From Fourth International, Vol.13, No.3, May-June 1952, pp.71-76.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.
Proofread by Chris Clayton (July 2006).
The great pivot upon which all modern world history turns is the future of American capitalism. The naked and hopeless crisis of European and Asiatic capitalism contrasts sharply with the apparent stability of American capitalism. History teaches, however, that apparent stability can cloak grave contradictions and imminent crisis. The future of America lies beneath the glossy surface of the present.
To understand America and where it is going, we must understand the course of worldwide capitalist development over the past century.  Such an understanding reveals the nature of the crisis of capitalism and the conditions for capitalist stability.
The chief historic example of capitalist stability was Europe prior to the first World War, which exhibited these characteristics: a virtually uninterrupted rise of production, constant expansion of international trade, growing accumulation of capital, rising real wages for the working class (at least until 1895-1900), rapid recovery from crises, and the minor role of international warfare. This last trait expressed itself in the tiny sector of world economy devoted to military production as compared with the present, and the small percentage of the world’s population involved in warfare. Possibly no period of modern European history was so free of large scale warfare, on the whole, as the 99 years from Waterloo to Sarajevo.
The 38 years from Sarajevo to the present show a completely altered picture. Two gigantic and immensely destructive world wars bracket the period, and intermittent warfare of greater or lesser dimensions fills the inter-war decades. The interval between the wars is marked by the stagnation or decline of world trade and capitalist production. Capping the inter-war period, the great depression exhibited an unprecedented breakdown of economic life. Fascist political forms appeared and grew strong, taking possession of important sectors of the capitalist world, and thus reversing the previous bourgeois-democratic trend. The relative stability of the pre-World War I years had obviously come to an end with the start of that war.
Not only was stability ended, but, with the Russian Revolution of 1917, collapse set in. Almost one-quarter of the earth’s area, more than one-third of the world’s population, and close to one-fourth of the total of world production have been torn out of the orbit of capitalism by the revolutionary developments of the three and one-half decades since the Russian October. The tide of revolt has spread to the colonial world. Most parts of Asia and Africa are in more or less advanced stages of rebellion against capitalism, and the symptoms of impending colonial-proletarian revolt have appeared in Latin America.
Thus American capitalism seeks the Holy Grail of security in a world which is hopelessly insecure for capitalism. And if, as medieval mythology tells us, the Grail flees from the unclean and can be possessed only by the virtuous, then the search of the modern imperialist crusaders will be vain indeed.
American capitalism, like European, is in crisis. However, the American crisis differs from the European in two respects. While the European impasse dates from 1914, the American dates from 1929. And while the European catastrophe is open and apparent, the American still lies beneath the surface, and must be revealed by analysis.
To comprehend the nature of the crisis of modern capitalism, that is, the economic crisis, from which flow the manifold social, political and ideological crises, we must begin with fundamental considerations. Almost a century ago, Karl Marx, after having delineated the logic of the capitalist mode of production, found its chief structural characteristic to be a necessity to expand at an accelerated rate. A sum of capital produces as its chief product new aggregations of capital. In order to continue to function as capital, the newly created mass of value must bring new qualities of labor power and means of production under the control of the capitalist class.
Marx’s prophetic analysis was fully borne out by the course of capitalist development. When Marx and Engels wrote the Communist Manifesto, an estimated 10% of the world population was producing under the capitalist mode of production. By 1914, this percentage had been tripled. When the first world war began, some 30% of the population of the world was producing under capitalist conditions, and another percentage, difficult to estimate but large, was indirectly exploited by the capitalist world masters, even while still retaining old pre-capitalist forms of production.
This vast expansion at first took the form of the growth of the capitalist mode of production within the boundaries of the chief capitalist nations. In its second phase, this expansion turned outward. Internal expansion did not cease at the start of this second phase, but it became increasingly less profitable and inadequate to handle the growing aggregations of capital. The foreign rate of profit stood above the internal rate, drawing capital ever outward. For example, from 1919 to 1929, the period of greatest United States imperialist expansion, the yield from foreign bonds was on the average 32% greater than the yield from high-grade domestic bonds. As Marx had predicted, the rate of profit had a tendency to decline, and expansion turned more and more beyond national borders.
Great Britain was the first of the great capitalist powers to complete its phase of primarily internal expansion and begin the imperialist phase. The United States, with Japan, was the last.
