General Glut - Marxian

Marxian

Karl Marx's(1910) critique of Malthus started from a position of agreement. Marx's idea of capitalist production, however, is characterized by his concentration on the division of labor and his notion that goods are produced for sale and not for consumption or exchange. In other words, goods are produced simply for the intention of transforming output into money to purchase other commodities. The possibility of a lack of effective demand, therefore, is held only in the possibility that there might be a time lag between the sale of a commodity (the acquisition of money) and the purchase of another (its disbursement). This possibility, also originally crafted by Sismondi (1819), endorsed the idea that the circularity of transactions was not always complete and immediate. If money is held, Marx contended, even if for a little while, there is a breakdown in the exchange process and a general glut can occur.

For Marx, since investment is part of aggregate demand, and the stimulus for investment is profitability, accumulation will continue unhindered as far as profitability is high. However, Marx saw that profitability had a tendency to fall, which would lead to a crisis in which insufficient investment generates an insufficiency of demand and a glut of markets. The crisis itself would operate to raise profitability, which would start a new period of accumulation. This would be the mechanism for crisis occurring repeatedly.