Predictions For 2026 - Prediction 3 - Inflation Returns - Part 2

Keynes failed to recognise what Marx had recognised, and set out in Capital and Theories of Surplus Value, which is the difference between a crisis of overproduction of commodities, and a crisis of overproduction of capital. Engels, even before Marx, had written about the operation of the market continually resulting in an overproduction and underproduction of commodities. It can never be the case that, particularly with a plethora of small capitals, still less of smaller independent commodity producers, supply exactly corresponds with demand for any commodity at its market value. Indeed, as Marx notes, its this very fact that inevitably leads to the least efficient independent commodity producers failing, and ultimately, them being turned into wage labourers, employed by other producers, and their means of production, thus being turned into capital. These repeated overproductions of commodities, are not an overproduction of capital, during all of that time when capital itself did not exist! They create part of the required conditions for industrial capital to come into existence – i.e. they create a supply of free labourers, and the centralisation of the means of production.

In Capital II, in particular, Marx sets out a series of scenarios in which such crises of overproduction of commodities can arise, which amounts to a break in the circuit of industrial capital. I have discussed them in my book, Marx and Engels Theories of Crisis. These breaks in the circuit of capital have nothing to do with an overproduction of capital itself. An overproduction of capital, as Marx sets out, in Capital III, Chapter 15, as well as in Theories of Surplus Value, Chapter 21, is an overproduction of capital relative to labour, such that any increase in capital results in a fall in the rate of surplus value, and consequent sharp fall in the rate of profit. An overproduction of commodities can, and often does, arise when the rate and mass of profit is high or rising. Consequently, when there is no overproduction of capital.

In Theories of Surplus Value III, Marx quotes a supporter of Ricardo,

“...I can only answer, that glut […] is synonymous with high profits…” (op. cit., p. 59).”

Marx comments,

“This is indeed the secret basis of glut.” (p 121)

An overproduction of capital, by contrast, arises when, after a long period of economic expansion, and rising consumption (both personal and productive) no further such expansion is possible on the basis of capitalist production, because neither absolute nor relative surplus value can be expanded, and capitalist production only takes place if the additional capital produces additional surplus-value/profit.

As Marx notes, in Theories of Surplus Value, Capital and elsewhere, a crisis of overproduction of capital, inevitably means, also, a consequent overproduction of commodities, because capital, is itself composed of commodities. Marx's point, here, was to set out the way that the Ricardians were inconsistent in recognising the possibility of an overproduction of capital, whilst clinging to Say's Law, and its claim that supply creates its own demand, so that there can never be a generalised overproduction of commodities. It does not mean the latter cannot exist without the former.

In the post-war period, the global rate of profit was high, and yet there were several global cycles in which commodities were overproduced. As Mandel notes, in The Second Slump, Keynesian intervention was able, during this period, to cut these crises short, and did so in the context of a continuation of the post-war, long wave boom. Keynesian state intervention raised aggregate demand, and prevented capital and labour from being unemployed. In the context of a continuation of economic growth, it was able to do so by not even increasing the proportional deduction of tax from surplus-value, which would have reduced future capital accumulation.

As Marx sets out in Capital III, if the average rate of profit is 30%, a capital of £1 billion implies surplus-value of £300 million. But, rents might amount to £50 million (5%), interest/dividends £50 million (5%) taxes £50 million (5%), leaving profit of enterprise of £150 million (15%).  So, if the economy continues to grow, rather than contracting due to a recession, so that capital expands to £1.5 billion, suppose this required the state to spend £20 million to stimulate demand. The total surplus-value grows to £450 million. Of this, rent increases to £75 million (5%), interest to £75 million (5%), whilst taxes would only have needed to rise to £70 million, or 4.7%, down from 5%. Profit of enterprise rises from £150 million (15%) to £230 million (15.3%). Even if the state kept the rate of tax at its previous level of 5%, so that taxes rose to £75 million, thus increasing its additional spending by £5 million as well as paying back the £20 billion of borrowing used to stimulate demand, the burden of taxation would not have risen, and the mass of profit of enterprise available for capital accumulation would have grown from £150 million to £225 million.

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