3. THE EXPANSIONISM OF THE CAPITALIST MODE OF PRODUCTION

Precapitalist arid Mercantilist Foreign Trade

“International” exchange is defined as exchange of products be­tween different social formations. What is characteristic of pre­capitalist societies is the low intensity of internal exchanges.

The Chinese porcelain that has been found in Central Africa, the ostrich feathers that made their way to Europe, the famous “spices” — these bear witness to the nature of this long-distance trade. Whole societies (Phoenicia and ancient Greece, for example) were based upon this activity of bringing into contact worlds that were ignorant of each other. In many societies with a low level of differentiation, possessing only a slight surplus, control of products supplied by this trade was of vital importance in the organization of the social formation. But there was, strictly speaking, no international specialization, and, in that sense, long-distance trade remained marginal, since it did not enter as an essential element into the modes of production that were the partners in exchange.

The trade relations between the center in process of formation (Western Europe) and the new periphery that it was forming for itself in the mercantilist era constituted a fundamental element in the capitalist system that was taking shape.

Thus, the prehistory of capitalism, the epoch of merchant capital, which runs from the great discoveries (the sixteenth century) to the Industrial Revolution (the eighteenth and nineteenth centuries), assigned specific functions to the periphery (mainly America and Africa together with, later on, India under British rule).

From Specialization to Dependence 157

feudal mode of production in Europe, the first was born of international exchange between the capitalist center in process of formation, on the one hand, and, on the other, its periphery and the independent social formations that were brought into contact with it. America, with its treasures of gold and silver, was at first subjected to brutal plundering. Then long-distance trade changed its character. First, it enabled the merchants of the Atlantic ports — Dutch, English, and French — to become rich. Then, for the benefit of this trade, plantations were organized in America, and these necessitated the slave trade, which was to play a vital part in the development of capitalism.

The International Flow of Capital in the Fully Developed Capitalist System

International trade changed its character when capitalism became a world system. For the first time in history it is possible to speak with justification of international specialization — in other words, exchange of products the value of which is known.

What are the structural features of the world capitalist system as it has taken shape during the nineteenth and twentieth centuries, as regards world trade and international capital movements? Starting from what is most obvious, we note first of all the disproportion (which is, moreover, increasing) between the economies concerned. The advanced world (North America, Western Europe, the USSR and Eastern Europe, Japan, Australia, and New Zealand) rep­resented in 1938 about 800 million people, as against 1.3 billion in the “Three Continents” (including China, which had 400 million inhabitants at that time). It possessed 70 percent of the world’s income. The average ratio of income per head was 1 to 4. Thirty years later, this ratio is 1 to 6 (China being excluded, as no longer forming part of the world market), the proportion of the world's population living in the underdeveloped countries (China still

excluded) having increased from 53 to 58 percent, while the propor­tion represented by their production has fallen from 20 to 18 percent.

The proportion of world trade contributed by trade between center and periphery declines, while exchanges within the center increase. At the end of the eighteenth century the foreign trade of France, which came third after England and Holland, was of the order of 550 to 600 million livres (gold francs), respectively for exports and imports, of which 220 million represented direct exchanges with the periphery (American colonies and the Levant), excluding exports of slaves; while an important fraction of France’s imports from England and Holland (about 160 million altogether) consisted of exotic products re-exported by those countries. Trade with the periphery, direct and indirect, thus represented considerably more than half of France’s foreign trade. Around 1850, France’s foreign trade had doubled in comparison with the level of 1780 (which was recovered in 1825): 1.1 billion in imports and 1.2 billion in exports. Extra-European trade accounted for 45 percent under both headings and even if trade with the United States be excluded, the figure was still more than 25 percent. In addition, a large proportion of France’s imports from England still consisted of colonial products. Finally, it is to be observed that France’s trade with its industrial neighbors in Western Europe (England, West Germany, Belgium) was not much greater than its trade with the less developed countries of Europe (Russia, the Austrian empire, Spain, and Italy). It can be said that 35 to 40 percent of France’s foreign trade was still with the periphery. These proportions were not very different after the war of 1870, trade with the non-European periphery, the United States excluded, being then of the order of 25 percent of all France’s trade (which was worth about 4.5 billion, for both exports and imports). On the eve of the First World War the proportions had even evolved further in favor of trade with the periphery: out of a total $7.7 billion in imports, over 30 percent came from the “Three Continents,” including the French colonies, while 25 percent of exports (out of a total of 5.8 billion) went to those countries.

Another piece of evidence is provided by the increased degree of specialization in the exports of the underdeveloped countries — specialization in the export of a few ‘’basic products,” generally accompanied by a relative concentration of suppliers and customers. Certain oversimplifications must, however, be avoided.

In the first place, the underdeveloped countries have no monopoly of exports of ‘‘basic products” (i.e., primary products, agricultural, and Λιineral). There are rich countries that export basic products (Scandinavian timber, Australian wool, etc.) and there are ’’primary” products the trade in which is mainly carried on by advanced countries (wheat, for example).

