Louis Proyect: The Unrepentant Marxist

April 24, 2008

Over-accumulation, over-production, under-consumption

Filed under: economics,Introduction to Marxism class — louisproyect @ 2:26 pm

(This was posted to the Introduction to Marxism class on yahoo.)

The other day Steve Palmer made some interesting observations on Marxmail about the confusion between these terms in response to the following in Patrick Bond’s post on Henryk Grossman:

I think John Bellamy Foster has got it right in his current MR article; and in a seminar at Univ of Sydney Dept of Poli Econ last Monday, he also endorsed “overaccumulation”, which I see as distinct from the traditional MR position from Sweezy, i.e., “underconsumption”.

Palmer wrote in reply:

I’m surprised by your comments about the Foster article – he’s continually talking about problems of demand absorbing ‘surplus’, which is pure Monopoly Capital. The word ‘overaccumulation’ appears, but this appears to be, for Foster, a synonym for ‘overproduction of surplus’ (with its ambiguity of whether he’s talking about use-values or values) in relation to demand, not an overaccumulation of capital in relation to profitability. This is underlined when, after criticizing the idea of re-regulating finance, he advances the Sweezy of ‘solution’ of expanded state expenditure and radical redistribution of incomes – which, as he notes, was endorsed by Joseph Kennedy as a reform to help him hang onto his fortune! – ‘to stabilize the economy’, ie to prop up capitalism. For Grossmanites, such as Mattick, these would be seriously destabilizing. Radical income re-distribution means away from profits, reducing them.

I came across the same confusion just today. I received an interesting private communication from Ali K. that compared 2 articles. One was by Shawn Hattingh that Ali described as incorporating a “doomsday scenario”. The other appeared in the Weekly Worker, the newspaper of a small propaganda group in Great Britain called the Communist Party of Great Britain (no connection with traditional Kremlin parties). It was written by Bill Jeffries, a contributor to the website Permanent Revolution about which I know very little except that many of their articles appear fairly intelligent in sharp distinction to their origins as a “Split in the League for the Fifth International”. My tendency would be to regard any such formation as having more in common with Groucho than Karl.

Bill Jeffries’s article was in response to Hillel Ticktin’s own “doomsday scenario” article that I posted to Marxmail and PEN-L the other day. Ticktin’s article , also appearing in the Weekly Worker, claimed that there currently is a depression.

Titled “Financial crash or slowdown?”, Jeffries’s article made points such as the following: “In the great depression, every major industrial power slumped. In the present crisis, every major industrial power is still growing – and some of them are growing very fast.”

Hattingh’s article originally appeared on MRZine last January and is titled “Obama, Clinton, and McCain Won’t Save the American Economy”.  In making the case that a “full-blown economic meltdown is set to occur in the US”, Hattingh points to the role of “over-accumulation”:

The origins of this potential economic meltdown can be traced back to the global capitalist crisis, caused by an over-accumulation of capital, which initially erupted in the 1970s.1

Since I have been reading a lot of Henryk Grossman lately, I was curious to follow up on Hattingh’s citation which was from an article by Walden Bello, who I had not previously associated with Grossman’s crisis theory. Just to recapitulate, Grossman views “over-accumulation” as the primary factor in capitalist crisis. But it really has little to do with Bello’s use of the word, which is the same as John Bellamy Foster’s.

Titled “Capitalism in an Apocalyptic Mood ” (clearly a nod in the direction of doomsday), the article uses the terms overproduction and overaccumulation interchangeably:

The Specter of Overproduction

It is not surprising that the G 7 report sounded very much like the post-mortems of the Asian financial crisis and the dot.com bubble. One chieftain of a financial corporation chief writing in the Financial Times captured the basic problem running through these speculative manias, perhaps unwittingly, when he claimed that “there has been an increasing disconnection between the real and financial economies in the past few years. The real economy has grown…but nothing like that of the financial economy, which grew even more rapidly-until it imploded.” What his statement does not tell us is that the disconnect between the real and the financial is not accidental, that the financial economy expanded precisely to make up for the stagnation of the real economy.

