There are, normally, two reasons why workers get laid off. Firstly, that there is a glut in the market for the commodities they produce, i.e. an overproduction of commodities. Secondly, that the capital that employs them has been overproduced, so that it does not act as capital, producing surplus value. An overproduction of capital is also an overproduction of commodities, because capital is comprised of commodities. However, over the last year, workers have been laid off for neither of these reasons. They have, instead, been laid off as a result of an act of deliberate economic sabotage by governments that either directly locked them out from their employment, or, by forcing the close down of consumers' ability to consume, forced a close down of production and distribution. That is more like the consequences of government imposed austerity, which also deliberately curtailed the economy. These two acts of deliberate sabotage of the economy – austerity and lockouts (Trump's Trade War and Brexit could also be added) - have some things in common – a reduction in investment and interest rates, and so a surge in asset prices – and other things that are in contrast – fiscal austerity meant also cutting welfare payments, whilst the lockouts and lock downs have seen such payments skyrocket, the former involved a reduction in borrowing, the latter has seen borrowing reach astronomical levels. Both are in contrast to the conditions resulting from overproduction.
An overproduction of commodities can occur, as Marx sets out, in Theories of Surplus Value, wherever there is a money economy, as opposed to barter. It is why Say's Law can only apply under barter. As soon as we have C – M – C, rather than simply C – C, the transaction C - M does not necessarily imply the consequent transaction M – C. Indeed, were this not the case, then money could not itself become capital. In fact, as Marx describes in A Contribution To The Critique of Political Economy, it would not constitute money, but merely currency. It is the fact that, following the transaction C – M, the seller, having obtained money, retains all or part of it, rather than immediately spending it, M – C, is able to hoard it, as money, and, thereby, is able to convert it into money-capital. They can use it as money-capital either as a usurer, to lend it out at interest, M – M`, or else as a merchant capitalist, buying commodities not for their own consumption, but merely to sell at a profit, i.e. instead of C – M – C, we then have M – C – M`.
In all forms of commodity producing economy, which are, also, money economies, then, overproduction of commodities can occur. As Marx puts it,
“At a given moment, the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities, in other words the motive to turn the commodity into money, to realise its exchange-value, prevails over the motive to transform the commodity again into use-value.”
(TOSV, Chapter 17)
And, indeed, as Marx sets out, in these economies, prior to capitalism, such crises do occur, but they are crises restricted to the individual, independent commodity producers. When they fail, they become slaves, serfs, debt slaves, or else they become retainers, or employed on wages paid out of revenues, rather than out of capital. But, it is also the fact of such crises that makes capitalist production itself possible, at that point in history when sufficiently large, centralised markets, in the towns, come into existence, and when technology has developed to an extent that makes machines available that can produce on a larger scale to meet the needs of those markets, and so undercut the remaining independent handicraft producers.
At first, capitalist production takes the form of the putting out-system. That is the merchants, who formerly sold various materials to the independent producer, when any such producer suffers a crisis that prevents them from being able to pay for those materials, begin to provide these materials free to the producer, on condition that the producer then works to orders provided to them, and now sells the end product to the merchant, but at a price that really just covers the producers' wages. In other words, the merchant, instead of just obtaining commercial profit, now also obtains surplus value produced by the worker. The next stage up from this is that of manufacture, which does not mean what it currently means. Manufacture means that commodities continue to be produced in the same way, by handicraft methods, but the workers who undertake the work are now employed collectively in a manufactory. They continue to work, as before, as individual, independent producers, which is why, as with the Putting Out System, they appear to still sell their output to the factory owner, even though, in reality, they have already become wage labourers. But, this already means that the factory owner, has the advantages of scale, and is able to begin a process of division of labour within the factory that ultimately results in the workers' labour becoming simple factory labour, really subordinated to capital.
As Marx points out, even at this stage, production increases more or less in line with increases in population. It is, in fact, demand that leads supply. Overproduction, in some areas, can occur, but generalised overproduction does not happen. It is when machine industry begins, in the latter part of the 18th century, and, particularly, when those machines are driven by steam power, by the beginning of the 19th century, that production is truly revolutionised, and output expands tremendously, and supply now increases in advance of demand. It is that, which makes overproduction not just possible, but inevitable, and the first generalised crisis of overproduction erupted in 1825.
When an overproduction of commodities, in one sphere, occurs the resultant glut then means that the workers in that sphere are laid off, some businesses themselves close down.
“(When spinning-machines were invented, there was over-production of yarn in relation to weaving. This disproportion disappeared when mechanical looms were introduced into weaving.)”
