Finance Capital, Hilferding 1910


The export of capital and the struggle for economic territory

Whereas on one side the generalization of the protective tariff system tends increasingly to divide the world market into distinct economic territories of nation states, on the other side the development towards finance capital enhances the importance of the size of the economic territory. This has always been extremely important for the development of capitalist production.[1] 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 specialization 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 is 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. Interruptions of production resulting from changes in demand or from natural catastrophes are more easily compensated in a larger territory. There can be no doubt, therefore, that at an advanced' stage of capitalist production free trade, which would amalgamate the whole world market into a single economic territory, would ensure the highest possible labour productivity and the most rational international division of labour. But even with free trade industry enjoys certain advantages in its own national market, because of its familiarity with the customs of the country and consumer habits, which makes for an easier relationship with its customers; and above all because of its proximity to the market and the consequent saving in transport costs. All these advantages are, of course, increased by protectionist measures. For a foreign industry, on the other hand, various obstacles arise from the differences of language, law, currency, etc. A protective tariff, however, greatly increases the disadvantages of a smaller economic territory by impeding exports, thus limiting the size of firms, discouraging specialization, and so raising costs of production, which are also raised by the impediments placed in the way of a rational international division of labour. It is above all the size of its economic territory, which permits an extraordinary degree of specialization within plants, that accounts for the rapid industrial development of the United States, even under a regime of protective tariffs. At an advanced stage of capitalist production (that is to say, after the 'educational' tariff has done its work) a state will be more strongly inclined toward free trade the smaller its economic territory. Hence the strong free trade interests of Belgium. Furthermore, the smaller the territory, the more one-sided is the distribution of the natural prerequisites of production, and therefore the smaller the number of branches of industry which it will be able to develop and the greater the interest in importing from abroad those commodities for the production of which its own territory is less suited.

On the other hand, a protective tariff means a constriction of the economic territory, and hence an interference with the development of the productive forces, since it reduces the size of industrial plants, discourages specialization, and impedes, finally, that international division of labour which brings about a flow of capital into those branches of production for which a given country is best suited. This is all the more important in the case of the modern high protective tariff since the tariff rates are frequently fixed less out of regard for the technical conditions of production which prevail in particular branches of production, than as the outcome of a political struggle for power among various industrial groups whose influence upon the state ultimately determines the tariff structure. But although the tariff is a brake upon the development of the productive forces, and hence of industry, it means for the capitalist class a direct increase in its profits. Above all, free trade hampers cartelization, and deprives industries which are capable of being cartelized of their monopoly of the domestic market, if that monopoly is not already assured by protected freight rates (as in the case of coal) or by a natural monopoly (as in the case of German potash production). But then the extra profits which flow from the use of the cartel's protective tariff come to an end.

It is true, of course, that monopolization also progresses even without a protective tariff. But the pace is slowed down, the cartels do not become as firmly established, and there is a danger that international cartels will meet with resistance because they will immediately be regarded as alien forces of exploitation. On the other hand, a protective tariff assures the cartel of the national market and gives it much greater stability, not only by excluding competition, but also because the possibilities for making use of the tariff are a direct incentive to the consolidation of cartelization. International cartelization too, although it would develop eventually on the basis of a much more advanced concentration of capital, even under a free trade system, is accelerated by protective tariffs, which facilitate especially the formation of the type of cartel based upon the allocation of markets, and upon price agreements, since it is not a matter of combining isolated producers on the world market, as would be the case if a free trade regime prevailed, but of combining national cartels which are already well established. The protective tariff establishes the individual cartels as the contracting parties, and thus greatly reduces the number of participants. It also prepares the basis for agreement by reserving the national markets from the outset for the respective national cartels. But the more markets there are which exclude competition by a protective tariff, and are thus reserved for their respective national cartels, the easier it is to reach agreement about free markets, and the more firmly established will be the international arrangements, since if they broke down this would not give outsiders the same prospect of competing successfully as would a free trade regime.

Hence there are two opposed tendencies at work here. On the one hand the protective tariff has become an offensive weapon which the cartels employ in the competitive struggle, thus intensifying the price war, while at the same time they seek to strengthen their competitive position by recourse to the machinery of the state and to diplomatic intervention. On the other hand the protective tariff gives greater stability to the national cartels and so facilitates the conclusion of inter-cartel arrangements. The net result of these two tendencies is that these international agreements represent a kind of truce rather than an enduring community of interest, since every change in the tariff defences, every variation in the market relations between states, alters the basis of the agreement and makes necessary the conclusion of new contracts. More solid structures can only emerge when either free trade more or less eliminates the national barriers, or the basis of the cartel is not the protective tariff but primarily a natural monopoly, as in the case of petroleum.

At the same time cartelization greatly enhances the direct importance of the size of the economic territory for the level of profit. As we have seen, the protective tariff brings the capitalist monopoly an extra profit on its sales in the domestic market. The larger the economic territory, the greater the volume of domestic sales (think, for example, of the proportion of steel output which is exported by Belgium and the United States respectively) and the larger therefore the cartel's profits. The greater this profit, the higher the export subsidies can be, and the stronger therefore is the cartel's competitive position on the world market. Along with the more active intervention in world politics occasioned by the passion for colonies, there has also emerged the desire to extend as much as possible the economic territory, surrounded by a wall of protective tariffs.

In so far as the protective tariff has adverse effects on the rate of profit, the cartel seeks to overcome them by means which the tariff system itself provides. In the first place the development of export subsidies, which have been called into existence by tariff protection, enables the cartel to surmount, at least in part, the tariff barriers of other countries and thus, to some extent, avoid any reduction of output. And this will be all the easier the larger the volume of domestic output, subsidized by its own protective tariffs. This again does not promote an interest in free trade, but rather in the expansion of its own economic territory and in raising tariff rates. Should these means prove ineffective, however, the alternative is to export capital in the form of factories built abroad. A branch of industry which is menaced by the protective tariffs of foreign countries now makes use of these tariffs for its own purposes by transferring part of its production abroad. If this prevents the expansion of the parent concern and excludes the possibility of increasing the rate of profit by reducing costs of production, it is compensated by the increased profit which the same owners of capital receive from the increase in the price of the goods which they now produce abroad. Thus the export of capital, which receives a powerful stimulus from the protective tariff at home in one way, is also promoted by the protective tariff of other countries, and contributes to the penetration of capital into all parts of the world and the internationalization of capital.

In this way the effect of the falling rate of profit, brought about by the restriction of productivity as a result of the modern protective tariff, is cancelled out. From the standpoint of capital free trade thus appears superfluous and harmful; and it seeks to overcome the restriction of productivity resulting from the contraction of the economic territory, not by conversion to free trade, but by expanding its own economic territory and promoting the export of capital.[2]

While modern protective tariff policy intensifies the ever-present drive of capital towards a constant expansion of its territory, the concentration of all idle money capital in the hands of the banks leads to a planned organization of capital exports. The linking of the banks with industry allows them to attach to the provision of money capital the condition that this particular capital will be used in this particular industry. In this way the export of capital in all its forms is enormously accelerated.

By 'export of capital' I mean the export of value which is intended to breed surplus value abroad. It is essential from this point of view that the surplus value should remain at the disposal of the domestic capital. If, for example, a German capitalist were to emigrate to Canada with his capital, become a producer there and never return home, that would constitute a loss for German capital, a denationalization of the capital. It would not be an export of capital but a transfer of capital, constituting a deduction from the domestic capital and an addition to the foreign capital. Only if the capital used abroad remains at the disposal of domestic capital, and the surplus value produced by this capital can be utilized by the domestic capitalists, can we speak of capital export. The capital then figures as an item in the national balance sheet and the surplus value produced each year as an item in the national balance of payments. The export of capital reduces pro tan to the domestic stock of capital and increases the national income by the amount of surplus value produced.

The joint-stock company and a highly developed credit system encourage the export of capital and change its character, in so far as they enable capital to migrate out of a country detached from the entrepreneur; ownership then remains for a much longer time, or even permanently, with the capital-exporting country, and the nationalization of capital is made more difficult. Where capital is exported for the purpose of agricultural production nationalization usually occurs more rapidly, as is shown particularly by the example of the United States.

From the standpoint of the exporting country the export of capital can take place in two different forms: it can migrate abroad either as interest-bearing or as profit-yielding capital. In the latter form, it may function as industrial, commercial, or bank capital. From the standpoint of the capital-importing country, a further consideration is what part of the surplus value is used to pay interest. Interest which has to be paid on mortgage bonds held by foreigners involves sending part of the ground rent abroad,[3] whereas interest on the debentures of industrial enterprises represents an outflow of part of the industrial profit.

