Capital and Imperialism: Theory, History, and the Present Read online

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  PAST RECIPIENTS

  Imperialism in the Twenty-first Century: Globalization, Super-Exploitation, and Capitalism’s Final Crisis John Smith

  The Age of Monopoly Capital: Selected Correspondence of Paul A. Baran and Paul M. Sweezy, 1949–1964 Edited and annotated by Nicholas Baran and John Bellamy Foster

  Value Chains: The New Economic Imperialism Intan Suwandi

  THEORY, HISTORY, AND THE PRESENT

  Capital and Imperialism

  Utsa Patnaik Prabhat Patnaik

  MONTHLY REVIEW PRESS

  New York

  Copyright © 2021 by Utsa Patnaik and Prabhat Patnaik

  Published by Monthly Review Press

  All Rights Reserved

  Library of Congress Cataloging-in-Publication Data available from the publisher

  ISBN paper: 978-158367-890-9

  ISBN cloth: 978-1-58367-891-6

  Typeset in Bulmer Monotype

  MONTHLY REVIEW PRESS, NEW YORK

  monthlyreview.org

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  Contents

  Preface

  PART 1

  1 A Money-Using Economy

  2 Money in Some Theoretical Traditions

  3 The Marxian System and Money

  4. Capitalism and Its Setting

  5 Increasing Supply Price and Imperialism

  PART 2

  6 Periods in Capitalism

  7 The Myth of the Agricultural Revolution

  8 Capitalism and Colonialism

  9 Colonialism before the First World War

  10 Further on Colonial Transfers and Their Implications

  PART 3

  11 The Unraveling of the Colonial Arrangement

  12 A Perspective on the Great Depression

  13 Public Policy and the Great Famine in Bengal, 1943–44

  PART 4

  14 Postwar Dirigisme and Its Contradictions

  15 The Long Postwar Boom

  16 The End of Postwar Dirigisme

  PART 5

  17 The Neoliberal Regime

  18 Inequality and Ex Ante Overproduction

  19 Capitalism at an Impasse

  PART 6

  20 Capitalism in History

  21 The Road Ahead

  Notes

  Index

  For Akeel Bilgrami and C. P. Chandrasekhar

  Preface

  The pervasive tendency on the part of practitioners of theoretical economics has been to analyze capitalism as a closed self-contained system. This is logically untenable, and it also gives a misleading picture of its actual history. The purpose of this book is to counter this theoretical perspective. Here we put forward the proposition that not only has capitalism always been historically ensconced within a pre-capitalist setting from which it emerged, with which it interacted, and which it modified for its own purposes, but additionally that its very existence and expansion is conditional upon such interaction.

  The first five chapters of the book, which mainly deal with and provide critiques of accepted theory, argue that a closed self-contained capitalism in the metropolis is a logical impossibility. In later chapters we discuss the specific ways in which capitalism has shaped, and continues to shape, its pre-capitalist environment to suit its needs. This provides a reading of the history of capitalism that is very different from the usual reading. This history is captured from our particular theoretical perspective, and is not meant to be an attempt to provide a comprehensive account of the system in all its facets.

  This book is the product of a long period of thought and work, in the course of which we have accumulated a large intellectual and personal debt to numerous friends and colleagues. It is not possible to mention all of them, but it would be invidious not to mention some.

  For any student of political economy belonging to our generation, the intellectual debt to Irfan Habib and Amiya K. Bagchi is incalculable. In addition, we gratefully acknowledge the interaction and encouragement we received from Akeel Bilgrami, Sayera Habib, Sunanda Sen, Carol Rovane, Radhika Desai, Akbar Noman, C. P. Chandrasekhar, Jayati Ghosh, Indu Chandrasekhar, Praveen Jha, Nishad Patnaik, and Rajendra Prasad. None of them, however, bears any responsibility for the views expressed in this book, which, whatever their worth, are our own.

  Finally, we owe a deep debt of gratitude to Michael Yates, Colin Vanderburg, and Erin Clermont for their help in bringing the manuscript to its present shape.

  —UTSA PATNAIK

  —PRABHAT PATNAIK

  PART 1

  CHAPTER 1

  A Money-Using Economy

  The conceptual representation of capitalism that is analyzed in economic theory in almost all its major strands has not only been significantly different from the reality of the system but is also logically flawed. Such a claim on our part may appear as hyperbole at first sight, but we make it in all seriousness. And in making it, we do not wish to cast any aspersions on the luminaries of the discipline; we only wish to underscore that economics has been perennially afflicted by a blind spot caused by being developed essentially within a metropolitan location. The purpose of this book is to establish the limited, and hence flawed, nature of this perception that afflicts the subject, and to provide an alternative conceptual representation of capitalism that is both theoretically and empirically better grounded than what economic theory has offered till now.

