Theories of Overproduction and Underconsumption
The response of capitalist governments to the growing proportion of public debt and of the share of government spending in the economy (now nearing 100%) was a deliberate and radical attempt to turn the tide of the apparent “socialisation” of capitalist production in the 1980s and 1990s through an aggressive program of “privatisation” of state industries and services as well as the “liberalisation” (a relaxation of government-political controls and regulation) of several areas of capitalist production – and in especial mode of the financial “industry” (banking and other financial services). This was exemplified dramatically in the US with the repeal of the Glass-Steagall Act, a mainstay of Roosevelt ’s 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 strategy was due in large part to the epochal reversal of politico-economic policy operated by the Chinese dictatorship in the early 1980s which resulted in what has been called “the Great Moderation” in Western 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, as we know, the net result of the Great Moderation was not “the end of history”: rather, the underlying social antagonism brewing in Western capitalist economies was swept under the carpet through the lowering of the nominal cost of real wages due to cheap imports from China predominantly, which meant that the profits generated by the absolute exploitation of hundreds of millions of Chinese workers could then be recycled in the West through the extension of increasingly 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 certain to 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 expand domestic consumption by appreciating their currencies and diverting their export-oriented industries toward wage goods so that Western capitalist countries may be able to compensate for and 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 of employment in Western countries will result in much higher social antagonism – which is why Bernanke is also suggesting that the West must imitate and replicate “the fiscal rectitude” of the emerging 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 is unable 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 result of 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-intentioned bourgeois economic theoreticians and analysts from Minsky to Krugman (and Kalecki and Keynes earlier) in terms of their infantile theories of overproduction and underconsumption as explanations for the current epochal crisis of capitalism.
We have often visited these matters on this site and we do not wish to revisit them here. But, as we know, the net result of the Great Moderation was not “the end of history”: rather, the underlying social antagonism brewing in Western capitalist economies was swept under the carpet through the lowering of the nominal cost of real wages due to cheap imports from China predominantly, which meant that the profits generated by the absolute exploitation of hundreds of millions of Chinese workers could then be recycled in the West through the extension of increasingly 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 certain to 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 expand domestic consumption by appreciating their currencies and diverting their export-oriented industries toward wage goods so that Western capitalist countries may be able to compensate for and 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 of employment in Western countries will result in much higher social antagonism – which is why Bernanke is also suggesting that the West must imitate and replicate “the fiscal rectitude” of the emerging 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 is unable 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 result of 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-intentioned bourgeois economic theoreticians and analysts from Minsky to Krugman (and Kalecki and Keynes earlier) in terms of their infantile theories of overproduction and underconsumption as explanations for the current epochal crisis of capitalism.
Theories of Overproduction and Underconsumption - Bernanke Comments Continued
Perhaps the most important "lesson and implication" to be drawn from Bernanke's revealing speech that we have been dissecting here (with good reason, given the powerful insights it contains 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 result of the sheer h
orizontalexpansion of capitalist investment originating in the Western "advanced" capitalist countries at the expense of the growing populations of those "emerging" countries that have quite simply (disarmingly) only adopted Western technologies straight from the "tool-box" of Western 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 "the Great 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 - and therefore of the "burden of adjustment" - between capitalist countries the world over (core and periphery) may be sufficient to re-start, to re-invigorate the capitalist regime of exploitation toward its "relative" mode: - that is to say, a mode of capitalist exploitation that trades off better living standards for workers in return for higher productivity and profits. The reason behind this proposal is that Western capitalist investments have hit a barrier of profitability in that profitability has been declining steadily since the spread of what we have called “the New Deal Settlement” through the Marshall Plan in Europe and Japan
This conspicuous and utterly undeniable decline is too well-documented and widely accepted even by the most orthodox economists (recall, apart from Keynes’s perception of the problem, John Hicks’s decadentist notion of the “Labour Standard”, Hyman Minsky’s “instability hypothesis”, Joseph Schumpeter’s prophecy of the inevitable decline of capitalist elites – and so on) to deserve much discussion in this note. The dramatic rise of State deficits in the US, Japan and Western Europe has reflected precisely this inability of capitalist industry to remain “profitable” without the added “politically-generated” demand coming from government institutions that needed to secure the profitability of “private” capital whilst maintaining social and political stability through infrastructure and transfer investments that secured the reproduction of the society of capital.
