Crises of Overproduction - Part 4 of 14

1. Overproduction of Commodities

1.1 All Commodity Production

c) Due to price, i.e. quantity cannot be sold at market value, or, for individual producers, individual value. 

For any individual producer, they may find that they cannot sell their output, because the individual value of their output is greater than its market value. They can only sell their output at its market value, and, for some, this may even be below their cost of production, so that they cannot continue in that line of production. This is what leads individual peasant producers and artisans into penury and slavery. Later, in the period of primary capital accumulation, it leads to the means of production of these producers being taken over by capitalists. It is the process by which this primary accumulation, and centralisation and concentration of means of production, as capital, takes place. 

But, the same applies for all producers for some types of commodity. It can simply be that there would be demand for the commodity if its market value was lower. The market price then falls below the market value. Some producers, the more efficient, may produce the commodity with an individual value below this market price so that they are able to reproduce their means of production, and even accumulate more. But, until demand reaches a certain level for any commodity, it cannot be produced capitalistically, because capitalist production requires a large market for each type of commodity. As Marx says, 

“It would seem, then, that there is on the side of demand a certain magnitude of definite social wants which require for their satisfaction a definite quantity of a commodity on the market. But quantitatively, the definite social wants are very elastic and changing. Their fixedness is only apparent. If the means of subsistence were cheaper, or money-wages higher, the labourers would buy more of them, and a greater social need would arise for them, leaving aside the paupers, etc., whose demand is even below the narrowest limits of their physical wants. On the other hand, if cotton were cheaper, for example, the capitalists' demand for it would increase, more additional capital would be thrown into the cotton industry, etc.” 

(Capital III, Chapter 10) 

The overproduction of commodities is always relative, because it is overproduction relative to demand, and demand would rise if prices were lower. The point, here, is that, to create the required level of demand, to clear the supply, market price falls, but can then fall to a level, not just below the price of production, but below the cost of production. If the market price falls below the price of production, not all the profit is realised. If it falls below the cost of production, then each commodity unit is sold at a loss. In that case, the capital consumed in the production of the commodity cannot be reproduced. The overproduction of the commodity is then an overproduction of capital. 

The other means by which this can occur is set out by Marx in Capital III, Chapter 6. That is that the price of inputs may rise to a degree that cannot be passed on into the final price of the end product, without causing the demand for it to fall significantly. Given that producers must continue to produce on a large-scale so as to maximise the use of fixed capital etc., that means they must absorb this additional cost out of the produced surplus value, thereby reducing the realised profit. But, that may not be possible without incurring losses, so that the capital cannot be reproduced. 

“But it is evident — although we merely mention it in passing, since we here still assume that commodities are sold at their values, so that price fluctuations caused by competition do not as yet concern us — that the expansion or contraction of the market depends on the price of the individual commodity and is inversely proportional to the rise or fall of this price. It actually develops, therefore, that the price of the product does not rise in proportion to that of the raw material, and that it does not fall in proportion to that of raw material. Consequently, the rate of profit falls lower in one instance, and rises higher in the other than would have been the case if products were sold at their value... 

In those branches of industry, therefore, which do consume raw materials, i. e., in which the subject of labour is itself a product of previous labour, the growing productivity of labour is expressed precisely in the proportion in which a larger quantity of raw material absorbs a definite quantity of labour, hence in the increasing amount of raw material converted in, say, one hour into products, or processed into commodities. The value of raw material, therefore, forms an ever-growing component of the value of the commodity-product in proportion to the development of the productivity of labour, not only because it passes wholly into this latter value, but also because in every aliquot part of the aggregate product the portion representing depreciation of machinery and the portion formed by the newly added labour — both continually decrease. Owing to this falling tendency, the other portion of the value representing raw material increases proportionally, unless this increase is counterbalanced by a proportionate decrease in the value of the raw material arising from the growing productivity of the labour employed in its own production... 

This shows again how a rise in the price of raw material can curtail or arrest the entire process of reproduction if the price realised by the sale of the commodities should not suffice to replace all the elements of these commodities. Or, it may make it impossible to continue the process on the scale required by its technical basis, so that only a part of the machinery will remain in operation, or all the machinery will work for only a fraction of the usual time.” 

(Capital III, Chapter 6)

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