What is a crisis of overproduction?

Prepared by Patrick Bond

Capital accumulation refers to the generation of wealth in the form of "capital." It is capital because it is employed by capitalists not to produce with specific social uses in mind, but instead to produce commodities for the purpose of exchange, for profit, and hence for the self-expansion of capital. Such an emphasis by individual capitalists on continually expanding the "exchange-value" of output, with secondary concern for the social and physical limits of expansion (size of the market, environmental, political and labour problems, etc.), gives rise to enormous contradictions. These are built into the very laws of motion of the system. Perhaps the most serious of capitalist self- contradictions, most thoroughly embedded within the capital accumulation process, is the general tendency towards an increased capital-labour ratio in production--more machines in relation to workers--which is fuelled by the combination of technological change and intercapitalist competition, and made possible by the concentration and centralisation of capital.

Individual capitalists cannot afford to fall behind the industry norm, technologically, without risking their price or quality competitiveness such that their products are not sold. This situation creates a continual drive in capitalist firms towards the introduction of state-of-the-art production processes, especially labour-saving machinery. With intensified automation, the rate of profit tends to fall, and the reasons for this are worth reviewing. Profit correlates to "surplus value" which is only actually generated through the exploitation of labour in production. Why is labour only paid a certain proportion of the value produced, with a surplus going to capital? Since capitalists cannot "cheat in exchange"--buy other inputs, especially machines that make other machines, from each other at a cost less than their value--the increases in value that are the prerequisite for production and exchange of commodities must emanate from workers.

This simply means, in class terms, that capitalists do not and cannot systematically exploit other capitalists but they can systematically exploit workers. Here arises the central contradiction: with automation, the labour input becomes an ever-smaller component of the total inputs into production. And as the labour content diminishes, so too do the opportunities for exploitation, for surplus value extraction and for profits. Given intensifying intercapitalist competition for profits--the basis of the Brenner thesis about the ongoing overaccumulation/falling-profits crisis--this situation exacerbates what becomes a self- perpetuating vicious spiral. Workers (as a whole) are increasingly unable to buy the results of their increased production. In turn this results in a still greater need for individual capitalists to cut costs. A given firm's excess profits are but only temporarily achieved through the productivity gains which automation typically provides, since every capitalist in a particular industry or branch of production is compelled to adopt state-of-the- art technologies just to maintain competitiveness.

This leads to growth in productive capacity far beyond an expansion in what consumer markets can bear. (It is true that there are countervailing tendencies to this process, such as an increase in the turnover time of capital, automation, and work speed- up, as well as expansion of the credit system. But these rarely overwhelm the underlying dynamic for long, and there are limits to the height of the consumer debt pyramid.) The inexorable consequence, a continuously worsening problem under capitalism, is termed the overaccumulation of capital. Overaccumulation refers, simply, to a situation in which excessive investment has occurred and hence goods cannot be brought to market profitably, leaving capital to pile up in sectoral bottlenecks or speculative outlets without being put back into new productive investment. Other symptoms include unused plant and equipment; huge gluts of unsold commodities; an unusually large number of unemployed workers; and the inordinate rise of financial markets.

When an economy reaches a decisive stage of overaccumulation, then it becomes difficult to bring together all these resources in a profitable way to meet social needs. How does the system respond? There are many ways to move an overaccumulation crisis around through time and space. But the only real "solution" to overaccumulation--the only response to the crisis capable of reestablishing the conditions for a new round of accumulation--is widespread devaluation. Devaluation entails the scrapping of the economic deadwood, which takes forms as diverse as depressions, banking crashes, inflation, plant shutdowns, and, as Schumpeter called it, the sometimes "creative destruction" of physical and human capital (though sometimes the uncreative solution of war). The process of devaluation happens continuously, as outmoded machines and superfluous workers are made redundant, as waste (including state expenditure on armaments) becomes an acceptable form of mopping up overaccumulation, and as inflation eats away at buying power. This continual, incremental devaluation does not, however, mean capitalism has learned to equilibrate, thus avoiding more serious, system-threatening crises.

Devaluation of a fully cathartic nature (of which the last Great Depression and World War are spectacular examples) is periodically required to destroy sufficient economic deadwood to permit a new process of accumulation to begin. When overaccumulation becomes widespread, extreme forms of devaluation are invariably resisted (or deflected) by whatever local, regional, national or international alliances exist or are formed in specific areas under pressure. Hence overaccumulation has very important geographical and geopolitical implications in the uneven development of capitalism, as attempts are made to transfer the costs and burden of devaluation to different regions and nations or to push overaccumulated capital into the buildings (especially commercial real estate), infrastructure and other features of the "built environment" as a last-ditch speculative venture. Moreover, the implications of overaccumulation for balance in different sectors of the economy--between branches of production (mining, agriculture, manufacturing, finance, etc.), between consumers and producers, and between capital goods (the means of production) and consumer goods (whether luxuries or necessities)--can become ominous. Indeed, because the rhythm of overaccumulation varies across the economy, severe imbalances between the different sectors and "departments" of production (sometimes termed "disproportionalities" or "disarticulations") emerge and introduce threatening bottlenecks in the production and realisation of value, which further exacerbate the crisis. These processes enhance the control and speculative functions of finance.

