Earlier presentations of the question

From a scientific point of view we have to explain why capital is exported and what role is played by the export of capital in the productive mechanism of the capitalist economy.

Sombart is the best example of the superficial way in which these problems are handled in the prevailing theories. He tells us: ‘No one can doubt that economic imperialism basically means that by enlarging their sphere of political influence, the capitalist powers are enabled to expand the sphere of investment for their superfluous capital’ (1927, p. 71). Here the relation between capital expansion and the drive for power is wrongly described; Sombart makes the drive for power the precondition for capital expansion. The opposite is the case — capital expansion is a precursor of the political domination that follows.

Secondly, from a purely economic point of view, Sombart does not explain why there is such a thing as the expansion of capital to foreign territories. This is something self-evident for him. What we have to explain theoretically is simply presupposed as obvious without any analysis or proof. Why are capitals not invested in the home country itself? Because they are superfluous? But what does superfluous mean? Under what conditions can a capital become superfluous? Sombart simply uses phrases without the slightest attempt to clarify things scientifically.

This issue has been debated for a whole century ever since Ricardo argued that when ‘merchants engage their capitals in foreign trade, or in the carrying trade, it is always from choice and never from necessity: it is because in that trade their profits will be somewhat greater than in the home trade’ (1984, p. 195).

In his book on imperialism J A Hobson maintains that foreign investments form ‘the most important factor in the economics of imperialism’ (1905, p. 48). He goes on to state that:

Aggressive imperialism ... which is fraught with such grave incalculable peril to the citizen, is a source of great gain to the investor who cannot find at home the profitable use he seeks for his capital, and insists that his government should help him to profitable and secure investments abroad. (p. 50)

But why are profitable investments not to be found at home? Hobson does not refer to this decisive question. In general his study, which is a valuable descriptive work, evades all theoretical issues. A Sartorius von Waltershausen states that ‘in today’s world economy the agrarian countries are net importers of capital, the industrialised countries net exporters’ (1907, p. 52). However he adds that ‘even the highly developed countries stand in debtor—creditor relationships to one another’ (p. 52). Obviously the agrarian/industrialised distinction cannot account for export of capital. In that case what is the driving force behind this? Sometimes Sartorius refers to ‘economic saturation’, a superfluity of the available capital in relation to investment possibilities. But this is not explained. Sartorius appears to have a vague feeling that such a state of saturation is linked to a relatively advanced stage of capitalist development. But Sartorius stays at this purely empirical level.

The treatment of this problem by S Nearing and J Freeman is just as unsatisfying. They agree that the industrialised countries of Europe became exporters of capital only at a specific stage in their development. The same is true of America: ‘The United States also reached this stage at the start of the present century’(1927, p. 23). The trend was then accelerated by the war — a whole process of development which might otherwise have taken much longer was compacted into a single decade by the events of the war. But what were these events? The war enormously speeded up the transformation of the USA from the position of a debtor to one of a creditor. The USA became a capital exporting nation ‘and was bound to remain so as long as there was surplus capital looking for investment’ (p. 24). But the authors do not show why such a surplus emerges or why it cannot find investment in the domestic economy.

Even in Marxist writings we search in vain for any explanation of the specific function of capital exports in the capitalist system. Marxists have simply described the surface appearances and made no attempt to build these into Marx’s overall system. So Varga says, ‘The importance of capital exports to monopoly capitalism was analysed in detail by Lenin in Imperialism; hardly anything new can be added’ (1928, p. 56). Elsewhere he simply casts aside any attempt to analyse the problem theoretically and simply produces facts about the volume and direction of international capital flows. ‘The rate of profit’, he says, ‘regulates not only the influx of capital into individual branches of industry, but also its geographical migrations. Capital is invested abroad whenever there are prospects ofobtaining a higher rate of profit’ (1927, p. 363). This conclusion is hardly original.

Varga fails to understand the dimensions of the question when he goes on to say, ‘Capital is exported not because it is absolutely impossible for it to accumulate domestically without “thrusts into non-capitalist markets”, but because there is the prospect of higher profit elsewhere’ (p. 363). In other words Varga starts from the false assumption that whatever its total amount, capital can always find an unlimited range of investment possibilities at home. He overlooks the simple fact that in denying the possibility of an overabundance of capital, he simultaneously denies the possibility of an overproduction of commodities. In addition Varga imagines any argument that there are definite limits to the accumulation of capital, and that capital export necessarily follows, is incompatible with Marx’s conception and can only be made from Luxemburg’s position.

