The result: intensified international struggle for investment outlets, transformations in the relationship of finance ca

Lenin was quite correct in supposing that contemporary capitalism, based on the domination of monopoly, is typically characterised 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 I 860s. 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 valorisation of the accumulated capital encounters increasingly worse obstacles. Overaccumulation ceases to be a merely passing phenomenon and starts more and more to dominate the whole of economic life.

This is the case with France which, according to B Mehrens ‘has an almost chronic superfluity of money’ (1911, p. 230). This superabundance of capital is interrupted by periods of boom. But these boom periods are becoming shorter and shorter. The revival which started in Germany in 1910 was already over by 1912. The boom was over so quickly that A Fuller asked somewhat melancholically, ‘Now was that a boom, or were we already in the purgatory of the depression?’ (1914, p. 109).

Since 1918 the economic cycle has become progressively shorter. This is perfectly comprehensible in terms of the theory I have developed in this book. As rationalisation sustained its momentum after the war the accumulation of capital lurched forward sharply. A substantial part of plant expansions was carried through with the help of foreign loans. However in economic terms this is irrelevant to the fact that capital expanded enormously with the result that the valorisation of the expanded capital became more difficult. Apart from this, the problem of valorisation was further aggravated by the fact that America was now absorbing one part of the surplus value in the form of interest on her loans. At this advanced stage of accumulation booms become less intensive; they have changed their character ‘Today we no longer expect booms to bring increased prosperity to all sectors of the economy ... We are generally quite content if industry as a whole tends to prosper, and especially if the main industries and firms show higher prosperity’ (Feiler, 1914, p. 106).

Under these circumstances the overabundance of capital can only be surmounted through capital exports. This has therefore become a typical and indispensable move in all the advanced capitalist countries. Export of capital has thus become a means of warding off the breakdown, of prolonging the life-span of capitalism.

The bourgeois economist proclaims triumphantly that Marx’s theory of breakdown and crises is false and contradicted by the actual development.

He is generous enough to concede that it bore some correspondence to the formative period of capitalism in the 1840s. But when conditions changed the theory simply had the ground removed from under its feet:

When Marx worked out his theory of crisis ... one could actually suppose that the recessions following the booms would become progressively worse. It was always possible to extrapolate from the line 1825—1836—1847 and end up with the theory of catastrophe worked out by Marx. In fact, even the crisis of 1857 still fitted into the picture. We know from their correspondence how both Marx and Engels saw in the breakdown of the boom in 1857 ... a vindication of their theory of crisis. (Sombart, 1927, p. 702)

According to Sombart the crisis of 1857 was the last great catastrophe of the classic type that Britain would go through. Germany and Austria had still to go through their own crisis in 1873. After that

Europe’s economic life was underpinned by a conscious drive to neutralise, mitigate and abolish the tensions; this was a tendency that persisted down to the War and nothing in the War itself or the years that followed it at all weakened or transformed this tendency ... What emerged out of capitalism ... was the very opposite of the prophesised sharpening of crises; it was their elimination, or, ‘cyclical stability’ as people have been saying more recently. (p. 702)

The one-sidedness of this description is shown by the facts. Bourgeois economists prefer to convince themselves more than others that we are through with crises. Sombart assures us that we have not seen a serious crisis in Europe since 1873. But we know that the French crash of 1882 is reckoned among ‘the most serious crises in French economic history’ (Mehrens, 1911, p. 197) and that it precipitated a depression that was destined to persist for over one and a half decades. According to Sombart, in Britain ‘the full savagery of unbridled capitalism burst forth really for the last time in the 1840s ... Already in the 1850s the drive for expansion was much weaker and therefore also the setback’ (1927, p. 703). The facts prove the opposite. The crisis of 1895 was preceded by intense speculation chiefly in South African gold shares:

The real boom started only in 1895 ... Of all the attacks of pure speculative frenzy which the City has lived through, this was the worst, the wildest and the most pernicious. While it raged, more money was won and lost than in half a dozen earlier booms and panics. It ruined ten times as many people as the South Seas swindle and undoubtedly played its part in bringing forth the Boor War. (Financial Times, cited Weber, 1915, p. 270)

Commentators have tried to explain the novel character of crises by saying that the banks have succeeded in imposing regulation over economic life:

They can systematically withhold credit and stop capital issues, where claims are economically unsound. And in this way they can ensure that the creation of capital takes a rational form ... They can thereby prevent speculation on the exchange and moderate the over optimism of industry itself. (Feiler, 1914, p. 168)

The fact that the character of crises has changed is traced back to increasing planning and conscious regulation of the economy. Changes that are rooted in complex causes are interpreted as the achievements of bankers.

