According to Marx, “the contradictions inherent in the movements of capitalist society impress themselves upon the practical bourgeois most strikingly in the changes of the periodic cycle through which modern industry runs, and whose crowning point is the universal crisis.”^[1] Throughout the nineteenth century, crisis followed crisis in intervals of roughly ten years. The periodicity of crises, according to Marx, stem simply from capitalism’s ability to overcome the overproduction of capital through changes in conditions of production which increase the mass of surplus-value relative to the existing capital. The definite crisis-cycle of the last century is, however, an empirical fact not directly related to Marxian theory. It is true that Marx tried to connect the definite periodicity of the crises with the turn over of capital. But he did not insist on the validity of this explanation. In my case, his theory does not depend on any particular periodicity of crises. It only maintains that crises are bound to arise as an expression of a temporary overproduction of capital and as the medium for the resumption of the accumulation process.

In Marx’s abstract value-scheme, an absolute overproduction or over-accumulation of capital sets in as soon as a further enlargement of the total capital would yield a mass of surplus-value smaller than that previously realized. Although the conditions which the value-scheme of development assumes do not exist in the real world of capital production, it is nevertheless clear that individual capitals, and capitalism as a whole, exist in situations which set limits to their growth. If these limits are transcended, crisis sets in; this leads to activities that remove these borders by reorganizing the total capital structure. Yet this reorganization sets up conditions which contain specific limits of their own.

At any given time the actual borders of capital expansion are determined by general social conditions, which include the level of technology, the size of the already accumulated capital, the availability of wage-labor, the possible degree of exploitation, the extent of the market, political relations, recognized natural resources, and so forth. It is not the market alone but the whole social situation in all its ramifications which allows for, or set limits to, the accumulation of capital. Because it is not possible to calculate when the expansion of one or all capitals reaches its limits in actual social conditions, limiting conditions have to be assumed in order to reveal the meaning of the process here involved.

The capitalist economy is an entity of production and exchange. The great bulk of the commodities produced must be sold; for if commodities cannot be sold, the capital and surplus-value they contain cannot be realized, and the increased exploitation that produced them may not be able to prevent reduced profits. The discrepancy between the creation of surplus-value and its realization appears as a glut on the market, as an over-production of commodities. Seen from the angle of productive development rather than from that of its results, the over-production of commodities is an over-production of capital. For Marx, the over-production of capital always implies the over-production of commodities, but the distinction between them is still important. For the over-production of capital and commodities, instead of leading to a curtailment of productivity, only accelerates the latter, thereby indicating that the discrepancy between the production of surplus-value and its realization arises because of a decline in the rate of accumulation. With a sufficient rate of capital expansion there would be no over production, and as soon as the accumulation process is resumed, the market becomes once more what is considered “normal,” despite the even larger quantity of commodities now offered for sale. What is involved here, then, is not an over-production of commodities in relation either to the absolute consuming power of society or to the relative consuming power of capitalism, but an over-production of commodities in relation to the capitalistically-limited demand under the particular conditions of relative capital stag nation.

Over-production of capital is always the “end-point” of a period of successful capital formation wherein the extension of production parallels the expansion of the existing capital. To prevent this point from arriving, the conditions of production must be altered. These change, of course, in the very process of accumulation. There is, however, no reason to assume that the conditions of production will always change so as to accommodate the need for capital expansion, the less so because the former are the general social conditions of production and the latter a particular need bound only to the exploitative capital-labor relationship. And though it is true that social demand, by affecting the distribution of social surplus-value via the competitive establishment of an average rate of profit, sets or removes limits to particular capitals, this social demand does not represent the realities of social conditions but is itself largely determined by the production of capital.

At any rate, a crisis is an interruption of the accumulation process. Whatever specific crisis theories have been brought forth since Marx, these things are generally acknowledged – that a rate of expansion sufficient to forestall stagnation and decline depends on the profitability of capital; that it becomes increasingly more difficult to maintain such a profitability in view of the size of capital already reached; that economic stagnation can be ended only by an improvement in profitability. These constitute the content of all business-cycle theory.

