Comparison Of Marx's Versus Malthus's Glut Theory

As you will recall from earlier discussion, Malthus divided income into three parts: subsistence wages, profits, and rent. Laborers spent all, capitalists invested part and consumed part, and landlords spent their income on luxuries and personal services. Overproduction, excess inventories, or glut resulted because, at the same level of technology, capitalists invested or saved at a faster rate than the rate of growth or accumulation of capital. As growth occurred, however, the demand for labor rose, wages were pushed up, profits were squeezed, and this led capitalists to stop investing and just saving causing insufficient aggregate demand. Similarly, as technology improved, machines displaced workers, wages decreased, and laborers had less income to spend resulting again in an insufficient aggregate demand.

Marx, on the other hand, believed that as accumulation increased, demand for labor would similarly rise, the quantity found among the reserve army of unemployed would decrease, wages would then rise, but the capitalist would counteract this effect by introducing labor-saving machinery. Resultantly, laborers would again be displaced, the reserve army would again increase, wages would decline, and consumer demand would again subside until glut occurred.