Social Scientist

Capital Accumulation and the Exploitation of the 'Unequal' World: Insights from a Debatewithin MarxismAuthor(s): Irfan HabibReviewed work(s):Source: Social Scientist, Vol. 31, No. 3/4 (Mar. - Apr., 2003), pp. 3-26Published by: Social ScientistStable URL: http://www.jstor.org/stable/3520264 .Accessed: 07/07/2012 09:20

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IRFAN HABIB*

Capital Accumulation and the Exploitation of the 'Unequal' World - Insights from a Debate within Marxism

By way of paying my homage to one of the most respected figures of the Indian Communist movement, and an intellectual guide and resolute fighter over the years, like Professor Hiren Mukerjee, I attempt in this essay to look anew at the recurring debate within Marxism over how capitalism grows and extends its exploitative dominance. Marx's theory of capitalist production and circulation was mainly set forth in Capital, in the first volume published in 1867, and in the two posthumous volumes edited by Engels. This largely fixed the framework for Rosa Luxemburg's Accumulation of Capital (1913). Yet her work acquired something of a landmark status, since she tried to look at Marx's analysis critically, while fully remaining loyal to his method and his cause. The political significance of Luxemburg's critique was that capitalism could now be seen as exploiting not only the working class in the capitalist countries, but also peoples living outside the capitalist order. Her critics even saw her, for this reason, as diluting the revolutionary importance of the industrial working class. Her writing, though, should have had a greater appeal instinctively for people whose countries have had colonial pasts or have otherwise suffered from the inequities of imperialism. Today, one also needs to go to it and the debate it provoked, for possible clues as to how capitalism has withstood the impact both of socialist revolutions in Russia, Eastern Europe and China, and of its own wars and crises during the ninety years since Luxemburg published her book.

* Formerly professor of history at the Aligarh Muslim University, Aligarh.

Social Scientist, Vol. 31, Nos. 3-4, March-April 2003

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The essay is in three parts: in Part I, I follow Rosa Luxemburg in her examination of the possibilities (or impossibility) of capital accumulation in a 'pure' capitalist economy; in Part II, I explore the relationship between the capitalist and non-capitalist economies as seen by Luxemburg and her critics; and in Part III, I examine the structure of today's world, with metropolitan countries retaining their dominance over the less developed economies (our 'unequal' world), and try to see how a modified version of Luxemburg's thesis can help us to understand better the present stage of Imperialism.

I

Let me first state in my own words what may be called the Luxemburg Puzzle.' Like Marx in Capital, we begin by assuming that we deal with an isolated, pure capitalist economy, that is, one where there are only two classes, namely, capitalists and the workers they employ, and within which there is perfect mobility of capital and labour.2 It follows that there is in such an imaginary economy no property other than capital and no income other than capitalists' profits (which constitute the sole title to the 'surplus') and wages (which the capitalists pay for the use of labour-power). When production takes place under such conditions, there can be two situations setting the extremes.

In the first case, the capitalists may consume the entire surplus, to meet their personal wants. In such a case (analogous to Marx's 'simple reproduction'), only consumer goods will be produced, and these will be divisible into two parts: (1) those purchased by workers out of their wages (wage-goods), representing the realization of what Marx called the 'necessary' part of value; and (2) those purchased by the capitalists (luxuries, etc.) representing the realization of 'surplus value.' No capital goods are produced at all, and so there is no capital accumulation.

In the second case, we take the other extreme, where the entire surplus is sought to be converted by the capitalists into additional capital, and they do not seek consumer goods to meet their personal wants. In terms of material products, capital is divisible into two parts: capital goods, which form 'constant' capital (in Marx's terminology); and wage-goods, which constitute 'variable' capital. (It may be remembered that while 'raw materials' may constitute an element of constant capital for an individual firm, this would not hold true for the capitalistic economy as a whole if the materials are produced within it: their value too can be broken down into the

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replacement costs of capital goods, wages, and surplus; and thus they cannot be wholly treated as a separate component of constant capital.)3 The surplus convertible into capital will thus comprise both capital goods and wage goods, in order to provide additional constant and variable capital, new wage-workers being employed out of the latter. Such use of the surplus enables production to be expanded in the next cycle. Such production accordingly belongs, in the terminology of Marx, to the category of 'extended reproduction'.

The puzzle that Rosa Luxemburg essentially poses is whether such extended reproduction is possible if the economy is confined only to capitalists and workers.4 To explain the puzzle it may be convenient to consider the two components of the total product separately. Capitalists who produce the means of production or capital goods (Marx's 'Department I') can only sell these for undertaking processes of manufacture to other capitalists. Since the purpose of production of capital goods is to produce consumer goods at the end of the line, capital goods must finally reach the hands of capitalists who produce consumer goods (Marx's 'Department II'). When capitalists of Department II buy from those of Department I, the total amount of value which they must pay the latter must be equal to the amount of wages paid in Department I, plus the surplus value that falls to the share of capitalists of Department I. In order to be able to provide this value, capitalists of Department II must sell enough consumer goods to yield them an amount which includes not only what they pay to the capitalists of Department I, but also, naturally enough, the wages they themselves have paid out to their workers, as well as their own share of the surplus. This means that the total amount at which the consumer goods are to be sold should comprise (a) wages paid to workers in Departments I and II, constituting for the capitalists their 'variable capital', and (b) the surplus value created by the workers in both Departments. We have seen that in our extreme 'model' where the entire surplus value is to be converted into capital, workers can be the only buyers of consumer goods. But the amount they can pay is limited to the wages they have received from the capitalists. Thus they cannot pay anything more than will replace the wage-costs in Departments I and II. At best, the additional variable capital (or additional investment in wage-component of capital) can be paid for, since it is immediately translated into wages paid. Yet this is merely theoretical, since without capital goods this additional variable capital would be of no use, as Marx himself in effect recognises.5 There would thus be no way in which the surplus value can be extracted out of

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wages paid out by the capitalists in Department I, which produces goods for use as constant, not variable, capital. And if the surplus value remains unrealized, there can be no conversion of the surplus into constant capital, and, therefore, no capital accumulation.

The essentials will not change, if we modify our extreme example, by supposing that the capitalists convert not the whole, but only a part of the surplus into capital. In that case the surplus value will be 'realized' only to the extent that capitalists spend their income on consumer goods and services. But to the degree that capitalists consume their income, there is no accumulation of capital. As for the remainder of the surplus, its conversion into capital will stay stalled since constant capital cannot be paid for by workers out of their wages, and any additional variable capital cannot be employed unless this constant capital is available.

