Saturday, January 24, 2009

Crisis - the Over Accumulation of Capital by Brendan M Cooney

We can’t understand anything in isolation. We only understand things by comparing them to something else. If we are to understand why a capitalist economy goes into crisis we need to compare capitalism to something outside itself. Through such a comparison we can begin to see what is distinctive about capitalist crisis.

In order to make the most striking comparison, here we will use the example of a primitive hunter-gatherer society. The economic life of these early societies were extremely simple because there was no differentiation of work activities. Labor was a collective effort in which everyone participated to the best of their ability. The products of that labor were shared amongst the community according to need. The economic structure of these early primitive-gatherer societies was a large undifferentiated whole. There was no possibility of internal economic crisis because there were no internal parts that could be in conflict with each other or get out of synch.

Economic crisis, then, was external. Drought, cold, fire, disease, predators…. The brutal forces of nature had their way with early man. It was this opposition between man and nature that defined life for early man.

Fast forward a few millennium…

Capitalism could be seen as the polar opposite of this. Our vast productive abilities have enabled us, for the most part, to be free of this opposition with the natural world. By producing a social surplus, we can store up goods to feed us in times of drought, to shelter us from the ravages of storm and cold. This tremendous productive ability is accompanied by a tremendous differentiation of economic activity into separate parts- millions of different productive units (workers, companies, banks, governments) all coordinated through capitalist markets. When crisis hits a capitalist society it is not because of some external shock, but because something has gone awry internally. The mechanism by which all these different labors are coordinated has broken down. Crisis in a capitalist society is not a matter of man versus nature but of man versus himself. We might even say that the external conflict has been internalized.

How are all of the different productive activities of a capitalist society coordinated? Rather than sharing in one collective laboring effort like in a hunger-gatherer society, capitalist production is separated into millions of separate labor processes all coordinated through the exchange of commodities. By exchanging commodities in the marketplace the labor of tomato pickers, car makers, hair stylists and coal miners is coordinated. The private labors of these individual labor processes (tomato pickers, car makers, hair stylists and coal miners) each make up just one small part of the total labor process of society. Their labors are represented in the form of commodities. What at first glance appears to be just physical objects exchanging with one another is actually a complicated process whereby the various components of a social labor process are brought together. Karl Marx remarked about this process that, “Material relations between people become social relations between things.” That is, commodities become representations of these tiny parts of the collective labor process.


Commodity exchange implies a notion of value. While in previous eras people labored in order to make things for themselves, capitalist production means working in order to make commodities to sell. Commodities don’t just have a subjective value to the people who use them (a use-value). They also have an objective value, their exchange-value, which expresses their value relative to all other commodities. (We don’t just worry about whether or not we want a commodity; we also worry about how much it is worth relative to other commodities). Value expresses the amount of labor represented by a commodity. It is through this exchange of values in the market that all of the different parts of the social labor process are coordinated. We measure value in money.

So the social relations between people in a capitalist society are regulated by commodity exchanges. And commodity exchange is organized around values. “Value”, in the economic sense, is a very peculiar concept, unique to capitalism. Value is produced by the private concrete labor of an individual worker or group of workers. Yet this labor only has value to the extent that it is part of a larger social labor process happening all over the world. Through exchange the value of my individual labor is measured against the value of everyone’s labor. When we say that crisis in internal to capitalism we mean that something has gone awry with the way value regulates this commodity exchange.

Accumulation and Overaccumulation

[Money is also a very peculiar thing. We use money to measure value. It helps us exchange one commodity for another (C-M-C). In capitalism another use of money also becomes possible- M-C-M: A capitalist begins the day with money (M). (S)he sets this money in motion producing commodities (C) to sell. At the end of the day (s)he has more money (M). Whether a capitalist invests directly in production or loans money out as credit they are engaging in M-C-M. Thus the total amount of value in society is constantly expanding.]

