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ISR Issue 56, November–December 2007

Henryk Grossman
Capitalist Expansion and Imperialism


MARX AND Engels identified the process of capitalist globalization in the Communist Manifesto:

The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere.…
The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilization. The cheap prices of commodities are the heavy artillery with which it forces the barbarians’ intensely obstinate hatred of foreigners to capitulate. It compels all nations, on pain of extinction, to adopt the bourgeois mode of production…

To this account they linked economic crises.

For many a decade past, the history of industry and commerce is but the history of the revolt of modern productive forces against modern conditions of production, against the property relations that are the conditions for the existence of the bourgeois and of its rule. It is enough to mention the commercial crises that, by their periodical return, put the existence of the entire bourgeois society on its trial, each time more threateningly.… In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity—the epidemic of over-production…. And how does the bourgeoisie get over these crises? On the one hand, by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.2

The theory of economic crises presented here was a very preliminary one, superseded by Marx’s more systematic and detailed explanations in Capital, particularly volume three. For more than a generation, however, Marxists failed to employ Marx’s mature approach to economic crises. Karl Kautsky and Rosa Luxemburg, for example, relied on the argument in the Manifesto and some passages in Capital compatible with it to attribute the late nineteenth century surge in competition among the most powerful capitalist states and in their colonial activities to capitalism’s crisis tendencies. Capitalism, they believed, lacked a mechanism that ensured that all the commodities produced could be sold. In fact, the output of commodities tended to expand more rapidly than the scope for their consumption, because of efforts by capitalists to keep their workers’ wages down. If products could not be sold, then the surplus value embodied in them could not be “realized” in the form of money, and profits suffered. One way to solve this problem was to export commodities and capital to undeveloped countries.3 In making her case, Luxemburg argued that Marx had misunderstood his own analysis of capitalist reproduction in volume two of Capital.4

Rudolf Hilferding, in his Finance Capital, explained crises in terms of disproportional growth in the output of different industries and departments of production, and made no particular connection between them and imperialism. Nor did the Bolshevik leaders Nikolai Bukharin and Vladimir Ilych Lenin, who drew on Hilferding’s discussion of imperialism. In his most important work on imperialism, Lenin included little more than the following on the connection between imperialism and capitalism’s crisis tendencies: “The need to export capital arises from the fact that in a few countries capitalism has become ‘overripe’ and (owing to the backward state of agriculture and the poverty of the masses) capital cannot find a field for ‘profitable’ investment.”5

Henryk Grossman identified the importance of Marx’s mature arguments about economic crises in Capital. He insisted that Luxemburg was correct in her insistence that Marx had developed a theory of the tendency for capitalism to break down and that this tendency gave rise to imperialism. But Grossman contested Luxemburg’s specific explanation of capitalism’s breakdown tendency and hence economic crises. Many of his insights into the spread of capitalism across the planet and the forms this has taken emerged from his elaboration of Marx’s theory of capitalist breakdown, recently examined at length elsewhere.6 There has been no systematic presentation or evaluation of his contributions to the Marxist theory of capitalist expansion and imperialism, the focus of the discussion below.7

The first part deals with the consequences of imperial expansion into new areas during early stages of the development of the capitalist mode of production. It starts by outlining how, before the First World War, Grossman’s political activities and studies of the economic history and political economy of Galicia influenced his approach. In later work, Grossman examined the tendency for the rate of profit to fall and mechanisms that offset it, including capitalist trade and particularly characteristics of imperialism from the late nineteenth century. The second part therefore outlines and assesses his approach to imperialism under mature capitalism, including efforts to correct and provide a more systematic theoretical foundation for Lenin’s analysis. The first subsection deals with trade. Those that follow address the role of monopoly, capital export, and two weaker concepts, “finance capital” and “the aristocracy of labor.”

Early capitalist expansion

Well before he began to work on Marxist crisis theory, Grossman was concerned about issues closely related to the development of imperialism: the national question and racism. His first published work, in 1905, stressed the importance of the self-organization of Jewish workers as the best means to combat their exploitation as workers and their oppression as Jews.8 This argument drew on the positions of the General Jewish Workers Union of Lithuania, Poland, and Russia (known as the Bund)—until the 1905 revolution easily the largest Marxist organization in the Russian Empire.

As a leader of the Jewish Social Democratic Party of Galicia (JSDP), Grossman examined the economic backwardness of Austria-Hungary’s Polish province. Galicia’s problems were primarily due to the influence of the szlachta, the Polish nobility, which was an obstacle to capitalist development.9

Focusing on conflicting material interests, this analysis informed research for his higher doctoral thesis. Grossman documented and assessed the trade policies adopted by the Hapsburg monarchs, Maria Theresa and Josef II, for their newly won Galician territories up to 1790, that is during an early stage of the transition to capitalism in Eastern Europe. The Hapsburg Empire was a major beneficiary of the partitions that dismembered the aristocratic Republic of Poland. The results of Grossman’s studies were published in a long essay, in 1912, a shorter article on Galician trade statistics, in 1913, and the thesis, in 1914.10

Grossman argued against the Polish nationalist orthodoxy that the Hapsburg Empire was responsible for Galicia’s backwardness after its annexation, by preventing economic development and turning the province into a colonial market for goods produced in the heartlands of the empire. In fact, the enlightened absolutist monarchs had pursued mercantilist trade policies designed to promote Galicia’s trade and industry. Their regime contrasted favorably with the feudal order of the old Polish republic that had hindered the expansion of industry and urban life for decades.11

Drawing on complementary analyses by his contemporary Franciszek Bujak, Grossman rejected any romanticization of the old Polish republic: “The principal cause of the lack of industrial development and city life in Poland is the same as the reason for the tragic downfall of Polish state life in general: 200 years of short-sighted economic policy dictated by the class interests of the Polish nobility!”12 After the first partition of Poland in 1772, the Austrian authorities in Galicia were responsible for a very backward province, cut off from its previous markets. The policies of Maria Theresa and Josef II sought to sustain the economy of their new Galician possession and increase its value. They promoted production for the local market, attempted to secure markets for the province’s exports, and eliminated the tax-free status of enterprises run by the szlachta. Their “reforms were…unavoidable for Galicia and beneficial for the majority of the population. The Polish nobility was in the mass still too backward and spiritually decadent to understand, still less to accommodate itself to the work of reform.”13

