Sunday, 16 June 2013

Is an Underconsumptionist theory relative to today’s current crisis?

i received an interesting reply on my blog today in response to yesterdays post on Marx’s theory on the tendency for the rate of profit to fall. This is their reply. I’ll keep them nameless Justin case of any awkwardness. “No, it isn't. Firstly, Marx distinguishes between financial crises and economic crises. The former as he points out relates to crises that emanate from the circulation of money rather than capital. They emanate, therefore, in financial markets rather than in the real economy. A Stock Market, Bond market or Property Market crash would be an example. Marx points out those crises can remain within that sphere, or may spread out to affect the real economy i.e. through a Credit Crunch. But, such crises have nothing to do with the Tendency for the Rate of Profit to fall. But, the latter also has little or nothing to do with crises in the real economy either, crises that Marx describes as arising from an overproduction of capital. For one thing, Marx points out that although there is a minimum for wages, set by the Value of Labour Power, there is no minimum rate or amount of profit. Subjectively, of course, there may be some point at which capitalists decide to consume unproductively or speculate rather than invest, but such action Marx describes, in itself tends to cause accumulation to slow down, and the rate of profit to rise. A falling rate of profit is a long-term tendency, whereas crises are sharp ruptures. The former cannot be the cause of the latter. Marx sets out the very many counter tendencies to the Falling Rate of Profit, to an extent that it’s clear that in practice there is no reason why the Rate of Profit should fall. In fact, over the last 30 years its clear it has been rising sharply.” Let’s look at the whole Underconsumptionist theory if we will use my good comrade Bruce Wallace’s and his excellent blog at So here is an extract from a paper Bruce wrote to clarify his own thoughts on the issue: What is Over-Production? There has been an ongoing debate amongst Marxists since the death of the founder of scientific socialism in 1883 as to the meaning of his critique of capitalism. In terms of historical time, a not particularly lengthy period, of one hundred and twenty nine years, actually only some four to five generations, revolutionary socialists have tended towards two camps with various offshoots. One group has adhered to an interpretation of Marx’s critique of capitalism that the reason for capitalist crisis is that the working class does not receive the full fruits of their labour in wages. Surplus value, which equals profit, is the unpaid labour of the working class and therefore workers, the mass of the population, will have insufficient means to buy back all the commodities that capitalism produces. Therefore capitalist crisis is primarily caused by over-production of commodities for which there is an insufficient market i.e. in economic speak demand. Supporters of this view are called underconsumptionists. Other Marxists reject this view as simplistic and not based on a thorough understanding of Marx’s critique of capitalism and that the underconsumptionist position is, in fact, not a Marxist position at all, but a distortion of his ideas. Why should this be an important issue today? Does it really matter if one group of Marxists disagrees with another group over the interpretation of Marx’s critique of capitalism? Surely we are all opponents of capitalism and so what if we disagree over what causes capitalist crisis, surely the point is to overthrow the system? In fact this is probably one of the most important disputes in the history of the revolutionary movement. It not only deals with the fundamental meaning of Marxism but also has direct implications for theory, strategy, tactics and programme. It also impacts on how we view Marxist’s vision of the future socialist society. So this paper will hopefully attempt to address some of these issues in plain language without recourse to mathematics. The Manifesto Apparent support for the under-consumptionist position has been sought in the Communist Manifesto of 1848 by Karl Marx and Fredrik Engel’s where they state: ‘It is enough to mention the commercial crises that, by their periodical return, put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, is periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce are destroyed. And why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce’. The Socialist Party of England and Wales Website has a commentary on the Manifesto which explains: ‘The Manifesto outlines how destructive periods of recession are inherent in capitalism. It appears that “too much” is produced, but the working class receives far less in wages than the value of the goods they produce. The “consumers” of today can no longer buy the products which they themselves, as workers, produced only yesterday’! Unfortunately this is reading something into the Manifesto which isn’t actually there. This is all that the Manifesto states: ‘Previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production’. There is no mention at all that the destruction of productive forces is because, ‘The “consumers” of today can no longer buy the products which they themselves, as workers, produced only yesterday’! This is the classic underconsumptionist ‘common sense’ explanation of capitalist crisis projected onto the description of crisis by Marx and Engel’s in 1848. The founders of scientific socialism never stated, anywhere, that capitalist crisis is caused by the under-consumption of the ‘products’ of capitalism. And the reason that there isn’t an explanation in the Manifesto as to how crises of over-production occur, not one jot, is because in 1848 neither Marx nor Engel’s knew what the causes of over-production actually were. Their referral to over-production is purely a description of the form of capitalist crisis exhibited at the time, not an analysis of causation. What’s in a word? The word ‘product’ is not a description that Marx went on to use in his critique of capitalism in Capital. The word ‘product’ appears in the Manifesto in 1848 but that was before Marx’s intellectual labours uncovered the way that capitalism actually worked, but he only reached this conclusion in 1858 when he was compiling his Grundrisse notebooks. He discovered that capitalism produces commodities which can be bought and sold for a profit. A ‘product’ is a completely different thing and could be the outcome of the labour of a prehistoric caveman, which certainly wasn’t ever produced to make a profit. Marx dedicated the first chapter of volume one of Capital to ‘Commodities’. The reason for this is that Marx had discovered that commodities are the ‘cell form’ of capitalist production and any analysis of the system needed to start from there. What characterises the capitalist mode of production, unlike all other pre-existing modes of production, is the presentation of ‘an immense accumulation of commodities’ (Capital Vol I on the very first page!). This ‘minor’ terminological and historical blip being cleared up, what actually was Marx’s view of over-production? References