The essential conditions would not also change if our model were to take into account the continuous increase in productivity that occurs under capitalism, Workers cannot buy more than they get in wages. An increase in the total product will not breach this basic barrier: workers may then have more goods to buy, but the amount they will pay will still be no more than what they have received in wages.6 An increase in population enabling more workers to be employed,7 would still not have any effect, since, as we have seen, additional variable capital employed out of the surplus, cannot be operative unless the corresponding capital goods (constant capital) are available.

There is possibly one way in which capital accumulation may yet take place: growth in the impoverishment of the working class.8 If after the wages are paid, the prices of consumer goods (Department II) are increased (e.g. through inflation), while through higher productivity in Department I, the prices of capital goods fall, or remain stable, it would be possible for a part of the former "wages fund" to be used to pay for capital goods. But the pace of such impoverishment is seldom rapid enough to correspond to the pace of capital accumulation, though impoverishment may definitely be seen as a tendency within capitalism to resolve the problem created by the difficulty in converting surplus value into capital.

At this point we should pause to consider how Rosa Luxemburg's critics met her fundamental argument that capital accumulation was not possible in a pure, closed capitalist economy. When her book The Accumulation of Capital was published in German in 1913, there was perhaps a considerable degree of genuine indignation in the ranks of German and Austrian Social Democracy that she should in this

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manner have ventured to criticise Marx and questioned the viability of his theory of capital accumulation. Criticisms, therefore, flowed almost in flood; but beyond the assertion that Marx had already explained everything, there seems to have been little close scrutiny of her puzzle. To judge from Rosa Luxemburg's own responses to this criticism, it emerges that the main thrust was that while additional variable capital came from additional population (this especially in Bauer), the constant part of capital was enlarged by the capital goods produced as part of the surplus product, though the capitalists remained their buyers. In other words, the capitalists provided their own market.9 In these arguments, the critics tended to shift the discussion from Luxemburg's model of the capitalist economy as a whole to hypothetical cases of individual capitalists.10 If we keep to the entire economy as a single unit, what the critics' position meant was that capitalists buy capital goods in order to go on accumulating capital, without bothering either to replace the value of investment or to realize profits which could necessarily come ultimately only out of sales of consumer goods (Department II). It is as if capital accumulation gets entirely lost in the "roundabout production" that the Austrian economist Bohm-Bawerk had spoken of. Faced with such an argument, it was natural for Luxemburg to ask: "So... gross social capital continually realizes an aggregate profit in money-form, which must continually grow for gross accumulation to take place. Now, how can the amount grow if its component parts are always circulating from one pocket to another [i.e. merely from one capitalist to another]"?11 Clearly, no surplus value could accrue on the original investment for the capitalist class as a whole if capitalists just went on paying each other in Department I (capital goods sector).'2 If after a long period of such continuous circulation, the ultimate product was sold to Department II (consumer goods sector), it would encounter the same problem we began with, namely how it could be paid for when workers who buy consumer goods do so only out of the wages they receive from the capitalists while the other buyers of consumer

goods are the capitalists themselves. In other words, we have again to conceive of capitalist profits as coming out of the resources of the capitalists themselves!

If, there could, then, be no addition to the surplus merely by the

capitalists' selling to each other, why should capitalists at all divert their surplus from consumption to capital investment? This is surely, again, a fair question, and Rosa Luxemburg asked it in her criticism of the Russian economist Tugan Baranovski: Could the capitalists be

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interested in just "production for production's sake" and not profit, which, after all, is what the extraction of the surplus value is all about?l3

When in 1924 Nikolai Bukharin, then a major theoretician of the Soviet Communist Party, took up his pen to refute Rosa Luxemburg, this was roughly the state of the debate on what we have called the Luxemburg Puzzle. In his pamphlet Imperialism and the Accumulation of Capital, Bukharin strikes a stridently polemical tone with much use of sarcasm, which does not quite square up with his claims to holding Rosa Luxemburg in high respect as a revolutionary thinker and fighter.14 Today this would appear to be a minor blemish, if it did not divert one's attention constantly away from the main theme towards merely minor and inconsequential skirmishes.

Without making any reference to Bauer and other previous critics of Rosa Luxemburg, Bukharin first seemingly endorses their position that accumulation can occur if capitalists simply go on selling to each other. He showers much ridicule on Rosa Luxemburg for confusing "the subjective aim" for profit of individual capitalists with the objective process of capital accumulation. However, when he himself appeals to Marx for support, we find the latter quite explicitly speaking of the subjective aim of the individual capitalist for accumulation."5 What Bukharin seems to forget is that an individual capitalist, however miserly, cannot have accumulation without realizing profit; and the capitalist class as a whole, however much wedded it may be to capital accumulation, cannot have accumulation without realizing surplus value.

Bukharin does not pursue his premise to what should be its logical implication: the capitalists create surplus by themselves in order to generate capital accumulation. He must surely have realized that such a conclusion could hardly be sustained within the framework of Marxist theory. He, therefore, offers us what is, at first sight, a variant of Bauer's population thesis. A part of the surplus, in the form of consumer goods, becomes available for meeting the effective demand generated by a corresponding addition of variable capital in money- form (wages), and this amount received by other capitalists helps to find a market for constant capital.16 If, to use Bukharin's phrase, there was possibly a vast "accumulation of errors and contradictions" in Luxemburg, his own simple solution too is replete with them. In physical form the surplus could either be capital goods and so a possible material form of constant capital; or consumer goods and so a possible source of variable capital. Once it had taken the latter

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form, the circuit was completed wnen the additional workers hired by capitalists of Department I purchased consumer goods by exhausting the wages they had received from capitalists of Department I. No constant capital (in the form of capital goods) could be created by the sole use of the additional wage-labour by capitalists of Department I unless additional constant capital was also already or simultaneously created. As we have noted, Marx was fully aware of this; but Bukharin ignores this essential prerequisite, and speaks as if workers can create constant capital (machinery, fuel, electric power, etc.) with their bare hands. If such were indeed the case, we should expect that all that the capitalists need do is to use up the surplus they wish to re-invest in hiring labour-power (i.e. convert the surplus value into variable capital); and the constant capital (capital goods) would thereupon be produced by the application of such variable capital alone. The only trouble is that we will, then, have to assume that such constant capital is produced outside the capitalist economy, since the existence of constant capital, along with the variable, is an essential element of all capitalist production. It may be that Bukharin has thus inadvertantly admitted, for the wrong reason, that accumulation of capital cannot take place within an economy strictly confined to the capitalist mode of production!