Money is also a very peculiar thing. We use money to measure value. This allows money to act as an intermediate stage in the exchange of commodities: rather than directly bartering I sell a commodity for money and then use that money to buy a different commodity. But the opposite can also happen: I can spend money on the production of commodities and then sell those commodities for money. It only makes sense to do this if I end up with more money. This is exactly what capitalists do all day long. They turn their money into more money by investing in production (or loaning money). When capitalists accumulate more money they are accumulating more value. Thus the total amount of value in society is constantly expanding.

In previous societies the rich were primarily concerned with accumulating specific things (use-values): land, subjects, riches, etc. In a capitalist society it is money itself, as the representation of abstract human labor, that is the goal of accumulation. Instead of pursuing particular qualities of commodities the capitalist is interested in gaining greater quantities of the same thing: money. Because humans can always work more, always produce more value, there is no limit to the amount of value that a capitalist can accumulate.

Eventually Genghis Kahn would have run out of desert to conquer. Pizarro could only steal so many riches from the Incas. The Pharaoh could only build so many pyramids. But the capitalist can grow and grow, seemingly without limit. Hence the amazing, dynamic trajectory of capitals growth- a system that in a few hundred years has conquered the globe, revolutionized the lives of everyone on it, destroying old societies and creating new ones out of their ashes… always getting bigger.

Because there is no limit to the amount of value that can be created the only thing the capitalist worries about is where to invest to make more money. As long as money can be turned into more money the economy is in good shape. But if there is ever a reason why money can’t find profitable investments we are in trouble. When money can’t be turned in to more money the Crisis! sirens go off on Wall Street. Capital freezes in all the stages of it’s circuits and economic activity grinds to a halt. The only solution is to devalue capital: to sell off excess commodities at discounts, to close factories, fire workers, write down assets, foreclose on mortgages, etc. When capitalist accumulation overreaches its own ability to grow it has no choice but a violent purging of value from the system. This is what a crisis is.

Nowadays we talk a lot about the external, ecological limit to capitalist growth. But value theory is interested in a different limit- an internal limit lodged in the very heart of capitalist accumulation. When the accumulation of value hits a limit it appears as a crisis of over-accumulation: an excess of capital that can’t find profitable investments. This manifests itself as idle factories, factories with excess capacity, shelves of unsold commodities or partially finished commodities, unemployed workers, debt which can’t be paid, devalued real estate, etc. Value theory argues that the same process whereby value is accumulated generates its own limits. Let’s take a closer look as to how this happens.

Labor and Capital

In order for a capitalist to turn his money into more money there must be a commodity which is capable of creating more value than it costs. This commodity is, of course, human labor. The amount of money paid to workers in wages has nothing to do with the amount of value they produce. These are two entirely distinct quantities of value. (We often refer to this as the difference between the use-value and exchange-value of labor power. The use-value is the capacity for creating value and the exchange-value is the cost of reproducing the worker.) The more labor a capitalist gets out of his workers relative to their wages, the more surplus value the capitalist makes, the more profit he makes, the more the economy grows.

This means that there is a fundamental antagonism between the interests of capitalists and workers. The more surplus value the capitalist extracts from his workers the better he is at being a capitalist. The better the working class can resist this exploitation the more they defend their own interests. This antagonism lies at the very heart of the way value is created in a capitalist society. Let’s look then at how this antagonism generates limits to accumulation.

Though labor and capital are antagonistic they are also mutually dependent. Without capital workers wouldn’t have jobs. Without labor capital wouldn’t be able to turn itself into more value. When workers become too powerful they can demand higher wages from capital which means less profits. So capital looks for ways to free itself of its dependence on workers. The name for this is “efficiency.”

That sounds like a weird definition of efficiency but this is precisely what lies behind the capitalist obsession with efficiency. When the labor process becomes more efficient it means that the same task can be done with less labor. It also causes much of the labor process to be simplified, meaning that jobs require less skill and lower wages. This all makes workers easily replaceable and makes capital less dependent on labor. Capital can lay off workers or pay them less and workers have less power to resist.

