V. The economic policy of finance capital

• • Preface
  • I. Money and credit
  • II. The mobilization of capital. Fictitious capital
  • III. Finance capital and the restriction of free competition
  • IV. Finance capital and crises
  • V. The economic policy of finance capital

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21. The reorientation of commercial policy

Finance capital signifies the unification of capital. The previously separate spheres of industrial, commercial and bank capital are now brought under the common direction of high finance, in which the masters of industry and of the banks are united in a close personal association. The basis of this association is the elimination of free competition among individual capitalists by the large monopolistic combines. This naturally involves at the same time a change in the relation of the capitalist class to state power.

The bourgeois conception of the state has its origins in the struggle against mercantilist policy and against the centralized and privilege-dispensing state power. It represents the interests of the nascent capitalist manufacturing and factory system in opposition to the privileges and monopolies of the large trading and colonial companies on the one hand, and of the closed handicraft guilds on the other. The struggle against state intervention could only be carried on, however, when it could be shown that economic legislation by the state was unnecessary and harmful. The ascendancy of the laws regulating the economic system itself over state legislation had to be demonstrated.

Thus the policy of the bourgeoisie comes to be based upon political economy and its struggle against mercantilism becomes a battle for economic freedom, which in turn develops into a broader struggle for individual liberty against the tutelage of the state. This is not the place to follow in detail the flowering of these ideas in the Weltanschauung of liberalism; but perhaps it should be pointed out that wherever, as in England, the struggle for economic freedom is victorious before the modern scientific outlook has emerged, liberalism does not incorporate this outlook in its view of the world. The revolutionary subversion of all moral and religious ideas, which French liberalism engendered, never took root in the popular consciousness in England, whereas conversely, liberalism became more deeply entrenched there than anywhere on the continent.

Yet even in England the triumph of laissez-faire was far from complete; the banking system remained immune, and the theory of banking freedom succumbed to the practical needs of the governors of the Bank of England. The theory of the Manchester School had an even smaller influence on the actual course of foreign policy, which remained the executive arm of English world trade in the nineteenth century just as it had been in the seventeenth and eighteenth centuries. On the continent the movement was limited to achieving freedom of the trades and professions, and remained a rule for domestic policy, while the policy for external trade quite naturally continued on a protectionist basis. England's free trade policy was based, after all, on its lead in capitalist development and on the technical and economic advantage which this gave to English industry. This lead was not due solely to natural causes, although they played an important role; thus until the modern transport system had developed water-borne traffic, and the saving in freight charges resulting from the location of iron ore and coal in close proximity to each other, were bound to have a decisive significance. On the other side, however it should not be forgotten that capitalist development is the accumulation of capital, and the more rapid accumulation in England was due, in large measure, to the outcome of the power struggles with Spain, Holland and France for control of the seas, and hence the control of colonies, as well as to the rapid proletarianization which followed the victory of the large landowners over the peasants.

England's industrial pre-eminence gave her a larger stake in free trade just as, at an earlier time, Holland's lead in capitalist development had committed her to a free trade policy. Internally the development of industry, the growth of population, and its concentration in the cities, very soon made domestic agricultural output inadequate. As a result the price of grain was determined by the particularly high costs of transport which prevailed prior to the revolution in the means of transportation, and by the tariff which was then going into effect. Furthermore, even during the transition period, when good harvests made grain imports unnecessary, while bad ones increased them enormously, the landlords saw to it that through a system of export subsidies famine prices were periodically created, and the inelastic monetary system of England had the effect of bringing about a monetary crisis in the wake of every increase in food prices. This whole system was quite contrary to the interests of industry; manufacturers had no reason to fear the import of foreign industrial products since their own enterprises were technically and economically far superior, and on the other hand, grain prices were the most important element in the 'price of labour', which itself played a part in the industrialists' cost prices that was all the more important because the organic composition of capital was still low and the share of living labour in the value of the total product was therefore relatively high. The openly avowed purpose of the English anti-tariff campaign was to reduce costs by making both raw materials and labour power cheaper.

Similarly, English industrial and commercial capital was greatly interested in encouraging free trade in other countries, but had little interest in the possession of colonies. To the extent that colonies served as markets for industrial products and for the purchase of raw materials, England had to face no competition worth mentioning so long as these areas remained under a regime of free trade. The campaign for an active colonial policy, which was very expensive, raised taxes, and weakened the parliamentary system at home, abated in face of free-trade propaganda. Nevertheless, the idea of abandoning the colonies remained a platonic demand of radical free traders. The most important of these colonies, India, was never regarded as a mere market; dominion over India assured a large and influential class of high incomes as a 'tribute for good government'. Moreover, in this important market 'security' was an essential condition of sales, and it was questionable whether the surrender of England's dominion might not revive old conflicts which would reduce its trading opportunities.

The commercial policy interests on the continent were entirely different. Here the principal champions of free trade were the agrarian suppliers of raw materials and the exporting landowners, because free trade would have enlarged the market for their own produce and lowered the price of imported industrial products. The interest of the industrialists, on the other hand, lay in the opposite direction. There was no question of a tariff on agricultural products, but the overwhelming English competition obstructed or retarded the development of indigenous industry. It was necessary first of all to overcome the difficulties of take-off, to master the obstacles created by the shortage of skilled workers, foreman and engineers, to close the technological gap, to create marketing organizations and promote the development of credit, to accelerate proletarianization by undermining the competitive position of the handicraft producers, and to dissolve the traditional peasant economy - in short to catch up with all the things which gave England her supremacy. In addition, there was a fiscal interest in tariff revenues, which at that time, when the system of indirect taxation was in its infancy, and the existence of a natural economy over large areas of the country posed insuperable obstacles to its extension, were far more important than they are today. The tariff revenues of the continental states, in so far as they came from duties levied on industrial products, were apparently not economically harmful during that period. It is true, of course, that the domestic consumer had to pay more for the product, say, of English industry by the amount of the tariff, but the difference flowed into the state treasury, whereas today the protective tariff not only pours money into the state treasury but also exacts enormous payments from domestic consumers and transfers them to industrialists and landowners. Conversely, the fiscal interest is now coming to the fore in England, because the tax system evolved to date can be perfected only with great difficulty and in the face of fierce resistance, given the present distribution of political power among the various classes. So far as their colonial possessions were concerned, the colonial powers also had to reckon in this case with the overwhelming power of English competition if ever they dismantled the protective tariff barriers and privileges.

Thus the tariff policies of the industrial classes in England and on the continent followed different directions, as a result of the industrial pre-eminence of English capitalism. The continental and American protective tariff systems were given a theoretical justification in the works of List and Carey. List's system is not a refutation of the theory of free trade as it was formulated, for instance, by Ricardo. It propounds an economic policy which would really make the free trade system feasible, by facilitating the development of a national industry for which that system would be appropriate. This was the only purpose which List's 'educational' tariffs were intended to serve, and he therefore proposed low tariffs designed to eliminate the disparity between England's superiority and Germany's backwardness, which would only be imposed for a limited period of time since his policy was intended ultimately to make tariffs unnecessary.

This tariff policy of developing capitalism is transformed into its opposite by the tariff policy of advanced capitalism. List's system was avowedly a system designed for backward capitalist countries. But here again the law of the heterogony of ends asserted itself. It was not free trade England, but the protectionist countries, Germany and the United States, which became the model states of capitalist development, if one takes as a yardstick the degree of centralization and concentration of capital (that is, the degree of development of cartels and trusts) and of the domination of industry by the banks - in short, the transformation of all capital into finance capital. In Germany the rapid rise of industry after the abolition of internal tariff barriers, and especially after the establishment of the empire, brought about a complete realignment of interests with respect to commercial policy. When the landowners stopped exporting agricultural products they became protectionist. The supporters of a protective tariff in industry made common cause with them, and it was precisely the representatives of heavy industry, particularly the iron industry, who clamoured for protection against the more powerful competition from England. This branch of industry had a high organic composition of capital and could easily bear the rise in food prices, which at that time was moderate, and the effects of which were being offset by nascent agricultural competition from America. On the other hand, industry suffered greatly as a result of the crisis. English competition was all the more difficult to meet because the German iron industry lagged far behind the English for natural and technical reasons, especially before the discovery of a method for removing phosphorus from pig-iron. In addition, it was precisely in the industries with a very high organic composition of capital and an exceptionally large component of fixed capital, that it was difficult to overcome the advantages of industries which had developed earlier elsewhere. A part of bank capital, which was intimately associated from an early stage - indeed from the very outset - with the development of heavy industry in Germany, also supported a policy of protective tariffs. The opponents of such a policy were those sectors of industrial capital which had invested in the export industries, and commercial capital. The victory of protectionism in 1879, however, marked the beginning of a change in the function of the tariff from an 'educational' tariff to a protective tariff for cartels.

There is no doubt that the exclusion of foreign competition gives an exceptional impetus to the formation of cartels. It does this directly in so far as a reduction in the number of competitors facilitates agreement among them; and indirectly, because the protective tariff, by its nature and origin - since it is at this stage of development in Europe and the USA the vehicle of the powerful capitalists of the raw materials and semi-finished goods industries - is as a rule more advantageous to these industries than to the export oriented finished goods industries, which had to compete on the world market with similar English products, the cost price of which had not been increased by tariffs. It was this circumstance which necessarily favoured the development of the industries engaged in the production of means of production, placing at their disposal all the capital they needed for their technical equipment, accelerating their advance to a higher organic composition of capital and at the same time their concentration and centralization, thus creating the prerequisites for their cartelization.

There was still another circumstance, stemming originally from the backwardness of German industrial development, which eventually became a cause of the organizational superiority of German industry as compared with that of England. English industry developed so to speak organically and gradually from small beginnings to its later greatness. The factory was an outgrowth of co-operation (simple division of labour) and manufacture, which first developed principally in the textile industry, an industry which required comparatively little capital. Organizationally it remained, for the most part, at the stage of individual ownership; the individual capitalist rather than the joint-stock company predominated, and capitalist wealth remained in the hands of individual industrial capitalists. There emerged gradually, but at an increasing pace, a class of wealthy industrial entrepreneurs, owning large capital resources, whose property consisted of their productive plant. Later on, when joint-stock companies acquired greater importance, especially with the development of large transport undertakings, it was mainly these large industrialists who became shareholders. It was industrial capital, in terms of both its origin and its ownership, which was invested in these companies. Like industrial and merchant capital, so too bank capital - and notably the capital used in share issuing activities - remained exclusively in the hands of individual capitalists, while the joint-stock banks only provided circulation credit and so acquired little influence upon industry. The bankers who specialized in share issues had equally little influence, since as a result of their activities they had ceased to be bankers and had become, at least to some extent, industrialists themselves. This predominance of capital accumulation in the hands of individual capitalists, one of the earlier and, as it were, organic features of English capitalism, was lacking both on the continent and in the United States. In addition the large sums flowing in from the colonies, especially India, and from the exploitation of England's trade monopoly, were also accumulated in the hands of individual capitalists; and this too was entirely absent in Germany and America.

Thus when the political obstacles to capitalist expansion were finally overcome in Germany by the customs union (Zollverein) and then by the establishment of the Empire, so that the way was clear for capitalism, it was obvious that capitalist development could not simply follow the English pattern. It was essential, indeed, to put every effort into establishing as the starting point the technical and economic stage already reached in the more advanced country. In Germany, however, there was lacking that accumulation of capital in the hands of individuals which was needed if production in the most highly developed industries were to be brought to the level already attained in England on the basis of individually owned enterprises. Hence the joint-stock company had to assume a new function in Germany, besides those which it had in common with English companies; namely, to become the instrument for raising the required capital which, as a result of the smaller scale of accumulation, neither individual capitalists nor the industrial capitalist class as a whole possessed. Whereas in England the joint-stock company, particularly in its early days, was essentially an association of wealthy capitalists, its task in Germany was also to provide industrialists with the capital they needed and to direct into their enterprises the money of other classes. This could not be accomplished through the direct issue of shares on the same scale as was possible through the services of the banks, in which all the idle money of the capitalists themselves, but also of other classes, was concentrated and could be made available to industry. The same cause which favoured the joint stock form of enterprise in industry was also responsible for the fact that the banks became joint-stock banks. Thus the German banks, from the very outset, had the task of providing German industrial companies with the capital they needed; they were the source of capital credit and not only of circulation credit. In Germany, therefore, and in a somewhat different way in the United States, the relation of banks to industry was necessarily, from the outset, quite different from that in England. Although this difference was due to the backward and belated capitalist development of Germany, the close connection between industrial and bank capital nevertheless became, in both Germany and America, an important factor in their advance toward a higher form of capitalist organization. This conjunction of a protective tariff policy with the financing of industry by the banks necessarily produced, in conditions of rapid industrial growth, those tendencies towards cartelization which themselves then created new groups which had a stake in protective tariffs, because the function of the tariff changed.

The purpose of the old protective tariff, aside from compensating for various natural disadvantages, was to accelerate the emergence of industry within the protected borders. It was intended to guard the developing domestic industry against the danger of being stifled or destroyed by overwhelming competition from a well developed foreign industry. It needed only to be high enough to offset the advantages of foreign industry, and in no circumstances could it be prohibitive because domestic industry could not yet satisfy the entire demand. Above all it was not regarded as permanent. Once it had fulfilled its 'educational' function, and domestic industry had developed to the stage where it could both satisfy domestic demand and begin to think about exports, the protective tariff lost its meaning. It became an obstacle to export promotion, since it induced other nations to adopt similar policies. Under a system of free competition, it would cease to raise prices when the protected domestic industry could satisfy domestic demand and begin to export goods. The price on the protected market would then necessarily be the same as the price on the world market, because the saving of freight charges to more distant foreign markets would make sales on the domestic market more profitable than those abroad and the output of industry would equal or exceed domestic demand. The protective tariff, therefore, was intended to be both moderate and temporary, simply to help an infant industry overcome its initial difficulties.

But matters are different in the age of capitalist monopolies. Today it is just the most powerful industries, with a high export potential, whose competitiveness on the world market is beyond doubt and which, according to the old theory, should have no further interest in protective tariffs, which support high tariffs. If we assume the maintenance of free competition a protective tariff loses its power to raise prices once domestic industry fully satisfies domestic demand. But the protective tariff for industry was one of the most effective means of promoting cartels, first by making foreign competition more difficult, and second, because cartels provided an opportunity to take advantage of the tariff margin even when industry had become capable of exporting. By restricting production quotas for domestic consumption the cartel eliminates competition on the domestic market. The suppression of competition sustains the effect of a protective tariff in raising prices even at a stage when production has long since outstripped domestic demand. Thus it becomes a prime interest of cartelized industry to make the protective tariff a permanent institution, which in the first place assures the continued existence of the cartel, and second, enables the cartel to sell its product on the domestic market at an extra profit. The amount of this extra profit is given by the difference between the domestic price and the price on the world market. This difference, however, depends upon the level of the tariff, and so efforts to raise tariffs have become just as unrestrained as those to increase profits. Cartelized industry has therefore a direct and supreme interest in the level of the protective tariff. The higher the tariff, the more the domestic price can be raised above the price on the world market; and so the 'educational' tariff has evolved into a high protective tariff. The protagonist of friendly agreements and advocate of the gradual reduction of tariffs has become a fanatical high tariff protectionist.

But the cartel does not only benefit from the protective tariff on its own products. As we know, the cartel price, other things being equal, is constrained by the rate of profit in other industries. For example, if the rate of profit of the machine tool industry is increased by a higher duty on imported machinery, the cartels in coal and iron production will be able to raise their prices and so appropriate for themselves part or all of the extra profit of the machine tool industry. Monopolistic combinations thus acquire an interest in tariff protection not only for their own products, but also for those of industries which use their products in a later stage of production.

The protective tariff thus provides the cartel with an extra profit over and above that which results from cartelization itself, and gives it the power to levy an indirect tax on the domestic population. This extra profit no longer originates in the surplus value produced by the workers employed by the cartels; nor is it a deduction from the profit of the other non-cartelized industries. It is a tribute exacted from the entire body of domestic consumers, and its incidence on the various strata of consumers - whether, and to what extent, it is a deduction from ground rent, from profit, or from wages - depends, as with any other indirect taxes imposed on industrial raw materials or consumer goods, upon the real power relations and upon the nature of the article which is made more expensive by the cartel tariff.

An increase in the price of sugar, for example, affects the mass of workers more severely than does an increase in the price of agricultural machinery or of bentwood furniture. But whatever the final outcome of these increases, the fact remains that a part of society's income is seized in this way for the benefit of cartelized industry, protected by tariffs, which is thereby enabled to accelerate enormously its accumulation of capital.

This way of increasing profits was bound to assume greater importance when it became impossible to raise the rate of profit by means of an increase in absolute surplus value, by extending the working day and depressing wages, as a result of the growing strength of labour organizations, which tended to produce a trend in the opposite direction. The fact that the introduction of a protective tariff for industrial goods was accompanied by increases in the duties on agricultural products, had little importance for the heavy industries. Since the organic composition of their capital is high the increased cost of labour power is not an excessive burden, their position in wage disputes is extraordinarily strong, and the modest rise in costs of production as a result of the agricultural tariffs is more than compensated by the extra profit derived from their own protective duties, provided they are high enough.

