A Characterisation of Economic Romanticism, Chapter 1 - Part 43

Lenin is right to say that this under-consumptionist theory is wrong, because it fails to account for the role of productive consumption. However, just because the additional consumption requirement can be filled by productive consumption does not mean that it is. Indeed, just because the value of consumer goods equals the value of v + s, i.e. can find its value equivalent in demand, produced by the revenues represented by v + s, does not at all mean that it will. It depends on the owners of those revenues being prepared to spend them on the purchase of the actual use values that make up that component of total output, and there is no reason why that has to be the case. That is exactly why Marx rejects Say's Law, as propounded by Ricardo, Say and Mill. 

Indeed, as Marx sets out in Capital II, Chapter 20, there is no reason why this should be true in relation to means of production either. The introduction of spinning-machines led to an overproduction of yarn, not because the value equivalent, required as demand, for this yarn was absent, but because the weavers simply could not use the new volume of yarn produced for their own production. When power looms were introduced, they could absorb this volume of yarn, the rise in their own production, reduced the value of cloth, enabling the market for that cloth to expand.

But, also, as Marx sets out, in Capital II, the value of wear and tear of fixed capital is realised in the value of commodities produced by Department II capitalists, some of which are bought by Department I capitalists and workers. However, if this fixed capital has a lifespan of ten years, this value, realised by Department II capitalists does not automatically get thrown back into circulation to buy means of production from Department I. If Department II capitalists simply hoard this value in amortisation funds for ten years, then there would necessarily arise a disproportion between Department I and II, as a result of the under-consumption by Department II capitalists. 

As Marx says, this inherent contradiction is resolved, in practice, by the fact that Department II use some of this amortisation fund, in addition to profits, to finance accumulation, and by the fact that different capitals, in Department II, replace their fixed capital at different times. But, as Marx points out, any equality between demand and supply, here, is purely accidental. As he points out, it requires only that the lifespan of the fixed capital stock be slightly longer than its average anticipated lifespan for it to result in such under-consumption by Department II. 

The consequence is that, on the basis of the same level of production, fixed capital is over produced. As Marx puts it, 

“There would be a crisis — a crisis of over-production — in spite of reproduction on an unchanging scale.” 

(Capital II, Chapter 20)

He continues, 

“This illustration of fixed capital, on the basis of an unchanged scale of reproduction, is striking. A disproportion of the production of fixed and circulating capital is one of the favourite arguments of the economists in explaining crises. That such a disproportion can and must arise even when the fixed capital is merely preserved, that it can and must do so on the assumption of ideal normal production on the basis of simple reproduction of the already functioning social capital is something new to them.”

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