Underconsumption

The underconsumption theory is an economic theory of John Atkinson Hobson, after the emergence of economic crises ( underconsumption crisis ) from insufficient demand for consumer goods is to explain and can be combated by strengthening the purchasing power of wage increases. In particular, it is therefore, according to this theory, the residual solvent demand of the working class, which leads to a crisis. As a classic representative of the underconsumption theory are Robert Malthus - underconsumption of the unproductive class - and Jean -Charles- Léonard de Sismondi Simonde - underconsumption of the working class.

The underconsumption theory is based on Hobson's Imperialism criticism that the British imperialist expansion end of the 19th century would have been by a general wage increase and rising domestic consumption can be avoided.

Underconsumption due to lack of purchasing power usually has structural causes and means that at least there is a relative over- production while poverty of a significant part of the population. The products that could be sold, potentially and they are needed, but the purchasing power is not enough, this actually buying.

Even before Hobson a similar theory was developed by Johann Karl Rodbertus. In addition, to date, the underconsumption theory plays a role as in the discussion of Keynesianism. It lies in the purchasing power theory underlying or justified higher government spending to address the under-consumption.

As a theory, it is also within Marxism controversial, controversial because it has a solution in the form of " productivity- oriented wage policy " as opposed to the law of the tendency of the rate of profit to fall, that looks not a sustainable solution to the crisis.

  • 2.3.1 Wages rise as capital intensity
  • 2.3.2 Constant real wage 2.3.2.1 Over-accumulation by a factor of 1.2
  • 2.3.2.2 Over-accumulation by a factor of 1.8

Systematic consideration

The philosopher Karl Popper in his book The Open Society and Its Enemies ( Volume 2 ) a systematic compilation of how a society can respond to an increase in labor productivity.

The available higher productive power can be used for:

  • Case A: capital goods. Then invested to produce more capital goods which increase productivity even more. The problem is shifted into the future. Popper therefore considers this not a permanent solution.
  • Case B: Consumer Goods for the entire population
  • For a portion of the population
  • Daily working
  • The number of " unproductive" workers, Popper says those outside the manufacturing sector, increasing, especially scientists, doctors, artists, business people, etc.

Popper draws a line here now. Previously, it was gratifying for the population effects of an increase in labor productivity. However, it is also possible unpleasant effects.

  • The number of unemployed is rising.
  • Consumer goods are destroyed
  • Capital goods are not used, that is, Farms lie fallow
  • There are goods that are no investment or consumer goods, manufactures, such as weapons ( see also Rüstungskeynesianismus, permanent armaments industry )
  • Work is used to destroy capital goods and thus reduce productivity again.

In light of the growth theory, the problem can be illustrated by means of numerical examples.

Numerical examples

Case no technological progress

If there were no technical progress and no natural limits to growth, then the economy could constantly growing and there would be no overproduction or underconsumption problem, if one assumes that the wages of workers and productivity remains stable and the starting point is balanced, and no social conflicts. The share of consumer goods in total production would then remain constant. In the following, a numerical example is given approximately in accordance with the calculations of Harrod and Domar, as an economy can grow.

  • A number of workers
  • C Number of consumer
  • C / A real wage: Consumer goods per worker
  • K capital stock
  • N / A capital intensity
  • Y production
  • Y / A labor productivity per head
  • K / Y capital coefficient

The production of a period Y is used to supply in the next period the worker with consumer goods (C) and with the means of production (K). C and K thus add up to Y each of the previous period ( in the table due to rounding not always exactly where ). Thus is repeated on ever larger scale production from period to period. The allocation of production over K and C and A depends on the assumed to be technically given capital intensity K / A. In addition, should the real wage C / A, which is also accepted as a given, which is to pay for the individual worker, are taken into account.

In the following numerical example also uses the initial values ​​of period 1 are exogenously assumed if they are not calculated from the different initial values. For some sizes, there are exogenous assumptions about how they change. These sizes are marked in blue in the second table. The capital intensity K / A remains unchanged as a technical size and therefore no change in labor productivity Y / A is triggered. In addition, the real wage C / A is kept constant. The remaining variables are then calculated under the assumption that production is fully used for the next period in the form of wage and capital C K.

