Theories of Imperialism

TERM PAPER
Imperialism is integral to capitalism in both Luxemburgs and Lenins
theories, but not for identical reasons

Vibhor Verma1

A Historical Perspective
Before the rise of the Industrial Revolution in Western Europe, which is usually traced
to the 1760s, initial geographic spread of the European countries was tied to merchant
capital. Manufacturing activity was relatively underdeveloped. The sources of the
augmentation of the wealth of the empire-building nations were the takeover of the
major share of the traditional Intra-Asian trade, seizure of gold and silver from the
Americas that made possible much of the monetization of the European economy,
procurements of products native to Asia and the Americas for which large demand
existed or could be simulated at home, and the development of African slave trade. This
pre-capitalist expansion which centered, broadly, on the exaction of surplus from the
dominated territories, did not lead to the alteration of the economic base of the societies
in them.
The subjugation of the colonial societies was largely confined to occupation of areas for
metals, slaves and tropical products, establishment of white-settler colonies along the
coast of North America and the setting up of trading posts and forts and superior
military strength in order to facilitate a greater control of world trade for the European
merchants. No adaption of the economic and social structures of the colonies was
required to these changes.
It was after the rise of the Industrial Revolution that a shift in the strategy of trade with
the colonies occurred. From initially the buyers of colonial products, these
industrializing European nations increasingly became the sellers of machine-made
goods. Not only this, the pattern of trade also changed, with the demand for colonial
products getting replaced with the demand for raw materials for industry and food for
the increasing work force. An adaptability of the existing social systems of the colonies
was now required to the new urge for the creation of markets for industrial products and
1 Center for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi.

the constant pressure for raw material and food. These societies, with their largely selfsufficient communities based on subsistence agriculture and home industry, provided
poor markets for the factory-made goods of the industrializing nations, and the existing
social systems werent flexible enough for the introduction and rapid expansion of
commercial agriculture required for the supply of raw material and food for the empirebuilders.2
The period 1768-1815 was marked by continuous wars among the dominant powers for
colonial possessions. The period between 1815 and 1870s was that of a relative calm.
There was during this period, a lull in the capitalists drive to conquer, colonize,
subjugate and exploit the areas of the world lying outside the North Atlantic Region where
capitalism was born.3

This lull was, however temporary, and a wave of New Imperialism 4 arose in the period
1875-1914, during which there was not only a rise in colonial acquisitions, but also a rise
in the number of colonial powers. Industrial, financial and commercial capital was
getting concentrated into the hands of giant corporations and there was a build-up of
financial empires within capitalist countries. What followed was a frenzy of colonial
acquisition.
During the last third of the nineteenth century, one-fourth of the world population was
subjugated by the capitalist powers of Europe and North America in all. This
subjugation was important in order to disrupt the traditional, non-capitalist societies
which were a barrier to the commercial interests of the giant corporations, such as
exploitation and the grabbing of resources. And after widespread dependence on the
market had been created, to get favorable terms of trade, capitalist countries effectively
ruled the underdeveloped countries.
Having thus provided a historical perspective, we move to the analysis of imperialism
(as was attempted by many economic theorists, in order to understand it).
Understanding that there are analytically significant differences between imperialism in
pre-capitalist times and that in the era of capitalism is central to understanding the
nature and structure of capitalism and also the unique feature that imperialism acquires
under capitalist expansion.5 Having said this, we move to the theories of imperialism as
2 Harry Magdoff, Imperialism-From the Colonial Age to the Present, Monthly Review Press (New York,
London), 1978, p.18
3 EK Hunt and Mark Lautzenheiser, History of Economic Thought-A Critical Perspective, PHL Learning
Private Limited, Delhi.
4 Harry Magdoff, Op.Cit., p.34.

given by Rosa Luxemburg and Lenin, who while holding that imperialism is integral to
capitalism, have different concepts about the relationship between the two.

Rosa Luxemburgs Theory of Imperialism

Luxemburgs analysis of imperialism is contained in her best-known work, The
Accumulation of Capital (1913). In this work, she tries to show on the basis of Marxs
two-department model of expanded reproduction that in a capitalist economy, balanced
economic growth cannot be achieved if the economy consists of only capitalists and
workers.
Consider two departments/sectors, Department I producing the means of production,
and Department II producing the means of consumption. The value of the product of
each department consists of the value of the means of production used up (Constant
Capital, C), the value of the labor power consumed (Variable Capital, V) and the surplus
value (S) generated.

