Overproduction Is a Myth

Day 805, 08:50 • Published in United Kingdom Turkey • by Murat Eryanmaz

The title might be overstating what I'm trying to say, but just bear with me for a moment.

Now suppose there is a hypothetical and simplistic economy, consisting of 4 people: a capitalist and a worker in manufacturing business (Mc and Mw), and a the same for raw materials (Rc and Rw). No taxes or no state for the moment.

If you divide the price of the Q3 weapon to 3 for its quality, and 5 for its production units (15 in total)
you get the price for 1 Q1 productivity. If you break down the production process of this value, this is what you will get:

Price per Q1 prod = (Wage per Q1 prod.) + (Raw mat. per Q1 prod) + (Profit per Q1 prod)

p = w + r + k

"r" (price of Q1 raw material) will also be broken down into:

r = w + k

Now remember that this is a very simplistic economic model with only 4 people.

w / p = the portion of weapons produced in the company that will go to the Mw

k / p = the portion of weapons produced in the company that will go to the Mc

r / p = the portion of weapons produced in the company that will go to the Rc and Rw.

Why? Simple:

Proof for Mw:

Wage / Price = Quantity that can be bought

Q1 Prod / (Quality * Prod Units) = Quantity produced

Wage / Q1 Prod = w ; Price / (Quality * Prod Units) = p

So:

(Wage / Price) / (Prod / QU)

= (Wage / Prod ) / (Price / QU)

= w / p

q.e.d

Suppose that the company produced 100 weapons and w / p, the ratio of wage in price, is 0.4, then the worker (Mw) will be able to buy 40 weapons. If k / p is 0.15, then the company owner (Mc) will be able to buy 15 weapons. And the remaining 45 weapons will be bought by the people creating the raw material value (Rc and Rw), since the r / p is 0.45. And there will be no weapons left.

So these numbers give us the ratio of the quantity that can be bought to the quantity which is produced.

Now here is the problem: What if the people who are creating the raw material value do not live, or rather, do not shop in the e-UK? Who is going the buy the 45% of the weapons that is in the market? The locals (Mw and Mc) cannot do so because they don't have enough money to buy the goods which they have produced. They were not produced solely by their efforts (value), but also some foreigners which probably live in e-Indonesia. So, through some method, whether it be foreign organizations coming to e-UK and buying these weapons, or exporting them by licenses, these weapons have to go away. Otherwise, the phenomenon which is called "overproduction" occurs. The r / p ratio is the burden of exports (to neutralize trade balance).

It's actually all about trade balance and redistribution of wealth, nothing else. Overproduction can occur even in a single company environment.


Things Which Increase "Overproduction"

1. Company owners who profit too much.

Too much profit means that the goods are expensive. Expensive goods mean low exports and low local sales, since the workers will be able to buy only few goods. Also company owners can easily import goods with their organizations, and they will if the local goods are expensive.

Triple effect. High profit means expensive goods; and that causes low exports, low local sales and high imports by the company owners who do not even show the courtesy to buy their own overpriced goods.

2. Low quality production by using imported raw materials

Low quality goods always have higher r / p values because their price per productivity is low. The ratio is about 50% in a Q1 weapon and 20% in a Q5 weapon. The reason is, while there are 5 Q1 raw materials in a Q1 weapon, there are 25 in Q5, but the price is always more than 5 times of a Q1 weapon. So the ratio is lower.

Higher the quality, lower the burden of exports.

3. Taxes

Taxes reduce the amount of goods that can be bought buy the workers. And if the government does not buy goods from the market by using the tax revenue, this would increase "overproduction"





The left side of the equation for the e-UK is:

(1 - 0.3) / (1 + 0.01) = 69.3%

w / p value is reduced by 30.7%


4. Savings, Investment and "Gold Burning"

I think self explanatory. If people do not spend, or spend on things other than market goods (Lana, wellness packs etc.), this enhances overproduction.


Things Which Decrease "Overproduction"

Spending medal golds on market goods and higher exports. I can't think of anything else.


That's it for now. Some comments please.