All crises have been preceded by a speculatively-enhanced expansion of production and credit. This does not mean, however, that overproduction results from speculation and the extension of credit; for “the extension of the credit system is only the form which hides the overproduction of capital.”^[2] Overproduction is already inherent in competitive capital accumulation because of the twofold character of value production and the single-minded drive for exchange-value. “The expansion and contraction of credit is a mere symptom of the periodic changes of the industrial cycle.”^[3] The decline of profitability contracts the credit structure just as the increase of profitability enlarges it. Similarly, while it is true that competition enhances capital expansion regardless of the profitability of total capital, this is so only because the tendency for the rate of profit to fall exists in the production process, independent of the competitive mechanism.

Aside from windfalls of colonial robbery, early capital formation proceeded at a relatively even pace because of the still placid course of technological development and because of social barriers to the creation of a vast industrial proletariat. The non-capitalist aspects of the economy were still strong enough to give the total social process of development the general appearance of production for consumption. The same backwardness accounts, of course, for the horrors of early capitalism and the extraordinary greed for surplus-value that found its expression in the pauperization of the working population. It also explains the classical economists’ pessimism about the capitalist future, and their own, inadequate, concern with the problem of the falling rate of profit.^[4] Only with the rise of modern industry, the opening of the world market and the preponderance of capital-labor relations in production, did capital expansion itself become the major determining factor of social development. Until then, human physical necessities under less complex social conditions gave the early capitalist development an element of “order” not its own.

Although predetermined by the division of labor into necessary labor and surplus labor, social demand in early capitalism was in large measure a demand for the means of consumption. Hence the idea that the market equilibrium of supply and demand is determined by the social requirements of production for consumption. As capitalism became the dominant mode of production and the tempo of accumulation increased, “social demand” became in always greater measure a demand for capital. Supply and demand in the traditional sense ceased to determine the production process; the production of capital, as capital, determined the size and nature of the market demand.

Commodity production creates its own market in so far as it is able to convert surplus-value into new capital. The market demand is a demand for consumption goods and capital goods. Accumulation can only be the accumulation of capital goods, for what is consumed is not accumulated but simply gone. It is the growth of capital in its physical form which allows for the realization of surplus-value outside the capital-labor exchange relations. So long as there exists an adequate and continuous demand for capital goods, there is no reason why commodities entering the market should not be sold.

According to Marx, a market “equilibrium” in terms of prices implies an “equilibrium” in terms of values and presupposes the full realization of surplus-value. For a given time period, total social labor is accounted for only when the unconsumable part of surplus-value is converted from commodities into fresh capital. Only then is the circulation process in “harmony” with the production process. Without this accumulation, prices will fall not only because of the increased productivity of labor but also because the supply of commodities will exceed the demand. On the other hand, if the demand for capital exceeds the supply, prices will rise despite the increasing productivity of labor. Prices rise or fall with variations in the productivity of labor and in supply and demand. These latter variations, however, depend on the rate of capital expansion; and this rate depends in turn on the productivity (profitability) of labor relative to the existing mass of capital. In other words, price changes due to supply and demand relations derive from the value and surplus-value relations which determine the rate of accumulation.

Whatever the price movements that accompany the accumulation process and whatever their particular fluctuations in times of crisis, at no time do they tend toward an equation of supply and demand which gears social production to social consumption. Price changes always relate themselves to the expansion or contraction of capital accumulation. A low rate of capital expansion will appear as an excessive market supply of commodities and depress prices. A high rate of accumulation will reverse the market situation and raise commodity prices.

There can be surplus-labor production without capital accumulation. In that case, “surplus-value” would comprise no more than the consumption fund of the non-working population. But capital production excludes this state of simple reproduction. Coerced by competition, the individual capitalists must accumulate, if only to preserve the capital already their own. Capital is used up in the production process as a cost-of-production item, and is recovered in the circulation process as part of the price of commodities. Generally, any particular capital which does not increase its productivity by expanding will disappear, for capital can only realize its surplus-value on the market, and the market averages prices according to the changing productivity of labor.

An entrepreneur may invest in new and more productive capital equipment even when his profit on current production makes this a questionable undertaking, because the additional investment may promise a greater competitive ability and enable him to enlarge his market at the expense of other capitalists. All additional investments are so many attempts to partake of an expected larger market demand, or to get a larger share of an existing stable, or even declining, demand at the expense of other enterprisers.