The degree Ofintegration into the world market can, in its turn, be measured. Crude observation, noting the ratio of exports to the gross domestic product, throws little light on this, for there is a wide "scatter” in this respect in the two groups of countries. If, however, ■we consider the exchanges between the advanced world and the underdeveloped world taken as wholes, we note that the relative importance of the products exchanged is greater for the under­developed economies than for the advanced ones. This is because the main part of the trade of the advanced countries is carried on by these countries among themselves. Whereas the advanced countries ^l do about 80 percent of their trade among themselves and only 20 percent with the underdeveloped countries, the proportion is inverse for the countries of the periphery, which do 80 percent of their trade with the advanced countries. When we reach this point, the apparent confusion clears up. For the advanced countries, a strong negative correlation is observable between the economic stature of a given country and its ratio of exports to product. At the head of the list stand the “small countries” (Scandinavia, the Netherlands, Eastern European countries, etc.), with the “great powers” of Wester,n Europe in the middle and the United States and the USSR at the end. This fact reflects the inherent tendency of capitalism to expand the market, which is overlooked by the theory of compara­tive advantages. For the underdeveloped countries, this element of economic stature is largely concealed by the degree to which they have been developed on the basis of external demand. Taken together, however, the underdeveloped countries can already be seen as highl>^r integrated into the world market.

As regards the international flow of capital, six groups of significant facts need to be included together in the explanatory model.

First, export of capital from the oldest centers of capitalism did not become really large-scale until after about 1880. Britain’s exports of capital increased from £100 million in 1825-1830 to £210 million in 1854 and £1.3 billion in 1880, and then increased to £3.763 billion in 1913. In the case of France the leap was sudden: from 12-14 billion francs in 1870 to 45 billion in 1914. For Germany the figures are: 5 billion marks in 1883; 22-25 billion in 1914. And for the U.S.: $500 million in 1896; $1.5 billion in 1914; $18,583 billion in 1922; $25,202 billion in 1933.

Second,, this export of capital has taken place principally from the old centers of capitalism to the new centers in process of formation, and only to a smaller extent to the underdeveloped countries. Thus, Russia, the United States, and the “white” Dominions of the British Empire were the principal outlets. In our own time the principal movement of capital is from the United States to Europe, Canada, Australia, and South Africa.

Third, export of capital has not replaced export of goods but, on the contrary, has given it a stimulus. Tbe average rates of growth of world trade were 3.3 percent in 1840-1880, 14 percent in 1880-1913, 0 for the interwar period, and 7 percent for the period since 1950. The great period of capital export, 1880-1913, was also that which saw the biggest growth in world trade.

Fourth, the dynamic of the flow of investment of foreign capital and the back-flow of repatriated profit is very different in the case of relations between an old center and a new center in formation from what it is in relations between the center and the periphery. In the latter case, the periphery passes from the status of “young borrower” (the inflow of imported capital exceeding the outflow of exported income) to that of “old borrower” (the outflow of profits exceeding the inflow of new capital), and becomes stabilized at this stage. In relations between an old center and a new center in formation, the course of evolution is different: the new center itself becomes in its turn an exporter of capital (first “young lender,” then “old lender”).

Fifth, whereas in the new centers in formation wages tend to rise to the level prevailing in the old centers from which the capital comes (sometimes, even, their wage level is actually higher from the I start), the gap between wages at the center and at the periphery, for 'the same productivities, tends, on the contrary, to become wider.

Sixth, and finally, the rate of profit in the periphery is higher than at the center. This difference is modest, however, in comparison with the relative gap in the rewards of labor. The gross yields of U.S. investments, for example, are about 15 to 22 percent in Latin America, as against 11 to 14 percent in the United States itself.

The Second World War did not merely overturn the relations of strength between the great powers, just as the First World War had done, it also established a new sort of hierarchy, with the United States playing thereafter a role that was quite out of proportion with the roles played by the other great powers of the West. This change was reflected in the absolute preponderance of the U.S. in the export of capital: that country’s share grew from 6.3 percent in 1914 and 35.3 percent in 1930 to 59.1 percent in 1960, while that of Great Britain shrank from 50.3 percent to 43.8 percent and then to 24.5 percent, and the share of the two other principal exporters of capital (Germany and France) from 39.5 to 11 and then 5.8. However, the advanced countries have become by far the chief markets for American capital: in 1966 Europe absorbed 40.3 percent of it, Canada 34.8 percent, and Australia, Japan, and South Africa 7.2 percent, whereas the entire Third World received only 17.7 percent. The distribution of this capital between sectors of the economy is very different, depending on whether the country receiving it is of the advanced or of the underdeveloped category. In the total volume of direct American investment in 1964 the mining sector took 8 percent, oil production 32.4 percent, the processing industries 38 percent; public services, trade, and miscellaneous services 21.6 percent. If we consider American investments in different regions separately, however, we find that the share received by the processing industries rose to 54.3 percent in Europe, 44.8 percent in Canada, and 54.1 per­cent in Australia and New Zealand; whereas it fell to 24.3 percent in Latin America, 17.5 percent in Asia, and 13.8 percent in Africa. On the other hand, the share of investment that went into mining and oil pro­duction rose in the periphery to about 60 percent and 20 percent went into the tertiary sector. If we also consider that most of the American- owned industries in Europe produce for the European market (Ameri­can capital controls 50 percent of the automobile industιy in Britain, 40 percent of the oil industry in Germany, 40 percent of the industries producing electrical and electronic equipment in France, and nearly all the large-scale industries in Canada), whereas in the periphery most of the foreign-owned industries produce for the external market (pro­cessing of mineral products before they are exported), we can conclude that the bulk of the center’s capital invested in the periphery is concerned with exporting activities (mining, oil, primary processing of mineral products), with the second place being occupied by tertiary activities connected with exports, and industry producing for the local market playing only a minor role.