Absolute values ​​:

  • W ( ... ) growth rate in%

Growth rates:

In this numerical example, the economy can grow at 10%.

Thus Y and the capital stock K is a technical relationship exists between the production volume, v = K / Y, the capital-output ratio or 1 / v = Y / K, capital productivity, has the production set Y and the capital stock K grow at the same rate. The capital stock now multiplies the investment. Thus, the higher will be the growth rate, the more you have to invest, the bigger a part of the production must therefore be saved and invested and should not be consumed.

Since it is usually assumed that the workers consume in the first place, while saving entrepreneurs with their higher income in the first place and thus provide financing for investments, arises as a growth policy measure that consumption must be lower, the higher the growth should be, or in other words, the profits are to be maximized. So while this doctrine assumes that economic growth at about the elimination of unemployment due to a lower consumption share of the product is reached, the underconsumption theory or the overproduction theory maintains, in contrast, that a lack of consumption to crisis and unemployment results.

Case of technical progress

With technological progress a underconsumption can occur if wages do not rise so as labor productivity. The demand of the workers will be back behind the production. The issue is whether this can be compensated by increased corporate demand, once more consumption of entrepreneurs or through more demand for capital goods. Usually, the higher consumer demand, the entrepreneur will be excluded because their consumption need not be increased arbitrarily.

In the following example, technical progress is displayed so that now every worker from year to year more and more used means of production, so that the capital intensity K / A increases, through the greater use of capital per worker, a greater work productivity. In the numerical example, it is assumed that the capital intensity K / A is increased by 50 % from year to year and that by an annual increase of labor productivity Y / A of 50 % also is achieved. Re- apply because of the technical relationship given K / Y = v, that capital stock and production must grow at the same rate.

At the same time jobs are now but with the rate of technical progress rationalized. Must therefore economic growth be so great that a specific demographically given growth in labor supply can be absorbed by the economy, then carries the technical progress with his rationalize jobs means that to balance the economy needs to grow more rapidly, ie, that an even greater must be part of the production saved and invested.

Productivity -oriented wage policy

Assuming a productivity-oriented wage policy, ie that wages rise just as labor productivity, then the underconsumption problem is not initially times. Rather, could be because of technical progress itself, be saved by the jobs, employment shrink.

Shrinking employment

Again, the production is used to use in the next period as much labor and capital ( means of production ), which must be noted that the capital intensity K / A increases and that real wages rise C / A as in the previous numerical example. This leads to these numerical assumptions that now shrinks to period of employment period. The increasing demand for means of production per worker, the increasing capital intensity K / A, causes can always be less busy from period to period (or need).

Absolute values ​​:

Growth rate:

With productivity- oriented wage policy, the ratio of consumer goods C to the total production of goods Y stable ( consumption rate ) remains. If the employment despite the labor-saving technical progress grow, first a renunciation of consumption must take place.

Growing employment

If you do not shrink the employment but to grow, then the workers have to settle for a lower share of manufacturing as (consumer goods ). However, the wage can follow labor productivity then again.

If the wage in the first period now not consumer goods 2.63 C per worker A, but 1.0 C / A, then the surplus is large enough that, despite increasing demand for means of production per worker, although the individual worker process more and more means of production can, accompanied by an increasing preoccupation with the economic growth.

Seen in this way can unemployment be tackled by a single wage cuts, ie by a measure which is exactly the opposite of what would be expected from the underconsumption or overproduction Auditions theory. In practice, there is rather the opposite, since the unemployment even as the amount real wages and in particular for wage concessions tend to continue to rise.

Absolute values ​​:

Growth rate:

The share of consumer goods C of total production Y remains stable at productivity- oriented wage policy, here now at 25 %. However, a more higher economic growth can be achieved, the lower the share of the ( growing ) is the total product, get the workers.

Constant real wage

If real wages do not grow, but remained constant, would the following be, assuming again that the capital intensity K / A of period is increased to period by 50 %, which from period to period and an increase in labor productivity Y / A to 50 % triggers.

Absolute values ​​:

Growth rate:

This persistent lag of wages behind labor productivity now allows an ever stronger employment growth. On the other hand, the share of consumer goods in the production as a whole is always lower. An increasing part of the production is in the growth, an ever smaller part, but the absolute increases, is consumed by the workers. This corresponds to the case A in Popper's scheme.

