2. Overproduction of Capital
An overproduction of capital may arise because of an overproduction of commodities, i.e. an overproduction of commodity-capital, or because of an over-accumulation of capital, i.e. an overproduction of productive-capital. There can never be an overproduction of money-capital.
2.1 As an overproduction of commodities
An overproduction of commodities can result in an overproduction of capital, because the commodities are produced by capital, and if commodities are overproduced, then not all the capital may act as capital, i.e. as self-expanding value. It will have been overproduced. Whether an overproduction of capital actually results depends upon whether the mass of profit rises or not, despite the overproduction of commodities.
In essence this comes down to the difference between the production of surplus value, and the realisation of surplus value as profit. In other words, as Marx put it,
“The entire mass of commodities, i.e. , the total product, including the portion which replaces the constant and variable capital, and that representing surplus-value, must be sold. If this is not done, or done only in part, or only at prices below the prices of production, the labourer has been indeed exploited, but his exploitation is not realised as such for the capitalist, and this can be bound up with a total or partial failure to realise the surplus-value pressed out of him, indeed even with the partial or total loss of the capital.”
(Capital III, Chapter 15)
For any individual capitalist, it may be that they cannot find a market for their output. That could be because, as with Sinclair and the C-5, consumers are not attracted to buy it, and certainly not to buy it at a price that would reproduce the consumed capital. But, that can apply to all capitalist producers, or a significant proportion of them simultaneously. An overproduction of commodities arises where the market price of the commodity falls below its price of production. However, the price of production is cost price plus average profit. That means there are a range of market prices between the cost of production, and the price of production. The market price may fall below the price of production, and yet the total realised profit may still rise.
For example, suppose the cost price of a commodity is £1, and its price of production is £1.20. One million units are sold producing a realised profit of £200,000. Production increases to 2 million units, but this represents an overproduction, because not all these units can be sold at £1.20. The market price falls to £1.15. However, this produces a realised profit of £300,000, an increase of 50%. This represents a relative overproduction of capital, because, although the mass of profit has risen by 50%, it has not risen in proportion to the advanced capital of £2 million. It has fallen from 20% to 15%.
The overproduction of capital, here, is not the result of an over-accumulation of capital, and consequent failure to produce surplus value, but a consequence of an overproduction of commodities, which means that the produced surplus value cannot be fully realised. The overproduction of commodities could arise from any and all of the reasons previously described, such as changes in consumption, disproportions in productivity and production between spheres, disturbances in the circulation of currency and credit, for example, as a result of a credit crunch, or as Marx describes, the effects of a financial crisis, such as occurred in 1847, 1857, and 2008. It can be the result of rising living standards, so that the marginal propensity to consume declines, leading to an increased propensity for saving, or the paradox of thrift as Keynes described it. Or, as Marx put it, the desire, having converted the commodity into money, C – M, to hold on to the money, rather than reconvert it into commodity, M – C. Again there are any number of reasons why that may be the case, for example, uncertainty due to Brexit etc. It means the demand for the general commodity, money, is greater than the demand for all other commodities.
In Capital II, Marx describes how a crisis can arise as a result of a rupture in the circuit of capital at each of the points where it metamorphoses from capital in one form, to capital in another. For example, the circuit of industrial capital begins with P.
It is the production process itself, in which productive-capital operates. If, for whatever reason, the new value created by labour is less than the value of the labour-power employed, then, instead of producing surplus value, a loss is produced. The value of the resultant commodity-capital will be less than the value of the consumed productive-capital, so that it cannot be reproduced in full.
If a surplus value is produced, then it may be that this surplus value cannot be realised as profit, when the commodity-capital comes to be metamorphosed into money-capital. That can be because there is an overproduction of these commodities. If, as Marx describes in Capital III, Chapter 6, for example, the price of an input has risen sharply, it may not be possible to pass this increased cost on to the price of the end product. The surplus value has been produced, in production, but cannot be fully realised, because the price of the end product must be reduced below its price of production, absorbing the increased cost out of profit.
The only form of capital that cannot be overproduced, Marx says, is money-capital. The money-capital can always be used simply as money. However, a rupture can also occur where money-capital comes to be once more metamorphosed into productive-capital. If the prices of inputs have risen sharply after the money-capital has been realised, then it will no longer buy the same quantity of inputs, so that the productive-capital cannot be physically reproduced. It may simply be that inputs are not available, or not available in sufficient quantity. For example, British textile capitalists had money-capital available to buy US cotton, but due to the US Civil War, the cotton itself was not physically available. Capitalism is based upon continuous production, but if the required productive-capital is not available such continuity is impossible.
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