The main trait of imperialism, the phase of outward capitalist expansion, is the export of capital. The export of capital means the export of the capitalist social relation, or it means subjugation of older social relations to the capitalist class. Thus the export of capital is the specifically imperialist mode of exploitation of foreign countries. Commodity trade, while also greatly expanded in the imperialist period, was widespread as a means of exploitation long before imperialism. Further, the export of capital has a far greater specific weight in a developed imperialist system as a source of profit to the capitalist class. British export-import trade at the turn of the century, amounting to about 4 billion dollars annually, brought in perhaps 90-100 million dollars of profit. However, British foreign investments, at that time already totalling about 10 billion dollars, brought in almost half a billion dollars annually in profits, or five times the amount derived from commodity trade.
At the time Marx was working on Capital, Great Britain’s career as the world’s greatest capital exporter was just beginning. In 1862, her foreign investments totalled about ¾ billion dollars. By 1872 France was a capital exporter, and by 1900, Germany as well. In 1914 these three nations owned between them capital investments abroad that have been estimated as high as between 35 and 40 billion dollars. This was the solid basis of European imperialism, and the foundation of capitalist stability.
The essential meaning of this capital export on a gigantic scale is that the three biggest capitalist nations of Europe were buying pieces of the economies of the rest of the world. They were putting an ever-increasing portion of the world population to work for them.
During 40 years, from 1874 to 1914, the foreign investments of Britain, Germany and France rose (according to a United Nations estimate, slightly lower than that accepted by J.A. Hobson, the English liberal economist who pioneered the investigation of imperialism) from 6 billion dollars to 33 billions. This was an annual rate of growth of less than 5%, or well under the return on the investment each year.
In other words, the three leading imperialist nations were buying a bigger piece of the world each year with the profits they made on their investment of the previous year.
With original investments of 6 billion dollars in 1874, they owned six times as much by 1914, and they got that ownership without adding a single penny to their outlay, and were still able to withdraw a good deal of money each year. They were buying the world with the profits made out of the labor of the world’s people.
These figures may be viewed in still another way; in terms of the commodities produced in Europe and exchanged for products from the rest of the world. Before the first world war, Europe had to pay for only about 2/3 of its imports with exports. It could import a value of three and export in return a value of two, and the difference was made up by what the world owed to the European capitalist class on its foreign investments!
That is why the riches of the world piled up in Europe, and the culture of the world centered there, while in the colonial nations of Asia, Africa and Latin America, nothing accumulated but debts and poverty.
With the first world war, European capitalist expansion came to a standstill and began to retreat. European capital exports declined to only a fraction of their former annual magnitude. Of the three great imperialist powers, only Great Britain was able to continue foreign investment at a very sharply reduced rate. During the first world war, Britain was forced to liquidate about one-fourth of her 1914 foreign investments, so that, up to 1938, the last pre-World War II year, she was occupied with the effort to restore her 1914 investment balance, a goal she never attained. Germany lost just about all her 1914 investments in the war, and France about half of her 9 billion dollars of foreign investment. All in all, the foreign investment position of European capitalism in the period between the two wars fell back to a pre-1900 level.
The consequences of this empire loss were to be seen immediately in the post-World War I years. For example, unemployment among German workers, which in the pre-war period had averaged 2.3% of the labor force, was 9% to 14% during 1927-29. This was during the German “prosperity,” after the galloping inflation had been subdued, but before the crash.
In Britain a similar symptom was evident. Before the war, British unemployment had never exceeded 10% of the labor force, even during the worst depressions. After the war and before the depression, unemployment in Britain was never below 10%. In other words, when the decline of imperialist empire set in, unemployment in times of prosperity was higher than the unemployment of the worst depressions in British history during the period when she was expanding her imperialist grasp.
These symptoms of decline did not give way to complete collapse so long as the colossus of the west stood firm. But when the US crisis, presaged significantly by a decline in foreign investment in the latter part of 1928, struck in 1929, the whole capitalist world fell along with American capitalism. Stockbrokers falling from top-floor Wall Street and Park Avenue windows symbolized the end of an epoch.
How had America fared during this time? US capitalism, in the period of the great imperialist expansion of Europe, was still primarily concerned with its own inward expansion. The capitalist class exploited a continent immeasurably rich in natural resources; it exploited a population the size of which was swollen each year by a new river of immigrants. This labor force and these raw materials supplied American capitalism with the subjective and objective elements of the productive process: the two essential elements for the expansion of capital.
Seeds of empire had been sown in South and Central America before the first world war, but US foreign investments were small, and were outweighed by foreign indebtedness. It was only during the war that the US became a creditor nation, and only after the war that US capitalism embarked upon its large phase of outward expansion.