(ibid)
But, with workers involved in spinning now laid off, they no longer have wages to spend, so that the demand for wage goods falls. Unlike in previous times, when the independent labourers also had a small plot, even in the towns, to produce their own food, they are now dependent entirely on the market to provide for their needs. Moreover, the spinning capitalists also no longer need inputs of cotton and other materials. So, immediately, without any change in their own production levels, the producers of cotton, flax, wool and so on, find that they have overproduced. So, too is the position of the producers of wage goods, who find that demand for their goods has declined, as the spinning workers are laid off. These other industries, who now find that, even without any change in their own production, they are overproducing, now also have to lay off some of their workers. Consequently, what was just an overproduction in one sphere, albeit the largest sphere, becomes transformed into a generalised crisis of overproduction.
The producers of all these commodities could, theoretically, have produced large amounts of surplus value, in the process of production, but the glut in the market means that it cannot be realised.
“The creation of this surplus-value makes up the direct process of production, which, as we have said, has no other limits but those mentioned above. As soon as all the surplus-labour it was possible to squeeze out has been embodied in commodities, surplus-value has been produced. But this production of surplus-value completes but the first act of the capitalist process of production — the direct production process. Capital has absorbed so and so much unpaid labour. With the development of the process, which expresses itself in a drop in the rate of profit, the mass of surplus-value thus produced swells to immense dimensions. Now comes the second act of the process. 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. The conditions of direct exploitation, and those of realising it, are not identical. They diverge not only in place and time, but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society.”
(Capital III, Chapter 15)
In other words, the amount of surplus value produced might increase from say £1 million to £4 million, but the quantity of output rises from 1 million units to 10 million units. The profit per unit then falls from £1 to £0.40. But, to realise even this £0.40 per unit, all of the 10 million units must be sold at their full value. As with the case of the yarn, this is not at all guaranteed. Firstly, if the productivity in spinning rises massively, but that in other spheres does not rise by the same proportion, there is no reason why the demand for yarn will rise in the required proportion.
“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, Chapter 20)
But, also, just because the unit value of a commodity falls by a given proportion, does not mean that the demand for it will increase by the same proportion. Supply and demand are governed by different laws, supply is a function of value, demand of use value.
“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.”
(Theories of Surplus Value, Chapter 20)
So, the price of commodities may fall substantially, as a result of a revolution in productivity, but there is no reason why the demand for it will rise in the same proportion, so that not all of the produced surplus value would be realised. If to sell the increased output the market price has to fall below the cost of production, not only would the business see its profits fall sharply, despite having produced an increased mass of surplus value, but it would make losses on every unit of its output, resulting in sudden and significant losses. The mass of profit, and annual rate of profit can increase significantly, as described above, as production expands, but the rate of profit/profit margin, will fall as a result of the same process, i.e. in the example above from £1 to £0.40 per unit. The smaller the profit margin per unit, the more likely any reduction in market price below the price of production will result in all units selling at a loss, and so of huge profits turning immediately into huge losses.
Such a crisis is resolved when the glut has been cleared from the market, which might also arise from capital and labour being reallocated to other forms of production, or as Marx describes above, where the introduction in spinning machines, which also drastically reduces the value of yarn, spurs the development of power looms, so that the demand for yarn is increased substantially.
The other form of overproduction is an overproduction of capital, where capital itself grows in such a proportion to the available labour force/social working-day that absolute surplus value cannot be increased further. In that case, any additional capital does not result in additional surplus value, so that the additional capital does not act as capital. This is the situation Marx describes in Capital III, Chapter 15, and as he also describes, there, in such conditions the demand for labour causes wages to rise, so reducing surplus value. Now, any additional capital not only does not increase surplus value, but reduces it, creating a crisis of overproduction of capital. It is also a crisis of overproduction of commodities, because the elements of productive-capital are themselves commodities.
This type of crisis of overproduction can only be overcome by a technological revolution, which revolutionises production, and significantly raises productivity. It creates a relative surplus population, so that the earlier rise in wages is reversed. As wages fall, profits rise. Workers who previously had reduced their working-day alongside rising wages, now see the working day increased again, raising absolute as well as relative surplus value. Higher productivity, reduces the value of wage goods, so that necessary labour falls, and surplus labour rises. In the twentieth century, the problem of directly reducing money wages, to reflect the fall in the value of labour-power, was resolved by having central banks print excess money tokens so as to create inflation. By that means workers have the illusion of rising money wages – and for those in work, there are rising living standards, as wage goods become cheaper – but, the increase in their living standard is not proportionate to the rise in productivity, so that the rate of surplus value rises. Labour shaken out of old industries, where they are replaced by machines, also moves to new industries – or often it is their children who find employment in these new spheres – and in these new spheres, the rate of profit is much higher, and, as new spheres, they find whole new markets to expand into. Finally, the rise in productivity, sharply reduces the value of constant capital, both fixed and circulating. The large stock of fixed capital suffers a massive moral depreciation that sharply raises the rate of profit, and there is also a large release of capital resulting from this reduction in value, which is now available for additional accumulation.
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