I.
II.

W1 = C1 + V1 + S1
W2 = C2 + V2+ S2

(1)
(2)

W1 and W2 are the values of the products of Department I and Department II

respectively. After one round of production, we are left with the products/values W1 and
W2. For reproducing for the next round on the same level, we need to replace for
Department I, the C1 + V1 used up and for Department II, the C2+V2 used up.
Firstly, W1= C1+C2, which gives us C2= V1+S1. That is, the part C1 has been replaced
within Department I out of W1 and the remaining part V1+S1 is used to replace C2.
Assuming that capitalists consume their entire surplus, and consumer goods are needed
in order to replace V1 and V2 now, we have W2= V1+V2+S1+S2 which also gives us C2=
V1+S1. That is, the part V2+S2 has been provided for within Department II only from
W2, and C2 is used to replace V2+S2.
Therefore, C2=V1+S1. However, for their replacement these two values have to be
exchanged for each other. Crucial to this simple reproduction is the assumption that
capitalists consume their entire surplus. Thus C1+V1 and C2+V2 have been reproduced.
However, in a capitalist society, reproduction takes place at an enlarged scale.

5 Ibid., p.2

the diagram of simple reproduction explains the laws of a form of reproduction which
is possible only as an occasional exception in a capitalist economy. It is not simple but
enlarged reproduction which is the rule in every capitalist economic system 6

Enlarged reproduction simply means that in the second round of production we come
up with (C1+V1)* > (C1+V1) in Department I and (C2+V2)* > (C2+V2) in Department
II.
Thus, the scheme is the same as before, we have the same W1 from Department I and
the same W2 from Department II, except that out of the surplus value out of Wi ( i =
1,2), the capitalist of the corresponding department now saves a part for accumulation
of capital and purchase of more labor power.
W1= C1+V1+So1+Sc1+Sv1
W2= C2+V2+So2+Sc2+Sv2

[S1= So1+Sc1+Sv1]
[S2= So2+Sc2+Sv2]

So, Sc and Sv are parts of surplus meant for capitalist consumption, for accumulation of
constant capital and for purchase of more labor power.
According to Marxs formulation, for enlarged reproduction, it is necessary that
W1=C1+C2+ Sc1 + Sc2 and W2= V1+V2+So1+S02+Sv1+Sv2.
Before we arrive at the result that follows from this, will this actually happen? After the
first round of production, W1 is the same as that for simple reproduction, that is, equal
to C1+C2. So how do we account for the additional Sc1+Sc2? Similarly and equivalently,
for W2, how do we account for the reduction of its component
S1+S2 [= (Sc1+Sc2+So1+S02+Sv1+Sv2)] to (So1+S02+Sv1+Sv2) when W2 is same as
that for simple reproduction after the first round of production?
The answer lies in the fact that instead of W1, Marx should have used, for example, W1*,
which is greater than W1, so as to account for the additional component (and similarly,
W2* less than W2). And this greater value will come about only when that additional
part, the part of surplus kept for the accumulation of constant capital in each
department is realized first in the form of money and then, used to accumulate constant
capital. Similarly, a part of the surplus in each department is meant for the purchase of
additional labor power. That also has to be realized first in the form of money and then
only can be used to actually bring in additional labor power. This is the point where
Luxemburgs departure from Marx takes place. She asks where the purchasers are for
the surplus value part allotted to accumulation of constant capital and purchase of
additional labor power. Only after they have been purchased with money, can the
production take place at a higher, enlarged scale.
Luxemburg states, after working with this 2-sector model, that the demand for that
surplus part of commodities doesnt exist in a closed capitalist economy that consists
only of workers and capitalists. Thus, she realized that the assumption of pure
capitalism had to be dropped and the problem of accumulation would have to be
6 Rosa Luxemburg, The Accumulation of Capital, Routledge Classics 2003, Routledge (London, New
York).

