1. Overproduction of Commodities
1.1 All Commodity Production
d) Due to time, i.e. commodities can be sold, but buyers cannot pay in time for sale
The demand for produced commodities at their market value/price of production may exist, but it can simply be that there are time delays. An obvious example would be a blacksmith who needs to consume food produced by a peasant, but where the peasant is not yet needing their horse shod, or their plough mended, so no exchange of actual commodities can occur. In a money economy, the extension is that the blacksmith has not been paid by the peasant or work done, and so does not have the money required to buy additional iron etc. Its to smooth out such instances that credit develops.
“If even for only a limited period of time the commodity cannot be sold then, although its value has not altered, money cannot function as means of payment, since it must function as such in a definite given period of time. But as the same sum of money acts for a whole series of reciprocal transactions and obligations here, inability to pay occurs not only at one, but at many points, hence a crisis arises.”
(Theories of Surplus Value, Chapter 17)
Moreover, whilst credit is a means of removing the frictions arising from such discrepancies, it also, thereby, creates the conditions for the crisis becoming deeper, and for a different form of crisis developing. The blacksmith may obtain credit from the iron maker, so as to continue their work, repaying the iron maker, when they are paid by the peasant. But, if it turns out that the blacksmith had overproduced, it may then be that the peasant does not pay at all, or only pays in part. Then the blacksmith, also, cannot pay the iron maker in full. The iron maker may then not be able to pay the supplier of iron and coal, or pay the wages of their workers. This kind of payments crisis is called by Marx a crisis of the second form. It is a crisis that arises as a secondary effect of the overproduction of commodities. It is to be distinguished from the other type of monetary or financial crisis described by Marx in Capital I, Chapter III, that arises due to an actual shortage of currency in circulation, a credit crunch, or a crisis that begins in the financial markets due to speculation in asset prices, or from banks excessively issuing credit.
e) Due to under consumption, changes in demand, i.e. tastes change, existing commodities not worn out etc., specifically fixed capital.
Its often presented that Marx rejected under-consumption as a cause of crises. He didn't. Marx's argument is against those who argued that there could be no overproduction only under consumption, not against the potential of under consumption itself. Indeed, in numerous places, Marx describes such under-consumption as a cause of crises. The under consumption of fixed capital, by Department II has already been mentioned, for example. But, Marx also indicates that where, say, there is overproduction in cloth manufacture, the subsequent reduction in demand for yarn by cloth manufacturers, along with the reduction in demand for looms and so on, means that, even if the producers of yarn and looms produce only at their previous level, the under-consumption by the cloth producers of these commodities, will mean that the yarn producers, loom producers etc. will have, thereby, over produced. Similarly, the cloth producers will lay off their workers, and those workers will, thereby, reduce their consumption of wage goods. The producers of wage goods, even when they produce at the same level will, also, thereby, have overproduced.
Under consumption does not mean that consumption levels fall. On the contrary, under consumption most often occurs when consumption is rising rapidly in absolute terms. It is the rapid increase in consumption levels that then creates a barrier to further rises in consumption at existing prices.
“The conditions of direct exploitation, and those of realising it, are not identical. They diverge not only in place and time, but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society. But this last-named is not determined either by the absolute productive power, or by the absolute consumer power, but by the consumer power based on antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum varying within more or less narrow limits. It is furthermore restricted by the tendency to accumulate, the drive to expand capital and produce surplus-value on an extended scale.”
(Capital III, Chapter 15)
In other words, production expands exponentially driven by a competitive whip to raise productivity, so as to grab market share. The workers share of output is kept to a minimum, and the capitalists, driven by this same competitive whip, are led to minimise their unproductive consumption so as to accumulate additional capital. The rise in productivity reduces the value of labour-power, even as it raises living standards. Workers consume a larger portion of output absolutely, but a smaller proportion. Their demand for some types of wage goods reaches a level whereby they do not want to consume more unless the market price falls significantly, yet they still cannot buy many “luxury” goods. Capital produces increasing masses of surplus value in production, but finds it harder to convert it into realised profit.
In such conditions of prosperity, and particularly of boom, as workers living standards rise, they look for other types of commodity to consume. However, they often cannot afford to buy luxury goods, other than the cheapest. Means of production tied up in production of existing commodities is not quickly moved to other spheres of production. This demand is often first accommodated by the import of foreign commodities, and, as Marx says, for that reason, the expansion of the global market is itself an important means by which the market itself is expanded, because it draws in a wider range of use values that can be exchanged as commodities. The more fixed capital is used in production, the more difficult it becomes to physically relocate capital from one sphere of production to another.
For a whole range of new commodities, it is only after a technological revolution that they can either come into being, or else that they can be produced at a price that enables a mass market for them to develop. For example, mobile phones were developed as a consequence of the technological revolution of the 1970's and 80's, but they did not emerge as a commodity that could be bought by workers, on a mass scale, until the 1990's. The same thing is true of previous cycles. The internal combustion engine, and motor car was developed at the end of the 19th century, but only available to the rich, and produced in small numbers. It is the technological revolution of the 1920's and 30's, that enabled it to be produced in large numbers much more cheaply. Even then, its not until the late 1960's and 1970's that it becomes affordable for the majority of workers in Europe.
Until such new spheres of consumption appear, the demand for existing consumption goods may rise far more slowly than the increase in supply, so that market prices must fall.
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