More efficient production also allows capitalists to out compete their rivals. Since prices are set by the average productivity of labor, if a capitalist can cause their workers to be more productive than other firms then they can take advantage of this difference between their firms productivity and average productivity to make extra profit.

But as much as capital may try to free itself from labor it is always ultimately dependent on labor to produce value. So there is a real and dangerous contradiction between the dependency on labor to create value and capital’s drive to rid itself of this dependency. It is this antagonism which creates the crisis of overaccumulation: capital goes looking for profit and can’t find enough places to make profit because it has annihilated its own ability to create value.

Let’s look a little more concretely at how this happens.


Since it’s emergence on the historical stage capitalism has displayed a remarkable ability to innovate. Vast revolutions in our technological abilities, from transportation to communication to production, have created revolutions in every aspect of our lives, altering even the ways we experience space and time. The primary drive in all of this has been to decrease the amount of time required to produce a commodity. Yet while such technological revolutions have often triggered enormous economic booms they have also eventually destabilized value relations and opened the door for crisis. We have to remember that anytime we increase the efficiency of the labor process this means that the product represents less value.

When workers are replaced by machines this means less labor input per commodity… which means less value per commodity. If just one capitalist does this he can produce commodities more efficiently than the social average thus turning the difference into excess profits. But this encourages other capitalists to follow in search of these same excess profits. Once they all introduce more machines into their labor process a lower average productivity is reached and the prices of commodities fall. But the expense of making a commodity has gone up due to the cost of adding new machines. This can manifest itself as a falling rate of profit. (See video on falling rate of profit.) When profit rates fall this means that capital can’t find profitable places to invest. Money can’t be turned into more money fast enough. The circuit if capital (MCM) grinds to a halt.

Fixed Capital

The worker finds himself surrounded by an increasingly complex array of machinery all designed to purge human labor from the production process. Capital finds itself entangled in larger and larger investments in machines while the value of their commodities keeps falling. But what if the price of machines are falling as well? If new machines are constantly being purchased at cheaper prices this could stabilize profit rates in the long run.

But much of the machinery in a capitalist society is built to stay around for a long time. Auto factories, oil refineries, steel plants, gas pipelines, etc. all entail large start-up costs and years of construction. It takes these investments many years, perhaps even decades to pay off these initial start-up costs. We call these machines that stick around for a long time “fixed capital.” Fixed capital introduces all sorts of complications into value relations. Capitalists are committed to the use of fixed capital, to a certain level of efficiency, for some time even if the value relations around them are changing. For instance, if you build a factory for a million dollars in 2000 that has a maximum capacity of producing a thousand widgets a year… and then your competitors all build factories in 2005 that cost half as much to build but produce more widgets… you are screwed because now you have to sell your widgets at a loss. And you can’t just go buy a new factory because you still haven’t paid off the old one.

The current problem in the US auto-industry is a perfect example of this problem. The US auto-industry dominated world markets after World War II. But as the Japanese and German economies began to revive they built more efficient factories with new, cheaper fixed capital. (The costs of these fixed capital inputs had fallen over the years.) The Germans and Japanese began to produce cars more cheaply and undercut American car production. This sort of competition effectively devalued the existing stock of fixed capital in the US, yet the US couldn’t just abandon its factories and build new cheaper ones because it still hadn’t recouped the costs of its initial fixed capital investments! This led to the economic crisis of the 70’s in which Nixon had to devalue the dollar in order to make US commodities more competitive in global markets. (This is all a huge oversimplification.)

