From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Mon Aug 07 2006 - 17:55:14 EDT
Dear Paolo, here is the message on the world market from last year. I am most interested in a counter-criticism. rb At 3:19 AM +0200 10/10/05, Michael Heinrich wrote: > What Marx excludes from >his presentation in "Capital" is the "competition on the world market" >respectivly (in Hannos quotation) the "actual movement of competition", >what is also related to the world market as the first sentence makes >clear. In both passages Marx didn't exclude a n y competition from his >presentation, but the "actual competition", which takes place on the >world market. Michael H seems to be repeating Luxemburg's and Sternberg's false charge that Marx excluded analysis of the world market from his magnum opus, making it only a torso of a work. Grossmann long ago invalidated the claim. For example, he wrote: Yet Marx himself repeatedly underlined the colossal importance of foreign trade to the development of capitalism; in 1859 he proposed a six-book structure for his investigations of the capitalist economy and intended the 'world market' to be one of the six. Although the structure of the work was later changed, its object of inquiry remained basically the same. In Capital we find the 'creation of the world market' listed as one of the 'three cardinal facts of capitalist production' (1956, p. 266). Elsewhere Marx writes: 'Capitalist production does not exist at all without foreign commerce' (1956, p. 474). And: it is only foreign trade, the development of the market to a world market, which causes money to develop into world money and abstract labour into social labour ... Capitalist production rests on the value or the transformation of the labour embodied in the products into social labour. But this is only [possible] on the basis of foreign trade and of the world market. This is at once the precondition and the result of capitalist production. (Marx, 1972, p. 253) So what scientific value can there be in a theoretical system which abstracts from the decisively important factor of foreign trade? People have tried to escape the problem by postulating a gap in Marx's system; they have argued that after all Capital is an unfinished work. Thus A Parvus argues that the founders of scientific socialism 'died much too early' (1901, p. 587) to leave us any analysis of trade policy. Recently A Meusel has argued that Marx was naturally less interested in problems of foreign trade because the only significant foreign trade controversy which he lived to see, the struggle for the abolition of the Corn Laws, appeared to be a conflict between the landed aristocracy and the industrial middle class; 'it was easy to suppose that the working class had no immediate strong interests of its own in policies relating to foreign trade' (Meusel, 1928, p. 79). This distortion explains why Meusel cannot grasp the tremendous importance of foreign trade in Marx's work, even though this is repeatedly and emphatically drawn out in Capital and Theories of Surplus Value. Luxemburg also starts from the conception that Marx ignored foreign trade in his system, that 'he himself explicitly states time and again that he aims at presenting the process of accumulation of the aggregate capital in a society consisting solely of capitalists and workers' (1968, pp. 330-1). Luxemburg could only explain this by postulating a gap in Marx's work, supposedly due to the fact that 'this second volume [of Capital] is not a finished whole but a manuscript that stops short half way through' (pp. 165-6). Luxemburg then constructs a theory to fill in the so-called gap. This may be a convenient way of disposing of theoretical problems but it shatters the underlying unity of the system and creates a hundred new problems.[2] What Luxemburg sees as a gap in Marx's system is transformed by Sternberg into its basic limitation. Marx turns out to be a builder of completely abstract systems which were bound to lead to untenable conclusions insofar as they ignored the basic aspects of reality. He says that 'Marx analysed capitalism on an assumption that has never corresponded with reality, namely that there is no non-capitalist sector' (1926, p. 303). Whereas Luxemburg at least regarded Marx's whole system as a solid achievement of theory, Sternberg informs us that the whole system is a delapidated structure. He states that Luxemburg 'broke off too soon' in her demolition of Marx's system. She 'failed to see that every stone of the structure is affected by the fact of the existence of a non-capitalist sector, not only the accumulation of capital but crisis, the industrial reserve army, wages, the workers' movement and, above all, the revolution' (p. 9). So all these basic questions of Marxist theory are tackled incorrectly because Marx built his system on the unproven and improbable assumption that there are no non-capitalist countries. The grotesque character of this entire exposition is obvious. It is the product of a whole generation of theoreticians who go straight for results without any philosophical background, without bothering to ask by what methodological means were those results established and what significance do they contain within the total structure of the system. Sternberg writes a book of over 600 pages simply to register the observation that Marx described only pure capitalism, isolated from external trade relations. Because Marx never ordered the various passages dealing with foreign trade under capitalism into a single, structured chapter, these passages are totally ignored. This is a sad proof of the decline of the capacity to think theoretically. The function of foreign trade under capitalism The importance of foreign trade for the increasing multiplicity of use values The progress of capitalism increases the mass of surplus product accruing to capital. The number of human needs is unlimited and when people have enough of some products there are always others which they can use. Towards the middle of the last century people consumed a greater variety of products than fifty years earlier, and today this variety is greater still. Foreign trade plays an important role in expanding this multiplicity of products. Here what matters is international exchange as such, regardless of whether it takes place with capitalist or non-capitalist ones. By increasing the multiplicity of products foreign trade has the same impact as product diversification on the home market. An increasing variety of use values facilitates accumulation and weakens the breakdown tendency. Marx says: If surplus labour or surplus value were represented only in the national surplus product, then the increase of value for the sake of value and therefore the exaction of surplus labour would be restricted by the limited, narrow circle of use values in which the value of the [national] labour would be represented. But it is foreign trade which develops its [the surplusproduct's] real nature by developing the labour embodied in it as social labour which manifests itself in an unlimited range of different use values, and this in fact gives meaning to abstract wealth. (1972, p. 253) Thus the limits on the production of surplus value are extended; the breakdown of capitalism is postponed. This aspect of the exchange relationship does not exhaust the problem of foreign trade and its impact on the tendencies of capitalism. Looking at the matter from the value side, I have shown that the problem of breakdown by no means lies in an excess of surplus value but in its opposite, a lack of sufficient valorisation. Therefore we have to examine foreign trade from the aspect of its impact on valorisation. Expansion of the market as a means of reducing the costs of production and circulation To understand why foreign trade and market expansion are important we do not need to fall back on the metaphysical theory of the realisation of the surplus