  1. Why you chose to post my reply in this way rather than as a comment as submitted I don't really know.

    However, immediately after citing it, you write,

    "Let’s look at the whole Underconsumptionist theory.." the implication being that I had put forward such a theory of crises!!!

    But, a look at what I said shows I said absolutely nothing about under consumption being the cause of crises. On the contrary, I stated clearly Marx's position that crises at root are caused by the overproduction of capital!

    In fact, in Capital Vol II, Marx sets out that crises frequently arise at the very moment when there is general affluence and rising wages.

  2. oh well mate, it certainly was a under consumptionist theory for sure and thus it needed replying to as such. I've been following your reading of capital and you've not yet reached vol 3. Once you doa nd tackle the tendancy of the rate of profit to fall it'll make alot more sense.

  3. Mark,

    No it wasn't an under-consumptionist argument at all! Firstly, the statement that was originally made that the "Falling Rate Of Profit" is central to Marx's theory of "Financial" Crises is clearly wrong, and you don't have to wait for me to get to Vol. III to know that, because Marx distinguishes between "Financial" i.e. Stock market crises, and economic crises in Volume I. He says that the former originate in, and may be confined to those financial markets.

    But, I said nothing about under consumption being the cause of economic crises either. I repeated what both Marx and Engels say, which is that the root cause of economic crises is overproduction of capital. Now you may think that an overproduction of capital is the same thing as saying that there is then an under consumption of commodities, particularly as in the relevant section of Volume III, Engels writes that an overproduction of capital always involves an overproduction of commodities, but that is because you clearly do not understand the difference between the two, as do many more people.

    Engels clearest statement of what that overproduction amounts to is where he says that when an additional investment of capital occurs, which results in the production of more commodities, but adds nothing further to surplus value, then in fact the Capital has not acted as Capital, it has been over produced. The whole point is that this tends to happen not at times when there is too little consumption, but when the opposite applies, when there has been rising levels of wages and consumption, so that markets become overstocked with goods that can no longer be sold profitably.

    In fact, its quite possible that such a condition can arise during a period of rising profitability, precisely because that rising profitability can have caused a large increase in productive investment that leads to the large rise in production of commodities, which then cannot be sold at a profit. Marx also sets that out in Volume, in terms of the inherent contradiction within the commodity between Use Value and Exchange Value. He also sets it out in Volume II discussing the circulation of capital, where he describes precisely the stages of the circuit of industrial capital where it can break down.