analyzed within a framework defined by the actual historical conditions surrounding the
rise and development of capitalism. Among these historical conditions were the
existence of non-capitalism countries alongside the capitalist countries and the presence
within capitalist countries only of a non-capitalist population.
These non-capitalist societies are traditional, subsistence based self-sufficient
economies and formed a poor market for the machine-made goods of the capitalized
countries, and hence had to be controlled and subjugated. Their social and economic
structures had to be altered to suit to the needs of industrialized nations, a dependence
on market had to be created; a wage seeking labor class has to be created. A demand
could then be created for the imperialist countries exports. By opening up of these
traditional economies to capitalist exploitation, rich new reserves of cheap raw materials
and cheap labor would be available for potential exploitation. And as happened in the
late nineteenth and early twentieth century, there was erection of tariff walls to protect
ones non-capitalist market from rival capitalist nations. Thus from her analysis the
latest stage of imperialism will come about when these non-capitalist markets have been
exhausted.
Luxemburgs theory is not free of criticism. For enlarged reproduction, she would have
got a different result had she not carried over into it the assumptions from the simple
reproduction model. That the consumption of workers cannot realize the surplus value
actually means that the total variable capital, the consumption of workers remains fixed
as it does in simple reproduction. Actually accumulation typically involves addition to
the variable part of capital, and this additional spent by workers has the effect of
realizing the surplus value which has the physical form of consumer goods. 7
If that would happen, addition to means of production for producing these goods makes
sense. And from that, the addition of means of production to produce means of
production.
Moreover, the exports of industrialized nations will have to be exchanged for imports
from the colonies. If there were no purchasers earlier for the surplus commodities,
where are the purchasers now for those imports in the capitalist societies? 8 So, she is
trapped in her own analysis.
Now, having discussed Luxemburgs theory, we move on to discuss Lenins theory of
capitalist imperialism. As we shall see, while Luxemburg talked about imperialism as
the logic behind capitalist accumulation, Lenin talks about it as coming out of the
mature stage of capitalism, that is, monopoly capitalism, thus attempting to look into
the New Imperialism that came about in the late 19th and early 20th century.

7 Paul Sweezy, The Theory of Capitalist Development, Dobson Books Limited (London), 1942. p.204
8 Ibid., p.205

Lenins theory of capitalist imperialism

For Lenin, imperialism was a stage of capitalism arising out of the massive industrial
concentration that had taken place in the industrialized countries in the late 19 th and
early 20th century. Capitalism was replaced by monopoly capitalism. A few big firms
gained control of a large share of the market.
By means of statistics and descriptive data, he shows that while it was not true that for
each branch of industry there were large firms, a new feature of monopoly capitalism is
combination-production, the grouping of different branches of industry, which either
represented the consecutive stages of production, or were auxiliary to each other, which
levelled out the fluctuations of trade and gave the firm a more stable rate of profit. He
points to the rise of monopolies, cartels and trusts in the period of his study.
Cartels come to an agreement on the terms of sale, dates of payment, etc. They divide the
markets among themselves. They fix the quantity of goods to be produced. They fix prices.
They divide the profits among the various enterprises, etc.9

Lenin said the rise of monopoly capitalism marked the stage of capitalist imperialism.
And Lenin stresses the importance of banks and finance capital in bringing it about.
As banking develops and becomes concentrated in a small number of establishments, the
banks grow from modest middlemen into powerful monopolies having at their command
almost the whole of the money capital of all the capitalists and small businessmen and also
the larger part of the means of production and sources of raw materials in any one country
and in a number of countries. This transformation of numerous modest middlemen into a
handful of monopolists is one of the fundamental processes in the growth of capitalism
into capitalist imperialism.10

The banking monopolies controlled the industrial monopolists as they were now able, by
means of their connections in the banking system, firstly to ascertain the financial
position of the firms, and then to control them by manipulating the flow of funds for
credit, which are now largely in their control, and thus, finally, to enable them to
increase the latters capital or deprive them of it.

9 V.I. Lenin, Imperialism-The Highest Stage of Capitalism, Resistance Books, Australia, 1999, p.38.
10 Ibid., p.45

And from the concentration in banking, what followed was the formation of BankTrusts, which were monopolistic agreements amongst banks that increased the
dependence of big industry on a small number of banking groups.
At the same time, there was a financial oligarchy established by the personal link-ups
between banks and large industrial and commercial corporations, through appointment
of supervisory directors of banks into these corporations and vice versa and through
ownership of stocks.