One can, however, excuse Bukharin here for one finds Paul Sweezy in his major work The Theory of Capitalist Development, employing the same argument to dismiss the Luxemburg Puzzle: "Actually accumulation typically involves adding to variable capital, and when this additional variable capital is spent by workers it realizes a part of the surplus value which has the physical form of consumption goods."17 Here he stops: pray, what about constant capital? And how does accumulation take place if additional workers merely consume a part of the surplus to "realize" their money-wages? It is no wonder that "Rosa Luxemburg did not understand this;" his position is, indeed, less easy to understand than even Bukharin's attempted solution, for Bukharin, at least, tried to show that constant capital would also be created alongside the variable.

Finally, we have Joan Robinson's treatment of the Luxemburg puzzle. It is interesting in that she tries to set her argument within the framework of conventional economic theory. To her, therefore, what Luxemburg is saying amounts essentially to this: "Investment can take place in an ever-accumulating stock of capital only if the capitalists are assured of an ever-expanding market for the goods which the capital will produce.""8 So worded, this bare summary

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seems to take the heart out of Luxemburg's main thesis which was not rooted in a concern for investment but in hostility to the exploitative nature of capital. However, Robinson does see the great merit of Rosa Luxemburg in showing that the growth of capitalism ('capital accumulation') rests on its exploitation and undermining of the non-capitalist economies amidst which it has grown and which turn into the victims of Imperialism.19 It is time, therefore, to consider what Luxemburg's own solution to her puzzle is, and how far this can be accepted.

Having argued that capital accumulation cannot be explained by any model which treats the capitalist economy in isolation, Luxemburg's solution to the puzzle consists essentially in rejecting such isolation. Since the surplus-value set aside for providing additional capital cannot be realized through the sale of the corresponding surplus-product either to capitalists or to workers within the limits of the capitalist economy, it must involve factors outside the capitalist economy. The realization of the surplus value, then,

"requires as its prime condition- ignoring, for simplicity's sake, the capitalists' fund of consumption altogether - that there should be strata of buyers outside capitalist society. Buyers, it should be noted, not consumers, since the material form of the surplus value is quite irrelevant to its realization. The decisive fact is that the surplus value cannot be realized by sale either to workers or to capitalists, but only if it is sold to such social organisations or strata, whose own mode of production is not capitalistic."20

It would be noticed that nowhere does Rosa Luxemburg imply that the external "buyers" of the surplus necessarily belong only to foreign countries, nor is she thinking in terms of normal exports. To attribute an assumption of this kind to her, and, then, to argue that no fundamental alteration in the basic puzzle accrues because value cannot be enlarged or realized by foreign trade (which supposedly involves exchange of goods of equal value) is to misunderstand Luxemburg's argument altogether.21

Given Luxemburg's basic statement and her own elaboration of it, we can see that the non-capitalist sectors can be both within the country whose capitalist economy we are studying, as well as abroad. World-wide, we can consider a single capitalist economy and a single non-capitalist environment existing side by side.22 Proceeding from

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Luxemburg's statement we have quoted, we can see that the relationship between the capitalist and non-capitalist sectors may, firstly, involve only products of Department II. Instead of all the wage- goods (i.e. consumer goods which are purchased by workers from their wages) being furnished by Department II of the capitalist sector, a large portion of it may be imported from the non-capitalist sector, where such are produced under "the petty mode of production" (i.e. by peasants and artisans).23 In return, the non-capitalist sector may receive consumer goods produced by Department II. We may thus consider the supply of wheat by peasants to meet the demand of industrial workers as consumers in return for industrially manufactured cloth in, say, nineteenth-century France. What such exchange does is merely to keep the subsistence-costs of the workers at a lower level (the alternative of feeding French workers out of wheat produced by British capitalist agriculture might not be adopted simply because the latter would be more expensive) This may be important for capitalist accumulation by reducing the relative size of variable capital and so enabling a shift to constant capital to take place, much in the manner that a further impoverishment of the working class might otherwise make possible (for which see Part I of this essay). It has no direct role to play in the realization of the surplus. It is such capitalist products as represent the surplus earmarked for investment which alone can complete the circuit of accumulation through their sale in the non-capitalist sector. This means that in the exchanges with the non-capitalist economies or sectors it is only a portion of capitalist 'exports' that would help achieve the realization of surplus-value.24

Such would be that part of the capitalist economy's 'exports' as exchanges for raw materials or semi-processed goods, usable as constant capital. Nineteenth-century machines in England might need seed-oils from India in order to work, just as the English textile industry drew on Indian cotton and indigo. Thus 'imports' from non- capitalist sectors or economies could add to constant capital in both Departments I and II. (We may note that while within an isolated capitalist economy there could be no raw-material component of constant capital, as noted in Part I of this essay, the case would be otherwise when a raw-material is imported from a non-capitalist sector or economy.)

It is, of course, not possible to identify which particular commodity exported from the capitalist economy falls to the realm of the "realized" surplus. The value of each commodity would have a wage-

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replacement as well as a surplus component;25 but when we are speaking of the capitalist economy as a whole, we can legitimately assume that only a part of the proceeds of the sale of capitalist 'exports' in the aggregate would represent the surplus value that is converted into capital.