The worst orgies of speculation are possible in a period when, with the transition from individual forms of property to its social form in share capital, enormous fortunes accumulated over several decades are thrown on to the market and sacrificed on the stock exchange. These are the flotation periods bound up with vast regroupments and concentration of wealth. They are therefore periods of wild speculation. But once this process of concentration of share capital has already reached an advanced level, with the general progress of accumulation and through the mediation of the stock exchange, the exchange itself is left only with the residual stock capital in the hands of the public. Under these conditions speculation is badly debilitated, not of course through the conscious intervention of banks which supposedly centralise command over the economy into their own hands, but because there is not enough material for the exchange to digest. At an already advanced level of concentration of share capital, speculation on the stock exchange is bound to lose its impetus as its middle-class base of small rentiers, workers, civil servants and so on, dries up.

Yet this only compels the idle money capital to rush into other outlets, into export of capital, as the only investments promising greater returns.

This alone is one reason why world market struggles for investment outlets become increasingly sharper.

This brings us to the second reason why the character of crises in Britain has temporarily changed. As long as our attention is fixed on an isolated capitalism it follows that advanced stages of accumulation will necessarily generate crises in their sharpest and most savage forms.

During the first 50 years after 1825 when British relations with world economy were still only embryonic, and Britain could thus be regarded to some extent as an isolated capitalism, the crises of capital accumulation were enough to precipitate wild panics and collapses. But the more Britain succeeded in building relations with world economy, expanding foreign trade and discovering foreign outlets for overaccumulated capital, the more the character of those crises changed. But with the progress of accumulation the number of countries grows in which accumulation approaches absolute limits. If Britain and France were the world’s first bankers, today the list includes America — as well as a whole series of small donor countries like Belgium, Switzerland, Holland, Sweden.

Germany’s capital imports are a purely temporary phenomenon. Given the technologically advanced structure of German industry, high productivity of labour and very low wages, the rate of surplus value is extremely high. Therefore the tempo of accumulation is much faster so that Germany will reimburse her foreign debts sooner than people imagine and emerge on the world market as an exporter of capital. Yet in proportion to the growth in the number of countries which export capital, competition and the struggle for profitable outlets is bound to intensify. The repercussions of this will necessarily sharpen the crisis at home. If the early crises of capitalism could already lead to wild outbreaks, we can imagine what crises will be like under the growing weight of accumulation when the capital exporting countries are compelled to wage the sharpest struggles for investment outlets on the world market.

B Harms forecasts that the USA is already approaching the absolute limits of accumulation, so that ‘the capital which flows into the USA by way of interest payments over the coming decades, must in some form find its way back into the world markets’ (1928, p. 8). This will promote the further industrialisation of the newcomers. But this process of industrialisation, encouraged by American capital, can only revolutionise European exports. In future only means of production can be exported. Yet the development of American industry is driving the US in the same direction:

In other words we have to reckon with the fact that soon the USA itself will be emerging as one of the world’s biggest suppliers of the means of production. The well known enquiries of the Balfour Report and the proceedings of the last ‘Imperial Conference’ have produced instructive evidence for such an assumption. (Harms, p. 8)

Should the USA start exporting means of production, ‘this must ultimately lead to a situation where the European debtor countries simply cannot sustain debt servicing charges to the US’ (Harms, p. 8) and cannot pay for their imports of raw materials and means of subsistence. In other words Harms foresees the approach of one of the most terrible crises involving the bankruptcy of European capitalism - although he consoles himself with the illusion that the USA will voluntarily refrain from capital goods exports so as not to smash completely the solvency of her European debtors.

