Let me digress for a moment to point out that the fact that the overall performance of the economy in recent years has not been much worse than it actually has been, or as bad as it was in the 1930s, is largely owing to three causes: (1) the much greater role of government spending and government deficits; (2) the enormous growth of consumer debt, including residential mortgage debt, especially during the 1970s; and (3) the ballooning of the financial sector of the economy which, apart from the growth of debt as such, includes an explosion of all kinds of speculation, old and new, which in turn generates more than a mere trickledown of purchasing power into the “real” economy, mostly in the form of increased demand for luxury goods.
I am sorry if so far my presentation seems imprecise, I intend to clarify presently. I did just want to start out though with some relevant scholarship, and am trying to be confined in terms of space due to the forum format.
I would like to structure this opening post by just considering a couple of points. First, I will attempt to give a simple hypothetical illustration of the overaccumulation thesis, as I understand it. Second, I will attempt to consider some general implications, including for the critique of orthodox economics.
The overaccumulation thesis is quite intuitive and is not at all complicated, if explained properly. The premise of the thesis has to do with the role of fixed capital investment (deliberate and planned capital accumulation) as the basis for rapid economic growth during the development phase of capitalism. As such, the premise is merely a recognition that productive investment in capital (where it can be had) is the predominate engine of economic growth. This notion can be considered from the perspective of the economy as a whole or from the perspective of the individual enterprise.
To illuminate further, consider the perspective of the individual firm. Presuming things are on the up and up, following a product turnover, the firm is left with some surplus with which to finance additional investment. Assuming the firm has not yet achieved the apexes of its potential scale, scope, productivity, etc. (given the conditions of the external market and the prevailing state of technical development, etc.), the funds so invested will result in additional gains (increasing returns) on capital.
This is in fact somewhat analogous to the concept of compound interest accumulation. Funds invested at an earlier period lead to expanded gains, which enable proportionately more investment, and hence further expanded gains, etc. The logic of how the expanded gains are achieved is also quite apparent. Improved productivity and increased volume of salable product are the two most readily apparent means.
The key is this: there are physical limits to how much the productive phase of accumulation of capital just described can go on. This has much to do with the very nature of fixed capital itself. Fixed capital is fairly durable. That is, depreciation does not occur at a rate which is nearly such as to enable continuing absorption of ever more surplus (the surplus itself continually having been expanding, as a product of the accumulation of capital itself). It is hence that we get crises of overaccumulation, such as explained so vividly in the celebrated passage of The Communist Manifesto, and in many places elsewhere.
So, there is something of a bell curve phenomenon which goes on. As a capitalist economy expands, investment fuels higher returns, which fuel higher rates of investment, and so on. (I've not included the institutions of formal finance, but in the up-and-up period, commercial banks in effect function as facilitators and 'smoothers' of this process, for their part). Once accumulation of capital reaches an apex, the effect is stagnation. I must reiterate here one more time that there are two aspects at play: the quantity of capital and the quality of capital (if you will). That is, once capital accumulation has reached an advanced stage, there is at this point a mighty collection of highly productive and efficient machinery, so to speak. The productive capacity is thus considerable, whereas the room for additional growth in terms of capital formation exceedingly tenuous.
It is interesting that the first part of this hypothetical illustration (the effects of fixed capital investment in the way of expanded product, or rising profits--as the case may be) is not really at odds with orthodox economics, whereas the second part (the built-in tendency of capitalism toward overaccumulation and stagnation) most certainly is. Neoclassical economists, as far as I can tell, tend to largely avoid this topic altogether. Keynesian economists seem to implicitly deny the potential for systemic overaccumulation.
Nonetheless, from the available data the support for the stagnation thesis is very strong. The US Federal Reserve maintains the Industrial Production and Capacity Utilization indexes. This is really the go-to source for observing the historical trends of stagnation empirically, on the basis of official US data. Monthly Review, the publication which was founded by Paul Sweezy and Leo Huberman, has reported on stagnation repeatedly for decades, and continues to do so. I would like to end my writing for the time being, though I could certainly go on and on, but in doing so I will present a few charts which demonstrate very nicely the topic I'm discussing, published in the May 2012 edition of Monthly Review, in a piece titled The Endless Crisis.
Chart 1. Average Annual Real Economic Growth Rates, the United States, European Union, and Japan
Chart 2. Industrial Production Index
Chart 3. Share of GDP Going to FIRE (Finance, Insurance, and Real Estate) as Percent of Total Goods-Producing Industries Share
Chart 4. Growth Rate of Real Investment in Manufacturing Structures
Chart 5: Manufacturing Capacity Utilization