The argument that both Bukharin and Sweezy have urged against such a process of realization of surplus value must now be confronted. Bukharin, as we have seen, assumes the exchanges to be those of foreign trade, but this does not for that reason invalidate his objection.26 Sweezy puts the same objection succinctly when he says: "It is not possible to sell to non-capitalist consumers without also buying from them.... Who is to buy the commodities 'imported' from the non-capitalist environment? If there could have been, as a matter of principle, no demand for the 'exported' commodities, there can be just as little a demand for the 'imported' commodities."27

This objection would be insurmountable if on both sides of the exchanges there were capitalist economies of equal degrees of purity (i.e. capital intensity); but with one side consisting of a non-capitalist sector, the exchanges assume a different form. This is essentially because while productivity continuously advances in the capitalist economy, it remains relatively stagnant in the non-capitalist one. From this an inequality in exchange results, which Marx duly noted in two seminal passages.28 In such exchanges "in so far as the labour of the more advanced country is here realized as labour of a higher specific weight, the rate of profit rises, because labour which has not been paid as being of a higher quality is sold as such."29 He puts it slightly differently in the second passage, where he says: "Loss and gain within a single country cancel each other out. But not so with trade between different countries. And even according to Ricardo's theory, three days of labour of one country can be exchanged against one of another country - a point not noted by Say. Here the law of value undergoes essential modification.... In this case, the richer country exploits the poorer one, even when the latter [too] gains by the exchange.... 30

What Marx says about trade between an advanced or richer country (that is, one with a higher degree of capitalist development) and a backward or poorer one (with a stronger non-capitalist sector) must apply generally, and with equal force, to all exchanges between the capitalist and non-capitalist sectors. The products of capitalist sectors embody a progressively lower amount of labour time than those of the non-capitalist sectors with which these exchange at par. This happens within the same country because the mobility of labour

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between the two sectors (capitalist and non-capitalist) is always imperfect (peasants and artisans do not immediately join the ranks of labourers despite lower returns from their own products) so that productivity in the capitalist sector continues to grow at a pace much more rapid than in the non-capitalist sector.

The role of higher productivity can be best seen when certain products of the two sectors (capitalist and non-capitalist) compete with each other. The classic historical example is textiles. The modern cotton industry - the leading sector in the English Industrial Revolution - first produced yarn which put handspun yarn out of the market, and then cloth which threw weavers into the streets. If this was accomplished in England largely by 1800, the same process was extended to India in the nineteenth century, with English mill-cloth largely replacing Indian home-made cloth.31 In exchange for its products, both those that compete with those of non-capitalist economies and others which the non-capitalist sector cannot produce, the capitalist industry itself requires in return products that for technical reasons it cannot produce at all, or can only produce at very high costs. This happens because peasant agriculture often succeeds in producing food crops (wage-goods) and raw materials (components of variable capital) at lower costs since it can sustain itself with very low returns.32 Or, again, because climatically certain food crops and raw materials may be produced only where peasant agriculture prevails, as was the case in the nineteenth century with rice, sugar, cotton (outside of the slave plantations of West Indies and the United States), oilseeds, jute, etc. In all such cases the exchange continues to bear the character noted by Marx: goods embodying smaller and smaller inputs of labour from the capitalist countries secure in exchange goods embodying larger and larger labour component. Capitalism thus continually secured from the non- capitalist sector, out of the same expenditure of variable capital, a growing supply of both food crops and raw materials that constituted, in turn, an influx of both variable capital (wage goods being supplied to it over and above the variable capital previously existing within it) and constant capital, typically in the form of raw materials, oils, etc.33

The exchange between capitalist and non-capitalist economies thus appears only formally to be an exchange of values at par; there could be a steady extra extraction of goods that have the potential material form of additional variable and constant capital, thereby enabling accumulation in the capitalist economy to take place at an

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increasing tempo. Such extraction might occur even when, owing to a relative decline in prices of industrial goods, the terms of trade moved in favour of agriculture (as in the late nineteenth century), since owing to the larger volume of industrial goods sold, the quantities of goods received from the non-capitalist economies continued to increase. 34

If we go still earlier and turn to the actual history of capitalism in its initial phase, we can see perhaps still more clearly that accumulation could not have taken place except by exploiting the non-capitalist market. Let us imagine Western Europe before 1800, when the capitalist sector barely comprised the iron and steel industry, coal mines and textile industry. Could any capital accumulation have occurred, had the capitalists and workers (however broadly the two classes may be defined) formed the sole market for capitalist products? Later in the nineteenth century, the expanding colonies of England, the westward expansion of farming in the United States, the internal peasant economies in Germany, France and Russia, all constituted large 'external' markets for capitalism, Rosa Luxemburg described in her Accumulation of Capital how this essentially non-capitalist market was made to serve as the means by which the surplus value produced by workers in the capitalist economies was realized and could be converted into capital.

Luxemburg's critics have not denied the existence of such a non- capitalist market, but to most of them, such as Bukharin, this market (termed 'third persons', being formed by neither capitalists nor workers) served quite a different purpose. As Bukharin puts it: "Capitalism could very easily exist without 'third persons'. But once 'third persons' are there, capital strives necessarily to eat them up, as such a meal brings in a surplus profit."35 The obvious contradiction between "could" and "necessarily" (both with Bukharin's emphasis) notwithstanding, the thrust of his statement is quite clear: Colonies and the peasantry are only incidental to the growth of capitalism and capital accumulation, which could "every easily" have progressed without them.

As for the word "surplus profit", used by Bukharin, it is a term used by Marx, for what extra gain capitalists obtain out of colonial trade or trade with poorer countries.36 In Marx's view, its function in capital accumulation, is that of providing capitalism with one of the escape routes from the falling rate of profit, itself a consequence of accumulation (which increases the size of capital) and competition (which reduces the profit per unit of product). There are clearly two

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ways in which the escape from declining profits can be secured from "foreign trade." One is that, with the rate of profit falling in a capital- saturated country, capital moves to another country where the supply of capital being still inadequate, a higher rate of profit is obtainable. Such a transfer of capital is at par with inter-sectoral mobility of capital within the capitalist country and is an obvious explanation of why capital moves from one heavily industrialized country to one less industrialized. The second lies in the nature of exchanges that Marx describes in the passages already quoted: capitalist products, with lower labour inputs, exchange with products of larger inputs of labour.37

Surely, both Bukharin and Sweezy should have pondered as to how when in such foreign trade goods exchange at par under conditions of competition, extra profits can still be earned (and so additions made to surplus value), the same transactions cannot, in their opinion, lead to the realization of surplus value in the manner suggested by Rosa Luxemburg. We have tried to show that the exchange can indeed lead to such a consequence because the relative increase in productivity in the capitalist economy is a continuous process, so that the extraction of resources from the non-capitalist or less developed economies is a process as inevitable in the long-term as that of the falling rate of profit, and links up with the concept of Unequal Exchange, which many economists were so concerned with till the other day and, some, perhaps, still are.38

