The reproduction schedules described in Part 6 showed how the material balances within the economy enable not only reproduction to occur, on a like for like basis, but also that the surplus product can be utilised to accumulate additional capital, and, thereby, expand the economy itself. In this sense, then, the increased supply creates the increased demand for that supply. As Marx describes in Capital III, Chapter 39, farmers who anticipate that the market for agricultural products will expand each year, if only due to rising population, will seek to obtain their share, or more, if they can get it, of this increased demand – even if the rate of profit they obtain is lower. Competition forces them to do so. To expand their production, they must accumulate capital. They plant more seed, they rent additional land, they employ additional workers, they buy more tools, fertiliser and so on.
The additional workers they employ are found from the rising population. They are paid wages, and these additional wages do, then, indeed, form part of the additional demand for agricultural products the farmer anticipated in deciding to expand their production. The landlord, obtains additional rent for the additional land brought under cultivation, and spends it buying additional agricultural products, or other items of consumption. The additional workers buy other consumer goods, creating additional demand for other producers, who also, employ additional workers and capital to satisfy it. The producers of these other commodities, as well as those that produce the tools, fertiliser and so on, bought by the farmer, as they accumulate additional capital, create additional demand for their output, so that they too accumulate additional capital, employ additional workers, and so on, all of whom spend some of their income on buying agricultural products.
But, of course, the fact that all of this can happen does not mean that it will. Even modifying Say's Law, in line with Keynes, to include saving and investment, does not mean that the incomes received will all be used for consumption, or for investment. A change in the marginal propensity to consume, for example, means that savings will rise, whilst consumption will fall. The rise in savings will result in a rise in investment only as an unplanned increase in inventories. Firms that see their stocks of unsold goods pile up, instead of planning on the market expanding, may plan on it contracting. They may, at the least, stop any planned accumulation of capital, or even begin to reduce their production, to reduce costs. However, at the start of such a period, they may do the opposite, because the factor of competition, may drive them to believe that they must expand their production more quickly to obtain, economies of scale, undercut their competitors, and so grab additional market share.
“The competitive struggle would decide what part of it would be particularly affected. So long as things go well, competition effects an operating fraternity of the capitalist class, as we have seen in the case of the equalisation of the general rate of profit, so that each shares in the common loot in proportion to the size of his respective investment. But as soon as it no longer is a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another. The class, as such, must inevitably lose. How much the individual capitalist must bear of the loss, i.e., to what extent he must share in it at all, is decided by strength and cunning, and competition then becomes a fight among hostile brothers. The antagonism between each individual capitalist's interests and those of the capitalist class as a whole, then comes to the surface, just as previously the identity of these interests operated in practice through competition.”
(Capital III, Chapter 15)
In Theories of Surplus Value, Chapter 17, and Chapter 20, Marx describes numerous reasons why this theoretical equivalence, may, in reality, result in break down, so that supply fails to create its own demand. For one thing, as workers living standards rise, their consumption of a range of core products reaches levels where they have no reason to spend more on them. That may arise because money wages may remain constant, but the value of wage goods fall (price elasticity) or because their money wages rise (income elasticity).
“Say’s earth-shaking discovery that “commodities can only be bought with commodities” simply means that money is itself the converted form of the commodity. It does not prove by any means that because I can buy only with commodities, I can buy with my commodity, or that my purchasing power is related to the quantity of commodities I produce. The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.”
Workers may be persuaded to use their surplus wages, then, to buy other commodities, rather than save them. Indeed, as Marx sets out in Capital II, as wages rise and squeeze profits, the falling consumption of some luxury products, by capitalists, due to their lower profits, can be partially offset by workers beginning to consume them, out of their higher wages. This is part of the process of The Civilising Mission of Capital. But, these products have to be cheap enough for workers to buy them, or it requires that a range of other products become available that are affordable for workers to buy. This often itself requires a revolution in technology, both to reduce the value of these existing commodities, and to bring to market a range of other new commodities.
But, also the very process of capital accumulation means that disproportions arise, because the levels of productivity in different spheres vary.
“By the way, in the various branches of industry in which the same accumulation of capital takes place (and this too is an unfortunate assumption that capital is accumulated at an equal rate in different spheres), the amount of products corresponding to the increased capital employed may vary greatly, since the productive forces in the different industries or the total use-values produced in relation to the labour employed differ considerably. The same value is produced in both cases, but the quantity of commodities in which it is represented is very different. It is quite incomprehensible, therefore, why industry A, because the value of its output has increased by 1 per cent while the mass of its products has grown by 20 per cent, must find a market in B where the value has likewise increased by 1 per cent, but the quantity of its output only by 5 per cent. Here, the author has failed to take into consideration the difference between use-value and exchange-value.
(Theories of Surplus Value 3)
In a developed capitalist economy, where credit and banking, is able to pool savings and other money reserves, and move it to finance investment, capital is no longer constrained by retained profits to finance capital accumulation. But, the fact remains that this credit can only be used to sustainably finance capital accumulation, and an expansion of the economy, where unused resources exist, and where, if those resources are employed, the resultant production, results in increased profits. As Marx sets out, in Capital III, the overproduction of capital is defined precisely by a condition where capital has expanded to labour/the social working-day, to a point whereby its no longer possible to expand absolute surplus value, and where the demand for labour causes wages to rise, squeezing profits.
If businesses, faced with such conditions, begin to cease capital expansion, so that increases in population lead to rising unemployment, or where, profits crash catastrophically, sending some businesses into bankruptcy, so that workers are unemployed, the answer to this cannot be a Keynesian fiscal stimulus to demand, which would only recreate the conditions which led to the crisis in the first place, stopping the fall in wages, and increasing the squeeze on profits. Nor can it come from depreciating the currency, by putting more of it into circulation, or by reducing official interest rates in an attempt to prompt additional borrowing, because as Keynes put it, such a move is simply like pushing on a string. Businesses will not borrow to invest, if they see no market for their goods, and if, to be able to sell their additional output, they would have to reduce prices to a level that would not produce a profit.
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