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Overproduction and Its Discontents

Capitalism’s inherent predilection for excess

Everyone recalls the shortages of toilet paper and pasta, but the early period of the pandemic was also a time of gluts. With restaurants and school cafeterias shuttered, farmers in Florida destroyed millions of pounds of tomatoes, cabbages, and green beans. After meatpacking plants began closing, farmers in Minnesota and Iowa euthanized hundreds of thousands of hogs to avoid overcrowding. Across the country, from Ohio to California, dairies poured out millions of gallons of milk and poultry farms smashed millions of eggs.

The supply chain disruptions continue. Last year, there was a rice glut, and big box stores like Walmart and Target complained of bloated inventories. There was a natural gas glut in both Europe and in India, as well as a surfeit of semiconductor chips in the tech sector. Florida cabbages, microchips, and Asian rice may not seem like they have much in common, but each of these stories represents a fundamental if disavowed aspect of capitalism: a crisis of overproduction.

All economic systems have problems of scarcity, but only capitalism also has problems of abundance. The reason is simple: the pursuit of profit above all else leads capitalism to produce too much of things that are profitable but socially destructive (oil, private health insurance, Facebook) and not enough of things that are socially beneficial but not privately profitable (low-income housing, public schools, the ecosystem of the Amazon rainforest). For over a century, from the Industrial Revolution through the Great Depression, crises of overproduction were the target of criticism from across the political spectrum—from aristocratic conservatives like Edmund Burke who feared the anarchy of markets was corroding the social order to socialist radicals like Eugene Debs who thought it generated exploitation and poverty.

But the idea of capitalism’s inherent predilection for overproduction has almost completely disappeared from economic discourse today. It seldom appears in the popular press, including in stories about producers destroying surpluses, a problem that is instead explained away by pointing to freak accidents, contingencies, and unforeseen dislocations. To be sure, many gluts of the past few years have been the result of the pandemic and the war in Ukraine. But overproduction preceded 2020 and shows no signs of going away. Revisiting historical arguments about the problem can help us better understand the interlocking crises of supply chain disruption, deliquescent financial markets, and climate change. The history of overproduction and its discontents offers a set of tools and ideas with which to consider whether “market failures” like externalities and inventory surpluses really are exceptions or are intrinsic to commercial society, whether markets ever actually do equilibrate, and whether the drive for growth is possible without continual excess and waste. 

The early phases of commercial and mercantile capitalism were riddled with commodity gluts. These localized episodes of oversupply were the result of long lags in communications and trade, as well as very thin and isolated markets. For instance, if, in the early seventeenth century, two ships, unknown to each other, departed from England with cargos of copper and arrived in the Jamestown colony four months later, they would deliver far more of the metal than the few thousand surviving colonists could possibly use. Having already paid for the copper at home and unable to sell part of it, the merchants would likely go bankrupt, which in turn could ruin their creditors.

There really was a copper glut of this kind in Jamestown between 1610 and 1620. The broad Atlantic trading zone over the following decades was variously overwhelmed by whale oil and beaver fur, Malaccan tin and Indian textiles, as well as spices and pepper, the last of which led the Dutch East India Company to burn their excess supplies. In the 1670s there was an excess of paintings in the Dutch art market. There was a surplus of Chinese green tea in London in 1732, and Chesapeake tobacco in Scotland in the 1770s. An overabundance of tea plagued Philadelphia throughout the 1730s and 1750s. In 1773, the English East India Company was faced with another tea glut, in response to which Parliament forced the American colonies to buy the excess, a move that culminated in the Boston Tea Party.

In the post-war era, thinking about “crises of overproduction” gradually disappeared.

In short, commodity gluts happened all the time. Like the weather and toothaches, they were a staple topic of discussion in eighteenth century merchant correspondence. More significantly, these gluts stimulated some of the first critical arguments about capitalism. Some eighteenth-century thinkers, like the Anglo-Dutch philosopher Bernard Mandeville and the Irish banker Richard Cantillon, said that markets were self-regulating and self-organizing, and that crises only happened when misguided policymakers meddled with the system. Others, like the French bureaucrat François Forbonnais and the Italian economist Antonio Genovesi, countered that markets, though beneficial, could not function without governance and guidance because these recurrent gluts showed that production for sale and profit was inherently chaotic. These abstract arguments were immediately politicized in fights over tariffs, monopolies, and free trade.

