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underconsumption

 
     
  A concept of particular importance in Marxian economics where it refers to a persistent shortfall in demand frequently explained in terms of inadequate purchasing power. This is one manifestation of the crisis of over-accumulation in which the surplus of labour and capital which capitalism needs to sustain its own reproduction can no longer be absorbed. Harvey (1982, p. 195) notes the following manifestations of overaccumulation: an over-production of commodities, a surplus of inventories, idle capital within the production process, surplus money capital, surpluses of labour power (un- and underemployment), falling rates of return on capital.

These conditions point to a contradiction in capitalist societies which undermines the notion attributed to J.B. Say that supply creates its own demand as a result of the circular flow of income (rents, wages, profits) to land, labour and capital in production, which must equal the total price of goods produced. Extra production involves extra income and so there can be no general tendency to underconsumption.

The consumption of goods by labour certainly forms an important component of aggregate demand for the total output of the economy. But, at the same time, the consumption of labour is, in part, merely a moment in the process of circulation of capital as accumulation is the objective of the circuit of capital. Competition between capitalists as measured by the rate of profit tends to force perpetual revolution in the productive forces, often involving aggregate downwards pressure on wages — in real if not nominal terms — and on the incorporation of variable capital (labour) into the production process. Thus the benefits of increasing productivity and technical change cannot all flow to labour because of the antagonistic social relations of reproduction between labour and capital and the competitive relations between capitals which constantly threaten the rate of profit. One consequence is the increasing inability of labour to consume the commodities produced.

Capitalists may respond to this contradiction by switching capital to different forms of production and by encouraging consumption — not least though the provision of credit — and the state may respond through the provision of the means of collective consumption. Equally, advertising can shape consumption by labour in both quantitative and qualitative terms and so help to make consumption rather more rational with respect to the ongoing process of accumulation.

Strictly speaking, underconsumption refers only to consumption goods. But there are other, related, components of demand in the economy. The consumption of constant capital is more directly under the control of capital than is the consumption of variable capital. However, when constant capital is particularly lumpy or characterized by substantial externalities, investment is frequently undertaken by the state. This does not mean that the state can solve the problem of underconsumption, for it, too, is dependent upon the capitalist economy for resources. However, the state can help to annihilate time by borrowing and so may contribute to the management of demand (see neo-classical economics).

There remains the problem of where the demand for the surplus value produced but not yet realized through exchange, is to come from. The capacity of luxury consumption as a solution to this problem is self-limiting. Another solution is the geographical expansion of the market, a process closely connected with imperialism. Again, clearly, there are limits to this possibility. However, it is not so much the expansion of markets that is served by geographical extension as the conversion of money into capital through the further exploitation of labour power. Thus, the solution to the problem of the realization of surplus value through exchange is resolved by the further exploitation of labour power in production (Harvey, 1982, p. 95). Perpetual accumulation provides the solution and so, of course, simply intensifies the problem. (RL)

Reference Harvey, D. 1982: The limits to capital. Oxford: Basil Blackwell, 75-97.
 
 

 

 

 
 
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