Over Production Condition

Over Production Condition

Over-production, a condition in which more is produced than can be sold at prices sellers will accept. The theory of over-production is a criticism of the classical economic doctrine that a capitalist economic system contains sell-adjusting forces which preclude continuous general over-production. This was essentially Say's Law , which Keynes questioned. The essence of the over-production theory is that although production under the capitalist system tends to increase the potential output of a country, the more the production potential increases the larger become the frictions between labour and capital and between production and sale. Marx, and in recent years other economists, have argued that the continued rise in production leads to periodic excess of output, since the workers' demand is insufficient to absorb all the products. With the progress of machinery, periodic .unemploymentis created which still further reduces the workers' purchasing power; neither capital nor labour can be withdrawn easily from the industries in which they are employed, which are therefore faced with a declining demand for their products: fixed capital remains in declining industries, workers are obliged to accept low wages and production will continue in excess.

Various solutions have been suggested to solve the alleged chronic problem of over-production. Malthus, at the beginning of the nineteenth century, defended widespread 'unproductive consumption' to ensure that excess production could be absorbed and the risk of .unemploymentminimized. There is still debate among economists whether Keynes successfully rebutted Say's Law .

'Over-production' theories are linked with theories of 'under-consumption'. 9

ExamplesEconomic - Introduction To Economics


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