  The conceptual representation in economic theory, from its inception, has basically been of an isolated capitalist economy, where, in its simplest version, only capitalists and workers exist, with the state ensuring that law and order prevails and the rules of the game of the system are followed. When international trade has been introduced into this picture, it has been trade among such isolated capitalist economies, and therefore, though enlarging the unit of analysis, adds little of substance to the basic conclusions. Now, a major logical flaw in this representation is that such an isolated capitalist economy simply cannot be a money-using capitalist economy in any meaningful sense. A money-using capitalist economy, in other words, has requirements that no isolated capitalist economy of the sort highlighted in economic theory can possibly fulfill. Let us examine some of the implications of money-use.

  Say’s Law and the Wealth Demand for Money

  Money has long been a medium of circulation. A money-using economy, above all, is one in which a certain amount of money is always kept in the possession of economic agents for managing transactions, meeting what economists call the “transaction demand for money.”

  The money held for transaction purposes can be visualized as follows: Economic agents sell commodities, including in the case of workers their labor-power, obtain money in exchange for the sale, and use this money for buying the commodities they need. Since there is a time-lag in the case of each agent between sale and purchase, money is held by each in the interim period. Aggregated across all economic agents at any point of time, this is the total amount of money-stock held for managing transactions in an economy.

  Some money, however, may be held by each economic agent in excess of wha
t the agent would normally hold at any point of time for transaction purposes alone. It represents a command over goods and services that is never actually transformed over any given period into goods and services. It is simply a form in which economic agents hold their wealth.

  Economic theory, apart from certain heterodox traditions that we will discuss later, posits that though money is certainly held for transaction purposes, it cannot possibly be held as wealth, since it is a barren asset that earns nothing. Any individual holding wealth in the form of money is certainly not acting in his or her best interests, since if this wealth would have been held in some non-money form, it would have fetched the owner a positive rate of return, which money in itself does not.

  But non-heterodox economic theory does not hold this view as a plausible reading of the world. The very foundations of non-heterodox economic theory rest upon the assumption that money is not held as a form of wealth, above and beyond what is needed for transaction purposes. Let us see why.

  The amount of money held for transaction purposes can be said to have a certain fixed ratio to the money value of the total transactions of goods and services in the economy. The wealth demand for money, however, if there is such a wealth demand, would depend upon all sorts of other factors, a prominent one among which must be the expected rate of return on other assets in terms of which wealth could alternatively be held. In short, the wealth demand for money would depend inter alia upon expectations about the future.

  Now, there could be occasions when, starting from a state where wealth is held by individuals in the form of both money and capital stock, the expected rate of return on capital stock (or claims upon capital stock in the form of equity and bonds) falls. This would prompt wealth-holders to hold more of their wealth in the form of money than in the form of capital stock (or claims on capital stock). When this happens, then ceteris paribus the price of capital stock will decline in terms of money.

  This would lower the production of new capital goods, because, assuming for simplicity that old and new capital goods are identical in terms of their effectiveness, since their prices must be the same and equal, in a competitive situation, to the marginal cost of producing new capital goods, a fall in the price of existing capital stock would also mean a fall in the price of new capital goods. This would push the latter price below the marginal cost at the old level of production, and that would cause a fall in production.1 In an oligopolistic situation where the price of new capital goods is a markup over (a constant) unit prime cost, a fall in the prices of old capital stock would shift demand away from new capital goods, causing a fall in the latter’s output.

  This would entail lower employment and incomes in the capital-goods (or investment goods) producing sector, which in turn will have “multiplier effects.” Lower incomes in the investment goods sector would lead to lower demand for consumption goods, lower output of the latter, and hence would further lower demand, and so on, causing higher unemployment alongside higher unutilized capacity in the economy as a whole.

  An objection to this argument may be raised on the grounds that it has assumed given money wages. But if money wages fall in a situation of higher unemployment, then not only would the marginal cost of producing new capital goods also move down, but the original expectation of a reduced rate of return on capital goods in the future could also get reversed if the stream of expected prices of the goods produced by the capital goods falls less than the stream of expected costs of producing them (the latter being dependent upon the stream of expected money wages). The fall in money wages therefore could negate any reduction in employment arising because of a greater desire to hold wealth in the form of money rather than in the form of capital goods or claims on capital goods. From this, one can argue that if money wages are flexible then involuntary unemployment caused by a deficiency of aggregate demand for produced goods need not arise at all.

  There is, however, no reason, taking the above example, why the expectation of a relative decline in the rate of return on capital stock, should necessarily reverse itself with a fall in money wages, that is, why expectations should exactly pan out in such a manner. And if they do not pan out, then though the recession will continue, money-wage flexibility will only entail a continuous fall in money wages and prices in a futile bid to eliminate this problem, which will destroy the price system, and with it the economy. An additional factor aiding this destruction will be the havoc it will cause owing to the inability of economic agents to fulfill fixed monetary contracts inherited from preceding periods.2

  The problem therefore lies not in the absence of money-wage flexibility, as is often thought, but in the very existence of a wealth demand for money, which is what makes possible such “involuntary unemployment” (which we define as unemployment coexisting with unutilized capacity). And since non-heterodox economic theory has generally asserted that markets function in a manner that prevents the system settling at a state of involuntary unemployment, it has tended to assume away altogether any wealth demand for money.

