Skip to main content

Overproduction

Overproduction

BIBLIOGRAPHY

Says law of markets is commonly understood, by friends and foes alike, to deny the possibility of general gluts. Overproduction theories are one of the ramifications of the opposition to this view; they evolved through direct confrontation with the proposition they were denying, in its various interpretations. These criticisms share the general standpoint that crises (or cycles) are to be explained in terms of some systematic divergence between production and consumption. Whereas Says law only admitted accidental disequilibrating causes (such as wars or exceptionally abundant or scarce crops) or temporary imbalances (due for instance to entrepreneurial miscalculations), the dissenters insisted on the general character of market gluts and pointed at causes intrinsic to the working of the system. Where dissenting views diverge is on the specific causes of disequilibrium. Overproduction theories of crises and business cycles emphasized troubles arising from the side of production, whereas the underconsumptionists instead attributed the disharmony to lack of effective demand, often stressing distributional factors determining lack of purchasing power or excessive saving. (The first representative of the latter view was J.C.L. Simonde de Sismondi; other prominent writers in this tradition include J. A. Hobson, William Trufant Foster and Waddill Catchings, and some Marxists). The distinction, however, is somewhat artificial, for there is a certain complementarity and overlapping between the causes identified by overproductionist and underconsumptionist writers.

Says law emerged as the winner of the gluts debate after the Napoleonic wars. David Ricardos argument, that production is only undertaken with a view to sell and sales only made with the intention of purchasing other goods thereafter, with its implication that disequilibria can only be temporary states of affairs resulting from exogenous events or miscalculation, gained wide acceptance. Thomas Robert Malthuss contrary opinion, that the systems development could be hindered, and unemployment would ensue, if the accrued production were not distributed in such a way as to occasion the most effective demand for future production, was only accepted by a minority of heretics (Malthus 1952, p. 10). From the 1840s onward, however, a growing number of writers questioned the validity of Says law. A first step (taken by John Stuart Mill, Karl Marx, and Wilhelm Roscher) consisted in rejecting the assumption that exchange was essentially equivalent to barter, by pointing out that money separates the acts of buying and selling and thereby makes crises possible. But this is only an abstract possibility. At the time, most authors believed that the factors turning this possibility into an actuality were linked to credit and speculation. Later, processes like hoarding, liquidation, and repayment of loans were added.

Marxs theory of crises was the starting point of a number of overproduction approaches. His reproduction schemes showed that while harmonious growth is a logical possibility, it is not a necessity. One of the points on which Marx insisted was that advances in technology and organization imply an increase in productivity, and therefore diminish the value of wage-goods. If, in the short term, workers obtain increases in their real wages, the profit rate decreases below what capitalists considered customary, and production has to be stopped. The Germanlanguage branch of overproduction theories emphasizing producers losses (prominently represented by Arthur Spiethoff) built on this view. The American counterpart of this approach grew out of the distinction between absolute and relative overproduction: While it was admitted that there cannot be overproduction with respect to human needs, it was pointed out (by David A. Wells, Uriel H. Crocker, Arthur Twining Hadley, and Constant Southworth) that production can be in excess to demand to the extent that the price is not sufficient to cover costs inclusive of a remunerative or ordinary profitalthough the notion of ordinary profits was questioned (by Thorstein Veblen).

A second group of overproduction theories stemming from Marxs schemes of reproduction emphasized that there is no logical necessity that productive sectors grow proportionately and that maladjustments tend to amplify and spread to the whole system (M. I. Tugan-Baranovsky). Along this line we also find writers (Hans Neisser, L. V. Birck) who stressed the implications of technological progress, pointing out that when the vertical structure of production is altered, the preservation of the correct proportions becomes increasingly difficult and is likely to be disrupted by several minor causes. Another group of writers insisted instead on the fixity of fixed capital: Having acquired expensive machinery requiring maintenance costs even if not used, entrepreneurs find it rational to keep producing even at a loss (Crocker, Wells). In this view, overproduction is not so much an excess of goods as of productive capacity (William Smart, Scoville Hamlin).

Several other authors considered systematic impediments to the establishment of a stable equilibrium between supply and demand. Time lags, in particular, were invoked in this connection by Albert Aftalion and Mentor Bouniatian. They argued that a divergence between supply and demand would generate price differences inducing an adjustment, but that as production lags behind demand due to the time required to build plants, prices send the wrong signals and induce overproduction crises.

When such a view was incorporated into formal dynamics in the 1930s (in particular by Michael Kalecki), the business cycle came to be seen as resulting from the dynamic properties of the system and the need to stress overproduction gradually faded. The other contemporary business-cycle theoriesthe equilibrium and the real business cycle approachesfocus on equilibrium and thus dispense with an essentially disequilibriumist concept altogether.

SEE ALSO Business Cycles, Theories; Marx, Karl; Says Law; Underconsumption

BIBLIOGRAPHY

Aftalion, Albert. 1913. Les crises périodiques de surproduction. Paris: Marcel Rivière.