The increase in prices on the domestic market, however, tends to reduce the sales of cartelized products, and thus conflicts with the trend towards lowering costs by expanding the scale of production. This may well endanger the existence of cartels which have not yet become firmly established. The largest, best equipped concerns, for which the reduction of sales as a result of cartel policy is unacceptable, would renew the competitive struggle in order to destroy the weaker firms and take over their share of the market; and after the battle is over a still stronger cartel may emerge on a new basis. But if a cartel is already well established, it will try to compensate for the decline of the domestic market by increasing its exports, in order to continue production as before and if possible on an even larger scale. On the world market, of course, the cartel has to sell at world prices. If the cartel is efficient and capable of exporting - which is our assumption here - its real price of production (c + p) will correspond with the world market price. But a cartel is also in a position to sell below its production price, because it has obtained an extra profit, determined by the level of the protective tariff, from its sales on the domestic market. It is therefore able to use a part of this extra profit to expand its sales abroad by underselling its competitors. If it is successful it can then increase its output, reduce its costs, and thereby, since domestic prices remain unchanged, gain further extra profit. It can also achieve the same result by paying its domestic customers export subsidies out of the extra profit when they ship its products abroad. The maximum export subsidy in this case, given the size of the economic area and the volume of domestic consumption, is determined by the level of the tariff. When business conditions are good, the cartel will be able to set this subsidy much lower, or even eliminate it altogether, and in this way appropriate a part of the profits of prosperity which would otherwise have gone to its customers. In bad times even the full subsidy may perhaps be inadequate to compensate its customers for the losses resulting from the fall in prices on the world market. The history of cartels shows repeatedly how important it is for their continued existence that they should have the export trade in their hands, since otherwise they are continually threatened by a restriction of exports as a result of the failure to develop an adequate system of subsidies. With the development of export subsidies the function of the protective tariff has undergone a complete change, and indeed has turned into its opposite. From being a means of defence against the conquest of the domestic market by foreign industries it has become a means for the conquest of foreign markets by domestic industry. What was once a defensive weapon of the weak has become an offensive weapon in the hands of the powerful.

English free trade was certainly never regarded by its advocates as an economic policy to be followed by England alone. Indeed, a general extension of free trade was a major interest of English industry, assuring it of its monopoly on the world market. The protective tariff of other states meant a diminution of the marketing possibilities for English goods. There has been a change also in this respect today because capital has found a way of surmounting this obstacle. The introduction or raising of the tariff in another country means indeed, as always, a decline in the marketing opportunities of the country which exports to it, and hence an obstacle to the industrial development of the latter. But the protective tariff also means extra profit in the former country, and this becomes an inducement for other countries to transfer the production of commodities, rather than the commodities themselves, to the foreign country. As long as capitalism was still not fully developed such opportunities were relatively limited, partly because state legislation at that time intervened obstructively, and partly because the economic prerequisites for capitalist production were still inadequate. The lack of public order, the shortage of labour, especially skilled labour, constituted obstacles which could only be overcome slowly and by degrees, and made the transfer of capital extraordinarily difficult. But today these obstacles have, for the most part, been eliminated, and so it has become possible for capital in a developed country to overcome the harmful effects of a protective tariff on the rate of profit by means of the export of capital.

22. The export of capital and the struggle for economic territory

Whereas on one side the generalization of the protective tariff system tends increasingly to divide the world market into distinct economic territories of nation states, on the other side the development towards finance capital enhances the importance of the size of the economic territory. This has always been extremely important for the development of capitalist production. The larger and more populous the economic territory, the larger the individual plant can be, the lower the costs of production, and the greater the degree of specialization within the plant, which also reduces costs of production. The larger the economic territory, the more easily can industry be located where the natural conditions are most favourable and the productivity of labour is highest. The more extensive the territory, the more diversified is production and the more probable it is that the various branches of production will complement one another and that transport costs on imports from abroad will be saved. Interruptions of production resulting from changes in demand or from natural catastrophes are more easily compensated in a larger territory. There can be no doubt, therefore, that at an advanced' stage of capitalist production free trade, which would amalgamate the whole world market into a single economic territory, would ensure the highest possible labour productivity and the most rational international division of labour. But even with free trade industry enjoys certain advantages in its own national market, because of its familiarity with the customs of the country and consumer habits, which makes for an easier relationship with its customers; and above all because of its proximity to the market and the consequent saving in transport costs. All these advantages are, of course, increased by protectionist measures. For a foreign industry, on the other hand, various obstacles arise from the differences of language, law, currency, etc. A protective tariff, however, greatly increases the disadvantages of a smaller economic territory by impeding exports, thus limiting the size of firms, discouraging specialization, and so raising costs of production, which are also raised by the impediments placed in the way of a rational international division of labour. It is above all the size of its economic territory, which permits an extraordinary degree of specialization within plants, that accounts for the rapid industrial development of the United States, even under a regime of protective tariffs. At an advanced stage of capitalist production (that is to say, after the 'educational' tariff has done its work) a state will be more strongly inclined toward free trade the smaller its economic territory. Hence the strong free trade interests of Belgium. Furthermore, the smaller the territory, the more one-sided is the distribution of the natural prerequisites of production, and therefore the smaller the number of branches of industry which it will be able to develop and the greater the interest in importing from abroad those commodities for the production of which its own territory is less suited.

On the other hand, a protective tariff means a constriction of the economic territory, and hence an interference with the development of the productive forces, since it reduces the size of industrial plants, discourages specialization, and impedes, finally, that international division of labour which brings about a flow of capital into those branches of production for which a given country is best suited. This is all the more important in the case of the modern high protective tariff since the tariff rates are frequently fixed less out of regard for the technical conditions of production which prevail in particular branches of production, than as the outcome of a political struggle for power among various industrial groups whose influence upon the state ultimately determines the tariff structure. But although the tariff is a brake upon the development of the productive forces, and hence of industry, it means for the capitalist class a direct increase in its profits. Above all, free trade hampers cartelization, and deprives industries which are capable of being cartelized of their monopoly of the domestic market, if that monopoly is not already assured by protected freight rates (as in the case of coal) or by a natural monopoly (as in the case of German potash production). But then the extra profits which flow from the use of the cartel's protective tariff come to an end.

It is true, of course, that monopolization also progresses even without a protective tariff. But the pace is slowed down, the cartels do not become as firmly established, and there is a danger that international cartels will meet with resistance because they will immediately be regarded as alien forces of exploitation. On the other hand, a protective tariff assures the cartel of the national market and gives it much greater stability, not only by excluding competition, but also because the possibilities for making use of the tariff are a direct incentive to the consolidation of cartelization. International cartelization too, although it would develop eventually on the basis of a much more advanced concentration of capital, even under a free trade system, is accelerated by protective tariffs, which facilitate especially the formation of the type of cartel based upon the allocation of markets, and upon price agreements, since it is not a matter of combining isolated producers on the world market, as would be the case if a free trade regime prevailed, but of combining national cartels which are already well established. The protective tariff establishes the individual cartels as the contracting parties, and thus greatly reduces the number of participants. It also prepares the basis for agreement by reserving the national markets from the outset for the respective national cartels. But the more markets there are which exclude competition by a protective tariff, and are thus reserved for their respective national cartels, the easier it is to reach agreement about free markets, and the more firmly established will be the international arrangements, since if they broke down this would not give outsiders the same prospect of competing successfully as would a free trade regime.

Hence there are two opposed tendencies at work here. On the one hand the protective tariff has become an offensive weapon which the cartels employ in the competitive struggle, thus intensifying the price war, while at the same time they seek to strengthen their competitive position by recourse to the machinery of the state and to diplomatic intervention. On the other hand the protective tariff gives greater stability to the national cartels and so facilitates the conclusion of inter-cartel arrangements. The net result of these two tendencies is that these international agreements represent a kind of truce rather than an enduring community of interest, since every change in the tariff defences, every variation in the market relations between states, alters the basis of the agreement and makes necessary the conclusion of new contracts. More solid structures can only emerge when either free trade more or less eliminates the national barriers, or the basis of the cartel is not the protective tariff but primarily a natural monopoly, as in the case of petroleum.

At the same time cartelization greatly enhances the direct importance of the size of the economic territory for the level of profit. As we have seen, the protective tariff brings the capitalist monopoly an extra profit on its sales in the domestic market. The larger the economic territory, the greater the volume of domestic sales (think, for example, of the proportion of steel output which is exported by Belgium and the United States respectively) and the larger therefore the cartel's profits. The greater this profit, the higher the export subsidies can be, and the stronger therefore is the cartel's competitive position on the world market. Along with the more active intervention in world politics occasioned by the passion for colonies, there has also emerged the desire to extend as much as possible the economic territory, surrounded by a wall of protective tariffs.

In so far as the protective tariff has adverse effects on the rate of profit, the cartel seeks to overcome them by means which the tariff system itself provides. In the first place the development of export subsidies, which have been called into existence by tariff protection, enables the cartel to surmount, at least in part, the tariff barriers of other countries and thus, to some extent, avoid any reduction of output. And this will be all the easier the larger the volume of domestic output, subsidized by its own protective tariffs. This again does not promote an interest in free trade, but rather in the expansion of its own economic territory and in raising tariff rates. Should these means prove ineffective, however, the alternative is to export capital in the form of factories built abroad. A branch of industry which is menaced by the protective tariffs of foreign countries now makes use of these tariffs for its own purposes by transferring part of its production abroad. If this prevents the expansion of the parent concern and excludes the possibility of increasing the rate of profit by reducing costs of production, it is compensated by the increased profit which the same owners of capital receive from the increase in the price of the goods which they now produce abroad. Thus the export of capital, which receives a powerful stimulus from the protective tariff at home in one way, is also promoted by the protective tariff of other countries, and contributes to the penetration of capital into all parts of the world and the internationalization of capital.

In this way the effect of the falling rate of profit, brought about by the restriction of productivity as a result of the modern protective tariff, is cancelled out. From the standpoint of capital free trade thus appears superfluous and harmful; and it seeks to overcome the restriction of productivity resulting from the contraction of the economic territory, not by conversion to free trade, but by expanding its own economic territory and promoting the export of capital.

While modern protective tariff policy intensifies the ever-present drive of capital towards a constant expansion of its territory, the concentration of all idle money capital in the hands of the banks leads to a planned organization of capital exports. The linking of the banks with industry allows them to attach to the provision of money capital the condition that this particular capital will be used in this particular industry. In this way the export of capital in all its forms is enormously accelerated.

By 'export of capital' I mean the export of value which is intended to breed surplus value abroad. It is essential from this point of view that the surplus value should remain at the disposal of the domestic capital. If, for example, a German capitalist were to emigrate to Canada with his capital, become a producer there and never return home, that would constitute a loss for German capital, a denationalization of the capital. It would not be an export of capital but a transfer of capital, constituting a deduction from the domestic capital and an addition to the foreign capital. Only if the capital used abroad remains at the disposal of domestic capital, and the surplus value produced by this capital can be utilized by the domestic capitalists, can we speak of capital export. The capital then figures as an item in the national balance sheet and the surplus value produced each year as an item in the national balance of payments. The export of capital reduces pro tan to the domestic stock of capital and increases the national income by the amount of surplus value produced.

The joint-stock company and a highly developed credit system encourage the export of capital and change its character, in so far as they enable capital to migrate out of a country detached from the entrepreneur; ownership then remains for a much longer time, or even permanently, with the capital-exporting country, and the nationalization of capital is made more difficult. Where capital is exported for the purpose of agricultural production nationalization usually occurs more rapidly, as is shown particularly by the example of the United States.

From the standpoint of the exporting country the export of capital can take place in two different forms: it can migrate abroad either as interest-bearing or as profit-yielding capital. In the latter form, it may function as industrial, commercial, or bank capital. From the standpoint of the capital-importing country, a further consideration is what part of the surplus value is used to pay interest. Interest which has to be paid on mortgage bonds held by foreigners involves sending part of the ground rent abroad, whereas interest on the debentures of industrial enterprises represents an outflow of part of the industrial profit.

As European capital has advanced to the stage of finance capital it has frequently begun to migrate abroad in this form. Thus a large German bank establishes a branch abroad, which then negotiates a loan the proceeds of which are used to construct an electrical generating plant, and the construction work is assigned to an electrical company which is connected with the bank at home. Or the process may be simplified further, and the foreign branch of the bank establishes an industrial enterprise abroad, issues the shares at home, and orders raw materials, etc., from enterprises which are connected with the parent bank. Such transactions attain their largest scale when state loans are used for obtaining industrial supplies. It is the intimate connection between bank and industrial capital which is responsible for the rapid development of capital exports.

The precondition for the export of capital is the variation in rates of profit, and the export of capital is the means of equalizing national rates of profit. The level of profit depends upon the organic composition of capital, that is to say, upon the degree of capitalist development. The more advanced it is the lower will be the average rate of profit. Besides this general factor, which is less significant here because we are concerned with commodities on the world market where prices are determined by the most advanced methods of production, we must also consider some more specific factors. So pr as the rate of interest is concerned it is much higher in undeveloped capitalist countries, which lack extensive credit and banking facilities, than in advanced capitalist countries. Furthermore, interest in such countries still includes for the most part an element of wages or entrepreneurial profit. The high rate of interest is a direct inducement to the export of loan capital. Entrepreneurial profit is also higher because labour power is exceptionally cheap, and what it lacks in quality is made up by unusually long hours of work. In addition, since ground rent is very low or purely nominal, owing to the large amount of free land resulting either from the bounty of nature or from the forcible expropriation of the native population, costs of production are low. Finally, profits are swelled by special privileges and monopolies. Where products are involved for which the new market itself provides an outlet very high extra profits are also realized, since in this case commodities produced by capitalist methods enter into competition with handicraft production.

But no matter how the export of capital takes place, it always means that the capacity of the foreign market to absorb it is growing. In the past the capacity of foreign markets was an obstacle limiting the volume of European industrial products which could be exported. Their ability to consume was limited to the surpluses which they had available from their natural economy, or in any case undeveloped system of production, which could not increase its output rapidly, and still less be transformed quickly into a system of production for the market. It is understandable, therefore, that English capitalist production, with its enormous versatility and capacity for expansion, very quickly met the needs of the newly-opened markets, and even exceeded them, so that in due course there was overproduction in the textile industry. On the other hand, however, England's capacity to consume the specific products of these newly opened markets was limited, even though it was, of course, very much greater in quantitative terms than that of other foreign markets. But the crucial factor here was the qualitative nature, the use value of the products, which such foreign markets could send back in exchange for the English commodities. In so far as it was a matter of specialized luxury articles, 'consumption in England was limited, while on the other hand the textile industry was striving to expand as rapidly as possible. The export of textile products, however, increased the import of colonial products intended for luxury consumption, whereas the rapid expansion of textile production required the accumulation of profit at an increasing rate rather than its consumption through spending on luxury products. The result was that every opening of new foreign markets by England ended in a crisis, initiated on the one hand by a fall in the price of textile products abroad, and on the other by a collapse of the price of colonial products in England. Every history of English crises shows the importance of these special causes of such crises. It is worth noting how carefully Tooke follows the prices of colonial products, and how regularly the earlier industrial crises are accompanied by a complete collapse of these branches of commerce. The situation first begins to change with the development of the modern transport system, which shifts the main emphasis to the iron industry, while simultaneously transactions with the newly opened markets move increasingly towards capital exports rather than mere trade in commodities.

The export of capital in the form of loans itself greatly enlarges the capacity of the newly opened markets to absorb imports. If we assume that a newly opened market is able to export £1,000,000 in commodities, then its capacity to absorb imports - given equal exchange - would also be £1,000,000. But if this sum of value is exported to the country, not in the form of commodities but as loan capital (say in the form of a state loan), then the value of £1,000,000 which the new market can obtain by exporting its surplus will not serve to exchange commodities but to pay interest on capital. It is therefore possible to export to that country a sum of value amounting not to £1,000,000 but say £10,000,000 if it is sent there as capital at 10 per cent interest, or £20,000,000 if the rate of interest is lowered to 5 per cent. This example also shows the great significance of a fall in the rate of interest for the capacity of a market to expand. Keen competition among foreign loan capitals tends to reduce the rate of interest very quickly even in backward countries and thus to increase the opportunities for capital exports. Far more significant, however, than the export of capital in the form of loan capital is the effect produced by the export of industrial capital, and this is why the latter is growing in importance. For the transfer of capitalist production to a foreign market liberates it completely from the limitations of its own domestic capacity to consume. The yield of this new production ensures the valorization of the capital. But the newly-opened market is by no means the only sales outlet; indeed capital in these new territories turns towards branches of production which can be sure of sales on the world market. Capitalist development in South Africa, for example, is quite independent of the capacity of the South African market, since the principal branch of production, the working of the gold mines, has a practically unlimited market for its product, and depends only upon the natural conditions for increasing the exploitation of the gold mines and the availability of an adequate work force. Similarly, the working of copper mines is independent of the capacity of the market in the colony itself, whereas consumer goods industries which must sell most of their output in the new market itself very soon find their growth restricted by the limitations on the capacity to consume.

In this way the export of capital extends the limits arising from the new market's capacity to consume. At the same time the introduction of capitalist methods of transport and production into the foreign country brings about rapid economic development, the emergence of a larger internal market through the dissolution of the natural economy, the expansion of production for the market, and hence an increase in the volume of those products which can be exported and thus serve to pay interest on newly imported capital. While at one time colonies and new markets were established mainly to provide new articles of consumption, new capital investment is now directed principally to branches of production which provide raw materials for industry. As domestic industry, which supplies the requirements of capital export, grows, so the exported capital is applied to the production of raw materials for this industry. In this way the products of the exported capital find a market in the home country, and the narrow sphere in which production moved in England undergoes a great expansion as domestic industry and the products of exported capital nourish each other.