This growing gap between the financial and the real cannot be comprehensively understood without referring to the crisis of overaccumulation that overtook the center economies in the late seventies and 1980’s, a phenomenon that is also referred to as overproduction or overcapacity.

They really are two distinct phenomena as should be clear from Grossman’s extensive rebuttal of Rosa Luxemburg. To start with, overproduction is just another way to describe underconsumption. If there are too many commodities being produced, a crisis will ensue. Luxemburg’s underconsumptionist theory was tied to the idea that capitalism needed to expand into non-capitalist areas of the planet in order to find a market for excess commodities. It is clear that Luxemburg has influenced Bello’s economic thinking:

As Rosa Luxemburg long ago pointed out in her classic The Accumulation of Capital, capital needs to constantly integrate precapitalist societies to the capitalist system to shore up the fall in the rate of profit. In the last two decades, the most spectacular case of incorporating a precapitalist society into the global capitalist system was China, which became both the world’s second biggest exporter and the primary destination of foreign investment.

This is not Grossman’s theory at all. For Grossman, it is the productive capacity of capitalism itself that is at the heart of the problem. By continuing to replace living labor with dead labor (machinery), it reduces the capacity for generating surplus value. There might be counter-tendencies that allow the capitalist system to escape a crisis based on the over-accumulation of capital, but sooner or later the grim reaper will come knocking on the door.


  1. I havent read Grossman yet, but it sounds as if he would consider financial speculation (as in recent high-tech and real estate bubbles) a symptom of over-accumulation, a pre-cursor of crisis, or perhaps a mini-crisis. On the other hand, the trend to shifting production off-shore could be used to support both the over-accumulation and under-consumption theses. At least in the popular press, many firms,like IBM and the aviation and automotive companies, moved production to China as a way of, and a condition of, getting access to the Chinese market.
    Harry Shutt, on the other hand, seems to be in Grossman’s camp, with his view of the thirty year trend of privatizing public services as the result of excess capital with insufficient outlets for investment.

    Comment by plato's cave — April 24, 2008 @ 6:07 pm

  2. On the question “financial crash or slowdown?”, here are arguments for ‘crash’:

    Comment by Chuckie K — April 24, 2008 @ 7:43 pm

  3. Vol 3 Chap XV Sec 3 http://marxists.org/archive/marx/works/1894-c3/ch15.htm

    “Since the aim of capital is not to minister to certain wants, but to produce profit, and since it accomplishes this purpose by methods which adapt the mass of production to the scale of production, not vice versa, a rift must continually ensue between the limited dimensions of consumption under capitalism and a production which forever tends to exceed this immanent barrier. Furthermore, capital consists of commodities, and therefore over-production of capital implies over-production of commodities. Hence the peculiar phenomenon of economists who deny over-production of commodities, admitting over-production of capital. To say that there is no general over-production, but rather a disproportion within the various branches of production, is no more than to say that under capitalist production the proportionality of the individual branches of production springs as a continual process from disproportionality, because the cohesion of the aggregate production imposes itself as a blind law upon the agents of production, and not as a law which, being understood and hence controlled by their common mind, brings the productive process under their joint control. It amounts furthermore to demanding that countries in which capitalist production is not developed, should consume and produce at a rate which suits the countries with capitalist production. If it is said that over-production is only relative, this is quite correct; but the entire capitalist mode of production is only a relative one, whose barriers are not absolute. They are absolute only for this mode, i.e., on its basis.

    Comment by John A Imani — April 24, 2008 @ 10:21 pm

  4. The source of financial crises is definitely worth studying. The source of capitalist crises is also worth studying. How closely are the two related? Isn’t that also worth studying?

    Obviously as an educator one has to point out the differences between theorists and how they work. On the other hand, how does that theory get applied in practice? Bond, for instance, believes what he reads in Business Day (which is much less smart than Chomsky believing what he reads in the Wall Street Journal — Business Day is run by the Johnnic corporation through its Avusa black empowerment front, and it is very dodgy corporate propaganda through and through).