I shall show that Varga’s conception is untenable, that it was precisely Marx who showed that there are definite limits to the volume of capital investments in any single country; that it was Marx who explained the conditions under which there arises an absolute overaccumulation of capital and therefore the compulsion to export capital abroad. Varga does not notice that his conception of unlimited investment possibilities flatly contradicts and is incompatible with any labour theory of value. Investment of capital demands surplus value. But surplus value is labour and in any given country labour is of a given magnitude. From a given working population only a definite mass of surplus labour is extortable. To suppose that capital can expand without limits is to suppose that surplus value can likewise expand without limits, and thus independently of the size of the working population. This means that surplus value does not depend on labour.

Sternberg argues that the export of capital constitutes a powerful factor for generating a surplus population. By reinforcing the reserve army it depresses the level of wages and enables a surplus value to arise(!). The expansion of capital ‘is therefore one of the strongest supports of the capitalist relation and its continuity over time’ (1926, p. 36) because a surplus value can arise ‘only if there is a surplus population’ (p. 16).

Export of capital is supposed to be the most powerful factor of surplus population. Yet in Germany in the years 1926—7 we saw the exact opposite: massive inflows of foreign capital were crucial to the general wave of rationalisation and played a major role in displacing workers or creating a surplus population. If it were simply a question of reducing the amount of capital so as to reduce the demand for labour then a simple transfer of capital would be enough to solve this. For instance German capitalists can go to Canada and settle down there. But this is not an export of capital so much as a loss of capital. In fact if it were simply a question of reducing the amount of capital, the essential aspect of capital exports - the drive to improve the conditions for the further expansion of capital — would no longer hold.

Sternberg tries to explain the export of capital, as he does all other phenomena of capitalism, by reference to competition. Yet the problem is to explain capital exports in abstraction from competition and therefore from the existence of a surplus population. The question is, what compels the capitalist to export capital when there is no reserve army and labour power is sold at its value?

Hilferding is not much better. Because he denies the possibility of a generalised overproduction of commodities, there are no limits to the investment of capital in a given country. So capital is exported only because a higher rate of profit can be expected: ‘The precondition for the export of capital is the variation in rates of profit, and the export of capital is the means of equalising national rates of profit’ (1981, p. 315). The same holds for Bauer. Inequality of profit rates is the sole reason why capital is exported: ‘Initially the rate of profit is higher in the more backward countries which are the targets of imperialist expansion ... capital always flows to where the rate of profit is highest’ (1924, p. 470).

Capital exports are thus explained in terms of the tendency for the rate of profit to equalise. But Bauer has the feeling that this explanation is quite useless when it comes to understanding modern imperialism. There has always been a tendency for rates of profit to equalise, whereas capital exports from the advanced capitalist countries started with real vigour only recently. Bauer himself says:

The drive for new spheres of investment and new markets is as old as capitalism itself; it is as true of the capitalist republics of the Italian Renaissance as of Britain or Germany today. But the force of this tendency has increased enormously in the recent decades. (p. 471)

How does he explain this? Ultimately Bauer has to look for an explanation of rising capital exports in the aggressive character of modern imperialism, which is precisely what has to be explained. Apart from this, if higher rates of profit are what account for the flow of capital to the less developed continents of Asia, Africa and elsewhere, then it is impossible to understand why capital should ever be invested in the industries of Europe and the United States. Why is the whole surplus value not earmarked for export as capital?

In fact we have already seen that an average rate of profit forms on the world market. On page 247 of his book Bauer knows this. But when he comes to deal with the roots of export of capital and imperialist expansion (p. 461) he forgets it and falls back onto the banal conception that the higher rate of profit of the backward countries is the cause of capital exports. We argued earlier that on the world market the technologically more advanced countries make a surplus profit at the cost of the technologically backward nations with a lower organic composition. This is what stimulates and simultaneously drives capital to keep developing technology, to force through continuous increases in the organic composition in the advanced countries. Yet this only means that as progressively higher levels of organic composition are introduced, a field is simultaneously created for more profitable investments. However high profits may be in the colonial countries, they would appear to be higher still in the chemical and heavy industries at home which, given their organic composition, are making surplus profits. So the question remains — why is capital exported at all? Bauer can’t explain this.