This expansion was quite great in absolute figures. Starting almost from scratch in 1914, by 1929 US imperialist investment abroad had reached the sum of ever 17 billion dollars, or slightly less than the imperialist stake of Britain in its pre-war heyday.
This capital export seems great, but how great was it in proportional terms? British pre-World War I foreign investments were so huge a sector of the national economy that the total of investments abroad was a good deal larger than the entire British national income for one year. The American total, while almost equal to the British, was far smaller in proportion. It represented only about 20% of one year’s national income.
The picture for export trade, the second most important sector of an imperialist empire, is very similar. Where Britain’s export trade at her imperialist peak was equal to possibly one-fifth of her national income, America’s foreign sales never exceeded 10% of the national income in the very best trade years, and was more normally about 3%.
Thus the American imperialist empire would have had to be multiplied possibly five times over as a proportion of its total economy if the US were to achieve an imperialist economic sector proportionally as great as that attained by pre-1914 Europe. This never happened, as we shall see. The very opposite happened.
European and American capitalist development, proceeding by different routes and at different tempos, came to the same point. In Europe, outward capitalist expansion either stagnated or retreated, and in the US the phase of outward expansion, starting in a declining capitalist world, could never attain full development. Europe’s empire shrank to dangerous levels, and America’s empire couldn’t possibly grow fast enough to keep up with the tempo of American capitalist development.
These two lines of development crossed in 1929. The great collapse of world capitalism was the result. The crisis that followed was not the “ordinary” cyclical crisis that characterized capitalism prior to the first world war. It was something new under the sun. By 1932, the depression touched bottom. In that year can be seen the naked picture of world capitalism, shorn of expanding empire and not yet bolstered by a war economy. Production in the capitalist world fell off by almost 40%; world trade dropped more than 60%; unemployment soared to the fantastic level of over 40 million in the capitalist countries that kept statistics.
These figures were absolutely unprecedented. Prior to World War I, crisis-cuts in production were small and soon recouped. The pre-World War I rising tendency of world trade had never really been reversed, even in the worst depressions. Never had a decline of more than 9% been recorded, and these were mostly paper declines reflecting a currency deflation, only partly an actual dropping off of physical volume. The 1929-32 drop of over 60% is measured in gold dollars, and reflects a tremendous decline of the volume of world trade.
The worst sufferers from the crisis were Germany and the United States, the two most important capitalist nations and the very ones where the pre-crisis investment boom was the greatest. In both these nations, production fell far more than the world average, dropping to almost half the 1929 level. The US suffered a bigger decline in foreign trade than most of the world.
The crisis of 1929 was marked by still another great difference. Previous crises had seen a return to pre-depression levels of production within a very few years. Redoubled efforts at capital exporting usually played a significant part in the recovery. However, in this crisis, capital exports did not enlarge in the post-1932 period; on the contrary, more and more of the existing foreign investments were withdrawn. Nor did production ever recover its 1929 level until a new mode of capitalist expansion was found. This took, for most of the capitalist nations, over a decade. What that new mode was we shall soon see. The crisis, at any rate, proves conclusively that the old mode of expansion was in decline; its decline produced the crisis and prevented recovery in the old way.
European capitalism has never been able to surmount the collapse-tendency stemming from the decline of its imperialist mode of expansion. This tendency, plus the drain of the second world war, has served to further liquidate the old empires. In addition, the swell of colonial revolt since the war has cut European imperialism to ribbons. Germany once more lost all she had been able to build in the field of foreign investment. France, whose foreign investments were slashed by half in the first world war, lost most of the rest during the second. Great Britain has been reduced from her former situation of power, when her foreign investments exceeded her annual national income by almost 1/3, to her present situation where her foreign investment total is below 20% of her annual national income. Even while this article is being written, England is with cries of anguish surrendering about one-fourth of her remaining investment total to the revolutionary government of the New China.
The crisis of Europe’s international investment position is compounded by the fact that while foreign credits decline, foreign debts mount. This has brought Europe to the state where the continent as a whole, including England, is a debtor area, an absolutely unprecedented situation in modern history.
The crisis of Europe is, as we have said, open and apparent, the American crisis is concealed. The concealment of the American crisis results from great structural changes in the American economy since the beginning of World War II. Capitalism has found a new mode of expansion in place of the old. As imperialism is driven back to its lair like a wounded beast, the arms economy emerges. It is war economy, formerly no more than a tool for imperialist expansion, that has become the substitute for imperialist expansion. In the United States, thanks to a combination of circumstances favorable to the capitalist class, the arms economy has worked out the most successfully, and since 1941 has provided approximately the same results for American capitalism that imperialist expansion formerly provided for European.