A Bundist insight that constituted a further attack on Polish national prejudices, Grossman maintained that the main flaw in the Austrian economic policy for Galicia during this period was discrimination against the Jews. In the eighteenth century, Jews had been a large proportion of the urban population and, as merchants, were pioneering industrialization by promoting the putting-out system in textile production and other sectors of manufacturing. The large fiscal burdens placed on them by the Hapsburgs impoverished an economically dynamic element in the province. Galicia was still economically backward and Galician Jews were still oppressed more a hundred years later.14

The period of economic progress under Maria Theresa and particularly Josef was brief.

With the death of the great monarch, the epoch of industrialization in Austria and Galicia came to a halt. At the time of the French revolution, into the Napoleonic period and for many years to come, feudal, agrarian, conservative reaction, in Austria as well as Galicia, choked embryonic industry. Fear of revolution, fear of big capital, which supported the First Consul [Napoleon], fear of the spirit of unrest which began to develop in industrial centers (unemployment!) led to an unceasing fight against industry, especially big industry in Austria in the period to 1835.… That “Austria should remain an agrarian country” became the only aim of economic policy during this period.15

So, Grossman demonstrated, “during the Eighteenth Century there was no conflict of economic interests between Galicia and Austria, as has been so far asserted in the literature on this subject.” His conclusion contradicted the Polish nationalist view that the nobility, committed to national independence, had been a progressive force. Grossman drew on the work of the Kraków School of historiography, associated with his former teacher Micha∏ Bobrzyƒski, which apologized for Austrian rule in Galicia,16 But Grossman pointed out that

On the surface there were some conflicts, but in reality the industrial interests of Galicia were strictly tied to Austrian industrial development. So long as the dominant trends in Austria were progressive, in the period of reforms and industrialization, the same trends were apparent in Galicia. The moment that Austrian industry started to tremble, industrial development in Galicia was choked off. Both were victims of feudal, agrarian, conservative reaction not the industry of other countries!17

Paradoxically, the stance of nationalist Polish historiography in Galicia was commensurate with the theoretical position of Rosa Luxemburg, a renowned and fierce opponent of Polish nationalism. She explained capitalist expansion in terms of metropolitan industries’ need to find markets in which their products could be sold, and hence surplus value realized.18 On the contrary, Grossman argued, colonialism was driven by the need to exploit labor and create surplus value. This was even true of colonialism from the fifteenth century.19

Only once we have recognized the “insatiable appetite for the labor of others”20 as the driving force of the capitalist mode of production have we achieved the appropriate theoretical foundation for assessing the individual phases of capitalism in its historical form.

The question which concerns us here is the character of the policy of colonial expansion under early capitalism. What was the driving force of this policy? Was it actually a matter of the sale of commodities, of the “realization” of surplus value produced in Europe, which created the preconditions for capitalism and capital accumulation in Europe? Did European capitalism with the help of its colonial policy from the sixteenth to the eighteenth century actually seek and find consumers for commodities that it could not otherwise sell? That is how it must have been, if Rosa Luxemburg’s theory is correct.21

Referring back to his own work on the development of official statistics in Austria, Grossman pointed out that both the domestic mercantilist and colonial policies of early capitalism recognized the importance of population as the foundation of power and expanded production.22 The forced labor of the indigenous populations of Caribbean, Central, and South America, and especially the African slave trade made the plantations and mines in colonies of Portugal and Spain tremendously lucrative.23 The process of colonial expansion developed here not according to Luxemburg’s formula. Surplus value produced under capitalist relations of production in Europe was not realized through colonial trade, rather surplus value squeezed out of plantation slaves in the colonies was “realized in the developed capitalist countries of Europe.”24

Citing Marx (in a discussion of ground rent in the unfinished manuscript eventually published as Theories of Surplus Value), Grossman maintained that “where commercial speculations figure from the start and production is intended for the world market,” in plantation colonies “capitalist production exists, although only in a formal sense, since the slavery of Negroes precludes free wage-labor, which is the basis of capitalist production. But the business in which slaves are used is conducted by capitalists. The method of production which they introduce has not arisen out of slavery but is grafted on to it.”25 Certainly the extraction of a surplus from the labor of coerced Native Americans and slaves from Africa were important in the expansion of the Portuguese and Spanish colonial empires, and eventually played a role in the global process that resulted in the emergence and then rapid expansion of the capitalist mode of production in England and the Netherlands. But Grossman’s account included early stages in Portugal and Spain’s overseas imperial activities, from the late fifteenth century, when its dynamic was predominantly feudal. The direct connections of colonial slave production were at the outset mainly with feudal relations in the metropolitan states and a world market that was still essentially precapitalist, and had existed for many centuries.

The argument of Marx and Grossman is much more convincing when applied to the later colonial activities and the hugely profitable slave trade conducted by England, the Netherlands, and France, as well as slave production for international capitalist markets, by plantations in Latin America and especially the south of the United States of America in the nineteenth century.26 Invoking Marx, Grossman insisted that “Direct slavery is just as much the pivot of bourgeois industry as machinery. Without slavery you have no cotton; without cotton you have no modern industry.” But industrialization eventually undermined the advantages of slavery for capital accumulation.

The banning of the slave trade at the Congress of Vienna in 1815, the end of slave labor in the United States of America in the 1860s…were the consequence of the industrial revolution of the last third of the eighteenth century and the initial introduction of machines.27

The expansion of capitalism across the globe, primarily in the pursuit of surplus value as (opposed to markets), was typical not only of early but also mature capitalism, as production by slaves declined.