    The empirical evidence is also quite clear. In the last 30 years there have been numerous "financial" crises, there have been plenty of economic crises too, and yet in the last 30 years the Rate of profit has been rising not falling!

  4. sorry that sounds all very convincing but its not correct comrade. as i say wait untill you've read marx's theory of the tendancy of the rate of profit to fall in vol 3 then you will have a clearer idea of what your talking about. At the moment your going on what you've read so far which is only half the story. The rate of profit has not been rising its been falling hense we're in a crisis. There is in affect too much capital about . A glut in the system if you like. All will become clear. Do check out comrade Bruce Wallace's blog though that i refer to in my blog it'll be of some use i'm sure thanks again .

  5. Mark,

    Yes it is correct, and I don't have to wait to read Volume III of Capital, because over the last 40 years I have read the whole of Capital at least 6 times, and its various parts many more time than that! I understand Marx's theory of crises and of the falling rate of profit like the back of my hand, and your presentation of it, is certainly not correct.

    The facts contradict you on the rate of profit. It has most certainly been rising over the last 30 years, which is why interest rates have been falling during that time. Also, why did you not publish my other comment setting out why your other points were wrong, and citing Marx's comments in the Poverty of Philosophy against Proudhon, and in the Critique of the Gotha Programme criticising the Lassalleans who made exactly the same mistakes you are making?

  6. i did publish your comment. You were incorrect and still are incorrect. You are misunderstanding the role of credit in the system. CCredit which we saw boom in thel ast 10-20 years only delayed the crisis and the tendancy of the rate of profit to fall. You'd understand all this if you'd read volume 3 and the counter actions of the tendancy for the rate of profit to fall. Again have a re read of Bruce's blog and marx's volume 3 comrade . it will help

  7. Mark,

    You have not published the comment about "products" and "commodities" that deals with also Marx's criticism of Lassalle and Proudhon. I have read Volume III of Capital many times, and especially the arguments in relation to the Rate of Profit and Crises of Overproduction.

    You now introduce Credit into that argument, but Marx explains both the Falling Rate of profit, and overproduction without any need of the role of credit in that process. Credit certainly exacerbates the crisis, but Marx specifically argues against the idea that it is credit, or alternatively a shortage of money that causes a crisis of overproduction.

    A look at global capitalism not only shows that the rate of profit has been rising, but it shows that the effect of that has been a considerable amount of growth of capital - which as Marx explains is the consequence of a higher rate of profit, and larger volumes of surplus value to be accumulated. That is what caused interest rates to fall over all that period. As Marx explains again, interest rates are determined by the supply and demand for capital, and it has been the sharply higher rate and volume of profit that has led to a surplus supply of capital over its demand.

    In fact, looking at global capital there is little evidence currently of a crisis of overproduction of capital of the type that Marx describes. There are no huge piles of unsold commodities, which is what was seen in the 1930's, 1980's, and in the crises of the 19th century that Marx described. Instead what we see is large monopoly capitalist firms curtailing their level of investments precisely to avoid such overproduction, and the consequence being the development of money hoards, as surplus profits are held suspended in money form.

  8. Boffy,

    The mass of capital and mass of surplus value can rise at the same time as the rate of profit falls. Marx explains this clearly in Capital vol 3.

    Also, capitalists don't reduce investment based on demand: they reduce investment on the basis of a fall in the rate of profit. This is exactly what occurred in 2006 when the rate of profit in the US fell dramatically, and thus in 2007 investment was slashed. Slower investment means slower economic growth, which means slower growth in the mass of constant capital, variable capital (wages) and surplus value (profit). As a knee-jerk reaction to this fall in profitability, capitalists jump into the stock market with greater vigour in an attempt to raise the rate of profit. This creates asset bubbles of fictitious value. When these bubbles explode, so does the fictitious value and the fictitious profits these companies were relying on to prop up the rate of profit. And so the crisis begins, with the underlying cause being the fall in the rate of profit.