theories of overproduction and underconsumption - joseph belbruno

7/29/2019 Theories of Overproduction and Underconsumption - Joseph Belbruno

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Tuesday, 4 October 2011

From Kalecki to Minsky and Krugman - Theoriesof Overproduction and UnderconsumptionPart 3

In this brief intervention I wish to discuss cursorily, without source or data references,the most popular and frequent type of theories advanced by orthodox and evenradical economists about capitalist economic crises. These tend to be cognate orcontiguous in the sense that the one, the overproduction theory, is really the obverseof the other, the underconsumptionist. Typically, these theories regard capitalistproduction as a simple production of goods: in other words, the capitalist economyis simply a historical variant of many other preceding forms of production in that itdiffers merely in the way in which the social product is distributed. The underlyingassumption is that expounded in the 1930s (before Keynes) by Michal Kalecki:capitalism is a system of production divided into capitalists and workers. The workersspend what they earn and the capitalists earn what they spend. In other words, thedifference between the classes of capitalists, on one side, and workers on the otherhas nothing to do with social antagonism with the political control over what isproduced, when and how and to whom it is distributed but rather it has to doentirely with the distribution of what is taken to be a technologically-determinedprocess of production where technology and labour processes are entirely externalto the capitalist system of production!Now, we know very well that this is quite simply false. But for these so-calledradical economists (from Kalecki to Minsky to Krugman even) what matters is notwhat is produced and how, but rather how the product (understood, once again,to be a technically-given output of production) is distributed between the socialclasses. It stands to reason, therefore, that the entire problem of capitalist economies all the crises, recessions and depressions have nothing to do with the antagonismof the wage relation with the command of dead labour over living labour but haveall to do with how the product of labour and technology is distributed.If capitalists earn too much because wages fall too low, they will be unwilling toconsume the surplus earned and therefore aggregate demand will be too low to

employ all workers, resulting in higher unemployment. This is calledunderconsumption. But at the same time it is also underconsumption becauseworkers wages are insufficient to consume the whole product. In the alternativecase, if capitalists reinvest their excess earnings there will be overproduction asa result of excessive competition between capitalists which workers will not be ableto consume because their wages will be too low to absorb the (excess) production ata given required rate of profit. The resulting lower rate of profit will further removecapitalist incentives to invest unless a political entity like the State intervenes toprovide the requisite aggregate demand, with a return to equilibrium betweeninvestment and savings and employment.Alternatively, if workers are paid too much in wages due to excessive demand forlabour or because of State labour policies, the resulting fall in the rate of profit willagain cause a decline in the rate of investment with a consequent rise in

unemployment. If the capitalists save or retain their excess profits, there will beunderconsumption or deficient aggregate demand which will again result in a crisisthat will require State intervention to restore equilibrium conditions.In both these situations, it is the politically-determined or acceptable rate of profitand wage rates that will determine whether the capitalist economy is at equilibriumor not, and therefore whether or not there is a crisis. It can be seen quite readilyfrom this very simple presentation that these widely-held opinions or theories ofwhat constitutes a capitalist economy leave out the most crucial and essentialelement of capitalism: the social antagonism of the wage relation, of the fact that
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workers are not free to decide democratically what is produced and when and how,and then in turn what is to be done with the pro-duct!We can see that in both instances the radical theories of capitalism presented herecan oppose only a moralistic objection to capitalist production in terms of thedistribution of what is uncritically and unquestioningly accepted to be the processof production as if this were a technically-given, scientific process wholly

devoid of political antagonism! That is why bourgeois economists are able to presenteconomics as a science that deals merely with quantities or with optimaldistribution of the output of production given basic political assumptions,choices and constraints that are external to economic science itself! Once again,we know that this is entirely false and grievously and perfidiously misrepresents andmystifies the operation of this most odious social system the society of capital.

