Capitalist Crisis Caused by Overproduction

It’s inspiring to read that high school students are leading classes in political economy (“Spring Communist School: Youth Take Lead Building for Revolution,” CHALLENGE, 4/22). However, we need to correct a mistake in one part of the article that says that capitalist crises, also known as depressions or recessions, occur because workers can’t “buy back” what they produce. Depressions and recessions are actually periodic “crises of overproduction,” meaning too much of something is produced for capitalists to make a profit.
The most recent recession, in 2007-2008, began with overproduction of houses. In spite of mass homelessness and a general housing shortage for workers, like everything produced under capitalism, profitability isn’t related to how many workers are able to buy homes. Capitalists can only realize profits when competing groups of capitalists sell more homes and expand their share of the market.
In the last boom year, 2006, 1.05 million new homes were sold in the U.S. In 2007, only 774,000 (CNN Money, 1/28/08), despite a cut in the average price of 10.4 percent. CNN wrote, “Glut of homes driving down prices,” and noted that “Lennar, the nation’s largest home builder, reported a $1.25 billion fourth-quarter loss, the largest in the company’ s history.”
Lennar and its five or six major national competitors all knew the housing boom — fueled by cheap and fraudulent mortgages — would end, as every previous housing boom had ended. They kept building as fast as they could, borrowing money to buy land, equipment, and materials and to hire more construction workers—they were in a race. To survive, each had to capture a larger and larger market share. Each reasoned that if they could pile up profits fast, they could get through the bust stronger than their competitors, maybe even drive one or two out of business, and emerge in an even stronger position during the next boom.
Capitalist crises have happened every 10 years or so in every capitalist country for centuries, and communists and their friends must be armed with the understanding that it’s not because workers cannot buy back their products.
Workers are never paid the full value of what they produce. For every house or car a group of workers build, they receive a fraction of its value as a wage. The full value is realized when the capitalist sells it, and the difference is called “surplus value,” or profit.
Workers never have enough money to “buy back” what they produce. Much of what they produce is meant to be bought by capitalist institutions or by the capitalist class itself, not by workers. A few examples: machine tools, construction and mining equipment, oil wells, pipelines, military and police gear, roads, bridges, tunnels, large trucks, buses, railroad cars, airports, commercial airliners, business jets, factories, office buildings, hospitals, medical equipment, luxury goods.
It’s impossible to predict exactly when the next bust will occur, and dropping out of the race while the boom is still on means giving up a competitive advantage. The “anarchy of capitalist production” is built into the system. Capitalists know they will end up with more product than they can sell, but they have to produce it anyway. The boom generates the bust.
Returning to the 2007 crisis, it began in the housing sector but soon became a general crisis. Homebuilders canceled orders for construction equipment (bulldozers, cranes, power tools), materials (lumber, bricks cement, wire, pipes) and appliances (furnaces, air conditioners, sinks, toilets, stoves, refrigerators). The suppliers in turn stopped buying steel, aluminum, rubber, and electricity. The homebuilders, suppliers, mortgage lenders, title insurers, and real estate agencies laid off workers, who cut back on purchases of consumer goods.
Trade union leaders and liberal politicians put forward the “buy back” explanation because it supports their position that capitalism, by paying higher wages, can be fundamentally reformed to benefit the working class. They then say that to prevent these crises, the bankers and bosses have to stop being so greedy and pay workers more.
Communists must not put forward this false explanation. Instead, we must demonstrate that crises are inherent to capitalism, part of its competitive essence. While some individual capitalists certainly appear more greedy and callous in their disregard for the working class than others, these periodic crises have nothing to do with individual greed. As capitalist crises worsen, the need for capitalists to conquer other rival bosses’ labor markets and resources through imperialist war sharpens. Crises will end only when the system that causes them, capitalism, is destroyed by communist revolution.