The US auto-industry found itself with an overaccumulation of fixed capital that could no longer produce enough value to stay competitive in the world market. This particular overaccumulation manifested itself as excess capacity, but overaccumulation can take a variety of forms. In our current crisis we can see many different types of overaccumulation. Retail sales are down and commodities are bunching up in warehouses. Industries are struggling to shed themselves of excess capacity by closing factories and firing workers. The ranks of the unemployed grow by the tens of thousands every month. Real estate is over-valued. There is an excess of credit unable to be paid off. In all these cases there is too much capital stuck somewhere in the circuit of capital, unable to move to the next stage.


In all these instances the solution to overaccumulation is devaluation. By reducing the prices of commodities, closing factories, firing workers, cutting wages and benefits, writing down debts and slashing real estate values capitalism can devalue capital in all of its stages. This process of devaluation- this violent purging of the system is the necessary antidote to the problem of overaccumulation. This is what a crisis is- a drastic process of devaluation.

Though devaluation will drive many capitalists out of business, some will survive. Those that do survive come out on top. They are able to buy up the assets of their competitors at devalued prices as we have recently seen Bank of America do. Crisis is often a time of massive capital consolidation.

In a crisis the capitalist class battles over who will absorb the brunt of devaluation. Will it be the banks and credit agencies that finance production? Will it be the productive capitalists who drove down profit rates with their fixed capital and excess capacity? Or will devaluation be displaced geographically?

One of the most common strategies for devaluing capital is to devalue the currency. This devalues all capital relative to other countries making a country’s commodities more competitive on foreign markets. Devaluation of the currency effectively socializes the costs of devaluation meaning that all commodities, capital and labor are devalued. When Nixon devalued the dollar in 1971 this made all US commodities cheaper and better able to compete against the Germans and Japanese. But the long term effect of this was to trigger a long process of competitive devaluations as different currencies adjusted relative to other currencies all trying to shift the burden of devaluation onto some other country. The Asian financial crisis of 1997 showed us how reckless and destructive this strategy can become. It will be interesting to see how the process of competitive devaluation plays out in the current economic crisis. Who will be forced to bear the brunt of devaluation? What political alliances and battles will form out of this global conflict over devaluation?

Another strategy is to postpone devaluation in time through the use of credit. This has been a major strategy for displacing crisis since the 70’s. When profitable investments can’t be found in production capitalists can pour their money into loans, mortgages, hedge funds, etc. This creates the illusion that their money is still in motion, that it is still generating more value. But a lot of time this just means that debt is just being passed from capitalist to capitalist… This can create enormous bubbles of credit values not backed by any real value at all. (see my video “What is Credit?”) The insane over-investment in credit markets (accompanied by an insanely low rate of interest) before the recent bubble burst is evidence of the lack of real actual profitable investments in the global economy relative to the amount of capital needing to be invested.


When we say that crisis is internal to capitalism this means several things. It means that the method by which all of the laborers of a capitalist society are coordinated, value, creates antagonisms that destroy that very coordination. Value as a coordinating mechanism spawns class antagonism between a capitalist class that exists to appropriate this value and and a working class that must be exploited if capitalist accumulation is to take place. And this class antagonism is reflected in the antagonism between man and machine- the conflict that drives accumulation forward toward its own destruction.

Capitalism is a system rife with such dynamic, explosive internal antagonisms. What else could explain the cycles of boom and bust that have rocked capitalism since its inception? When we say that crisis is internal to the structure of capitalist social relations we mean that the very way our social relations are structured are dangerously unstable. While the mainstream political discourse debates which capitals to devalue and how to initiate the next boom phase we must remember that a true solution to capitalist crisis is to redraw the basic mechanisms of these social relations. If we can’t understand capitalist crisis without comparing it to something outside of itself we also can’t solve capitalist crisis by confining our logic to the internal logic of the system. We must appeal to a future stage of history: an organization of social relations without accumulation based on exploitation.

Brendan M Cooney


Das Kapital- Karl Marx
Limits to Capital- David Harvey
“Turbulence in the World Economy” by David McNally in the Monthly Review; June 1999 (
I also recommend the following series of papers/lectures:

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