In the first decades of the nineteenth century, economic theorists debated the possibility of “general gluts,” meaning persistent dislocations across space and types of goods. Advocates of laissez-faire like Jean-Baptiste Say and David Ricardo thought such crises were natural and inevitable but also short-lived and self-correcting. Advocates of intervention, like the Reverend Thomas Robert Malthus and Jean Charles Sismondi, thought that these crises constituted a fundamental problem with capitalism itself. Sismondi developed a theory of cyclical crises: competition would lead individuals to maximize output to the point of overproduction, and the inability to sell excess goods would lead to employers cutting wages in order to make up lost profits. In other words, free market competition would constantly generate both overproduction and poverty. We saw a version of Sismondi’s prediction in the summer of 2020, when food banks scrambled to find resources at the same time that farmers destroyed crops because of innumerable disconnects between supply and demand.

Sismondi’s ideas were read carefully by a young Karl Marx, who built a vast and forbidding edifice of critique based around these sorts of internal contradictions in the capitalist mode of production. But even aside from him, thinkers of various political stripes, like the pessimistic liberal Joseph Schumpeter and the social democrat Otto Neurath, believed that socialism would ultimately prove superior to capitalism because planned, coordinated production would be far more efficient than the anarchic redundancy of market activity. In their view, overproduction was not just a sign of isolated market failure but rather an indication that markets in general were inefficient and unjust, especially when gluts were viewed alongside poverty and inequality.

In the post-war era, however, thinking about “crises of overproduction” gradually disappeared. It was killed by a surprising confluence of two forces: the liberal interventionist John Maynard Keynes and the arch-libertarian Friedrich August von Hayek. On the Keynesian side, the story goes that overproduction was a misunderstanding of the nineteenth century, based on “Say’s Law” that “supply creates its own demand.” Keynes launched a full-scale assault on Say’s Law in his 1936 General Theory of Employment, Interest, and Money, arguing instead that the problem wasn’t overproduction but insufficient aggregate demand and especially a preference in times of uncertainty for holding money instead of buying goods. When everyone held money and no goods were bought, businesses failed and involuntary unemployment could persist indefinitely. That was his explanation for the length and severity of the Great Depression.

Keynes disagreed with the laissez-faire orthodoxy which maintained that crises were natural, inevitable, and even desirable, in that they purged inefficiencies out of the system, allowing markets to recover on their own and emerge more innovative and productive than they began. He argued that if everyone was worried about the future and chose to hold money instead of spending it, demand would collapse, businesses would fail, and people would lose their jobs. That in turn would reinforce people’s fears, and they would continue to hold money instead of spending it, and so on, with no internal market mechanism to break out of the downward spiral. Keynes thus advocated for government intervention in the form of direct spending, which would replace absent demand. The New Deal seemed to vindicate Keynes’s rejection of “supply-side” economics in favor of demand management; the wartime recovery cemented his victory.

For their part, libertarians, especially Hayek, argued that markets were giant efficient calculating machines. At the core of Hayek’s critique of centralized socialist planning was the idea that no human or government agency could possibly know and calculate all of the desires and preferences of an economy. The genius of free markets was that they performed that calculation themselves, constantly, and prices were an expression of that decentralized process of calculation. In this tradition, episodes of overproduction were understood as the result of individual miscalculations, or worse, government meddling. The former were probably inevitable but of little consequence; the latter could be eliminated by keeping the government out of economic activity. Hayek’s line of reasoning eventually came to dominate the economic mainstream. By the 1980s, the Reagan administration was teeming with self-described “supply-side” economists, so called because they vehemently opposed the Keynesian orthodoxy that had dominated policymaking for decades. Right-wing “supply siders” like Arthur Laffer and Martin Feldstein were not focused on gluts or overproduction, but rather on arguing that tax cuts would lead to economic growth. Their terrible ideas and worse politics helped further drive serious interest away from the actual problems in supply chains and production.

Between the scissors of Keynesian demand management on the left and Hayek’s efficient calculating markets on the right, crises of overproduction were buried in the graveyard of intellectual history, alongside phlogiston and mesmerism. They were also politically dead: the postwar world was one of abundance and growth, and in a time of rising incomes, it seemed unlikely or even impossible that there could ever be too much production.