Imperialism under mature capitalism

In The Law of Accumulation and Breakdown of the Capitalist System, published in 1929, Grossman reconstructed Marx’s account of economic crises deriving from the tendency for the rate of profit to fall. This provided a more solid foundation for Luxemburg’s insistence that capitalism has a tendency to break down, compared with her underconsumptionist theory of economic crises. The book can also be read as a sustained justification of her argument that imperialism was a necessary consequence of capitalism’s proneness to economic crises and as a positive critique of Lenin’s theory of imperialism.
For Grossman, as for Luxemburg, “the growing tendency to break down and the strengthening of imperialism are merely two sides of the same empirical complex.”28 “The modern imperialism of capitalist states is the necessary effort, through economic expansion whose final stage is the incorporation of foreign territories by the state, to overcome the tendency to breakdown, the failure of valorization, by securing the flow of additional surplus value from outside.29

The third chapter of The Law of Accumulation examined counter-tendencies to the tendency for the rate of profit to fall, developing points Marx made on a couple of pages in Capital Volume 3 and adding others.30 The discussion below outlines Grossman’s treatment of countertendencies that went beyond the domestic economy under the headings he employed: foreign trade, monopoly, and capital export.

In assessing the implications of foreign trade, Grossman built on an analysis already apparent in his first surviving work on economic crises. As against Luxemburg, he rejected the hypothesis that “sees in the existence of non-capitalist foreign markets an indispensable condition for realizing surplus value.” His implicit basis was Otto Bauer’s use of the production schemes in CapitalVolume 2 to demonstrate that capital accumulation is possible without recourse to her “third persons.”31 In a study of the thought of the eighteenth century Swiss economist Simonde de Sismondi in 1923, and a demolition of Fritz Sternberg’s book on imperialism in 1928, Grossman made a similar point.32 The critique of Sternberg argued that the fundamental cause of economic crises is that capital accumulation itself undermines the valorization of capital (the creation of new value); foreign trade is only one of a series of factors that can, for a time, blunt this contradiction.33

Grossman’s 1919 paper had drawn attention to the importance of grasping the contradictory unity of capitalist commodities as “use-values,” with particular material characteristics, and as “values,” the products of commodified human labor.34 Now he stressed that “By increasing the multiplicity of products foreign trade has the same impact as product diversification on the home market. An increasing variety of use values facilitates accumulation and weakens the breakdown tendency.”35 The production of new kinds of use values expands the scope for creating surplus value.

Foreign trade

By allowing greater economies in the scale of production and distribution, foreign trade also raises profit rates. With increased output, a reduction of production costs through the use of more specialized machinery and equipment on the one hand, and the training of more expert workers, on the other, becomes possible. The same is true for both the transportation of greater volumes of an industry’s raw materials and final products. An increased scale of distribution makes it possible to eliminate intermediaries, who take their cut, and so to reduce unproductive expenditure.36

The transformation of values into prices of production, through the equalization of profit rates across different industries, does not only occur within national economies. The formation of a world rate of profit means that trade involves the transfer of surplus value from less to more developed countries. Commodities produced with a lower organic composition of capital (the ratio of outlays on wages to those on means of production and raw materials) sell below their value, while those produced with a higher organic composition sell above theirs. If the rate of profit is lower for commodities whose production involves a high organic composition of capital (generally, in developed countries) capital would flow out of industries making them and their output would decline, so that their prices are bidded up while the production of commodities with a lower organic composition of capital (generally, in less developed countries) would rise and their prices fall. This was a rigorous formulation of a theory of “unequal exchange,” a term Grossman used long before the idea became fashionable in the 1970s. Already during the Middle Ages, as Marx had pointed out, unequal exchange between town and country was a primary source of accumulation of urban capital. “The further development and extension of the capitalist mode of production from the urban to the world economy did not change the nature of this kind of price formation but rather developed it fully.”37

In the phase of capital accumulation which has progressed further it becomes ever harder to valorize the tremendously accumulated mass of capital, which means nothing other than that the tendency to break down comes into play. Only then does the question of the injection of supplementary profits from outside, by means of foreign trade, become a life or death question for capitalism. It is precisely a question of weakening, of neutralizing, the tendency to break down. Hence the ferocity of imperialist expansion precisely in this late phase of capital accumulation. As, in relation to the transfer of profits from outside, it does not matter whether the exploited country is a capitalist or non-capitalist (agrarian) country, and as the exploited country, for its part, can exploit other still less developed countries by means of foreign trade, capital accumulation in its late phase leads to a sharpened competition in the world market amongst all capitalist countries. For the weakening of the tendency to break down through higher valorization or, what amounts to the same thing, the extension of the existence of one capitalist state is achieved at the expense of another. The technologically and economically more developed country appropriates supplementary surplus value at the expense of the more backward country. In addition to more acute pressure on wages and class struggle against the working class, the accumulation of capital produces an ever more destructive struggle among capitalist states, a continuous revolutionizing of technology, “rationalization,” Taylorization or Fordization of the leading capitalist powers, in order, through technological and organizational advantage, to achieve superiority in the world market…38

Otto Bauer, as Grossman acknowledged, had identified this mechanism operating between industrial and agrarian areas of the Austro-Hungarian Empire, without linking it to capitalism’s crisis tendency.39

This mechanism is of particular relevance today. Between 1995 and 2005 the Chinese share of global exports more than doubled to over 8 percent.40 The commodities exported are less and less confined to clothing, textiles, and footwear; increasingly labor-intensive goods which involve more sophisticated technologies, like consumer electronics or computer circuit boards, are imported rather than produced in the developed capitalist world.

