Once society moves from the production of use values/products to the production of commodities, this creates the potential for a different kind of overproduction - the overproduction of commodities. A primitive community must overproduce use values, in order to cater for the continual expansion of its population, to provide insurance against accidents, to enable an increased range of use values to be produced etc. If it experiences a good harvest and unexpected degree of overproduction, it welcomes its good luck, and holds feasts etc. to consume the bounty. A commodity producing economy must also overproduce commodities for all the same reasons. However, because commodities are produced to be sold, in order to obtain exchange-value, rather than an unexpected overproduction being a boon, it can be a cause of crisis.
Commodities must always be overproduced for the same reasons that use values must be overproduced, because without it, the increase in the market cannot take place, and the increase in the market results, if for no other reason, from the expansion of the population. In reality, the market also expands, because consumers demand more of each type of commodity, as well as additional types of commodity. If production increases proportionally, and in line with these increased demands, there is no basis for a crisis to arise. But, as Marx says, in Theories of Surplus Value, Chapter 17, as soon as commodity production commences, so that production and consumption are separated, the potential for a crisis of overproduction exists. What is different in relation to these crises, compared to crises of overproduction under capitalism, is that it is only a crisis for individual producers, and not for the economy as a whole, and that it is an overproduction of commodities not capital.
If the producer of linen expends 100 hours of labour producing 10 metres, and takes it to market, they may find that there is only demand for 5 metres. The reasons why that may be the case are numerous. The consumers of linen may already have enough, because, for example, their clothes have lasted longer than expected; or it may be that the linen producer has increased their output from 5 metres, for which there was demand, without knowing whether they could sell the additional 5 metres, for which there is no demand; or it may be that there is demand for linen, but this particular producer is less efficient, so that the 100 hours they have expended is greater than the market value. They could sell their output, provided they reduced the price to the market value. As Marx says, overproduction of commodities is always overproduction at a given price. If the price is reduced, the overproduction disappears.
In Theories of Surplus Value, Chapter 17, Marx sets out a number of instances of how such overproduction of commodities can arise. In Theories of Surplus Value, Chapter 20, he sets out further examples. In any society, commodities must be produced in the right proportions. For example, if wood is only used to produce chairs, the amount of wood produced must be consistent with the quantity of chairs produced. If twice as much wood is produced than is required for chair production, half of the labour expended on wood production was not necessary labour.
Marx describes this situation as it arose with a large rise in output of yarn resulting from the introduction of spinning machines.
“(When spinning-machines were invented, there was over-production of yarn in relation to weaving. This disproportion disappeared when mechanical looms were introduced into weaving.)”
(Theories of Surplus Value, Chapter 17)
The value of wood is determined by the necessary labour expended, and consequently, the value of the wood produced would be halved, because half the labour actually expended was not necessary. If we think about the further implications of that, some wood producers would produce more efficiently. They would be able to sell their wood, at this lower price. The most inefficient wood producers would not be able to get a price that enabled them to continue wood production, or perhaps even to reproduce their labour-power. At the same time, the lower price of wood would perhaps encourage chair producers to buy more wood to produce more chairs, and other chair producers might enter production, at these lower prices, which would also lead to a higher demand for chairs.
This kind of thing did happen to petty commodity producers. Those that found they could not sell their output at prices that enabled them to reproduce their means of production and labour-power, then had to resort to expensive borrowing from usurers. Often this led to them becoming debt slaves. It is what leads to merchant capitalists providing such producers with the means of production, and essentially employing the peasant producer as a wage worker under the Putting Out System.
All of these kinds of overproduction of commodities can occur, even under systems of barter. They arise because production and consumption, and so supply and demand, sale and purchase has been separated. When we add in the factor of a money economy, then a further potential cause of overproduction arises. James Mill, who formulated what was to become known as Say's Law, which says that there can be no overproduction of commodities, because supply creates its own demand, arrives at this conclusion, because he considered that the aim of production continued to be, as it was under direct production, the production of products/use values for consumption. This idea was accepted by Ricardo, and formed the basis of his own rejection of the idea that there could be overproduction of commodities. Ricardo, like Mill and Say, believed that commodity producers would only produce commodities if they could exchange them for the commodities required for their own consumption – either personal consumption or productive consumption. Ricardo says,
“... 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.)”
(Theories of Surplus Value, p 493-4)
But, as Marx points out under commodity production and exchange, let alone capitalism, this is no longer true. Firstly, the commodity producer might produce in order to obtain money, without any requirement for them to then exchange this money for some other commodity.
“At a given moment, the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities, in other words the motive to turn the commodity into money, to realise its exchange-value, prevails over the motive to transform the commodity again into use-value.”