It is not necessarily true that in countries recently opened up to capitalist production the organic composition is always lower. While West European capitalism may have needed 150 years to evolve from the organisational form of the manufacturing period into the sophisticated world trust, the colonial nations do not need to repeat this entire process. They take over European capital in the most mature forms it has already assumed in the advanced capitalist countries. In this way they 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 organisation. Does Bauer mean to suggest that British capitalists invest in railway construction in Africa or South America because the organic composition of the railways there is lower than in England? Argentina’s beef industry works on huge refrigerated plants equipped with the most modern technology with large sums of capital invested by the meat-processing firms of Chicago. An industry of this type could only have developed after a revolutionary change in transport and refrigeration techniques, and this again presupposes a high organic composition of capital.

Bauer senses that there is no factual basis in the argument about higher rates of profit in less developed countries, so he drags in various other factors in the conviction that piling up doubtful arguments is a good enough substitute for one correct one. ‘At any given time’, he says, ‘a part of the social money capital always lies fallow’ (1924, p. 462). ‘If too much money capital lies fallow the consequences can be disastrous for capitalism’ (p. 462). Therefore there is a drive for spheres of investment that will absorb the superfluous capital. One form of this drive is the export of capital which, according to Bauer, ‘reduces the volume of capital that lies fallow in a given country at a given time’ (p. 470).

Here two completely different explanations tend to coalesce. One deals with productive capital, the other with money capital that is not active in production. In his second theory Bauer has merely confused money capital which is deposited in banks with capital that lies fallow and searches for investment opportunities. A portion of the total social capital must always exist in the form of money, in the shape of money capital. If reproduction is to be continuous the size of this portion cannot be reduced at will. The period of time which capital, individual or total, spends in any of its three forms is not determined arbitrarily by bankers or industrialists. It is objectively given. And because the size of money capital is not arbitrarily determined, any more than is the size of commodity capital or productive capital, definite numerical ratios must obtain in the division of capital into three portions. Marx says:

The magnitude of the available capital determines the dimensions of the process of production, and this again determines the dimensions of the commodity capital and money capital in so far as they perform their functions parallel with the process of production. (1956, p. 106)

Summarising the results of his analysis Marx writes:

Certain laws were found according to which diverse large components of a given capital must continually be advanced and renewed — depending on the conditions of the turnover — in the form of money capital in order to keep a productive capital of a given size constantly functioning. (p. 357)

He goes on to add that to ‘set the productive capital in motion requires more or less money capital, depending on the period of turnover’ (p. 361). So although money capital is itself unproductive — it creates no value or surplus value and limits the scale of the productive component of capital — it cannot be arbitrarily diminished or cast aside because it fulfils necessary functions.

Bauer turns all this upside down. In Marx the money capital that lies fallow is only a portion of industrial capital in its real circuit, constituting a unity of its three circuits. In Bauer money capital that lies fallow is a part of money capital ‘which has been pushed out of the circuit of capital’ (1924, p. 476).

In Marx the size of the money capital depends on the length of the turnover period. In Bauer the length of the turnover period depends on the size of the money capital. So instead of a slower turnover tying up too much money capital, an accumulation of too much money capital slows down the turnover according to Bauer.

The upshot is that production does not determine circulation, circulation determines production. Bauer says: ‘Any change in the ratio of fallow to invested capital, of productive capital to capital in circulation ... completely transforms the picture of bourgeois society’ (p. 463). The mystical power of money capital to do this lies with the banks. In fact expansion is only possible due to the banks: ‘Thanks to the scale of resources at their disposal at any given time, they [the banks] can consciously direct the flow of capital to the dominated areas’ (p. 472). Capital is exported because the banks decide it. The banks seemingly can do what they like.

So what of the objective laws of capitalist circulation? Obviously for Bauer these must belong to the realm of fantasy.

Bauer refers to fallow money capital which is expelled from the circulation of industrial capital and returns to production through the export of capital. But from statistics on international trade, Bauer knows that international capital movements take place mainly in the form of commodities and hardly at all in the form of money or as money capital. It is not money capital but commodity capital which is expelled from the circulation of industrial capital. This merely shows that there is an overproduction of commodity capital which is unsaleable and which cannot therefore find its way back into production. In fact Baser himself accepts that export of capital creates an outlet for commodities.