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The Social Contract - Theories of Overproductionand Underconsumption Continued

Theories of over-production and under-consumption have this in common then: - thatboth postulate the existence of a neutral process of production over which the only

antagonism possible is over the distribution of the product understood ashomogeneous output either (in the Marxist version) of socially necessary labourtime or (in the neoclassical version) of the marginal utility of the totality ofendowments available for exchange on the free self-regulating market throughthe price mechanism. We have already considered the apories (or practicalcontra-dictions) involved in these notions and will not reiterate them here.

The important point to understand is that over-production and under-consumption theories both postulate an equilibrium level of profits and wages that(in the neoclassical version) is determined by the original marginal utility of theendowments of individual market participants and (in the Marxist version whichis partly a distortion of Marxs position) by the politically-determined share ofwages and profits over the distribution of the output.One thing to notice immediately here is that this theory does not explain why, given

that output is a homogeneous set of pro-ducts produced with neutral andexogenously given technologies, there should be a class division between workersand capitalists. Put otherwise, if all that is wrong with capitalism is that capitalistsmay re-invest too much (overproduction) or that workers may consume too little(underconsumption) why, then the answer is all too easy! Simply ensure thatcapitalists and workers work out (mathematically!) the equilibrium level of wagesto profits so that the economy may operate at maximum efficiency with fullemployment of resources! The whole of economics would then boil down to a simpleengineering problem! Because obviously it could never be the case that workerswould consume too little unless their wages were too low, or that capitalists wouldproduce too much unless their profits were too high! In other words, in such aneconomy there would be no distinction, aside from a technical one perhaps (thecapitalists would be simple engineers or managers conducting the production

process), between workers and capitalists! Everyone could then aspire to become as in the company capitalism utopia a shareholder with a share in the economycommensurate with some labour input or politically-agreed level of income!

This is precisely the kind of nonsense that comes out of people like Kalcki and Keynesor Minsky and Krugman! All of these theoreticians deny that capitalist problemsand crises have to do with the antagonism of the wage relation because. Thatwould amount to placing the blame on workers! (See Krugman link below. Minskysays as much in Can It Happen Again?) As if, that is, workers should be blamed foran antagonistic relationship in which they are necessarily the exploited party that
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is forced and coerced to sell its living activity or living labour in exchange fordead labour in the form of goods and services from the capitalist!http://www.nytimes.com/2011/09/23/opinion/krugman-the-social-contract.html?

_r=1&partner=rssnyt&emc=rss

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Monday, 3 October 2011

Theories of Overproduction andUnderconsumption - Part 2

The response of capitalist governments to the growing proportion of public debt and of the shareof government spending in the economy (now nearing 100%) was a deliberate and radicalattempt to turn the tide of the apparent socialisation of capitalist production in the 1980s and1990s through an aggressive program of privatisation of state industries and services as well asthe liberalisation (a relaxation of government-political controls and regulation) of several areasof capitalist production and in especial mode of the financial industry (banking and otherfinancial services). This was exemplified dramatically in the US with the repeal of the Glass-Steagall Act, a mainstay of Roosevelts New Deal reforms. All these measures (or reforms)were designed and intended to reverse the tide of socialisation of the capitalist economy in the

wake of the inflationary crisis of the 1970s. But in reality the apparent success of this strategywas due in large part to the epochal reversal of politico-economic policy operated by the Chinesedictatorship in the early 1980s which resulted in what has been called the Great Moderation inWestern capitalist countries characterised by steady inflation-free growth nearly everywhere.We have often visited these matters on this site and we do not wish to revisit them here. But, aswe know, the net result of the Great Moderation was not the end of history: rather, theunderlying social antagonism brewing in Western capitalist economies was swept under thecarpet through the lowering of the nominal cost of real wages due to cheap imports from Chinapredominantly, which meant that the profits generated by the absolute exploitation of hundreds ofmillions of Chinese workers could then be recycled in the West through the extension ofincreasingly unsustainable loans for house-building and consumption. Instead of wage inflation,the capitalist West was fuelling enormous debt bubbles with asset-price inflation that were certainto explode in due course and send the whole system into the greatest crisis since the 1930s. And

this is what we are witnessing now.