Against Luxemburg (and Third Worldists today), Grossman pointed out that the industrialization of agrarian countries does not intensify capitalism’s tendency to break down because surplus value can no longer be realized. “On the contrary, industrialization signifies an increase in the possibilities for exports” from developed capitalist countries.41 Industrialized, not agrarian countries are the most important trade partners of other industrialized countries. This explains the growing international synchronization of booms and slumps.42 In his critique of Lenin’s Imperialism, Michael Kidron pointed out that capital flows, too, “are increasingly made as between developed countries themselves.”43


The growth of monopolies in developed countries and their extension abroad through global cartels was a cornerstone of Lenin’s discussion of imperialism, by the late 1920s the orthodoxy of the Communist International and its constituent national parties, with which Grossman identified politically. In Imperialism, The Highest Stage of Capitalism, Lenin had described imperialism in terms of the rise of monopolies and their extension into international cartels; the growing influence of banks, and their dominance in the fusion of bank and industrial capital into “finance capital”; capital export; the way powerful states carved up the globe in competition with each other. He also asserted that imperialism had created a conservative “aristocracy of labor” in the metropolitan countries.44 Grossman subsumed important elements of Lenin’s account into his own, providing them with a more solid theoretical foundation. He explained monopoly, a feature of capitalist markets, the export of capital, and heightened international competition over territory and markets in terms of the level of capital accumulation. In doing so, Grossman accepted Lenin’s conception of imperialism as a stage in the development of capitalism.45 He rejected the idea that finance capital was a typical feature of advanced capital and, without engaging in research of his own, accepted the flawed concept of a labor aristocracy.

Monopoly, Grossman agreed, was an important feature of imperialism. But where Lenin had described its expansion and scope, Grossman systematically explained the economic mechanisms through which monopoly, particularly in the form of control over colonial territories, improved profit rates and hence counteracted capitalism’s tendency to break down.

While Britain was preeminent as the most industrialized country in the world market, it had a monopoly of the benefits of foreign trade outlined above. As German and the United States industry began to challenge Britain from the 1860s, “feverish competition broke out in the world market to exclude opponents and to secure the transfer of value for one power alone” by means of world monopolies over raw materials. Instead of the price of a raw material falling as productivity in an industry rises, a monopoly can keep the price high and extract super profits at the expense of its customers. With the development of the productive forces a greater and greater mass of raw materials is processed by each worker. For this reason and because the areas in which many can be produced are limited while they have diverse applications, the possibilities for world monopolies of raw materials are particularly great. When a raw material monopoly is exercised by one country, customers in others have to pay more for vital inputs. The country exercising the monopoly is therefore also in a better position to dominate industries higher up the chain of production.46

Through monopolistic rises in prices, supplementary surplus value is pumped from outside into the economy of the country with the monopoly and consequently the breakdown tendency is weakened. For countries against which the monopoly is exercised it is the other way round and the tendency is reinforced. On the basis of this theory, imperialist expansion is directly understandable. Economic domination and monopolistic management of large colonial territories secures important raw materials for industry and at the same time weakens the monopolies of hostile competitors.47

“Hence the tendency under capitalism to secure and dominate these sources of raw materials, that are now collected for ‘stock,’ as ‘reserves,’ which can necessarily only occur in the form of the division of the world.” That is, the advantages of such monopolies can lead to preemptive action to maintain or achieve them in the future.48

Grossman’s main examples were drawn from the experience of the United States, the victim of several British monopolies in raw material producing industries. Thus sugar was an important element in the colonization of Cuba and Hawaii.49 The oil industry was (and is) the preeminent arena of conflict over raw materials among imperialist powers.50

In 1937, Grossman identified the link between capitalism’s crisis tendency and other policies designed to give local capital monopolistic advantages: the construction of tariff walls and abandonment of the gold standard. By these means countries sought to exclude competitors from their domestic markets and, through currency devaluation and regulation, to improve the competitiveness of local products. Devaluations also served to undermine wages in countries with strong trade unions and hence increase profit rates.51

Capital export

“The fact of capital export,” Grossman argued “is as old as modern capitalism itself. The scientific task consists in explaining this fact, hence in demonstrating the role it plays in the mechanism of capitalist production.”52 It was not enough to account for capital export in terms of the lack of profitable investment opportunities at home, as the liberal economist and pioneering critic of imperialism, John Hobson did. “[W]hy,” then, “are profitable investments not to be found at home?” The Marxists Jenö Varga, Bukharin, Hilferding, and Bauer argued that higher rates of profits could be made abroad than domestically. Again, they did not explain why.53 Bauer’s assertion that profit rates are higher in less developed countries forgot his own recognition of the formation of a world rate of profit which entails unequal exchange in favor of countries with a higher organic composition of capital. “For the tendency for profit rates to equalize is a regular concomitant of the capitalist mechanism…. But how can he [Bauer] explain the fact that capital export has only set in with a powerful intensity in the past decades in all the developed capitalist countries and that the struggle for investment spheres has taken on ever more acute forms and belongs to the characteristic features of modern imperialism?”54

Nor is it always the case that the organic composition of capital is inevitably lower in the less developed parts of the world. In such areas investment can take the form of “European capital in the most mature forms it has already assumed in the advanced capitalist countries. They may skip over a whole series of historical stages, with their peoples dragged straight into gold and diamond mines dominated by trustified capital with its extremely sophisticated technological and financial organization.” This was also apparent in the oil industry.55

Lenin did not, Grossman maintained, “sufficiently explain theoretically the problem of capital export, even though he makes many acute observations on the topic.” Such observations included the way, with the domination of monopolies, capital export, rather than the export of commodities had recently become typical of capitalism; superfluity of wealth in the most advanced countries; and close links among regimes, high finance, and industry.

