Imagine, Robinson Crusoe on his island. He spends 10 hours a day in labour. Of this 10 hours of labour/new value, he spends 8 hours meeting his immediate consumption needs, required to reproduce his labour-power, so as to labour the following day. The other 2 hours, is the surplus labour/value, and he uses this 2 hours to increase and improve his means of production. He makes nets to better catch fish, traps and weapons to catch animals, and he builds pens to keep domesticated animals, so as to reduce the need to engage in hunting etc. The consequence of this is that his productivity rises. The amount of labour he needs to expend to meet his necessary requirements falls from 8 hours to, say, 4 hours, so that his surplus labour rises to 6 hours, but, as his means of production, which make possible this rise in productivity and total output, increases so too its value as a proportion of that output rises.
If we measure this total value, then, it increases each year, even though the amount of new value created may remain constant at just 10 hours of labour. If Crusoe having come from Scotland, were to measure this value in money terms, he would see that the money equivalent of his output increased accordingly. Robinson, as with a primitive commune, a peasant household, or a communist society of the future, is only concerned to improve his own real wealth, i.e. the quantity and range of use values he has to consume. But, that is not the case with a capitalist society. Capital does not produce, primarily, in order to satisfy society's needs, and increase real wealth, but only to produce more profit. Each capital is, also, driven to produce more profit, because, what it shares with Robinson is that the more profit/surplus labour it has at its disposal the more it can expand and improve its means of production so as to raise its productivity, and, thereby, undercut its competitors.
It is not true, as Ricardo believed, and as others such as Michael Roberts have argued, that capital requires rising rates of profit to increase capital accumulation and vice versa. A lower rate of profit in one sphere, may cause capital to accumulate more slowly in that sphere, or even, be reduced, as it moves to other higher profit spheres, but that does not apply in relation to capital as a whole across the economy. Capital, as a whole, is forced, by its inherent nature as capital, to accumulate, whether the rate of profit is rising or falling. What is true, however, is that, at a certain point, this continued accumulation, results in an overproduction of capital, and a crisis, manifest first in the fact that some of the smaller capitals, with the tightest profit margins, make losses, and go out of business.
“The demand increases constantly, and, in anticipation of this new capital is continually invested in new land, although this varies with the circumstances for different agricultural products. It is the formation of new capitals which in itself brings this about. But so far as the individual capitalist is concerned, he measures the volume of his production by that of his available capital, to the extent that he can still control it himself. His aim is to capture as big a portion as possible of the market. Should there be any over-production, he will not take the blame upon himself, but places it upon his competitors. The individual capitalist may expand his production by appropriating a larger aliquot share of the existing market or by expanding the market itself.”
As Marx points out these crises have the appearance of there being not enough money in the economy, not enough monetary demand for what has been produced. But that is an illusion. What causes these crises whether an overproduction of commodities, or an overproduction of capital (which means, also, an overproduction of commodities, which comprise the physical elements of capital) is the inability of capital to realise profit. In the case of an overproduction of commodities, surplus value may have been produced, but it can't be realised, because production has expanded faster than the market, and so commodities are sold below their value to clear the glut. In the case of an overproduction of capital, surplus value itself cannot be produced, because the demand for labour-power becomes such that wages rise to a level where neither absolute nor relative surplus value is increased by the additional capital advanced.
An overproduction of capital, therefore, can never be resolved by simply increasing aggregate demand. Increased aggregate demand, simply results in the demand for labour-power rising even more, as firms scrabble to employ more workers to meet this increased demand. Relative wages rise even more, squeezing surplus value/profits even more, as happened in the 1970's. The firms that are most productive, most efficient and have the bigger profit margins can expand, but it simply means that capital itself is even more overproduced, and the smaller, less efficient firms, with small or no profit margins, make even bigger losses. The only solution to a crisis of overproduction of capital is a technological revolution like that of the 1970's/80, which replaces labour with technology, and so acts to create a surplus population, reduces wages and the value of labour-power, so as to raise surplus value, and also reduces the unit value of constant capital, so as to raise the rate of profit.
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