part one:

part two:

The capitalist class spends a great deal of money trying to get you to buy shit that you don’t need. They have erected a vast, extensive ad-industry that exists solely for the purpose of manipulating desire on a subconscious level so as to mold the behavior of consumers to their liking.

In the early days of marketing advertisements spoke merely to the objective qualities of commodities.  But over time they realized that to really sell stuff you have to go beyond rational thought- you have to address people’s most intense desires.  But commodities can never really be the objects of our most intense desires. Most of all people desire intangible things like social approbation, a sense of belonging, confidence, a unique sense of self, etc. This created a basic problem for advertising: Their job was to get people to have an intense desire to buy stuff that they didn’t have an intense desire to buy.

And so they did the most logical thing from the bourgeois point of view (which, in true Orwellian fashion, is also the most absurd thing to do): they decided to make people associate commodities with intangible desires. Shoes give you confidence and an identity. Beer brings you social approbation. Cars bestow power and success. Etc.

It’s only possible to do this if you can suspend people’s rational thought (Ironically, economists call this “rationalizing consumption”).  And this is easy to do because, to vulgarize Freud, humans are largely ruled by an underlying layer of unconscious impulses.

So, after capitalism commodified social relations and space it when on to commodify desire. And now that we live in a world where we act out our subjective desire largely through the consumption of commodities which can never actually fulfill our desires we find ourselves immersed in a very cynical age. We have a profound suspicion of any belief in objective principles, of truth, of common political projects, etc. Hence the rise of both cultural apathy and reactionary fundamentalism.

This all contrasts starkly with one of the basic premises of bourgeois economic theory:

To quote “Exchange And Production” by Michael E. Staten:

“An inescapable fact of our existence is that our collective desires and goals exceed our productive ability to satisfy them…. The primary question to be investigated is how a society manages to coordinate the production of goods to satisfy consumer demands. Literally, how does it harness the competitive behaviour of millions of individuals in order to get goods and services produced?”

We can raise several objections to this idea that a capitalist society merely produces to meet people’s needs:
1. For one, if capitalism merely provides us with our subjective desires why is the collective result something that is to none of our desires?

2. How is technological progress driven by desire?i.e. People didn’t need electricity before it was invented. Electricity was invented and then we built a society around it which is now structured in a way so that we need electricity.

3. Can our desires really be met merely by consuming things? After the initial excitement of buying a new product, how does consuming cellphones and tennis shoes actually move us towards a realization of any meaningful desire?

4. There is nothing objective about desire.  If I may quote my main man Slavoj zizek: -Zizek quote-

And this is why the capitalist class spends trillions of dollars every year trying to teach you to want stuff. Once again, empirical reality contradicts the basic tenants of bourgeois economics.

Perhaps this confusion comes from confusing simple commodity production with capitalist commodity production.

In simple commodity exchange there is no rapid proliferation of commodities for which a demand must be created. It works like this: I take a commodity (C), something I’ve made probably, and sell it for money(M). I then take this money and use it to buy another commodity (C). C-M-C I have basically exchanged one commodity which I don’t want with another commodity that I want. The circuit stops.

Capitalist production  works the exact opposite way. The capitalist starts off the day with money capital. He uses it to buy commodities of raw materials, machines and workers which produce finished commodities. He then sells these commodities for MORE money than he started with. M-C-M1 The cycle then continues the next day but now with more money in the initial investment. The economy grows.

So capitalist production, in contrast to simple commodity production, is quantitatively oriented rather than qualitatively oriented. That is, while a consumer is concerned about buying particular qualities of many different commodities- particular uses- the capitalist is concerned merely with getting a greater quantity of the same thing: money. Capitalist production is driven by the search for this profit, not by the need to fulfill subjective needs.

AFTER commodities have been produced, after new value is created by workers, then capitalists must go out into the marketplace and try to sell all these things they just made. This is called the “realization problem”- capitalists must “realize” the values of the commodities they have made. If they can’t realize this value they have a problem. The circuit of capital (M-C-M) is incomplete with capital stuck in commodity form. Hence the need to influence consumer habits…

But if capitalism produces merely for profit, without regard for consumption, is there a limit to how much it can grow? Won’t it run into a problem if it produces more than it can consume?

Yes. The argument that crisis is caused by the over production of commodities for which there is a lack of demand is called the “underconsumption” argument. It is one of the oldest theories of capitalist crisis and has many variations, some Marxist, some not.

Today the underconsumption argument is considered a flawed argument, yet a brief analysis of underconsumption and its problems will be quite useful for our larger investigation of capitalist crisis.

The basic question behind underconsumption is this: if capitalist production is always expanding, where does the new demand come from to buy all this new stuff? Some simple algebra may help us here.