value. Their importance is more obvious. Hilferding argues: the size of the economic territory ... has always been extremely important for the development of capitalist production. The larger and more populous the economic territory, the larger the individual plant can be, the lower the costs of production, and the greater the degree of specialisation within the plant, which also reduces costs of production. The larger the economic territory, the more easily can industry be located where the natural conditions are most favourable and the productivity of labour its highest. The more extensive the territory, the more diversified is production and the more probable it is that the various branches of production will complement one another and that transport costs on imports from abroad will be saved. (1981, p. 311) Due to mass production British industry, which was the workshop of the world down to the 1870s, could carry through a division of labour, increases in productivity and cost savings to a level that was unattainable elsewhere. Whereas weaving and spinning were originally combined,later they were separated. This resulted in geographical specialisation. Burnley made the traditional calico prints, Blackburn clothed India and China, Preston manufactured fine cottons. The factory districts lying close to Manchester concentrated on more complicated fabrics, like the cotton velvets of Oldham and high quality calicoes of Ashton and Glossop. Only mass production of this kind made possible the construction of specialised machines for individual operations, and this meant important savings in investment and enterprise costs. Manchester, previously the centre of the industry, more and more specialised as the exclusive base of the export trade. In the basements of the city's commercial firms, which were often several stories underground, steam engines and hydraulic presses were reducing cotton yams and fabrics to half their thickness. Such a high level of production specialisation meant huge cost reductions due to savings in non-productive expenses, reduced work interruptions and increases in productivity and the intensity of labour. Economies in production are supplemented by economies in the sphere of circulation. The number of importers, brokers and so on is compressed to the absolute minimum. An intricate system of transport connects supply bases to centres of production. Special credit organisations emerge with their own terms of payment. All of this enhances valorisation by reducing the costs of investment, manufacturing and marketing. This is what accounted for the competitive superiority of British capitalism. The compulsion to produce the greatest possible surplus value is enough to account for the enormous importance of market expansion and struggles for markets. We do not need to fall back on Luxemburg's notion of the necessity of non-capitalist markets for realising surplus value. In fact it is irrelevant whether the markets in question are capitalist or not., What matters is mass outlets, mass production and the specialisation and rationalisation of work and circulation which mass production makes possible. It makes no difference whether German chemicals are exported to Britain or to China. Finally the specialisation and geographical concentration of production in specific lines contributes to the training of a highly efficient workforce, and therefore to increases in the skill and intensity of labour. A German worker cited by Schulze-Gaevernitz talks of German workers being less efficient than British workers due to lack of tradition, in the sense that in Britain workers have acquired a basic experience in handling machinery through specialised work lasting over generations. The result is that in Britain three or four workers can operate 1 000 spindles whereas in Germany at that time it needed six to ten (1892, p. 109). We should add that France for example, which possesses an old and flourishing silk industry at Lyons, remained totally dependent on Britain for her imports of raw silk from China and Japan. All attempts to procure Chinese silk directly, with the help of French banks, failed because Britain was able to buy the silk more cheaply due to her extensive trade connections and lower freight costs. In addition despite the double freight costs involved in importing the raw material all the way from Australia and shipping the final product back there, British woollens remain cheaper and more competitive than Australian woollens because the size of the Australian market forces the individual units there to diversify instead of specialising. Domestic prices are higher than world market prices, sales are confined exclusively to the home market and this means that protection is necessary. The same holds for the woollen industries of La Plata (Argentina) and South Africa, although wool is directly available there andthis dispenses with double transport costs. All this explains why the USA has emerged as an increasingly more dangerous competitor on the world market. The enormous advantages of a large and integrated scale of operations, in territorial terms, gives American industry completely different possibilities of expansion than those available in Europe. Mass production and mass sales have always been basic objectives of capitalist production. But they have become matters of life and death for capitalism only in the late stage of capital accumulation when a purely domestic valorisation of the gigantic mass of capital becomes more and more difficult. Mass production is necessary to obtain the various advantages of specialisation which are inseparable from mass production. It is also necessary for achieving a level of competitive superiority on the world market. Politically mass production means the triumphant domination of the large-scale enterprise over the small and medium enterprises. It explains the tendency to form transnational empires in place of the nation state. The categories in terms of which we think today are no longer those of nation states but of entire continents. Foreign trade and the sale of commodities at prices of production deviating from values Among the simplifying assumptions of the reproduction scheme an especially important role is played by the assumption that commodities exchange at value; that is, that their prices coincide with their values. This is only possible if we abstract from competition and suppose that all that happens in circulation is that one commodity of a given value is exchanged against another of the same value. But in reality commodities do not exchange at their values. Such an assumption has to be dropped and the conclusions established on that basis further modified. What sort of modifications are required? Up to now this problem has always been examined from the standpoint of the transfer of value among capitalists - a social process in which the prices of production of individual commodities differ from their values but on the basis of total price remaining equal to total value. No one has systematically tackled the problem of the deviation of prices from values in international exchange or related this problem to the overall structure of Marx's system. For instance Hilferding and the followers of Kautsky were in no position to grasp the elements of novelty in Marx's treatment of this problem as long as they were mainly interested in rejecting the theory of breakdown. This likewise precluded any deeper analysis of the function of foreign trade under capitalism. If like Ricardo, we suppose that the law of value is directly applicable to international trade then the question of foreign trade has no bearing on the problem of value and accumulation. On this assumption foreign trade simply mediates the exchange of use values while the magnitude of value and profit remains unaltered. In contrast Marx draws out the role of competition in international exchange. If we look at the