The Question of the Terms of Trade

The movement of the net barter terms of trade altered after 1880. Between 1800 and 1880, Britain’s terms of trade steadily worsened, passing from index 245 in 1801-1803 to 118 in 1843-1848, 110 in 1848-1856, and 100 in 1880. Ifwe accept, what is broadly true, that Britain was in those days the principal supplier of manufactured goods and that its imports were largely made up of raw materials and agricultural produce originating in less advanced parts of the world, this meant that in 1880, with the same physical quantity of exports (of cotton, for example), the underdeveloped regions were receiving two and a half times as much in manufactured goods (in yards of cotton textiles, for instance) as in 1800, and 1.2 as much as "in the middle of the century. After 1880 the movement went into reverse. The terms of trade worsened for suppliers of raw materials and agricultural produce, passing from index 163 in 1876-1880 to index 120 in 1926-1930 and 100 in 1938. This meant that in 1938 the underdeveloped countries could buy, with the same quantity of primary products exported, only 60 percent of the quantity of manufactured products they would have obtained in 1880.

The contemporary period falls into two subperiods. During the Second World War, and afterward until the end of the Korean War, around 1953-1955, the terms of trade substantially improved for the underdeveloped countries. The period of great prosperity into which the contemporary world entered thereafter, however, was marked by a serious worsening of the terms of trade, which, depending on the particular products exported by the underdeveloped countries, showed a divergence of between 5 and 15 percent at the least, and in some cases perhaps as much as between 8 and 25 percent.

In themselves, these changes in the terms of trade mean nothing.

If progress in productivity is more rapid in one branch of production than in another, it is normal for the relative price of the products of the former branch to decline as compared with those of the latter. This is, indeed, the basis on which the theory of comparative costs founds its Optiniism. Let us have a look at what actually happens in relations between industrial and agricultural countries. If we assume that prices are fixed at the level of costs of production, and that a technical advance takes place in the industrial countries, then costs of production, and, w^,ith them, the prices of manufactured products, decline relatively to the prices of agricultural products. The terms of trade improve for the agricultural countries. The latter obtain more and more industrial goods in return for supplying the same quantity as before of agricultural produce, and thereby benefit from progress that has been made elsewhere.

This is what happened, apparently, in relations between Britain and the rest of the world between 1800 and 1880. But what happened after 1880? The worsening of the terms of trade for the producers of “primary” products would be normal if the progress of productivity had been greater in the export production of the under­developed world than in the exporting industries of the advanced world. In such a case it would be the advanced countries that would, I thanks to international specialization, be reaping the benefits, along i with the primary producing countries themselves, of the technical progress achieved in the latter. If, however, technical progress had been more rapid in the exporting branches of production in the advanced countries, then it would be necessary to explain by what mechanism the countries specializing in “primary” production had been deprived of the benefits of their specialization!

What do we learn from a comparison between the long-term progress in agriculture and industry, respectively, within a single economy?

Income per Head [in international units]

Progress in all these countries has been faster in industry — the most rapid progress in agriculture, that seen in Australia, being at about half the rate Ofindustrial progress, even in the United States, where the faster pace of progress in industry has been very marked since 1935.

This faster rate of progress in industry is everywhere accompanied by a higher degree of accumulation of capital in industry as compared with agriculture.

When we move from the first group to the fourth, we find that the capital invested in agriculture has multiplied from three to five times, while the capital invested in other activities, mainly industrial, has multiplied from seven to eleven times. This shows the close correlation between capital-intensity and the level of productivity.

As regards the present period, the schema of technical progress seems to be undergoing profound change.

Evolution of the Accumulation of Capital

Evolution of the Ratio Between Capital and Production

The reversalof the century-long evolution of this ratio reflects the beginning of the scientific and technological revolution of our time- Based on automation, this is now causing the “residual factor'’ (science) to emerge as the factor that tends to become the essential one in technical progress, while the extensive factors (labor and capital) of the traditional production function contribute only a diminishing share. This revolution affects only the great advanced countries: it began in the United States in the 1920s and in Britain in the 1930s. It explains why, in the underdeveloped countries, where industrial accumulation of the classical type is still going on, the capital-output ratio tends to get heavier, whereas in the advanced countries,it is getting lighter: it is already often heavier in some underdeveloped countries than in a number of advanced ones,