We know, moreover, that the opening of new markets is an important factor in bringing an industrial depression to an end, in prolonging a period of prosperity, and in moderating the effects of crises. The export of capital accelerates the opening up of foreign countries and promotes the maximum development of their productive forces. At the same time it increases domestic production, which has to supply the commodities that are exported abroad as capital. Thus it becomes a very powerful impetus to capitalist production, which enters upon a new period of Sturm und Drang (storm and stress) as the export of capital becomes general, during which it seems to be the case that the cycle of prosperity and depression has been shortened and crises have become less severe. The rapid increase in production also brings about an increased demand for labour power which is advantageous to the trade unions, and the tendencies towards pauperization inherent in capitalism appear to be overcome in the advanced capitalist countries. The rapid rise in production inhibits a conscious awareness of the ills of capitalist society and generates an optimistic view of its viability.

The speed with which colonies and new markets are opened up today depends essentially upon their capacity to serve as outlets for capital investment. This capacity is all the greater the richer the colony is in products which can be produced by capitalist methods, have an assured sale on the world market, and are important to industry in the home country. The rapid expansion of capitalism since 1895 has brought about a price increase especially in metals and cotton, and has thereby intensified the drive to open up new sources of these vital raw materials. Hence export capital seeks its sphere of activity principally in regions capable of producing such materials, and is drawn to those sectors, especially mining, which can at once be run on capitalist lines. As a result of this production the surplus which the colony can export is again increased, and this makes possible new capital investments. In this way the tempo of capitalist development in new markets is greatly accelerated. The obstacle to opening up a new country is not the lack of indigenous capital, since this is eliminated by the import of capital, but in most cases quite another disruptive factor; namely, the shortage of 'free', that is to say wage, labour. The labour problem assumes an acute form, and seems to be capable of resolution only by the use of force.

As has always been the case, when capital first encounters conditions which contradict its need for valorization, and could only be overcome much too slowly and gradually by purely economic means, it has recourse to the power of the state and uses it for forcible expropriation in order to create the required free wage proletariat. In the early days of capitalism this was the fate of the European peasants and of the Indians of Mexico and Peru, and today the same is happening to the Negroes of Africa. These violent methods are of the essence of colonial policy, without which it would lose its capitalist rationale. They are just as much an integral part of it as the existence of a propertyless proletariat is a conditio sine qua non of capitalism in general. The idea of pursuing a colonial policy without having to resort to its violent methods is an illusion to be taken no more seriously than that of abolishing the proletariat while maintaining capitalism in existence.

There are diverse methods of obtaining forced labour. The principal means is the expropriation of the natives, who are deprived of their land and hence of the very basis of their previous existence. The land is turned over to the conquerors, and there is an increasing tendency to give it not to individual settlers, but to large land companies. This is particularly the case when the exploitation of mineral products is involved. Here, in accordance with the methods of primitive accumulation, there is an instant creation of capitalist wealth in the hands of a few capitalist magnates, while the small settlers are left with nothing. One need only recall the enormous wealth which came to be concentrated in this way in the hands of the groups owning the gold and diamond mines of British South Africa, and on a lesser scale, in the hands of the German colonial companies in South West Africa which are closely linked with the large banks. This expropriation creates at the same time, out of the native population 'liberated' from their land, a proletariat which is bound to become a helpless object of exploitation. Expropriation itself is made possible initially by the resistance which the demands of the conquerors quite naturally provoked among the native population. The violent actions of the settlers themselves generate the conflicts which make necessary the intervention of the state, which then ensures that a thorough job is made of it. The quest of capital for unresisting objects of exploitation becomes the concern of the state, in the form of 'pacification' of the area, for the attainment of which the entire nation, and in the first place the proletarian soldiers and taxpayers of the mother country, has to assume responsibility.

Where expropriation does not succeed immediately in such a radical way, the same end is achieved by the introduction of a system of taxation which requires the natives to make money payments on such a scale that they can only be met by incessant labour in the service of foreign capital. This education for labour has attained perfection in the Belgian Congo, where the methods of capitalist accumulation include not only oppressive taxes, but also chronic violence of the most infamous kind, fraud, and deception. Slavery is reinstated as an economic ideal, and along with it that spirit of brutality which is then transferred back from the colonies to the champions of colonial interests at home and celebrates here its disgusting orgies.

If the native population does not suffice to produce the desired volume of surplus value, either because excessive zeal in expropriating them has deprived them of their lives as well as their land, or because the population is in any case small, or the natives are not sufficiently robust, capital attempts to solve the labour problem by introducing foreign labour. The import of coolie labour is organized, and an ingenious system of contract slavery is devised to ensure that the laws of supply and demand do not exert any undesirable effects on the labour market. Of course, this does not provide capital with a definitive solution of the labour problem. The introduction of coolie labour encounters increasingly strong opposition from white workers in all countries where there is room for white wage labour. At the same time it also appears dangerous to the ruling circles where European colonial policy comes into conflict with the growing expansionist ambitions of Japan, which are bound to be followed in the near future by those of China itself.

If the introduction of yellow-skinned workers is thus restricted, the chances of expanding the area of employment for white labour are still more limited. The process in which the development of capitalism freed workers for industrial employment has largely come to an end in Europe. Indeed, the rapid expansion of capitalism in the most advanced countries has to some extent, during this period of storm and stress, produced a counter tendency.

Thus German capitalism, during the last two periods of prosperity, encountered a labour shortage and had to provide the necessary recruits to the industrial reserve army by encouraging immigration. American capitalism has also had to resort to immigrants, on an even larger scale, whereas the slowing down of development in England is manifested in mounting unemployment. Hence the source of emigration from Europe has become confined to south and south-east Europe and to Russia, while at the same time the demand for wage labour has increased enormously as a result of rapid economic growth.

Those states which exclude Asiatic immigrants for social or political reasons find their development hampered by the limited size of the working population ; and this obstacle is most difficult to overcome precisely in those regions where the prospects for capitalist development are best, as for example in Canada and Australia. In these regions, moreover, which have vast tracts of free land, the expansion of agriculture also requires a rapidly growing additional population, and this works strongly against the emergence of a propertyless proletariat. The rate of natural increase of the population in these territories, however, is generally extremely low. But even in the most advanced European countries the rate of population growth is steadily declining, thus diminishing the surplus population available for emigration.

This diminished rate of growth, however, is occurring precisely in those countries which are of great importance for increasing the output of agricultural products, such as Canada, Australia and Argentina; and it results in a tendency towards rising prices for agricultural products, which becomes steadily more pronounced in spite of the inherently great potentialities for increasing agricultural production.

But the limit imposed by population size is never more than relative. It explains why capitalist expansion is not more tempestuous, but it does not in any way halt that expansion. Besides, it carries within itself its own remedy. Leaving aside the introduction of free wage labour or forced labour in the colonial territories proper, and the relative (periodic) unemployment of white workers which emerges continually in the capitalist mother countries as a result of technological progress and may become absolute (permanent) unemployment if the rate of expansion slows down, a more severe restriction of capitalist expansion in the colonial regions where there are white workers would have as a consequence that capitalism would turn increasingly to the still backward agrarian regions of Europe itself, surmounting the political barriers which stand in its way. In this way it would open up new regions where its introduction, by destroying rural domestic industry and setting free a large part of the agrarian population, would provide the material for increased emigration.

Since the new markets are no longer simply outlets for goods, but also spheres for the investment of capital, this has also brought about a change in the political behaviour of the capital-exporting countries. Trade alone, so far as it was not colonial trade which has always been associated with robbery and plunder, but comprised trade with relatively advanced white or yellow peoples who were capable of resistance, for a long time left the social and political relations in these countries basically undisturbed, and confined itself to economic relations. So long as there exists a state power which is capable of maintaining some kind of order, direct rule over these areas is less important. All this changes when the export of capital becomes predominant, for much more substantial interests are then at stake. The risks involved in building railways, acquiring land, constructing harbours, opening and operating mines, in a foreign country, are much greater than in the mere buying and selling of goods.

The backwardness of the legal system thus becomes an obstacle, and finance capital demands ever more insistently that it should be removed, even if that has to be done by force. This leads to increasingly acute conflicts between the advanced capitalist states and the state authorities of the backward areas, and to ever more pressing attempts to impose upon these countries legal systems appropriate to capitalism, regardless of whether the existing rulers are retained or destroyed. At the same time the competition for the newly-opened spheres of investment produces further clashes and conflicts among the advanced capitalist states themselves. In the newly-opened countries themselves, however, the introduction of capitalism intensifies contradictions and arouses growing resistance to the invaders among the people, whose national consciousness has been awakened, which can easily take the form of policies inimical to foreign capital. The old social relations are completely revolutionized, the age-old bondage to the soil of the 'nations without a history' is disrupted and they are swept into the capitalist maelstrom. Capitalism itself gradually provides the subjected people with the ways and means for their own liberation. They adopt as their own the ideal that was once the highest aspiration of the European nations; namely, the formation of a unified national state as an instrument of economic and cultural freedom. This independence movement threatens European capital precisely in its most valuable and promising areas of exploitation, and to an increasing extent it can only maintain its domination by continually expanding its means of coercion.

This explains why all capitalists with interests in foreign countries call for a strong state whose authority will protect their interests even in the most remote corners of the globe, and for showing the national flag everywhere so that the flag of trade can also be planted everywhere. Export capital feels most comfortable, however, when its own state is in complete control of the new territory, for capital exports from other countries are then excluded, it enjoys a privileged position, and its profits are more or less guaranteed by the state. Thus the export of capital also encourages an imperialist policy.

The export of capital, especially since it has assumed the form of industrial and finance capital, has enormously accelerated the overthrow of all the old social relations, and the involvement of the whole world in capitalism. Capitalist development did not take place independently in each individual country, but instead capitalist relations of production and exploitation were imported along with capital from abroad, and indeed imported at the level already attained in the most advanced country. Just as a newly established industry today does not develop from handicraft beginnings and techniques into a modern giant concern, but is established from the outset as an advanced capitalist enterprise, so capitalism is now imported into a new country in its most advanced form and exerts its revolutionary effects far more strongly and in a much shorter time than was the case, for instance, in the capitalist development of Holland and England.

The revolution in transport is a milestone in the history of capital exports. Railways and steamships in themselves are immensely important to capitalism because they reduce the turnover time. This releases circulation capital and then raises the rate of profit. The reduction in the price of raw materials lowers costs and increases consumption. Thus it is the railways and steamships which first create those large economic territories that make possible the giant modern concerns with their mass production. But above all the railways were the most important means of opening up foreign markets. Without them, it would have been impossible to distribute the products of these countries in such vast quantities throughout Europe and to expand the market so rapidly into a world market. Even more important, however, is the fact that the export of capital now became necessary on a vast scale in order to construct these railways, which have been built almost entirely with European, particularly English, capital.

The export of capital was, however, an English monopoly, and it secured for England the domination of the world market. Neither industrially nor financially had England any reason to fear competition from other countries, and so the freedom of the market remained its ideal. Conversely, England's supremacy necessarily made all other states even more determined to maintain and extend their rule over territories which they had already acquired, so that at least within their own borders they would be protected against the overwhelming competition of England.

The situation changed when England's monopoly was broken and English capitalism, which as a result of free trade had never been effectively organized, had to meet the superior competition of America and Germany. The development of finance capital created in these states a powerful drive towards the export of capital. As we have seen, the development of joint-stock companies and cartels generates promoter's profits which flow into the banks as capital seeking application. In addition, the protective tariff system restricts domestic consumption and makes it essential to promote exports. At the same time the export subsidies which are made possible by cartel tariffs provide a means for competing vigorously with England in neutral markets, and this competition is all the more dangerous because the newer large-scale industry of these countries is to some extent technically superior to that of England as a result of its more modern equipment. Export subsidies having become an important weapon in the international competitive struggle, they are all the more effective the larger they are. Their size depends upon the level of tariffs, and raising this level thus becomes a prime interest of the capitalist class in every nation. No one can afford to lag behind in this respect. A protective tariff in one country makes it essential for others to follow suit, and this is all the more certain to happen the more advanced capitalism is in this country and the more powerful and widespread its capitalist monopolies. The level of the protective tariff thus becomes the decisive factor in the international competitive struggle. If it is raised in one country, others must necessarily do the same if they are not to suffer from adverse conditions of competition and to be beaten on the world market. Thus the industrial tariff too becomes what the agrarian tariff is by its very nature, an endless spiral.

But the competitive struggle, which can only be waged by reducing the price of commodities, always threatens to bring losses or at least not to produce an average rate of profit, so that here too the elimination of competition has become the ideal of the large capitalist combines. All the more so because, as we have seen, exports have become an urgent necessity for them under any circumstances, as a result of technological conditions which make imperative the largest possible scale of production. But competition rules on the world market, and there is no alternative but to replace one type of competition by a less dangerous one; to substitute for competition on the commodity market, where the price of the commodity is the only determining factor, competition on the capital market in the provision of loan capital on condition that any loan will subsequently be used for obtaining goods from the country making it. The export of capital has now become a means of ensuring that the capital-exporting country will be the supplier of industrial goods. The customer has no choice; he becomes a debtor and hence a dependent who must accept the conditions imposed by his creditor. Serbia can obtain a loan from Austria, Germany or France only if it undertakes to buy its guns or its rolling-stock from Skoda, Krupp or Schneider. The struggle for markets for goods becomes a conflict among national banking groups over spheres of investment for loan capital, and since rates of interest tend to be equalized on the international market, economic competition is confined here within relatively narrow limits, so that the economic struggle quickly becomes a power struggle in which political weapons are employed.

From an economic standpoint the older capitalist states still retain an advantage in these conflicts. England possesses an old capital-satiated industry which was originally adapted to the needs of the world market in the days of England's monopoly and now develops more slowly than German or American industry, lacking their capacity for rapid expansion. On the other hand, its accumulated capital is extraordinarily large, and vast amounts of profit available for accumulation flow steadily back to England from its overseas investments. The proportion of the accumulated masses of capital to the volume of capital which can be invested internally is at its highest here, which explains why the pressure to invest capital abroad is strongest and the rate of interest lowest in England. The same situation had emerged in France for different reasons. Here also there is a store of old accumulated wealth which is centralized by the banking system (though it is somewhat less concentrated as a result of the property system in France) together with a steady flow of income from foreign investments, and on the other side a stagnation of industrial growth at home; hence a powerful tendency to export capital. The advantage which England and France enjoy can only be made effective politically through strong diplomatic pressure, which is a dangerous, and therefore limited, means, or else economically, by making sacrifices in respect of prices, which would outweigh a possible rise in the rate of interest.

But the intensity of competition arouses a desire to eliminate it altogether. The simplest way of achieving this is to incorporate parts of the world market into the national market, through a colonial policy which involves the annexation of foreign territories. Thus, while free trade was indifferent to colonies, protectionism leads directly to a more active colonial policy, and to conflicts of interest between different states.

Another factor works in the same direction. From a purely quantitative point of view it is more advantageous for a country to export its capital in profit-yielding rather than interest-bearing form, because the profit is greater than the interest. Furthermore, if the exporting capitalists invest their capital as industrial capital, they retain a more direct control over its disposal and use. English capital invested in American railway bonds, that is to say, as interest-bearing capital, has a negligible influence on the American railway barons, whereas its influence is decisive when the industrial enterprise itself is operated with English capital. Today, however, the principal exporters of industrial capital are the cartels and trusts, and this for various reasons. In the first place they are strongest in the heavy industries where, as we have seen, the pressure to export capital is greatest in the search for new markets to absorb their massively increasing output. The major interest of these monopolistic heavy industries is the construction of railways, the exploitation of mines, the growth of the armaments of foreign states, the installation of electricity-generating stations. Behind them stand the large banks which are most closely connected with these branches of industry. Moreover, while the drive to increase production is very strong in the cartelized industries, high cartel prices preclude any growth of the domestic market, so that expansion abroad offers the best chance of meeting the need to increase output. The cartels, thanks to their extra profits, always have at their disposal sums of capital available for accumulation, which they prefer to invest in their own branches of industry where the rate of profit is highest. The link between the banks and industry is also closest here, and the possibility of promoter's profit through the issue of shares in these enterprises becomes a powerful inducement to export capital.

So today we see the strongest drive towards the export of industrial capital in those countries which have the most advanced organization of industry, namely, Germany and the United States. This explains the peculiar circumstance that these countries on the one hand export capital, and on the other hand also import a part of the capital required for their own economies from abroad. They export primarily industrial capital and so expand their own industry, while obtaining their working capital, to some extent, in the form of loan capital from countries with a slower rate of industrial development but greater accumulated capital wealth. In this way they not only gain from the difference between the industrial profit which they make in foreign markets and the much lower rate of interest which they have to pay on the capital borrowed in England or France, but also ensure, through this kind of capital export, the more rapid growth of their own industry. Thus the United States exports industrial capital to South America on a very large scale, while at the same time importing loan capital from England, Holland, France, etc., in the form of bonds and debentures, as working capital for its own industry. In this respect too, therefore, cartelization and trustification, by promoting the export of capital, give an advantage to the capitalists of a country with the most highly monopolized industries over countries whose industries are less well organized, thus arousing in the latter a determination to accelerate the cartelization of their own industries by means of a protective tariff, and at the same time strengthening the resolve of the most advanced countries to maintain the export of capital under all circumstances by excluding any kind of competition from foreign capital.

If capital export in its most advanced form is undertaken by those sectors of capital in which concentration is most advanced, this in turn accelerates the growth of their power and their accumulation of capital. It is the largest banks and the largest branches of industry which succeed in obtaining for themselves the best conditions for the valorization of their capital in foreign markets, and acquire the rich extra profits in which lesser capitals cannot even dream of participating.