Luxemburg saw the exploitation of the non-capitalist economies by capitalism for the purposes of accumulation as bearing a dual character: on the one hand, the market that these economies offered to capitalism sustained continuous capital accumulation; on the other, these economies were themselves undermined and prized open for capitalist intrusion.39 Marx had noted that capital could move to colonies and secure an extra profit by use of precapitalist forms of control over labour: "capitals invested in colonies... may yield higher rates of profit for the simple reason that the rate of profit is higher there due to backward development, and likewise the exploitation of labour, because of the use of slaves, coolies, etc."40 Luxemburg described the combination of capitalist penetration with repressive methods of all kinds, including military action and colonial conquest, all seeking to bring about the subjugation of the non-capitalist market ("introduction of the commodity economy") and the implantation of capitalist production.41 To Luxemburg, the duality had its own contradiction for capitalism: as the capitalist economy extends, the

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non-capitalist environment becomes smaller and smaller, so that the problem of capital accumulation becomes all the time more acute. This was reflected in the rise of Imperialism, which Luxemburg saw essentially as "the political expression of the accumulation of capital in its competitive struggle for what remains still open of the non- capitalist environment."42 However, Imperialism could not sweep away the inherent contradictions of the situation, how much violence and misery it might cause. The ultimate prospect was "a string of political and social disasters and convulsions, and under these conditions, punctuated by periodical economic catastrophes or crises, accumulation can go on no longer."43

No words of Rosa Luxemburg's have been hurled more against her than these last six italicised by us. Hers, it has been said again and again, is a theory of an ultimate automatic breakdown of capitalism. Bukharin dismisses it as "the theory of capitalist collapse", which is an exercise in "economic determinism", and is "simply false."44 Her words on the breakdown towards which capitalism was moving overshadowed for her critics her own hope expressed in the very next passage, that "even before this natural economic impasse of capital's own creating is properly reached, it becomes a necessity for the international working class to revolt against the rule of capital."4s That she laid down her own life in 1919, fighting for Socialism, and became one of Communism's great martyrs, is proof enough that she herself had no intention of waiting for the inevitable day that "accumulation can go on no longer." But this too does not mean that she was right in her prediction of an ultimate capitalist breakdown by the working of its own spontaneous processes.

III It is legitimate to ask, now that we have the advantage of hindsight,

with ninety years having passed since Luxemburg wrote her Accumulation, whether the prospect of collapse she laid out for a hypothetically unhindered capitalism necessarily followed from even her own basic thesis. This is, perhaps, because not having set her conception of the realization of surplus value in terms of the varied rates of the growth of productivity in the capitalist and non-capitalist economies, she omits to consider the impact of the uneven development of capitalism on the process of capital accumulation.

That all things change, but change unevenly, is a self-evident truth, often called the law of uneven development in Marxist discourse.46 But it is not necessarily a law of miscellaneousness. Any unevenness

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in change also tends to form patterns, linking every particular form of variance to a more general movement.47 Accordingly, the capitalist mode of production, from the contradictions it generates or encounters, assumes particular forms of unevenness. One of these is in respect of the degrees of what Marx called "concentration of capital" - which means, essentially, the continuous expansion of the share of means of production (constant capital) in the total amount of capital at the expense of the labour-power employed (variable capital); this is a direct consequence of the increasing productivity of labour in modern industry.48 As capitalism initially develops it tends to take over those sectors on the fringes of the capitalist industry, where production is not mechanized, and where, therefore, the productivity is still low. Marx showed how in such "domestic industries", the exploitation of labour reached extreme forms. Such exploitation would go on until at last owing to its low productivity the expanding demand of the market could not be met and the hour would strike for the advent of machinery in one such sector after another. Yet at the same time a new domestic industry or another would be created by some new gap in mechanization.49 In a manner this also typifies the relationship between different sectors of the capitalist economy, where the degree of mechanization and, therefore, the concentration of capital varies from one another. The same kinds of difference in productivity would extend to countries owing to different degrees of capital concentration prevailing among them. The most advanced capitalist country would be the one where the concentration is highest and labour productivity the greatest, and so a hierarchy of capitalist economies is established. The lowest ranks in such hierarchy are occupied in what in yesteryear was called the Third World, and now, quite often in journalistic parlance, the South, the immense ex-colonial sphere containing the bulk of the world's population - shall we now call it the 'Unequal' World? With every stride in technological innovation, growing labour productivity in countries with high capital-concentration increases the distance further and further between the 'metropolitan' countries, on the one hand, and the so-called 'developing' countries (that is, countries with developing but more primitive capitalist economies), on the other. 50

Gunder Frank in an acute phrase defined the entire process as the Development of Underdevelopment. Others have designated it Unequal Development.51

One can see that the penetration of the non-capitalist environment by capitalism has proceeded much in the way that Rosa Luxemburg

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had predicted. There has been a continuous growth in the export of capital to 'developing' countries. A recent global estimate puts foreign capital stock in terms of developing countries' GDP at 4.4 percent in 1973 and 21.7 in 1998.52 And there has been, at the same time much indigenous generation of capital as well within the previously non- capitalist world. Yet, despite many crises of severe magnitude there has been no end to capital accumulation. In many ways, as A. Emmanuel has pointed out, the capitalist penetration in its later stages has taken forms very different from those of the nineteenth century. The ex-colonial countries are no longer just simple producers of food crops and raw materials; several industries have been established there or even seemingly transferred to them from the metropolitan countries. Britain and Japan, whose early industrialization was centred on textile production, have abandoned the textile industry to countries like India and China. Petroleum extraction and refining takes place in West Asian countries often with a state-of-the-art technology. The metropolitan countries themselves appear to shift to still more capital- intensive industries, more and more belonging to Department I where labour productivity is still higher, while leaving the branches requiring lower capital intensity and lower productivity to lower-grade capitalist countries. (The contracting-out of low-capital intensity sectors of electronic and computer industries to Third-World countries offers an instructive example.) Such a division may also happen within each capitalist country among different sectors, as is very apparent in the case of many Third-World petroleum producing countries, which generally have labour-intensive industries co-existing with the highly capital-intensive petroleum complexes.