Generally speaking, if, in the advanced countries, during the classical accumulation process, agriculture has progressed less rapidly than industry — in countries where, nevertheless, mechani­zation has penetrated the countryside — it is clear, a fortiori, that progress in the export industry of the advanced countries has been greater than, in the traditional export agriculture of the under­developed countries, where mechanization is still unknown. Proof of this is given by a growing divergence between production per head in industry (always, necessarily, modern in character) and in agriculture, a divergence that is growing, faster in the underdeveloped countries than in the advanced ones. As we have seen, however, the under­developed countries are not mainly exporters of agricultural products coming from their traditional-type agriculture. We must therefore compare the progress made (1) in the industries of the advanced countries that export to the underdeveloped ones; (2) in the extractive industries (oil and other minerals) that export from the underdeveloped countries; (3) in the modem plantation agriculture of these countries; and (4) in the traditional export agriculture of these countries. This can be done if we compare the capital-output ratio for each of the four groups mentioned (since we lack the better indicator that their organic composition of capital would provide). We must also take care to estimate the capital invested and the product (value added: reward of labor and capital) in the same way. As regards capital, estimates in current values can be accepted as being homogeneous, because capital goods are supplied almost exclusively by the advanced countries. As regards the product, however, we must keep in mind the facts that, with equal productivity, wages are lower in the under­developed countries, and that part of the profit realized in these countries is transferred to the center, by way of the low prices of the products, through the worldwide equalization of the rate of profit. AIJ things being equal, homogeneous comparisons ought to show lower figures for the capital-output ratio in the underdeveloped countries. How much lower? If, with equal productivity, real wages are only one-third in the underdeveloped countries of what they are in the advanced ones, if the average rate of profit before equalization is 30 percent, as compared with 15 percent in the advanced countries, and if wages represent 30 percent of the value added, then the capital-output ratios of the underdeveloped countries ought to be divided by two in order to be comparable with those of the advanced ones. Now, in the processing industries of the United States, which provide a valid sample of the exports of the advanced world, the capital-output ratio is of the order of 2 — whereas it is less than 3 in current estimates for the oil and mining industries, of the underdeveloped countries, less than 1.5 for their modern plantation agriculture, and practically zero for their traditional agriculture: or, on the average (weighted by the relative importance of each of these groups of products in the exports of the under­developed world), of the order of 1.8, in current terms, for the exporting sectors of the periphery, and, in comparable terms, less than 1. In view of this, we are fully justified in concluding that progress in the export industries of the advanced countries has been faster than in those of the underdeveloped countries.

Precise analysis of the significance of the worsening of the terms of trade for the underdeveloped countries requires that systematic studies be undertaken in order to compare the evolution of relative prices (net barter terms of trade) with that of productivities. The concept of double factorial terms of trade answers to this need, as it is the quotient of the net barter terms of trade by the index of progress in comparative productivities. Unfortunately, very few studies have been devoted to evolution in the double factorial terms, which are the only terms that signify from the standpoint of the theory of unequal exchange.

In general, we can say that the double factorial terms, which, if exchange were equal, ought to have remained unaltered, have worsened for the underdeveloped countries since 1880. According to the theory of comparative advantages, the barter terms of trade ought therefore to have improved for the exporting underdeveloped countries, thus enabling these countries to profit by the more rapid progress achieved in the advanced industrial countries that supply them with manufactured goods. Yet this has not happened. How does conventional theory account for the fact?

From the subjectivist angle on value, price is determined by demand alone, regardless of any evolution that may take place in the cost of production. Some present-day economists are concerned to explain on this purely subjectivist basis the mechanism of the worsening of the terms of trade for the underdeveloped countries. They claim to be able to establish that the demand, and therefore the price, of “primary” products has undergone a systematic decline, at least in relative terms. The law of supply and demand does indeed say that price falls when demand falls, if income remains stable. But that is precisely what is not the case here, since the growth of demand runs parallel with that of income.

RauI Prebisch takes his stand on different grounds, by analyzing the comparative evolution, over the century, of technical progress and of the rewarding of the factors. He starts from the assumption ∣ that technical progress has been more rapid in the industry of the advanced countries than in the primary production of the under­developed ones. The benefits of technical progress can find expression '. in two ways: either prices fall, money incomes remaining the same, or else these incomes rise, prices remaining the same. If, in both types of country, prices fall as a result of progress, then changes in the terms of trade merely reflect the uneven spread of this progress. The same is true if incomes in both types of country rise together with productivity. It is not the same, however, if in one type of country progress brings about a fall in prices, while in the other type it brings about a rise in income without any fall in prices. Prebisch claims that this is just what has happened in international trade relations. In the industrialized world, the wage earners have obtained increases in wages, made possible by the increase in productivity. In the predominantly agricultural countries, however, the constant surplus of labor supply has prevented these incomes from sharing in the general prosperity. This observation impels us to bring in a new factor, which appeared about 1880, and which Prebisch has over­looked, namely, the transformation of capitalism at the center by the appearance of monopolies, a development that caused the economic system to resist the downward movement of prices. This is the reason why, all through the nineteenth century, technical progress was translated into a-reduction in prices, whereas after 1880-1890 we find a steady rise in prices, and a faster rise in incomes (wages and profits together), as the reflection of progress. It was monopoly that made possible the rise in wages, competition being thenceforth manifested otherwise than through reductions in prices.

But what- is, ultimately, the reason why the supply of labor is always excessive in the underdeveloped countries? Prebisch says that it is technical progress, which releases labor from production in these countries. Yet technical progress does exactly the same thing in the manufacturing industry. Actually, we need only consider the nature of the socioeconomic formations of peripheral capitalism to perceive that the reason for this permanent surplus of labor is quite obvious. These formations are characterized by the importance of rural reserves that are in process of disintegration, and that constitute the principal element in the labor market. In the formations of central capitalism such reserves no longer exist.

It must also be said that, in the advanced countries, although the supply of labor was relatively less excessive than in the underdeveloped ones, progress was not reflected until about 1880 in stable prices and increasing wages: throughout the nineteenth century prices went on falling at the Centerofthe world system. In the formations of central capitalism the predominant form of income is capitalist profit, whereas in those of peripheral capitalism it is often the rent drawn by the landowners, who form the class that mainly benefits from integration into the international market. In a capitalist economy, profits constitute the elastic income that responds most readily to variations in the conjuncture. The exceptional profits realized in a period of prosperity are reinvested. The release of labor due to technical progress is partially compensated by the extra demand for

labor for producing capital goods. (Only partially, for the entre­preneur is interested in making an innovation only if the saving of labor is greater than the additional expenditure of capital.) In an agrarian economy integrated into the international market, the situation is different. The rents of the landowners, which rise in a period of prosperity, are not invested but spent (and, to a very large extent, spent on imported goods). Progress in agricultural productivity is not compensated, even partially, by an increasing demand for labor for the making of capital goods. The latter, which are imported, are paid for by part of additional exports they make possible. The surplus of labor is therefore relatively larger. Added to this fundamental cause of relative underemployment are other causes closely connected with the nature of the system, such as the ruining of craftsmen by foreign industry, a catastrophe that is not made up for by the development of a local industry, so that the system has to recover its balance by excluding a large proportion of the population from production.