(Theories of Surplus Value, p 505)
Secondly, it is not a matter simply for the commodity producer of being able to exchange the commodity they have exchanged for a quantity of some other commodity/money, but to be able to do so at a rate that reproduces the value they have expended, i.e. to be able to reproduce the value of the materials they have consumed in their own production, plus the value of their labour-power. Once again, as Marx sets out in Theories of Surplus Value, Chapters 17 and 20, there are numerous reasons why this may not be possible. For one thing, there are different rates of productivity in different spheres of production. A sharp rise in productivity in one sphere, may reduce considerably the unit value of that type of commodity, but it does not mean that the demand for this type of commodity will rise proportionally to the fall in the unit value/price of the commodity. In other words, as Marx says, different types of commodity have different price elasticities of demand.
“Say’s earth-shaking discovery that “commodities can only be bought with commodities” simply means that money is itself the converted form of the commodity. It does not prove by any means that because I can buy only with commodities, I can buy with my commodity, or that my purchasing power is related to the quantity of commodities I produce. The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.”
(Theories of Surplus Value, Chapter 20)
And, differing degrees of productivity in different spheres means that this fact that the same value can be expressed in differing masses of use value, means that disproportions necessarily arise.
“By the way, in the various branches of industry in which the same accumulation of capital takes place (and this too is an unfortunate assumption that capital is accumulated at an equal rate in different spheres), the amount of products corresponding to the increased capital employed may vary greatly, since the productive forces in the different industries or the total use-values produced in relation to the labour employed differ considerably. The same value is produced in both cases, but the quantity of commodities in which it is represented is very different. It is quite incomprehensible, therefore, why industry A, because the value of its output has increased by 1 per cent while the mass of its products has grown by 20 per cent, must find a market in B where the value has likewise increased by 1 per cent, but the quantity of its output only by 5 per cent. Here, the author has failed to take into consideration the difference between use-value and exchange-value.
Theories of Surplus Value, Chapter 20)
As Marx says, in Capital II, an area where this disproportion leading to overproduction is bound to occur is in relation to the production of fixed capital, and this is something that applies also under communism.
“Once the capitalist form of reproduction is abolished, it is only a matter of the volume of the expiring portion — expiring and therefore to be reproduced in kind — of fixed capital (the capital which in our illustration functions in the production of articles of consumption) varying in various successive years. If it is very large in a certain year (in excess of the average mortality, as is the case with human beings), then it is certainly so much smaller in the next year. The quantity of raw materials, semi-finished products, and auxiliary materials required for the annual production of the articles of consumption — provided other things remain equal — does not decrease in consequence. Hence the aggregate production of means of production would have to increase in the one case and decrease in the other. This can be remedied only by a continuous relative over-production. There must be on the one hand a certain quantity of fixed capital produced in excess of that which is directly required; on the other hand, and particularly, there must be a supply of raw materials, etc., in excess of the direct annual requirements (this applies especially to means of subsistence). This sort of over-production is tantamount to control by society over the material means of its own reproduction. But within capitalist society it is an element of anarchy.”
(Capital II, Chapter 20)
Under systems of commodity production, as under systems of direct production, society must overproduce in order to expand. Commodity production and exchange, particularly in a money economy creates the potential for crises of overproduction, because commodity production means that production and consumption, use value and value, demand and supply, sale and purchase become separated. Each of these form opposing poles in what must be a contradictory whole, and, as Marx describes, there is nothing which prevents these two poles from becoming separated from each other, which thereby results in a crisis. Under commodity production and exchange, such crises are limited to the individual commodity producers themselves, and are not systemic.
Under capitalism, the potential arises, as a consequence of large-scale machine production, for these crises to become systemic. In addition, under capitalism, other causes of crises emerge. Industrial capitalism goes hand in hand with the development of commercial credit, so that the potential for a payments crisis (what Marx calls a crisis of the second form) also arises, as firms are unable to pay their suppliers. Firms who are not paid, have to cut back their own purchases, so that this reduction in demand/under-consumption, means that their suppliers, even when they produce at a constant rate, have overproduced. But, in addition to the potential for the overproduction of commodities, which exists in all commodity producing economies, under capitalism the potential exists for an overproduction of capital itself.
Capital is self-expanding value. It is only capital if it produces profit. Capital is overproduced if any increment of it, results in no more or even less profit being produced than existed prior to the increment. Capital may be overproduced, because it produces more commodities than can be sold in the market at prices that result in an increase in profit; or it may be overproduced because it causes the demand for labour-power to rise to a level whereby the rate of surplus value falls faster than the increase in the mass of labour employed; or it causes wages to rise causing surplus value to fall; or because it causes a sharp rise in the demand for raw materials, which raises their price to levels which cannot be passed on into final product prices (See, Capital III, Chapter 6, and Theories of Surplus Value, Chapters 9-17)
An overproduction of capital is always an overproduction also of commodities because the elements of capital are themselves comprised of commodities.
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