As European capital has advanced to the stage of finance capital it has frequently begun to migrate abroad in this form. Thus a large German bank establishes a branch abroad, which then negotiates a loan the proceeds of which are used to construct an electrical generating plant, and the construction work is assigned to an electrical company which is connected with the bank at home. Or the process may be simplified further, and the foreign branch of the bank establishes an industrial enterprise abroad, issues the shares at home, and orders raw materials, etc., from enterprises which are connected with the parent bank. Such transactions attain their largest scale when state loans are used for obtaining industrial supplies. It is the intimate connection between bank and industrial capital which is responsible for the rapid development of capital exports.

The precondition for the export of capital is the variation in rates of profit, and the export of capital is the means of equalizing national rates of profit. The level of profit depends upon the organic composition of capital, that is to say, upon the degree of capitalist development. The more advanced it is the lower will be the average rate of profit. Besides this general factor, which is less significant here because we are concerned with commodities on the world market where prices are determined by the most advanced methods of production, we must also consider some more specific factors. So pr as the rate of interest is concerned it is much higher in undeveloped capitalist countries, which lack extensive credit and banking facilities, than in advanced capitalist countries. Furthermore, interest in such countries still includes for the most part an element of wages or entrepreneurial profit. The high rate of interest is a direct inducement to the export of loan capital. Entrepreneurial profit is also higher because labour power is exceptionally cheap, and what it lacks in quality is made up by unusually long hours of work. In addition, since ground rent is very low or purely nominal, owing to the large amount of free land resulting either from the bounty of nature or from the forcible expropriation of the native population, costs of production are low. Finally, profits are swelled by special privileges and monopolies. Where products are involved for which the new market itself provides an outlet very high extra profits are also realized, since in this case commodities produced by capitalist methods enter into competition with handicraft production.

But no matter how the export of capital takes place, it always means that the capacity of the foreign market to absorb it is growing. In the past the capacity of foreign markets was an obstacle limiting the volume of European industrial products which could be exported. Their ability to consume was limited to the surpluses which they had available from their natural economy, or in any case undeveloped system of production, which could not increase its output rapidly, and still less be transformed quickly into a system of production for the market. It is understandable, therefore, that English capitalist production, with its enormous versatility and capacity for expansion, very quickly met the needs of the newly-opened markets, and even exceeded them, so that in due course there was overproduction in the textile industry. On the other hand, however, England's capacity to consume the specific products of these newly opened markets was limited, even though it was, of course, very much greater in quantitative terms than that of other foreign markets. But the crucial factor here was the qualitative nature, the use value of the products, which such foreign markets could send back in exchange for the English commodities. In so far as it was a matter of specialized luxury articles, 'consumption in England was limited, while on the other hand the textile industry was striving to expand as rapidly as possible. The export of textile products, however, increased the import of colonial products intended for luxury consumption, whereas the rapid expansion of textile production required the accumulation of profit at an increasing rate rather than its consumption through spending on luxury products. The result was that every opening of new foreign markets by England ended in a crisis, initiated on the one hand by a fall in the price of textile products abroad, and on the other by a collapse of the price of colonial products in England. Every history of English crises shows the importance of these special causes of such crises. It is worth noting how carefully Tooke follows the prices of colonial products, and how regularly the earlier industrial crises are accompanied by a complete collapse of these branches of commerce. The situation first begins to change with the development of the modern transport system, which shifts the main emphasis to the iron industry, while simultaneously transactions with the newly opened markets move increasingly towards capital exports rather than mere trade in commodities.

The export of capital in the form of loans itself greatly enlarges the capacity of the newly opened markets to absorb imports. If we assume that a newly opened market is able to export £1,000,000 in commodities, then its capacity to absorb imports - given equal exchange - would also be £1,000,000. But if this sum of value is exported to the country, not in the form of commodities but as loan capital (say in the form of a state loan), then the value of £1,000,000 which the new market can obtain by exporting its surplus will not serve to exchange commodities but to pay interest on capital. It is therefore possible to export to that country a sum of value amounting not to £1,000,000 but say £10,000,000 if it is sent there as capital at 10 per cent interest, or £20,000,000 if the rate of interest is lowered to 5 per cent. This example also shows the great significance of a fall in the rate of interest for the capacity of a market to expand. Keen competition among foreign loan capitals tends to reduce the rate of interest very quickly even in backward countries and thus to increase the opportunities for capital exports. Far more significant, however, than the export of capital in the form of loan capital is the effect produced by the export of industrial capital, and this is why the latter is growing in importance. For the transfer of capitalist production to a foreign market liberates it completely from the limitations of its own domestic capacity to consume. The yield of this new production ensures the valorization of the capital. But the newly-opened market is by no means the only sales outlet; indeed capital in these new territories turns towards branches of production which can be sure of sales on the world market. Capitalist development in South Africa, for example, is quite independent of the capacity of the South African market, since the principal branch of production, the working of the gold mines, has a practically unlimited market for its product, and depends only upon the natural conditions for increasing the exploitation of the gold mines and the availability of an adequate work force. Similarly, the working of copper mines is independent of the capacity of the market in the colony itself, whereas consumer goods industries which must sell most of their output in the new market itself very soon find their growth restricted by the limitations on the capacity to consume.

In this way the export of capital extends the limits arising from the new market's capacity to consume. At the same time the introduction of capitalist methods of transport and production into the foreign country brings about rapid economic development, the emergence of a larger internal market through the dissolution of the natural economy, the expansion of production for the market, and hence an increase in the volume of those products which can be exported and thus serve to pay interest on newly imported capital. While at one time colonies and new markets were established mainly to provide new articles of consumption, new capital investment is now directed principally to branches of production which provide raw materials for industry. As domestic industry, which supplies the requirements of capital export, grows, so the exported capital is applied to the production of raw materials for this industry. In this way the products of the exported capital find a market in the home country, and the narrow sphere in which production moved in England undergoes a great expansion as domestic industry and the products of exported capital nourish each other.

We know, moreover, that the opening of new markets is an important factor in bringing an industrial depression to an end, in prolonging a period of prosperity, and in moderating the effects of crises. The export of capital accelerates the opening up of foreign countries and promotes the maximum development of their productive forces. At the same time it increases domestic production, which has to supply the commodities that are exported abroad as capital. Thus it becomes a very powerful impetus to capitalist production, which enters upon a new period of Sturm und Drang (storm and stress)[4] as the export of capital becomes general, during which it seems to be the case that the cycle of prosperity and depression has been shortened and crises have become less severe. The rapid increase in production also brings about an increased demand for labour power which is advantageous to the trade unions, and the tendencies towards pauperization inherent in capitalism appear to be overcome in the advanced capitalist countries. The rapid rise in production inhibits a conscious awareness of the ills of capitalist society and generates an optimistic view of its viability.

The speed with which colonies and new markets are opened up today depends essentially upon their capacity to serve as outlets for capital investment. This capacity is all the greater the richer the colony is in products which can be produced by capitalist methods, have an assured sale on the world market, and are important to industry in the home country. The rapid expansion of capitalism since 1895 has brought about a price increase especially in metals and cotton, and has thereby intensified the drive to open up new sources of these vital raw materials. Hence export capital seeks its sphere of activity principally in regions capable of producing such materials, and is drawn to those sectors, especially mining, which can at once be run on capitalist lines. As a result of this production the surplus which the colony can export is again increased, and this makes possible new capital investments. In this way the tempo of capitalist development in new markets is greatly accelerated. The obstacle to opening up a new country is not the lack of indigenous capital, since this is eliminated by the import of capital, but in most cases quite another disruptive factor; namely, the shortage of 'free', that is to say wage, labour. The labour problem assumes an acute form, and seems to be capable of resolution only by the use of force.

As has always been the case, when capital first encounters conditions which contradict its need for valorization, and could only be overcome much too slowly and gradually by purely economic means, it has recourse to the power of the state and uses it for forcible expropriation in order to create the required free wage proletariat. In the early days of capitalism this was the fate of the European peasants and of the Indians of Mexico and Peru, and today the same is happening to the Negroes of Africa.[5] These violent methods are of the essence of colonial policy, without which it would lose its capitalist rationale. They are just as much an integral part of it as the existence of a propertyless proletariat is a conditio sine qua non of capitalism in general. The idea of pursuing a colonial policy without having to resort to its violent methods is an illusion to be taken no more seriously than that of abolishing the proletariat while maintaining capitalism in existence.