The Inherent Tendency of Capitalism to Expand Markets

The underlying reason for the expansion of the absolute and relative sphere occupied by international trade must be sought in the internal dynamic of capitalism, in its essential driving force, the search for profit, and in the mechanisms that this sets working. Between two precapitalist societies with relatively different structures there are no exchanges because the driving force of societies of this kind is the direct satisfaction of wants, and not the search for profit. This satisfaction is obtained by producing at home, that is, in the village, or on the great estate: the only things bought from outside are the very few goods that are wanted but that it is quite impossible to produce locally. The same reason that causes internal exchanges to be infrequent causes external exchanges to be infrequent, too: there is no seeking for profit, and no market. There may well be differences in relative "real costs," but this does not mean there is exchange.

In a capitalist economy the market expands continuously, because the search for profit brings about competition, and this stimulates each firm to accumulate, to grow bigger, and to seek farther off for cheaper raw materials and opportunities to sell more goods. The same mechanism that expanded the local market and created the national market impels the firm to sell abroad. It has been alleged that a firm has no call to sell abroad so long as it has not conquered the entire national market, and that, in order to conquer the national market, it would be necessary that its “optimum size” should be such that a single enterprise would suffice to satisfy all the nation’s wants. This margiπalist view is not valid, for the simple reason that there is no “optimum" size: a larger firm is.always a stronger one, better able to compete. What, indeed, is the alleged optimum size related to? To the “enterprise" factor, the. return on which is said to be at first an increasing and then a diminishing one. What we see here is the desire of the neoclassicists to construct a symmetrical theory for all the “factors." This, however, is highly artificial, for "enterprise" here means “administration.” The single giant enterprise may well divide this administration into as many independent cells as are necessary in order that management may be optimal: the compartments into which this huge enterprise is divided will still possess a decisive advantage over smaller competitors of “optimum size," because they have at their command common financial resources.

Capitalism is thus always looking for new outlets, and there is active external trade, whether the structures are different or whether they are similar, for even in the latter case there will be, at any given moment, many products that are “specific,” or regarded as such. These advantages are always changing, however, and the sphere of international exchange is always growing — not because each country is specializing to a greater extent, but, on the contrary, because pro­duction is becoming more diversified.

If the partners in exchange are at the same general level of development, then in theory there should be no comparative advantages. These do exist, however, but they are in constant change. If Germany can export Volkswagens to France, whereas France cannot export Renaults to Germany, this is not because the relative rewards of the factors and their relative utilization are different as between the two, but because the Volkswagen firm is technologically ahead of its competitor, Renault (this being in part due to its greater size), or because it commands greater financial resources. Should this superiority be canceled out through reorganization of the competing firm, the current will run the other way. If the partners in exchange are not at the same level of development, as in the case of exchange between the United States and Europe, it may be that the theory of comparative advantages can explain these exchanges, because the United States’s superiority in productivity is distributed unevenly as between branches. It is also true that genuine “natural advantages” do exist, though in limited spheres (climatic reasons in the case of some agricultural products, or geological ones where mineral resources are concerned), and these explain why Italy exports citrus fruits to Norway and not vice versa, and why Ruhr coal is exchanged for Lorraine iron ore.

The problem we have been considering so far is different from that examined by Rosa Luxemburg. Expansion of markets, extending to the world scale, is in the very nature of capitalist development. It is not/ necessarily in order to solve a market problem, to realize surplus value,} that this expansion takes place. The theory of the capitalist mode of' production, as established by Marx and Lenin, tells us that the realization of surplus value does not necessitate extension of the market by disintegration of precapitalist societies. The only problem that exists where realization of surplus value is concerned is a monetary one — that of the adequate expansion of credit. Luxemburg raises a problem of a different order. She does not confine herself to the context of the capitalist mode of production (which is the context of Capital) but studies another problem, namely, the extension of capitalism over the whole world — the problem of relations between capitalist social formations (those of the center and those of the periphery) and of the transformation of these formations (disin­tegration of precapitalist societies). Parallel to the process of expanded reproduction through deepening of the market inside the capitalist mode of production, a simultaneous process of primitive accumulation was going on, as Luxemburg showed. Thus, the standing contradiction between the capacity to produce and the capacity to consume, which reflects the essential contradiction of the capitalist mode of production, is constantly being overcome both by deepening the internal (purely capitalist) market and by extending the market externally.

But this contradiction, which is constantly being overcome, is also growing. It thus shows itself in an increasing surplus of capital, while at the same time control of this capital becomes more highly concentrated and the capitalist market becomes worldwide. The export of capital on a large scale is therefore inevitable after a certain point has been reached in this development. If the theory of comparative advantages is assigned its rightful place, a secondary one, and it is recognized for what it really is — the theory of the apparent mechanisms of international trade — and not for what it is not — the theory of the essential forces that explain the inter­national extension of capitalism — then the incompatibilities between the theory of international trade and that of the movement of capital will be found to disappear.

