Socialist Party of Great Britain - Capitalism In Crisis - Economic Crises and Underconsumption.

The Socialist Party of Great Britain has long argued against the view that crises and economic depressions are a result of a shortage of purchasing power and have dismissed as erroneous both crude and sophisticated theories of underconsumption.

During the 1930’s, for example, some writers, including Major Douglas and J.M. Keynes, argued that there was an overall shortage of purchasing power in capitalist society and that this was the cause of economic crises and depressions. Douglas proposed that the government should distribute to the population a cash "national dividend" to correct the supposed shortage.

Keynes maintained that this overall shortage of purchasing power made it impossible to sell all the products of industry in the home market, hence the pressure to sell abroad. And that if home demand is increased by the adoption of his proposals pressure to export would disappear and thus remove a major cause of war.

Of course the working class lack purchasing power, but the working class and the capitalist class combined always have the purchasing power to buy all the products of industry.

At the time, the SPGB made the point that:

…It is quite true that money paid out in the form of wages, salaries and dividends in any week or other period will not be sufficient to buy all the products placed on the market by industry as a whole, but it does not have to do so. In any given week the persons with cash and bank deposits with which they can purchase goods, do not consist only of people holding unspent wages, salaries and dividends. It also includes persons (and companies) who have just received payment for raw materials and finished articles which they sold and delivered some time previously and who are now in the market buying finished products and more raw materials, partly for personal consumption and partly for further production (The Douglas Scheme SOCIALIST STANDARD, June 1933).

However, it must be remembered that capitalist production produces only for profit and the amount of commodities produced at any given time do not correspond with the real needs of the working class rationed, as they are, by the wages system. What workers need to live creative and worthwhile lives and what they can buy with their wages are two different things. In other words capitalism deliberately underproduces through the forces of production including co-operative social labour being constantly restricted by the class relations of production.

And there are just not consumers buying consumer goods. Capitalists buy and sell from each other; factories, office, means of producing and so on.

The failure of some products of industry to find buyers, which produces a crisis, is not due to any overall shortage of purchasing power but it is due to the failure of capitalists to exercise their power to purchase commodities at a crucial time.

Marx and J. B. Say

Marx dealt with it in his answer to the economist J. B. Say. He did so when analysing simple commodity production. What Marx established was the “possibility of crises

J. B. Say argued that a serious depression should not take place because "every seller brings a buyer to market": by which he meant that every producer of commodities who sells his products then has the cash with which he can at once buy other products and so keep industry busy.

Marx refutation of J.B. Say can be found in CAPITAL VOL. 1 Chapter III, section 2. He accepted Say's argument with, however, one qualification. He agreed that the sellers have the cash with which they can go at once out and buy some other commodity, but he pointed out that "no one is forthwith to purchase because he has just sold".

He may choose not to do so and if the interval of time between the sale and the purchase is too great, the result is "a crisis".

The question to be answered then is why this failure to buy commodities takes place.

Say has disregarded the fact that part of capitalist expenditure which is investment (as distinct from the capitalists' purchase of necessities and luxuries for personal consumption) has as its sole purpose making a profit, and if there is no prospect that a profit can be made the capitalist refrains from buying although he has the means to buy.

Using their surplus cash to provide jobs for the unemployed or to give them extra wages in which to buy goods is not what the capitalists are in business to do.

Marx and Keynes

In their own separate ways Marx and Keynes have been consistently attacked by market fundamentalists often deliberately and misleadingly claiming Keynes to be a “Socialist”. In fact Keynes, a Liberal, said he wanted to save capitalism and considered Marx’s CAPITAL as “an obsolete economic text, which I know to be not only scientifically erroneous but without interest or application for the modern world” (A SHORT HISTORY OF RUSSIA, 1925). However, the application of Keynes’s own economic theories by successive Labour and Tory governments did not prevent further economic crises and trade depressions.

Marx in particular showed that capitalism not only has the possibility of an economic crisis but must necessarily have a crises to temporarily resolve the contradiction between the social forces of production including social labour) and the capitalist relation of production. Marx argued that because capitalism is unplanned and anarchic, commodity production and exchange can only be held in temporary equilibrium.