This interesting account does not, however, go beyond empirically identifiable connections. In particular, we find in Lenin, which may be explained in terms of the popular character of his text…, no theoretical analysis of the facts which would demonstrate to us the necessity of capital export under high capitalism. Lenin limits himself to the bare intimation that “The need to export capital arises from the fact that in a few countries capitalism has become ‘overripe’ and (owing to the backward state of agriculture and the poverty of the masses) capital cannot find a field for ‘profitable’ investment.” What this over ripeness consists of and how it is expressed, that Lenin has not demonstrated to us.56

According to Grossman, the cause of the surge in the export of capital from the late nineteenth century was “absolute overaccumulation” at home. This occurs when increased investment produces the same or less surplus value than before, and hence there is a lower rate of profit on the whole capital. Profits are still made, but additional investment is pointless.57 This is the key argument of the second chapter of The Law of Accumulation.58 A model of capital accumulation, derived from Bauer, leads to the conclusion that, when further capital accumulation leads to a reduction in the capitalists’ own consumption “instead of accumulating the surplus value…—that is, incorporating it into the original capital—they will earmark it for capital export.” In this “state of capital saturation,” “[w]ith no chance in production, capital is either exported or switched to speculation,” which can itself be understood as “inner capital export.”
There is a further reason why the tendency for the rate of profit to fall reaches a limit when investment stalls, above a zero rate of profit. The scale of investment cannot be reduced to ever smaller increments. Investments can only be made in concrete means of production, which are not only values but also use values, and are not, therefore, infinitely divisible.59 Contrary to the arguments of Varga, Bukharin, Hilferding, and Bauer, “Not higher profits abroad, but a shortage of investment outlets at home is the basic underlying cause of capital export.”60

A few figures suggest the scale of contemporary speculative activity and speculative capital flows. Foreign exchange transactions in 2004 were more than sixty times greater than the value of all the world’s exports.61 In 2005, the notional amount of over-the-counter foreign exchange derivatives was almost two and a half times greater than the value of global exports. The amounts of all derivatives, tracked by the Bank for International Settlements that year was almost seven times the value of global gross domestic product.62 Other indices of the flow of capital into speculative rather than productive investment are the scale of private equity/leveraged buyouts and over $1.1 trillion managed by hedge funds in 2006.63

Capital exports can, however, raise profit rates at home in several ways that are predatory rather than speculative. By tying trade to loans, local industry can gain orders for exported commodities at high prices and exclude competitors backed by other states or financial institutions. This is a logic behind many “aid” programs today. Capital exports are also part of the process of securing sources of raw materials and a means of extracting tribute from states that have borrowed in order to deal with economic problems.64 Grossman concentrated his subsequent analysis on foreign loans as a means by which lenders get a cut of surplus value produced abroad.

“In the course of the history of capitalist development the ‘condition of saturation’ described above was not reached by individual states at the same time.” Consequently the timing of their recourse to capital export and wild speculation differed, according to the level of capital accumulation reached, in the framework of the existing forces of production, the extent of the states’ territory and the business cycle. The rapid expansion of capital export in the form of loans was a consequence of the high levels of capital accumulation reached by the Netherlands in the eighteenth century, Britain in the 1820s, France in the 1860s, Germany in the 1880s, and the United States in the 1920s.65

As early as 1805, according to Grossman, William Playfair had identified the process at work in England. Playfair argued that countries reach a point in their development from poor agricultural producers to rich industrial nations when more capital is available than can be profitably invested. This, he maintained, was typical for modern nations at a particular stage of development and ushered in a period of moral and economic decline. By drawing attention to counteracting tendencies in capitalism that might, particularly when promoted by government, postpone the primary tendency to suffer disintegration and decay, Playfair reconciled this conclusion with his conservative political inclinations. His counteracting tendencies were “export of commodities and of capital, decentralization of capital, further various forms of unproductive expenditure and waste.” The most effective was the export of capital. Alternatively, if capital was invested at home, the resulting products had to be exported.66

“Only at the beginning of the twentieth century was the problem raised again by J. A. Hobson, whose work gave rise to a whole literature.”67 For, during the late nineteenth century, the proliferation of developed countries had created a new situation.

Lenin was quite correct in supposing that contemporary capitalism, based on the domination of monopoly, is typically characterized by the export of capital. Holland had already evolved into a capital exporter by the close of the seventeenth century. Britain reached this stage early in the nineteenth century, France in the 1860s. Yet there is a big difference between the capital exports of today’s monopoly capitalism and those of early capitalism. Export of capital was not typical of the capitalism of that epoch. It was a transient, periodic phenomenon which was always sooner or later interrupted and replaced by a new boom. Today things are different. The most important capitalist countries have already reached an advanced stage of accumulation at which the valorization of the accumulated capital encounters increasingly severe obstacles. Overaccumulation ceases to be a merely passing phenomenon and starts more and more to dominate the whole of economic life.68

For Grossman, then, the overaccumulation of capital arising from the nature of the capitalist production process, was the defining aspect of the imperialist stage of capitalism. Overaccumulation and the resulting decline in profit rates and economic crises explain increasingly desperate attempts by corporations and states to secure additional sources of profits, by means of monopolies (especially over raw materials), new outlets for foreign investment, currency manipulations, speculation, and, ultimately arms spending that “opens the way to the settlement of economic rivalries by means of violence.”69 While this was a result of inter-imperialist rivalry and applied to all the imperialist powers, at the end of the 1930s Grossman identified factors that made German capitalism particularly vulnerable and German imperialism therefore particularly aggressive. These included the limited scope German monopolies had for extracting additional profits from the unmonopolized sectors of the economy because of the high degree of concentration of industry; and Germany’s lack of colonies and high degree of dependence on the rest of the world for raw materials.70

“Finance capital” and the “aristocracy of labor”

The subsumption of Lenin’s position to Grossman’s own did not include the category of “finance capital.” This Grossman criticized through an attack on one of Lenin’s key sources, Hilferding’s Finance Capital. As Eduard Bernstein had also observed in response to the publication of Hilferding’s book,71 its argument that finance capital was a historical tendency of capitalism was mistaken. Rather, the preponderance of banks was only true of a particular phase of capitalist development. At low levels of accumulation industry did rely on funds from outside, mobilized by banks. But, at higher levels of accumulation, industry tends to become self-financing. “Finally in a third phase industry finds it progressively more difficult to secure a profitable investment, even of its own resources, in the original enterprise. The latter uses its profits to draw other industries into its sphere of influence,” by means of the money market. Industry dominates the banks.72
Hilferding’s later arguments, when he was for periods Germany’s finance minister during the 1920s, that capitalism could be “organized” to avoid economic crises through state control of banking were inimical to the fundamental conception of capitalism and the struggle for socialism which Grossman and Lenin shared. For “[t]he historical tendency of capital is not the creation of a central bank which dominates the whole economy through a general cartel, but industrial concentration and growing accumulation of capital leading to the final breakdown due to overaccumulation”:73

