Overproduction

The regularity of capitalist crises – recessions or slumps – is clear from a study of its history. In the booms, a process of ‘overaccumulation’ - overproduction of capital and consumer goods - eventually occurs. When there are many millions of people still suffering without the basics of life, the idea that capitalism has produced 'too much'' seems outrageous. But the problem for capitalism is that it is a system prone to periods of overproduction (or overcapacity) in the sense that too many of the consumers who need those things cannot, however, afford to buy them. Therefore, the capitalists can’t sell the commodities that their workforces have produced, and the economy heads towards recession.

Engels explains in ‘Socialism: Utopian and Scientific’ that this comes about as a consequence of the unplanned nature of capitalist production and exchange: “Each man produces for himself with such means of production as he may happen to have … No one knows how much of his particular article is coming on the market, nor how much of it will be wanted. No one knows whether his individual product will meet an actual demand, whether he will be able to make good his costs of production or even to sell his commodity at all.” ⁵²

This constitutes one of the fundamental contradictions of capitalism. As we have seen, in order to make a profit, the capitalist class pays the working class less in wages than the value of the goods they have produced. The ‘surplus value’ created is, after all, the ‘unpaid labour of the working-class’.

But the working class also provides the main market for the goods made by capitalism. So, if workers aren’t paid enough to buy back what they have produced for the capitalists, the capitalist class aren’t able to sell all of them either – and, if they can’t sell them, then they can’t turn them into profits.

There is also a limit to the number of super yachts and private planes that the capitalists can produce and sell as luxury goods to their fellow capitalists too!

To find a way out of this crisis of ‘overproduction’, factories close, workers lose their jobs, goods go to waste, companies that have been unable to sell enough of their commodities go bust. This is the “destruction of value” mentioned in Lesson Thirteen. Add these effects up across the economy, and the working class has even less to spend, so a downward spiral can occur.

In sacking workers, closing plants, and allowing machinery to go idle, capitalism effectively destroys some of the means of production, including discarding the skills of many workers, laying bare the chaotic, wasteful and inefficient nature of the profit system.

Referring to the average cost of recessions in Britain, the Bank of England website in January 2019 stated that: ‘looking at various examples throughout history, one estimate places the total economic cost of a typical financial crisis at around 75% of GDP [Gross Domestic Product – total annual national income]. That’s equivalent to £21,000 for every person in the UK’. There, from the horse’s mouth, stands a frank admission of the waste and the lack of control the bosses have over their own system.

From slump back to boom

Only when the economy has sunk down far enough for some firms to once again see the prospect of making a profit, does the capitalist growth cycle start up again. Those that remain in business can start up again – with wealth now concentrated in even fewer hands because some of their previous competitors will have folded. In essence, that’s the cause of both the cycles of booms and slumps that can be traced throughout the history of capitalism – and the tendency to monopoly – for the smaller firms to be swallowed up and for only the big corporations to survive.

As we have seen, in order to stay ahead of their competitors, producers reinvest their profits back into production, competing with their rivals to improve science and technique. However, expanding production requires an expanding market in which to sell the increasing supply of commodities produced. However, the purchasing power of the mass of society tends not to expand as fast as the expansion of production, as already discussed in Lesson Sixteen: “Thus, the capitalist class is caught in a contradiction - between the expanding production of the goods and services which constitute real wealth in society, and the narrowing basis of relative consumption under the capitalist system”. Capitalism is therefore a system that has crisis wired into its workings - and now, in the declining capitalism of the twenty-first century - those crises will get worse.

As we have also already discussed, the competition to invest in more productive machinery also compels the capitalists to spend an increasing proportion of their profits on new machinery in comparison to the new value created by the labour of workers. As a result, the rate of profit made on each individual commodity falls. This Marx called the ‘tendency for the rate of profit to fall’. It is a tendency that encourages producers to struggle even harder to increase the mass of their profits by producing even more goods to sell on the market. But that risks bringing on the onset of a crisis of ‘overproduction’ even more quickly than before.

However, this process shouldn’t be looked at in isolation, as other factors can take the rate of profit in the opposite direction. For example, a feature of the early period of so-called ‘globalisation’ was multinational companies moving their production to countries where they could increase their rate of profit by paying lower wages.

One way that capitalism has sought to resolve its contradictions has been to seek new markets worldwide in which to sell its commodities. This led to the rise of imperialism, discussed in the next lesson.

Monopoly

Today, most large companies are not each owned by a single capitalist; rather they are usually co-owned by many shareholders. Sometimes smaller investors, including workers, own some shares, but the vast majority are concentrated in a few hands, overwhelmingly owned by a small number of super-rich capitalists. US Federal Reserve data in July 2022 showed that the bottom 50% of US wage earners owned just 1% of US company shares.

There can be a complex web of ownership. Productive companies can be owned by other companies, such as ‘private equity firms’, set up just to make money out of leeching from them, sometimes using ‘asset-stripping’ or simply through buying and selling companies for a profit.

Economies have become increasingly monopolised – dominated by ever smaller numbers of larger and larger companies as they force their rivals out of business or take them over. The biggest companies on a world scale have turnovers greater than many countries. In 2021 the total share value of ‘Apple’ was effectively bigger than the national income of every country in the world other than the top seven! No wonder the largest companies have such power and control over capitalist governments.

When a company increases its domination of a market for goods or services, one of the consequences is that the competition it faces from other firms reduces, and therefore the dominating company comes under less pressure to innovate and invest in new technology. This is another fundamental faultline in the capitalist system – the once relatively progressive role of competition for the system becomes less of a driving force.

Private ownership of the means of production is at the root of the underlying fault lines in capitalism, and to that can be added the barriers of the nation state. Most large companies have arisen in a nation state and have their base in it. Their influence over the government in that state frequently leads to the clash of different countries economically, such as over import tariffs, and sometimes militarily. Imperialism and global conflict are driven by the desire for the most economically powerful companies to increase their profits across the world, and the organisation of the rival capitalists into contending nation states and trading blocs. That in turn builds more instability into the world economy, either as a direct result of military conflict or of trade, currency or cyber wars.