The resulting situation is that any industry which shifts from the metropolitan countries to the Third World immediately encounters a fall in prices, while those new ones that are developed in the metropolitan countries set very high prices for their products which the Third World has to pay. Thus the terms of trade now move all the time against products of the Third World.53 Since their productivity is very high in terms of prices of products of the metropolitan countries, the wages the workers of the latter countries receive are also very high in relation to wages in the Third World countries. It has seemed, therefore, even to so perceptive an economist as A. Emmanuel that it is the wage differentials which sustain the high prices of the metropolitan products and so cause the exchange between the two worlds to be unequal. He argues that wages "constitute the independent variables of the system."54 But it is surely the converse:

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higher productivity enables higher wages to be paid, especially when, despite the high wages, the variable capital continually contracts in relation to the constant part of capital.

One may, then, refine Rosa Luxemburg's thesis to incorporate an essential modification. As capitalism expands, its uneven development allows the more capital-intensive sectors (and countries) to realise their surplus-values for conversion into capital by exchanges with sectors or economies of lower capital-intensity and thus of lower productivity. As a result, we see a hierarchy, internal and international, of levels at which the process of capitalist exploitation proceeds. The division between the more advanced capitalist countries (the First World) and the backward ones (the Third World) is obviously the most marked; but within both the worlds there, again, exists a hierarchy with divisions between sectors and countries.

Here one sees again the remarkable perspicacity of Karl Marx, when he obviously included capitalist economies at a lower stage of development as those from which surplus profits might be drawn. We may recall that he had spoken of a "higher rate of profit" being drawn through foreign trade, when "there is competition with commodities produced in other countries with inferior production facilities, so that the more advanced country sells its goods above their value..."55 The words are so framed that the proper competitor could also be a capitalist country, but with "inferior", that is less capital-intensive production. The advantage gained by the advanced country from higher productivity would apply to exchanges with the products of both non-capitalist countries and countries at a lower stage of capitalist development. In all such cases, the unequal exchange arises out of a constantly intensifying monopoly situation in the world market, where "centralised" capital of the First World exercises complete domination over the smaller, dispersed producers of the Third.

The striking way in which the unequal exchange manifests itself in the monetary sphere is to be seen in the overvaluation of the currencies of the advanced capitalist countries, like the dollar, Euro, etc., in relation to the Third-world currencies, such as the yuan or rupee, in world currency markets, when set against the actual purchasing power of these currencies. The GDP of a number of Asian countries, notably China and India, has had to be substantially raised in official international estimates once these estimates shifted from current exchange rates to PPP (Purchasing Power Parity) as the basis of converting figures in domestic currencies into those in US Dollars.

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Clearly, Third-World nations must lose in real terms in international commercial transactions so long as the market currency rates influenced by the heavy demand for, say, Dollar or Euro, to pay for high-priced goods from the First World, diverge substantially from the real (i.e. purchasing-power parity) rates. We have here simply a monetary reflection of the unequal exchange that Marx had presented in terms of the labour-theory of value.

One can now return to Rosa Luxemburg. Obviously by ignoring the uneven degrees of development within capitalism, just as we did in Parts I and II of this essay (though for the sake of simplicity of treatment), she ignored a possibility: as the non-capitalist environment was subjugated and undermined, capitalism too went on altering its inner structure by intensifying the concentration of capital in the metropolitan countries and shifting the industries with comparatively lower productivity to the outer areas ('periphery'). Such a process by no means dispenses with imperialism, but rather places its source more and more strongly in the countries that attain the highest capitalistic development. Among these the United States is today in a pre-eminent position both by size and by the high degree of capital accumulation. It is, therefore, also today the principal imperialist power. At the same time the relatively high wages, to which Emmanuel draws our attention, are a major source of economism and trends of political passivity within the working class movements of the major metropolitan countries.

How far the economic structure has been affected by political processes (class struggles), such as the socialist revolutions and national liberation movements of the twentieth century, need also to be studied. There are no economic laws independent of the class struggle, as Samir Amin says somewhere.56 After World War II it became impossible for Imperialism to control colonies and dependent countries through direct political rule, and some of the industrial development of the Third World took place despite the wishes of Imperialism (e.g. the Western Powers' attitude towards India's effort to industrialise through building the Public Sector and erecting a system of protection). The adjustments with some industries shifting to the Third World were partly necessitated by the new reality of independent economic development in large parts of the Third World - a factor reinforced by the existence of the socialist world. The demolition of socialism in the USSR and eastern Europe has undoubtedly been one of the great triumphs of Imperialism, and we are in a situation where given the hierarchical structure of capitalism

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on the world-scale, the USA and its metropolitan allies, forming the apex, are both economically and politically dominant in an unprecedented manner. What this essay has aimed at showing is that such dominance, whereby the Third World is confined to the labour- intensive industries, is essential for the continuing prosperity of metropolitan capitalism. During the 1990's the US celebrated its position as the sole superpower by running up a deficit of foreign assets from about nil in 1988 to $1.5 trillion, or 20 per cent. of its GDP, by 1998, so that the outside world was made to sustain such elements of boom as existed in its economy.57 This dependence on the outside world may also explain its extreme sensitivity to any challenge to its political and economic dominance. The US-British invasion of Iraq (2003) probably heralds the inauguration of a fresh aggressive phase of imperialism that the Third World will now have to confront. 58 It may also mark the beginning of inter-imperialist tensions at the apex as well. 59

There is all the reason, therefore, for us to try to understand the nature of capital accumulation today, and to assess how contradictions within capitalism can develop given the hierarchy that has been established, with conflicts of interest arising between the more and the less advanced sectors and countries throughout the structure. There also remains the major contradiction between Imperialism (based on metropolitan capitalism) and the interests of the working class throughout the world. There will not be any breakdown of capitalism by its own weight; but there is no economic law to tell us that people will never awaken enough to return to the fight national for freedom and socialism.

NOTES

1. Rosa Luxemburg herself summarises her statement of the problem in The Accumulation of Capital, English translation by A. Schwarzschild, London, 1951 (hereafter cited as Accumulation), pp.351-53, and in The Accumulation

of Capital - an Anti-critique, ed. K.J. Tarbuck, English transl. by R.

Wichmann, New York, 1972 (hereafter cited as Anti-critique), pp.48-61. I state in my text the substance of her argument, but with a certain amount of reformulation.

2. This needs to be specifically stated since, contrary to Joan Robinson's

supposition in her Introduction to Accumulation, pp.16-17, it is immaterial for Luxemburg's argument whether there is or is not full capital mobility between the capital-goods and consumer-goods sectors, since she is dealing not with money-transfers, but with material forms of capital.