There are diverse methods of obtaining forced labour. The principal means is the expropriation of the natives, who are deprived of their land and hence of the very basis of their previous existence. The land is turned over to the conquerors, and there is an increasing tendency to give it not to individual settlers, but to large land companies. This is particularly the case when the exploitation of mineral products is involved. Here, in accordance with the methods of primitive accumulation, there is an instant creation of capitalist wealth in the hands of a few capitalist magnates, while the small settlers are left with nothing. One need only recall the enormous wealth which came to be concentrated in this way in the hands of the groups owning the gold and diamond mines of British South Africa, and on a lesser scale, in the hands of the German colonial companies in South West Africa which are closely linked with the large banks. This expropriation creates at the same time, out of the native population 'liberated' from their land, a proletariat which is bound to become a helpless object of exploitation. Expropriation itself is made possible initially by the resistance which the demands of the conquerors quite naturally provoked among the native population. The violent actions of the settlers themselves generate the conflicts which make necessary the intervention of the state, which then ensures that a thorough job is made of it. The quest of capital for unresisting objects of exploitation becomes the concern of the state, in the form of 'pacification' of the area, for the attainment of which the entire nation, and in the first place the proletarian soldiers and taxpayers of the mother country, has to assume responsibility.

Where expropriation does not succeed immediately in such a radical way, the same end is achieved by the introduction of a system of taxation which requires the natives to make money payments on such a scale that they can only be met by incessant labour in the service of foreign capital. This education for labour has attained perfection in the Belgian Congo, where the methods of capitalist accumulation include not only oppressive taxes, but also chronic violence of the most infamous kind, fraud, and deception. Slavery is reinstated as an economic ideal, and along with it that spirit of brutality which is then transferred back from the colonies to the champions of colonial interests at home and celebrates here its disgusting orgies.[6]

If the native population does not suffice to produce the desired volume of surplus value, either because excessive zeal in expropriating them has deprived them of their lives as well as their land, or because the population is in any case small, or the natives are not sufficiently robust, capital attempts to solve the labour problem by introducing foreign labour. The import of coolie labour is organized, and an ingenious system of contract slavery is devised to ensure that the laws of supply and demand do not exert any undesirable effects on the labour market. Of course, this does not provide capital with a definitive solution of the labour problem. The introduction of coolie labour encounters increasingly strong opposition from white workers in all countries where there is room for white wage labour. At the same time it also appears dangerous to the ruling circles where European colonial policy comes into conflict with the growing expansionist ambitions of Japan, which are bound to be followed in the near future by those of China itself.[7]

If the introduction of yellow-skinned workers is thus restricted, the chances of expanding the area of employment for white labour are still more limited. The process in which the development of capitalism freed workers for industrial employment has largely come to an end in Europe. Indeed, the rapid expansion of capitalism in the most advanced countries has to some extent, during this period of storm and stress, produced a counter tendency.

Thus German capitalism, during the last two periods of prosperity, encountered a labour shortage and had to provide the necessary recruits to the industrial reserve army by encouraging immigration. American capitalism has also had to resort to immigrants, on an even larger scale, whereas the slowing down of development in England is manifested in mounting unemployment. Hence the source of emigration from Europe has become confined to south and south-east Europe and to Russia, while at the same time the demand for wage labour has increased enormously as a result of rapid economic growth.

Those states which exclude Asiatic immigrants for social or political reasons find their development hampered by the limited size of the working population ; and this obstacle is most difficult to overcome precisely in those regions where the prospects for capitalist development are best, as for example in Canada and Australia. In these regions, moreover, which have vast tracts of free land, the expansion of agriculture also requires a rapidly growing additional population, and this works strongly against the emergence of a propertyless proletariat. The rate of natural increase of the population in these territories, however, is generally extremely low. But even in the most advanced European countries the rate of population growth is steadily declining, thus diminishing the surplus population available for emigration.[8]

This diminished rate of growth, however, is occurring precisely in those countries which are of great importance for increasing the output of agricultural products, such as Canada, Australia and Argentina; and it results in a tendency towards rising prices for agricultural products, which becomes steadily more pronounced in spite of the inherently great potentialities for increasing agricultural production.

But the limit imposed by population size is never more than relative. It explains why capitalist expansion is not more tempestuous, but it does not in any way halt that expansion. Besides, it carries within itself its own remedy. Leaving aside the introduction of free wage labour or forced labour in the colonial territories proper, and the relative (periodic) unemployment of white workers which emerges continually in the capitalist mother countries as a result of technological progress and may become absolute (permanent) unemployment if the rate of expansion slows down, a more severe restriction of capitalist expansion in the colonial regions where there are white workers would have as a consequence that capitalism would turn increasingly to the still backward agrarian regions of Europe itself, surmounting the political barriers which stand in its way. In this way it would open up new regions where its introduction, by destroying rural domestic industry and setting free a large part of the agrarian population, would provide the material for increased emigration.

Since the new markets are no longer simply outlets for goods, but also spheres for the investment of capital, this has also brought about a change in the political behaviour of the capital-exporting countries. Trade alone, so far as it was not colonial trade which has always been associated with robbery and plunder, but comprised trade with relatively advanced white or yellow peoples who were capable of resistance, for a long time left the social and political relations in these countries basically undisturbed, and confined itself to economic relations. So long as there exists a state power which is capable of maintaining some kind of order, direct rule over these areas is less important. All this changes when the export of capital becomes predominant, for much more substantial interests are then at stake. The risks involved in building railways, acquiring land, constructing harbours, opening and operating mines, in a foreign country, are much greater than in the mere buying and selling of goods.

The backwardness of the legal system thus becomes an obstacle, and finance capital demands ever more insistently that it should be removed, even if that has to be done by force. This leads to increasingly acute conflicts between the advanced capitalist states and the state authorities of the backward areas, and to ever more pressing attempts to impose upon these countries legal systems appropriate to capitalism, regardless of whether the existing rulers are retained or destroyed. At the same time the competition for the newly-opened spheres of investment produces further clashes and conflicts among the advanced capitalist states themselves. In the newly-opened countries themselves, however, the introduction of capitalism intensifies contradictions and arouses growing resistance to the invaders among the people, whose national consciousness has been awakened, which can easily take the form of policies inimical to foreign capital. The old social relations are completely revolutionized, the age-old bondage to the soil of the 'nations without a history' is disrupted and they are swept into the capitalist maelstrom. Capitalism itself gradually provides the subjected people with the ways and means for their own liberation. They adopt as their own the ideal that was once the highest aspiration of the European nations; namely, the formation of a unified national state as an instrument of economic and cultural freedom. This independence movement threatens European capital precisely in its most valuable and promising areas of exploitation, and to an increasing extent it can only maintain its domination by continually expanding its means of coercion.

This explains why all capitalists with interests in foreign countries call for a strong state whose authority will protect their interests even in the most remote corners of the globe, and for showing the national flag everywhere so that the flag of trade can also be planted everywhere. Export capital feels most comfortable, however, when its own state is in complete control of the new territory, for capital exports from other countries are then excluded, it enjoys a privileged position, and its profits are more or less guaranteed by the state. Thus the export of capital also encourages an imperialist policy.

The export of capital, especially since it has assumed the form of industrial and finance capital, has enormously accelerated the overthrow of all the old social relations, and the involvement of the whole world in capitalism. Capitalist development did not take place independently in each individual country, but instead capitalist relations of production and exploitation were imported along with capital from abroad, and indeed imported at the level already attained in the most advanced country. Just as a newly established industry today does not develop from handicraft beginnings and techniques into a modern giant concern, but is established from the outset as an advanced capitalist enterprise, so capitalism is now imported into a new country in its most advanced form and exerts its revolutionary effects far more strongly and in a much shorter time than was the case, for instance, in the capitalist development of Holland and England.

The revolution in transport is a milestone in the history of capital exports. Railways and steamships in themselves are immensely important to capitalism because they reduce the turnover time. This releases circulation capital and then raises the rate of profit. The reduction in the price of raw materials lowers costs and increases consumption. Thus it is the railways and steamships which first create those large economic territories that make possible the giant modern concerns with their mass production. But above all the railways were the most important means of opening up foreign markets. Without them, it would have been impossible to distribute the products of these countries in such vast quantities throughout Europe and to expand the market so rapidly into a world market. Even more important, however, is the fact that the export of capital now became necessary on a vast scale in order to construct these railways, which have been built almost entirely with European, particularly English, capital.

The export of capital was, however, an English monopoly, and it secured for England the domination of the world market. Neither industrially nor financially had England any reason to fear competition from other countries, and so the freedom of the market remained its ideal. Conversely, England's supremacy necessarily made all other states even more determined to maintain and extend their rule over territories which they had already acquired, so that at least within their own borders they would be protected against the overwhelming competition of England.