The more free competition is replaced by monopoly organization on the domestic market, the more competition sharpens in the world market. If a river’s flow is artificially blocked with a dam on one side of the stream, it presses on with even less restraint on the side that is still open. Whether accumulation of capital within the capitalist mechanism occurs on the basis of competition amongst individual entrepreneurs or a series of cartelized, capitalist production associations struggling against each other is irrelevant for the emergence of the tendency to break down or crisis.74

While Grossman identified the flaws in the concept of finance capital, he endorsed Lenin’s contention that the material basis of reformism was the emergence of a small “labor aristocracy,” bought off with spoils from imperialism.75 The mechanisms through which imperialism can improve the living standards of the most prosperous sections of working classes in metropolitan states, however, tend to benefit the entire working class. In 1957, Tony Cliff argued that the export markets for consumer and capital goods opened up by imperialism will tend to reduce unemployment, buoy economic activity in general, and hence improve the ability of wide layers of workers to win wage increases. Cheap raw materials and food from the colonies facilitate increased living standards for metropolitan workers, without reducing the rate or mass of profit.76 His main point, that the benefits of empire, through its contribution to overall economic prosperity, flow to the working class as a whole rather than a thin but politically influential “aristocracy” is valid whether one explains capitalist stagnation in terms of underconsumption or the tendency for the rate of profit to fall. As originally formulated, the argument about an aristocracy of labor is not sustainable. It carries even less weight when extended into the proposition that entire metropolitan working classes are complicit in imperialism. By virtue of the higher value of the means of production and raw materials set in motion, on average, by workers in developed countries, they are more exploited, despite their higher living standards, than those who use less sophisticated technologies.77

During the long boom from the 1950s to the early 1970s countervailing factors clearly overwhelmed capitalism’s breakdown tendency. It was a period of rapid investment both at home and abroad. But the domestic programs of neoliberalism during the subsequent period fits the pattern Grossman described in 1929, when he anticipated a severe global crisis. He argued that capitalism’s breakdown tendency leads increasingly desperate ruling classes to initiate struggles to restore profit rates at the expense of the working class. At the same time the revalorization of capital through crises—like those that afflicted Eastern Europe after the collapse of the Stalinist regimes, the Asian economic meltdown of the late 1990s and Argentina’s collapse in 2002—can for a time revitalized profit rates. The role of cheap Chinese commodities; U.S. efforts to monopolize oil supplies and, more broadly, to use its military power to secure economic advantages; the phenomenal scale of global financial flows; and conflicts over exchange rates suggest that Grossman’s analysis of imperialism and political conclusions he drew are relevant again:

It is also, therefore, clear that the struggle over spheres for investment is also the greatest danger to world peace. That this does not involve prediction of the future should be clear to anyone who studies the methods of “Dollar Diplomacy” with the appropriate attention.78

Rick Kuhn is the author of Henryk Grossman and the Recovery of Marxism (University of Illinois Press, 2007) and the editor of Class and Struggle in Australia (Pearson Australia, 2005).1 A member of Socialist Alternative, he teaches at the Australian National University and was the convener of the antiwar coalition in Canberra before and during the invasion of Iraq.

