Talking of under consumption

There is many theories for the causes of the current financial crisis we are living through and i have mentioned many myself on this blog. Is there one theory or many ? Its a interesting question and i’m currently lookingat all to see if any fit. One theory which is popular and is pushed by many is the theory of under consumption. This theory is a keynsian analysis of crisis and thus is a bourgeois theory i’m afraid. Unfortunatly even some Marxists stand by this theory and take it into the workers movement. In Karl Marx’s excellent work we can tell that marx many years ago dismissed this theory as a cause of crisis. Marx writes in volume 2 of theories of surplus value in reply to a question of under consumption of the mass’s being the cause of crisis. “The word over-production in itself leads to error. So long as the most urgent needs of a large part of society are not satisfied, or only the most immediate needs are satisfied, there can of course be absolutely no talk of an over-production of products— in the sense that the amount of products is excessive in relation to the need for them. On the contrary, it must be said that on the basis of capitalist production, there is constant under-production in this sense. The limits to production are set by the profit of the capitalist and in no way by the needs of the producers.” (p.527) “Defined more closely, this means nothing more than that too much has been produced for the purpose of enrichment, or that too great a part of the product is intended not for consumption as revenue, but for making more money (for accumulation): not to satisfy the personal needs of its owner, but to give him money, abstract social riches and capital, more power over the labour of others, i.e., to increase this power.” (ibid p.5 Overproduction happens because production is for profit In Mick brooks’s excellent piece on understanding the crisis he mentions under consumption as a theory i quote below “ Engels, in his chapter on ‘Production’ in Anti-Duhring, is a stern critic of Duhring’s under-consumptionist interpretation of capitalist crisis. He points out that the restricted consumption of the masses is a permanent feature of capitalism. “But unfortunately the under-consumption of the masses, the restriction of the consumption of the masses to what is necessary for their maintenance and reproduction, is not a new phenomenon. It has existed as long as there have been exploiting and exploited classes. Even in those periods of history when the situation of the masses was particularly favourable, as for example in England in the fifteenth century, they under-consumed. They were very far from having their own annual total product at their disposal to be consumed by them. Therefore, while under-consumptionism has been a constant feature in history for thousands of years, the general shrinkage of the market which breaks out in crises as a result of a surplus of production is a phenomenon only of the last fifty years;” (pp. 395-396). But if under-consumption (in the sense that the workers can’t buy back all the commodities they produce) is a permanent condition of capitalism, then how on earth does capitalism survive, let alone develop? What happens to this excess production (the surplus)? It is quite true that workers can’t buy all the value they produce. Surplus value ends up, of course, in the hands of the capitalist class. This is just another way of saying capitalism is a system where production is for profit. This under-consumption, this inability to realise commodities already produced is really only a potential problem. It would only be a real problem if all the capitalists were to instruct their workers to make workers’ wage goods. In that case the workers would be unable to buy those goods. But why should we assume that this will happen? The workers haven’t got the money to buy the goods, because the capitalists have kept some of it. That is their surplus value. What do the capitalists do with it? There are two possibilities: either they consume the entire surplus unproductively (very rare in practice). In this case the surplus is still spent. It is spent by the capitalists on themselves. The alternative is that the capitalists invest it. If they invest it, that also ‘solves’ the problem of under-consumption for the time being – because the surplus has now been spent on capital goods. Not all capitalists oversee the production of goods they expect to be sold to the workers. Iron and steel capitalists never sell their products to the masses (though, of course their output enters into consumer goods targeted at workers). They are producing capital goods and they know it. Other capitalists specialise in the production of ‘luxury’ goods for consumption by capitalists. Marxists call the products of this sector elements of uncapitalised surplus value. For both these sections of the capitalist class their customers are exclusively other capitalists. The demand for capital goods, for workers’ consumption and for luxury goods is provided by the incomes of the classes generated in the production process, and by the investment decisions of the capitalist class. Of course how much you ‘need’ is determined under capitalism by how much money you’ve got. We expect the relevant sort of goods in roughly the right proportions to meet this purchasing power to be provided by the usual operation of the market. Capitalists in search of profit try to produce commodities aimed at meeting a need. (Actually capitalists produce nothing. Workers produce commodities under the instruction of capitalists. Please accept this as shorthand.) If nobody wants the good, nobody will buy it and the capitalist will make a loss. And purchasing power is derived from the revenues from capitalist production. (Getting the proportions of the material elements of production right is a real problem in an unplanned system..) There is no reason at all, at this level of analysis, why all these products cannot be sold to people (workers and capitalists) who have the money to pay for them. We should no more automatically expect capitalism to produce too many workers’ consumption goods than too many luxury goods or too many capital goods. So there is sufficient purchasing power in the economy to buy all that is produced. And the goods should be in place to satisfy this purchasing power. There seems to be no over-production/under-consumption problem, since markets exist for the surplus. There is always someone out there to buy these products and someone else to sell them. The cause of capitalist crisis must be sought elsewhere. If the crisis were really caused by the ‘restricted consumption of the masses’ we would expect it to be manifested by an over-production of consumer goods relative to capital goods. In fact this is by no means the usual case in actual capitalist crises. Most crises have actually begun in the capital goods sector. If the crisis were caused by under-consumption we would expect the workers to suddenly cease providing an adequate market for the capitalists, so triggering the crisis. Actually workers’ consumption usually falls as they are laid off as a result of the crisis, further shrinking markets. Their restricted consumption is thus a symptom of the crisis, not its cause. If capitalists generally accumulate a great part of their surplus, then we can expect the capital goods sector to grow relative to consumer goods in the economy. But the effect of this accumulation of capital is to make the workers more productive and therefore make the problem of over-production potentially more severe in the future” Marx indeed was quite fierce in his ideas that under consumption was not the cause of crisis but a result if you like. In Capital Volume II, Marx pointed out that towards the end of the boom, as it was on the point of toppling over to bust when there was relatively full employment, was the time when workers were likely to make gains in real wages and increase their share of national income. “It is a pure tautology to say that crises are provoked by the lack of effective demand or effective consumption…If an attempt is made to give this tautology the semblance of greater profundity that the working class receives too small a portion of its own product and that the evil would be remedied if it received a bigger share if its wages rose, we need only note that crises are always prepared by a period in which wages generally increase and the working class does receive a greater share in the part of the annual product destined for consumption.” (p. 48 Marx was clear that the most important law of political economy is the Law of the tendancy of the rate of profit to fall. This was backed up twice in two places it was that important marx felt.  Marx made this statement twice, in the Grundrisse  written in 1857-8: and in almost exactly the same words in the 1861-3 economic manuscripts (Collected Works Volume 33, p.104): “This law, and it is the most important law of political economy, is that the rate of profit has a tendency to fall with the progress of capitalist production. Some say this is a tendancy and only a tendancy but Marx took a different view to how we see tendancies today For those that the law is simply a tendency, suggesting that it doesn’t matter. “It is a tendency and not a law, as Marx emphasised,” in the section Tendency always applies that for Marx all economic laws take the form of a tendencyFor Marx a tendency has the meaning of a force at work, not a statistical trend. For instance: “Such a general rate of surplus-value — viewed as a tendency, like all other economic laws — has been assumed by us for the sake of theoretical simplification.” (Capital Volume III p.275) with thanks and references Mick Brooks http://www.karlmarx.net/marx-crisis-theory/marxisttheoryofcrisispartone Karl Marx capital volume 2 and 3 Karl Marx theories of surplus value volume 2