The situation changed when England's monopoly was broken and English capitalism, which as a result of free trade had never been effectively organized, had to meet the superior competition of America and Germany. The development of finance capital created in these states a powerful drive towards the export of capital. As we have seen, the development of joint-stock companies and cartels generates promoter's profits which flow into the banks as capital seeking application. In addition, the protective tariff system restricts domestic consumption and makes it essential to promote exports. At the same time the export subsidies which are made possible by cartel tariffs provide a means for competing vigorously with England in neutral markets, and this competition is all the more dangerous because the newer large-scale industry of these countries is to some extent technically superior to that of England as a result of its more modern equipment. Export subsidies having become an important weapon in the international competitive struggle, they are all the more effective the larger they are. Their size depends upon the level of tariffs, and raising this level thus becomes a prime interest of the capitalist class in every nation. No one can afford to lag behind in this respect. A protective tariff in one country makes it essential for others to follow suit, and this is all the more certain to happen the more advanced capitalism is in this country and the more powerful and widespread its capitalist monopolies. The level of the protective tariff thus becomes the decisive factor in the international competitive struggle. If it is raised in one country, others must necessarily do the same if they are not to suffer from adverse conditions of competition and to be beaten on the world market. Thus the industrial tariff too becomes what the agrarian tariff is by its very nature, an endless spiral.

But the competitive struggle, which can only be waged by reducing the price of commodities, always threatens to bring losses or at least not to produce an average rate of profit, so that here too the elimination of competition has become the ideal of the large capitalist combines. All the more so because, as we have seen, exports have become an urgent necessity for them under any circumstances, as a result of technological conditions which make imperative the largest possible scale of production. But competition rules on the world market, and there is no alternative but to replace one type of competition by a less dangerous one; to substitute for competition on the commodity market, where the price of the commodity is the only determining factor, competition on the capital market in the provision of loan capital on condition that any loan will subsequently be used for obtaining goods from the country making it. The export of capital has now become a means of ensuring that the capital-exporting country will be the supplier of industrial goods. The customer has no choice; he becomes a debtor and hence a dependent who must accept the conditions imposed by his creditor. Serbia can obtain a loan from Austria, Germany or France only if it undertakes to buy its guns or its rolling-stock from Skoda, Krupp or Schneider. The struggle for markets for goods becomes a conflict among national banking groups over spheres of investment for loan capital, and since rates of interest tend to be equalized on the international market, economic competition is confined here within relatively narrow limits, so that the economic struggle quickly becomes a power struggle in which political weapons are employed.

From an economic standpoint the older capitalist states still retain an advantage in these conflicts. England possesses an old capital-satiated industry which was originally adapted to the needs of the world market in the days of England's monopoly and now develops more slowly than German or American industry, lacking their capacity for rapid expansion. On the other hand, its accumulated capital is extraordinarily large, and vast amounts of profit available for accumulation flow steadily back to England from its overseas investments.[9] The proportion of the accumulated masses of capital to the volume of capital which can be invested internally is at its highest here, which explains why the pressure to invest capital abroad is strongest and the rate of interest lowest in England. The same situation had emerged in France for different reasons. Here also there is a store of old accumulated wealth which is centralized by the banking system (though it is somewhat less concentrated as a result of the property system in France) together with a steady flow of income from foreign investments, and on the other side a stagnation of industrial growth at home; hence a powerful tendency to export capital. The advantage which England and France enjoy can only be made effective politically through strong diplomatic pressure, which is a dangerous, and therefore limited, means, or else economically, by making sacrifices in respect of prices, which would outweigh a possible rise in the rate of interest.

But the intensity of competition arouses a desire to eliminate it altogether. The simplest way of achieving this is to incorporate parts of the world market into the national market, through a colonial policy which involves the annexation of foreign territories. Thus, while free trade was indifferent to colonies, protectionism leads directly to a more active colonial policy, and to conflicts of interest between different states.

Another factor works in the same direction. From a purely quantitative point of view it is more advantageous for a country to export its capital in profit-yielding rather than interest-bearing form, because the profit is greater than the interest. Furthermore, if the exporting capitalists invest their capital as industrial capital, they retain a more direct control over its disposal and use. English capital invested in American railway bonds, that is to say, as interest-bearing capital, has a negligible influence on the American railway barons, whereas its influence is decisive when the industrial enterprise itself is operated with English capital. Today, however, the principal exporters of industrial capital are the cartels and trusts, and this for various reasons. In the first place they are strongest in the heavy industries where, as we have seen, the pressure to export capital is greatest in the search for new markets to absorb their massively increasing output. The major interest of these monopolistic heavy industries is the construction of railways, the exploitation of mines, the growth of the armaments of foreign states, the installation of electricity-generating stations. Behind them stand the large banks which are most closely connected with these branches of industry. Moreover, while the drive to increase production is very strong in the cartelized industries, high cartel prices preclude any growth of the domestic market, so that expansion abroad offers the best chance of meeting the need to increase output. The cartels, thanks to their extra profits, always have at their disposal sums of capital available for accumulation, which they prefer to invest in their own branches of industry where the rate of profit is highest. The link between the banks and industry is also closest here, and the possibility of promoter's profit through the issue of shares in these enterprises becomes a powerful inducement to export capital.

So today we see the strongest drive towards the export of industrial capital in those countries which have the most advanced organization of industry, namely, Germany and the United States. This explains the peculiar circumstance that these countries on the one hand export capital, and on the other hand also import a part of the capital required for their own economies from abroad. They export primarily industrial capital and so expand their own industry, while obtaining their working capital, to some extent, in the form of loan capital from countries with a slower rate of industrial development but greater accumulated capital wealth. In this way they not only gain from the difference between the industrial profit which they make in foreign markets and the much lower rate of interest which they have to pay on the capital borrowed in England or France, but also ensure, through this kind of capital export, the more rapid growth of their own industry. Thus the United States exports industrial capital to South America on a very large scale, while at the same time importing loan capital from England, Holland, France, etc., in the form of bonds and debentures, as working capital for its own industry.[10] In this respect too, therefore, cartelization and trustification, by promoting the export of capital, give an advantage to the capitalists of a country with the most highly monopolized industries over countries whose industries are less well organized, thus arousing in the latter a determination to accelerate the cartelization of their own industries by means of a protective tariff, and at the same time strengthening the resolve of the most advanced countries to maintain the export of capital under all circumstances by excluding any kind of competition from foreign capital.

If capital export in its most advanced form is undertaken by those sectors of capital in which concentration is most advanced, this in turn accelerates the growth of their power and their accumulation of capital. It is the largest banks and the largest branches of industry which succeed in obtaining for themselves the best conditions for the valorization of their capital in foreign markets, and acquire the rich extra profits in which lesser capitals cannot even dream of participating.

The policy of finance capital has three objectives: (1) to establish the largest possible economic territory; (2) to close this territory to foreign competition by a wall of protective tariffs, and consequently (3) to reserve it as an area of exploitation for the national monopolistic combinations. Such aims, however, were bound to come into the sharpest possible conflict with the economic policy which industrial capital carried to a state of classic perfection during its period of absolute rule (in the double sense that commercial and bank capital were subordinated to it, and that it had absolute control of the world market) in England. All the more so since the application of this policy of finance capital in other countries has also increasingly threatened the interests of English industrial capital. Indeed, the country of free trade was the natural target for attack by foreign competition, though of course 'dumping' also has certain advantages for English industry. The processing industry obtained cheaper raw materials as a result of cut-throat competition. But on the other hand this also hurt the raw material industries, and so, as cartelization advanced, as more stages of production were integrated, and as the system of export subsidies was extended, the hour was bound to strike for those English industries which had hitherto profited from 'dumping'. The most important factor, however, is that the tariff opens up the prospect of an era of rapid monopolization with its opportunities for extra profits and promoter's profits, which are a great enticement to English capital.

On the other hand, it would be entirely possible for England to enter into a customs union with her colonies. Most of the self-governing colonies are important primarily as suppliers of raw materials to England[11] and purchasers of industrial products.[12] The protective tariff policy adopted by other states, especially in agriculture, has in any case made England the principal market for the colonies. In so far as English industry could impede the development of their own industries these countries (in the British Empire) are still at the stage of the 'educational' tariff, that is to say at a stage which cannot tolerate a rise in tariffs above a certain level because importation of foreign industrial products is still absolutely essential to supply their own market. It would be quite easy, therefore, to establish a higher cartel tariff for the British Empire as a whole, while retaining the `educational' tariffs within the empire; and the prospect of establishing such an economic territory, which would be strong enough both politically and economically to counter the expulsion of British industries as a result of other states raising their tariffs, is capable of uniting the whole capitalist class.[13] Furthermore, by far the greater part of the capital used in the colonies is owned by English capitalists, for whom an imperial tariff is much more important than the larger increase that an independent colonial tariff would bring.[14]

The United States is in itself a sufficiently large economic territory even in the age of imperialism, and the direction of its expansion is determined by geography. The Pan-American movement, which found its initial political expression in the Monroe Doctrine, is still in its beginnings and has immense potentialities because of the enormous predominance of the United States.