This makes it possible, finally, to form some more adequate picture of the relation of banking capital, or finance capital as Hilferding calls it, to industrial capital. It is well known that Hilferding sees the basic characteristic of modern capitalism in the dominance of finance capital over industry. He argues that with the growing concentration of banking, the banks increasingly come to control capital invested in industry. As capitalism develops, more and more money is mobilised from the unproductive classes and placed at the disposal of industrialists by the banks. Control over this money, which is indispensable to industry, is vested in the banks. So as capitalism develops and with it the credit system, industry becomes increasingly dependent on banking. An ever-increasing proportion of capital in industry is finance capital: it belongs to the banks and not to the industrialists who use it. With the growing concentration of money and banking capital the ‘power of the banks increases and they become the founders and eventually rulers of industry’ (Hilferding, 1981, p. 226). As banking itself develops:

there is a growing tendency to eliminate competition among the banks themselves, and on the other side, to concentrate all capital in the form of money capital, and to make it available to producers only through the banks. If this trend were to continue, it would finally result in a single bank or a group of banks establishing control over the entire money capital. Such a ‘central bank’ would then exercise control over social production as a whole. (p. 180)

Hilferding needed this construction of a ‘central bank’ to ensure a painless, peaceful road to socialism. As we have seen already, Hilferding imagines that the socialising function of finance capital can facilitate the overcoming of capitalism.

Hilferding’s exposition contradicts the actual tendencies of development of capitalism. It is also incompatible with the fundamental ideas of Marx’s theory. For if Hilferding were right in arguing that the banks dominate industry, this would only shatter Marx’s theory of the crucial importance of production itself to the structure of capitalism. The crucial role would then be played not by the productive process but by finance capital, or structures in the sphere of circulation.

Given the law of accumulation that we have developed, it follows that the interrelations of banking and industrial capital are historically changeable. We have to distinguish three phases. At a low stage of capital accumulation, when prospects for expansion are unlimited, the capital formation of industry itself is not enough. Therefore industry relies on a flow of credits from the outside, from non-industrial strata. The building of a credit system centralises the dispersed particles of capital and the banks acquire enormous power as mediators and donors of industrial credit. This was the phase France passed through after 1850 and which came to a close in Germany at the start of the present century.

The further progress of accumulation alters the interrelation of banks and industry. In France the initial capital shortage passed over into a chronic superfluity of money. In this phase industry establishes its independence. Obviously the specific configuration depends on the given country and the given sphere of industry. As far as German large-scale industry is concerned, Weber could write:

On the whole, there is no basis for the widespread fear that industry, and especially large-scale industry, is managed according to the wishes of bank directors; on the contrary, the movement of concentration and the formation of industry associations has made industry far more independent of the banks. (1915, p. 343)

At more advanced stages of accumulation industry becomes increasingly more independent of credit flow because it shifts to self-financing through depreciation and reserves. For instance Feiler cites the example of the Bochumer Verein (by no means one of the industrial giants) which, with an initial share capital of 30 million marks, within nine years declared dividends equal to the entire nominal value of the share capital, and simultaneously earmarked 40 million marks for new investments (1914, p. 112). Nachimson has shown that over the period from 1907—8 to 1913-14, the share capital controlled by the German industrial finance corporations declined from 29 per cent of the total capital of all joint stock companies to 26.8 per cent. In the same period their foreign holdings declined from 90 per cent of the total liabilities of all stock companies to almost half. He concludes, ‘These figures strongly suggest that the role of banks has declined in importance’ (1922, p. 85). Although Nachimson accepts Hilferding’s theory of the domination of industry by the banks, he says:

However it is important to point out compared with the start of the twentieth century, there has been a distinct tendency for industry to become independent of the banks ... Whereas the banks rely on external capital flows which are basically derived from industry, the equity funds of the industrial companies have been rising continuously ... Industrialists like Thyssen, Siemens, Rathenau, Stinnes ... do not come from banking circles, but from industrial circles and they are increasingly dominating the banks, just as the banks once dominated them. (p. 87)

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. This is the case with Standard Oil Corporation according to R Liefmann’s account (1918, p. 172). When the overaccumulated capital of a certain industry finds scope for expanding into other industries defined by the lower degree of accumulation, funds are channelled into ‘the New York money market, where they play a crucial role’ (p. 172). In countries like Britain, France and especially the USA, it is simply not possible to speak of industry being dependent on the banks. On the contrary industry has recently been dominating the banks. Apart from its own assets in banks, industry sets up its own financial institutions precisely in order to secure a profitable investment for its own surplus funds. In Germany firms like AEG are not only independent of the banks, they stand in a solid position in financial circles due to their own massive bank accounts. In a chapter on recent international trends in industrial financing T Vogelstein (1914) points out that the typical balance sheet of modern large-scale companies shows a completely different picture from the past. There is a tendency for the share of equity funds to increase at the expense of borrowed funds, or for the company to acquire its own assets in the banks. According to Vogelstein, this is one of the reasons why banks have been turning to the stock exchange by way of investments.

The 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.