The issue is now whether it is possible to establish a underconsumption Auditions or overproduction crisis, or if that could be done more and more economic and employment growth crisis basically free. Sooner or later, an ever-increasing economic growth will in any case come to the full employment limit, which can then be interpreted as a crisis of overproduction. If one begins with a particular growth in labor supply, now is the economic growth needs to be slowed down so that it adapts to the slower population growth. This can be done by expanding the share of production that goes into consumption. Since full employment wages rise, so does consumption will increase, so that might already be set by market forces, a new growth equilibrium. Or wage policy must control together with Keynesian measures the consumption ratio so that a suitable to the growth of labor supply growth rate adjusts.

Overinvestment / overaccumulation

So far, the equilibrium assumptions of growth theory were applied, after which the capital intensity K / A and the labor productivity Y / A grow at the same rate. An unbalanced assumption would be that a particular growth in capital intensity causes an even higher growth in labor productivity. This then would be the incentive for the individual company - the individual rationality - to expand the capital intensity, as this leads to an even higher increase in labor productivity. Does this incentive to the fact that a certain growth of labor productivity in the next period will be answered by the company with an even stronger increase in capital intensity, are then given macroeconomic difficulties, which are expressed in a finally shrinking employment. The collective rationality is not given, there is a rational case.

The following numerical example is now assumed that an increase in capital intensity by a certain growth factor to regard this factor 1.2 - fold increase in labor productivity leads in the same period. This provides the incentive for individual companies to increase the capital intensity (Individual rationality ).

The increase is expected in the capital intensity, the use of means of production per worker, be greater than the increase in labor productivity, as the increase in output per worker in the previous period. It is the same magnification factor of 1.2 is assumed for the growth factor, for the sake of simplicity. ( Thus, an increase in labor productivity by a factor of 1.2 or by 20 % in the next period to an increase in capital intensity by a factor of 1.2 times 1.2 or 1.44, which is 44 %. This leads then again in the same period to an increase in labor productivity of 1.44 times 1.2 or 1.728 or by about 73 % %)

Wages rise as capital intensity

An increase in wages C / A to the same extent as the capital intensity K / A, the two departments remain I ( capital goods ) and II (consumer goods ) in the same proportion, so that does not set underconsumption. However, employment growth will in over-accumulation from more and more.

Absolute values ​​:

Growth rate:

Constant real wage

Does the real wage not keep up with the growth of labor productivity, then higher employment growth is technically possible. However, since the capital intensity K / A is always more extended than labor productivity Y / A has increased, this leads sooner or later in any case to a decline in employment. In the first example, then to slow the growth rates of employment in the fifth and sixth period. In the second example it is assumed that the capital intensity does not increase to 1.2 times the growth factor to which has increased the productivity of labor, but about 1.8 times. Then, the employment is absolutely off in the fifth and sixth period. This employment shrinkage may perhaps influenced politically rewarding in the end, under these assumptions, the over-accumulation ( capital intensity increases faster than labor productivity) but can not be prevented.

Over-accumulation by a factor of 1.2

Absolute values ​​:

Growth rate:

Over-accumulation by a factor of 1.8

Absolute values ​​:

Growth rate:

Result

Considered on their own, an underconsumption ( overproduction ) can be overcome by appropriate wage policy or through demand policies, if not directly cause even market forces the balancing growth. If a higher economic growth can be achieved, then the consumption as a share has to be pushed back on the production even. Underconsumption / overproduction would be only a temporary phenomenon, which could be managed by about Keynesian measures or the right wage policy. Underconsumption crises are reformed.

In contrast, an over-accumulation can ( capital intensity grows faster than labor productivity) in any case worthwhile politically or demand policy can not be resolved. Only the date on which the employment would shrink by calculation may be affected by reduced consumer.

Therefore considered within the Marxist economic theory, the first crisis explanation rather than " reformist ", while the second crisis declaration is used when the capitalist economy is to be lifted to the fundamental Nichtreformierbarkeit. The over-accumulation also forms the background to Marx's law of the tendential fall in the profit rate.

Economic collapse Working time Reformism
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