The policy of finance capital has three objectives: (1) to establish the largest possible economic territory; (2) to close this territory to foreign competition by a wall of protective tariffs, and consequently (3) to reserve it as an area of exploitation for the national monopolistic combinations. Such aims, however, were bound to come into the sharpest possible conflict with the economic policy which industrial capital carried to a state of classic perfection during its period of absolute rule (in the double sense that commercial and bank capital were subordinated to it, and that it had absolute control of the world market) in England. All the more so since the application of this policy of finance capital in other countries has also increasingly threatened the interests of English industrial capital. Indeed, the country of free trade was the natural target for attack by foreign competition, though of course 'dumping' also has certain advantages for English industry. The processing industry obtained cheaper raw materials as a result of cut-throat competition. But on the other hand this also hurt the raw material industries, and so, as cartelization advanced, as more stages of production were integrated, and as the system of export subsidies was extended, the hour was bound to strike for those English industries which had hitherto profited from 'dumping'. The most important factor, however, is that the tariff opens up the prospect of an era of rapid monopolization with its opportunities for extra profits and promoter's profits, which are a great enticement to English capital.

On the other hand, it would be entirely possible for England to enter into a customs union with her colonies. Most of the self-governing colonies are important primarily as suppliers of raw materials to England and purchasers of industrial products. The protective tariff policy adopted by other states, especially in agriculture, has in any case made England the principal market for the colonies. In so far as English industry could impede the development of their own industries these countries (in the British Empire) are still at the stage of the 'educational' tariff, that is to say at a stage which cannot tolerate a rise in tariffs above a certain level because importation of foreign industrial products is still absolutely essential to supply their own market. It would be quite easy, therefore, to establish a higher cartel tariff for the British Empire as a whole, while retaining the `educational' tariffs within the empire; and the prospect of establishing such an economic territory, which would be strong enough both politically and economically to counter the expulsion of British industries as a result of other states raising their tariffs, is capable of uniting the whole capitalist class. Furthermore, by far the greater part of the capital used in the colonies is owned by English capitalists, for whom an imperial tariff is much more important than the larger increase that an independent colonial tariff would bring.

The United States is in itself a sufficiently large economic territory even in the age of imperialism, and the direction of its expansion is determined by geography. The Pan-American movement, which found its initial political expression in the Monroe Doctrine, is still in its beginnings and has immense potentialities because of the enormous predominance of the United States.

Things are different in Europe, where the division into independent states has given rise to conflicting economic interests, the elimination of which by means of a Central European customs union encounters very serious obstacles. Here, unlike the British Empire, it is not a matter of mutually complementary parts but of more or less identical, and hence competing, entities confronting each other in hostile fashion.

This hostility, however, is greatly increased by the economic policy of finance capital, as a result of which the antagonisms no longer arise from the efforts to establish unified economic territories in Europe itself, as was the case in the nineteenth century, but from the attempts to annex neutral foreign markets, for which purpose the armed forces of the European nations are now deployed. It is not a matter of annexing highly developed capitalist countries, whose own industry is capable of exporting and would only involve increased competition for the conquering country, and in any case would offer little scope as a sphere of investment for the surplus capital of that country. It is a matter rather of those territories which have not yet been opened up but which can have great importance precisely for the most powerful capitalist groups; that is to say, above all overseas colonial territories. It is here that capital has the opportunity to invest on the grand scale. In particular, the creation of a modern transport system, railways and steamship lines, absorbs enormous quantities of capital.

The state ensures that human labour in the colonies is available on terms which make possible extra profits. In many cases it also guarantees the gross profit. The natural wealth of the colonies likewise becomes a source of extra profits by lowering the price of raw materials and so reducing the cost price of industrial products. In the colonies ground .rent is either nonexistent or very low. The expulsion or annihilation of the native population, or in the most favourable case their transformation from shepherds or hunters into indentured slaves, or their confinement to small, restricted areas as peasant farmers, creates at one stroke free land which has only a nominal price. If the land is fertile it can supply the home industry with raw materials such as cotton far more cheaply than could the old sources of supply. Even when this is not reflected in prices - for example in the case of cotton where the American price continues to have a determining influence - it means that a part of the ground rent which would otherwise have to be paid to the American farmers now goes into the pockets of the owners of colonial plantations.

The supply of raw materials for the metal working industries is still more important. In spite of all the technological advances the rapid development of these industries tends to raise the price of metals and this tendency is reinforced by capitalist monopolization. That makes it all the more important for a country to have sources of supply for such raw materials within its own economic territory.

The drive for colonial acquisitions thus leads to a steadily growing conflict among the large economic territories and has major repercussions upon the relations between individual states in Europe. The diverse natural conditions which are a source of rapid economic growth in a large unified economic territory such as the United States have the opposite effect in Europe where they are distributed at random, quite fortuitously and hence irrationally from an economic standpoint, among many small economic territories. Here they obstruct economic development and tend to favour the larger economic territories at the expense of the smaller ones, especially since there is no system of free trade to integrate these territories into a higher economic unity. This economic inequality has the same significance for the relations between states as it has for those between social strata within them; namely, the dependence of the economically weak upon the economically powerful. The economic means employed is again in this case the export of capital. The country which is rich in capital exports it as loan capital and becomes the creditor of the borrowing country.

As long as the export of capital served primarily for the construction of a transport system and the development of consumer goods industries in a backward country, it contributed to the economic development, in a capitalist form, of that country. Even so, this method had some disadvantages for the country concerned. The bulk of the profit flowed abroad where it was either spent (without providing employment for the industries of the debtor country) or accumulated. Naturally, this accumulation did not have to take place in the country where the profit originated; but this capitalist 'absentee ownership' slows down enormously the pace of accumulation, and hence the further development of capitalism, in the debtor country. In large economic territories where capitalism would have been bound to develop rapidly because of domestic conditions, a national assimilation of foreign capital soon occurred. Thus Germany quickly assimilated Belgian and French capital, which was particularly important in the mining industry of Westphalia. In the small economic territories, however, this assimilation was more difficult to achieve, because an indigenous capitalist class emerged much more slowly and with greater difficulty.

Such emancipation became quite impossible when the character of capital exports changed, and the capitalist class in the large economic territories became less concerned with establishing consumer goods industries in foreign countries than with acquiring control over raw materials for their ever growing producers' goods industries. Thus the mines and the mining enterprises of the states in the Iberian peninsula came under the control of foreign capital which was no longer exported as loan capital but directly invested in these mines; and the same thing happened - though against stronger opposition - to the mineral wealth of Scandinavia, especially Sweden. Thus at a time when these countries could perhaps have proceeded to establish the most basic of modern industries, an iron industry of their own, they were deprived of their raw materials for the benefit of English, German and French industry. Their capitalist development, and along with it their political and financial development,, was stunted at the outset. As economic tributaries of foreign capital, they also became second-class states, dependent upon the protection of the great powers.

On the other hand, the increasing importance of capitalist colonial policy confronted England with the task of defending her colonial empire, which meant retaining her control of the seas and protecting the route to India. For this, however, it was essential to have access to Atlantic ports and so England was obliged to maintain good relations with all the states bordering on the Atlantic. England has been able to achieve this politically because her capital exports enabled her to secure economic control over the smaller of these states. The strength of the British navy necessarily drove France too into an alliance with England when Germany's claim to a share in colonialism brought France into conflict with Germany and made her concerned, like all the other countries which had colonies, about the safety of her possessions. Thus there was a growing tendency not to eliminate the tariff barriers within Europe and so create a large unified economic territory, but rather to group the smaller, and hence economically backward, political units as satellites around the larger ones. These political relationships react in turn upon the economic relationships and make the country which is politically a satellite into a sphere of investment reserved for the capital of its protector. Thus diplomacy serves directly the interests of investment-seeking capital.

As long as the smaller states have not yet been taken 'firmly in hand' they become an arena for competition by foreign capital and in this case too a decision is sought by political means. In order to obtain arms Serbia, for example, has also to make a political decision about whether it should seek French and Russian or German and Austrian aid. Political power thus becomes a decisive factor in economic competition and finance capital acquires a direct profit interest in the power position of the state. The most important function of diplomacy now becomes the representation of finance capital. Purely political weapons are now reinforced by the weapons of commercial policy, and the provisions of a commercial agreement are no longer determined simply by the requirements of commodity exchange, but also by the extent to which a small state is willing to give preferential treatment to the finance capital of a larger state against its competitors. The smaller the economic territory the less power it has to sustain the competitive struggle successfully by means of large export subsidies, and the stronger is the urge to export capital in order to share in the economic development and higher profits of other, greater, powers. The larger the stock of previously accumulated wealth within the country the more readily can this desire be satisfied.

But here also there are opposing tendencies at work. The larger the economic territory and the greater the power of the state, the more favourable is the position of its national capital on the world market. That is why finance capital has come to champion the idea that the power of the state should be strengthened by every available means. But the greater the historically produced disparities between the power of difficult states, the more the conditions on which they engage in competition will vary, and the more bitter - because more rewarding - will be the struggle of the large economic territories to dominate the world market. This struggle is intensified the more developed finance capital is and the more vigorous its efforts to monopolize parts of the world market for its own national capital; and the more advanced this process of monopolization, the more bitter the struggle for the rest of the world market becomes. The English free trade system made this conflict bearable, but the transition to protectionism which is bound to occur very soon will necessarily exacerbate it to an extraordinary degree. The disparity which exists between the development of German capitalism and the relatively small size of its economic territory will then be greatly increased. At the same time as Germany is making rapid progress in its industrial development, its competitive territory will suddenly contract. This will be all the more painful because, for historical reasons which are irrelevant to present-day capitalism (indifferent to the past unless it is accumulated 'past labour') Germany has no colonial possessions worth mentioning, whereas not only its strongest competitors, England and the United States (for which an entire continent serves as a kind of economic colony), but also the smaller powers such as France, Belgium and Holland have considerable colonial possessions, and its future competitor, Russia, also possesses a vastly larger economic territory. This is a situation which is bound to intensify greatly the conflict between Germany and England and their respective satellites, and to lead towards a solution by force.

Indeed this would have happened long ago if there had not been countervailing forces at work. The export of capital itself gives rise to tendencies which militate against such a solution by force. The unevenness of industrial development brings about a certain differentiation in the forms of capital export. Direct participation in opening up industrially backward or slowly developing countries can be undertaken only by those countries in which industrial development has attained its most advanced form, both technically and organizationally. Among them are, first, Germany and the United States, and in the second place England and Belgium. The other countries of long-standing capitalist development take part in the export of capital rather in the form of loan capital than of capital for the construction of factories. This has as a consequence that French, Dutch, and even to a great extent English capital, for example, constitute loan capital for industries which are under German and American management. Various tendencies thus emerge which make for solidarity among international capitalist interests. French capital, in the form of loan capital, acquires an interest in the progress of German industries in South America, etc. Moreover, connections of this kind, which greatly enhance the power of capital, make it possible to open up foreign territories much more rapidly and easily as a result of the increased pressure of the associated states.

Which of these tendencies prevails varies from case to case and depends primarily upon the opportunities for profit which emerge in the course of the struggle. The same considerations which decide whether competition should continue in a given branch of industry, or should be eliminated for a longer or shorter period of time by a cartel or trust, play a similar role here at the international and inter-state level. The greater the disparities of power the more likely it is, as a rule, that a struggle will occur. Every victorious struggle, however, would enhance the power of the victor and so change the power relationships in his favour at the expense of all the others. This accounts for the recent international policy of maintaining the status quo which is reminiscent of the balance of power policy of the early stages of capitalism. Moreover, the socialist movement has inspired a fear of the domestic political consequences which might follow from a war. On the other hand the decision as to war or peace does not rest solely with the advanced capitalist states, where the forces opposing militarism are most strongly developed. The capitalist awakening of the nations of Eastern Europe and Asia has been accompanied by a realignment of power relations which, through its effect upon the great powers, may well bring the existing antagonisms to the point where they erupt in war.

Once the political power of the state has become a means of competition for finance capital on the world market, this naturally involves a complete change in the relation of the bourgeoisie to the state. In the struggle against economic mercantilism and political absolutism, the bourgeoisie was the champion of opposition to the state. Liberalism was in reality a destructive force involving the 'overthrow' of state power and the dissolution of old social bonds. The whole painfully constructed system of dependent relationships on the land, and of guild associations with their complex superstructure of privileges and monopolies in the towns, was thrown overboard. The victory of liberalism meant first of all an enormous reduction in the power of the state. Henceforth, at least in principle, economic life was to be excluded entirely from the sphere of state regulation, and politically the state was to confine itself to the maintenance of public order and the establishment of civil equality. Thus liberalism was purely negative, in sharp contrast to the state during the mercantilist period of early capitalism which in principle wanted to regulate everything, and also to all socialist systems which seek constructively rather than destructively to replace anarchy and the freedom of competition by a conscious regulation of economic life, and a self-organizing society. It is only natural that the liberal principle should have been realized first in England where it was championed by a bourgeoisie committed to free trade which had to appeal to the power of the state only for short periods of time in its conflict with the proletariat. But even in England its realization encountered opposition, not only from the old aristocracy which pursued a protectionist policy and therefore opposed the principle of liberalism, but also, to some extent, from commercial capital and from bank capital involved in investment abroad, which demanded above all the maintenance of England's control of the seas, a demand which was most vigorously supported by all those groups which had an interest in the colonies. On the continent, however, the liberal view of the state had to be considerably modified from the very outset before it was able to prevail. While continental liberalism - and this shows a characteristic contrast between ideology and reality - as formulated in classical fashion by the French deduced the theoretical consequences of liberalism in all spheres of political and intellectual life much more boldly and systematically than did its English counterpart, since it came upon the scene later with quite a different body of scientific knowledge, so that it was formulated in a far more comprehensive way, based upon a rationalist philosophy, English liberalism rested essentially upon political economy and its practical realization was subject from the very beginning to definite limitations. Indeed, how could the liberal demand for the restriction of state power be put into effect by a bourgeoisie which, in economic terms, needed the state as the most powerful lever of its development and for which it was a matter not of abolishing the state, but of transforming it from an obstacle into a vehicle of its own development? What the continental bourgeoisie needed above all was to overcome the plethora of petty states and to substitute for the impotence of these petty states the supreme power of a unified state. The need to create a national state was bound to make the bourgeoisie from the very beginning a champion of the state. On the continent, however, it was a matter of land power, not sea power. The modern army, however, is entirely different from a navy as a means of establishing the power of the state visa vis society. It means fundamentally that those who control the army have the state power in their hands without restraint. On the other hand, universal military service, which arms the mass of the people, was bound to persuade the bourgeoisie very quickly that if the army were not to become a menace to its rule, a strictly hierarchical organization was required, based upon an exclusive officers' corps which would be a pliable instrument of the state. If liberalism was thus unable to carry out its political programme in countries such as Germany, Italy and Austria, its efforts were also circumscribed in France, where the French bourgeoisie could not dispense with the help of the state in matters of commercial policy. Furthermore, the victory of the French Revolution necessarily involved France in a war on two fronts. She had to defend the revolutionary achievements against continental feudalism; and on the other hand the creation of a new empire of modern capitalism was a threat to the established position which England held on the world market, and so France was obliged at the same time to contest England's domination of the world market. Her defeat enhanced the power of the landed gentry, and of commercial, bank, and colonial capital, in England, and along with it the power of the state over industrial capital, thus delaying the definitive accession of English industrial capital to a position of dominance and the triumph of free trade. On the other hand, England's victory necessarily led industrial capital in continental Europe to support the protective tariff, totally frustrated the advance of economic liberalism, and created the conditions needed for a rapid development of finance capital on the continent.

Thus from the outset, the ideology and the conception of the state of the bourgeoisie in Europe encountered few obstacles in their adaptation to the needs of finance capital. Moreover, the fact that the unification of Germany was accomplished in a counter-revolutionary way was bound to reinforce very strongly the position of the state in the consciousness of the people, whereas in France military defeat led to a concentration of all available forces upon the task of re-establishing state power. Thus the needs of finance capital found various ideological elements to hand which could easily be used for creating a new ideology in harmony with its own interests.

This ideology, however, is completely opposed to that of liberalism. Finance capital does not want freedom, but domination; it has no regard for the independence of the individual capitalist, but demands his allegiance. It detests the anarchy of competition and wants organization, though of course only in order to resume competition on a still higher level. But in order to achieve these ends, and to maintain and enhance its predominant position, it needs the state which can guarantee its domestic market through a protective tariff policy and facilitate the conquest of foreign markets. It needs a politically powerful state which does not have to take account of the conflicting interests of other states in its commercial policy. It needs also a strong state which will ensure respect for the interests of finance capital abroad, and use its political power to extort advantageous supply contracts and trade agreements from smaller states ; a state which can intervene in every corner of the globe and transform the whole world into a sphere of investment for its own finance capital. Finally, finance capital needs a state which is strong enough to pursue an expansionist policy and the annexation of new colonies. Liberalism opposed international power politics, and only wanted to secure its own rule against the old forces of aristocracy and bureaucracy by granting them the least possible access to state power, but finance capital demands unlimited power politics, and this would be the case even if military and naval expenditures did not directly assure the most powerful capitalist groups of important markets, which provide in most cases monopolistic profits.