The inherent tendency to expand the market and constitute an international market is not a new phenomenon, characteristic only of the imperialist phase, in Lenin’s sense of the latter expression. Oliver C. Cox has shown how, from its beginning in the mercantilist period, international trade played an essential part in the develop­ment of capitalism; how the dynamic, forward-moving, representative firm has always been deeply integrated into the essential networks of world trade, from the sixteenth century onward; and how today, despite the myth of self-sufficiency, world trade is of vital importance for the biggest American firms. By deducing that capitalism as a world system cannot be analyzed in terms of a pure capitalist mode of production in the setting of a closed system, Cox lines up with Luxemburg against Marx and Lenin. I do not agree with him on this point, because his argument that surplus value cannot be realized without an external, noncapitalist outlet is wrong: expanded repro­duction is possible without noncapitalist milieus — the necessary -outlet, nonexistent at the start, being created by the investment itself. And this point is essential for understanding the tendency of the capitalist mode of production to become exclusive when it is based upon the international market.

It remains true that this permanent tendency of capitalism to expand the market becomes transformed qualitatively in its forms of expression when concentration — another inherent tendency of capitalism — causes the system (at the center) to advance to the stage of monopoly. This is what Lenin appreciated when he made monopoly the principal axis of his new analysis of capitalism. For the small enterprise typical of the nineteenth century was incapable Of exporting capital, and the tendency to expand the market was in those days necessarily manifested either in trade (export of goods) or in political intervention by the state, acting so as to subject the periphery to the objective requirements of the center. After 1880 the monopolies were to act directly on their own behalf, and the tendency to expand the market was to find a new form of expression: the export of capital.

The essential reason for the extension of world trade thus lies in the inherent tendency of capitalism to expand markets, and does not arise from any need for absorption of the surplus, either in the period of competition or in that of the monopolies. This was what Lenin said on the question of why a capitalist country needs a foreign market: “Certainly not because the product cannot be ∣ realized at all under the capitalist system. That is nonsense. A i foreign market is needed because it is inherent in capitalist pro- ∣ duction to strive for unlimited expansion...” (p. 164). ^j

International Flows of Capital

Current textbooks of political economy deal successively, and in contradictory terms, with trade in commodities and international capital movements. It is said, in connection with the latter, that they are due to the uneven distribution of the factors of production, which results in unequal rewarding of capital, whereas previously the same textbooks have said that the trade in commodities is due to this same unevenness in the distribution of factors, and even that the effect of exchange is to level out the rewarding of unevenly distributed factors.

Ricardo’s theory of comparative advantages leads to the conclusion that international exchange does not affect real wages but increases the volume of profit realized in the two countries concerned without equalizing their rates of profit. This theory thus leaves room for a possible additional theory of movements of capital toward countries where the rate of profit is higher.

The adoption of the subjective theory of value led to Ricardo’s thesis being abandoned. First it was thought, with Taussig, that international trade, as a consequence of unequal relative rewards of the factors, must bring about the absolute differences in these rewards. What Ricardo saw as true of profit alone, Taussig extended to wages and rent: exchange increases the productivity of all the factors, and therefore their real rewards, though without equalizing the rates of these rewards. Taking this line of argument further, Samuelson tries to show that exchange of commodities leads to absolute equalization of the rewards of the factors. But this thesis flies in the face of the most obvious facts. Besides, if trade and export of capital both constitute means by which international inequalities are compensated, how is it that one of these two means has not supplanted the other? How is it that export of, capital developed more rapidly only after a certain stage had been reached? How is it that the development of the export of capital has never acted so as to reduce, even partially, the export pf goods but on the contrary has always given a fillip to the latter?

For the classical economists, a “superabundance” of saving was impossible by definition, since all saving was automatically invested. Keynes, by distinguishing between motive for saving and motive for investment, raised the question of possible overall disequilibrium. The post-Keyπesiaπs endeavored, on this basis, to define “maturity” in terms of a chronic surplus of saving. Harrod described technical progress as “neutral” if it kept the capital­output ratio (the ratio between the nation’s capital and its income) stable, with a constant rate of interest. Given these conditions, progress did not alter distribution. This thesis of Harrod’s involves the twofold assumption of a stable organic composition and an equally stable rate of surplus value. If progress were continuous, and still neutral, it would steadily increase the national income. For growth to be balanced, saving would have to increase no faster than income, or, in other words, the marginal propensity to save would have to be stable. But this propensity increases as income increases. For growth to remain balanced, therefore, the rate of interest would have to decrease all the time, which is impossible, owing to “liquidity preference.” Thus, Harrod confines himself to studying the conditions of harmonious growth (from a Hiarginalist standpoint) on the assumption of “neutral” technical progress. Joan Robinson has tried to complete this analysis. Inspired by Marx’s views, she defines the neutrality of progress as meaning stability of the organic composition of capital. Then she studies the conditions of steady accumulation given certain assumptions: a constant rate of interest, neutrality of progress, stability of the division of net income between wages and profit. The two last assumptions, taken together, are equivalent to Marx’s two as­sumptions (stability of the organic composition of capital and of the rate of surplus value) and to Harrod’s definition of the neutrality of progress. Given these assumptions, accumulation can proceed steadily only if a constant fraction of net income is saved. It is thus for the same fundamental reason as Harrod gives — namely, the need for a stable and not an increasing amount of saving, with the rate of interest stable — that saving tends to become excessive in the advanced countries.

