Aggregate Demand Constraints
D. Aggregate Demand Constraints
Capitalist organization, “the most productive of all modes of production so far . . . includes – owing to its contradictory character – barriers to production, which it constantly endeavours to transcend, hence crises, overproduction, etc.” (MECW
34: 109). Proximately, these phenomena are traced to uncoordinated decision mak- ing, the Ricardians allegedly denying the possibility of “general gluts” – apparently even in the short-run – by reasoning in terms either of barter “in which no distinc- tion exists between purchase and sale” or (in effect) of “social production, implying that society, as if according to a plan, distributes its means of production and pro- ductive forces in the degree and measure which is required for the fulfillment of the various social needs, so that each sphere of production receives the quota of social capital required to satisfy the corresponding need” (MECW 32: 158). Marx reserved some of his choicest epithets for Say:
The conception (which really belongs to [James] Mill), adopted by Ricardo from the tedious Say (and to which we shall return when we discuss that miserable individual), that overproduction is not possible or at least that no general glut of the market is possible, is based on the proposition that products are exchanged against products, [Say 1814 2: 382], or as Mill put it, on the “metaphysical equilibrium of sellers and buyers” [Mill 1821: 186–95], and this led to [the conclusion] that demand is determined only by production, or also that demand and offer are identical. The same proposition exists also in the form, which Ricardo liked particularly, that any amount of capital can be employed productively in any country [Ricardo 1951–73 1: 290, 296] (124–5).
But to preclude “overproduction” was in fact, Marx pointed out, implicitly to adopt the “absurd” view of a capitalist system organized on socialist lines: “On this assumption – if capitalist production were entirely socialist production – a contradictio in adjecto – no overproduction could, in fact, occur” (306). This critical perspective appears to attribute to orthodoxy a Law of Markets operating even in the short run. 11
accumulation – is not transformed into wages, but directly into constant capital” (MECW 32: 122–3). 11 Marx (MECW 32: 125) cites Ricardo’s valid charge that Say fell into contradiction by ascribing to the proposition – it is Adam Smith’s position of course – that “[t]he more disposable capitals are abundant in proportion to the extent of employment for them, the more will the rate of interest on loans of capital fall” (Say 1814 2: 108).
D. Aggregate Demand Constraints 339 We return to the conditions for a hitchless or “continuous” accumulation pro-
cess (see Section C), and the valorization problems precluding steady growth. The main constraint reflects the fact that “the more capitalistic production develops, the more it is forced to produce on a scale which has nothing to do with the immediate demand but depends on the constant expansion of the world market ” (101; emphasis added). Again, in commenting on a concession in the orthodox literature that “the credit system may be a cause of crisis,” Marx responds that the system itself arose “out of the difficulty of employing capital . . . profitably,” the English (for example) “forced to lend their capital to other countries in order to create a market for their commodities” (309). This sort of perspective implies not merely problems relating to short-term crisis, but to downward secular pressure on the profit rate in a closed economy emanating from a failure of expenditure (“val- orization”) quite apart from any pressures due to rising organic composition. And this is confirmed by the affirmation that foreign trade is “necessary for capitalist production, which works according to the measure of its means of production with-
out regard to the satisfaction of a definite given need ” (MECW 34: 221). 12 Again, the key to the problem of overproduction was to be found in “the nature of capi- talist production to produce without regard to the limits of the market” (MECW
32: 151). 13 Yet more specifically, the problem reflects capitalists’ “unlimited” drive for profit (or more accurately for surplus value) by expanding output and sales under condi- tions of “inhibited” consumption on the part of the working class. Thus a smoothly operating accumulation process implies “greater production than is required for the replacement of the former [constant] capital and therefore also for the produc- tion of the former quantity of means of subsistence . . . ” (123); and “[i]f sufficient surplus labour is available, they [the manufacturers] will find on the market all the means for the formation of new capital, for the transformation of their surplus money into new capital.” The impediment to hitchless accumulation arose from expansion of “the scale on which the conditions of production are available and the unlimited desire of the capitalists to enrich themselves and to enlarge their capital, but by no means consumption, which from the outset is inhibited, since the majority of the population, the working people, can only expand their consumption within very narrow limits, whereas the demand for labour, although it grows absolutely, decreases relatively to the same extent as capitalism develops” (123–4).
Marx adds a further source of discord – and here he is not apparently focus- ing specifically on secular trends: “Moreover, all equalisations are accidental and although the proportion of capital employed in individual spheres is equalised by
12 “This provides,” Marx adds, “an increased possibility of non-correspondence, hence a possi- bility of crises” (MECW 34: 221).
