2. Overproduction of Capital
2.2 As an over-accumulation of capital.
a) An absolute overproduction of capital occurs when any increment of capital produces no more, or even less surplus value than existed before the increment. A relative overproduction occurs where the mass of surplus value rises, but by a smaller proportion than the increase in capital, thereby causing a squeeze on the rate of profit.
“There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”
(Capital III, Chapter 15)
In other words, this reflects a change in the value composition of capital. This squeezing of the rate of profit, due to a change in the value composition, is diametrically opposite to the long-term tendency for the rate of profit to fall, described by Marx, as resulting from a rise in the technical composition of capital, which comes from rising social productivity. A rise in the value composition of capital, results, for example, from the price of inputs rising, whilst the quantity of such inputs processed remains constant or even falls. That would generally be associated with a fall in social productivity, rather than the rise, which is the basis of Marx's Law of the Tendency for the Rate of Profit to Fall. It could be, for example, that an expansion of capital causes the demand for minerals to rise, but output of minerals can only be increased by employing capital in less fertile mines and quarries, at least until new mines and quarries can be established. But, as Marx sets out in Capital III, Chapter 6, it may be that it is only the market price of inputs that rises, rather than their value. That would be associated with a general rise in social productivity, and a sudden rise in the demand for inputs that could not be met, resulting in rising market prices for those inputs. That is what happened after 1999, for example.
In this case, the expansion of capital results in this rise in the value composition of capital, but no change in the technical and consequently organic composition. The higher value of constant capital, can even mean, as Marx describes in Theories of Surplus Value, Part II, that capital is tied up, and so a smaller mass of constant capital is employed, causing a contraction, rather than accumulation of capital. In either case, it is this rise in the value composition of capital that causes a squeeze on the rate of profit, and potentially the mass of profit, depending on how much of the increased cost has to be absorbed from profit.
The example, specifically described by Marx, here, however, is a change in the value composition of capital in the other direction. Here the value composition falls, because wages rise. On the one hand, as Marx describes, copying the scenario he discusses in Theories of Surplus Value, Chapter 21, absolute surplus value cannot be expanded further. That is because, at this point, the individual working-day has been extended to its limit, and the social working-day has also been extended to its limit, by drawing in additional workers from the reserves. Because absolute surplus value cannot be increased further, any increase in the capital advanced results in a lower rate of profit, unless relative surplus value can be increased. However, as Marx states above, in these conditions, relative surplus value cannot be increased because a) it requires a technological revolution to raise productivity, and b) the excess demand for labour-power means that workers are able to raise wages, and so reduce the rate of surplus value.
As opposed to an overproduction of capital resulting from an overproduction of commodities, this is directly an overproduction of capital, resulting from an over-accumulation of productive-capital relative to available labour. Where the former results in produced surplus value not being realised, here it is the production of surplus value itself that either does not rise sufficiently (relative overproduction) or else does not rise at all and even falls (absolute overproduction).
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