The demand for an expansionist policy revolutionizes the whole world view of the bourgeoisie, which ceases to be peace-loving and humanitarian. The old free traders believed in free trade not only as the best economic policy but also as the beginning of an era of peace. Finance capital abandoned this belief long ago. It has no faith in the harmony of capitalist interests, and knows well that competition is becoming increasingly a political power struggle. The ideal of peace has lost its lustre, and in place of the idea of humanity there emerges a glorification of the greatness and power of the state. The modern state arose as a realization of the aspiration of nations for unity. The national idea, which found a natural limit in the constitution of a state based upon the nation, because it recognized the right of all nations to independent existence as states, and hence regarded the frontiers of the state as being determined by the natural boundaries of the nation, is now transformed into the notion of elevating one's own nation above all others. The ideal now is to secure for one's own nation the domination of the world, an aspiration which is as unbounded as the capitalist lust for profit from which it springs. Capital becomes the conqueror of the world, and with every new country that it conquers there are new frontiers to be crossed. These efforts become an economic necessity, because every failure to advance reduces the profit and the competitiveness of finance capital, and may finally turn the smaller economic territory into a mere tributary of a larger one. They have an economic basis, but are then justified ideologically by an extraordinary perversion of the national idea, which no longer recognizes the right of every nation to political self-determination and independence, and ceases to express, with regard to nations, the democratic creed of the equality of all members of the human race. Instead the economic privileges of monopoly are mirrored in the privileged position claimed for one's own nation, which is represented as a 'chosen nation'. Since the subjection of foreign nations takes place by force - that is, in a perfectly natural way - it appears to the ruling nation that this domination is due to some special natural qualities, in short to its racial characteristics. Thus there emerges in racist ideology, cloaked in the garb of natural science, a justification for finance capital's lust for power, which is thus shown to have the specificity and necessity of a natural phenomenon. An oligarchic ideal of domination has replaced the democratic ideal of equality.

While this ideal appears to embrace the whole nation in the sphere of international politics, it becomes transformed in domestic politics by emphasizing the point of view of the rulers as against the working class. At the same time the increasing power of the workers intensifies the efforts of capital to reinforce the power of the state as a bulwark against proletarian demands.

Thus the ideology of imperialism arises on the ruins of the old liberal ideals, whose naivety it derides. What an illusion it is, in the world of capitalist struggle where superiority of weapons is the final arbiter, to believe in a harmony of interests. What an illusion to expect the reign of eternal peace and to preach international law in a world where power alone decides the fate of peoples. What stupidity to advocate the extension of the rule of law which prevails within nations beyond their frontiers, and what irresponsible interference with business this humanitarian fantasy which has turned workers into a labour problem, invented social reform at home, and now wants to abolish contract slavery in the colonies, the only possible form, of rational exploitation. Eternal justice is a beautiful dream, but morality builds no railways, not even at home. How are we to conquer the world if we have to wait for competition to undergo a spiritual conversion?

But imperialism only dissolves the faded ideals of the bourgeoisie in order to put in their place a new and greater illusion. It is clear-headed and sober in evaluating the real conflicts among capitalist interest groups, and it conceives all politics as a matter of capitalist syndicates either fighting or combining with each other. But it is carried away and becomes intoxicated when it unveils its own ideal. The imperialist wants nothing for himself, but he is also no visionary and dreamer who would dissolve the tangled profusion of races at every level of civilization and of potentiality for further development, into the bloodless concept of 'humanity', instead of seeing them in all their colourful reality. He observes with a cold and steady eye the medley of peoples and sees his own nation standing over all of them. For him this nation is real; it lives in the ever increasing power and greatness of the state, and its enhancement deserves every ounce of his effort. The subordination of individual interests to a higher general interest, which is a prerequisite for every vital social ideology, is thus achieved ; and the state alien to its people is bound together with the nation in unity, while the national idea becomes the driving force of politics. Class antagonisms have disappeared and been transcended in the service of the collectivity. The common action of the nation, united by a common goal of national greatness, has taken the place of class struggle, so dangerous and fruitless for the possessing classes.

This ideal, which seems to provide a new bond for the strife-ridden bourgeois society, will doubtless meet with an increasingly enthusiastic reception as the process of disintegration of bourgeois society continues.

23. Finance capital and classes

We have seen how the process of agglomeration in capitalist monopolies gives capital an interest in strengthening the power of the state. At the same time capital acquires the power to dominate the state, both directly through its own economic power, and indirectly by subordinating the interests of other classes to its own.

The development of finance capital changes fundamentally the economic, and hence the political, structure of society. The individual capitalists of early capitalism confronted each other as opponents in a competitive struggle. This conflict prevented them from undertaking any common action in politics as in other spheres. It should be added that the needs of their class did not as yet call for such common action, since the negative attitude of industrial capital to the state did not allow it to come forward as the representative of general capitalist interests. Instead, individual capitalists defended their own interests as citizens of the state. The great problems which agitated the bourgeoisie were essentially constitutional questions, such as the establishment of a modern constitutional state ; problems, that is to say, which affected all citizens alike, uniting them in a common struggle against reaction and the vestiges of feudal and absolutist-bureaucratic rule.

But the situation changed as soon as the triumph of capitalism unleashed the opposing forces within bourgeois society. The petty bourgeoisie and the workers were the first to rebel against the rule of industrial capital. Both groups launched their attack in the economic field. The freedom of enterprise seemed to be threatened by the petty bourgeoisie which demanded combinations reminiscent of the guilds, and by the workers who insisted on legal regulation of the labour contract. It was now no longer a matter of citizens, but of manufacturers and workers, or manufacturers and craftsmen. Political parties now directed their activities openly in terms of economic interests, whereas these were previously concealed behind the slogans of reaction, liberalism, and democracy, through which the three classes of early capitalism - the landowners with their hangers-on at court, in the bureaucracy and in the army; the bourgeoisie; and the combination of petty bourgeoisie and workers - disguised their interests. In the struggle over the industrial system three groups of economic organizations emerged: associations of industrialists, co-operatives and workers' organizations, the first two frequently encouraged by the state, which invested them with legal powers in respect of some of their functions. But while the co-operatives and the trade unions soon became united in the pursuit of common aims, the employers' associations remained divided by conflicts over commercial policy. Furthermore, industrial capital came into conflict politically with commercial and loan capital.

Commercial capital was far more favourably inclined to an increase in the power of the state than was industrial capital, because wholesale trade, especially overseas trade and notably the colonial trade, sought the protection of the state, and yielded readily to a dependence upon privileges. Loan capital, during the period of early capitalism, supported the power of the state with which it had to transact its most important business - state loans - and it was entirely free of that yearning for peace and tranquillity which permeated industrial capital. The greater the financial needs of the state, the greater was its influence, and the more abundant its loans and other financial transactions. These were not only the basis of its direct profits ; they were also the backbone of stock exchange transactions, and in addition an important means by which the banks could obtain state privileges. Thus, for example, the privilege of issuing bank notes granted to the Bank of England is closely connected historically with the debt relationship between the state and the bank.

Cartelization, by unifying economic power, increases its political effectiveness. At the same time it coordinates the political interests of capital and enables the whole weight of economic power to be exerted directly on the state. By uniting all capital interests it confronts the state as a far more cohesive body than was the fragmented industrial capital of the era of free competition. Moreover, capital now finds a much greater readiness to support it among other classes in the population.

This must appear strange at first sight, because finance capital seems to be opposed to the interests of all other classes. After all, as we have seen, monopolistic profit is a deduction from the income of all other classes. Cartel profit on industrial products increases the cost of means of production in agriculture and reduces the purchasing power of its income. The rapid development of industry deprives agriculture of labour power and creates a chronic shortage of workers in rural areas along with a technological and scientific revolution in agricultural production. This conflict was bound to make itself increasingly felt so long as the tendency of finance capital to raise the prices of industrial products was not accompanied by a similar tendency in the case of agricultural products.

When capitalist development first got under way it encountered opposition from the agricultural population. Industry destroys peasant domestic production and transforms the essentially self-sufficient peasant economy into an agricultural business geared to the sale of its product on the market. The peasants have to pay a high price for that transformation, and they are therefore hostile to industrial development. But the peasantry is a class in modern society which is incapable of action by itself. Lacking geographical cohesion, isolated from urban culture, and with an outlook confined to narrow parochial interests, it is for the most part only capable of political action when it follows the lead of other classes. At the beginning of capitalist development, however, it stands opposed to the very class which has the greatest power to act in the countryside, the large landowners, who have a direct interest in the expansion of industry. They depend upon the sale of their products, and capitalism creates a large domestic market for them as well as giving them the opportunity to develop agricultural industries such as distilling, brewing, starch and sugar production. This interest of the large landowners is very important because it provides support for capitalism in its early stages, and also ensures the support of the state. Mercantilist policy is also always supported by the landed proprietors, who are the product of the capitalist transformation of landownership.

The further development of capitalism soon destroys this community of interest as a result of the struggle against mercantilism and its executive agent, the absolutist state. This struggle is waged directly against the landed proprietors who largely dominate the state and occupy the highest posts in the army, the bureaucracy and the court, boost their income by economic exploitation of the state, and are the upholders of state power in the rural areas. This conflict becomes more intense after the defeat, of absolutism and the creation of the modern state. The development of industry reinforces the political power of the bourgeoisie and threatens the landed proprietors with total political impotence. Political antagonism is then supplemented by an intensification of economic conflict. The development of industry depopulates the countryside, creates a shortage of manpower, and finally turns what was an interest in exports into an interest in imports. In this way there arises the conflict over commercial policy which ends, in England, with the defeat of the landed interests. On the continent, however, the common interest in protective tariffs prevents the conflict from coming to a head. As long as backward industrial development on the continent obliges the large agricultural estates to export, the large landowners maintain a friendly attitude - within certain limits - towards industry and especially towards trade. They support free trade until the emergence of an interest in imports converts them to protectionism and brings them closer to heavy industry in economic policy. But the same industrial development which strengthens them in Germany by raising the prices of agricultural products and increasing ground rents, also plants the seeds of a new conflict. The upsurge of industry, before cartelization, reinforces its commitment to free trade and commercial agreements, and a danger arises that its power will become sufficiently great for its interest in low grain prices to prevail. Industrial development thus becomes a threat to the landed interests; one which is increased when the same development which is transforming Europe into an industrial state lets loose agricultural competition from America which threatens European agriculture with an abrupt fall in grain prices, rents and land values. The development of finance capital, by changing the function of the protective tariff, reconciles these conflicting interests and establishes a new community of interest between large landed property and cartelized heavy industry. Agriculture now has a secure level of prices, and the further progress of industry can only raise this price level. It is no longer the conflict with industry, but the labour question, which is the principal concern of landowners. Resisting the demands of workers is now their most urgent political problem, and hence they also oppose strongly the efforts of industrial workers to improve their conditions because every such improvement would make it more difficult to retain the agricultural labour force. Thus a common hostility to the labour movement brings these two most powerful classes together.

At the same time the power of the large landed proprietors increases as a result of the disappearance, or at least the considerable abatement, of their conflict with the small landowners. The old historic conflict between them has long been settled by the abolition of feudal imposts on land. The period of falling grain prices as well as the difficulties of the labour problem have halted almost completely the expansion of the large estates at the expense of small land-holdings. On the other hand, the common struggle for an agricultural tariff has united the large and small landowners. The fact that the small farmers had a greater interest than the large ones in protection against imports of meat and livestock naturally did not in any way prevent them from co-operating, since a protective tariff could only be achieved by a common struggle. Another factor to be considered is the specific effect of an agricultural tariff on the price of land. The rise in the price of land is of course harmful to agriculture as such, but it is very advantageous to the individual owner of agricultural land. The common struggle with respect to commercial policy thus united all strata of agricultural proprietors in countries which needed to import agricultural products, and so gave finance capital the support of the arable farmers. The medium and small landowners participated all the more fully in these struggles as the rapid development of co-operatives enlarged the commercial market for peasant agriculture and reduced production for the family's own needs. At the same time, the larger proprietors very easily acquired a leading position in these co-operatives since on the one side no stronger interest group opposed them, and on the other they possessed the necessary experience, intelligence, and authority. This, in turn, reinforced the leading role of the large proprietors in the countryside and led to the politics of the arable farming areas being increasingly dominated by them.

The degree of unity among the propertied interests has also tended to increase because their sources of income are becoming more diversified. The tariff policy has rapidly increased income from ground rent, especially during the last decade when overseas agricultural competition became less intense, partly because of the rapid industrial development of the United States. and partly because the agricultural production of the Central and South American states, though rapidly increasing, cannot keep pace with the increase in demand. The increase in demand meant, of course, that the larger proprietors had surplus income at their disposal, but there were difficulties in the way of using it to increase agricultural output, particularly because the distribution of land ownership presented considerable obstacles to the expansion of the cultivable area. These obstacles might be overcome if the upward trend of grain prices were sufficiently vigorous and enduring, thus permitting land prices to rise correspondingly, and (this being a second important factor) if the large landowners were dealing with an impoverished peasantry which had no alternative but to sell its land. But the period from the mid 1870s to the middle of the first decade of the twentieth century was a favourable one for the peasantry. In fact, it was the large wheat producers and cattle breeders who bore the full brunt of overseas competition and who were most adversely affected by the shortage of labour, whereas the great increase in urban demand for the main products of the small farmer -- milk, meat, vegetables, fruit, etc. - and the lesser impact of the labour problem, favoured the medium and small farms. The attempt of the large farmers to extend their holdings, which could only be vigorously pursued when the falling trend of grain prices was reversed, thus met with resistance from powerful medium and small farmers whose Main products enjoyed constantly rising prices. Hence this surplus income had to be applied primarily to profitable investment in industry. This was also encouraged by the fact that the tumultuous boom which began in 1895 increased the rate of profit in industry, at any rate far above that in agriculture. Such investment was all the easier because the development of the share system created an appropriate form for investments from other spheres of the economy, while the concentration and consolidation of large-scale industry greatly reduced the risk for outsiders. There was also a rapid development of agricultural industries proper which the state, through its tax legislation, helped to become monopolies; an equally rapid development of other industries which were established in the countryside ; and finally, in the case of large landowners, the age-old association between agriculture and mining. All these factors transformed the class of large landed proprietors from one which derived its income from ground rent into one which received its income in part, and to an increasing extent, from industrial profit, from participation in the gains of 'mobile capital'. On the other side, finance capital became increasingly interested in the mortgage business. Other things being equal, it is the level of land prices which is crucial for the expansion of these activities, since the higher the price of land, the larger the amount of mortgage indebtedness can be. A rise in agricultural tariffs thus became a matter of great interest for a not insignificant part of the banking community. At the same time the increased incomes of landowners and tenants tended to attract new capital investment in agriculture and more intensive cultivation; this in turn increased the demand for farm equipment and expanded this particular field of investment for bank capital.

Furthermore, the desire of urban capitalists to enhance their social standing has led them to acquire landed property, or else - and here again we see the principle of personal union - to ally themselves with the large landed proprietors through intermarriage, the most favoured form of social climbing and of defence against the dispersal of property.

Thus the separation of the ownership function from the management of production, brought about by the joint-stock system, makes possible the solidarity of property interests, and this possibility becomes a reality with the increase of ground rent on one side and of extra profits in industry on the other. 'Wealth' is no longer differentiated in terms of the source of income, according to its origin in profit or rent, but now flows from participation in all the sectors of the economy among which the surplus value produced by the working class is distributed.

The connection with the large landowners greatly augments the capacity of finance capital to dominate the state. With them it has won over the elite, and hence on most issues the whole countryside. This support is not unconditional, of course, and it is costly; but the costs, in the form of higher prices for agricultural products, are easily compensated by the extra profit which finance capital obtains through its domination of the state, which is a conditio sine qua non for the pursuit of an imperialist policy. The support of the large landed proprietors also assures finance capital of support from the class which occupies most of the highest and most influential offices in the state and controls the bureaucracy and the army. At the same time imperialism involves a strengthening of the state power, an expansion of the armed forces and the bureaucracy in general, and thereby a reinforcement of the community of interests between finance capital and the large landowners.

While finance capital has been supported by the decisive stratum in the countryside in its effort to dominate the state, it was also helped in this attempt, at an earlier stage, by the development of class conflicts among the industrial producers. From the outset finance capital is in conflict with small and medium-size capital. As we have seen, cartel profit is a deduction from the profits of non-cartelized industry. It is in the interest of the latter, therefore, to oppose cartelization. But this interest clashes with others. Industries which are not, or not yet, capable of exporting, have a common interest with cartelized industries in the protective tariff, which can be achieved only through combined action since the cartels are the most powerful protagonists of the tariff. But the formation of a cartel undoubtedly accelerates the monopolistic tendencies in other enterprises, and it is just the most powerful and competitive capitalists in the industries which have not yet been cartelized who welcome the formation of cartels, which promote concentration in their own industry and so speed up the process of cartelization. Their way of combating other cartels is to form a cartel of their own, not in the least to fight for free trade. What they want is not free trade, but the opportunity to take advantage of the protective tariff through their own cartel.

It should also be noted that instances of medium and smaller capitalists becoming indirectly dependent on finance capital are increasing. We have seen that this is the case to a very great extent in capitalist commerce. It is true that this produces a conflict while the process is still going on, but once it has-been completed it is precisely these groups which come to identify their interests with the cartel. The merchants who today are the agents of the coal syndicate or of the organization of alcohol producers are now only interested in strengthening the syndicate because it fends off the competition from outsiders, and in expanding it in order to increase their sales. The numerous and increasing cases of indirect dependence, in which industrialists are kept going by a department store or a large industrial concern, have the same consequences, for the growth of cartelization in general creates an identity of interest for all owners of capital. The participation of the small and medium capitalists in large-scale industry leads in the same direction. As a result of the possibilities opened up by shareholding, profit accumulated in other branches of industry is partly invested in the heavy industries, first because they are developing more quickly due to the relatively more rapid growth of the production of means of production, and second because cartelization is most advanced here and the rate of profit at its highest.

