|
|
|
|
Overproduction
|
| |
|
| |
- This article is about the economic concept of overproduction. For the musical term, see overproduction (music).
In economics, overproduction refers to excess of supply over demand of products being offered to the market. This leads to lower prices and / or unsold goods.
production is the accumulation of unsalable inventories in the hands of businesses. Overproduction is a relative measure, referring to the excess of production over consumption.
Discussion
Ask a question about 'Overproduction' Start a new discussion about 'Overproduction' Answer questions from other users |
Encyclopedia
- This article is about the economic concept of overproduction. For the musical term, see overproduction (music).
In economics, overproduction refers to excess of supply over demand of products being offered to the market. This leads to lower prices and / or unsold goods.
Explanation
Overproduction is the accumulation of unsalable inventories in the hands of businesses. Overproduction is a relative measure, referring to the excess of production over consumption. The tendency for an overproduction of commodities to lead to economic collapse is specific to the capitalist economy. In previous economic formations, an abundance of production created general prosperity. However in the capitalist economy, commodities are produced for profit. This so-called profit motive, the core of the capitalist economy, creates a dynamic whereby an abundance of commodities has negative consequences. In essence, an abundance of commodities disrupts the conditions for the creation of profit.
The overproduction of commodities forces businesses to reduce production in order to clear inventories. Any reduction in production implies a reduction in employment. A reduction in employment, in turn, reduces consumption. As overproduction is the excess of production above consumption, this reduction in consumption worsens the problem. This creates a "feed-back loop" or "vicious cycle", whereby excess inventories force businesses to reduce production, thereby reducing employment, which in turn reduces the demand for the excess inventories. The general reduction in the level of prices (deflation) caused by the law of supply and demand also forces businesses to reduce production as profits decline. Reduced profits render certain fields of production unprofitable.
Inevitability of Overproduction
Karl Marx outlined the inherent tendency of capitalism towards overproduction in his seminal work, Das Kapital. From the philosophical perspective of dialectical materialism, economic development is objective. This means that government intervention is ultimately futile as the process of economic development lies outside the control of man.
Solutions for Overproduction
John Maynard Keynes formulated a theory of overproduction, which led him to propose government intervention to ensure effective demand. Effective demand is a level of consumption which corresponds to the level of production. If effective demand is achieved then there is no overproduction because all inventories are sold. Importantly, Keynes acknowledged that such measures could only delay and not solve overproduction.
Say's Law
Say's Law states that "The more goods (for which there is demand) that are produced, the more those goods (supply) can constitute a demand for other goods". At its base this "law" asserts that supply creates its own demand. Historically, this assertion is proved false by bouts of overproduction and the ensuing economic recessions.
External link
|
| |
|
|