13 Because of ongoing technical progress “the volume of products increases not only in simple proportion to the growth of capital in expanded reproduction – accumulation” (MECW 32:
1861–1863 II: Sectoral Analysis, Accumulation, and Stability
a continuous process, the continuity of this process itself equally presupposes the constant disproportion which it has continuously, often violently, to even out” (124). But the central problem reflects the circumstance that capitalist production “takes place without regard to the limits of consumption,” contrasting with the orthodox view that production “is limited only by capital itself (150).
The constraint on mass consumption turns out to be more than an empirical matter reflecting the lagged growth of aggregate demand for labor relative to popu- lation. Downward pressure on the wage and thus on expenditure is only part of the problem which reflects the nature of surplus value itself: “[Ricardo] has recourse to Say’s absurd assumption that the capitalist produces not for the sake of profit, for exchange value, but directly for consumption, for use value – for his own consump- tion. He overlooks the fact that the commodity has to be converted into money. The demand of the workers does not suffice, since profit arises precisely from the fact that the demand of the workers is smaller than the value of their product, and that it [profit] is all the greater the smaller, relatively, is this demand” (101). Elsewhere, this limitation is phrased thus: “The mere relationship of wage labourer and capitalist implies . . . that the majority of the producers, the workers, can con- sume an equivalent for their product only so long as they produce more than this equivalent, that is, so long as they produce surplus value or surplus produce. They must always be overproducers, produce over and above their needs, in order to be able to be consumers or buyers within the limits of their needs” (149). 14
Marx also adds – without elaboration – that “[t]he demand of the capitalists among themselves is equally insufficient” (101–2), though he returns to the theme that “[o]verproduction arises precisely from the fact that the mass of the people can never consume more than the average quantity of necessaries, that their consump- tion therefore does not grow correspondingly with the productivity of labour.” 15 The supplementary feature is reiterated thus: “It is the unconditional development of the productive forces and therefore mass production on the basis of a mass of producers who are confined within the bounds of the necessaries on the one hand and, on the other, the barrier set up by the capitalists’ profit, which [forms] the basis of modern overproduction” (157–8). What is intended by the “insufficiency” of capitalists’ demands or the “barrier set up by the capitalists’ profit” is the circum- stance that capitalists’ consumption demands have been deliberately constrained to the end of increasing production and sale: “Defined more closely, this means nothing more than that too much has been produced for the purpose of enrich- ment, 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
14 This is spelled out in order to counter the so-called “unity between production and consump- tion” ascribed to Ricardo, by showing that it clearly does not apply in the case of the laboring
class. 15 Marx adds that “[t]he whole of this section belongs to the competition of capitals” (MECW 32:
341 needs of its owner, but to give him money, abstract social riches and capital, more
E. The Secular-Cyclical Nexus
power over the labour of others, i.e. to increase this power” (162–3). Similarly: Overproduction is specifically conditioned by the general law of the production of
capital: to produce to the limit set by the productive forces (that is to say, to exploit the maximum amount of labour with the given amount of capital), without any consider- ation for the actual limits of the market or the needs backed by the ability to pay; and this is carried out through continuous expansion of reproduction and accumulation, and therefore constant reconversion of revenue into capital, while on the other hand, the mass of the producers remain tied to the average level of needs, and must remain tied to it according to the nature of capitalist production (163–4).
We must now raise a difficulty peculiar to Marx’s analysis. Marx’s “mass produc- tion” reflects, at least partly, the outcome of investment embodying new technology. Thus the whole aim of capitalist production “is appropriation of the greatest possi- ble amount of surplus labour, in other words, the realisation of the greatest possible amount of immediate labour time with the given capital, be it through the prolon- gation of the labour day or the reduction of the necessary labour time, through the development of the productive power of labour by means of cooperation, division of labour, machinery, etc., in short, large-scale production, i.e., mass production” (MECW 32: 151). In fact, to assume accumulation proceeding with unchanged “mode of production” could only be a first approximation, for “the mere quantita- tive increase in capital at the same time implies that its productive power grows.” Here, incidentally, Marx reveals an impressive appreciation of the cumulative effects of “small improvements”: “production . . . expands annually for two reasons; firstly because the capital invested in production is continually growing; secondly because the capital is constantly used more productively; in the course of reproduction and accumulation, small improvements are continuously building up, which eventu- ally alter the whole level of production. There is a piling up of improvements, a cumulative development of productive powers” (153). Marx unfortunately does not address the issue that “mass production” proceeding at falling real cost (value) should, in principle, at least mitigate the consequences created by the constraints on consumption characterizing Marx’s analysis of overproduction.