  This entire matter can be looked at in a different way. The view that there can never be a deficiency of aggregate demand for the produced goods and services in an economy because “supply creates its own demand” was put forward by J. B. Say and is called Say’s Law. Non-heterodox economics generally accepts Say’s Law (not always explicitly or consciously) and rejects the view that capitalism is a system that can settle at a state of involuntary unemployment in a world of flexible prices and in the absence of “policy mistakes.” Ricardo was a believer in Say’s Law, and the Walrasian equilibrium, which postulates that all markets “clear,” including the labor market, if prices are flexible, necessarily accepts Say’s Law.

  Now, an ex ante excess supply of produced goods and services can arise only if there is an ex ante excess demand for something else outside the circle of produced goods and services (since all ex ante excess demands, positive or negative, must always add up to zero). The obvious entity outside the circle of produced goods and services for which there could be such an ex ante excess demand is money. But if there is no wealth demand for money at all, but only a transaction demand that bears a fixed ratio to the total value of the produced goods and services being transacted, then there is no question of any ex ante excess demand for money arising, which would cause a corresponding ex ante excess supply of produced goods and services and invalidate Say’s Law.

  This was most clearly expressed in the Cambridge quantity equation of the pre-Keynesian days that made the demand for money a function of the money income, with a constant k linking the two, that is, Md = kY. Though several attempts have been made since then to make k a variable and establish that the functioning of the market-system rules out involuntary unemployment, these have been marked invariably by logical infirmities, which we need not go into here.3 Non-heterodox theory requires for its logical tenability the absence of a wealth demand for money (which has the effect of making k a constant). Putting it differently and more precisely, if there are no restrictions on the form that expectations about the future can take, then Say’s Law would hold if, and only if, there is such an absence of the wealth demand for money.

  The existence of a wealth demand for money, however, is not only a real-life phenomenon in a money-using economy but is in fact logically entailed by the transaction demand itself. In other words, money cannot be a medium of circulation without also being a form of holding wealth. In the C-M-C circuit mentioned earlier, with individuals converting commodities into money and the latter back into commodities, money is the form in which wealth is held at least for a fleeting moment. But if wealth is held in this form for a fleeting moment, then there is no reason why it cannot be held in this form for more than a fleeting moment. It follows therefore that postulating a transaction demand for money but not a wealth demand for money is logically untenable.

  A money-using economy would typically have a stock of money being held by economic agents whose magnitude is not just a fixed r
atio of the value of the produced goods and services. In other words, in such an economy money will typically be one of the forms in which wealth is held. This in turn implies that a money-using economy can settle at a state of involuntary unemployment—with the givenness of the money wages in any period being not the cause of such unemployment but rather providing a perch that ensures the price-system does not hurtle down because of the existence of such unemployment.

  The wealth demand for money and its corollary that the economy can settle at a state of involuntary unemployment have a number of theoretical implications. Let us turn to these now.

  Accumulation and the Market Question

  If an economy has unutilized capacity that every capitalist producer faces, then adding to capacity seems scarcely justified for such a producer. And even if some addition takes place because of the belief that the magnitude of unutilized capacity will shrink, there is no denying that the amount of addition to capacity is likely to be less when there is greater unutilized capacity. It follows therefore that net investment, aggregating across the producers as a whole, is likely to be inversely related to the level of unutilized capacity in the economy.

  So much has been written, especially within the Marxist tradition, about competition between capitals spurring the accumulation process, starting from Marx’s own comment “Accumulate, accumulate, that is the Moses and the Prophet!” that any suggestion that demand may influence investment may appear strange at first sight. Nikolai Bukharin’s criticism of Rosa Luxemburg concerned precisely this point. Her suggestion that capitalism required an “external market” to stimulate expanded reproduction was, according to Bukharin, at variance with the reality of capitalism, where competition between capitals was the stimulus behind accumulation.4

  But what is missed in this discussion, including Bukharin’s, is that capitalists may wish to go on accumulating money capital even when they do not invest.5 Accumulation can occur in the form of money as well, and not just in the form of additions to physical capital stock, whence it follows that even when owing to competition capitalists may wish to go on accumulating, how much they add to capacity can still depend upon the state of capacity utilization. Dragging in the fact of competition to deny the relevance of an investment function is to deny that accumulation can take different forms, a fact that Marx had emphasized through his rejection of Say’s Law and recognition of the wealth demand for money.6