Crisis of overproduction

[Crabbensmasher]

The so called crisis of overproduction is mentioned pretty frequently in Marxist texts, but to be honest, every time I hear it, I get a bit lost. I guess I don't have a very firm grasp of it.

The basic idea is that the natural cycle of capitalism demands increased efficiency in its quest for more and more profits. And
I guess somehow this quest for maximum efficiency causes the market to actually contract, producing a recession? It seems to have been a pretty common occurence in Marx's day, as it apparently happened every decade or so. Are there any examples of it happening recently?

Does this mean, like when a capitalist improves the means of production (ie. upgrades his machines) to improve efficiency, he has to lay off workers? Does this have to do with the revolutionizing of the means of production at all? Or is it something else?

EDIT: Maybe this should have been put in learning. Sorry

[Sewer Socialist]

Well, 2009 was the most recent example. I could go into more detail, but to put it simply, in the US, so much credit was extended, and so much new housing was built, and in the process of being build that the housing and construction markets collapsed and bankrupted a bunch of banks.

[tuwix]

The so called crisis of overproduction is mentioned pretty frequently in Marxist texts, but to be honest, every time I hear it, I get a bit lost. I guess I don't have a very firm grasp of it.

The basic idea is that the natural cycle of capitalism demands increased efficiency in its quest for more and more profits. And
I guess somehow this quest for maximum efficiency causes the market to actually contract, producing a recession? It seems to have been a pretty common occurence in Marx's day, as it apparently happened every decade or so. Are there any examples of it happening recently?

Does this mean, like when a capitalist improves the means of production (ie. upgrades his machines) to improve efficiency, he has to lay off workers? Does this have to do with the revolutionizing of the means of production at all? Or is it something else?

EDIT: Maybe this should have been put in learning. Sorry

Despite newer investigations in terms of economic tell us something a little bit different, I will try to explain it to you in Marxist way.

There is an economy. There is good time for it. Every capitalist wants to increase a production or at least increase a price. But there is a competition. Competition causes that prices must be lower and lower. Then capitalists must cut costs. The one way is automatize production and fire own workers. Another one is decrease salaries of workers. Where all capitalists fire workers, there is unemployment. But unemployed ones don't have money to buy those commodities produced by capitalist firms anymore. And there is an overproduction crisis.

[Lowtech]

The basic idea is that the natural cycle of capitalism demands increased efficiency in its quest for more and more profits.

although making too much of a thing doesn't equate to efficiency. it is actually waste. efficiency would be meeting a need at the least cost. the least cost is always production cost. so profit = waste.

[Futility Personified]

So are underconsumption and overproduction synonymous?

[socialistlawyer]

Imagine the wastage caused upon by overproduction. Because nobody wants to buy the surplus, the company goes bankrupt. Another reason for unemployment. Bourgeoisie ideologues cannot invoke law of supply and demand and that prices would go down because cartels always are imposed among competitors. Just like private health insurance, they do not lower prices because of cartels. Stalin's Leninist centralism rocks!

[ckaihatsu]

If we can take bourgeois fetishization as a given then it's apparent that certain commodities are 'hot shit' (popular, in-vogue) at any given time, and are currently profitable for those who got in at the *right* time -- not too early (having to take a lot of risk and put in a lot of effort), and not too late (rapidly diminishing returns, not worth the effort and expense).

Since there's no coordination among those separate financial parties that are each going in with their investments, each player is judging conditions separately and independently of the overall greater whole. They have no concern with what the consequences of a 'gold rush' might be, for workers, for other speculators, for the economy, for the price of gold, for indigenous peoples, for the land, the ecosystem, etc.

So the basic narrative here, for any given commodity, is that of a normal curve, where those who get in early (but not too early), on the upper portion of the upslope, are the ones who have the right timing and will benefit the most.

This is to set the stage for the consequences of the 'downslope', after the news is everywhere that there's gold for the taking, and capital continues to flood in with sheerly economic-separatist interests.

With so much optimistic speculation and massive competition at-play, it shouldn't be difficult to see that, at the height of the frenzy, speculators will be *very* enthusiastic to commit material resources to be as effective and efficient as possible, to realize returns. This may lead to some *limited* degrees of cooperation, as with joint-stock companies and the exploitation of labor, *and* it will lead to some degree of *innovation* as well, as with the use of novel technologies and techniques to find and extract the more-difficult gold that hasn't already been snatched up.

But without a *macroscopic*, 'birds-eye view' of the entire lay of the land (the market), there won't be sufficient coordination and cooperation to *prevent* overproduction. 'Overproduction', in the sense of producing more of something than is good for the economy as a whole -- causing the price of the commodity to drop -- looks absolutely *nonsensical* from the birds-eye view because *all* players take a hit as they watch their equities fall in value. But there's no way to 'blow the whistle' and call a stop to this frenzied overproduction -- not even with rare, halfhearted state intervention -- because there's no way to *coordinate* and really regulate this froth of separatist-minded financial activity.