What State budget deficits entailed and still engender is the inability of private capitalists to command social labour directly, so that the “legitimacy” of capitalist social relations can be maintained only through the “government-political” absorption of social consumption (or “aggregate demand”) by the State because this, once again, was the only way in which “private enterprise” could be maintained as a pure “mythology” just as the capitalist social relations of production (the wage relation) became utterly and absolutely incompatible with the “private” claims of capitalists on the social wealth that is being produced!
Put in simpler terms, the decline of the “profitability” of private capital investments – of private command 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” of capitalist social relations of production, of the wage relation, in the society of capital. The obvious result was the burgeoning growth of budget deficits and public debt that we saw in the 1970s and 1980s.
Bernanke seems to think that a simple "re-alignment" of currencies and capital flows - and therefore of the "burden of adjustment" - between capitalist countries the world over (core and periphery) may be sufficient to re-start, to re-invigorate the capitalist regime of exploitation toward its "relative" mode: - that is to say, a mode of capitalist exploitation that trades off better living standards for workers in return for higher productivity and profits. The reason behind this proposal is that Western capitalist investments have hit a barrier of profitability in that profitability has been declining steadily since the spread of what we have called “the New Deal Settlement” through the Marshall Plan in Europe and
This conspicuous and utterly undeniable decline is too well-documented and widely accepted even by the most orthodox economists (recall, apart from Keynes’s perception of the problem, John Hicks’s decadentist notion of the “Labour Standard”, Hyman Minsky’s “instability hypothesis”, Joseph Schumpeter’s prophecy of the inevitable decline of capitalist elites – and so on) to deserve much discussion in this note. The dramatic rise of State deficits in the US, Japan and Western Europe has reflected precisely this inability of capitalist industry to remain “profitable” without the added “politically-generated” demand coming from government institutions that needed to secure the profitability of “private” capital whilst maintaining social and political stability through infrastructure and transfer investments that secured the reproduction of the society of capital.
What State budget deficits entailed and still engender is the inability of private capitalists to command social labour directly, so that the “legitimacy” of capitalist social relations can be maintained only through the “government-political” absorption of social consumption (or “aggregate demand”) by the State because this, once again, was the only way in which “private enterprise” could be maintained as a pure “mythology” just as the capitalist social relations of production (the wage relation) became utterly and absolutely incompatible with the “private” claims of capitalists on the social wealth that is being produced!
Put in simpler terms, the decline of the “profitability” of private capital investments – of private command 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” of capitalist social relations of production, of the wage relation, in the society of capital. The obvious result was the burgeoning growth of budget deficits and public debt that we saw in the 1970s and 1980s.
The Social Contract - Theories of Overproduction and Underconsumption Continued
Theories of over-production and under-consumption have this in common: - that both postulate the existence of a “neutral process of production” over which the only antagonism possible is over the “distribution” of the “product” understood as homogeneous “output” either (in the Marxist version) of “socially necessary labour time” or (in the neoclassical version) of the marginal utility of the totality of “endowments” available for exchange on the “free self-regulating market” through the “price mechanism”. We have already considered the “apories” (or practical contra-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 the “endowments” of individual market participants and (in the “Marxist” version – which is partly a distortion of Marx’s position) by the politically-determined “share” of wages 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 and exogenously given” technologies, there should be a “class division” between workers and capitalists. Put otherwise, if all that is wrong with capitalism is that capitalists may re-invest too much (overproduction) or that workers may consume too little (underconsumption) –why, then the answer is all too easy! Simply ensure that capitalists and workers work out (mathematically!) the “equilibrium” level of wages to profits so that the economy may operate at maximum efficiency with full employment of resources! The whole of economics would then boil down to a simple “engineering problem”! Because obviously it could never be the case that workers would consume too little unless their wages were too low, or that capitalists would produce too much unless their profits were too high! In other words, in such an economy there would be no distinction, aside from a “technical” one perhaps (the capitalists 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 economy commensurate with some “labour input” or politically-agreed level of income!
