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Underconsumption, Over-Investment and the Origins of the Great Depression

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  • James N. Devine

    (Economics Department, Occidental College, Los Angeles, CA 90041)

Abstract

This paper examines the role of underconsumption tendencies in the laws of motion of capitalism. First, underconsumption theories are examined. My conclusion is that underconsumption forces play a direct role only under restrictive supply and demand conditions, i.e., when labor-power is abundant and investment is depressed. Then, for the capitalist mode of production, I derive a theory of over investment relative to consumer demand that applies when economic expansion does not pull real wages up as fast as productivity grows. Third, I develop the theory of the underconsumption trap as one result of an economic downturn. I argue that theory of over-investment relative to consumer demand is a plausible story of the 1920s and the origins of the Great Depression of the 1930s, while the underconsumption trap was an important reason why the Depression was so deep and long. Finally, I comment on the possible applicability of the theories to the post-World War II era.

Suggested Citation

  • James N. Devine, 1983. "Underconsumption, Over-Investment and the Origins of the Great Depression," Review of Radical Political Economics, Union for Radical Political Economics, vol. 15(2), pages 1-27, June.
    • Handle: RePEc:sae:reorpe:v:15:y:1983:i:2:p:1-27
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    Cited by:

    1. Maria N. Ivanova, 2017. "Profit growth in boom and bust: the Great Recession and the Great Depression in comparative perspective," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 26(1), pages 1-20.

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