sphere of production it follows that the economically backward countries have a higher rate of profit, due to their lower organic composition of capital, than the advanced countries. This is despite the fact that the rate of surplus value is much higher in the advanced countries and increases even more with the general development of capitalism and the productivity of labour. Marx (1959, pp. 150-1) gives an example where the rate of surplus value is 100 per cent in Europe and 25 per cent in Asia while the composition of the respective national capitals is 84c +16v for Europe and 16c + 84v for Asia. We get the following results for the value of the product Asia 16c + 84v + 21s = 121. Rate of profit 21/100 = 21 per cent Europe 84c + 16v + 16s = 116. Rate of profit 16/100 = 16 per cent International trade is not based on an exchange of equivalents because, as on the national market, there is a tendency for rates of profit to be equalised. The commodities of the advanced capitalist country with the higher organic composition will therefore be sold at prices of production higher than value; those of the backward country at prices of production lower than value. This would mean the formation of an average rate of profit of 18.5 per cent so that European commodities will sell for a price of 118.5 instead of 116. In this way circulation on the world market involves transfers of surplus value from the less developed to the more developed capitalist countries because the distribution of surplus value is determined not by the number of workers employed in each country but by the size of the functioning capital. Marx slates that through foreign trade: three days of labour of one country can be exchanged against one of another country ... Here the law of value undergoes essential modification ... The relationship between labour days of different countries may be similar to that existing between skilled, complex labour and unskilled simple labour within a country. In this case, the richer country exploits the poorer one, even where the latter gains by the exchange. (1972, pp. 105-6) In effect price formation on the world market is governed by the same principles that apply under a conceptually isolated capitalism. The latter anyway is merely a theoretical model; the world market, as a unity of specific national economies, is something real and concrete. Today the prices of the most important raw materials and final products are determined internationally, in the world market. We are no longer confronted by a national level of prices but a level determined on the world market. In a conceptually isolated capitalism entrepreneurs with an above average technology make a surplus profit (a rate of profit above the average) when they sell their commodities at socially average prices. Likewise on the world market, the technologically advanced countries make a surplus profit at the cost of the technologically less developed ones. Marx repeatedly draws out the international effects of the law of value. For instance he says, 'most agricultural peoples are forced to sell their product below its value whereas in countries with advanced capitalist production the agricultural product rises to its value' (1969, p. 475). In Chapter 22 of Capital Volume One entitled 'national differences in wages', Marx writes: the law of value in its international application is ... modified by this, that on the world market the more productive national labour reckons also as more intense, so long as the more productive nation is not compelled by competition to lower the selling price of its commodities to the level of their value. (1954, p. 525) With the development of capitalist production in a given country therefore, the national intensity and productivity of labour rise above the international average level. The different quantities of commodities of the same kind, produced in different countries in the same working time, have, therefore, unequal international values, which are expressed in different prices, ie, in sums of money varying according to international values. The relative value of money will, therefore, be less in the nation with a more developed capitalist mode of production, than in the nation with a less developed. (p. 525) Likewise in Chapter 17: the intensity of labour would be different in different countries, and would modify the international application of the law of value. The more intense working day of one nation would be represented by a greater sum of money than the less intense day of another nation. (p.492) Finally in Capital Volume Three: Capitals invested in foreign trade can yield a higher rate of profit, because, in the first place, there is competition with commodities produced in other countries with inferior production facilities, so that the more advanced country sells its goods above their value even though cheaper than the competing countries. In so far as the labour of the more advanced country is here realised as labour of a higher specific weight, the rate of profit rises, because labour which has not been paid as being of a higher quality, is sold as such ... As regards capitals invested in colonies, etc, on the other hand, they may yield higher rates of profit for the simple reason that the rate of profit there is higher due to backward development, and likewise the exploitation of labour, because of the use of slaves, coolies, etc. (1959, p. 238) In the examples cited above the gain of the more advanced capitalist countries consists in a transfer of profit from the less developed countries. it is irrelevant whether the latter are capitalist or non-capitalist. It is not a question of the realisation of surplus value but of additional surplus value which is obtained through competition on the world market through unequal exchange, or exchange of non-equivalents. The enormous significance of this transfer process and the function of imperialist expansion are only explicable in terms of the theory of breakdown developed earlier. I have already shown that capitalism does not suffer from a hyperproduction of surplus value but, on the contrary, from insufficient valorisation. This produces a tendency towards breakdown which is expressed in periodic crises and which in the further course of accumulation necessarily leads toa final collapse. Under these circumstances an injection of surplus value by means of foreign trade would raise the rate of profit and reduce the severity of the breakdown tendency. According to the conception I have developed and which, I believe, is also Marx's conception, the original surplus value expands by means of transfers from abroad. At advanced stages of accumulation, when it becomes more and more difficult to valorise the enormously accumulated capital, such transfers become a matter of life and death for capitalism. This explains the virulence of imperialist expansion in the late stage of capital accumulation. Because it is irrelevant whether the exploited countries are capitalist or non-capitalist - and because the latter can in turn exploit other less developed countries by means of foreign trade - accumulation of capital at a late stage entails intensified competition of all capitalist countries on the world market. The drive to neutralise the breakdown tendency through increased valorisation takes place at the cost of other capitalist states. The accumulation of capital produces an ever more destructive struggle among capitalist states, a continuous revolutionisation of technology, rationalisation, Taylorisation or Fordisation of the economy - all of which is intended to create the kind of technology and organisation that can preserve competitive superiority on the world market. On the other side accumulation intensifies the drift to protectionism in the economically backward countries. Kautsky sees the essence of imperialism in a striving to conquer the non-capitalist agrarian parts of the world. He