Thus, the Post-Keynesians have claimed to rediscover the theory of the “general crisis” of “mature” economies. After a certain level of development has been reached, possibilities of saving become greater than investment needs (governed by the volume of con­sumption). We have here a general theory' of underconsumption. The possibilities of saving have increased because average income is higher and the degree of inequality in the distribution of income has increased, while the need for new investment has remained stable, because, in the age we live in, the scientific and technical revolution is reflected in a fall in the capital-output ratio. This is why the beginnings of this revolution of our time (in the 1930$) were marked by the most violent economic crisis yet known. It remains true that, for a century, progress has not been “neutral” but capital-using. Steady increase in consumption there­fore required an increasing rate of investment, to make up for the increasing amount of saving in relative terms. If there has been a tendency for capital to be superabundant since that period, is this not due,, rather, to the fall in the rate of profit? Did not Keynes deplore the tendency of the marginal efficiency of capital to fall?

For Marx, technical progress is capital-using, in other words it raises the organic composition of capital (the ratio of constant capital to variable capital). On the plane of observed facts this is unquestionably correct, at least as regards the entire epoch of accumulation down to the technical and scientific revolution of our own day. Under these conditions, progress necessarily entails a falling rate of profit. This law of the tendency of the rate of profit to fall has been criticized, because the increase in organic composition that reflects the progress in productivity makes possible an increase in the rate of surplus value, the effect of which on the rate of profit is antagonistic to the alleged law. Some Marxists have thought fit to show that the tendency is stronger than this counter-tendency — either because, the increase in productivity being greater in the industries producing means of subsistence, although the rate of surplus value increases, this increase is less than that in the organic composition; or because, on the contrary, productivity rises, to a greater extent in the other industries, in which case neither of the two ratios in question is affected on this account. A law that states a tendency bears within itself two contrary movements. This is the case here: increase in organic composition and increase in rate of surplus value go hand in hand, because the very forces that engender the increase in organic composition (technical progress) work in favor of an increase in the rate of surplus value as well. In actual fact, technical progress continually induces a surplus of labor, released by this progress, and this surplus makes itself felt on the labor market, facilitating increase in the rate of surplus value. However, the essential re­quirements of autocentric accumulation tend to stabilize the rate of surplus value in the advanced countries. Thereafter, the rate of profit has to decline in the fully developed economies. A search for new outlets becomes necessary, outlets where a better rate of profit can be secured: export of capital on a large scale makes its appearance. This outlet is naturally found in the new centers in process of formation, where the most up-to-date techniques can be extensively employed. Here, despite high wages — sometimes, even frequently, higher from the start than in the old centers — productivity is so much higher that the rate of profit is also improved. But the rate of profit is also improved in the countries of the system’s periphery, for precisely the opposite reason, namely, because the rate of surplus value is higher there, wages being lower for the same productivity. Equalization of the rate of profit tends to become effective on the world scale in proportion as integration of commodities and capital into the world market becomes more thorough. This is why the differences observed and measured between rates of profit in advanced and underdeveloped countries, though manifest, are insufficient’ to make up for the massive transfer of value from the periphery to the center, which the differences in rates of surplus value make possible, through the mechanism of the worsening of the terms of trade.

The present age is distinguished by new tendencies. Monopoly does not imply merely a redistribution of profit to the advantage of the monopolies. Analysis of the conditions in which the contra­diction between capacity to produce and capacity to consume — that permanent reflection of the basic contradiction of capitalism — finds expression in the present phase of the economy of “giant enterprises” has only recently been undertaken. Realization of the potential superprofits of monopoly dictates an increase in the “surplus” — a wider concept than that of surplus value, including nonproductive incomes and state revenues. Baran and Sweezy examine the ways in which this increasing surplus is absorbed. “Striving to sell” — competition between monopolies being no longer effected through prices — constitutes the inner law of the system: the lavish outlay on “selling costs” which accompanies monopoly makes possible the realization of monopoly profit while at the same time reducing the rate of this profit. Increased public expenditure, civil and military, which in the United States, for instance, has grown from 7 percent of the gross domestic product at the start of this century to 30 percent today, constitutes the other tendency inherent in the system of. profit-realization. Thus, the surplus realized — all that can be measured: surplus value, waste, and surplus absorbed by the state — increased from 47 percent of the product in 1929 to 56 percent in 1963. But the whole of the potential surplus cannot be realized: underutilization of production capacity is permanent and the total of unemployed plus labor employed in the growing war-industry sector forms a high and undoubtedly increasing proportion of the labor force. This chronic underemployment reduces the actual rate of profit of the monopolies, determines the forms and particular conditions of technical progress, and ultimately impels the conquest of external markets that can provide a higher rate of profit. The examples given by Baran and Sweezy show the size of the superprofits of exported monopoly capital: “while two-thirds of Standard Oil of New Jersey’s assets were located in North America, only one-third of its profits came from that region” (p. 194). True, what results from this gap between rates of profit is that, eventually, the centers of capitalism become huge importers of capital, for the backflow of profits is very much greater than the export of capital, as Baran and Sweezy point out, and so the export of capital represents no solution to the problem of how to absorb the surplus, but, on the contrary, worsens the conditions for this. The fact, however, does not stop the export of capital from seeming to the giant, firm, at its microeconomic level, to be a solution to the problem of what to do with surplus profit.