This is precisely the kind of nonsense that comes out of people like Kalecki and Keynes or Minsky and Krugman! All of these “theoreticians” deny that capitalist problems and crises have to do with the antagonism of the wage relation because…. that would amount to placing the blame on workers! (See Krugman link below. Minsky says as much in “Can ‘It’ Happen Again?”) As if, that is, workers should be blamed for an antagonistic relationship in which they are necessarily the “exploited” party that is forced and coerced “to sell” its “living activity” or living labour… in exchange for dead labour in the form of “goods and services” from the capitalist!
From Kalecki to Minsky and Krugman - Theories of
Overproduction and Underconsumption
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 even radical economists about capitalist economic crises. These tend to be
cognate or contiguous in the sense that the one, the overproduction theory, is
really the obverse of the other, the underconsumptionist. Typically, these
theories regard capitalist production as a simple production of “goods”: in
other words, the capitalist economy is simply a historical variant of many
other preceding forms of production in that it differs merely in the way in
which the social product is “distributed”. The underlying assumption is that
expounded in the 1930s (before Keynes) by Michal Kalecki: capitalism is a
system of production divided into capitalists and workers. The workers spend
what they earn and the capitalists earn what they spend. In other words, the
difference between the “classes” of capitalists, on one side, and workers on
the other has nothing to do with social antagonism – with the political control
over what is produced, when and how and to whom it is distributed – but rather
it has to do entirely with the “distribution” of what is taken to be a
“technologically-determined” process of production where technology and labour
processes are entirely “external” to the capitalist system of production!
Now,
we know very well that this is quite simply false. But for these so-called
“radical” economists (from Kalecki to Minsky to Krugman even) what matters is
not “what is produced and how”, but rather how the “product” (understood, once
again, to be a “technically-given” output of production) is distributed between
the social classes. It stands to reason, therefore, that for these
theoreticians the entire problem of capitalist economies – all the crises, recessions
and depressions – have nothing to do with the antagonism of the wage relation –
with the command of dead labour over living labour – but have all 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
to consume the surplus earned and therefore aggregate demand will be too low to
employ all workers, resulting in higher unemployment. This is called
“underconsumption”. But at the same time it is also “overproduction” because
workers’ wages are insufficient to consume the whole “product”. In the alternative case, if
capitalists reinvest their “excess earnings” there will be “overproduction” as
a result of excessive “competition” between capitalists which workers will not
be able to consume because their wages will be too low to absorb the (excess)
production at a given “required” rate
of profit. The resulting lower rate of profit will further remove capitalist
incentives to invest unless a political entity like the State intervenes to
provide the requisite aggregate demand, with a return to “equilibrium” between
investment and savings and employment.
Alternatively,
if workers are paid “too much” in wages due to excessive demand for “labour” or
because of State labour policies, the resulting fall in the rate of profit will
again 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 be “underconsumption” or deficient aggregate demand which will again
result in a crisis that will require State intervention to restore
“equilibrium” conditions.
In
both these situations, it is the politically-determined or “acceptable” rate of
profit and wage rates that will determine whether the capitalist economy is at
equilibrium or not, and therefore whether or not there is a “crisis”. It can be
seen quite readily from this very simple presentation that these widely-held
opinions or “theories” of what constitutes a capitalist economy leave out the
most crucial and essential element of capitalism: the social antagonism of the
wage relation, of the fact that 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
here can oppose only a “moralistic” objection to capitalist production in terms
of the “distribution” of what is uncritically and unquestioningly accepted to
be “the process of production” – as if this were a “technically-given”,
“scientific” process wholly devoid of political antagonism! That is why
bourgeois economists are able to present “economics” as a “science” that deals
merely with “quantities” or with “optimal distribution” 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 and mystifies the
operation of this most odious social system – the society of capital.
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