1 The author is grateful to Pete Green for his insights and comments on my work.
2 Karl Marx and Frederick Engels, Manifesto of the Communist Party (Moscow: Progress Publishers 1970 [1848]), italics mine. All emphasis in quotations is in the original, unless otherwise indicated.
3 Karl Kautsky, “Socialism and colonial policy,” trans. 1975, [1907], available at
colonial/; Rosa Luxemburg, The Accumulation of Capital (London: Routledge, 1963 [1913]). Kautsky wrote about imperialism over a period of more than forty years. Even before he shifted his position, shortly before the First World War, to argue that there was no necessary connection between imperialism and war, his accounts of imperialism were not always consistent.
4 Luxemburg, The Accumulation of Capital, 329–67.
5 Rudolf Hilferding, Finance Capital: A Study of the Latest Phase of Capitalist Development (London: Routledge & Kegan Paul, 1981 [1910]); Nikolai Bukharin, Imperialism and World Economy (New York: Monthly Review Press, 1973 [1917, written 1915]); Vladimir Ilych Lenin, Imperialism: The Highest Stage of Capitalism, Selected Works Volume 1 (Moscow: Progress Publishers, 1977 [1916]), 679.
6 Rick Kuhn, “Economic crisis and socialist revolution: Henryk Grossman’s Law of Accumulation, its first critics and his responses,” Research in Political Economy, 21, 2004, 181–221; and Rick Kuhn, Henryk Grossman and the Recovery of Marxism (Urbana and Chicago: University of Illinois Press, 2007).
7 E. M. Winslow, The Pattern of Imperialism: A Study in the Theories of Economic Power (New York: Columbia University Press, 1948), 183; Paul Sweezy, The Theory of Capitalist Development (New York: Monthly Review Press, 1970 [1942]), 303; and Rocco Buttiglione, “Prefazione” in Henryk Grossmann, Il crollo del capitalismo: La legge dell’ accumulazione e del crollo del sistema capitalista (Milano: Jaca Book, 1977), xv, note Grossman’s discussion of imperialism.
8 Henryk Grossman, Proletariat wobec kwestii ˝ydowskiej z powodu niedyskutowanej dyskusyi w “Krytyce” (Kraków, 1905); Henryk Grossman, Der Bundizm in Galitsien (Kraków: Ferlag der Sotsial-democrat, 1907). Henryk Grossman was mainly known as “Grossmann” in German, but always signed his name “Grossman,” which he used for the work whose publication in English he supervised. For consistency, “Grossman” is used throughout.
9 Henryk Grossman, “Vegn unzere agitatsie un propaganda,” Sotsial-demokrat, August 24 1906, 22.
10 Henryk Grossman, “Polityka przemys∏owa i handlowa rzàdu Terezynansko-Józefiƒskiego w Galicyi 1772–1790: Referat na V. Zjazd prawników i ekonomistów polskich,” Przeglàd prawa i administracyi, 1912; Henryk Grossmann, Österreichs Handelspolitik mit Bezug auf Galizien in der Reformperiode 1772–1790 (Konegen: Wien, 1914).
11 Grossman, “Vegn unzere agitatsie un propaganda”; Henryk Grossman, “Polityka przemysowa”; Henryk Grossman, “Die amtliche Statistik des galizischen Aussenhandels 1772–1792”. Statistische Monatshrift, new series 18, 1913, 222–33; Grossman, Österreichs Handelspolitik.
12 Grossman, Österreichs Handelspolitik, 63, 476–88.
13 Grossman, Österreichs Handelspolitik, 226–27, 291–97, 488–90; quotation 483.
14 Grossman, “Polityka przemys∏owa,” 37–38.
15 Ibid., 41.
16 Ibid., 1–8, 13–19.
17 Ibid., 41–42.
18 Luxemburg, The Accumulation of Capital, 348–67
19 Henryk Grossman, The Law of Accumulation and Breakdown of the Capitalist System: Being also a Theory of Crises (London: Pluto Press 1992 [1929]), 162-163. The full text is available on the web at Note that it is an abridged translation of Henryk Grossmann, Das Akkumulations- und Zusammenbruchsgetz des kapitalistischen Systems (zugleich eine Krisentheorie) (Frankfurt am Main: Verlag Neue Kritik, 1970 [1929]), which also lacks the important final chapter.
20 Karl Marx, Capital Volume 1 (Harmonsworth: Penguin, 1976 [1867]), 526.
21 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 396–98. Grossman’s entire discussion of early capitalist colonialism, 396–415, is missing from the English translation, Grossman, The Law of Accumulation.
22 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 397-398; Henryk Grossmann, ‘Die Anfänge und geschichtliche Entwicklung der amtlichen Statistik in Österreich’. Statistische Monatschrift , new series 21, 1916, 9, 85.
23 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 399–407.
24 Ibid., 407–08.
25 Ibid., 408–14. The quote from Marx is on 400 and comes from Karl Marx, Theories of Surplus Value: Part 2 (Moscow: Progress Publishers, 1963 [1863]), 302–03. I have corrected the text from the English edition, which inaccurately, includes “mode of” between “capitalist” and “production exists.”
26 Chris Harman, “The rise of capitalism,” International Socialism 102, Spring 2004, 57, 65, 82; Justin Rosenberg, The Empire of Civil Society: A Critique of the Realist Theory of International Relations (London: Verso 1994), 91–122; Eric R. Wolf, Europe and the People Without History (Berkeley: University Of California Press 1982), 87–88.
27 Karl Marx, The Poverty of Philosophy (Moscow: Progress Publishers, 1975 [1847]), on page104 Grossman omitted “no credit,” after “as machinery” from the Marx quotation; Grossman, Das Akkumulations-und Zusammenbruchsgetz, 414–15. Both Marx and Grossman were aware of the increasingly powerful anti-slavery movements that emerged in this context. For a particularly concrete expression of Marx’s awareness of participation in the movement against slavery see Karl Marx, “Address of the International Working Men’s Association to Abraham Lincoln, President of the United States of America,” 1865,
iwma/documents/1864/lincoln-letter.htm; and Henryk Grossman, review of Karl Marx and Friedrich Engels, The Civil War in the United States (New York, 1937), Zeitschrift für Sozialforschung 7 (1/2) 1938, 261 where his application of Marx’s argument about the capitalist nature of American plantation slavery is applied specifically and thus more convincingly to the United States.
28 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 296–97.
29 Ibid., 300, Grossman’s emphasis.
30 Karl Marx, Capital Volume 3 (Harmonsworth: Penguin, 1981 [1894]), 344–46.
31 Henryk Grossman, “The Theory of Economic Crises,” Research in Political Economy, 21, 2000 [1922], 175.
32 Henryk Grossman, Simonde de Sismondi et ses théories économiques. Une nouvelle interprétation de sa pensée (Warsaw: Bibliotheca Universitatis Liberae Polniae, fasc. 119–10, 13, 1924), 15–17; Henryk Grossman, “Eine neue Theorie über Imperialismus und die soziale Revolution” Archiv für die Geschichte des Sozialismus und der Arbeiterbewegung,13, 1928, 141–92.
33 Grossman, 1928, 185.
34 Grossman, 2000.
35 Grossman, The Law of Accumulation, 165–66.
36 Ibid., 166–68.
37 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 434.
38 Ibid., 437–38; condensed translation in Grossman, The Law of Accumulation, 172.
39 Otto Bauer, The Question of Nationalities (Minneapolis: University of Minnesota Press, 2000 [1907]), 200–01; Grossman, Das Akkumulations- und Zusammenbruchsgetz, 430.
