The key to understanding the recurrent crises of capitalism is the term ‘overproduction’.
Capitalism produces not to meet human needs first & foremost, but to make a profit. It produces commodities to sell for more money than initially spent purchasing the required inputs. Money, at its core, is nothing more than that special commodity that acts as the universal equivalent. In otherwords, one particular commodity becomes the measure of value of all other commodities. Gold & silver have traditionally played the role of commodity money. There isn’t just commodity money though; there’s also token money & credit money. Today’s notes & coins are token money, as are Bitcoins, & credit cards are the most obvious form of credit money. But to have a firm grasp on the nature of commodity production, let’s leave token & credit money to one side for the moment.
If we imagine a world where money consists only of gold coins, we can see that all commodities can be measured in terms of their value by the amount of gold coins they exchange for. The more gold coins a commodity sells for the higher its price. We can also say the higher its value. Exchange value is then amounts of gold, measured in coins of certain weights. As Marx explained, these prices that take the form of weights of gold, are the expression of abstract ‘socially necessary’ labour time. That is, behind exchange value lies labour values. The market is nothing more than the allocation of a finite amount of labour time. The reason weights of gold have traditionally taken on the role of measuring the (exchange) value of commodities is because it takes a finite amount of labour time to produce a given weight of gold. Indeed, it takes a great deal of labour time to produce relatively small weights. This is why, even today & despite speculation, gold has acted as a good measure of labour time…of value.
In a capitalist economy that consists of just gold coins it is hard for production to get ahead of the market; where we see the ‘market’ as the aggregate amount of money that can be used to purchase commodities. What we can see clearly though is that there is one commodity that is different to all the others. The production of this money commodity can have implications for commodity production & so capitalism, in general.
Once we introduce the other forms of money, token & credit, things change; we get the possibility, even inevitability, of production getting ahead of the ‘market’. This is because money’s link with labour values can become distorted, even broken. By issuing excessive amounts of token or credit money, aggregate prices can now exceed aggregate values. More can be produced & sold at prices that exceed total labour value. People & organisations are not paying with commodity money, gold coins, that already embody an amount of labour time, but paying effectively with future labour time, labour time that may not be realised. This means production gets ahead of the market. This is overproduction: the overproduction of commodities relative to the money commodity.
As more & more credit money is created & debts build up nothing appears to be wrong at the surface level of appearance, quite the contrary as recorded profit rates are good, output is increasing, employment is on the up; we have a boom. What could possibly go wrong? Well eventually debt saturation is reached, money lenders (finance capital) start to worry that they are over-leveraged & may not get all their money back. There’s a credit-crunch as they stop lending to one another, this leads to a financial crisis, which eventually leads to an economic crisis as people & organisations default. The chain of credit breaks & bankruptcy leads to other bankruptcies. A large amount of the debt (credit money) has to be simply written-off. The law of value gets restored & aggregate prices get brought back into line with aggregate values, before the whole merry-go-round takes off again.
Marx understood overproduction because he understood the basic commodity nature of production. Marx understood that there was a limit imposed on the amount of token money that could be created without inflation taking off & even threatening the stability of currency. Keynes & Friedman, not understanding labour values, thought that a fiat money regime could release capitalism from the constraint of gold. They fell into (a reverse form of) Say’s Law by thinking that it was merely enough to ensure adequate amounts of token money (aggregate demand) were produced to buy whatever amount is supplied to the market. They were unable to comprehend that leverage (credit money/debt) would cause aggregate prices to exceed aggregate values & that this would inevitably lead to a crisis. As much as they can exercise some degree of control over token money created, the state authorities are unable to control the creation of credit, as much as they may try to legislate it, e.g. reserve asset & capital ratios. The history of finance capital shows how inventive (swindling) they can be; just look at today’s derivatives market.
This is the context of overproduction through which we must see the historically significant event of the fiat money regime initiated in 1971. It allows us to understand the rise of financialisation & the accompanying neo-liberal agenda of free-movement of capital & the plundering of state assets through privatisations. The rise of finance capital is predicated on credit money & the denial of the crisis of overproduction. Just how much the events that led up to Nixon’s break with gold were also tied up with falling rates of profit is up for debate. Just as the rise of China & the collapse of the Soviet Bloc has most probably increased the rate of exploitation & therefore supported/restored underlying rates of profit. What is important is the theory of overproduction & how through so-called ‘quantitative-easing’ (essentially printing money) the various states around the world have only extended the crisis of overproduction; more debt to help pay the debts.
Just as the adherents of neo-liberalism like to talk about market forces, the most powerful market force of them all, the law of value, is soon to bring their whole world crashing down. Surely about time we abolished capitalism & its crises of overproduction?