The total value of all the commodities in the economy is equal to V+C+S where V is the money spent on variable capital (remember that is just a fancy name for wages paid to workers), C on constant capital (these are finished goods made by other workers like tools, electricity, machines, etc.) and S for the surplus value that human labor adds to the commodity. In other words, human labor creates all the value in the commodity. This value is divided into three pieces: the part going to workers as wages (V), the part going to other capitalists for producing machines (C), and the part going to the capitalist as profit (S). Since, at a macro-level, the value of C is also just V+S, since machines and tools are also products of human labor produced under conditions of exploitation, ultimately the value of all commodities is merely V+S (I hope I don’t get in trouble for making this simplification.)

Assuming workers spend all of their wages on commodities they will be able to buy back the total amount of value in the economy up to the level of total wages (V). But that is not enough to buy back all of the rest of the value in society because the total value of commodities is V+S.

The question for the underconsumptionist is where does the money come from to buy back all of the surplus value in commodities? There appears to be a “demand gap”. On top of this we must remember that capitalists endeavor to raise the amount of surplus they extract from workers while lowering wages. This means that there is a systematic tendency for S to rise relative to V. The demand gap increases.

There are many ways that the capitalist class tries to raise the consumptive powers of the working class to fill in this gap. Consumer credit allows consumers to buy commodities ahead of their wages. But an economy cannot be sustained by debt, as we are learning with the credit crunch.

In the 50’s and 60’s a strong labor movement was able to demand higher wages from the capitalist class. This led to the creation of a middle class with a higher standard of living. But higher wages can’t fill the demand gap unless they eliminate S completely. And we know that there could be no capitalism without profit.

The state can step in to create demand. This is the basic Kenysian tactic. By providing welfare to those who consume less the state can raise aggregate demand. The state also spends a lot of money buying shit from capitalists itself. Big things: Roads, railways, stadiums. Some of these things, like guns and bombs, are considered “unproductive expenditures” because the state immediately destroys what it has just bought. But state spending and welfare still can’t be enough to fill the demand gap because ultimately, state budgets come out of the circuit of capital in the first place. Taxes are deductions from wages and profits (V and S) and thus do not represent any ultimate new source of demand.

Workers aren’t the only people that consume. Though the capitalist class is small, it’s consuming powers are large. Mansions, cars, vacation homes, yachts, etc. Capitalists’ money comes from S in the first place, so can capitalist themselves buy enough luxury goods to fulfill the demand gap? Well, if capitalists spent all of S on consumption there would be no surplus left for reinvestment- for growth….

…which leads us to the most important way of mopping up excess demand: reinvestment. Capitalists’ take their profits and they reinvest in machines and labor in order to expand production. So expanded production means an increased demand for machines, and more money toward wages, which in turn increases demand for consumer goods. This is the primary way in which capitalism fills the demand gap- through effective reinvestment strategies.

But, as you may have noticed, this leads to a circular logic: How can we say that the demand for S comes from the profits of selling S? How can we say that the profits from selling the surplus are used to purchase the surplus? This apparent absurdity is solved by introducing the element of time into the equation.

At the end of a production period the capitalist has products equal to C+V+S which he must sell. The end of one production period is the beginning of the next. So at the same time that capitalists send their products off to market to sell they are also making decisions about reinvestment to begin production anew. If the capitalist class as a whole expands their productive investments this will create enough current demand to fill in the demand gap. All of the surplus product is realized. The mystery of effective demand is resolved.


This means that the only way to resolve the problem of underconsumption is through perpetual capitalist accumulation. Capitalism must grow and grow if it is to survive. This means finding more and more labor to extract surplus value from, hence the geographical expansion of capitalism through its various phases of globalization.

It is popular to look for external barriers to this expansive capitalist accumulation as a cause of crisis. Clearly capital can face external barriers. The environmental crisis may or may not be such an external barrier to capitalist growth. But the reality is that capitalism faces internal contradictions as well. Capitalism is not a harmonious system which bumps up against external forces that create disequilibrium. Capitalism is inherently, internally contradictory and crisis-prone.

What an examination of the underconsumption problem shows us is that if capital is to experience equilibrium growth it will require very specific investment strategies. If capitalists invest in the right proportions than perhaps capital could avoid crisis. A theory of crisis then must be a theory of the nature of capitalist reinvestment and how these reinvestment strategies shape the rate of accumulation.

The theory of the falling rate of profit and of overaccumulation, which will be discussed in detail in future videos, is precisely such a theory. It is a theory of accumulation which argues that the incentives that drive individual capitalists’ investment strategies create disequilibrium and threaten the rate of profit, thus causing crisis.

About kapitalism101
This entry was posted in Econ 303- Crisis and tagged , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s