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Cooking the Books 1: Overproduction or underconsumption?

“Is Marx’s analysis of capitalism still valid today?” asked Jonny Ball in the anarchist paper Freedom (19 June). While trying to be generally sympathetic to Marx, he didn’t always get it right. According to him:

“Crises are not so much of a problem of overproduction, as this in itself is not a problem if people have the purchasing power to buy back what they produce, but the trigger in any recession is in fact, underconsumption.”

To back this up he quotes “the Marxist writer George Jackson” who wrote about production before 1929 increasing “without a corresponding increase in the ability of the great labouring masses to buy back what was being produced” and that therefore “it was underconsumption (not overproduction)” that led to stock market crash of 1929.

Overproduction occurs when too much of some good has been produced in relation to the market demand for it (not the same as the real need for it). It can affect any type of good – raw materials, steel, ships, consumer goods, anything.

Underconsumption has been defined in various ways but all have in common the view that consumer (paying) demand is too low.

Cruder versions of underconsumption argue that, because workers cannot buy back all they produce, a chronic shortage of purchasing power is built-in to capitalism requiring, for instance, exports to bridge the gap. It is true that workers cannot buy back all they produce but total paying demand is not made up just of what workers buy; it also includes what capitalist firms buy (raw materials, buildings and equipment, finished and semi-finished products).

More subtle versions argue that because the share of consumer demand in total demand is too low this prevents sustained, balanced growth. On this theory a crisis is precipitated when the production of consumer goods increases faster than consumer demand, which is mainly that of wage and salary workers.

A crisis can be triggered by such an overproduction of consumer goods, and a case can be made out for this being a factor in 1929, but this is not the only way a crisis can be triggered. Overproduction in any sufficiently important sector of the economy can do this. This is why it can be said that overproduction (not underconsumption) is the cause of crises, as the anarchic, competitive struggle for profits leads to the total production of capitalist firms in a particular sector coming to exceed the paying demand for its products and this having a knock-on effect throughout the economy.

It is not clear what Ball means when he says that overproduction “in itself is not a problem if people have the purchasing power to buy back what they produce”. If this is the case then there is no overproduction. Maybe he means overproduction in relation to needs rather than to paying demand, but this is not the sense that “overproduction” is usually used in economics.

But who is this “Marxist writer” George Jackson? Yes, it is George Jackson, the Black Panther and Soledad Brother, who was murdered in prison in 1971 at the age of 29. He spent his time in prison reading up on things and did become reasonably well-informed, but he would not have regarded himself as an authority on Marxian economics.

In any event, his “Marxism” was the so-called “Marxism-Leninism” of Mao Tse Tung. Not quite the same thing. Despite this, he did argue cogently for a moneyless society:

"Consider the people's store, after full automation, the implementation of the theory of economic advantage. You dig, no waste makers, no harnesses on production. There is no intermediary, no money. The store, it stocks everything that the body or home could possibly use. Why won't the people hoard, how is an operation like that possible, how could the storing place keep its stores if its stock (merchandise) is free? Men hoard against want, need, don't they? Aren’t they taught that tomorrow holds terror, pile up a surplus against this terror, be greedy and possessive if you want to succeed in this insecure world? Nuts hidden away for tomorrow's winter. Change the environment, educate the man, he'll change. The people's store will work as long as people know that it will be there, and have in abundance the things they need and want (really want); when they are positive that the common effort has and will always produce an abundance, they won’t bother to take home more than they need.
Water is free, do people drink more than they need?" (Soledad Brother, Letter of 17 June 1970).