    Are we really in a crisis now? Looks like it. Is it a crisis because factories are making too much stuff for people to buy, or because people can’t afford to buy the stuff that the factories make? And is that because rich people are pocketing the spare cash, or is there some other factor?

    Also, if we are really in a crisis now, why is the stock market doing so well? Are they in denial, or is finance capital bubble manufacture disconnected from the physical economy?

    Beats me.

    Comment by MFB — April 25, 2008 @ 6:41 am

  5. David Harvey in The New Imperialism continually makes reference to over-accumulation of capital as the key driving force in his model.

    Comment by ttaM — April 25, 2008 @ 10:43 am

  6. The point about over-accumulation is that it has to be relative to profit rates, it is in effect the same thing as saying that the rate of profit is falling.
    Ticktin in his article claims that the rate of profit is falling, but produces no empirical data to substantiate his claim.
    Chris Harman to his credit, at least tries to engage with the data in his latest article in ISJ 118, and registers the fact that most Marxist and bourgeois economics commentators, refer to the recovery in profit rates since the turn of the millennium, but then dismisses them, preferring instead to go with Robert Brenner.
    Brenner, pretty much alone of the castrophists has at least tried to work out the rate of profit, but his estimates critically leave out financial profits, which now account for 40% of all profits, executive remuneration, which has doubled as a proportion of national income over the last couple of decades and foreign profits, which have similarly doubled.
    His estimate for the rate of profit does not then include the majority of profits, unsurprisingly therefore, it doesn’t show a great recovery.
    How then to explain the present crisis if rates of profit have generally recovered? Firstly of course, there has been a decline in the USA since around mid 2006, although only marginally it should be said. I think the present crisis can be best explained as a major disproportion in one section of production – residential housing – combined with a major financial crisis – rather than a general crisis of over-accumulation.
    If this is correct of course, it means that there will not be a great depression or anything like it, even if the present US crisis still has some way to go, but that its effects will be very significantly offset by the growth of the world economy, which is not so dependent on US consumer demand as the left would have us believe.

    Comment by bill j — April 25, 2008 @ 9:27 pm

  7. BTW i’ve written a brief crit of John Bellamy Foster here


    Comment by bill j — May 1, 2008 @ 7:07 am

  8. My understanding of these distinctions:
    A falling rate of profit means a shortage of worthwhile investment opportunities for capital. Thus the circuit of capital, M-C-M, experiences interruptions. This is exacerbated by other disproportionalities within the system: between departments, between financial and productive capital, the erroneous price signals given by prices of production, between money as a measure of value and a means of circulation. It is the ceaseless flow of capital between its money and commodity phases that creates value and moves an economy forward. This shortage of worthwhile investments halts this flow and capital bunches up in either commodity or money forms. When in commodity form we experience underconsumption and hence the devaluation of commodities and labor. When in money form we experience inflation and the devaluation of money. In either form, we have an overaccumulation of capital.
    The credit system is crucial in mopping up surplus by both creating demand and furnishing investments ahead of the production of real value. Thus credit creates fictitious capital in advance of the production of future values. If those values can be realized in production then capital is safe. But as soon as the dearth of profitable investments becomes apparent credit becomes the focal point of instability/ volatility in the economy. This is why crisis always begins in the credit system and appears as a crisis of the monetary system and not as a crisis of production.
    Thus underconsumption, falling rate of profit and overproduction are all brought into one larger theory of the accumulation cycle, a cycle marked by the continuous problem of overaccumulation.

    Comment by kapitalism101 — May 19, 2008 @ 12:33 pm

  9. It would have been worthwhile to have looked not simply towards rate of profit of nonfinancial capital but the differential between this and financial rate of return, just as it would have been worth considering the hypertrophy of claims, of fictitious capital, relative to that being claimed. Oh well.

    Comment by Juan — November 17, 2008 @ 5:10 am

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