What Bernanke is asking in his speech is for the emerging market economies to expanddomestic consumption by appreciating their currencies and diverting their export-orientedindustries toward wage goods so that Western capitalist countries may be able to compensate forand resolve its present seemingly insurmountable antagonism through exports to those countries.The chief difficulty with this proposition, as may be already evident, is that any expansion ofemployment in Western countries will result in much higher social antagonism which is whyBernanke is also suggesting that the West must imitate and replicate the fiscal rectitude of theemerging countries so as to contain what he expects will be social explosions in the West.

In our next intervention we will examine how and why the present asset of capitalist institutions isunable to contain the antagonistic push of workers social needs without a repressive turn to right-wing policies aimed at smashing the social network of solidarity that was established as a resultof the New Deal in the US and its extension to Western Europe and Japan after World War Two.In the process, we will take a rapid look at the cavernous idiocy of even the best-intentionedbourgeois economic theoreticians and analysts from Minsky to Krugman (and Kalecki andKeynes earlier) in terms of their infantile theories of overproduction and underconsumption asexplanations for the current epochal crisis of capitalism.

Monday, 3 October 2011

Theories of Overproduction and Underconsumption -Bernanke Comments Continued
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Perhaps the most important "lesson and implication" to be drawn from Bernanke's revealingspeech that we have been dissecting here (with good reason, given the powerful insights itcontains from one of the most perceptive and decent proponents of world capitalism) is that the"growth" of so-called "emerging market economies" over the last twenty years has been the resultof the sheerhorizontalexpansion of capitalist investment originating in the Western "advanced"capitalist countries at the expense of the growing populations of those "emerging" countries thathave quite simply (disarmingly) only adopted Western technologies straight from the "tool-box" ofWestern capitalism so as to be better able to exploit their own "resources" (population, society,land, environment) to drive down real wage costs in the West. And this, what we know as "theGreat Moderation", worked until recently when finally the "profits" that originated in the "emerging"capitalist countries could no longer be re-ploughed "profitably" in the West or in the periphery -with the resulting financial crisis that we know.

Bernanke seems to think that a simple "re-alignment" of currencies and capital flows - andtherefore of the "burden of adjustment" - between capitalist countries the world over (core andperiphery) may be sufficient to re-start, to re-invigorate the capitalist regime of exploitation towardits "relative" mode: - that is to say, a mode of capitalist exploitation that trades off better livingstandards for workers in return for higher productivity and profits. The reason behind this proposalis that Western capitalist investments have hit a barrier of profitability in that profitability has beendeclining steadily since the spread of what we have called the New Deal Settlement through the

Marshall Plan in Europe and Japan after World War Two.

This conspicuous and utterly undeniable decline is too well-documented and widely acceptedeven by the most orthodox economists (recall, apart from Keyness perception of the problem,John Hickss decadentist notion of the Labour Standard, Hyman Minskys instabilityhypothesis, Joseph Schumpeters prophecy of the inevitable decline of capitalist elites and soon) to deserve much discussion in this note. The dramatic rise of State deficits in the US, Japanand Western Europe has reflected precisely this inability of capitalist industry to remainprofitable without the added politically-generated demand coming from government institutionsthat needed to secure the profitability of private capital whilst maintaining social and politicalstability through infrastructure and transfer investments that secured the reproduction of thesociety of capital.

What State budget deficits entailed and still engender is the inability of private capitalists tocommand social labour directly, so that the legitimacy of capitalist social relations can bemaintained only through the government-political absorption of social consumption (oraggregate demand) by the State because this, once again, was the only way in which privateenterprise could be maintained as a pure mythology just as the capitalist social relations ofproduction (the wage relation) became utterly and absolutely incompatible with the privateclaims of capitalists on the social wealth that is being produced!

Put in simpler terms, the decline of the profitability of private capital investments of privatecommand by dead labour over living labour had to be replaced by an ever-expanding politically-controlled role in the capitalist economy by the State in order to ensure the continued validity ofcapitalist social relations of production, of the wage relation, in the society of capital. The obviousresult was the burgeoning growth of budget deficits and public debt that we saw in the 1970s and

1980s.

theories of overproduction and underconsumption - joseph belbruno

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