The argument, simply, is that as overaccumulation begins to set in, as structural bottlenecks emerge, and as profit rates fall in the productive sectors of an economy, capitalists begin to shift their investable funds out of reinvestment in plant, equipment and labour power, and instead seek refuge in financial assets. To fulfil their new role as not only store of value but as investment outlet for overaccumulated capital, those financial assets must be increasingly capable of generating their own self-expansion, and also be protected (at least temporarily) against devaluation in the form of both financial crashes and inflation. Such emerging needs mean that financiers, who are after all competing against other profit-seeking capitalists for resources, induce a shift in the function of finance away from merely accommodating the circulation of capital through production, and increasingly towards both speculative and control functions. The speculative function attracts further flows of productive capital, and the control function expands to ensure the protection and the reproduction of financial markets. Where inflation may be a threat, the control functions of finance often result in high real interest rates and a reduction in the value of labour- power (and hence lower effective demand). Where bankruptcies threaten to spread as a result of overenthusiastic speculation, the control functions attempt to shift those costs elsewhere. In sum, what we have sketched out above is a story of how crises are generated through the logical internal functioning of modern market economies, whether in national or global settings. A good amount of the world's systematic unevenness and inequality--not to mention its various geopolitical tensions-- follows directly from the ebb and flow of capital, both geographically and from productive to financial circuits.


(exchange on Progressive Sociologist Network listserv: http://csf.colorado.edu/mail/psn/2003/msg02992.html)

Doug Henwood wrote:

"People have been talking about crises of overproduction for more than a century, but capitalism seems to have survived the problem. Any clues as to why? Or is just a matter of time until the crisis *really* hits?"

The fact that capitalism still exists does not negate the value and importance of "talking about crises of oveproduction."  No economic crisis ends capitalism.  Only the conquest and retention of political power by the working class can potentially accomplish that result.  The Great Depression was a crisis of overproduction, to which many capitalist rulers responded with fascism, and many workers responded by joining and supporting communist parties.  This led to the second world war, revolution in China, and revolutionary struggles in many other countries.  The fact that capitalism survived all this does not call into question the concept of crises of overproduction.  But it certainly does demonstrate that no economic crisis, regardless of how severe, destroys capitalism.  Political action determines the outcome of any crisis, no matter how severe the crisis might be.

Louis Uchitelle, a fairly good writer on economics for The New York Times, wrote a useful article in yesterday's (Sunday) paper, explaining how the glut of productive capacity is effectively preventing capitalists from rehiring or hiring workers.  Uchitelle has written several other pieces about glut or excess capacity during the past few years.  His point in this most recent piece was that the "jobless recovery" is occurring not only because of the export of jobs to China, but because the crisis of overproduction within the U.S. largely precludes capitalist investment in new jobs and productive capacity.

David Fasenfest clarified some of the differences between "overproduction" and "underconsumption."  I'd like to add a couple of points.

David wrote, "Overproduction refers to the building of excess capacity as a result, perhaps, of productivity gains leading to unsold products."

In addition, overproduction is the result of capitalist competition.  To expand market share, capitalists must invest in expansion of their productive capacity.  The world auto industry is a classic example.  The biggest automakers have built plants in all the large world markets--in North America, Europe, Asia, etc.  They're sharply competing for market share.  They've built the capacity to turn out about 80 million vehicles a year, but they can only sell about 60 million, so they are using about 75% of their productive capacity, which drastically cuts into the rate of return on the capital intensive assembly lines.  Each capitalist has a simple solution to excess capacity.  If their rivals would just disappear, the problem would cease to exist.  Thus, there is the potential for competition to become ugly and, at the extreme, to lead to "trade wars" and eventually to "shooting wars."

This economic analysis, I think, undergirds the Leninist argument that inter-imperialist rivalry and wars for re-division of the world are periodically the inevitable outcome of capitalist competition and crises of overproduction.  Although many factors and contingencies shape the particularities of this process in the relatively short run, I think the argument is probably correct in the relatively longer run.

Crises of overproduction, with their glut of productive capacity, are the underlying cause of frenzies of financial speculation, because capitalists must try to conjure profits out of various forms of trickery and thievery.  The bursting of bubbles in Asia and in the U.S. are outcomes of this speculative process.

A very good Marxist political economy analysis of this process is set forth in a book I've recommended on PSN before, Behind the Invasion of Iraq, by the Research Unit on Political Economy (RUPE), India, published by Monthly Review Press.  The full text is also available on line at the web site of the journal Aspects of India's Economy at http://www.rupe-india.org/34/contents.html

Those who have recently suggested that Marxists have not had much to say about financial speculation and crises should take a look at this analysis.  It is a very solid, lucid analysis of the many relationships between the actions of U.S. imperialism and the crisis in the world capitalist system.

The difference between this analysis of "overproduction" and non-Marxist analyses of "underconsumption" is, I think, a difference between a revolutionary and a reformist analysis.  The underconsumptionist analysis was explained with great clarity by David Fasenfest:

"Underconsumption refers to the inability of the working class to actually consume all that is produced (at the end of the day for Marx the capitalist class is a small and ever shrinking portion of society)--often because capitalists have driven the social wage so low bare subsistence is the most that can be expected. The result is a pressure to expand markets to sell the products elsewhere, and can lead to excess inventory."

This usually leads to a plea to capitalists or to politicians to restrain this race to the bottom, so that capitalists will accept higher cost workers, whose greater purchasing power will soak up the excess inventory.  It often takes the form of calling upon capitalists to be less greedy, so that workers can have a greater share of what they produce and perhaps thereby be less alienated from capitalism.  William Greider, especially in his book One World--Ready or Not: The Manic Logic of Global Capitalism, exemplifies this approach.  He beseeches the capitalists of the world to stop the race to the bottom, lest their greed rekindle class struggle, nationalism, fascism, and a new revolutionary communist movement.

Unless we think the capitalists are actually going to be willing and able to follow Greider's advice, we had better work on preparations for dealing with the crisis of overproduction in a revolutionary way.  That requires not only anticipating and dealing with the decline of U.S. hegemony, but with whatever configuration of inter-imperialist rivalries lie ahead.

Steve Rosenthal