Things are different in Europe, where the division into independent states has given rise to conflicting economic interests, the elimination of which by means of a Central European customs union encounters very serious obstacles. Here, unlike the British Empire, it is not a matter of mutually complementary parts but of more or less identical, and hence competing, entities confronting each other in hostile fashion.

This hostility, however, is greatly increased by the economic policy of finance capital, as a result of which the antagonisms no longer arise from the efforts to establish unified economic territories in Europe itself, as was the case in the nineteenth century, but from the attempts to annex neutral foreign markets, for which purpose the armed forces of the European nations are now deployed. It is not a matter of annexing highly developed capitalist countries, whose own industry is capable of exporting and would only involve increased competition for the conquering country, and in any case would offer little scope as a sphere of investment for the surplus capital of that country. It is a matter rather of those territories which have not yet been opened up but which can have great importance precisely for the most powerful capitalist groups; that is to say, above all overseas colonial territories. It is here that capital has the opportunity to invest on the grand scale. In particular, the creation of a modern transport system, railways and steamship lines, absorbs enormous quantities of capital.[15]

The state ensures that human labour in the colonies is available on terms which make possible extra profits. In many cases it also guarantees the gross profit. The natural wealth of the colonies likewise becomes a source of extra profits by lowering the price of raw materials and so reducing the cost price of industrial products. In the colonies ground .rent is either nonexistent or very low. The expulsion or annihilation of the native population, or in the most favourable case their transformation from shepherds or hunters into indentured slaves, or their confinement to small, restricted areas as peasant farmers, creates at one stroke free land which has only a nominal price. If the land is fertile it can supply the home industry with raw materials such as cotton far more cheaply than could the old sources of supply. Even when this is not reflected in prices - for example in the case of cotton where the American price continues to have a determining influence - it means that a part of the ground rent which would otherwise have to be paid to the American farmers now goes into the pockets of the owners of colonial plantations.

The supply of raw materials for the metal working industries is still more important. In spite of all the technological advances the rapid development of these industries tends to raise the price of metals and this tendency is reinforced by capitalist monopolization. That makes it all the more important for a country to have sources of supply for such raw materials within its own economic territory.[16]

The drive for colonial acquisitions thus leads to a steadily growing conflict among the large economic territories and has major repercussions upon the relations between individual states in Europe. The diverse natural conditions which are a source of rapid economic growth in a large unified economic territory such as the United States have the opposite effect in Europe where they are distributed at random, quite fortuitously and hence irrationally from an economic standpoint, among many small economic territories. Here they obstruct economic development and tend to favour the larger economic territories at the expense of the smaller ones, especially since there is no system of free trade to integrate these territories into a higher economic unity. This economic inequality has the same significance for the relations between states as it has for those between social strata within them; namely, the dependence of the economically weak upon the economically powerful. The economic means employed is again in this case the export of capital. The country which is rich in capital exports it as loan capital and becomes the creditor of the borrowing country.

As long as the export of capital served primarily for the construction of a transport system and the development of consumer goods industries in a backward country, it contributed to the economic development, in a capitalist form, of that country. Even so, this method had some disadvantages for the country concerned. The bulk of the profit flowed abroad where it was either spent (without providing employment for the industries of the debtor country) or accumulated. Naturally, this accumulation did not have to take place in the country where the profit originated; but this capitalist 'absentee ownership'[17] slows down enormously the pace of accumulation, and hence the further development of capitalism, in the debtor country. In large economic territories where capitalism would have been bound to develop rapidly because of domestic conditions, a national assimilation of foreign capital soon occurred. Thus Germany quickly assimilated Belgian and French capital, which was particularly important in the mining industry of Westphalia. In the small economic territories, however, this assimilation was more difficult to achieve, because an indigenous capitalist class emerged much more slowly and with greater difficulty.

Such emancipation became quite impossible when the character of capital exports changed, and the capitalist class in the large economic territories became less concerned with establishing consumer goods industries in foreign countries than with acquiring control over raw materials for their ever growing producers' goods industries. Thus the mines and the mining enterprises of the states in the Iberian peninsula came under the control of foreign capital which was no longer exported as loan capital but directly invested in these mines; and the same thing happened - though against stronger opposition - to the mineral wealth of Scandinavia, especially Sweden. Thus at a time when these countries could perhaps have proceeded to establish the most basic of modern industries, an iron industry of their own, they were deprived of their raw materials for the benefit of English, German and French industry. Their capitalist development, and along with it their political and financial development,, was stunted at the outset. As economic tributaries of foreign capital,[18] they also became second-class states, dependent upon the protection of the great powers.

On the other hand, the increasing importance of capitalist colonial policy confronted England with the task of defending her colonial empire, which meant retaining her control of the seas and protecting the route to India. For this, however, it was essential to have access to Atlantic ports and so England was obliged to maintain good relations with all the states bordering on the Atlantic. England has been able to achieve this politically because her capital exports enabled her to secure economic control over the smaller of these states. The strength of the British navy necessarily drove France too into an alliance with England when Germany's claim to a share in colonialism brought France into conflict with Germany and made her concerned, like all the other countries which had colonies, about the safety of her possessions. Thus there was a growing tendency not to eliminate the tariff barriers within Europe and so create a large unified economic territory, but rather to group the smaller, and hence economically backward, political units as satellites around the larger ones. These political relationships react in turn upon the economic relationships and make the country which is politically a satellite into a sphere of investment reserved for the capital of its protector. Thus diplomacy serves directly the interests of investment-seeking capital.

As long as the smaller states have not yet been taken 'firmly in hand' they become an arena for competition by foreign capital and in this case too a decision is sought by political means. In order to obtain arms Serbia, for example, has also to make a political decision about whether it should seek French and Russian or German and Austrian aid.[19] Political power thus becomes a decisive factor in economic competition and finance capital acquires a direct profit interest in the power position of the state. The most important function of diplomacy now becomes the representation of finance capital. Purely political weapons are now reinforced by the weapons of commercial policy,[20] and the provisions of a commercial agreement are no longer determined simply by the requirements of commodity exchange, but also by the extent to which a small state is willing to give preferential treatment to the finance capital of a larger state against its competitors. The smaller the economic territory the less power it has to sustain the competitive struggle successfully by means of large export subsidies, and the stronger is the urge to export capital in order to share in the economic development and higher profits of other, greater, powers. The larger the stock of previously accumulated wealth within the country the more readily can this desire be satisfied.

But here also there are opposing tendencies at work. The larger the economic territory and the greater the power of the state, the more favourable is the position of its national capital on the world market. That is why finance capital has come to champion the idea that the power of the state should be strengthened by every available means. But the greater the historically produced disparities between the power of difficult states, the more the conditions on which they engage in competition will vary, and the more bitter - because more rewarding - will be the struggle of the large economic territories to dominate the world market. This struggle is intensified the more developed finance capital is and the more vigorous its efforts to monopolize parts of the world market for its own national capital; and the more advanced this process of monopolization, the more bitter the struggle for the rest of the world market becomes. The English free trade system made this conflict bearable, but the transition to protectionism which is bound to occur very soon will necessarily exacerbate it to an extraordinary degree. The disparity which exists between the development of German capitalism and the relatively small size of its economic territory will then be greatly increased. At the same time as Germany is making rapid progress in its industrial development, its competitive territory will suddenly contract. This will be all the more painful because, for historical reasons which are irrelevant to present-day capitalism (indifferent to the past unless it is accumulated 'past labour') Germany has no colonial possessions worth mentioning,[21] whereas not only its strongest competitors, England and the United States (for which an entire continent serves as a kind of economic colony), but also the smaller powers such as France, Belgium and Holland have considerable colonial possessions, and its future competitor, Russia, also possesses a vastly larger economic territory. This is a situation which is bound to intensify greatly the conflict between Germany and England and their respective satellites, and to lead towards a solution by force.