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3. One sees here a complication that arises when proper distinction is not maintained between the individual firm and the entire capitalist economy. What is raw material to one firm may be finished product to another. So long as, by our assumption, we are dealing with an isolated capitalist economy, we must assume that raw materials are produced within it entirely by the capitalist mode, and thus include in their value both variable and constant capital.

4. It is rather unfair of Nikolai Bukharin, Imperialism and the Accumulation of Capital, ed. K.J. Tarbuck, transl. R. Wichmann, New York, 1972 (hereafter, Imperialism and Accumulation), p.166, to say that Rosa Luxemburg excludes extended reproduction by her very premises and thus commits "the simple reproduction of a simple logical error." On the contrary, Luxemburg assumes the existence of extended reproduction and then asks whether capital accumulation can take place if the market is restricted to just the two classes of capitalists and workers.

5. See Marx's statement in Capital, Vol.I, Moore-Aveling transl., ed. Dona Torr, London, 1938, p.594: "It is only necessary for capital to incorporate this additional labour-power annually supplied by the working class in the shape of labourers of all ages, with the surplus means of production comprised in the annual produce, and the conversion of surplus value into capital is complete" (our emphasis). (This quotation will be found also in Luxemburg, Accumulation, pp.360-61). By uniting the additional variable capital with additional capital goods ("means of production"), Marx predicates the former upon the latter. Luxemburg does not seem to note this particular element in Marx's exposition; and Nikolai Bukharin in his critique of Rosa Luxemburg on this point (Imperialism and Accumulation, pp.176-7) also misses it altogether. See further on, below.

6. One has also to consider here another objection to this: Is it possible that "capitalist accumulation must largely depend on a corresponding increase in the workers' standards of living?" (Sayera I. Habib, 'Rosa Luxemburg's Contribution to the Marxist Theory of Imperialism', Teaching Politics, Delhi, XIII (3-4), p.25.)

7. This factor was suggested by Otto Bauer, the Austrian Marxist theoretician, in his critique of Rosa Luxemburg; since I have no access to Bauer's own original contribution to Neue Zeit, the journal of the German Social Democratic Party, No.24 (1913), I rely on Luxemburg's recapitulation of his 'population theory' (Anti-Critique, pp.81-2, 107-35). Bauer was not as heretical in his proposition as Luxemburg holds him to be. Luxemburg herself (Accumulation, p.360 n.) quotes from Marx a passage that contains the same proposition in an embryonic form: it will be found in Marx, Theories of Surplus Value, II, English translation. Progress Publishers, Moscow, 1972, p.477. Here Marx says: "an increasing population appears to be the basis of accumulation as a continuous process." The context makes it clear that he is thinking of variable capital alone, since he goes on to consider the question of accumulation of constant capital separately, but at the level of individual capitalists only.

8. "It follows therefore that in proportion as capital accumulates, the lot of the labourer, be his payment high or low, must grow worse" (Marx, Capital, I, p.661).

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9. See Anti-Critique, pp.65-74. 10. This is noted by Luxemburg, Anti-critique, p.74. Her critics, she says, "simply

look from the point of view of individual capitalists, which .... is totally insufficient where the circulation and reproduction of capital are concerned."

11. Anti-critique, p.73. 12. As Marx notes in Theories of Surplus Value, I (transl. Emile Burns), Progress

Publishers, Moscow, 1975, p.272, capitalists "make no profit by selling 'to one another"' (Marx's emphasis). Or earlier: "surplus value cannot be created by circulation" (Capital, I, p.143).

13. Accumulation, pp.334-5. 14. For these remarks of appreciation, see Imperialism and Accumulation, pp.265-

6. 15. The quotation Bukharin gives'is to be found in Theories of Surplus Value, I,

p.382. From where Bukharin ends the quotation, Marx goes on to say of the individual capitalist: "he is always enjoying wealth [when profligate] with a guilty conscience, with frugality and thrift at the back of his mind." One cannot get more "subjective" than this! Bukharin's own remarks are to be found in Imperialism and Accumulation, pp.162-69.

16. Imperialism and Accumulation, pp.174-6. 17. Paul M. Sweezy, The Theory of Capitalist Development: Principles of Marxian

Political Economy, London, 1946, p.204. 18. Introduction to Accumulation, p.21. 19. See especially ibid., p.28, where Robinson concludes her Introduction with

the words: "For all its confusion and exaggerations, this book shows more

prescience than any orthodox contemporary could claim." 20. Accumulation, pp.351-2. 21. This is what Bukharin does in Imperialism and Accumulation, p.181. Sweezy

follows Bukharin's line of argument, but avoids this pitfall and speaks simply of 'non-capitalist consumers' as the buyers (Theory of Capitalist Development, p.205).

22. Such an assumption has, however, its own dangers, since there is generally little mobility of labour between different capitalist countries, and even the mobility of capital is sometimes limited. We take up in Part III of this essay the problem of uneven development of capitalism, which must seriously modify the concept of a single world-wide capitalist economy.

23. For the "petty mode of production", see Marx, Capital, I, p.786-7. 24. This point is not explicitly made by Luxemburg, but is implicit in her analysis

in Accumulation, pp.353-55. 25. Cf. Accumulation, p.353. 26. Imperialism and Accumulation, p.181. 27. Theory of Capitalist Development, p.205. 28. One remains beholden to Bukharin for locating both these passages and

quoting them in Imperialism and Accumulation, pp.244-45. 29. Capital, III, English transl., Foreign Languages Publishing House, Moscow,

1959, p.232. 30. Theories of Surplus Value, III, English transl., Progress Publishers, Moscow,

1975, pp.105-6. 31. On this the material is extensive. I have commented on the discussion in I.

Habib, Essays in Indian History - Towards a Marxist Perception, New Delhi, 1995, pp.45-48, 283-4, 319-22, 342-46.

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32. There is much weight in A. Chayanov's thesis that peasant families tend to

pursue labour until equilibrium is reached between drudergy and earning for consumption (cf. Basil Kerblay, 'Chayanov and the Theory of Peasantry as a Specific Type of Economy', in: Peasants and Peasant Societies, ed. Teodor Shanin, Harmondsworth, 1971, pp.150-60, esp. the quotation on pp.152- 3). If so, the peasant household would tend to meet rising rents or increasingly unfavourable returns from sale of produce by an intensification of labour, though this cannot naturally go beyond a point.