Within a boom capitalists try to produce as fast and as much as they can for markets the size of which and they do not know. Inevitably some industries overproduce and if commodities cannot be cleared within a certain period of time you get an economic crisis and depression with unsold commodities, bankruptcies and high levels of unemployment.

Marx made this point forcibly in the second volume of THEORIES OF SURPLUS VALUE:

The possibility of crisis, which became apparent in the simple metamorphosis of the commodity, is once more demonstrated, and further developed, by the disjunction between the (direct) process of production and the process of circulation. As soon as these processes do not merge smoothly into one another but become independent of one another, the crisis is there (THEORIES OF SURPLUS VALUE, Vol. II, ch. XVII, p. 507).

Capitalists and Hoarding

Borrowing and investing in the production of commodities is weak not because there is a shortage of investment funds but because capitalists do not see a profitable outcome to invest.

Within the British economy, businesses are estimated to be holding £731.4 billion in cash hoards, the highest level on record. This hoard of money capital (£118 billion) is six times bigger than the total UK business investment for 2011 (WHAT TO DO WITH CORPORATE CASH, Deloitte Press release, 7 February 2012).

One example of current hoarding of money capital by businesses is Rolls Royce. This is what THE ECONOMIST recently wrote about Rolls Royce, one of British capitalism’s most successful companies:

Like much of corporate Britain, Rolls Royce has been piling up money for a rainy day. At the end of 2010 it had £2.9 billion in cash stashed away. Its net cash (i.e. excluding debt) rose to £1.5 billion last year, equivalent to around 15% of revenues (19th May, 2011).

Estimates of the money capital hoards vary, but the situation is similar in Europe and the US. In the Eurozone countries, the cash hoards are estimated to be almost €2 trillion – most of it held in short-term, overnight deposits (Cash-Hoarding Companies Seem Unable to Splash Out, FINANCIAL TIMES, 11th March 2012).

And according to Capita Assets Service (LBC 16th September 2013) the top 300 largest Footsie companies had a “hoard” of some £166b built up over 5 years since the beginning of the trade depression waiting to be invested once economic conditions were favourable again.

Using their surplus cash to provide jobs for the unemployed is not what the capitalists are in business to do. When the economic conditions improve and there are prospects of making a profit, companies will be only too willing to invest. This is precisely what some are starting to do again. That is, until the next economic crisis and trade depression.

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Object and Declaration of Principles


The establishment of a system of society based upon the common ownership and democratic control of the means and instruments for producing and distributing wealth by and in the interest of the whole community.

Declaration of Principles


1. That society as at present constituted is based upon the ownership of the means of living (ie land, factories, railways, etc.) by the capitalist or master class, and the consequent enslavement of the working class, by whose labour alone wealth is produced.

2. That in society, therefore, there is an antagonism of interests, manifesting itself as a class struggle, between those who possess but do not produce and those who produce but do not possess.

3.That this antagonism can be abolished only by the emancipation of the working class from the domination of the master class, by the conversion into common property of society of the means of production and distribution, and their democratic control by the whole people.

4. That as in the order of social evolution the working class is the last class to achieve its freedom, the emancipation of the working class will involve the emancipation of all mankind without distinction of race or sex.

5. That this emancipation must be the work of the working class itself.

6. That as the machinery of government, including the armed forces of the nation, exists only to conserve the monopoly by the capitalist class of the wealth taken from the workers, the working class must organise consciously and politically for the conquest of the powers of government, national and local, in order that this machinery, including these forces, may be converted from an instrument of oppression into the agent of emancipation and the overthrow of privilege, aristocratic and plutocratic.

7. That as all political parties are but the expression of class interests, and as the interest of the working class is diametrically opposed to the interests of all sections of the master class, the party seeking working class emancipation must be hostile to every other party.

8. The Socialist Party of Great Britain, therefore, enters the field of political action determined to wage war against all other political parties, whether alleged labour or avowedly capitalist, and calls upon the members of the working class of this country to muster under its banner to the end that a speedy termination may be wrought to the system which deprives them of the fruits of their labour, and that poverty may give place to comfort, privilege to equality, and slavery to freedom.