Indeed this would have happened long ago if there had not been countervailing forces at work. The export of capital itself gives rise to tendencies which militate against such a solution by force. The unevenness of industrial development brings about a certain differentiation in the forms of capital export. Direct participation in opening up industrially backward or slowly developing countries can be undertaken only by those countries in which industrial development has attained its most advanced form, both technically and organizationally. Among them are, first, Germany and the United States, and in the second place England and Belgium. The other countries of long-standing capitalist development take part in the export of capital rather in the form of loan capital than of capital for the construction of factories. This has as a consequence that French, Dutch, and even to a great extent English capital, for example, constitute loan capital for industries which are under German and American management. Various tendencies thus emerge which make for solidarity among international capitalist interests. French capital, in the form of loan capital, acquires an interest in the progress of German industries in South America, etc. Moreover, connections of this kind, which greatly enhance the power of capital, make it possible to open up foreign territories much more rapidly and easily as a result of the increased pressure of the associated states.[22]

Which of these tendencies prevails varies from case to case and depends primarily upon the opportunities for profit which emerge in the course of the struggle. The same considerations which decide whether competition should continue in a given branch of industry, or should be eliminated for a longer or shorter period of time by a cartel or trust, play a similar role here at the international and inter-state level. The greater the disparities of power the more likely it is, as a rule, that a struggle will occur. Every victorious struggle, however, would enhance the power of the victor and so change the power relationships in his favour at the expense of all the others. This accounts for the recent international policy of maintaining the status quo which is reminiscent of the balance of power policy of the early stages of capitalism. Moreover, the socialist movement has inspired a fear of the domestic political consequences which might follow from a war. On the other hand the decision as to war or peace does not rest solely with the advanced capitalist states, where the forces opposing militarism are most strongly developed. The capitalist awakening of the nations of Eastern Europe and Asia has been accompanied by a realignment of power relations which, through its effect upon the great powers, may well bring the existing antagonisms to the point where they erupt in war.

Once the political power of the state has become a means of competition for finance capital on the world market, this naturally involves a complete change in the relation of the bourgeoisie to the state. In the struggle against economic mercantilism and political absolutism, the bourgeoisie was the champion of opposition to the state. Liberalism was in reality a destructive force involving the 'overthrow' of state power and the dissolution of old social bonds. The whole painfully constructed system of dependent relationships on the land, and of guild associations with their complex superstructure of privileges and monopolies in the towns, was thrown overboard. The victory of liberalism meant first of all an enormous reduction in the power of the state. Henceforth, at least in principle, economic life was to be excluded entirely from the sphere of state regulation, and politically the state was to confine itself to the maintenance of public order and the establishment of civil equality. Thus liberalism was purely negative, in sharp contrast to the state during the mercantilist period of early capitalism which in principle wanted to regulate everything, and also to all socialist systems which seek constructively rather than destructively to replace anarchy and the freedom of competition by a conscious regulation of economic life, and a self-organizing society. It is only natural that the liberal principle should have been realized first in England where it was championed by a bourgeoisie committed to free trade which had to appeal to the power of the state only for short periods of time in its conflict with the proletariat. But even in England its realization encountered opposition, not only from the old aristocracy which pursued a protectionist policy and therefore opposed the principle of liberalism, but also, to some extent, from commercial capital and from bank capital involved in investment abroad, which demanded above all the maintenance of England's control of the seas, a demand which was most vigorously supported by all those groups which had an interest in the colonies. On the continent, however, the liberal view of the state had to be considerably modified from the very outset before it was able to prevail. While continental liberalism - and this shows a characteristic contrast between ideology and reality - as formulated in classical fashion by the French deduced the theoretical consequences of liberalism in all spheres of political and intellectual life much more boldly and systematically than did its English counterpart, since it came upon the scene later with quite a different body of scientific knowledge, so that it was formulated in a far more comprehensive way, based upon a rationalist philosophy, English liberalism rested essentially upon political economy and its practical realization was subject from the very beginning to definite limitations. Indeed, how could the liberal demand for the restriction of state power be put into effect by a bourgeoisie which, in economic terms, needed the state as the most powerful lever of its development and for which it was a matter not of abolishing the state, but of transforming it from an obstacle into a vehicle of its own development? What the continental bourgeoisie needed above all was to overcome the plethora of petty states and to substitute for the impotence of these petty states the supreme power of a unified state. The need to create a national state was bound to make the bourgeoisie from the very beginning a champion of the state. On the continent, however, it was a matter of land power, not sea power. The modern army, however, is entirely different from a navy as a means of establishing the power of the state visa vis society. It means fundamentally that those who control the army have the state power in their hands without restraint. On the other hand, universal military service, which arms the mass of the people, was bound to persuade the bourgeoisie very quickly that if the army were not to become a menace to its rule, a strictly hierarchical organization was required, based upon an exclusive officers' corps which would be a pliable instrument of the state. If liberalism was thus unable to carry out its political programme in countries such as Germany, Italy and Austria, its efforts were also circumscribed in France, where the French bourgeoisie could not dispense with the help of the state in matters of commercial policy. Furthermore, the victory of the French Revolution necessarily involved France in a war on two fronts. She had to defend the revolutionary achievements against continental feudalism; and on the other hand the creation of a new empire of modern capitalism was a threat to the established position which England held on the world market, and so France was obliged at the same time to contest England's domination of the world market. Her defeat enhanced the power of the landed gentry, and of commercial, bank, and colonial capital, in England, and along with it the power of the state over industrial capital, thus delaying the definitive accession of English industrial capital to a position of dominance and the triumph of free trade. On the other hand, England's victory necessarily led industrial capital in continental Europe to support the protective tariff, totally frustrated the advance of economic liberalism, and created the conditions needed for a rapid development of finance capital on the continent.

Thus from the outset, the ideology and the conception of the state of the bourgeoisie in Europe encountered few obstacles in their adaptation to the needs of finance capital. Moreover, the fact that the unification of Germany was accomplished in a counter-revolutionary way was bound to reinforce very strongly the position of the state in the consciousness of the people, whereas in France military defeat led to a concentration of all available forces upon the task of re-establishing state power. Thus the needs of finance capital found various ideological elements to hand which could easily be used for creating a new ideology in harmony with its own interests.

This ideology, however, is completely opposed to that of liberalism. Finance capital does not want freedom, but domination; it has no regard for the independence of the individual capitalist, but demands his allegiance. It detests the anarchy of competition and wants organization, though of course only in order to resume competition on a still higher level. But in order to achieve these ends, and to maintain and enhance its predominant position, it needs the state which can guarantee its domestic market through a protective tariff policy and facilitate the conquest of foreign markets. It needs a politically powerful state which does not have to take account of the conflicting interests of other states in its commercial policy.[23] It needs also a strong state which will ensure respect for the interests of finance capital abroad, and use its political power to extort advantageous supply contracts and trade agreements from smaller states ; a state which can intervene in every corner of the globe and transform the whole world into a sphere of investment for its own finance capital. Finally, finance capital needs a state which is strong enough to pursue an expansionist policy and the annexation of new colonies. Liberalism opposed international power politics, and only wanted to secure its own rule against the old forces of aristocracy and bureaucracy by granting them the least possible access to state power, but finance capital demands unlimited power politics, and this would be the case even if military and naval expenditures did not directly assure the most powerful capitalist groups of important markets, which provide in most cases monopolistic profits.

The demand for an expansionist policy revolutionizes the whole world view of the bourgeoisie, which ceases to be peace-loving and humanitarian. The old free traders believed in free trade not only as the best economic policy but also as the beginning of an era of peace. Finance capital abandoned this belief long ago. It has no faith in the harmony of capitalist interests, and knows well that competition is becoming increasingly a political power struggle. The ideal of peace has lost its lustre, and in place of the idea of humanity there emerges a glorification of the greatness and power of the state. The modern state arose as a realization of the aspiration of nations for unity. The national idea, which found a natural limit in the constitution of a state based upon the nation, because it recognized the right of all nations to independent existence as states, and hence regarded the frontiers of the state as being determined by the natural boundaries of the nation, is now transformed into the notion of elevating one's own nation above all others.[24] The ideal now is to secure for one's own nation the domination of the world, an aspiration which is as unbounded as the capitalist lust for profit from which it springs. Capital becomes the conqueror of the world, and with every new country that it conquers there are new frontiers to be crossed. These efforts become an economic necessity, because every failure to advance reduces the profit and the competitiveness of finance capital, and may finally turn the smaller economic territory into a mere tributary of a larger one. They have an economic basis, but are then justified ideologically by an extraordinary perversion of the national idea, which no longer recognizes the right of every nation to political self-determination and independence, and ceases to express, with regard to nations, the democratic creed of the equality of all members of the human race. Instead the economic privileges of monopoly are mirrored in the privileged position claimed for one's own nation, which is represented as a 'chosen nation'. Since the subjection of foreign nations takes place by force - that is, in a perfectly natural way - it appears to the ruling nation that this domination is due to some special natural qualities, in short to its racial characteristics. Thus there emerges in racist ideology, cloaked in the garb of natural science, a justification for finance capital's lust for power, which is thus shown to have the specificity and necessity of a natural phenomenon. An oligarchic ideal of domination has replaced the democratic ideal of equality.