But commodity gluts have never gone away, even with modern communications and logistics. Nor are they confined to moments of unusual systemic disruption like the Covid crisis. This is partly because gluts arise from lags in production, which will persist in the global economy, no matter how sophisticated logistics become. Coffee trees, for instance, take three years to mature and produce crops; if people around the world plant coffee in response to high prices, they will collectively oversaturate the market three years later. In 2016, U.S. farmers faced corn and soybean gluts, and in 2018 China raised tariffs on American soybeans to keep cheap American exports out. In 2018 there was a global sugar glut. Oil is notoriously prone to sudden surpluses and shortages, hence the heavy hand of OPEC, which tries to coordinate production in order to achieve price targets. It is not very effective: periods of oversupply in early 2014, 2015–2016, and in 2020 led to crashes in oil prices.

There is no greater example of the problems of overproduction, negative externalities, and market failure than the relentless desecration of the biosphere. 

These are all stories about market failures, inventory cycles, and the inability of private enterprise to ever have enough information to reliably make profitable decisions. But commodities are made by combining land, labor, and capital, and those factors of production tend to follow different rules than the commodities they produce. The much-debated possibility of a capital glut has long posed a more systemic threat to the continued functioning of the capitalist system. Are there capital gluts? Nobody can quite agree, but beginning in 2005, the notable future hedge fund advisor Ben Bernanke diagnosed a “global savings glut,” especially in East Asia, that was fueling an asset bubble and low interest rates in the United States. The fallout continues to be one of the main explanations for the 2008 crisis. The origins of the “global savings glut” can be traced to the aftermath of the 1997 East Asian financial crisis, when countries around the world decided to accumulate dollars in order to defend their currencies against depreciation, so they focused on keeping their exchange rates low and selling things to Americans. These dollars were recycled into U.S. government debt (the younger Bush’s tax cuts and imperial misadventures had to be paid for somehow) and into providing cheap credit for the U.S. mortgage market. According to Bernanke, that spigot of cheap dollars inflated the real estate bubble that burst in the 2008 crisis.

In response, from 2009 to 2014, the Federal Reserve bought something like $4.5 trillion in assets from the financial sector in order to keep markets working and liquidity flowing, a policy called “quantitative easing.” In 2013, Larry Summers argued that this torrent of liquidity, as well as persistently low interest rates, were leading to what he called “secular stagnation” in the economy: all that money struggled to find many safe, profitable investments, inflating a series of asset bubbles in real estate, tech, and stocks. The ongoing “bubble in everything” certainly looks like a capital glut, as too much capital has been sloshing into too many ridiculous asset ventures that are now deflating, from WeWork to cryptocurrency to a variety of loss-making tech startups. Nor are these arguments limited to the likes of Summers and Bernanke. A debate is unfolding right now in the pages of the New Left Review over whether capitalism has seen a “long downturn” since the 1970s, as oversupply in manufacturing drove down profit rates, which in turn produced either too little or the wrong kind of investment.

Whether capital glut or not, one lasting impact of the era of cheap money is that it underpinned the huge investments necessary to produce the shale boom in U.S. fossil fuels. Indeed, there is no greater example of the problems of overproduction, negative externalities, and market failure than the relentless desecration of the biosphere. Exxon spent forty years knowingly spreading misinformation about climate change because it was privately profitable to do so even though it was socially destructive. Their own scientists warned in 1977 that carbon dioxide from fossil fuels was changing the climate, urging them to change course in the next five to ten years. In 1989, the company helped create the now-defunct Global Climate Coalition to publicly challenge climate science. Since then, Exxon, Shell, BP, and Chevron have collectively made something like $2 trillion in profits. Today, no country is on track to meet its climate targets because it is not profitable to do so, even though it would be socially beneficial. Climate summits continually end in gridlock, while the UN’s environmental agency claims there is no longer “a credible pathway” to only 1.5 degrees Celsius of warming. The same logic that applies to carbon emissions applies to forever chemicals, single-use plastics, deforestation of the Amazon, various forms of proprietary monoculture, and meat production.

All around us the anarchy of market exchange leads to the production of too much of some things and not enough of others. We can see the contradiction in the simultaneous production of luxury and poverty, from housing to education to health care, and in the cruel way that countries least responsible for carbon emissions will suffer most from climate change. There are a lot of reasons why these unequal crises of overabundance are the result of the political choices of the past forty years. But they are also exactly the sort of crises that nineteenth century theorists predicted, and that already featured in the commercial capitalism of the eighteenth century. Any claims for a new era of capitalist stagnation need some historical perspective.


This story was supported by the journalism nonprofit the Economic Hardship Reporting Project.