Finally, the policy of finance capital involves the most vigorous kind of expansion and a constant search for new spheres of investment and markets. But the more rapidly capitalism expands, the longer are the periods of prosperity and the more short-lived the crises. Expansion is the common interest of all capital, and in the era of protectionism it is only possible in the form of imperialist expansion. It should be added that the longer a period of prosperity lasts the less severe is the competition felt by domestic capital in its own country, and the less danger there is of the smaller capitalists succumbing to the competition from the larger ones. This is true for smaller capitalists in all industries, including those which are cartelized. For it is periods of prosperity which are most dangerous for the existence of cartels, while conversely a depression, involving an intensified competitive struggle at home and large quantities of idle capital, is a time when the drive for new markets is most intense.

After being disputed for decades the Marxist theory of concentration has now become a commonplace. The decline of the middle strata in industry cannot be halted. But what interests us here is not so much the decline in their numbers, resulting from the destruction of small businesses, as the structural change which modern capitalist development has brought about in small enterprises both in industry and commerce. A great many of these small businesses are auxiliaries of large enterprises and therefore interested in the latter's expansion. Repair shops in the cities, installers of equipment, etc., depend upon large-scale factory production which has not yet taken over such subsidiary work. The enemy of all repair business of whatever kind is not the factory but the handicrafts which once performed this type of work. These strata are therefore in conflict with the working class, not with big business.

An even larger proportion of small enterprises is indeed only seemingly independent; in reality these businesses have become 'indirectly dependent upon capital' (Sombart) and therefore 'enslaved to capital' (Otto Bauer). They are a declining stratum with little prospect of surviving, lacking organizational ability, and completely dependent on the large capitalist enterprises whose agents they are. In this category, for example, belong the swarm of small innkeepers who are nothing more than sales agents for the breweries, the owners of shoe shops which are fitted out by some shoe factory, etc. It also includes the numerous seemingly independent cabinet makers who work for furniture stores, the tailors who work for clothing manufacturers, etc. It is unnecessary to examine these phenomena more fully here, since Sombart has provided an extensive and striking description of them in Der moderne Kapitalismus.

What is important, however, is that in the course of this development these strata have adopted a different political attitude. The conflict of interest between small business and big business, exemplified in the struggle of the handicrafts against the capitalist enterprise in the early stages of capitalism, has been decided in all essential respects. That struggle drove the old middle class to assume an anti-capitalist attitude. The middle class sought to postpone its own defeat by combating freedom of enterprise and by imposing restrictions on the large capitalist enterprises. Legislation was invoked to prolong the existence of the middle class by protecting handicraft workers, reintroducing guild regulations and apprenticeship training, and passing discriminatory tax laws. In this struggle against big capital the middle class received the support of the rural classes, which at that time were equally inclined towards anti-capitalist attitudes. But it encountered the hostility of the working class, which was bound to see these restrictions on productivity as a threat to its vital interests.

The outlook of small business today is fundamentally different. The competitive struggle has been settled in all essential respects so far as competition between the handicrafts and capital is concerned. The struggle over concentration now takes place within the capitalist sphere itself, in the form of a struggle between small and medium business firms and the giant concerns. The small businesses are now essentially only annexes of large enterprises, and even where their independence is not purely fictitious they are only auxiliaries of large firms, as is the case, for example, with firms which install lighting equipment, or the modern urban stores which sell factory products. None of them engage in competition with large-scale industry, but are interested, on the contrary, in seeing it expand as much as possible because they work for it as repair or auxiliary businesses, as dealers or agents. This does not, of course, exclude competition among themselves, nor a movement towards concentration, which also occurs here. But this struggle no longer gives rise to any general anti-capitalist outlook among them; on the contrary, they see their salvation in a still more rapid development of capitalism, which has produced them and broadens their opportunities. On the other hand, in so far as they employ workers they come into increasingly bitter conflict with the working class, because the power of workers' organizations is felt most strongly in small businesses.

But even among those strata where the small business still predominates, as for example in the building industry, the conflict with big capital is becoming less bitter. Not only because these entrepreneurs, who depend upon bank credit, are thoroughly imbued with the capitalist spirit, nor simply because their opposition to the workers is becoming more intense, but also because whenever they present specific demands they meet less resistance, and quite frequently even receive support, from the biggest capitalists. The battle for and against freedom of enterprise was waged with particular intensity between the master craftsmen and the small and medium manufacturers of consumer goods. Tailors, shoemakers, wheelwrights and building craftsmen on one side, confronted textile and clothing manufacturers, etc. on the other. But today, when this conflict has been settled in essentials, the protection of handicrafts does not affect any of the vital interests of the most advanced branches of capitalist enterprise. The coal syndicate, the steel combine, the electrical or chemical industry, are more or less indifferent to the kind of demands the middle class puts forward today. The interests of the small and medium capitalists, which may suffer as a result, are not their concern, or at least not directly. On the other hand, the people who make these demands are the most vigorous and bitter opponents of workers' demands. In these spheres of small-scale production competition is at its most bitter, and the rate of profit at its lowest. Every new social reform, every trade union success, spells doom for a host of these enterprises. It is here that the workers find their most furious antagonists, and big business and the big landed interests their best mercenaries.

The same interest also assures the middle class of support from the farming class, and so the old conflict of interest between the bourgeoisie and the petty bourgeoisie is disappearing, and the latter becomes a political praetorian guard of big business. The fact that the middle class has not improved its lot even after its demands have been satisfied changes nothing in this situation. Where the state has set up compulsory organizations for small businesses they have always been a complete fiasco. Even where small business is viable, the co-operatives and guilds (for example in the food trade in the big cities) have become quasi-cartels engaged in a common effort to plunder consumers, as has been the case with butchers and bakers. Or else they are employers' associations, whether membership is direct or the guild members as a body join a separate employers' association, which remains closely dependent upon the guild.

However, it is precisely the impossibility for the middle class, unlike the old-time craftsmen, to put forward significant economic demands of its own, which makes it incapable of independent political action and obliges it to act as a political hanger-on. Denied the possibility of pursuing its own class policy, it falls victim to any kind of demagogy which can exploit its hostility to the working class. From being the economic antagonist of the workers it becomes their political opponent, and sees political freedom, which it can no longer utilize itself, as aiding and abetting the strengthening of the political, and hence economic, power of the working class. It becomes politically reactionary, and the smaller its household the greater the value it places upon remaining master of it. Thus it calls for a firm hand in government, and is ready to support any coercive policy as long as it is directed against the workers. Thus it becomes the enthusiastic promoter of strong government, worshipping military and naval might and an authoritarian bureaucracy. In this way it carries out the aims of the imperialist classes and becomes their most valued comrade-in-arms. Imperialism in turn provides it with a new ideology; through the rapid expansion of capital it hopes to see an improvement in its own business, greater opportunities for employment, an increase in the purchasing power of its customers - all of which makes it an enthusiastic fellow-traveller of the imperialist parties. At the same time it is also most susceptible to the means of influencing elections, especially business boycotts, and its weakness makes it a suitable object of political exploitation.

Of course it begins to have doubts when the bill is presented, and the harmony between itself and big business is disturbed for a time. But the taxes are borne mainly by the workers, and even if indirect taxes fall more heavily on the middle class than on big business its power of resistance is nevertheless too weak to dissolve the bond between them. Only a small part of the middle class breaks away from its support of the bourgeoisie and allies itself with the proletariat. Apart from the seemingly independent self-employed, who are actually engaged in domestic industry, most of these belong to the urban strata of small tradesmen who depend on working class customers, and either for business reasons or because they have acquired a working class outlook through constant association with workers, join the workers' party.

An entirely different position is taken by those strata which have come to be described recently by the unfortunate term 'new middle class'. These are the salaried employees in commerce and industry, whose numbers have increased greatly, and who have become the actual managers of production in a hierarchical system, as a result of the development of large-scale production and the corporate form of enterprise. This is a stratum which has grown even more rapidly than the proletariat. The advance towards a higher organic composition of capital involves a relative, and in some cases, or in some branches of industry, an absolute decline in the number of workers. This is not necessarily the case with technical personnel, whose numbers tend rather to increase with the size of the firm, even if not proportionately. For the advance to a higher organic composition of capital means an advance toward the automatic plant, and a change to more complicated machinery. The introduction of new machines makes human labour power superfluous, but it is far from making technical supervision superfluous. The expansion of the mechanized, large-scale capitalist concern is therefore a vital interest of all grades of technical personnel and makes the salaried employees in industry most fervent supporters of large-scale capitalist development.

The development of the joint-stock system has a similar effect. It separates management from ownership and makes management a special function of more highly paid wage earners and salaried employees. At the same time, the higher posts become very influential and well paid positions into which all employees apparently have the opportunity to rise. The interest in a career, the drive for advancement which develops in every hierarchy, is thus kindled in every individual employee and triumphs over his feelings of solidarity. Everyone hopes to rise above the others and to work his way out of his semi-proletarian condition to the heights of capitalist income. The more rapidly corporations have developed, and the larger they have become, the greater also becomes the number of positions, especially the influential and well paid ones. The white collar employees see only this harmony of interests, and since every position seems to be merely a stepping-stone to a higher one they feel less interest in the struggle over their own labour contract than in the struggle of capital to expand its sphere of influence.

This is a stratum which in terms of its ideology and its origins forms part of the bourgeoisie, whose ablest or most ruthless representatives are still rising into the capitalist strata, and who still to some extent have a higher standing than the proletariat because of their income. Members of this stratum come more frequently into contact with capitalist directors, who keep them under close scrutiny and select them very carefully. Any attempt on their part to organize is fought fiercely and implacably. Although development will eventually drive these strata, who are indispensable to production, onto the side of the proletariat, especially when power relations begin to fluctuate, and the power of capitalism, though not yet broken, no longer appears invincible, they are still at present not particularly active in any independent struggle.

Future developments will no doubt gradually change this passive attitude. The decline in opportunities to attain an independent position, which is a consequence of the movement of concentration, obliges the small businessmen and petty capitalists more and more to send their sons into careers as employees. At the same time, as the number of such employees grows, the expenditure on their salaries becomes a more important item in costs, and a tendency arises to depress salary levels. The supply of this kind of labour power is increasing rapidly, but on the other hand there is an increasing division of labour and specialization, even for this highly skilled labour power, in the large firms. Part of the work, which is mechanical in character, is done by less qualified workers; a large modern bank, an electrical corporation, or a department store employs a great many white-collar workers who are little more than trained routine workers, and whose higher education, if they have had one, is more or less a matter of indifference to the employer. They are constantly in danger of being replaced by unskilled, or semi-skilled workers, and women workers offer strong competition, which they have to fight against when the price of their labour power is being determined. Their level of living is declining, and they are only too painfully aware of the fact because they are accustomed to bourgeois pretensions. Furthermore, as the giant concerns expand, it is largely these badly paid positions which increase in number, while there is no corresponding increase in the higher posts. The growth in numbers of giant modern concerns has rapidly increased the demand for all kinds of white-collar workers, but the expansion of existing concerns has by no means involved a similar increase. Moreover, with the consolidation of the joint-stock companies the most remunerative positions are increasingly monopolized by the stratum of big capitalists and the career prospects for white-collar employees deteriorate greatly.

The consolidation of industries and banks into large monopolies brings a further deterioration in the situation of salaried employees. They now confront an overwhelmingly powerful capitalist group; their mobility, and hence the prospect of finding a better job by taking advantage of competition among entrepreneurs for the best employees, becomes uncertain even for the most able and talented among them. The number of salaried employees may also be reduced absolutely as a result of combinations. In the main, this affects the number of highly paid jobs, because management can be streamlined. The rise of combinations, particularly trusts, reduces the number of the highest technical positions, and there is also an absolute reduction in the number of salesmen, commercial travellers, advertising personnel, etc.

But it takes a considerable time for these consequences to make themselves felt in the political attitude of this stratum. Originating in, and recruited from, a bourgeois milieu they continue to adhere for the time being to their old ideology. This is a stratum in which the fear of sinking into the proletariat keeps alive the determination not to be taken for a proletarian, a stratum in which hatred of the proletariat and contempt for proletarian methods of struggle are at their most intense. The commercial clerk- regards it as an insult to be called a worker, whereas a privy councillor, and occasionally even the director of a cartel, enthusiastically claims -this title for himself, though, of course, what the former fears is the identification with a lower social stratum, whereas the latter puts the emphasis on, the ethical value of work. At all events, this ideology keeps the salaried employees at a distance from proletarian views for the time being. On the other hand, the development of corporations, and especially of cartels and trusts, enormously accelerates the pace of capitalist development. The rapid development of the large banks, the expansion of production brought about by the export of capital, the conquest of new markets, all serve, to open up new fields of employment for salaried employees of all kinds. Still divorced from the struggle of the proletariat, they see their best prospects in the expansion of capital's sphere of activity. More educated than the middle class which I described earlier, they are more easily seized by the ideology of imperialism, and because of their interest in the expansion of capital, they become prisoners of its ideology. Since socialism is still ideologically alien to them, and too dangerous in practice, they accept the ideology of imperialism as promising a way out, which offers the prospect of advancement in their careers and increases in their salaries. Although its social position is weak, this stratum of salaried employees has considerable influence in forming public opinion, through its connections with petty capitalist circles and its greater facility in public activities. These are the subscribers to specifically imperialist publications, partisans of racialist theory (which they frequently interpret in terms of competition), readers of war novels, admirers of colonial heroes, agitators and electoral fodder for finance capital.

But this is not a definitive position. The more the expansion of capitalism encounters obstacles which slow down its rate of growth, the more complete the process of cartelization and trustification, and hence the growing predominance of those tendencies which produce a deterioration in the position of salaried employees, so the opposition of these strata to capital (for which they perform the most important as well as the most useless functions in production) will increase. At the same time there will be an increase in the numbers of those who even now constitute a majority, the employees who will remain permanently in subordinate positions, badly paid, working excessively long hours, and reduced to the position of routine workers for capital; and they will be driven increasingly to take up the struggle against exploitation alongside the proletariat. The greater the strength of the proletarian movement and the better its prospects of victory the sooner this will happen.

In the end their common interest in halting the advance of the working class increasingly unites all sections of the bourgeoisie. But the leadership of the struggle has long since passed into the hands of big business.

24. The conflict over the labour contract

The conflict over the labour contract, as is well known, has passed through three stages. In the first stage, the individual manufacturer is opposed by the individual worker. In the second, the individual manufacturer is engaged in conflict with an organization of workers, and in the third, organizations of workers are locked in conflict with employers' organizations.

The function of a trade union is to eliminate competition among workers on the labour market. It tries to achieve a monopoly of the supply of the commodity 'labour power'. Thus it constitutes, in a sense, a quota cartel ; or rather, since it is only a matter here, in relation to the capitalists, of buying and selling this commodity, a 'ring'. But every quota cartel or 'ring' suffers from the weakness that it does not control production, and so cannot regulate the extent of the supply. This weakness is inescapable in the case of a trade union. The production of labour power almost always defies regulation. Only when it is a question of skilled labour power can a workers' organization succeed in curtailing production by taking appropriate measures. A strong trade union of skilled workers, by limiting the number of apprentices, extending the period of apprenticeship, and prohibiting the employment of any but skilled workers, as recognized by the union itself, can restrict the production of such labour power and achieve some kind of monopoly position. A good example is provided by the printing unions which have made it a rule, for instance, that only highly qualified 'skilled' compositors can operate type-setting machines, even though less skilled workers with some technical training would be adequate for the job. Under favourable circumstances a strong trade union may even succeed in reversing the relationship and get a certain type of work recognized as 'skilled', and therefore entitled to a high rate of pay, by recognizing as full-fledged workers only those who have spent a considerable time in the trade. That is the practice, for example, in the English textile industry, whose monopoly position on the world market, which it still retains for some products, favoured the formation of a strong trade union and also made it easier for entrepreneurs to grant concessions since their monopoly position allowed them to pass on the cost of higher wages to consumers.

The effort to control the labour market also gives rise to a tendency to prevent competition from foreign workers by increasing the difficulties of immigration, particularly when it is a question of workers who are accustomed to low levels of living and are difficult to organize. Bans on immigration are intended to perform the same service for the trade union as does the protective tariff for the cartel.

But if the trade union, as an organization of living human beings, is to attain its goal, it can do so only through the will of its members. The establishment of a monopoly presupposes that the workers will sell their labour power only through the union and only on the terms set by the union. The price of labour power has to be removed from the play of the forces of supply and demand. This means, however, that the suppliers, that is to say, the unemployed, must not become active on the labour market at prices other than those which have been set. The price is given, fixed by the will of the trade union, and the supply must adjust itself to that price rather than the price to supply and demand. The trade union thus becomes a form of co-operation between the employed and the unemployed. The unemployed must be kept from entering the labour market, in the same way as a cartel protects the market against a glut by storing products whenever production exceeds the volume of supply which suits the purpose of the cartel. The storage costs correspond to the various forms of assistance given by the unions to the unemployed, but the latter are much more important because they are the only means of restricting the supply, whereas a cartel also disposes of the far more effective means of curtailing production. On the other hand, the aim of keeping the unemployed off the labour market can be achieved by various forms of moral pressure, such as outlawing scabs, explaining how class interests are damaged, and in short by an education in trade unionism which welds the working class into a fighting unit.

The problem for the trade union, as for every other monopoly, is to control the market as fully as possible. But here the trade union encounters formidable obstacles. The transient personal interests of the individual worker often clash with the interests of the class as a whole. The organization requires certain sacrifices: dues, expenditure of time, readiness to engage in struggle. Anyone who remains outside the union earns the good will of his employer and avoids conflicts, unemployment, or demotion. The stronger the trade unions become the more the entrepreneur strives to keep his workers out of them. He substitutes his own social security arrangements for those of the trade union, and deliberately exploits the conflict between personal and class interests.