A larger market presupposes a larger production, even though a larger production may not find an adequate market demand. In the attempt to safeguard capital by augmenting it, the capitalists accelerate the accumulation process. There is no certainty that the expansion of production will extend the market in equal measure. However, this very acceleration is itself a market extension in that it increases the demand for the means of production. If, in consequence, the market demand increases generally and affects all spheres and branches of production, a period of “prosperity” ensues and will appear as an “equilibrium” of supply and demand. On the assumption that capital accumulation has this effect, the only possible reason why it should suddenly be halted is a lack of surplus-value; and this lack must have arisen within and despite the accumulation process.

In reality, of course, it seems to be the other way around; it appears that the surplus-value is unrealizable due to an abundance of use-values (commodities). And to the individual capitalist it is indeed lack of demand which hinders the sale of his commodities and which induces him not to increase production by additional investments. But this apparent dependency of accumulation on market demand merely reveals the individual capitalists’ reactions to the social dearth of surplus-value, or surplus-labor, i.e. to the insufficiency of the laborers’ use-value (their working capacity) that falls to the capitalists in exchange for the laborers’ exchange-value (wages), or, what is the same, to the decrease of the exploitability of labor in comparison with the profit requirements of a progressive capital accumulation.

Hidden in the sphere of production, this situation is not contradicted by a glut in the commodity market. It must always be kept in mind that capitalist production is for profit and capital. The production of commodities as concrete use-values is merely the medium for the production of capital as abstract exchange-value. It must also be remembered that, with respect to profitability, the decline of the exchange-value element of commodity production is immunized by the increasing productivity of use-value production. Likewise, the decline in profitability that a definite amount of capital experiences finds its compensation in the growth of the total capital. In this manner, an increase in the quantity of unpaid labor – expressed as a greater mass of commodities – sets aside the tendential fall of the rate of profit. Thus, the actual glut on the commodity market must be caused by the fact that labor is not productive enough to satisfy the profit needs of capital accumulation. Because not enough has been produced, capital cannot expand at a rate which would allow for the full realization of what has been produced. The relative scarcity of surplus-labor in the production process appears as an absolute abundance of commodities in the circulation process and as the overproduction of capital. This is made evident by the fact that periods of overproduction are always terminated by an increase, not a decrease, in production and in the means of production made possible by improving the conditions of exploitation.

Although the expansion of capital depends on the realization of surplus-value in circulation and sporadically comes to a halt through market limitations, capital accumulation is not a realization problem. It is that too, of course, but the realization problem derives from the fact that capital production is a value-expansion process. Even assuming the nonexistence of the realization problem, Marx saw the accumulation process as historically limited because it destroyed it own source of existence and secret of development through the fall of the rate of profit in the course of the rising organic composition of capital.

This process, to be sure, can also be described in the less abstract form of surplus-value realization. The results would be the same however. The sphere of circulation grows with the growth of capital. But the capital expansion process is also a capital concentration and centralization process. This hampers the spatial extension of capital production, for capitalists become increasingly unable and unwilling to capitalize world production. The increasing difficulty of maintaining a rate of profit sufficient for the expansion of existing capital diminishes the desire to extend capital into non- or under-developed regions. Instead these regions are largely maintained as cheap raw material bases in exchange for commodities produced in capitalistically-developed territories.

Accumulation did imply the constant extension of capitalist production through the transformation of more primitive modes of production into commodity production. This is one way of arresting the rise of the organic composition of capital and of stabilizing the rate of profit. But accumulation also brings centralization and concentration which depress the formation of new capital, and thus gradually diminish the “beneficial” effects new capital can have on the average rate of profit. According to Marx, “the concept of capital contains the tendency to create the world market” ^[4] but capitalist development simultaneously hinders the capitalist development of world production by its immanent tendency to monopolize the capital accumulation process.