therefore sees imperialism as merely an episode in the history of capitalism that will pass with the industrialisation of those parts of the world. This conception is totally false. Imperialism must be understood in the specific form that Luxemburg gives to it in her theory of the role of the non-capitalist countries. Imperialist antagonisms subsist even among the capitalist states in their relations to one another. Far from being merely an episode that belongs to the past, imperialism is rooted in the essence of capitalism at advanced stages ofaccumulation. Imperialist tendencies become stronger in the course of accumulation, and only the overthrow of capitalism will abolish them altogether. The argument developed here shows how foreign trade can function as a means of surmounting crises. While commodity exports are not confined to periods of crisis or depression it is a fact that in boom periods, when the level of domestic prices is high and shows an upward trend, accumulation in individual spheres of industry creates a market for industry as a whole, and industry works mainly for the national market. Foreign trade gains importance in periods of internal saturation, when valorisation disappears due to overaccumulation and there is a declining demand for investment goods. The drive to export in a period of depression acts as a valve for overproduction on the domestic market. In Germany after the boom year of 1927 there was a tapering off early in 1928. Although a depression has still to come there was, in the first four months of 1928, a retreat in domestic demand practically all along the line. At the same time however, exports provided a compensation. From January to April 1928 exportswere around 18.5 per cent higher than in the corresponding part of the previous year. Thus here we have a means of partially offsetting a crisis of valorisation in the domestic economy. The international character of economic cycles Far from signifying the impending doom of European capitalism, as Hildebrand (1910) and others forecast, the industrialisation of the more backward countries signifies an expansion of world exports. Contrary to Luxemburg's theory the backward countries gain importance as markets for advanced capitalism precisely to the degree that they industrialise. Today the industrialising colonies are much better markets than the purely agricultural colonies, while the advanced capitalist countries are the best markets. In fact the notion that the backward countries, still mainly dependent on agriculture, could produce enough commodities to pay for the colossal wealth of the capitalist nations is something bordering on absurdity. The fact that the more industrialised a country is the greater its share of industrial imports, or the fact that the industrialised nations form the best markets for each other, helps to explain a phenomenon for which Luxemburg's theory has no explanation. I mean the international character of the economic cycle. An upswing in production goes together with rising imports of raw materials, semi-finished goods and soon. In periods of boom net exports of raw materials and semi-finished goods exceed net exports of finished commodities, while the ratio is reversed in periods of depression. Thus there is a strong correlation between booms and raw material imports. A boom in one country is communicated to other countries through the medium of commodity imports. In this way the rhythm of boom movements becomes progressively synchronised, even if international differences in the chronology of the business cycle persist. Even prior to the War we saw the gradual formation of a parallelism in the economic cycles of the most important countries. The crises of 1900, 1907 and 1913 all had an international character. This parallelism was interrupted by the War and the breaking off of mutual economic ties, but after the War it started to crystallise once more. Table 3.1: German imports 1925-7 (billions of marks) 1925 1926 1927 Raw materials & semi-finished goods 7.0 5.3 7.7 Finished goods 1.3 1.0 1.8 The minor boom of 1925 was followed by the depression of 1926 when the total volume of imports declined steeply. In the boom year of 1927 imports exceeded the level of 1925. It is easy to see that such a rapid increase of German imports, by 3.2 billion marks, is bound to have an invigorating effect on the world market. As long as it is sufficiently strong the boom in a single country can communicate itself to all its trade partners. For instance the German boom of 1927 drew along with it all the neighbouring countries of central and eastern Europe which have close economic ties to Germany. In that year there was a revival, of varying strength, in Poland, Czechoslovakia, Austria, Hungary, Switzerland, Belgium, Netherlands, Sweden and Finland. In periods of depression things are reversed. Imports decline and a chain repercussion starts as orders are cancelled. Foreign trade and world monopolies The tremendous importance of cheap raw materials to the level of the rate of profit and thus to the valorisation of capital was first established through practical experience. However the classical economists found it difficult to explain the fact theoretically due to their confusion of the rate of profit with the rate of surplus value. Marx was the first to establish the connection clearly through his own exposition of the laws that govern the rate of profit: Since the rate of profit is s/C, or s/c + v, it is evident that everything causing a variation in the magnitude of c, and thereby of C, must also bring about a variation in the rate of profit, even ifs and v, and their mutual relation, remain unaltered. Now, raw materials are one of the principle components of constant capital ... Should the price of raw material fall ... the rate of profit rises ... Other conditions being equal, the rate of profit, therefore, falls and rises inversely to the price of raw material. This shows, among other things, how important the low price of raw material is for the industrial countries. (1959, p. 106) Marx goes on to point out that the importance of raw materials to the level of profitability is constantly growing with the development of capitalist industry: the quantity and value of the employed machinery grows with the development of labour productivity but not in the same proportion as productivity itself, ie, not in the proportion in which this machinery increases its output. In those branches of industry, therefore, which doconsume raw materials ... the growing productivity of labour is expressed precisely in the proportion in which a larger quantity of raw material absorbs a definite of labour, hence in the increasing amount of raw material converted in, say, one hour into products ... The value of raw material, therefore, forms an ever-growing component of the value of the commodity product. (1959, p. 108) The growing importance of raw materials is also obvious in the fact that as industrialisation advances every capitalist country becomes increasingly dependent on raw material imports. For instance in Germany imports of raw materials for industrial purposes increased by between 40 to 55 per cent between the late 1880s and 1912. A further point is that monopolistic controls in the world market are easier to carry through in the sphere of raw materials where the range of possible applications is very wide. Competition among the capitalist powers first exploded in the struggles to control raw material resources because the chance of monopoly profits were greatest here. Yet this is not the only factor. Control over raw materials leads to control over industry as such. F Kestner says: Because only raw materials or means of production are susceptible to long-term monopolisation, which is generally not the case with finished products - unless raw material syndicates intervene - cartelisation necessarily shifts the economic balance in favour