24: Over-Manufacturing
A natural and "almost inevitable" consequence of competition is the production of a supply much larger than demand requires. (EN: Attributing this to competition is incorrect - it is the consequence of separating production from consumption: the producers are never accurate in the amount that will be consumed, and are prone to overestimating and overproducing even without competition.)
The problem of overproduction is compounded by mass production: where goods are produced in small runs, there are no significant economies of scale and production is well controlled by the prediction of demand and the means of the producer to fund production. In mass production management is distracted by the economic advantages of producing in large quantities without a concern for whether such sizable quantities can be sold.
Where the goods in question are durable, the harm is largely visited upon the producer, whose capital becomes frozen in an inventory of goods that cannot be sold - though it may also be visited upon his workforce, whose services are not required until the inventory is again depleted. When the goods in question are perishable, there is harm done to all suppliers as the over-producing house is compelled to slash prices, even below costs, to liquidate goods that cannot be kept in inventory and the market prices fall to an unprofitable level for all.
These misfortunes of the producer, industry, and workforce are meanwhile a boon to the consumer, as too large a supply creates a significant reduction in price, enabling them to consume more and making products affordable to those who previously found them inaccessible. (EN: The exception that comes to mind is a sharp drop in the price of a good that was purchased to effect status, whose desire was to project exclusivity - they pay a high price for a status symbol which is debased by more widespread ownership.)
It is also possible that the diminution in price, particularly when it affects the entire market for a product, will stimulate ingenuity among producers such that one or more will endeavor to discover a method to continue to provide the product at the diminished price while still taking sufficient profit. In the event of his success, this redefines the market and places him in a seat of considerable and sustainable competitive advantage.
Babbage speculates that if it were possible to trace the effects of gluts through the history of manufacturing, it would show the positive effects that arise as a result of accidental overproduction. He suggests that iron provides an example: when any new method of smelting decreases the cost of production, that supplier has the ability to underprice the market and is able to produce and sell substantial amounts. (EN: this is an example of innovation, as the discovery came before the overproduction.) Then, there follows a rather overly detailed description of the smelting process and various innovations that made the process cheaper.
Back on topic: if the occurrence of a glut fails to be discovered by cheaper modes of production, it is inevitable that the price of the product should resume its former level after the excess is depleted. This can sometimes be delayed by producers who attempt to continue to produce in higher quantities and sell at lower prices, whose behavior depletes their fortunes and those of their investors until they recognize the error of their approach.
He notes that at times government, recognizing such a crisis, has stepped in to regulate industries that are running unprofitably in order to eliminate or mitigate the inevitable effects - but this has set a dangerous precedent for government to interfere in industry when no such crisis exists.