The trade union struggle is a struggle over the labour contract. The worker reproduces the value of c and creates a new value consisting of (v + s), wages and surplus value. The absolute magnitude of (v + s) depends upon the length of the working day. The shorter the working day the smaller is (v + s); and if v remains the same, the smaller is s. If working time remains the same s increases when v declines and vice versa. But this effect is offset by a change in the intensity of labour; with rising wages and a shortening of working time, the intensity of labour grows. The development of piece work and bonus payment systems represents an attempt to increase the intensity of labour to a maximum at a given level of wages and working hours, while the regulation of the speed at which machines are operated provides an objective means of increasing the intensity of labour. The achievements of the working class in reducing hours of work have certainly not reached, and in some cases are very far from reaching, the point at which they would fully compensate for the increased intensity of labour. However important the reduction of working hours has been for the social condition of workers, and however much this achievement and the struggle for it have raised their physical and cultural level, there can be little doubt that this reduction of working time has not altered the ratio of v to s at the expense of s. It has not affected the rate of profit, and from a purely economic standpoint nothing has changed. However, it should be pointed out in passing that in many industries which require high standards of precision and accuracy, longer hours of work would have been impossible, and that in general the reduction of hours of work has improved the quality of work, accelerated technological progress, and increased relative surplus value. So far as the level of wages is concerned, the connection between wage increases and increased intensity of labour is not quite so clear, but it certainly exists, and it remains extremely doubtful whether the relatively small increase in real wages, especially for unskilled workers, has increased v at the expense of s, or whether, as is far more probable, any rise in wages has been fully compensated by an increase in the intensity of labour. But it must obviously be conceded that a certain period must elapse before there is such a compensating effect, during which s is reduced by the increase in v.

Since the value of a commodity - and in this context, since we are dealing with the social relationship, we can use the shortened expression 'value' [instead of 'exchange value'-Ed.] - is equal to constant plus variable capital plus surplus value (c + v + s), a change in v to which corresponds an opposite change in s has no influence on the price of the commodity, and consequently no effect on consumers. Ricardo demonstrated conclusively that a rise in wages and a reduction in working hours can have no effect on the price of commodities. This is indeed quite evident. The annual social product falls into two parts. The first is a replacement for the means of production (machinery, raw materials, etc.) which have been used up, which has to come out of the total product. The second is the new product which has been created by the productive workers during the course of the year. This is at first in the hands of the capitalists and again comprises two parts, one constituting the income of workers, the other accruing to the capitalists as surplus value. The price of the product to consumers equals the sum of both parts [i.e. replacement plus new product - Ed.] and cannot be altered by the proportion in which the second part is divided between workers and capitalists. It is, therefore, completely nonsensical, from a social standpoint, to maintain that a rise in wages or a reduction in working hours increases the price of the product. Nevertheless, this contention is put forward over and over again, and with good reason.

The conclusion we have just reached is directly valid only for the value of commodities, that is to say, only from the standpoint of society. We know, however, that the value of a commodity undergoes a modification as a result of the attempts to equalize the rate of profit. For the individual capitalist, or the capitalist in a particular branch of industry, however, a rise in wages represents an increase in the cost outlay. Suppose that his wage bill has been 100; then using 100 of constant capital, and with a rate of profit of 30 per cent, he sold the product for 260. If the wage bill now rises to 120, as a result of a successful strike, his cost price will be 220, and if he continues to sell at the old price of 260 his profit will fall from 60 to 40 in absolute terms, while his rate of profit will decline from 30 per cent to slightly less than 19 per cent, far below the average rate of profit. An equalization of the rate of profit will have to take place. This means that a rise in wages in a particular branch of production results in a price increase in that branch of production, which takes place on the basis of the formation of a new general rate of profit lower than the one which previously prevailed. But price increases always encounter resistance; they make sales more difficult, and this in turn works against the increase in price. Contracts at the old prices have to be carried out. Above all, it takes some time to make the price increase effective. Strictly speaking, a migration of capital out of this branch of production should follow, because a price increase reduces the volume of sales, and consequently the supply, that is to say production, must be reduced. This danger that, sales will fall off varies in the different branches of production and hence also the degree of resistance offered by employers to wage demands. It also depends to a large extent upon business conditions and upon the organization of the industry whether such wage increases can be passed on more or less fully, and how quickly this can be done. Given a general rise in wages, the equalization of the altered rate of profit will result in a fall in the prices of products in those industries with an above average organic composition of capital, and a rise in the prices of products in those with an organic composition of capital below the average. Every increase in wages, however, results in a decline in the average rate of profit, although the decline may be very slight and may take effect very slowly, if it results from a wage increase in a single branch of industry.

Since individual capitalists suffer losses before prices settle at their new level, it is only natural that they should offer resistance, and that the resistance should be all the stronger, the lower the rate of profit. We saw earlier that a lower than average rate of profit prevails in small business and petty capitalist spheres of activity, and for this reason resistance will be most vigorously displayed there, while at the same time the ability to resist is least. The trade union struggle is a struggle over the rate of profit from the employers' point of view; a struggle over the level of wages (including the reduction of working time) from the standpoint of the workers. It can never be a struggle to abolish the capital relationship itself, the exploitation of labour power. For the outcome of such a struggle would always be decided in advance; since the object of capitalist production is the production of profit through the exploitation of the worker, it would appear senseless to the entrepreneur to engage in business if exploitation were eliminated. He would therefore stop production, for whatever his personal situation, it could not possibly be improved by continuing to run the business, and in such a case he would have to rely on starving out his workers. If only his own sphere of activity were threatened he would try to save at least a part of his capital by transferring it to another branch of industry. The struggle for the complete abolition of exploitation thus lies outside the scope of purely trade union activity, and can never be brought to a conclusion simply by trade union methods of struggle, as the syndicalist 'theory' would have us believe. Even where it assumes a trade union form, as in the mass strike, it is not a question of a struggle against the economic position of the entrepreneur, but of a struggle for power waged by the working class as a whole against the organized power of the bourgeoisie, the state. The economic damage inflicted upon the entrepreneur is never more than an auxiliary weapon in the struggle to disrupt the power apparatus of the state. This political task can never be the responsibility of the trade unions as such, but simply brings the trade union form of organization into the service of the political struggles of the proletariat.

But if the trade union struggle is concerned with the rate of profit, it follows that there are definite limits to the objectives that a trade union can pursue. For the employer, it is a matter of calculating whether he is in a position to put the new price level into effect, whether his losses during the transition period will not exceed the losses incurred through a prolonged strike, and finally whether there is not some possibility for him to invest his capital elsewhere, in a branch of production where the rate of profit is not directly affected by the outcome of a strike. It follows from this, however, that certain limits are set in advance to every particular trade union struggle, which it is the difficult task of the trade union leadership to recognize, and which determine their tactics. It also follows that a trade union can as a rule operate more successfully the higher is the rate of profit; whether it is generally higher, as in a boom, or higher in a particular branch of production, in consequence of its monopoly position, the achievement of extra profit through patents, etc. It is beyond the scope of this study to investigate these conditions in detail, but it will be useful to discuss briefly some general aspects of the changes in the power relations between the two classes.

It is obvious that the rise of employers' organizations involves a change in the balance of power between capital and labour. As a rule, the development of employers' organizations has been regarded, quite correctly, as a reaction to the organization of labour. But the pace of their development, as well as their power, depends essentially upon the change in the structure of industry, upon the concentration and monopolization of capital. As long as the isolated employer confronted an organized workforce the trade union had a great many measures available to it which the development of employers' organizations has now rendered ineffective. With the concentration of capital the power of the employer in the struggle over the labour contract increases, but at the same time the possibilities of organization for the more concentrated workforce also increase. Variations in the size of enterprises are responsible for quite different degrees of resistance to trade unions. The more fragmented an industry is, and the smaller the average size of the firms, the greater, in general, is the power of the trade union. Within the same industry, moreover, the power of the trade union is greater in small and medium-size firms than in the large concerns, simply because the small firms, already hard pressed by competition from the large ones, are far less able to sustain the losses involved in a struggle. The struggle of the trade unions generally promotes the trend towards large firms, and hence the growth of productivity, technological progress, a reduction in costs of production, and the emergence of relative surplus value; and in this way it creates the preconditions for obtaining new concessions.

As long as trade unions confront individual employers their position is a favourable one. They can bring their concentrated power to bear upon the isolated employer. The wage struggle is thus decomposed into a series of individual strikes. The workers of the employer concerned are supported by the whole financial strength of the trade union, which does not diminish during the struggle because the members who are still working continue to pay their dues, and perhaps special levies. The employer has to fear that his customers will be taken from him by employers who continue to produce, and that his sales will be considerably reduced even after the strike has ended. He has to make concessions, and from that moment it is in his interest that the terms to which he has agreed should become general throughout the industry, that all the other employers, whether voluntarily or under duress, should concede the same terms of employment. The isolation of the employers enables the trade unions to compel them to come to terms one after the other, through systematically conducted individual strikes, without these strikes putting too great a strain upon the resources of the unions themselves. Their successes increase their power by increasing membership and income from dues, and they emerge from the struggle stronger than before. It is clear that these tactics can be employed all the more successfully, the more tenuous the co-operation between employers, the keener the competition among them, the greater the number of employers involved, and the smaller the power of resistance of each individual employer. All these conditions obtain in those branches of activity in which small and medium-size firms predominate, and it is here that the influence and power of the unions is greatest. Large-scale industry, which can make far more accurate calculations, resists such individual strikes much more strongly, because the large firms are far more insistent on the greatest possible equality of production costs. In this case a strike can only be successful if it is general throughout the industry. An individual strike encounters much greater resistance which is far more difficult to overcome because the power of even a single large employer is far more considerable, and an understanding among a relatively small number of employers can be achieved more rapidly. But the more powerful trade unions become, the stronger too is the resistance they evoke on the part of employers. The combination of workers is now confronted by the combined power of the employers. Since the influence of trade unions is greatest in the small and medium-size enterprises, it is here that resistance will also show itself most strongly. In fact, the organization of employers begins in handicraft production and in the smaller finished goods industries, where the power of the unions is most strongly felt, and where it grows most rapidly in periods of boom. But even though the establishment of employers' associations must unquestionably be regarded as a reaction to the trade unions, and therefore occurs first in the light industries, it is by no means confined to that sphere. Cartelization and trustification merge the interests of the participating capitalists much more strongly and indissolubly, and make them a united body vis à vis the working class. The elimination of competition is not confined to the labour market - as it is in the case of the uncartelized light industries - and so the solidarity of employers is enhanced to a much greater extent. It may even go so far as to make any special organization unnecessary in those branches of industry where the position of employers is strongest. The coal syndicate makes an employers' association superfluous, and the Steel Trust makes it impossible. Even if it were true, as is always claimed officially, that German cartels do not concern themselves with labour matters, a united front of employers is taken for granted, and it is just their strength which make the specific functions of an employers' association (such as assistance during strikes) superfluous, since a 'friendly understanding' suffices in each particular case. Even here, however, a trend towards the formation of employers' associations is becoming apparent.

The formation of employers' associations makes it more difficult, if not impossible, for a trade union to achieve success in an isolated struggle, since the individual employer is now backed by his organization, which compensates him for his losses, ensures that the striking workers do not find other jobs, and makes every effort to fill the firm's most pressing orders itself. If necessary it resorts to stronger measures, and takes the offensive by extending the struggle and declaring a lockout in order to weaken the union and force it to capitulate. In such a struggle between the combined employers and the trade unions, the employers' organization is quite often the stronger of the two.

An employers' association creates the possibility, in principle, of deferring a conflict. As long as labour organizations are in conflict with individual employers the choice of timing rests with the workers, and timing is a decisive factor in determining the outcome of a struggle. A work stoppage is most damaging during a boom, when the rate of profit is at its highest and the opportunities for extra profit are greatest, and in order not to lose his whole profit even a major employer would try to avoid a conflict at such a time, for the opportunity to earn that profit will not recur, at least not until the next boom. From the standpoint of the union's chances of success, a strike should be called at a time when production is at its maximum, and it is one of the difficult tasks of trade union educational work to persuade the members of the wisdom of these tactics. For it is precisely at this time that workers' incomes are highest, as a result of regular employment and overtime, and the psychological incentive to go on strike is consequently weakest. This also explains why most strikes occur during a period of prosperity before the peak of the boom is reached.

This choice of timing, however, ceases to be the prerogative of the trade unions once the employers' organization becomes well established, for the latter can now determine the time of the conflict. For them the lockout is a form of preventive war, which can best be waged during a depression when overproduction makes it quite useful to halt production, and the workers' power of resistance is at its lowest because of the excessive supply of labour on the market and the financial weakening of their organizations as a result of the large demand for financial aid and the decline in membership. This ability to postpone the occurrence of a conflict, which results from the development of an employers' organization, in itself represents a massive transfer of power.

The same causes, however, which lead to the formation of employers' organizations also strengthen the trade unions, which now become a refuge for workers everywhere who do not want to be left entirely at the mercy of their employers. The fighting measures adopted by employers are also directed against those who have hitherto remained aloof from unions. Lockouts, and particularly general lockouts, provide very powerful incentives for previously unorganized workers to join the unions, and the rapid growth of membership increases their strength. The employers' associations try to counter this development by a continuing struggle against the trade unions. They attempt, by a process of careful selection, to retain unorganized workers, rather than those who are organized, in employment. The proficiency certificates of the employers' associations systematically give preference to unorganized over organized workers, and the most dangerous among the latter are proscribed by the use of blacklists. By organizing 'yellow' company unions - institutions for breeding class traitors - the employers try to divide the workers with the aid of bribes and the granting of special privileges, and to ensure the availability of a strike-breaking squad. By refusing to negotiate with the union leaders they seek to undermine their moral influence. But they are fighting a vain battle, for in the final analysis the class interests of the workers are identical with their personal interests, and the trade union organization has become a matter of life and death for them. But the battle does retard the progress of the trade union movement and restrict its influence.

Just as in the period before employers' organizations existed the individual employer's power of resistance varied according to the size of the enterprise, so now the power of resistance of employers' organizations varies according to their composition. The associations in large-scale industry are the strongest, and within this group especially those in the large cartelized industries which do not have to fear the desertion or business failure of any of their members. They can rest assured that no competitor will derive any advantage from a stoppage of their plants, and where their monopoly is assured and foreign competition is of little consequence, thanks to the protective tariff, they can ultimately make up the losses sustained in a strike. Orders which have been delayed can be filled later, and the dearth of commodities resulting from the stoppage makes possible price increases, and hence the unloading of losses from the strike onto others.

Here, therefore, resistance is at its strongest, and a struggle against the trade unions easiest to undertake. Hence these industries become the leaders in the struggle of all employers' associations, and the champions of the common interests of employers in their conflict with the working class. The more the small capitalists are forced to make concessions to the trade unions, and the more ominous the power of the workers appears to them, the greater is their sense of solidarity with the big industrialists, the champions of their own cause.

The fact that the weaker associations have to come to terms with trade unions, though on more favourable conditions than was the case previously for individual employers, makes no difference. For them too, the association has eliminated the greatest dangers. It has been able to impose a strike clause for the entire industry, prevent outsiders from taking advantage of the situation by its ability to cut off supplies, thus making suppliers its allies in the struggle, and finally, assure equality in the conditions of competition, under all circumstances, by preventing individual employers from concluding separate agreements. This is best done by the conclusion of an industry-wide agreement on wage rates and conditions of employment. Such an agreement is also in the interests of the trade unions because it immediately extends any gains which have been achieved to the whole industry. Its disadvantage is that it fixes the date for a renewal of the contract in advance, and so deprives the union of its ability to decide the timing of a conflict. But since the very existence of an employers' association has already deprived the union of an exclusive power to decide when to renew the conflict, this circumstance affects both organizations in the same way. Nevertheless, this introduces a fortuitous element into the coming conflict, and a strong union will therefore try to avoid any wage agreement the duration of which may make it impossible to take advantage of a boom period.

The existence of an employers' organization has the further advantage for the employers that it makes it easier for them to pass on any increase in costs of production. We know that a successful strike means an immediate reduction below the average rate of profit of the industry affected. The equalization which must ensue through an increase in prices is facilitated and expedited by the common procedure which an employers' association can easily arrange in such an event, and this can be done even in noncartelized industries because the increase in prices corresponds to the changed cost prices. Hence it is precisely the small capitalists in the noncartelized finished goods industries who are disposed to conclude industry wide agreements.

Here too arise those trends which lead to the conclusion of trade alliances. Industries which are not yet capable of forming cartels, because technological factors have kept them fragmented, try to secure a monopoly for themselves by closing the labour market to outsiders. They leave it to the trade union to do this for them, and the combined employers then have a cartel which the trade union protects against the competition of outsiders. The extra cartel profit is shared between employers and workers, thus giving the workers a stake in the existence of the cartel.

The relationships which prevail in cartelized industry are different. Here the rate of profit has already reached the highest possible level under the existing conditions of production. The price is equal, or roughly equal, to the world market price plus the protective tariff plus transport costs. In this case a wage increase cannot be passed on, and the resistance to such increases is therefore exceptionally strong. Furthermore, since the high cartel profit is already taken into account in the price of shares, a reduction in profit depresses share prices and provokes resistance from shareholders to any concessions by the directors. Their resistance is reinforced by the interests of the banks, for whom a smaller profit means smaller promoter's gains when a new share issue is made. On the other side, there is also greater resistance, for psychological reasons, from the non-working, appointed directors of the company, who have lost all contact with the workers and appear to them as representatives of alien interests. Any inclination on the part of an employer who takes personal responsibility to make concessions from time to time seems to these directors a dereliction of duty. The last vestige of personal contact disappears from the relations between workers and capitalists, and the provisions of the labour contract become a question of power, totally divorced from any sentimental considerations.

