Crises of Overproduction - Summary

• Overproduction of products is a necessary feature of all societies
• In commodity producing societies this overproduction takes the form of an overproduction of commodities, not products.
• If the market for all commodities expands proportionate to the increase in output then no crisis ensues, and the market and social wealth expands.
• Commodity producing societies create the potential for this overproduction to cause crises, because production and consumption, supply and demand, use value and value are separated. Commodities are produced to be sold at their value, but because commodities are produced without prior knowledge as to whether they can be sold at their value, the potential arises that what is produced cannot be sold at its value, so that the producer is unable to reproduce the use values consumed in the production of the commodity. This can result in a crisis for the individual producer, or even for producers in a particular sphere as a whole. But, in pre-capitalist economies such crises cannot become generalised or systemic.
• Capitalist production is the most mature form of commodity production and exchange. All of the potential causes of a crisis of overproduction of commodities exist for capitalism.
• Under capitalism, and specifically under machine production, the potential for such crises becomes an inevitability. Machine production inevitably raises production at a faster rate than the market for commodities can increase. Capitalism requires that the social division of labour is raised to a far higher level than under previous forms of commodity production. A crisis of overproduction, in one sphere, quickly spreads into a crisis of overproduction in many spheres.
• Because a crisis of overproduction, in one sphere, results in workers being laid off, and thereby their consumption being curtailed, this under-consumption, on their part, means that the producers of the wage goods they would have consumed, have then also overproduced, even if the level of their output has remained unchanged. That applies also to the suppliers of inputs to the firm/industry that has overproduced.
• Capitalism also goes hand in hand with the development of commercial credit, with one firm supplying goods and services to other firms on the basis of payment at a later date. A firm that has overproduced, and cannot sell its output, or can only sell it at reduced prices, may not be able, then, to pay its suppliers, when the payments fall due. This creates what Marx calls a crisis of the second form, a payments crisis that can cascade from one supplier to another.
• The inability to sell may not be absolute, but may be only an inability to sell, or to obtain payment, by a given date. This may still result in the producer not having the money available to pay their suppliers, so that they are then unable to obtain the replacement inputs required to continue production. A break in the circuit of capital results, workers are laid-off, who then under-consume, suppliers are unable to sell their goods and have to cut back their own production, laying off workers etc.
• A crisis of overproduction may arise due to disproportions. Inputs must be produced proportionate to the outputs of which they form a part, for example. A change in productivity in one sphere can cause a crisis of overproduction, because it is not matched by a corresponding rise in productivity in other spheres. For example, the introduction of spinning machines increases the supply of yarn rapidly, causing an overproduction relative to weaving, which cannot absorb the additional supply. It may also cause a crisis of overproduction, because the suppliers of cotton cannot increase supply fast enough causing the price of cotton to rise so high that it cannot be born by the demand for cotton goods.
• Disproportions can also arise in unrelated spheres. If industry A and industry B produce consumer goods, and the one provides a demand for the output of the other, both industries might increase their output by the same amount in value terms, whilst this might correspond to very different quantities of output. If both A and B increase the value of their output by 10%, this might result in the quantity of A rising by 10%, whilst the quantity of B rises by 50%. The demand for B depends not on its value, but on the quantity of B that the producers of A require to meet their needs, so B could then be overproduced relative to A.
• A disproportion always exists between the production of fixed capital and circulating capital, because, although the value of wear and tear of fixed capital is withdrawn from circulation in the value of commodities, this value is not all thrown back into circulation for the purchase of replacement fixed capital, until such time as that fixed capital is itself worn out.
• Under capitalism, an overproduction of commodities is not always an overproduction of capital. An overproduction of commodities is always required in order that capital itself can expand. A crisis of overproduction of commodities is also a crisis of overproduction of capital, because the commodities form the commodity-capital. A crisis of overproduction of commodities means they do not sell at their value/price of production, which means that not all of the surplus value/profit they should produce is realised. This may lead to capital itself being either absolutely or relatively overproduced, depending on the severity of the overproduction, and the amount of profit that cannot be realised.
• An overproduction of capital is always an overproduction of commodities because the elements of capital are themselves commodities. To expand capital, more of the commodities that comprise productive-capital must be produced. More factories must be built than are required to replace those in existence, more machines must be built than is required to replace those worn out, more raw material must be produced than just what is required to reproduce that consumed in production, more workers must be employed, or existing workers work longer, and these workers will require additional wage goods to be produced, to reproduce their additional labour-power.
• A crisis of overproduction of capital is also always a crisis of overproduction of commodities for the same reason. More of these commodities are produced to act as capital than can be utilised as capital, i.e. as self-expanding value.
• An absolute overproduction of capital occurs when the surplus value resulting from any increment of capital is zero, or less than zero. In other words, if any additional capital does not cause the mass of surplus value to rise, or even causes it to fall, then the capital has been absolutely overproduced. An increment of capital may cause the mass of surplus value to rise, but by less than the increase in the mass of capital employed, so that the rate of profit falls. In that case, the capital has been relatively overproduced. 
• Crises of overproduction are cyclical in nature because they result from the long wave cycle, as it moves through its various phases. Rapidly rising productivity, and production due to the application of new technologies, can cause demand for inputs to rise faster than their supply causing input prices to rise to such an extent that they cannot be born by the demand for final outputs. By contrast, when the introduction of new technologies slows down, and existing labour supplies start to get used up, it becomes impossible to expand absolute surplus value, via increases in the social working-day. Then the increased demand for labour also causes wages to rise, which squeezes profits. Every increment of capital raises the demand for labour, and so wages further, and squeezes profits further, until a crisis of overproduction of capital occurs.
• This creates the conditions for the next phase of the long wave cycle. Firms redress the shortage of labour and high wages by introducing labour-saving technologies. A relative surplus population is created. Wages fall and profits rise. The new technology raises social productivity. The value of wage goods, and so of labour-power is reduced, raising the rate and mass of surplus value. The value of raw materials falls, and so does the value of fixed capital creating a moral depreciation of the fixed capital stock. That raises the rate of profit. It also results in a release of capital, which can be used for accumulation.
• The consequence of this is to end the squeeze on profits and to increase the rate and mass of profit. However, because this rise in productivity means that relatively less labour is now employed in relation to the total capital and output, than in the corresponding phase of the previous long-wave, the rate of profit will tend to have fallen compared to that previous period. This fall, however, in the long-term rate of profit is only very small, even when measured over the duration of the long wave cycle of 50 years. This is the basis of Marx's Law of the Tendency for the Rate of Profit to Fall. 

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