40 World Trade Organization, International trade statistics 2006, 2006, appendices A6 and A8,
41 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 443.
42 Ibid., 441–49; Grossman, The Law of Accumulation, 173–74.
43 Michael Kidron, “Imperialism: Highest stage but one,” in Michael Kidron, Capitalism and Theory (London: Pluto , 1974 [1962]), 132.
44 Lenin, Imperialism, 700, for Lenin’s summary description of imperialism.
45 Terrence McDonough, “Lenin, imperialism, and the stages of capitalist development,” Science & Society 59 (3), Fall 1995, 355–56.
46 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 450–54; Grossman, The Law of Accumulation, 174–76.
47 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 466–67.
48 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 454. Grossman gave the example of French and Swedish efforts to control iron ore mines around the world, despite their contemporary production beyond domestic needs, 478–79. Sweezy highlighted this insight of Grossman, 1970, 303.
49 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 462–70.
50 Grossman, The Law of Accumulation, 176–78. On the contemporary significance of oil, see Alex Callinicos, “The grand strategy of the American empire,” International socialism 97, Winter 2002, 22–27.
51 Henryk Grossman, “Diskussion aus einem Seminar über Monopolkapitalismus (1937),” in Max Horkheimer, Gesammelte Schriften 12 Nachgelassene Schriften 1931–1949 (Frankfurt am Main: Fischer, 1985), 417–20. I am grateful to Tobias ten Brink for pointing this out to me. Also see letter from Grossman to Max Horkheimer, November 6, 1936, in Max Horkheimer, Gesammelte Schiften 15: Briefwechsel 1913-1936 (Frankfurt am Main: Fischer, 1995), 713–14; and Henryk Grossman manuscript starting “Will man das Phaenomen des deutschen Imperialismus” written between 1939 and 1941, in 1996 in Folder 34, “Henryk Grossman,” III 155, Archive of the Polish Academy of Science, Warsaw.
52 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 490–91.
53 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 497-516; the abbreviated English translation does not mention Bukharin, Grossman, The Law of Accumulation, 180–85.
54 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 503; abbreviated in Grossman, The Law of Accumulation, 182.
55 Grossman, The Law of Accumulation, 183; Grossman, Das Akkumulations- und Zusammenbruchsgetz, 506. For a discussion of the concept of uneven development, see Neil Davidson, “From uneven to combined development,” in Bill Dunn and Hugo K. Radice (eds.), 100 Years of Permanent Revolution: Results and Prospects (London: Pluto Press, 2006), 10–20.
56 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 520. Aware of the communist movement’s canonization of the Russian leader, Grossman was diplomatic in his remarks about Lenin’s work. Later, the total Stalinist deification of Lenin that placed him above any criticism at all led Grossman (by then himself again a dedicated supporter of the Soviet Union) to caution Bill Blake, then working on his own account of imperialism, “In your book you should avoid any direct criticism of Lenin. You can make your different view clear, without attacking him—otherwise your book will be doomed as heretic. You can say ‘older Marxian theorist told this that. Today situation is changed’ [sic], etc.” letter from Grossman to Blake, July 10, 1947, Box 17 Folder 125, Christina Stead Collection, National Library of Australia.
57 Grossman, The Law of Accumulation, 187.
58 Ibid. 74-82; and the exposition of Grossman’s argument in published and unpublished works in Kuhn, ‘Economic Crisis and Socialist Revolution’ and Kuhn, Henryk Grossman and the recovery of Marxism.
59 Henryk Grossman, “Die Fortentwicklung des Marxismus bis zur Gegenwart,” in Henryk Grossman and Carl Grünberg, Anarchismus, Bolschewismus, Sozialismus: Aufsätze aus dem Wörterbuch der Volkswirtschaft (Frankfurt am Main: Europäische Verlagsanstalt, 1971 [1933]), 332–33; Henryk Grossman, “Marx, classical political economy and the problem of dynamics,” Capital and class, 3, Autumn 1977 [1941], 88.
60 Grossman, The Law of Accumulation, 189, 191, 193; Grossman, Das Akkumulations- und Zusammenbruchsgetz, 531, 536–37. Grossman was particularly critical of Hilferding’s account of speculation, which did not place it in the context of the business cycle, see Grossman, The Law of Accumulation, 191–92.
61 World Trade Organization, International trade statistics 2005, 2005, 1,; Bank for International Settlements, Triennial central bank survey of foreign exchange and derivatives market activity 2005, 1, This understates the discrepancy because large volumes of trade within the European Monetary Union involved no foreign exchange at all.
62 “Global financial stability report 2007,” International Monetary Fund, 2007, Statistical appendix tables 3 and 4,; and “International trade statistics 2006,” World Trade Organization, 3, 195–98, 203–05. The foreign exchange to exports figure substantially understates the situation as the exports figure includes intra-European Union trade in Euros, for which no foreign exchange was required.
63 “Capitals of capital—hedge funds,” Economist, September 2, 2006.
64 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 527–29.
65 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 531–62. The English edition does not deal with the history of capital export, only giving the example of the U.,. Grossman, The Law of Accumulation, 192–93.
66 Henryk Grossman, “William Playfair, the earliest theorist of capitalist development,” Economic History Review, 18, 1, 1948, 79–81.
67 Ibid., 75–76.
68 Grossman, The Law of Accumulation, 194, 197; also see Grossman, 1970, 527.
69 Grossman, “Will man das Phaenomen des deutschen Imperialismus.”
70 Ibid.
71 M. C. Howard and J. E. King, A History of Marxian Economics: Volume 1, 1883–1929 (Princeton: Princeton University Press, 1989), 101.
72 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 574; Grossman, The Law of Accumulation, 199-200.
73 Grossman, The Law of Accumulation, 200; see Rudolf Hilferding, “Die Aufgaben der Sozialdemokratie in der Republik,” in Rudolf Hilferding Zwischen den Stühlen oder über die Unvereinbarkeit von Theorie und Praxis: Schriften Rudolf Hilferdings 1904 bis 1940 (Bonn: J. H. W. Dietz, 1982 [1927]), 214–36.
74 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 606.
75 Lenin, Imperialism, 714–15; Lenin, Imperialism and the Split in Socialism 1996 [1916], 306,; Grossman, “Die Fortentwicklung des Marxismus,” 306.
76 Tony Cliff, “The economic roots of reformism,” in Neither Washington nor Moscow: Essays on Revolutionary Socialism (London: Bookmarks, 1982 [1957]), 108-13.
77 Nigel Harris, “Theories of unequal exchange,” International Socialism 2 (33), 1986, 119–20.
78 Grossman, Das Akkumulations- und Zusammenbruchsgetz, 572; an abbreviated discussion of the issue is in Grossman, The Law of Accumulation, 197.

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