This is not to say that capitalism is responsible for the existence of underdeveloped countries. But it is to say that a full industrialization of world production cannot be accomplished through the accumulation of private capital. The growth and monopolization of private wealth hampers and distorts the formation of social wealth. To be sure, there is nothing in the capitalist system which prevents it from searching for profits all over the globe, and there is no place capital will not enter if it is profitable to do so. Yet the concentration of wealth based on private-property divides the world into capital-rich and capital-poor regions, just as it polarizes each particular nation into capitalists and wage-workers.

Capitalism found it more profitable to restrict industrial development to its own part of the world. Once this monopolistic position was reached and consolidated, it could not be given up without seriously disturbing the whole fabric of Western capitalism. To preserve the non-industrial nations as markets for their manufacturing industries was then the commercial policy of all developed nations, and it was politically enforced in countries under their control. Nature itself, it was asserted, destined some countries to be producers of industrial commodities and others to be producers of primary products. More than a “natural fact,” this division was also an economic convenience, as elucidated by the theory of comparative costs, i.e. the notion that it was more “economical” to produce primary products in primary-producing countries and more “economical” to produce industrial commodities in industrial nations. In this way, supposedly, everyone gained by the “international division of labor,” that is, by the division of the world into industrial and non-industrial nations. Actually, however, the exchange between these countries was always advantageous to the developed ones and disadvantageous to the underdeveloped.

This is one way in which capital concretely hinders the unfolding of the forces of production. But while this procedure hastens the expansion of the monopolized capital for some time, it later becomes an additional cause of capital’s stagnation. And this is so because in relation to the rising accumulation requirements of the existing concentrated capitals less and less surplus-value can be extracted out of the productively-stagnating under developed territories. For their own part, these territories cannot capitalize production in competition with the already highly-monopolized capitals; and the rise of new independent capitals is possible only in relative isolation from the capitalist world market.

Designed and built up with a view towards expanding world market, the productive capacity of capitalistically-advanced nations exceeds the scope of their national markets. As this is more or less true for all industrial countries, their combined production exceeds the scope of the world market, unless a general rapid capital formation expands the world market as fast as it does production. Although this is seldom the case, it is not impossible. Marx’s model of capital accumulation assumes that this is possible and therefore restricts the tendential fall of the rate of profit to events in the sphere of production. In reality, of course, the widening productivity-gap between the capitalistically-developed and underdeveloped regions impairs the realization of surplus-value through the latter’s increasing impoverishment. By fostering only the exploitation of primary goods production, by transferring profits made in these areas to the industrially-advanced nations, and by imposing terms of trade favoring the developed capitalist countries, the advanced nations reduce the underdeveloped area’s ability to buy manufactured goods. The poorer the underdeveloped nations become, the less a market they offer for the products of the industrially-advanced countries, and the less able they are to capitalize themselves and thus to increase the general demand. This lacking demand is actually a lack of surplus-value in territories unable to buy. What appears as a realization problem in advanced capitalist systems is a production problem in less developed nations. The total effect, however, is a shortage of surplus-value, which hinders the advance of the general accumulation process.

Whether one looks at the production of surplus-value, or its realization, when seen from the position of total capital, the real problem of capitalism is a shortage, not an abundance of surplus-value. Only by looking at a particular capitalist nation in isolation, or by separating the developed capitalist world from the world as a whole, does an actual lack of surplus-value appear as an overproduction of commodities. Similarly, it is only from the stand point of the individual producer in any capitalist nation that an actual shortage of socially-produced surplus-value appears as a declining market demand. But in the world at large and in each nation separately, there is overproduction only because the level of exploitation is insufficient. For this reason, overproduction is overcome by an increase in exploitation – provided, of course, that the increase is large enough to expand and extend capital and thereby increase the market demand.

1. Capital, Vol. I, p. 26.

2. Engels to Marx, Briefe über des Kapital, Berlin, 1954, p. 74.

3. Capital, Vol. I., p. 695.

4. For instance, Adam Smith thought that capital accumulation lowered the general rate of profit in the same sense in which the competitive expansion of particular trades lowered the profit for these trades; and David Ricardo held that the general rate of profit was bound to decline because capital accumulation, while raising the productivity of industry diminished the productivity of agriculture through the increasing inferiority of natural resources.

4. K. Marx, Grundrisse, p. 311.