While this ideal appears to embrace the whole nation in the sphere of international politics, it becomes transformed in domestic politics by emphasizing the point of view of the rulers as against the working class. At the same time the increasing power of the workers intensifies the efforts of capital to reinforce the power of the state as a bulwark against proletarian demands.

Thus the ideology of imperialism arises on the ruins of the old liberal ideals, whose naivety it derides. What an illusion it is, in the world of capitalist struggle where superiority of weapons is the final arbiter, to believe in a harmony of interests. What an illusion to expect the reign of eternal peace and to preach international law in a world where power alone decides the fate of peoples. What stupidity to advocate the extension of the rule of law which prevails within nations beyond their frontiers, and what irresponsible interference with business this humanitarian fantasy which has turned workers into a labour problem, invented social reform at home, and now wants to abolish contract slavery in the colonies, the only possible form, of rational exploitation. Eternal justice is a beautiful dream, but morality builds no railways, not even at home. How are we to conquer the world if we have to wait for competition to undergo a spiritual conversion?

But imperialism only dissolves the faded ideals of the bourgeoisie in order to put in their place a new and greater illusion. It is clear-headed and sober in evaluating the real conflicts among capitalist interest groups, and it conceives all politics as a matter of capitalist syndicates either fighting or combining with each other. But it is carried away and becomes intoxicated when it unveils its own ideal. The imperialist wants nothing for himself, but he is also no visionary and dreamer who would dissolve the tangled profusion of races at every level of civilization and of potentiality for further development, into the bloodless concept of 'humanity', instead of seeing them in all their colourful reality. He observes with a cold and steady eye the medley of peoples and sees his own nation standing over all of them. For him this nation is real; it lives in the ever increasing power and greatness of the state, and its enhancement deserves every ounce of his effort. The subordination of individual interests to a higher general interest, which is a prerequisite for every vital social ideology, is thus achieved ; and the state alien to its people is bound together with the nation in unity, while the national idea becomes the driving force of politics. Class antagonisms have disappeared and been transcended in the service of the collectivity. The common action of the nation, united by a common goal of national greatness, has taken the place of class struggle, so dangerous and fruitless for the possessing classes.

This ideal, which seems to provide a new bond for the strife-ridden bourgeois society, will doubtless meet with an increasingly enthusiastic reception as the process of disintegration of bourgeois society continues.


[1]See Otto Bauer, Die Nationalitätenfrage und die Sozialdemokratie, pp. 178 et seq.

[2]The following example is characteristic and gives a picture both of an international cartel and of the effect of the export of capital. 'A very important branch of industry, long established in Great Britain, and especially in Scotland, is the sewing thread industry. The four largest firms dominating the industry - Coats & Co., Clark & Co., Brook Bros, and Chadwick Bros - combined into one enterprise in 1906 under the well known name of J. & P. Coats Ltd, which also includes many smaller English factories and some fifteen American companies. This so-called 'Thread Combine', with a capital of £5,500,000, constitutes one of the largest industrial combines in the world. Even before the combine was formed the protectionist policy of the United States prompted the firms of Coats and Clark to establish their own factories in the United States in order to bypass the high tariff rates directed against their products. The new combine continued this practice, and also acquired a large number of shares in other companies in this industry in North America and other countries (involving a considerable emigration of capital) which gave it control of these firms. Thus English industrialists produce abroad, and the cost, in the form of loss of employment, is borne by English workers and in the last resort by the whole nation. The Thread Trust has every reason to continue this policy, for it can be said without fear of contradiction that its profit of £2,580,000 in the year 1903 - 4 came largely from the factories established abroad. However, it is only a matter of time before foreign industry will be strong enough to throw off the yoke of "English control" and reduce its tribute of interest.' M. Schwab, Chamberlains Handelspolitik, p. 42.

[3]Thus, for example, a part of Hungarian ground rent flows into Austria as interest payments on the mortgage bonds of Hungarian mortgage companies circulating in Austria.

[4]The very apt expression used by Parvus, Die Handelskrisen und die Gewerkschaften.

[5]See the examples given in Parvus, Die Kolonialpolitik und der Zusammenbruch, pp. 63 et seq.

[6]Consider, for example, the shameful enthusiasm shown by the land of poets and thinkers for a person such as Carl Peters. [1856-1918. An explorer who helped to establish the German East African protectorate of Tanganyika and was deprived of office in 1897 for his ill-treatment of Africans. Ed.] This relationship was already evident to the British free traders who emphasized it to good effect as a means of agitation against colonialism. Thus Cobden declared: 'Is it possible that we can play the part of despot and butcher there (in India) without finding our character deteriorate at home?' Cited by Schultze-Gavernitz, Britischer Imperialismus, n. 104.

[7]On this subject, see the discussion of the immigration problem in Die Neue Zeit (1907-8), XXVI, 1, especially Otto Bauer, 'Proletarische Wanderungen', and Max Schippel, 'Die fremden Arbeitskräfte und die Gesetzgebung der verschiedenen Länder'.

[8]On this subject see, for example, the data provided in Paul Mombert, Studien zur Bevölkerungsbewegung in Deutschland. Thus in Europe the average annual number of live births per 1,000 inhabitants was:

1841-50 37.8 1881-85 38.4
1851-60 37.8 1886-90 37.8
1861-70 38.6 1891-95 37.2
1871-75 39.1 1896-1900 36.9
1876-80 38.7 1901- 36.5

The decline in the birthrate is also very noticeable in the United States, and in Australia it is remarkable. In New South Wales, for example, the number of children born per 1,000 married women between the ages of 15 to 45 was 340.8 in 1861 and 235.3 in 1901. See also the data in Schultze-Gavernitz, op. cit., p. 195. He quotes the following cry of distress by the government statistician Coghlen: 'The problem of the falling birth rate is of paramount importance, and more so for Australia than for any other country. It depends upon the satisfactory solution of this problem whether our country will ever have a place among the great nations of the world.'

Population growth in the above-mentioned regions can be attributed entirely to the substantial decline in the mortality rate, which has fallen more sharply than the birthrate. This has also been the case in Germany. `If the decline in the latter (the birthrate) continues a point must be reached, in the nature of things, when the decline in the morality rate will

be slower, so that the relationship between the two will be reversed. The surplus of births would then necessarily tend to decline.' Mombert, op. cit., p. 263. This is already happening, for instance, in England and Wales, in Scotland, and in Sweden.

Mombert's conclusion is very relevant to the present stage of capitalist expansion: Perhaps in the not too distant future the crux of the population problem in other nations as well as France will be seen as consisting in an excessively low, rather than excessively high, rate of population growth' (op. cit., p. 280).

[9]British capital investments abroad were estimated in 1900 at £2,500 million, growing annually at the rate of £50 million of which £30 million is in securities. Apparently its capital investments abroad increase more rapidly than those at home; at all events, the total income of Britain between 1865 and 1898 only doubled, while its income from abroad increased ninefold in the same period according to Giffen. Detailed figures are given in a lecture by George Paish published in the Journal of the Royal Statistical Society, September 1909, which shows that the income from Indian government loans in 1906-7 amounted to £8,768,237; from the rest of the colonies, £13,952,722; and from all other countries, £8,338,124, making a total of £31,059,083 as compared with £25,374,192 in 1897-8. Income from other securities (railways!) is estimated at £48,521,000. The amount of capital invested abroad is estimated at £2,700 million of which £1,700 million are invested in railways. The income from this capital is put at £140 million, which is equivalent to interest at 5.2 per cent. These estimates are probably lower than the actual figures.

French capital invested abroad was estimated by P. Leroy-Beaulieu at 34,000 million francs. By 1905 it had apparently increased to 40,000 million francs. New annual investment is estimated at 1,500 million francs.

German holdings abroad were estimated by Schmoller in his well-known report to the Börsenenquete-Kommission at 10,000 million marks, and by W. Christians at 13,000 million marks, yielding an annual return of between 500 and 600 million marks. Sartorius estimates that in 1906 the amount was 16,000 million marks in securities and 10,000 million marks in other foreign holdings, yielding an annual return of about 1,240 million marks. For further details see Sartorius, op. cit., pp. 88 et seq.