From 1929 to the present, not one important capitalist nation reached 1929 production levels in any single year without an armaments economy. This is the measure of the decline of imperialism and the rise of war expenditure as a mode of life for capitalism.
Japan was the first capitalist country to exceed 1929 levels. The Japanese invasion of Manchuria began in 1931, and every year from then on was a war or big arms year. By 1933, Japan had exceeded 1929 levels, but she was alone in the capitalist world in this respect.
Germany was next. German arms economy began in 1933, with Hitler’s accession to power, and by 1936, Germany had restored its 1929 production level.
On a world scale, production in the capitalist nations taken as a whole was still 7% below 1929 in the last pre-World War II year, 1938, despite the arms economies that had already developed in Japan and Germany. World capitalist production only exceeded 1929 levels in the war years, and since the war, only the US and other capitalist nations with a substantial arms program or with substantial US war-preparation aid have hit 1929 levels.
A closer look at the postwar US will show what we mean by an “arms economy” and the manner in which this has supplanted the imperialist mode of expansion. The US capitalist class has had even less success in building an imperialist empire in the post-war period than it had in the inter-war period. It is true that, politically and militarily, the US has become the overwhelmingly dominant power of the capitalist world. But it dominates a capitalist world that has been barred, to an unprecedented extent, from the former colonial world by a wall of revolutionary fire. Even in the parts of the world still controlled by imperialism, investment prospects are very poor. The mere possibility of loss is sufficient to dampen the most enthusiastic investor’s ardor. Owners of capital want a revenue from it, and they want that capital to be safe while it is producing revenue.
Thus the United States, as monarch of world imperialism, finds that it has not gained a profitable empire. It has merely been forced to incorporate into its own structure all the contradictions of collapsing world imperialism.
The inter-war peak of American foreign investment was reached in 1929, when US capitalists had a little more than 17 billion dollars invested abroad. Today, after rebuilding from low depression levels, US private foreign investments amount to only about $19½ billion (June 30, 1950). Although this is slightly higher than 1929, when currency inflation is discounted the actual present foreign investments represent a great shrinkage from their ’29 high point.
The most important way to judge any one sector of an economy is in terms of its proportion to the entire economy. We have pointed out that British pre-war foreign investments were so large that they far exceeded the annual national income. We showed also that US foreign investments in 1929 were only about 20% of the national income. Today, foreign investments of American capitalists have lagged so badly that they are only about 8% of the present national income. In other words, to reach the position of British imperialism at its height, American foreign investments would have to become about sixteen times their present proportion of the total economy. With each passing year, American imperialism has moved further from this goal. The Commerce Department’s 1951 National Income Supplement to the Survey of Current Business comments ruefully: “Net foreign investment ... is the only principal component of national product to show a decline from 1929 to 1950.”
J.A. Hobson calculated that, in 1893, British capital invested abroad represented about 15% of the total wealth of the United Kingdom. A German economist figures that, in 1929, this had risen to 18%. In 1914, the figure was probably above 20%. Yet American foreign capital investments in 1929 were only about 4% of total national wealth, and are today an even lower percentage.
If we consider the second most important component of an imperialist economic sector, the export trade, we find a similar situation. Exports remain between 5% and 8% of the total national product, while the flourishing imperialist nations of the pre-World War I epoch had an export ratio of 20%–25% in most cases.
Let us how compare the arms sectors of the two economies. In 1898, Great Britain was spending about 2.4% of its national income for arms production. Nor did this situation change materially as the war approached. In 1913, the last pre-war year, Germany, the most active of all the imperialist powers in war preparations, spent less than 4% of her national income on arms.
By comparison, American arms spending of all kinds prior to the Korean war amounted to about 10% of the national income. These military expenditures, even at their lowest point in the post-war period, were about 25 times as great as American capital exports each year. Britain and Germany before World War I, by contrast, generally exported a larger amount of capital each year than was expended for the military budget. The US arms sector was already so great even before Korea that it took in only one years as much as the total sum of US capital investments abroad.
Another way of seeing the fact that the arms sector and the imperialist sector have changed places is this: Imperialist Britain, Germany and France had export trade and arms sectors which, when added together, provided roughly 25% of the markets needed by the economy. About 4/5 of this combined export-arms market was made up by exports, while no more than 1/5 (usually less) was made up by arms. Today, (mid-1952) imperialist America also finds about 25% of its total markets in exports plus arms. However, the proportion is exactly reversed. Possibly 4/5 of the total is accounted for by war expenditure, while the other 1/5, or little more, is found in the export trade.
