Today, large industrial capitals, with extensive, real-time market information, and forecasts of the future state of demand, can adjust their plans for capital accumulation in a way that the myriad of small private capitals in Marx's day never could. Even large, unexpected increases in demand are nowadays unlikely to provoke great changes in the long-term plans of such companies, because, as Marx pointed out, even in his day, there is considerable elasticity for large-scale production to raise the level of output without immediately increasing investment in fixed capital etc. Existing workers can work additional shifts, and overtime, existing machines can be used more extensively and intensively etc. Any increased demand, therefore, can be met by these normal means of increasing supply, which may not only result in no increase in the market price, but may even result in a lower market price, as production on a larger scale results in lower costs of production. As Marx says, elsewhere, it is the factor of demand, of consumption, that is ultimately decisive for capital accumulation, because, although the capitalists in Department I accumulate capital to meet the needs of other Department I capitalists, in the end, the only point of Department I expanding production is to meet the needs of Department II, which requires the demand for its output to be rising.
Of course, capitalists in either Department I or II will only continue to accumulate if the capital they accumulate does act as capital, i.e. so long as it is not over-accumulated, and thereby does not raise the mass of surplus value produced. But, it is as wrong to believe that capital will not accumulate unless the rate of profit is rising as it was for Ricardo to believe that accumulation required rising prices. Capital is forced, by competition, to accumulate, even if the accumulation implies a lower rate of profit, so long as the mass of profit continues to rise, and thereby capital continues to act as capital. So long as capital is not over-accumulated, resulting in the impossibility of increasing absolute surplus value, and causing a rise in wages, which also reduces relative surplus value, increasing aggregate demand, causing the market to expand, will always lead to a rise in the mass of surplus value, thereby causing firms to compete for their share of this larger market, and causing them, thereby, to accumulate capital. In fact, at the stage of the long wave cycle, where labour supplies have started to be used up, so that wages rise, this rise in wages – and prior to that even just the rise in the wage share due to an increased number of employed workers – will itself cause a rise in demand for wage goods, so that firms are driven to accumulate so as to grab their share of this larger market for wage goods.
There are two ways the rate of profit might rise for any specific capital. Either demand might rise sharply, causing the market price to rise in excess of the price of production, or else it introduces some new technology that reduces its costs of production, and individual price of production, relative to the market price of production. In the former case, where the demand for the particular type of commodity rises sharply, it is quite clear that it is this additional demand that is determinant. Capitals, in this sphere, increase their output not because they will obtain a higher rate of profit – though this may be temporarily the case, whilst demand exceeds supply – but because, even the same rate of profit, now generates a greater mass of profit; because a larger mass of capital is now employed.
In the latter case, where a large industrial capital reduces its cost of production, by introducing some new technology, its mass and rate of profit rise, because it continues to sell its output at the market price. The increase in profit arises from its reduction in costs, whilst demand remains constant. A large oligopoly could capture additional market share by undercutting its competitors, but analysis indicates that they are not inclined to do so, because, whilst oligopolies tend not to follow their competitors in raising prices, they nearly always follow them where they reduce prices, which results in lower profits for all of them. This was suggested by Sweezy's kinked demand curve, but orthodox micro-economists have arrived at similar conclusions.
“... if one firm out of a small group of firms raises its price, all the others, who at the old price were happy with the volume of sales they were enjoying, would see that volume of sales increase without their doing anything. Hence they might be expected to be reluctant to follow a price increase. On the other hand, one firm lowering its price would take customers from them, if they did not respond. Hence, to avoid this possibility these other firms would be likely to follow a price cut. And not only is there a priori plausibility here; there is also a certain amount of evidence from questionnaires circulated to firms that they do indeed tend to expect their competitors to react this way – not following a price increase, but following a price cut.”
(David Laidler - “Introduction to Microeconomics, p 69-70)
This is also one reason that central banks were introduced, at the start of the last century, to try to regulate monetary policy so as to prevent deflation in the general price level, and falls in nominal prices that encourage such price competition that undermines profits. In these more generally regulated economies, the means for each capital to increase its mass and rate of profit shifts from significantly expanding its output to reducing its costs of production, by raising productivity via technological improvements, which not only raise labour productivity, but which improve the efficiency of energy and materials usage etc. Sometimes this is even done in cooperation with other producers in the same industry. Similarly, in place of profit-sapping price competition, as a means of gaining market share, attention shifts to competition based on the quality of the product being sold, which is quite apparent in relation to car production, for example. This is further backed up by marketing and advertising campaigns that emphasise the importance of the brand etc.
With production based on flexible specialisation, and Just In Time production, that is even more the case, as significant investments are planned over the longer term, as part of long term business plans stretching many years into the future. Another example is with residential property construction. Large housebuilders nearly always sell houses off-plan, so that they know that they only advance capital in the production of houses they already have demand for, sitting on land banks, until such time as they can be used to meet demand at prices of production that ensure them average profits.
It's clear, therefore, that where the mass and rate of profit may increase for this latter reason, there is no direct incentive to increase capital accumulation and output unless it is also clear that a significant demand for this additional output exists. If output rises significantly, as a result of such additional capital accumulation, not only might this result in no additional profit, but the resultant glut on the market may result in market prices falling to a level below the cost of production, so that instead of higher profits, actual losses are incurred, as Marx indicated in his earlier comments.
As Andrew Kliman has said,
“Companies' decisions about how much output to produce are based on projections of demand for the output. Since technical progress does not affect demand – buyers care about the characteristics of products, not the processes used to produce them – it will not cause companies to increase their levels of output, all else being equal.”
(Note 4, Page 16, The Failure Of Capitalist Production)
And, this is Marx's point, here, but set in relation to the plethora of small capitals that existed at the time he was writing. In an unregulated, and highly competitive capitalist economy, where production is undertaken not to order, not to any preconceived plan, but speculatively, in anticipation of continual expansion of the market, there is no reason why supply – production – cannot expand faster than demand – consumption. That is a crisis not of under-consumption, because demand and consumption continues to be rising, indeed, as Marx points out, demand and consumption might be rising at its fastest pace of the cycle, which is what prompts exuberance in investment decisions, but of overproduction, because this exuberance in the sphere of investment, as firms compete for the additional market share, causes production to rise faster, even than this rise in demand.
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