[10]Even where European capital is invested in the form of American shares, it often obtains no more than interest, because the entrepreneurial profit is included beforehand in the promoter's profit going to American banks.

[11] 'In the last twenty years imports of wheat and other grains from foreign countries rose by £4,000,000 or 9 per cent; those from British possessions on the other hand by £9,250,000 or 84 per cent. Meat imports from foreign countries showed an increase of £16,500,000, or 79 per cent and from British possessions, £8,000,000, or 230 per cent. The increase in butter and cheese imports from foreign countries was £9,500,000, or 60 per cent, while the same imports from British possessions rose by 630 per cent.

`Imports of all types of cereals from British possessions rose from £7,722,000 in 1895 to £20,345,000 in 1905, an increase of £12,623,000 or 163 per cent. During the same period, imports from foreign countries rose only from £45,359,000 to £49,684,000, an increase of £4,325,000, or 9.5 per cent. In 1895, foreign countries provided 85.4 per cent of the cereal requirements of the United Kingdom, the colonies 14.6 per cent. In 1905 foreign countries supplied 71 per cent, the British colonies 29 per cent.' W. A. S. Hewins, 'Das britische Reich', in Die Weltwirtschaft, edited by Ernst von Halle, vol. I., 1906, part II, p. 7.

[12]According to the figures of the Chamberlain Tariff Commission (cited by Schultze-Galvernitz, op. cit., p. 216) the per capita value of imports from Great Britain by the following countries was:

Germany, Holland and Belgium £0. 11. 8
France 0. 9. 0
United States 0. 6. 3
Natal 8. 6. 0
Cape Colony 6. 19. 6
Australia 5. 5. 6
New Zealand 7. 5. 7
Canada 1. 18. 4




In 1901, the British colonies imported:

From the mother country £123,500,000
other British colonies 68,000,000
foreign countries 90,000,000

Exports of the United Kingdom (in £ millions) were:

1866 1872 1882 1902
To British possessions 53.7 60.6 84.3 109.0
Europe 63.8 108.0 85.3 96.5
non-British Asia, Africa and South America 42.9  47.0 40.3 54.1
United States 28.5 40.7 31.0 23.8


[13]That is why this point of view is always emphasized in Chamberlain's agitation. `It seems to me that the tendency of the time is to throw all power into the hands of the great empires. The smaller nations - those which do not progress - seem destined to fall into a subordinate place. But if Greater Britain remains united no empire in the world can ever surpass it in area, in population, in wealth, and in the diversity of its resources.' Speech by Chamberlain, 31 March 1897, cited in Marie Schwab, Chamberlains Handelspolitik, p. 6.

[14]Professor Hewins summarizes the general capitalist interest in tariff reform and imperialism, including that of the finishing industries (set skilfully in the foreground) which were until recently, or still are, in favour of free trade. 'The United Kingdom today imports its means of sustenance from certain countries with which it, has not concluded any reciprocity treaties. Hence it must rely on the complicated mechanism of international trade to pay for its means of sustenance and is forced constantly to search for new markets all over the world for its manufactured goods and to liquidate its debts through multilateral arrangements among the various countries. Apparently this commercial policy cannot go on indefinitely for the following reasons:

1 The number of countries thus importing from Britain is constantly declining. In the markets of the Far East, for example, we will doubtless encounter the irresistible competition of Japan in the very near future.

2 The necessity of constantly searching for markets for our products outside countries like Germany and the United States, omitting for a moment the role of the colonies, has a harmful effect on the course of economic development in England. The natural course has been for English industries to advance steadily, employing more skilled labour and increasing their technical efficiency. Actually, however, the course of development may depart considerably from this pattern. The civilized and advancing markets are closing. Forced to trade with the backward parts of the world, English industry is therefore compelled to produce such goods as will meet their needs.

3 Two divergent tendencies are thus brought into direct conflict. It is in the field of these great staples that the more recent industrial countries are also making considerable progress. Germany, Belgium, the United States, and even Japan can compete with us in these lines and establish themselves in these countries. But on the other hand, there is also a tendency in English industry to turn increasingly to specialties rather than to staples and hence to produce the more expensive articles. And thus it happens that Great Britain is fighting a rearguard action in those very areas on which it has always been depending most for paying for its means of sustenance. These, however, are the considerations which give the movement throughout the empire to organize British industrial life on a wider basis its significance.' Hewins [in Halle], op. cit., p. 37

[15]The importance to England of colonial railway construction, for example, is indicated by the following details:

`In 1880 the British Empire had 40,000 miles of railway, of which three-eighths were in the United Kingdom and five-eighths in overseas possessions and colonies. By 1904 the rail network had increased to 95,000 miles, of which only two-ninths were within the United Kingdom. In other words, the increase in mileage amounted to 26 per cent at home and 223 per cent overseas. Naturally, the rapid development of colonies is based upon the rapid penetration of areas which previously had no railways or at best very primitive ones. Since 1880 railway mileage has trebled in India and Canada, quadrupled in Australia and quintupled in South Africa.

`Outside the United Kingdom, the greatest density of railways in relation to population is to be found in the Australian Commonwealth where there are 3.86 miles of railway per 1,000 inhabitants, as against 3.76 in Canada and 0.19 in India.

`It is worth nothing that the UK railway network, though large in itself, is small compared with that of the USA where, according to Poor's Railroad Manual 1904, 212,349 miles were in operation, or more than double the mileage in the whole British Empire, despite the fact that the population of the latter is five times as large. The railways of the empire may therefore be expected to develop and increase in mileage almost without limit.

`Almost all the capital for the construction of these railways was raised in the United Kingdom. The sums invested in British railways outside the UK are estimated at about £850 million, the annual income at £75 million gross and about £30 million net. Bearing in mind the figures for the UK itself, I estimate the total capital invested in the railways of the British Empire at £2,100 million, appreciably closer to the corresponding figure for the US (£2,800 million) than the mileage length. The net income of the railways amounts to about £70/75 million a year, or a return of 3 per cent on invested capital.' Hewins, op. cit., p. 34.

[16]Herr Dernberg therefore understood very well the mentality of the capitalists when he emphasized time and again in his propaganda speeches the possibility that German colonies would free German capitalists from their dependence upon America for cotton and copper. [Dernberg was the governor of German South West Africa in the decade before the First World War. Ed.]

[17]See the penetrating analysis of the consequences of this phenomenon for Russia in Kautsky, 'Der amerikanische Arbeiter', Die Neue Zeit (1905-6), XXIV, pp. 676 et seq.

[18]The same is true of Russia, except that the size of her territory makes it easier to assimilate this capital, and the process is already under way to some extent. The most radical means for attaining this end is the bankruptcy of the state.

[19]Conversely, when negotiating about loans, small states find it difficult to impose any conditions concerning the delivery of industrial products, partly because their own industries are less efficient. 'The Dutch banks have rightly been accused of providing foreign countries with capital without imposing any conditions at all . . . . The stock exchange provided foreign countries, most recently South America (in 1905) with large amounts of capital, without exacting any terms favourable to Dutch industries, as frequently happens in Belgium, Germany and England.' G. Hesselink, `Holland', in Halle's Weltwirtschaft, part III, p. 118.

[20]On the advantages enjoyed by a larger economic territory in this respect,

see Richard Schuller, Schutzzoll und Freihandel, p. 247. 'The foreign trade of a relatively small territory is large in relation to its total production and hence important to it, whereas for the large foreign nations from which it imports goods and to which it wishes to export, this trade is of minor importance in relation to their total output. A small state, therefore, seldom succeeds in protecting its interests in trade agreements, or in persuading the other states to adapt their trade policies to its needs.'

[21]See Karl Emil, 'Der deutsche Imperialismus und die innere Politik', in Die Neue Zeit, XXVI, 1 (1907/8). [As noted in the introduction, 'Karl Emil' was one of the pseudonyms Hilferding used in his earlier writings. Ed.]

[22]An example of such a development is afforded by the preliminary outcome of the conflict over Morocco in which the combine formed by Krupp and Schneider-Creuzot for the joint exploitation of Moroccan and Algerian ores resulted in an agreement between the two states (France and Germany). Morocco will not find it as easy to resist their pressure as it did when it could play one country off against the other.

[23]Consider, for example, how important it was for Germany, in concluding recent international trade agreements, that Russia's political power was so weakened as a result of entanglements in the Far East that she could not exert any political pressure.

[24]See Otto Bauer, Die Nationalitätenfrage und die Sozialdemokratie pp. 491 et seq. 'Imperialism and the Principle of Nationality'.