Thus far we have only discussed the level of arms expenditures prior to Korea. Despite the war economy, the capitalist mode of production remains true to its basic laws. Just as the imperialist sector had to be continually expanded, in the same way a huge arms sector is insufficient if it remains unchanged. It must expand- Despite the enormous, the absolutely unprecedented peace-time arms sector prior to Korea, the 1949 “recession,” which gave every indication of becoming a depression (unemployment rose above the 5% danger line), served notice on the capitalist class that the arms sector must grow.
After Korea, as the arms sector was rapidly expanded, threats of economic disaster were once more subdued. To achieve this end, the arms budget had to grow to more than three times its former size. Today, despite continued growth of the economy, the arms sector has grown so large that it takes almost 20% of the national income. Even with this immense share, threats of “recession” remain. Economists complain that even now the economy lives in a “limbo” between full prosperity and downtrend. When law-makers proposed to put a 46 billion dollar limit on arms spending in the coming fiscal year (Truman asked 52.5 billion) the Pentagon threatened a frightened Congress with depression! They predicted this fate not because there was a proposal to lower arms spending (there was no such proposal), but simply because it was proposed that arms spending rise somewhat more slowly than they wanted!
The arms sector and the imperialist sector have changed places. But the ever-growing arms sector, combined with the revolutionary world situation, can have only one end: war. This is the crisis of American capitalism that lies beneath the surface.
Through war, American imperialism hopes to find its solution to the insoluble crisis, and find it in a twofold way. Firstly, the war continues and expands the war economy. Without the war, the arms economy would sooner or later have to shrink, particularly when the present phase of capital goods construction in the arms field draws to a close. Secondly, war offers the possibility (more accurately the demented dream) of bringing the entire globe under capitalist domination, thus making the world safe for the US investor and exporter.
What the war will actually bring cannot be discussed fully within the scope of this article. However, America can learn something here from Europe. In the First World War the vanquished imperialism lost its empire, and France and Britain, the victors, each lost a large portion of theirs. In the Second World War, all European and Asiatic imperialism, victor and vanquished alike, suffered fatal economic blows; only the aid of American capitalism saves them from complete collapse at this moment. Can a third world war, fought this time not against rival imperialist powers but against the Soviet bloc of nations and the aroused working classes and colonial people of the entire world, bring anything but final and irrevocable doom to imperialism?
The conclusion reached by Fritz Sternberg is that “it is extremely unlikely that capitalism even in the United States will survive the twentieth century.” The crisis will soon be upon us, and generations now living will see the fulfillment of this prophecy.
1. World capitalist development of the past hundred years is set forth in a new book by Fritz Sternberg Capitalism and Socialism on Trial (John Day, 1952, 603 pp., $6.50), which was briefly reviewed in The Militant of Feb. 18. Sternberg’s criticism of Leninist working class politics is left-Social Democratic, his present political views very unclear, but his review of the economic crisis of capitalism and its roots is very capable and important for all Marxists.
The present article is written in place of the review of Sternberg’s new book promised in the Militant for a forthcoming issue of Fourth International. It takes the line of economic analysis of Sternberg’s book as its starting point. However, Sternberg’s material has been supplemented at many points with additional factual data. In order not to burden the article with footnotes and references, I will give the additional sources in a single group:
The Balance of Payments and the Standard of Living, by R.G. Hawtrey (London and New York, 1950); International Capital Movements During the Inter-war Period, United Nations Dep’t of Economic Affairs (New York, 1949); America’s Stake in International Investments, by Cleona Lewis (Brookings. Institute, Washington, 1938); World Trade and Investment, by Donald Bailey Marsh (New York, 1951); Statistical Abstract of the United States (Dep’t of Commerce, 1950); 1951 National Income Supplement to the Survey of Current Business (Dep’t of Commerce, 1952); The Budget of the United States for the Fiscal Year Ending June 30, 1953 (Bureau of the Budget); Imperialism, the Highest Stage of Capitalism, by V.I. Lenin (New York, 1939); Imperialism, A Study, by J.A. Hobson (New York, 1902); New Data for Lenin’s Imperialism, by E. Varga and L. Mendelsohn (New York, 1940); and American Imperialism, by Victor Perlo (New York, 1951). – HF
Last updated on 19.7.2006