The features of the industry-wide agreement which the employer finds valuable are those such as the guarantee of equality of costs, which the cartels in any case achieve through the concerted action of employers, or the guarantee of industrial peace over a certain period of time, which the cartels attain through industrial conflict on a scale that precludes frequent disputes. All that remains then is the disadvantage that industry-wide agreements constrain employers in their choice of timing for the next struggle, and have a propaganda value for the unions. Hence the rejection of such agreements in the cartelized sphere. Furthermore, the possibility of forming a cartel without trade union help makes a trade alliance, with its sharing of the extra cartel profit, entirely unnecessary. The position of industries which are primarily engaged in exporting is similar to that of cartelized industry, since their prices are determined on the world market and it is more difficult to pass on wage increases.

The development of employers' and workers' organizations enhances the general social and political significance of wage conflicts. The guerrilla war of the trade unions against individual employers has given way to mass struggles which affect whole branches of industry, and if they grip the most vital sectors of production, which have become interdependent through the division of labour, they threaten to bring all social production to a standstill. The trade union struggle thus expands beyond its own sphere, ceases to be the concern only of the employers and workers directly affected, and becomes a general concern of society as a whole, that is to say, a political phenomenon. At the same time it has become increasingly difficult to bring such conflicts to an end by trade union methods alone. The more powerful the employers' organization and the trade union, the more protracted is the struggle. The question of raising wages and diminishing profits becomes a problem of power. Employers become unshakeably convinced that every concession they make will weaken their future position and enhance the moral and actual power of the trade unions; that a victory today is bound to mean future victories for the trade unions. They want to decide the conflict once and for all, and are prepared to pay the costs of warfare if it will ensure them the upper hand for a long time to come. Their capital is large enough for them to hold out, and to hold out longer than the trade unions whose resources are rapidly depleted by payments to strikers. But the conflict does not remain confined to one particular sphere of industry; it extends to others which supply raw materials, components, etc., and they too have to shut down plants and dismiss workers. This is a situation which provokes increasing bitterness among workers, and more widely in the retail trade which depends upon working class custom, and it may lead to major social and political confrontations. There is growing pressure from those who are not directly involved to end the original wage conflict, and since there is no other means available for this purpose they call for intervention by the state. The question of ending the strike is thus transformed from a trade union question into one of political power, and the more the balance of power has tilted in favour of the employers as a result of the growth of employers' organizations the more vital it is for the working class to secure for itself the strongest possible influence in political bodies, and to have representatives who will take up boldly and independently the interests of the workers against those of the employers and help them to be victorious. Such a victory, however, will not be achieved by political action alone, which indeed can only be undertaken successfully if the trade unions are strong enough to wage the purely economic struggle with such intensity and vigour that the reluctance of the bourgeois state to intervene in labour questions, against the interests of employers, has already begun to break down, and the political representatives of labour have only to complete the process. Far from the working class being able to dispense with the trade unions and to replace them by a political struggle, the increasing strength of trade union organizations is indispensable for success. But however strong the trade unions are, the very scale and intensity of their struggles gives them a political character and demonstrates to workers organized in the trade unions how trade union activity is necessarily complemented by political action. Hence a point is inevitably reached in trade union development when the formation of an independent political labour party becomes a requirement of the trade union struggle itself. Once an independent political party of the workers exists its policy is not confined for long to those issues which led to its creation, but becomes a policy which seeks to represent the class interests of workers as a whole, thus moving beyond the struggle within bourgeois society into a struggle against bourgeois society.

On the other hand, the increasing strength of employers' organizations does not by any means make the trade union struggle either unnecessary or hopeless. It would be a very partial view if we were to conclude that because the employers' organization has the ability to hold out patiently until the workers are exhausted, their trade union is financially destitute, and those who are ready to return to work gain the upper hand, trade union struggles must always end in defeat and lockouts must always be successful. For it is not simply a question of power, but of calculating the effect on the rate of profit. A lockout or strike in a period of boom always involves such great losses that it may be more advantageous for employers to accede to wage demands in order to avoid a conflict. Even a trade union previously weakened by a lockout can summon enough strength to wring concessions from employers during a period of boom, although in such a case, of course, since the union also fears the cost of the struggle, these concessions would be more limited in scope than in the days when the trade unions did not yet confront any employers' organizations.

25. The proletariat and imperialism

The economic policy of the proletariat is fundamentally opposed to that of the capitalists, and the position adopted on every particular issue is marked by this antagonism. The struggle of wage labour against capital is first of all a struggle for that part of the new value in the annual product created by the working class (including the productive salaried employees and the managers of production). The immediate occasion for this struggle is the labour contract, and it then prolongs itself in the conflicts over the economic policy of the state. In commercial policy, the interests of the workers require, first and foremost, an expansion of the domestic market. The higher their wages, the larger is that part of the new value which constitutes a direct demand for commodities, and more particularly for consumer goods. But the expansion of the consumer goods industries, and of the finished goods industries in general, means an enlargement of those spheres which have generally a lower organic composition of capital, or in other words, of industries which are able to employ large numbers of workers. This brings about a rapid increase in the demand for labour and hence a more favourable position for the worker on the labour market, strengthens trade union organizations, and improves their prospects of victory in any new wage struggles. The interests of the employers are just the reverse. An enlargement of the domestic market through wage increases means a fall in their rate of profit, with the prospect of further reductions, and this in turn slows down accumulation. At the same time their capital is forced into the finished goods industries where competition is keenest and the possibilities of cartelization most limited. It is true, of course, that they have an interest in expanding the market, but not at the expense of the rate of profit; and they can attain their end by expanding the external market, while the domestic market remains the same. A part of the new product does not then go into the incomes of workers, and does not increase the demand for domestic products, but is invested as capital employed in production for the foreign market. In that case the rate of profit is higher and accumulation more rapid. The commercial policy of the entrepreneurs is accordingly directed primarily to the foreign market, that of the workers to the domestic market, manifesting itself particularly in the form of a wage policy.

As long as protective tariffs are 'educational' tariffs, mainly for the finished goods industries, they do not conflict with the interests of wage labour. Of course, they hurt the worker as a consumer, but they also promote industrial development and can therefore recompense him as a producer, if the trade unions are sufficiently developed to take advantage of the situation. Those who suffer most in this period are the artisans, those engaged in domestic production, and peasants, rather than factory workers. It is a different matter, however, when the protective tariff becomes a tariff for cartels. We know that cartels emerge principally in those branches of production which have the highest organic composition of capital, and the generation of extra profit in these spheres hinders the development of the finished goods and consumer goods industries. At the same time the increase in food prices which is caused by the unavoidable combination of agricultural tariffs with the industrial tariffs involves a decline in real wages and therefore a contraction of the domestic market in so far as it is determined by the demand of workers for industrial products. Thus the worker suffers both as consumer and as producer through the damage done to those industries which are labour-intensive. Cartelization also strengthens the employers' position on the labour market and weakens that of the trade unions. Furthermore, the cartel tariff provides the strongest incentive to increase capital exports, and it necessarily leads to the expansionist policy of imperialism.

We have seen that the export of capital is a condition for the rapid expansion of capitalism. In social terms, this expansion is an essential condition for the perpetuation of capitalist society as a whole, while economically it is a condition for maintaining, and at times increasing, the rate of profit. The policy of expansion unites all strata of the propertied classes in the service of finance capital. Protective tariffs and expansion thus become the common demand of the ruling class. The abandonment of the free trade policy by the capitalist classes makes it a lost cause. For free trade is not a positive demand of the proletariat, only a means of defence against a protectionist policy which involves more rapid and thorough cartelization, accompanied by an increase in the strength of employers' organizations, intensification of national antagonisms, increasing armaments, a growing burden of taxes, a rise in, the cost of living, a growth in the power of the state, the weakening of democracy, and the emergence of an ideology which glorifies force and is hostile to labour. Once the bourgeoisie has abandoned free trade the struggle for it becomes quite futile, for the proletariat alone is certainly too weak to impose its policy upon the rulers.

But this does not mean at all that the proletariat must now become converted to the modern protectionist policy which is indissolubly bound up with imperialism. The fact that it has recognized the necessity of this policy for the capitalist class, and therefore its ascendancy so long as the capitalist class wields power, is no reason for the proletariat to forego a policy of its own and capitulate to the policy of its enemies, or to succumb to any illusions about the alleged benefits which the generalization and intensification of exploitation would mean for its situation as a class. But this does not prevent the proletariat from perceiving that imperialist policy spreads the revolution which capitalism entails, and along with it the conditions for the victory of socialism. Nevertheless, however strong its conviction that the policy of finance capital is bound to lead towards war, and hence to the unleashing of revolutionary storms, it cannot abandon its implacable hostility to militarism and the war policy, nor can it in any way support capital's policy of expansion on the ground that this policy may prove to be, in the end, the most powerful factor in its own eventual triumph. On the contrary, victory can come only from an unremitting struggle against that policy, for only then will the proletariat be the beneficiary of the collapse to which it must lead, a collapse which will be political and social, not economic; for the idea of a purely economic collapse makes no sense.

Protective tariffs and cartels mean a rise in the cost of living. Employers' organizations increase capital's power to resist the onslaught of the trade unions. Armaments and colonial policy lead to a rapid growth in the burden of taxes imposed on the proletariat. The inevitable outcome of this policy, a violent collision between capitalist states, will bring an unparalleled increase in misery. All these forces which revolutionize the mass of the people can only be made to serve a reconstruction of the economy if the class which is destined to become the creator of a new society anticipates in thought the policy as a whole and its necessary outcome. This can only happen if the inevitable consequences of such a policy, inimical to the interests of the mass of the people, are explained to the people again and again ; and this, in turn, can only be achieved through a steadfast, relentless struggle against the policy of imperialism.

While capital can pursue no other policy than that of imperialism, the proletariat cannot oppose to it a policy derived from the period when industrial capital was sovereign; it is no use for the proletariat to oppose the policy of advanced capitalism with an antiquated policy from the era of free trade and of hostility to the state. The response of the proletariat to the economic policy of finance capital - imperialism - cannot be free trade, but only socialism. The objective of proletarian policy cannot possibly be the now reactionary ideal of reinstating free competition by the overthrow of capitalism. The proletariat avoids the bourgeois dilemma - protectionism or free trade - with a solution of its own; neither protectionism nor free trade, but socialism, the organization of production, the conscious control of the economy not by and for the benefit of capitalist magnates but by and for society as a whole, which will then at last subordinate the economy to itself as it has been able to subordinate nature ever since it discovered the laws of motion of the natural world. Socialism ceases to be a remote ideal, an 'ultimate aim' which serves only as a guiding principle for 'immediate demands', and becomes an essential component of the immediate practical policy of the proletariat. It is precisely in those countries where the policy of the bourgeoisie has been put into effect most fully, and where the most important social aspects of the democratic political demands of the working class have been realized, that socialism must be given the most prominent place in propaganda, as the only alternative to imperialism, in order to ensure the independence of working class politics and to demonstrate its superiority in the defence of proletarian interests.

Finance capital puts control over social production increasingly into the hands of a small number of large capitalist associations, separates the management of production from ownership, and socializes production to the extent that this is possible under capitalism. The limits of capitalist socialization are constituted, in the first place, by the division of the world market into national economic territories of individual states, a division which can only be overcome partially and with great difficulty through international cartelization, and which also prolongs the duration of the competitive struggle which the cartels and trusts wage against one another with the aid of state power. Socialization is also limited by another factor which should be mentioned here for the sake of completeness; namely, the formation of ground rent, which is an obstacle to concentration in agriculture; and finally, by measures of economic policy intended to prolong the life of medium and small enterprises.

The tendency of finance capital is to establish social control of production, but it is an antagonistic form of socialization, since the control of social production remains vested in an oligarchy. The struggle to dispossess this oligarchy constitutes the ultimate phase of the class struggle between bourgeoisie and proletariat.

The socializing function of finance capital facilitates enormously the task of overcoming capitalism. Once finance capital has brought the most importance branches of production under its control, it is enough for society, through its conscious executive organ - the state conquered by the working class - to seize finance capital in order to gain immediate control of these branches of production. Since all other branches of production depend upon these, control of large-scale industry already provides the most effective form of social control even without any further socialization. A society which has control over coal mining, the iron and steel industry, the machine tool, electricity, and chemical industries, and runs the transport system, is able, by virtue of its control of these most important spheres of production, to determine the distribution of raw materials to other industries and the transport of their products. Even today, taking possession of six large Berlin banks would mean taking possession of the most important spheres of large-scale industry, and would greatly facilitate the initial phases of socialist policy during the transition period, when capitalist accounting might still prove useful. There is no need at all to extend the process of expropriation to the great bulk of peasant farms and small businesses, because as a result of the seizure of large-scale industry, upon which they have long been dependent, they would be indirectly socialized just as industry is directly socialized. It is therefore possible to allow the process of expropriation to mature slowly, precisely in those spheres of decentralized production where it would be a long drawn out and politically dangerous process. In other words, since finance capital has already achieved expropriation to the extent required by socialism, it is possible to dispense with a sudden act of expropriation by the state, and to substitute a gradual process of socialization through the economic benefits which society will confer.

While thus creating the final organizational prerequisites for socialism, finance capital ;also makes the transition easier in a political sense. The action of the capitalist class itself, as revealed in the policy of imperialism, necessarily directs the proletariat into the path of independent class politics, which can only end in the final overthrow of capitalism. As long as the principles of laissez-faire were dominant, and state intervention in economic affairs, as well as the character of the state as an organization of class domination, were concealed, it required a comparatively mature level of understanding to appreciate the necessity for political struggle, and above all the necessity for the ultimate political goal, the conquest of state power. It is no accident, then, that in England, the classical country of nonintervention, the emergence of independent working class political action was so difficult. But this is now changing. The capitalist class seizes possession of the state apparatus in a direct, undisguised and palpable way, and makes it the instrument of its exploitative interests in a manner which is apparent to every worker, who must now recognize that the conquest of political power by the proletariat is his own most immediate personal interest. The blatant seizure of the state by the capitalist class directly compels every proletarian to strive for the conquest of political power as the only means of putting an end to his own exploitation.

The struggle against imperialism intensifies all the class contradictions within bourgeois society. The proletariat, as the most decisive enemy of imperialism, gains support from other classes. Imperialism, which was initially supported by all other classes, eventually repels its followers. The more monopolization progresses the greater is the burden which extra profit imposes upon all other classes. The rise in the cost of living brought about by the trusts reduces living standards, and all the more so because the upward trend in food prices increases the cost of the most essential necessities of life. At the same time the tax burden increases, and this also hits the middle classes, who are increasingly in revolt. The white collar employees see their career prospects fade, and begin to regard themselves more and more as exploited proletarians. Even the middle strata in commerce and industry become aware of their dependence upon the cartels, which transform them into mere agents working on commission. All these contradictions are bound to become unbearably acute at the moment when the expansion of capital enters a period of slower development. This is the case when the development of corporations and cartels no longer proceeds so rapidly, and when the emergence of new promoter's profits, together with the drive to export capital, slows down. And it is bound to slow down when the rapid opening up of foreign countries by the introduction of capitalism tapers off. The opening up of the Far East, and the rapid development of Canada, South Africa and South America, have made a major contribution to the dizzy pace of capitalist development, interrupted only by brief depressions, since 1895. Once this development begins to slow down, however, the domestic market is bound to feel the pressure of the cartels all the more acutely, for it is during periods of depression that concentration proceeds most rapidly. At the same time, as the expansion of the world market slows down, the conflicts between capitalist nations over their share in it will become more acute, and all the more so when large markets which were previously open to competition, such as England, for example, are closed to other countries by the spread of protective tariffs. The danger of war increases armaments and the tax burden, and finally drives the middle strata, whose living standards are increasingly threatened, into the ranks of the proletariat, which thus reaps the harvest of the decline in the power of the state, and of the collisions of war.

It is a historical law that in all forms of society based upon class antagonisms the great social upheavals only occur when the ruling class has already attained the highest possible level of concentration of its power. The economic power of the ruling class always involves at the same time power over people, disposal over human labour power. But that itself makes the economic ruler dependent upon the power of the ruled, and in augmenting his own power he simultaneously increases the power of those who stand opposed to him as class enemies. As subjects, however, the latter appear to be powerless. Their power is only potential, and can only materialize in the struggle to overthrow the power of the ruling class, while the power of the ruler is self-evident. Only in a collision between the two powers, in revolutionary periods, does the power of the subjects prove to be a reality.

Economic power also means political power. Domination of the economy gives control of the instruments of state power. The greater the degree of concentration in the economic sphere, the more unbounded is the control of the state. The rigorous concentration of all the instruments of state power takes the form of an extreme deployment of the power of the state, which becomes the invincible instrument for maintaining economic domination; and at the same time the conquest of political power becomes a precondition of economic liberation. The bourgeois revolution only began when the absolutist state, having overcome the autonomous regional power of the large landowners, had concentrated in its own hands all the means of power; and the concentration of political power in the hands of a few of the largest landowners was itself a precondition for the victory of the absolute monarchy. In the same way the victory of the proletariat is bound up with the concentration of economic power in the hands of a few capitalist magnates, or associations of magnates, and with their domination of the state.

Finance capital, in its maturity, is the highest stage of the concentration of economic and political power in the hands of the capitalist oligarchy. It is the climax of the dictatorship of the magnates of capital. At the same time it makes the dictatorship of the capitalist lords of one country increasingly incompatible with the capitalist interests of other countries, and the internal domination of capital increasingly irreconcilable with the interests of the mass of the people, exploited by finance capital but also summoned into battle against it. In the violent clash of these hostile interests the dictatorship of the magnates of capital will finally be transformed into the dictatorship of the proletariat.