33. These mainly constitute "the cheap elements of constant capital (that) are essential to the individual capitalist who strives to increase his rate of profit" (Accumulation, p.357). Cf. Sayera I. Habib, 'Rosa Luxemburg's Contribution to the Marxist theory of Imperialism' in Teaching Politics, XIII (3-4), 1987, p.24.

34. According to a table in Michael Barratt Brown, Economics of Imperialism, Harmondsworth, 1974, p.251, while the unit value of the developed countries' manufacturing products rose between 1876-80 and 1913, in the ratio of

only 98 to 100, the unit value of the primary products of underdeveloped countries rose in the ratio of 69 to 100, though there was a dip to 52 in 1896-1900.

35. See, e.g., Bukharin, Imperialism and Accumulation, p.262. 36. Capital, III, p.233. 37. Capital, III, pp.232-3. In this passage, the transfer of capital for obtaining

higher profit is given a secondary place. 38. Arghiri Emmanuel, Unequal Exchange, New York, 1972 (being the English

transl. of the original work published, 1969) presented the theory of Unequal Exchange outside the labour-theory-of-value framework; but his work

undoubtedly represented a remarkable break-through. For a summary of his main propositions, see Andre Gunder Frank, Dependent Accumulation and Underdevelopment, New York, 1979, pp.103-09.

39. One cannot think of a more comprehensive work on this relationship, especially with Asian countries included in the study, than Amiya Kumar

Bagchi, The Political Economy of Underdevelopment, Cambridge, 1982. 40. Capital, III, p.233. 41. Accumulation, pp.348-418. 42. Ibid., p.446. This is perhaps too narrow a definition of Imperialism, and is

in line with the one given by Karl Kautsky, who saw Imperialism as "the striving of every industrial nation to bring under its control and annex increasingly big agrarian regions", a definition which Lenin condemned (Imperialism, the Highest Stage of Capitalism, Progress Publishers, Moscow, 1982, pp.85-89). Lenin argued that Imperialism also aimed at weakening or

destroying rival capitalist powers and seizing capitalist countries. But see Sayera I. Habib, 'Rosa Luxemburg's Contribution to the Theory of Imperialism', op.cit., pp.26-7.

43. Accumulation, p.467 (our emphasis). 44. Imperialism and Accumulation, pp.258-61. 45. Accumulation, p.467. 46. For its implications see Louis Althusser, For Marx, English transl.,

Harmondsworth, 1969, pp.200-01 et seq. 47. It is, I believe, in this sense that one can say with Mao Zedong that "the

universality as well as the particularity of contradiction is inherent in

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everything" ('On Contradiction', Selected Works of Mao Tse-tung, Vol.1, Peking, 1967, p.329).

48. See especially, Capital, I, p.641. The process of "concentration" is to be distinguished from what Marx calls "centralization" of capital (which most economists today would call "concentration"), namely the absorption of smaller units of capital into larger ones (ibid., p.640).

49. Capital, I, pp.469-480. 50. The GDP per person employed has risen in terms of US Dollars at international

prices of 1990, from $11,551 in 1950 to $32,108 in 1998 in twelve West European countries, and $23,615 in 1950 to $55,618 in 1998 in the United States. In India the increase has been from $1,377 to $4,510 in the same period. China has done substantially better, but its GDP per person employed rising from $ 1,297 in 1950 was still just $6,181 in 1998. In other words the difference between USA and India has increased from $22,238 per employed person in 1950 to $51,108 in 1998; in the case of China, the increase in the difference is from $22,318 to $49,437! The distance in productivity thus goes on lengthening. (The figures are taken from Angus Maddison, The World Economy: a Millennial Perspective, Paris, 2001, pp.349-50.)

51. Eg., Samir Amin, Unequal Development, New York, 1976. 52. Maddison, World Economy, op.cit., p.128. 53. The unit value of manufactured products of developed countries, set at 100

in 1913, was 275 in 1953 and 285 in 1967-68; that of primary products of developing countries moved from 100 in 1913, to just 163 in 1953 and 153 in 1967-68. The estimated figures for 1973 were respectively 380 and 260. (M. Barrat Brown, Economics of Imperialism, op.cit., p.251). The continuous improvement in terms of trade for manufactures of the developing countries has enabled Western Europe, USA, Canada, Australia and New Zealand ("Western Off-shoots") to maintain their share in World exports at above 60 per cent. (62.4 per cent. in 1950, 60.8 per cent. in 1973 and 61.2 per cent. in 1998), despite the enormous expansion in exports of manufactures from East Asia during the period (A. Maddison, World Economy, op.cit., p.127.)

54. Unequal Exchange, p. 118. Cf. Gunder Frank, Dependent Accumulation and Underdevelopment, pp.103-05, also pp.109-10, for criticism of this position by Charles Bethetheim and Christian Palloix.

55. Capital, III, p.232. 56. I regret I have mislaid the reference, but see Samir Amin's remarks in The

Law of Value and Historical Materialism, New York, 1978, pp.11-12. 57. By 1988 the United States' previously considerable net foreign assets had

dwindled to zero; thereafter its net foreign assets came down to a minus $ 1.5 trillion, by 1998 (Angus Maddison, The World Economy, op.cit., p.135). The nature of this flow of wealth into the US needs to be examined: Is it because the amount of capital concentration required by US keeps all its capital at home, and draws in capital from outside, as well; or is it largely a kind of tribute payment from the rest of the world, financing the large constant US trade deficit arising out of a heavy excess of imports over exports? Either way the US is heavily dependent on the world outside, and this may particularly explain its shift to very aggressive postures despite the end of the 'Cold War'.

58. It is symptomatic of the brutality of this new phase that members of the

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House of Commons in British Parliament should loudly cheer when on 4

April the British Defence Secretary Hoon affirmed US and British determination to go on using cluster-bombs against the resisting Iraqi army and population. The language that US President W. Bush and British Prime Minister Tony Blair have used would have undoubtedly been held to be rather unusual even in the great jingoistic age of colonialism a hundred years ago.

59. The opposition of France, Germany and Russia to the US-British invasion is not entirely from pangs of conscience (though the popular sense of outrage must be allowed due weight); it also stems from important reservations about the US and Britain getting all the gains out of Iraq's immense oil resources. Such conflicts of interest are unlikely to disappear through mere acts of diplomacy.

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