Moreover,
The personal link-up between the banks and industry is supplemented by the personal
link-up between both of them and the government. Seats on supervisory boards, , are
freely offered to persons of title, also to ex-civil servants, who are able to do a great deal to
facilitate relations with the authorities11

And finance capital, concentrated in a few hands, made enormous profits by the floating
of companies, issuing of bonds, etc. strengthening the oligarchy and levying tributes
upon whole of the society for the expansion of monopoly capitalism.
According to Lenin, by the end of the 19th century, there was formation of monopolistic
associations in all developed, capitalist countries and the monopolistic position of a few
very rich countries, where the accumulation of capital had reached enormous
proportions, leading to the rise of a huge surplus of capital. And as he further says, this
surplus capital wouldnt be utilized for raising the living standards of masses, for if that
were to happen, capitalism would cease to be capitalism. And that would have meant a
tendency of the rate of profit to fall. This is because of the exhaustion of opportunities of
recruiting labor at the going real wage. Secondly, labor saving innovations increase the
organic composition of capital12. Monopoly is/was thus formed in part to protect profit
margins. At the same internal expansion leading to economies of scale and external
expansion arising from mergers and acquisitions, which led to concentration of capital,
furthered the tendencies in the direction of monopolistic organization.13
The unripe capital in the metropolitan centers was then exported to the backward, noncapitalist regions of the world in search of profitable investment opportunities. The
attraction of capital to these regions was natural in that here, the composition of capital
was low, labor was cheap and plenty, and there was abundance of raw materials and
11 Ibid., p.54
12 S/(C+V) is the rate of profit in the Marxist framework. This can be expressed also as S/V divided by
(C/V + 1) where C/V is the organic composition of capital.
13 James OConnor, The Meaning of Economic Imperialism, in Robert Rhodes, Imperialism and
Underdevelopment, Monthly Review Press, p.110

minerals. And to access these, colonialism played an important role in changing the
economic and social conditions of these areas, subjugating the local people to the
requirements of monopolistic privileges. Thus, according to Lenin, export of capitalism
became more important than the export of goods in the monopoly stage of capitalism.
Thus foreign investment in the peripheral regions led to the offsetting of the falling in
the rate of profit in the capitalist societies with higher profit margins in the colonies.
Lastly, what follows from this discussion is that two separate and distinct divisions of
the world had taken place because of this, one among capitalist associations, the cartels
and the monopolies of the multinational firms who first divided the home market
among themselves and then the world market by the export of capital. Another division
took place among the capitalist governments, both reflecting and promoting the first
division.
So, here we come to the conclusion of this paper. We can see that the treatments of the
relationship between capitalism and imperialism by Luxemburg and Lenin were
different. Both assigned imperialism an integral role in the process of capitalism. But as
is clear, while Luxemburg made imperialism the logical necessity for capitalist
accumulation, Lenin treated it as being born of a particular stage of capitalism, i.e.
monopoly capitalism. So for them imperialism was integral to capitalism for different
reasons. For the former it lay at the genesis of capitalist accumulation, for its
development from the beginning, and for the latter, it was integral for the development
of capitalism after it had reached certain stage. And thus he called imperialism the
highest stage of capitalism.
References:
1.

Evenitsky, Alfred , Marx's Model of Expanded Reproduction, Science & Society, Vol. 27, No. 2
(Spring, 1963), pp. 159-175

2. Hunt EK and Lautzenheiser Mark, History of Economic Thought-A Critical Perspective, PHL
Learning Private Limited, Delhi.
3. V.I. Lenin, Imperialism-The Highest Stage of Capitalism, Resistance Books, Australia, 1999.
4. Luxemburg, Rosa, The Accumulation of Capital, Routledge Classics 2003, Routledge (London, New
York).
5.

Sweezy, Paul, The Theory of Capitalist Development, Dobson Books Limited (London), 1942.

6. Sweezy, Paul, Rosa Luxemburgs The Accumulation of Capital, Science & Society, Vol. 31, No. 4, A
Centenary of Marx's "Capital" (Fall, 1967), pp.474-485