1. Overproduction of Commodities
1.1 All Commodity Production
b) Due to disproportion
“For prices at which commodities are exchanged to approximately correspond to their values, nothing more is necessary than 1) for the exchange of the various commodities to cease being purely accidental or only occasional; 2) so far as direct exchange of commodities is concerned, for these commodities to be produced on both sides in approximately sufficient quantities to meet mutual requirements, something learned from mutual experience in trading and therefore a natural outgrowth of continued trading; and 3) so far as selling is concerned, for no natural or artificial monopoly to enable either of the contracting sides to sell commodities above their value or to compel them to undersell. By accidental monopoly we mean a monopoly which a buyer or seller acquires through an accidental state of supply and demand.”
(Capital, III, Chapter 10)
Any coincidence of demand and supply for any commodity is purely accidental, precisely because producers do not know what quantity consumers require on the day, at a given price. The market price, therefore, fluctuates around the exchange-value of the commodity, or around its price of production under capitalism. It is the means by which the actual demand is equated to the actual supply. Over a period, these fluctuations in the market price cancel out. But, the disproportion being discussed is not these continual fluctuations, but a more structural imbalance. That requires that either more supply or less supply is produced. This kind of disproportion can be caused because means of production/capital is misallocated, or because of a change in productivity.
- Due to misallocation
As Marx says, in the quote above, arriving at the correct proportions in which the different commodities should be produced is “something learned from mutual experience in trading and therefore a natural outgrowth of continued trading”. Wherever new markets are established and commodity production and exchange begins, there is the potential for such disproportion. Producers who have some natural advantage in the production of a particular type of commodity may rush into that sphere, but the consequence of them all doing so, is to create an overproduction of that kind of commodity.
The same thing arises with new types of commodities. High prices and profits for them may encourage many more producers into that sphere. Higher levels of production bring economies of scale, and reduction in costs of production, which bring lower selling prices, which expands demand further. But, eventually a point is reached where the output exceeds any additional demand. A similar thing happens where demand for existing commodities rises sharply. For example, after 1999, prices of primary products rose sharply. When producers of these products were convinced that it was not just a short-term change, they invested heavily in new mines, quarries, farms, oilfields and so on. When all of this additional production hit the market in 2014, the additional supply was greater than the demand, so that primary product prices crashed. A similar thing can be seen in the short term, where supplies are increased sharply to respond to higher prices, as described in the Cobweb Theorem.
Marx discusses these long wave movements in Theories of Surplus Value, Chapter 9. He sets out, there, that these new investments in farms etc., also require investment in infrastructure, and so on. Until all of this is in place, the new production tends to be higher value than the existing production, so that market values do not fall. However, when all of the investment is in place, the new production tends to be more fertile, and so have a lower value than the existing production, so that market values fall. This makes the existing production less profitable, and it is that, which then is forced out, when any crisis manifests itself.
But, there can be misallocation simply because of changes in patterns of consumption. Fashions change, but, also, as new commodities are developed, other older commodities are no longer demanded. For example, when motor cars replaced horse drawn carriages, the demand for buggy whips declined sharply. There would be no point producing buggy whips on the same scale, whilst the demand for pneumatic tyres, and so on increased. Producers of new commodities can simply mistake the level of demand. For example, Sinclair's production of the C-5.
“If, for example, purchase and sale—or the metamorphosis of commodities—represent the unity of two processes, or rather the movement of one process through two opposite phases, and thus essentially the unity of the two phases, the movement is essentially just as much the separation of these two phases and their becoming independent of each other. Since, however, they belong together, the independence of the two correlated aspects can only show itself forcibly, as a destructive process. It is just the crisis in which they assert their unity, the unity of the different aspects. The independence which these two linked and complimentary phases assume in relation to each other is forcibly destroyed. Thus the crisis manifests the unity of the two phases that have become independent of each other. There would be no crisis without this inner unity of factors that are apparently indifferent to each other. But no, says the apologetic economist. Because there is this unity, there can be no crises. Which in turn means nothing but that the unity of contradictory factors excludes contradiction.”
(Theories of Surplus Value, Chapter 17)
Another potential for disproportion is set out, by Marx, in Capital II, discussing the relation between Department I and II, in relation to fixed capital. Department II buys fixed capital from Department I. Each year, Department II recovers a portion of the value of this fixed capital in the form of wear and tear, reproduced in the value of its output. However, it does not throw this value back into circulation, because it does not physically need to reproduce that fixed capital. If all fixed capital were bought and replaced at the same time, and if it has a lifespan of ten years, Department II, would recoup 10% p.a. of its value, but would not spend it on fixed capital. Producers of fixed capital would have no demand for their output in the intervening nine years. In practice, fixed capital is bought at different times, so that, on average, an amount of fixed capital wears out each year, and must be replaced, and is approximately equal to the value of wear and tear. But, any such coincidence is purely accidental, and, if existing fixed capital lasts longer than its normal lifespan etc., then a disproportion between Department I output and Department II output arises. Department II's under consumption of fixed capital, becomes an overproduction for Department I.
“This illustration of fixed capital, on the basis of an unchanged scale of reproduction, is striking. A disproportion of the production of fixed and circulating capital is one of the favourite arguments of the economists in explaining crises. That such a disproportion can and must arise even when the fixed capital is merely preserved, that it can and must do so on the assumption of ideal normal production on the basis of simple reproduction of the already functioning social capital is something new to them.”
(Capital II, Chapter 20)
- Due to changes in productivity
Even when existing production and distribution is proportional, a disproportion can arise, because of changes and differences in productivity. The means of production in the different spheres may accumulate in the same proportions, and the value of output in each sphere rise by the same proportions, but these proportional rises in value, may represent significantly different rises in the volume of output in each sector. If potatoes exchange for carrots at a rate of 2:1, and demand and supply balance, the means of production and labour in both spheres may double, so that the value of output doubles, and yet the output of potatoes may rise from 100 tons to 200 tons, whilst the output of carrots rises from 50 tons to only 75 tons, because of different levels of productivity. Just because the value of both has risen proportionally, there is no reason that the producers of the 75 tons of carrots will want to consume all of the output of 200 tons of potatoes.
“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)
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