of heavy industry, both in terms of price formation, and in terms of the fact that the processing industries fall under the sway of the raw materials industries. (1912, p. 258) The struggle for control of raw materials is thus a struggle for control over processing industries, which is itself finally reducible to the drive for additional surplus value. Because raw materials are only found at specific points on the globe, capitalism is defined by a tendency to gain access to, and exert domination over, the sources of supply. This can only take the form of a division of the world. A world monopoly in raw materials means that more surplus value can be pumped out of the world market. For competitors who face such a monopoly it means that the breakdown of capitalism is intensified. The economic roots of imperialism, of the incessant drive to dominate territories capitalistically and later politically, lie in imperfect valorisation. Perhaps the most obvious case of this is the Anglo-American struggle over oil. The struggles for petroleum in the Caucasus, Mesopotamia and Persia are already well known so I shall be brief here. Oil first became a burning issue for Britain when the discovery of the diesel-engine made it possible to substitute liquid fuel for coal in shipping. Yet the biggest reserves of crude oil and the bulk of oil production were concentrated in American hands. Britain saw the American monopoly as a threat. F Delaisi points out that for close to a century the whole power of British trade and industry was founded on her control over coal. Superiority in the coal market, and especially in the production of bunker coal, enabled Britain to consolidate its traditional maritime dominance. Britain could afford to charge cheaper rates on return-freight than her competitors: Thus commodities destined for Britain paid lower transport costs than those destined for other countries. Hence British industry enjoyed a real premium on all overseas raw materials. This was an enormous advantage over all competitors in the struggle to win international markets. (Delaisi, 1921, p.40) Once shipping converted to oil all this could change. Britain produced no petroleum. British domination over sea transport was seriously threatened. Then there was the experience of the World War which showed the importance of automobiles and aircraft. The decisive strategic significance of allied control over oil reserves became more and more obvious the longer the War lasted. The oil politics of the postwar period was a direct consequence of these experiences. Britain realised the implications of this situation quite early on and, at the beginning of this century, quietly and unobtrusively started to acquire reserves of oil that were still going. Against Rockefeller's Standard Oil Trust, Britain founded a series of oil trusts: Royal Shell (later expanded into Royal Dutch Shell), Mexican Eagle, Anglo-Persian Oil, etc. Britain even settled down in the USA to take on the competition of Standard Oil. By 1919 The Times could report a speech by G Prettyman, a well-known oil expert, who on the inauguration of the new Anglo-Persian refinery was quoted as saying: At the outbreak of the War the position was such that the British Empire with her enormous worldwide interests controlled only two per cent of world petroleum reserves ... On the currently prevalent foundations and methods of work used, about which he would not like to go into detail, he feels that once differences are settled, the British Empire should not be very far from controlling over half the world's known reserves of petroleum. (7 May 1919) This result could be achieved thanks to a powerful vertical concentration of the entire industry from production down to distribution, and the corresponding conglomeration of capital which could exert fantastic pressure. The British oil industry was thus welded together into a single block which today embraces 90 per cent of all Britain's oil interests. At the end of 1920 Anglo-Persian Oil unified some 77 companies with a nominal capital of around £120 million, and Royal Dutch Shell 50 firms with £300 million. Apart from these, there were another 177 companies representing a capital of £266 million. Altogether these firms represent a total capital of £686 million; 52 per cent of this is invested in production, 16 per cent in trade, 12 per cent in transport and 11 per cent in refining. What was the point of this huge effort? Military security is only part of the answer. Delaisi notes that 'Britain no longer needs to fear the American monopoly' (p. 58). Just prior to the War Britain controlled all the most important coal stations. For the future it sought to control the major oil stations through a tightly organised petroleum industry. One of the basic objectives of Britain's oil strategy was to attain a near monopoly over the transportation of oil. How far this succeeded can be gauged from a report in The Times of March 1920, cited by Delaisi, which quotes Sir Edgar Mackay as saying: I can say that two thirds of the fields in operation in Central and South America are in British hands ... The Shell group controls interests in all the important oilfields on earth, including those in the USA, Russia, Dutch East Indies, Rumania, Egypt, Venezuela, Trinidad, British India, Ceylon, the Malay States, north and south China, Siam, the Straits Settlements and the Philippines. (Delaisi, 1921, p. 64) The economic significance was drawn out when Mackay said: Assuming their current curve of consumption rises further, then after ten years the United States will have to import 500 million barrels a year which makes, even supposing a very low price of $2 per barrel, an annual expenditure of $1 billion, and most of that, if not all, will go into British pockets. (p. 64) The idea of joint international control over raw material resources has been mooted time and time again. Even the International Congress of Mineworkers, which took place in August 1920, formulated a resolution calling for the creation of a central international office in the League of Nations. Such an office would not only produce a detailed inventory of all existing resources and gather statistics on them; it would also look after the 'distribution of fuels, minerals and other raw materials'. Such proposals are utopian. I have already shown that the antagonisms of world economy find their deepest source in the lack of valorisation which goes together with the general advance of accumulation. A shortage of surplus value in one national economy can only be compensated at the expense of other economies. Even capitalist attempts to create joint world monopolies have ended in failure, due to irreconcilable interests among the various parties. The conflict of interests remains the basic aspect in the sense that the whole function of world monopolies lies in the national enrichment of some economies at the cost of others. As a result the increasingly frequent projects to evolve joint control and distribution schemes for raw materials remain pious wishes. Marx already pointed out, with prophetic foresight, that the attempts to regulate production that are often discernible in periods of crisis vanish: as soon as the principle of competition again reigns supreme ... All thought of a common, all-embracing and far-sighted control over the production of raw materials gives way once more to the faith that demand and supply will mutually regulate one another. And it must be admitted that such control is on the whole irreconcilable with the laws of capitalist production and remains for ever a pious wish, or is limited to exceptional cooperation in times of great stress and confusion. (1959, p. 120) The function of capital exports under capitalism Earlier presentations of the question From a scientific point of view we have to explain why capital is exported and what role is played by the export of capital in the productive