On Aggregate Demand and “Overproduction”

E. On Aggregate Demand and “Overproduction”

In discussing “the state of society most favourable to the worker, namely of a state of growing, advancing, wealth” (MECW 3 : 239; see above, p. 173), Marx points to the inevitability, even in this best case, of overproduction, unemployment, and “minimum” wages. He recognizes upward pressure on wages generated by capital accumulation, but on balance these are outweighed by structural changes increasing the size of the dependent work-force (above, p. 172). Now, in addition, “as the amassing of capital increases the amount of industry and therefore the number of workers, it causes the same amount of industry to manufacture a larger amount of products, which leads to over-production and thus either ends by throwing

a large section of workers out of work or by reducing their wages to the most miserable minimum” (238–9). Again, increased division of labor “impoverishes the worker and reduces him to a machine,” and though capital accumulation and “increasing prosperity” is due to labour, in this process the worker becomes “ever more dependent on the capitalist” and is driven “into the headlong rush of over- production, with its subsequent corresponding slump.” 23

“Overproduction” can perhaps be understood as relating to a cyclical component entailing unemployment and reduced wages (see Mandel 1971: 31–2). Yet, there remains some doubt, for Marx’s intentions in introducing overproduction may also relate to the secular trend itself, a complexity that persists even in Capital (see Chapter 5.E). Marx refers to the great Ricardo-Say-Malthus debate regarding the possibility of “overproduction,” and this debate referred to the secular dimension, since even Ricardo and Say allowed periods of depression (Hollander 1979: 474– 539, 2005: 189–225). But Marx cannot be pinned down so easily since his account relates in part at least to the question of the Law of Markets as pertinent to the short-run as we shall now see.

On Marx’s account “[t]he one side (Lauderdale, Malthus, etc.) recommends luxury and execrates thrift. The other (Say, Ricardo, etc.) recommends thrift and execrates luxury” (MECW 3: 309). In this context Say is classed with Ricardo within the “hypocritical school” – in contrast with Marx’s practice elsewhere (see

23 Marx was here following the lead of Wilhelm Schulz 1843 and Constantin Pecqueur 1842.

E. On Aggregate Demand and “Overproduction” 183 Section D) – which, so runs the charge, conveniently forgets the significance of

the demand component: “The Say-Ricardo school is hypocritical in not admitting that it is precisely whim and caprice which determine production. It forgets the ‘refined needs’; it forgets that there would be no production without consumption; it forgets that as a result of competition production can only become more extensive and luxurious. It forgets that, according to its views, a thing’s value is determined by use, and that use is determined by fashion” (310).

In the Notebooks Marx similarly condemns both Ricardo and Say for the Law of Markets – originating, runs this account, with Say, “the first to formulate the prin- ciple that demand is only limited by production itself ” (Marx 1968: 11–12). 24 Nei- ther could account for the facts of over-production, commercial failures and crises: “Political economy knows nothing of . . . the miracle of overproduction and super- misery. . . . No more than Ricardo, is Say able to answer the question: whence the competition and bankruptcies, trade crises etc., if all capital finds a corresponding occupation? If employment is always proportional to the number of capitals?” (12). Indeed, Say’s Law flew in the face of the principle of “competition” (the governing principle of political economy) and its underlying rationale, that each individual recognizes and acts according to his own interest and consequently according to that of society as a whole: “Why would these individual sages ruin themselves and bring about the ruin of others if for each capital there existed at all times a profitable use?” And yet Marx allowed that Say, whose “th´eorie des d´ebouch´es” asserted the impossibility of overproduction on the grounds that “when a good cannot find buyers, it is solely because not enough is produced (whether at home or abroad) to assure equivalent exchanges,” “admits – followed by Mill and Ricardo – the possibility of overproduction in specific branches of production; and accordingly in all branches together since in any specific country it is always a matter of specific products” (40; emphasis added). This allowance is difficult to appreciate.

The source of the overproduction problem for Marx – and he seems now to be concerned with the secular dimension – was the limited aggregate demand char- acterizing a private-property system, which pertained even supposing conditions most favorable to Say’s argument, namely an open economy each country produc- ing to maximum capacity and thus assuring “the maximum possible number of equivalents to be exchanged against their respective productions.” Essentially, “the problem goes back to the heedlessness [l’inconscience] of production: production is not human, since it operates under conditions of alienation, or private property,” alluding it seems to the depressed incomes of the mass of the population under the private-property institution: “In other words, private property produces for private property. Accordingly, production can exceed demand, at the same time that there is on both sides an excess of reciprocal equivalents, given that demand for wine and cotton – all products – has limits and is, besides, governed by the number of people whose demand is effective [r´eelle], that is who are able to pay for their purchases.”

24 But see also Marx’s reference to Boisguillebert as precursor, in Marx 1968: 39.

Marx’s Economics 1843–1845

In fact, in the best case, “if producers wish to exchange the maximum possible, they are obliged to sell to a number of buyers who pay less than the production price [le prix de production], that is to give away their commodities, which is not selling” (41). 25

A partial solution would be to assure that “the maximum number of people have products to exchange,” which would be the case where “wealth was general” alluding to an approximately equal income distribution. But even so, general over- production remained a possibility ; and as things were in actuality, a patent certainty : “Demand, in the economic sense, necessarily diminishes with industrialization. For the mass of products has to grow in proportion, and thus exceed demand to a greater and greater extent, in other words lose its value” (42). Marx adds parenthetically that the free-trade economists failed to perceive that the private-property insti- tution, by constraining working-class consumption, created barriers to exchange similar to trade restrictions: “A productive system that itself creates general poverty loses an outlet [un debouch´e] with each impoverished individual. The liberal economists, who certainly see that monopolies surround individuals with customs barriers rendering exchange impossible, fail to see that private property does the same.”

What though of Malthus? Marx is miserly in his praise, charging him – on the basis of a crude interpretation of the population doctrine – with self-contradiction: “It is truly bizarre that Malthus, who unlike Say speaks of overproduction of pop- ulations or of men, also recognizes the possibility of overproduction in the case of products, considering it as a misfortune. . . . The same economist affirms that there is excess population relative to output, at the same time as excess output relative to sales, thus more than should be produced.”