@ Fool on the Hill
I’ve been mulling over your posts for the past couple days now and, after a bit of reading, I just do not find Marx’s explanation at all satisfactory.
In my understanding, the Marxist overproduction theory of crisis is a corollary to a Keynesian underconsumption theory of crisis and they suffer from the exact same deficiency: They ignore the process of entrepreneurial decision making and its effect on the capital and price structure.
The assertion Marx makes that unsalable goods can build up in all the supply chains of the entire economy only holds if prices are static. They are not. Clearance sales are just one example of the many ways a capitalist can liquidate an excess of inventory, bringing the real purchasing power of consumers in line with the number of goods for sale. 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. So long as prices are flexible we know the market will clear and the glut will be liquidated. Thus, purchasing power “leaking” into savings (Keynes) or supply of goods increasing in excess of purchasing power (Marx) is irrelevant to the consumer so long as prices are flexible (ie: can respond to supply and demand.)
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.
The entrepreneurial calculus begins and ends with respect to a given product or widget and whether or not they can produce it at a profit. If they cannot, the widget does not get made and we have no inventory glut. An efficient business will produce items that have the highest contribution margin first, simple. (For those who might be unfamiliar with the term, Contribution Margin = Unit Price - Fixed Costs/unit - Variable costs/unit.) But what if they’ve made an error and on subsequent reevaluation they find a widget they put into production is not profitable? This is where Marx, it seems to me, is hamstrung by class analysis. For, while it may be true that capital tends towards centralization within the capitalist class, the distribution of that capital must by no means be uniform throughout said class. The distribution of capital is free to move between individual businesses or entrepreneurs within and even out of the class to find a better yield elsewhere. 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. We may find the product mix available on the market is completely different than the way it was before, with widget X being sold more than widget Y where the reverse used to be true, but this is a feature of the market’s dynamism. Tastes and productive conditions are perpetually changing.
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.
I know the thread has been dead for a few days but I hope you’ll respond. Marxism is a fun debate.
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.