mechanism of the capitalist economy. Sombart is the best example of the superficial way in which these problems are handled in the prevailing theories. He tells us: 'No one can doubt that economic imperialism basically means that by enlarging their sphere of political influence, the capitalist powers are enabled to expand the sphere of investment for their superfluous capital' (1927, p. 71). Here the relation between capital expansion and the drive for power is wrongly described; Sombart makes the drive for power the precondition for capital expansion. The opposite is the case - capital expansion is a precursor of the political domination that follows. Secondly, from a purely economic point of view, Sombart does not explain why there is such a thing as the expansion of capital to foreign territories. This is something self-evident for him. What we have to explain theoretically is simply presupposed as obvious without any analysis or proof. Why are capitals not invested in the home country itself? Because they are superfluous? But what does superfluous mean? Under what conditions can a capital become superfluous? Sombart simply uses phrases without the slightest attempt to clarify things scientifically. This issue has been debated for a whole century ever since Ricardo argued that when 'merchants engage their capitals in foreign trade, or in the carrying trade, it is always from choice and never from necessity: it is because in that trade their profits will be somewhat greater than in the home trade' (1984, p. 195). In his book on imperialism J A Hobson maintains that foreign investments form 'the most important factor in the economics of imperialism' (1905, p. 48). He goes on to state that: Aggressive imperialism ... which is fraught with such grave incalculable peril to the citizen, is a source of great gain to the investor who cannot find at home the profitable use he seeks for his capital, and insists that his government should help him to profitable and secure investments abroad. (p. 50) But why are profitable investments not to be found at home? Hobson does not refer to this decisive question. In general his study, which is a valuable descriptive work, evades all theoretical issues. A Sartorius von Waltershausen states that 'in today's world economy the agrarian countries are net importers of capital, the industrialised countries net exporters' (1907, p. 52). However he adds that 'even the highly developed countries stand in debtor-creditor relationships to one another' (p. 52). Obviously the agrarian/industrialised distinction cannot account for export of capital. In that case what is the driving force behind this? Sometimes Sartorius refers to 'economic saturation', a superfluity of the available capital in relation to investment possibilities. But this is not explained. Sartorius appears to have a vague feeling that such a state of saturation is linked to a relatively advanced stage of capitalist development. But Sartorius stays at this purely empirical level. The treatment of this problem by S Nearing and J Freeman is just as unsatisfying. They agree that the industrialised countries of Europe became exporters of capital only at a specific stage in their development. The same is true of America: 'The United States also reached this stage at the start of the present century'(1927, p. 23). The trend was then accelerated by the war - a whole process of development which might otherwise have taken much longer was compacted into a single decade by the events of the war. But what were these events? The warenormously speeded up the transformation of the USA from the position of a debtor to one of a creditor. The USA became a capital exporting nation 'and was bound to remain so as long as there was surplus capital looking for investment' (p. 24). But the authors do not show why such a surplus emerges or why it cannot find investment in the domestic economy. Even in Marxist writings we search in vain for any explanation of the specific function of capital exports in the capitalist system. Marxists have simply described the surface appearances and made no attempt to build these into Marx's overall system. So Varga says, 'The importance of capital exports to monopoly capitalism was analysed in detail by Lenin in Imperialism; hardly anything new can be added' (1928, p. 56). Elsewhere he simply casts aside any attempt to analyse the problem theoretically and simply produces facts about the volume and direction of international capital flows. 'The rate of profit', he says, 'regulates not only the influx of capital into individual branches of industry, but also its geographical migrations. Capital is invested abroad whenever there are prospects ofobtaining a higher rate of profit' (1927, p. 363). This conclusion is hardly original. Varga fails to understand the dimensions of the question when he goes on to say, 'Capital is exported not because it is absolutely impossible for it to accumulate domestically without "thrusts into non-capitalist markets", but because there is the prospect of higher profit elsewhere' (p. 363). In other words Varga starts from the false assumption that whatever its total amount, capital can always find an unlimited range of investment possibilities at home. He overlooks the simple fact that in denying the possibility of an overabundance of capital, he simultaneously denies the possibility of an overproduction of commodities. In addition Varga imagines any argument that there are definite limits to the accumulation of capital, and that capital export necessarily follows, is incompatible with Marx's conception and can only be made from Luxemburg's position. I shall show that Varga's conception is untenable, that it was precisely Marx who showed that there are definite limits to the volume of capital investments in any single country; that it was Marx who explained the conditions under which there arises an absolute overaccumulation of capital and therefore the compulsion to export capital abroad. Varga does not notice that his conception of unlimited investment possibilities flatly contradicts and is incompatible with any labour theory of value. Investment of capital demands surplus value. But surplus value is labour and in any given country labour is of a given magnitude. From a given working population only a definite mass of surplus labour is extortable. To suppose that capital can expand without limits is to suppose that surplus value can likewise expand without limits, and thus independently of the size of the working population. This means that surplus value does not depend on labour. Sternberg argues that the export of capital constitutes a powerful factor for generating a surplus population. By reinforcing the reserve army it depresses the level of wages and enables a surplus value to arise(!). The expansion of capital 'is therefore one of the strongest supports of the capitalist relation and its continuity over time' (1926, p. 36) because a surplus value can arise 'only if there is a surplus population' (p. 16). Export of capital is supposed to be the most powerful factor of surplus population. Yet in Germany in the years 1926-7 we saw the exact opposite: massive inflows of foreign capital were crucial to the general wave of rationalisation and played a major role in displacing workers or creating a surplus population. If it were simply a question of reducing the amount of capital so as to reduce the demand for labour then a simple transfer of capital would be enough to solve this. For instance German capitalists can go to Canada and settle down there. But this is not an export of capital so much as a loss of capital. In fact if it were simply a question of reducing the amount of capital, the essential aspect of capital exports - the drive to improve the conditions for the further expansion of capital - would no longer hold. Sternberg tries to explain the export of capital, as he does all other phenomena