Overproduction
In economics, overproduction, oversupply, excess of supply or glut refers to excess of supply over demand of products being offered to the market. This leads to lower prices and/or unsold goods along with the possibility of unemployment.
This article is about the economic concept of overproduction. For the musical term, see overproduction (music).Inevitability[edit]
Karl Marx outlined the inherent tendency of capitalism towards overproduction in his seminal work Das Kapital.
According to Marx, in capitalism, improvements in technology and rising levels of productivity increase the amount of material wealth (or use values) in society while simultaneously diminishing the economic value of this wealth, thereby lowering the rate of profit—a tendency that leads to the paradox, characteristic of crises in capitalism, of "reserve army of labour" and of “poverty in the midst of plenty”, or more precisely, crises of overproduction in the midst of underconsumption.
John Maynard Keynes formulated a theory of overproduction, which led him to propose government intervention to ensure effective demand. Effective demand are levels of consumption that 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.
Environmental impact[edit]
Overproduction raises issues about the disposal of excess product stocks, which may have a significant environmental impact as well as raising additional waste disposal costs. More raw materials than necessary will have been used in production and, in some production processes, more undesirable pollution may have arisen due to the excess level of productive activity.[2]