The international character of economic cycles

Far from signifying the impending doom of European capitalism, as Hildebrand (1910) and others forecast, the industrialisation of the more backward countries signifies an expansion of world exports. Contrary to Luxemburg’s theory the backward countries gain importance as markets for advanced capitalism precisely to the degree that they industrialise. Today the industrialising colonies are much better markets than the purely agricultural colonies, while the advanced capitalist countries are the best markets. In fact the notion that the backward countries, still mainly dependent on agriculture, could produce enough commodities to pay for the colossal wealth of the capitalist nations is something bordering on absurdity.

The fact that the more industrialised a country is the greater its share of industrial imports, or the fact that the industrialised nations form the best markets for each other, helps to explain a phenomenon for which Luxemburg’s theory has no explanation. I mean the international character of the economic cycle. An upswing in production goes together with rising imports of raw materials, semi-finished goods and soon. In periods of boom net exports of raw materials and semi-finished goods exceed net exports of finished commodities, while the ratio is reversed in periods of depression. Thus there is a strong correlation between booms and raw material imports.

A boom in one country is communicated to other countries through the medium of commodity imports. In this way the rhythm of boom movements becomes progressively synchronised, even if international differences in the chronology of the business cycle persist. Even prior to the War we saw the gradual formation of a parallelism in the economic cycles of the most important countries. The crises of 1900, 1907 and 1913 all had an international character. This parallelism was interrupted by the War and the breaking off of mutual economic ties, but after the War it started to crystallise once more.

Table 3.1: German imports 1925—7 (billions of marks)

Raw materials & semi-finished goods

Finished goods

The minor boom of 1925 was followed by the depression of 1926 when the total volume of imports declined steeply. In the boom year of 1927 imports exceeded the level of 1925. It is easy to see that such a rapid increase of German imports, by 3.2 billion marks, is bound to have an invigorating effect on the world market. As long as it is sufficiently strong the boom in a single country can communicate itself to all its trade partners. For instance the German boom of 1927 drew along with it all the neighbouring countries of central and eastern Europe which have close economic ties to Germany. In that year there was a revival, of varying strength, in Poland, Czechoslovakia, Austria, Hungary, Switzerland, Belgium, Netherlands, Sweden and Finland.

In periods of depression things are reversed. Imports decline and a chain repercussion starts as orders are cancelled.