of capitalism, by reference to competition. Yet the problem is to explain capital exports in abstraction from competition and therefore from the existence of a surplus population. The question is, what compels the capitalist to export capital when there is no reserve army and labour power is sold at its value? Hilferding is not much better. Because he denies the possibility of a generalised overproduction of commodities, there are no limits to the investment of capital in a given country. So capital is exported only because a higher rate of profit can be expected: 'The precondition for the export of capital is the variation in rates of profit, and the export of capital is the means of equalising national rates of profit' (1981, p. 315). The same holds for Bauer. Inequality of profit rates is the sole reason why capital is exported: 'Initially the rate of profit is higher in the more backward countries which are the targets of imperialist expansion ... capital always flows to where the rate of profit is highest' (1924, p. 470). Capital exports are thus explained in terms of the tendency for the rate of profit to equalise. But Bauer has the feeling that this explanation is quite useless when it comes to understanding modern imperialism. There has always been a tendency for rates of profit to equalise, whereas capital exports from the advanced capitalist countries started with real vigour only recently. Bauer himself says: The drive for new spheres of investment and new markets is as old as capitalism itself; it is as true of the capitalist republics of the Italian Renaissance as of Britain or Germany today. But the force of this tendency has increased enormously in the recent decades. (p. 471) How does he explain this? Ultimately Bauer has to look for an explanation of rising capital exports in the aggressive character of modem imperialism, which is precisely what has to be explained. Apart from this, if higher rates of profit are what account for the flow of capital to the less developed continents of Asia, Africa and elsewhere, then it is impossible to understand why capital should ever be invested in the industries of Europe and the United States. Why is the whole surplus value not earmarked for export as capital? In fact we have already seen that an average rate of profit forms on the world market. On page 247 of his book Bauer knows this. But when he comes to deal with the roots of export of capital and imperialist expansion (p. 461) he forgets it and falls back onto the banal conception that the higher rate of profit of the backward countries is the cause of capital exports. We argued earlier that on the world market the technologically more advanced countries make a surplus profit at the cost of the technologically backward nations with a lower organic composition. This is what stimulates and simultaneously drives capital to keep developing technology, to force through continuous increases in the organic composition in the advanced countries. Yet this only means that as progressively higher levels of organic composition are introduced, a field is simultaneously created for more profitable investments. However high profits may be in the colonial countries, they would appear to be higher still in the chemical and heavy industries at home which, given their organic composition, are making surplus profits. So the question remains - why is capital exported at all? Bauer can't explain this. It is not necessarily true that in countries recently opened up to capitalist production the organic composition is always lower. While West European capitalism may have needed 150 years to evolve from the organisational form of the manufacturing period into the sophisticated world trust, the colonial nations do not need to repeat this entire process. They take over European capital in the most mature forms it has already assumed in the advanced capitalist countries. In this way they skip over a whole series of historical stages, with their peoples dragged straight into gold and diamond mines dominated by trustified capital with its extremely sophisticated technological and financial organisation. Does Bauer mean to suggest that British capitalists invest in railway construction in Africa or South America because the organic composition of the railways there is lower than in England? Argentina's beef industry works on huge refrigerated plants equipped with the most modern technology with large sums of capital invested by the meat-processing firms of Chicago. An industry of this type could only have developed after a revolutionary change in transport and refrigeration techniques, and this again presupposes a high organic composition of capital. Bauer senses that there is no factual basis in the argument about higher rates of profit in less developed countries, so he drags in various other factors in the conviction that piling up doubtful arguments is a good enough substitute for one correct one. 'At any given time', he says, 'a part of the social money capital always lies fallow' (1924, p. 462). 'If too much money capital lies fallow the consequences can be disastrous for capitalism' (p. 462). Therefore there is a drive for spheres of investment that will absorb the superfluous capital. One form of this drive is the export of capital which, according to Bauer, 'reduces the volume of capital that lies fallow in a given country at a given time' (p. 470). Here two completely different explanations tend to coalesce. One deals with productive capital, the other with money capital that is not active in production. In his second theory Bauer has merely confused money capital which is deposited in banks with capital that lies fallow and searches for investment opportunities. A portion of the total social capital must always exist in the form of money, in the shape of money capital. If reproduction is to be continuous the size of this portion cannot be reduced at will. The period of time which capital, individual or total, spends in any of its three forms is not determined arbitrarily by bankers or industrialists. It is objectively given. And because the size of money capital is not arbitrarily determined, any more than is the size of commodity capital or productive capital, definite numerical ratios must obtain in the division of capital into three portions. Marx says: The magnitude of the available capital determines the dimensions of the process of production, and this again determines the dimensions of the commodity capital and money capital in so far as they perform their functions parallel with the process of production. (1956,p. 106) Summarising the results of his analysis Marx writes: Certain laws were found according to which diverse large components of a given capital must continually be advanced and renewed - depending on the conditions of the turnover - in the form of money capital in order to keep a productive capital of a given size constantly functioning. (p. 357) He goes on to add that to 'set the productive capital in motion requires more or less money capital, depending on the period of turnover' (p. 361). So although money capital is itself unproductive - it creates no value or surplus value and limits the scale of the productive component of capital - it cannot be arbitrarily diminished or cast aside because it fulfils necessary functions. Bauer turns all this upside down. In Marx the money capital that lies fallow is only a portion of industrial capital in its real circuit, constituting a unity of its three circuits. In Bauer money capital that lies fallow is a part of money capital 'which has been pushed out of the circuit of capital' (1924, p. 476). In Marx the size of the money capital depends on the length of the turnover period. In Bauer the length of the turnover period depends on the size of the money capital. So instead of a slower turnover tying up too much money capital, an accumulation of too much money capital slows