Sure, at the peak and beginning of the downslope it's good times for the consumer market since the hard part is over with, there's a lot of participation and even innovation, and availability at reasonable prices, but the market doesn't *stay* that way. As over-involvement yields overproduction, which is a glut of supply, each proportionate unit of that commodity is worth *less* as a result because the consumer doesn't have to chase after it at all -- it's *everywhere*.

This lessened price is a *disincentive*, though, to sustained speculation and investment since those arriving late to the normal curve are only seeing *slumping prices* and *no upside* going-forward. The risk at this point is too much, with profits being a long-shot, at best.

That's how something as overwhelming and ubiquitous as the overproduction of a commodity can paradoxically cause the market to *contract*, even to the point of causing a subsequent *recession*. So while the prices have become lowered, the same thing goes roughly in parallel for the price of *labor* as well, since it's also a commodity like anything else, which means that people who are working for wages are receiving less with which to buy with.

As the speculator now looks to stanch losses they'll be cutting their expenses wherever they can, and that includes the expense of *labor*, which equates to the cutting of jobs and the layoff of workers.

Besides labor the only other avenue for (speculative) investment is in machinery, so the speculator *may* look to try to get an edge against competitors by uncovering a way forward that's been overlooked by everyone else, but that's far from a sure thing -- by definition it's a long-shot and *risky*, and at this late stage in the game everyone has already evened-out on the technologies they're using in production.

It's no wonder that this situation produces stagnation and deflation (devaluation), as we're seeing today in the world's capitalism-based markets.

[CyM]

Ckaihatsu covers one important aspect of overproduction. But there is something tied to it which needs to be mentioned as well.

All of this production is happening on the background of the exploitation of labour to extract profit. So, while an unplanned and expanding industry inevitably arrives at a point of a crash, we need to look at who the consumers are who cause such a crash.

Simply put, a worker paid 135 dollars a day to make 1000 dollars worth of t-shirts is expected to buy all the supply. The boss pays less than he will be selling the product for. All bosses pay less than they will be selling the product for. All workers are paid less than the product they make. All workers' wages, added up, equal less than the price of all the products they make.

Because by definition, that is how profits work.

So this is another aspect of the contradiction of private ownership. It may not produce an immediate crisis, but eventually, it will lead to a crash. If they try to give away free money to the workers to keep the party going, it will delay the crash, but only at the cost of a deeper hangover and slump after as workers have to repay their debts before they can start consuming more again.

They can also try to export the excess product to other countries, but of course the bourgeois nation state limits that. They're all trying to "export unemployment" to each other in this way and to block others' imports.

So then they begin to shut down factories and fire workers. This is how overproduction is dealt with, by getting rid of the excess productive capacity and product.

So now you have the contradiction of people who are poor because they produced too much wealth. Something that does not exist in any system except capitalism. People who are hungry because there is too much food. Or people who have been thrown out of their homes by the banks because the housing market crashed and made their mortgage worthless, because too many houses were built. In other words, capitalism creates homeless people because there are too many homes.

What a ridiculous system.

Capitalism is incapable of dealing with plenty, with the vast riches it creates. It crashes every time there is enough for everyone to have a luxurious life.

We live in a land of milk and honey. All that is needed is to seize it.

[DAN E BOY]

Companies are just supplying to demand.

In order to see a reduction in production, there would have to be voluntary decrease in consumption from consumers. If there was no demand for products, they wouldn't be manufactured. These money making businesses are not going to stop supplying goods or services to people who are willing to pay cash, and make the owners a profit.

[CyM]

No. Communism has nothing to do with reducing production. It is about unleashing the potential for infinite production, while planning what and how to produce.

Capitalism can't handle superabundance. Communism requires it.

[Comrade #138672]

Overproduction is the root of every economic crisis in capitalism. It is the inability to generate more profit.


So are underconsumption and overproduction synonymous?According to bourgeois Keynesianism, yes, but Marxists reject this premise.

[DAN E BOY]

I'm not saying I support the reduction of production. I was just trying to make the point that businesses, especially big business, won't do anything about curbing production. Even in times of a ''crisis''. All business are concerned about is making money.

[Comrade #138672]

I'm not saying I support the reduction of production. I was just trying to make the point that businesses, especially big business, won't do anything about curbing production. Even in times of a ''crisis''. All business are concerned about is making money.It is actually the lack of profit that gets in the way of producing enough to satisfy everyone's needs. It is because overproduction does not mean that people do not need the products, but that the act of buying those products does not generate enough profit. This is overproduction.

[CyM]

Agreed. Though I would say they do reduce production when the market is crashing, hence the mass unemployment as people get laid off, factories get closed, and excess capacity gets destroyed.

[DAN E BOY]

It is actually the lack of profit that gets in the way of producing enough to satisfy everyone's needs. It is because overproduction does not mean that people do not need the products, but that the act of buying those products does not generate enough profit. This is overproduction.




You might be right, but i've got to drunk to think about this anymore.


Hope every had a great Christmas. :)

[Crabbensmasher]

Ckaihatsu and CYM give really good explanations. So overproduction is basically when a commodity is in high demand, everyone rushes to produce it, and because there is more supply than demand, prices go down. With less profits, these companies pay their workers less or layoff and there is an inevitable recession. Gotcha