crisis.
If the supply of iron ore cannot be increased, even at much higher prices, the realised money-capital of steel producers cannot be metamorphosed into iron ore, so the circuit of their capital breaks down. If the steel producer cannot get the iron ore required to replace that consumed, or to meet their needs for accumulation, the car producers, shipbuilders, train makers and so on cannot get the steel they require, and so the money realised in the sale of their own commodities cannot be metamorphosed into productive-capital.
But, even where the primary products can be physically reproduced, the high market prices for them means that the realised money-capital buys a smaller quantity of them. To produce on the same scale, let alone the required expanded scale, requires more capital to be advanced. Moreover, the requirement to increase the supply of primary products, from existing facilities, means that the cost of production, from these facilities, rises due to diminishing returns. That increases the market value of those products even apart from the rise in the market price due to the effect of rising demand. The consequence is then also a rise in rents.
As Marx set out in Theories of Surplus Value, Chapter 9, even where this results in additional investment in new lands, new mines, quarries and so on, and even where these are actually more naturally fertile than existing lands, mines and so on, they are, in the short term, less fertile, and higher cost, because these new production facilities do not benefit from the decades of capital investment in the land and infrastructure that the existing production enjoys. As Marx sets out in his long wave analysis of the 50 year movement in agricultural prices, it can take many, many years before the required capital investment in such new lands, mines and so on, becomes embedded in the natural fertility of these facilities, and before, therefore, it has the effect of reducing the market value of those commodities. This is one of the objective material foundations of the periodicity of the long wave cycle.
The rise in primary product prices thereby increases the value of the circulating constant capital, of the industries for whom they are inputs. That passes through in to the prices of end products, but as seen in Capital 3, Chapter 6, that rise in price causes demand for the end product to fall, unless it is offset by other factors, such as the rise in productivity. It may be that the rise in input prices cannot be fully passed on, leading to a Ricardian profits squeeze on the manufacturing capitals.
The higher profits of primary product producers, enhanced where these producers are also the landowners and recipients of the increased rents, encourages them to engage in further exploration and development. Oil fields, mines, quarries etc. that have become depleted have to be replaced, with entirely new facilities at other locations. These virgin lands, especially when exploited by new technologies, offer lower costs of production than the existing facilities, and thereby offer the potential of reducing the market value, as well as correcting the demand/supply imbalance.
But, all of these new facilities require prolonged development times. It takes seven years to bring a new copper mine on stream, and around 12-13 years before it reaches optimum production. Only at this point does all of this new production hit the market, an it can also at that time begin to encounter the problem that the manufacturers have found alternative materials, and/or more efficient ways of using materials, energy and so on, so that their demand for these inputs does not rise in the same proportion as their own output.
In 1999, as the new long wave boom began, the demand for these inputs rose sharply. The price of oil, iron ore, copper, agricultural products showed this traditional spike. By the early 2000's the sharp rise in global employment, which made the working-class the largest class on the planet, along with sharply rising living standards for all those hundreds of millions of workers in China, India etc., brought into the global working-class, caused global food demand to rise sharply. Even with masses of labour pouring into the towns and cities from the countryside, the demand for labour-power rose relentlessly. Since 1980, the global workforce has doubled, and most of the increase has been in Asia. According to the ILO, the world labour force has grown by around a third in the first decade of this century alone. The number of workers employed in industry has risen by around 30% or about 150 million workers, the number employed in services has risen by 35%. This incessant demand for labour-power pushed up nominal and real wages significantly. That was manifest in a sharp rise in global food demand, as the higher living standards of these workers was first translated into a better diet.
In 2005, Chinese consumption of meat was 2.4 times what it was in 1990, milk 3 times, fruit 3.5 times, vegetables 2.9 times, fish 2.3 times, whilst its consumption of cereals, mostly rice, fell by 20%. The large rise in demand from China, and other developing economies, was part of the reason for the spike in global food prices, at the end of 2007 and beginning of 2008. Demand for food rose so sharply that shortages began to appear, which, along with the price spikes, caused riots in a number of countries in 2008. Although global food demand is even higher today, no such shortages are likely, as the higher prices have led to an expansion of supply, including the development of large scale, industrialised farming in a number of parts of Africa, such as Angola.
The increasing production of China, and other rapidly growing economies, also sucked in larger and larger quantities of raw materials, as well as food. Global GDP rose from around $41 trillion in 2000, to nearly $72 trillion in 2012. Between 2002 and 2010, global fixed capital formation rose from $7 trillion to $14 trillion. Of all the goods and services produced in Man's entire history, almost 25% have been produced in the first decade of this century alone! From 1999 on, commodity markets turned sharply upwards, as demand for all raw materials, and foodstuff increased sharply as the new long wave boom began. It saw steady increases in the prices of Copper, Oil, Corn and almost every other commodity, as global demand fuelled by rising economic activity in China, and other BRIC economies, as well as the rising demand of millions of new consumers, in those economies, rose sharply.
But, the feature described above can also be noted. Ever since the oil price shock of the 1970's, when global oil prices rose by 400%, companies using oil, along with car companies seeking to sell cars, have introduced more efficient engines, and other means of utilising oil. Global oil consumption rose from 63 million barrels per day, in 1980, to 85 million barrels per day, in 2006. That is an increase of 35%. But, between 1980 and 2012, Global GDP increased from $18.8 Trillion to $71.8 Trillion (1990 dollars). That is an increase of 282%! Even allowing for the 6 years difference in periods, that means that global GDP rose by around seven times the increase in oil consumption. That is also despite the huge growth in the number of cars in places like China, which is now the biggest car market in the world. The reason that oil consumption has increased by only a fraction of the increase in global economic growth is because huge advances have been made in the efficiency of oil use. That is why, in the 1970's, a four fold increase in oil prices sparked a global slump, but from the late 90's a ten fold increase in the price of oil has not. As well as promoting new technological developments in the production of oil, and consumption of oil, it has also led to other technological developments, such as the development of electric and hybrid cars, with a consequent development of battery technologies, so that within a decade, fully electric cars will not only be cheaper to buy, and a small fraction of the cost to run than conventional petrol engine cars, but will have more or less replaced them.
But, this revolution, in the way oil is used, is merely one example, of a process that has occurred across the global economy. On the one hand, an inability to increase supply quickly pushed prices of primary materials higher, on the other, this transformation of usage has meant that unit costs have fallen. It is not just that there has been this revolution in the way materials are used. As always happens, in order to reduce costs, capital finds cheaper, better, alternative materials to use. It replaced cotton and other natural materials, in the past, with synthetic materials, like nylon, polyester etc., for example, and it is doing the same thing today with a revolution in materials science.
By 2013/14, all of the vast capital investment in primary production began to come on stream. In addition, new technologies like fracking meant that oil and gas could be extracted from shale, turning the US once more into the world's largest oil producer. New types of commodities, such as mobile phones, and other devices used far less material than their predecessors, and used different types of material, such as rare earths. New materials such as carbon fibre, fibre optic cables, replaced steel in manufacture, copper cables for communications and so on, and in the process, in the latter case enhanced the efficiency of those system 1,000 fold, in speed and capacity. Wireless technologies themselves replaced cables.
Even with the onset of the supposed “Great recession”, “Long Depression” or “Secular Stagnation”, following the financial crisis of 2008/9, the demand for these primary products continued to rise by around 2% p.a., but their market prices fell sharply from around 2014, because all of the vast investment in new production, after 2000, began to come on stream; supply rose much faster than this increase in demand; the price of iron ore, copper, oil and agricultural prices such as milk fell sharply. The price of a litre of milk fell below the price of a litre of water!
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