down the turnover according to Bauer. The upshot is that production does not determine circulation, circulation determines production. Bauer says: 'Any change in the ratio of fallow to invested capital, of productive capital to capital in circulation ... completely transforms the picture of bourgeois society' (p. 463). The mystical power of money capital to do this lies with the banks. In fact expansion is only possible due to the banks: 'Thanks to the scale of resources at their disposal at any given time, they [the banks] can consciously direct the flow of capital to the dominated areas' (p. 472). Capital is exported because the banks decide it. The banks seemingly can do what they like. So what of the objective laws of capitalist circulation? Obviously for Bauer these must belong to the realm of fantasy. Bauer refers to fallow money capital which is expelled from the circulation of industrial capital and returns to production through the export of capital. But from statistics on international trade, Bauer knows that international capital movements take place mainly in the form of commodities and hardly at all in the form of money or as money capital. It is not money capital but commodity capital which is expelled from the circulation of industrial capital. This merely shows that there is an overproduction of commodity capital which is unsaleable and which cannot therefore find its way back into production. In fact Baser himself accepts that export of capital creates an outlet for commodities. Overaccumulation and export of capital in Marx's conception Marx points to the consistency of Ricardo's argument that if overproduction of commodities is impossible then there 'cannot ... be accumulated in a country any amount of capital which cannot be employed productively' (Ricardo, 1984, p. 193). This proposition is founded on J B Say's thesis that demand and supply are identical. It shows that 'Ricardo is always consistent. For him, therefore, the statement that no overproduction (of commodities) is possible, is synonymous with the statement that no plethora or overabundance of capital is possible' (pp. 496-7). Marx then refers to the 'stupidity of his [Ricardo's] successors': who deny overproduction in one form (as a general glut of commodities on the market) and who not only admit its existence in another form, as overproduction of capital, plethora of capital, overabundance of capital, but actually turn it into an essential point of their doctrine. (p. 497) The epigones of Marx, for instance Varga, merely reverse this stupidity. They accept the overproduction of commodities and even 'make this a fundamental part of their doctrine', but deny the overproduction of capital. For Marx there could be no fundamental distinction between the two phenomena. The question is: what is the relation between these two forms of overproduction, the form in which it is denied and the form in which it is asserted or accepted? 'The question is, therefore, what is the overabundance of capital and how does it differ from overproduction?' (p. 498). Those economists who admit to the possibility of an overabundance of capital maintain that 'capital is equivalent to money or commodities. So overproduction of capital is overproduction of money or of commodities. And yet the two phenomena are supposed to have nothing in common with each other' (p. 498). Against this 'thoughtlessness, which admits the existence and necessity of a particular phenomenon when it is called A and denies it when it is called B' (p. 499) Marx emphasises that when we are dealing with overproduction we are not dealing merely with an overproduction of commodities as commodities. We are dealing with 'the fact that commodities are here no longer considered in their simple form, but in their designation as capital' (p. 498). The commodity 'becomes something more than, and also different from, a commodity' (p. 499). In a situation of overproduction the producers confront one another not as pure commodity owners but as capitalists. This means that in every crisis the valorisation function of capital is disrupted. A capital that fails to valorise itself is superfluous, overproduced capital. In this sense overproduction of commodities and overproduction of capital are the same thing. 'Overproduction of capital, not of the individual commodities - although overproduction of capital always includes overproduction of commodities - is thus simply overaccumulation of capital' (Marx, 1959, p. 251). The heart of the problem of capital exports lies in showing why it is necessary and under what conditions it comes about. Marx's achievement was that he did precisely this. Marx showed the circumstances which determine a tendential fall in the rate of profit in the course of accumulation. The question arises - how far can this fall go? Can the rate of profit fall to zero? Many writers believe that only in such a case can we speak of an absolute overaccumulation of capital. As long as capital yields a profit, however small, we cannot speak of overaccumulation in an absolute sense because the capitalist would rather be content with a small profit than have no profit at all. I shall show that this idea is completely false, that there is a limit to the accumulation of capital and this limit comes into force much earlier than a zero rate of profit. There can be absolute overaccumulation even when capital yields a high interest. The crux of the matter is not the absolute level of this interest, but the ratio of the mass of surplus value to the mass of accumulated capital. In identifying the conditions on which this limit depends mere empiricism is quite useless. For instance in the utilisation of fuel the experience of almost 100 years has shown that it was always possible to obtain a greater quantity of heat from a given quantity of coal. Thus experience, based on several decades' practice, might easily suggest that there is no limit to the quantity of heat obtainable through such increases. Only theory can answer the question whether this is really true, or whether there is not a maximum limit here beyond which any further increases are precluded. This answer is possible because theory can calculate the absolute quantity of energy in a unit of coal. Increases in the rate of utilisation cannot exceed 100 per cent of the available quantity of energy. Whether this maximum point is reached in practice is of no concern to theory. Starting from considerations of this sort Marx asks, what is overaccumulation of capital? He answers the question thus: 'To appreciate what this overaccumulation is ... one need only assume it to be absolute. When would overproduction of capital be absolute?' (1959, p. 251) According to Marx absolute overproduction would start when an expanded capital could yield no more surplus value than it did as a smaller capital: As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working time supplied by this population, nor the relative surplus working time, could be expanded any further (this last would not be feasible at any rate in the case where the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore when the increased capital produced just as much, or even less, surplus value than it did before its increase, there would be absolute overproduction of capital. (p. 251) According to Marx's definition of absolute overaccumulation it is not necessary for profit on the total capital to disappear completely. It disappears only for the additional capital which is accumulated. In practice the additional capital will displace a portion of the existing capital so that for the total capital a lower rate of profit results. However whereas a falling rate of profit is generally bound up with a growing mass of profit, absolute overaccumulation is characterised by the fact that here the mass of profit of the expanded total capital remains the same.
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