Crises of Overproduction - Part 14 of 14

2. Overproduction of Capital

2.3 The Cyclicality of Crises

b) The cycle depends upon changes in social productivity. 

1. Crises are resolved by the introduction of new labour-saving technologies:- 

• that raise productivity, displace labour, reduce wages, and thereby boost the production of surplus value.
• They reduce the value of labour-power, and so raise the rate of surplus value, as well as releasing variable-capital for additional accumulation.
• They create a relative surplus population that is only gradually absorbed in the following phases of the cycle.
• New technologies enable raw materials to be used more efficiently, and create new types of commodities, and so new markets and demand
• They cheapen the production of raw materials, and of fixed capital, thereby raising the rate of profit, and creating a release of constant capital than can be accumulated. This provides the basis for the new upturn.
• This causes the mass and rate of profit to rise, overcoming the overproduction, however, because this rise in social productivity means that less labour is employed relative to the capital employed, compared to the same point in the previous cycle, it means that the rate of profit tends to be lower than at the same point in the previous cycle. This is the conclusion from Marx's Law of The Tendency of the Rate of Profit to Fall.
• The new upturn sows the seeds of its own destruction.
• Sharp rises in demand for raw materials cause material prices to rise sharply, which may not be passed on without causing a contraction of demand.
• Slowly, the reserve army of labour is used up.
• The new labour-saving technologies lead to intensive accumulation, as new machines replace older machines, but eventually all the old machines have been replaced, so that any new investment is simply an addition of new machines - extensive accumulation. Productivity growth slows as a result.
• Slower productivity growth means that any rise in production now requires relatively more labour.
• The increased size of the labour force means that total wages rise, leading to an increased demand for wage goods, leading to increased investment in wage goods production, requiring the employment of more labour.
• The available labour supply does not grow as fast as the demand for labour, even after women workers, immigrants and so on are employed, and overtime rates are paid to encourage overtime. Absolute surplus value cannot be expanded further.
• The faster demand for labour, relative to supply, causes wages to rise, and so squeezes surplus value. Eventually, any increase in capital causes wages to rise to an extent that the mass of surplus value actually falls. This is an absolute overproduction of capital, but, in many cases, even if the mass of surplus value still rises, it rises only by a small amount, whilst the squeeze on the rate of profit is enough to cause some firms to produce losses, resulting in relative overproduction. A partial crisis of overproduction affecting only some large companies, or a sufficiently large number of smaller companies leads to a generalised crisis of overproduction.
• The rise in wages also leads to a crisis of overproduction of commodities, because:-
• higher living standards lead to workers satisfying their demand for a range of staple goods
• reduced profits, and a requirement to use a larger proportion of profit for investment rather than personal consumption, means that the luxury consumption of capitalists is reduced
• workers, even with higher living standards, cannot replace the luxury consumption of capitalists for many commodities
• workers require new ranges of commodities to consume, at prices they can afford, but these are not yet available, until new technologies make them available, and/or reduce the price of those commodities.
• The price elasticity of demand for wage goods means that demand for them cannot be increased without reducing the price to levels whereby the capital is not reproduced.
• The overproduction of capital thereby leads to a squeeze on profits that eventually results in a crisis, and the rate of profit drops sharply and suddenly.
• Firms again begin to seek out new labour-saving technologies, and the cycle begins again.

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