Birck, L. V. 1927. Theories of Over-Production. Economic Journal 37 (March): 1932.

Bouniatian, Mentor. 1908. Wirtschaftskrisen und Ueberkapitalisation: Eine Untersuchung über die Erscheinungsformen und Ursachen der periodischen Wirtschaftskrisen. Munich: Ernst Reinhardt.

Crocker, Uriel H. 1887 General Overproduction. Quarterly Journal of Economics 1 (3): 362366.

Crocker, Uriel H. 1892. The Overproduction Fallacy. Quarterly Journal of Economics 6 (3): 352363.

Hadley, Arthur Twining. 1896. Economics: An Account of the Relations between Private Property and Public Welfare. New York and London: G. P. Putnams Sons; reprint, New York: Arno Press, 1972.

Hamlin, Scoville. 1930. The Menace of Overproduction: Its Cause, Extent, and Cure. New York: J. Wiley & Sons; London: Chapman & Hall.

Kalecki, Michael. 1935. A Macrodynamic Theory of the Business Cycle. Econometrica 3 (July): 327344.

Malthus, Thomas Robert. 1952. Letter to Ricardo, 7 July 1921. In The Works and Correspondence of David Ricardo, ed. Piero Sraffa and Maurice Dobb, vol. IX, 10. Cambridge, U.K.: Cambridge University Press.

Marx, Karl. 18621863. Theories of Surplus Value. Trans. G. A. Bonner and Emile Burns. London: Lawrence & Wishart, 19641972.

Marx, Karl. 18671894. Capital: A Critique of Political Economy. Trans. Samuel Moore and Edward Aveling. Moscow: Progress Publishers, 1967; reprint, London: Lawrence & Wishart, 1974. (Trans. from the 3rd German ed.)

Mill, John Stuart. [1848] 1965. Principles of Political Economy, with Some of Their Applications to Social Philosophy. In Collected Works, ed. John M. Robson, vols. 23. Toronto: University of Toronto Press; London: Routledge.

Neisser, Hans. 1934. General Overproduction: A Study of Says Law of Markets. Journal of Political Economy 42 (4): 433465.

Roscher, Wilhelm. 1854. Principles of Political Economy. 2 vols. Trans. John L. Lalor. New York: Henry Holt, 1878. (Trans. from the 13th German ed. of 1877.)

Smart, William. 1895. Studies in Economics. London and New York: Macmillan.

Southworth, Constant. 1924. Can There Be General Overproduction? Journal of Political Economy 32 (6): 722725.

Spiethoff, Arthur. 1933. Overproduction. In Encyclopedia of the Social Sciences, vol. 11. New York: Macmillan.

Tugan-Baranovsky, M. I. 1914. Periodicheskiye promyshlennyie krizisy. 3rd ed. St. Petersburg, Russia. Translated in 1954 in an abridged version as Periodic Industrial Crises. A History of British Crises (Annals of the Ukrainian Academy of Arts and Sciences in the United States 3 (3): 745802).

Veblen, Thorstein. 1892. The Overproduction Fallacy. Quarterly Journal of Economics 6 (4): 484492.

Wells, David A. 1889. Recent Economic Changes, and Their Effect on the Production and Distribution of Wealth and the Well-Being of Society. New York: D. Appleton.

Daniele Besomi

Cite this article
Pick a style below, and copy the text for your bibliography.

  • MLA
  • Chicago
  • APA

"Overproduction." International Encyclopedia of the Social Sciences. . Encyclopedia.com. 29 Apr. 2017 <http://www.encyclopedia.com>.

"Overproduction." International Encyclopedia of the Social Sciences. . Encyclopedia.com. (April 29, 2017). http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/overproduction

"Overproduction." International Encyclopedia of the Social Sciences. . Retrieved April 29, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/overproduction

Learn more about citation styles

Citation styles

Encyclopedia.com gives you the ability to cite reference entries and articles according to common styles from the Modern Language Association (MLA), The Chicago Manual of Style, and the American Psychological Association (APA).

Within the “Cite this article” tool, pick a style to see how all available information looks when formatted according to that style. Then, copy and paste the text into your bibliography or works cited list.

Because each style has its own formatting nuances that evolve over time and not all information is available for every reference entry or article, Encyclopedia.com cannot guarantee each citation it generates. Therefore, it’s best to use Encyclopedia.com citations as a starting point before checking the style against your school or publication’s requirements and the most-recent information available at these sites:

Modern Language Association

http://www.mla.org/style

The Chicago Manual of Style

http://www.chicagomanualofstyle.org/tools_citationguide.html

American Psychological Association

http://apastyle.apa.org/

Notes:
  • Most online reference entries and articles do not have page numbers. Therefore, that information is unavailable for most Encyclopedia.com content. However, the date of retrieval is often important. Refer to each style’s convention regarding the best way to format page numbers and retrieval dates.
  • In addition to the MLA, Chicago, and APA styles, your school, university, publication, or institution may have its own requirements for citations. Therefore, be sure to refer to those guidelines when editing your bibliography or works cited list.