Starvation Through Abundance: The Bizarre Paradox of Crises of Capitalist Overproduction

The 2008 recession was and is one of the largest economic events of recent history, and has caused economic upheaval the world over, massive increases in levels of poverty and thousands of companies declaring bankruptcy, forcing their workers out of a job and spreading misery and despair.

For young people, this event was particularly catastrophic: austerity measures have led to university education becoming often unbearably expensive, and it is difficult to get a job even with a degree – and nigh on impossible without one. Young people have almost no possibility of gaining the economic base that makes it possible to buy a house or support a family. Our futures have been taken away – we are being forced to take any work we can, often through shady temp agencies that give young people no chance at unionisation or industrial action, which means that we can’t even improve situations for ourselves.

Why is this? Commonly the blame falls on the bankers. While we certainly have no love for bankers, and they contributed in no small way to the crisis, it is not the case that the whole crisis was caused by a few stupid bankers making bad investments. This argument lays the blame at the feet of a clique of individuals, instead of where it should lie – with how the economic system of Capitalism functions at a fundamental level.

It is often thought that the cause of crises are that not enough is being produced, so people can’t buy anything and this is what causes unemployment, homelessness and starvation. As a matter of fact this is the complete opposite of the truth. The present crisis (and the other most famous crisis in history, the Wall Street Crash) is caused by producing too much!

The nature of Capitalism is that it is a system driven by profit. Capitalists strive to make money, and to make as much money as they can – in fact if they don’t make as much money as they can they will be overwhelmed by competitors and go under.

When profit is the primary motivator, the obvious response of the capitalist is to try and produce as many products as they possibly can, the greatest possible amount of goods for sale, as for each product sold a proportion of the revenue will be profit. However, the law of supply and demand teaches us that when the supply is greater than the demand, products are sold at below their value, determined by the hours of labour quantified in a product (and of course the inverse is true when demand is greater than supply). To read more about supply and demand economics and the labour theory of value we recommend Political Economy – A Beginner’s Course by A. Leontiev.

Since the capitalist is now faced with a situation where they have produced too much of a product, and thus it is being sold at less than its value, they will try to reduce the supply to a point where supply and demand are equal and thus the product can be sold at a higher price. To achieve this they fire employees, because they do not want to pay people to not produce, so they will try and limit their own losses through unemployment.

However, the capitalist has shot themselves in the foot – now that there are fewer people employed, fewer people earning money, there is less demand, as people can’t afford to buy products. So, they have not permanently fixed their problem, that items are sold at less than their value. Loath to sell products cheaply and make no profit, or possibly even losses, they fire still more employees in the hopes of lowering the supply. And so on, and so on. The more they try to fix the problem they face the worse it gets – not enough people can afford to buy their products and so they are losing money rapidly.

Companies start to go bankrupt, throwing more people out of work, leaving more people unable to afford products. The vicious cycle goes on and on.

It might seem that it is in the best interests of the capitalists to curb their own greed and curb production in the first place, as it would avert the crisis. And this is true, for the capitalists as a collective it would definitely be the sound economic decision to preserve their profits. But capitalists do not think as a collective. Capitalism is a very decentralised system; power is in individual companies’ hands and these companies oppose one another, compete with one another and try to take as large a share of the market as they can from one another.

With this in mind the capitalist will produce as much as they can, because they are trying to outperform the other capitalists. But every capitalist is doing this, trying to grab as much profit as they can and gain dominance over the market. When this eventually leads to overproduction, they are powerless to stop the downturn which happens extremely rapidly and unstoppably – hence why it is often called a ‘crash’. These crashes/crises always follow a boom period for capitalism: the 1929 crash followed the roaring 20s and the 2008 crash followed the boom of the 90s and early 2000s.

Capitalism is a system where the end result of abundance is starvation, where prosperity leads to destitution and where an increase in employment will eventually cause mass unemployment. As Capitalism develops and companies become larger and larger these crises become more common and more devastating. We must seek change, we have no option but to fight for a new system where people, not profit is the driving force of the economy. Engels’ words ring truer than ever – it is a choice now between socialism or barbarism.


Recommended Reading

Imperialism and the Worst Ever Crisis of Overproduction – H. Brar and E. Rule

Political Economy: A Beginner’s Course – A. Leontiev

Value, Price and Profit – K. Marx