Broadly, and simplistically speaking, the total sale value of all merchandise up for sale in a given period cannot exceed the total money available for purchases in that period.
There’s no way individual capitalists–who set the prices of individual commodities–could possibly know how much money is available for purchase in a given period nor what percentage of the total supply their products make up. I’ve begun to discuss price theory in another thread, but haven’t had time yet to answer the replies there.
Now, at this point you’ll likely, and very correctly, point out that this might result in entrepreneurs having to sell their inventory at a loss but this by no means requires that they continue to produce at that loss. This is why the entrepreneur’s assessment of market conditions and the entrepreneur’s place as an actor within a market economy makes him/her a cornerstone of Austrian theory.
It sounds like you actually understand my position fairly well. That is what I was going to say. If I understand Marx right (and I haven’t yet gotten to Vol. 3 where he deals with this explicitly), his position is that as the economy moves towards overproduction, the rate of profit declines. The decline in the rate of profit is in line with what you are saying–capitalists need to take a loss in order to clear their inventory.
This is the essence of what a guy like Schumpeter would call “creative destruction”; if an entrepreneur can’t make a widget profitably investors will find somewhere else to earn a yield on their capital and other entrepreneurs benefit from capital/inventory liquidations by being able to acquire them cheaper than they otherwise could. Businesses fold and capital will move to and be redeployed where it makes the most profit because, in a dynamic economy with flexible prices, there is always an opportunity to collect the difference between inputs and outputs (profit) so long as there are consumer demands that remain unsatisfied.
Interestingly, Schumpeter took the concept of “creative destruction” from Marx (I haven’t read Schumpeter myself, but he sounds like he’s worth exploring). I certainly agree that capitalists buy the assets of other capitalists at a low rate during crises. But in order to make a profit off of these purchases, they then have to sell them themselves at a higher rate–planting the seeds for a new crises. And again, this demonstrates the markets tendency towards centralization. Unsuccessful capitalists who sell their unprofitable assets to other companies are forced into the workforce–perhaps to the same companies that bought them out. The unsuccessful among those companies fold in turn. Capital becomes concentrated in fewer and fewer hands.
Also note that, barring the monetary shennanigans of our central banks and various price-fixing schemes like minimum wages, it is impossible for there to be no opportunities to invest capital for a return because the price of inputs (commodities, other widgets, labour, etc.) is determined by the ability of entrepreneurs to bid them towards productive applications. In other words we’ve come full circle, back to price flexibility, because the prices of the factors of production can only be as high as the maximum bidding entrepreneurs are willing or able to pay.
But the fact that there are profitable opportunities is precisely the problem. The larger the profits, the less of their product workers can buy back; the bigger the profits of one firm, the greater the losses of another. And it’s not so much the price of the factors of production that are too high, but the products of production (i.e. consumer goods).
Another thing, businesses do not absolutely have to lower their profits when their products aren’t selling. During a slump, either businesses don’t sell their products or they sell them at a loss. But it’s a prisoner’s dilemma. If half of the businesses hold out and don’t sell anything and the other half sells their products at a loss, then a net amount of money would be flowing from the capitalist class to the working class. This new money would allow the workers to buy the unsold goods at a profitable price. Thus, the first half of businesses have regained profitability due to the sacrifice of the second group. Each business then has an incentive refrain from lowering its prices in hopes that someone else will lower their prices and serve as the fall guy.
I’m only a hobby economist myself but If you’re looking to learn some Austrian economics I recommend Human Action by Ludwig von Mises. It’s quite the tome but ol’ Ludwig is an easy read compared to Marx and you don’t seem to have any trouble with him. Also for a specfic treatment of the underconsumption/overproduction theory of crises I’d check out the chapter the Paradox of Saving in Hayek’s Prices and Production (pg 131). Both books are available for free in the Literature section.
I’ve been planning on getting to Human Action eventually. Thanks for the heads up on the Hayek piece. I’ll look into that as well.
I appreciate your response. It’s probably the most polite and intelligent one I’ve gotten so far.