The scientific and technological revolution of our time aggravates still further the basic contradiction of the system, for its main manifestation is to cause investment to be more efficient, in other words, to reduce the capital-output ratio, and so to make even more superfluous the unconsumed portion of profit. It thus rein­forces the inherent tendency for capital to be exported, and is certainly what lies behind the recent flow of U.S. capital toward Europe.

The post-Keynesian “maturity” theory seeks to account for a real phenomenon: the difficulty of realizing surplus value in the age of monopoly. However, it goes in search of the causes where these cannot be found — in the monetary mechanism. Baran has shown how the law of the tendency for the rate of profit to fall is overcome in the age of monopoly by new forms of absorption of the surplus (waste and public expenditure). To do this, Baran had to invent a new scientific concept, the surplus, and, with Sweezy_t to establish that in our time the potential surplus tends to be bigger than the actual surplus.

Like these two economists,.1 maintain that neither foreign trade nor export of capital really offers a means of overcoming the difficulties of realizing surplus value, for trade is equally balanced in the central regions of capitalism taken as a whole, and the export of capital gives rise to a return flow that fends to exceed it in volume. This is, moreover, the reason why the “excess surplus” is absorbed in other ways, through economic waste and public expenditure, especially certain contemporary forms of international relations — external military expenditure and state “aid” — which make possible a deficit in the balance of payments.

External trade thus corresponds to the same requirements of the system as formerly, but with tenfold force. It makes possible a reduction in the cost of labor power, in particular through the importing of agricultural products from the periphery, purchased under conditions of unequal exchange. This unequal exchange is itself possible thanks to the mechanisms that enable monopoly capitalism to ensure a steady increase in wages at the center (mechanisms bound up with the forms assumed by competition between monopolies), whereas the nature of the formations of the periphery makes it possible to keep the reward of labor there at a low level. External trade also enables the cost of raw materials to be reduced, thanks to the same mechanism of external exchange. The extraeconomic methods to which competitive capitalism had to have recourse have thus been replaced by strictly economic methods: this is one of the sources of “economism.” At the same time the possibility, thanks to the monopolies, of exporting capital multiplies the means available for forcing upon the periphery the kinds of production that the center needs. The export of capital, while not enabling the surplus to be absorbed, serves to raise the rate of profit, since capital benefits from a rate of surplus value in the periphery that is higher than in its country of origin. But this transfer is largely concealed. by the equalization of the rate of profit on the world scale, which constitutes the essence of unequal exchange.

We must not identify the function and mechanisms of trade and of capital export between countries of central capitalism, such as the United States and Europe, wdth the function per­formed by these relations between central and peripheral countries, for neither the nature of the products exchanged nor the direction taken by foreign investment, nor the dynamic of the return flow of profits are the same in these two cases. The uneven develop­ment as between the United States and the other countries of the center (Europe and Japan), which became accentuated during the Second World War, has made relations within the center especially important since 1945. It underlies the prosperity of this period, and has relegated relations with the periphery to a secondary role. Thereby, the world system has been transformed: a fundamental hierarchy has been established between the United States and the other countries, whereas previously the system had been marked ' by relative equilibrium between the powers. Now, the investment of U.S. capital in the other countries of the center does not fulfil the same function as the investment of this capital in the periphery. The search for raw materials plays a secondary role in it — the / essential factors are access to the protection of licences and pref- [i erential markets, and, above all, technological superiority, rather ¹ than the lower level of wages.

State aid to the underdeveloped countries, which made its appearance after the Second World War, fulfils a variety of functions. Apart from its political significance, this aid enables the contradiction between the inflow of private investments and outflow of profits to be overcome — in other words, it serves the vital function of maintaining the status quo, which imposes an unequal form of international specialization upon the periphery. The transformations that followed the appearance of the monopolies did not create a new problem of surplus absorption. Marx pointed this out when he wrote in Volume III of Capital (ρ. 251): “If capital is sent abroad, this is not done because it absolutely could not be applied at home, but because it can be employed at a higher rate of profit in a foreign country.”

The law of the tendency of the rate of profit to fall remains the essential, and therefore permanent, expression of the system’s basic contradiction; and the function of trade in the struggle against this downward tendency is not confined to the competitive period of capitalism. The effectiveness with which it carries out. this function is, on the contrary, reinforced by the monopolies, which make possible the export of capital. Unequal exchange between center and periphery also results from the rise of the monopolies at the center, which has made possible the development of the divergence between wages at the center and at the periphery, with equal productivity, and the organizing of a growing surplus of labor in the peripheral countries.

The Functions of the Periphery

With the Industrial Revolution, trade between the center and the periphery changes its function. This trade continues to be important quantitatively and to account for the major share of world trade, even though it starts to decline from 1830-1850 onward. For Great Britain, down to the middle of the nineteenth century, trade with America and the East (India, the Ottoman Empire, and, later, China) was predominant to such an extent that writings of this period consider only this type of trade whenever they endeavor to identify the mechanisms and work out the theory of overseas.trade. For a long time Britain continued to serve as Europe’s center for the redistribution of exotic produce. The center (first Great Britain, then Continental Europe and North America, and then, later, Japan) exported to the periphery manu­factured goods for current consumption (e.g., textiles). It imported mainly agricultural products coming either from the traditional agriculture of the East (e.g., tea) or else — and especially — from the highly productive capitalist agriculture of the New World (wheat, meat, cotfon). This was the period in which the inter­national specialization between industrial and agricultura] countries was decided. The center did not yet import mineral products from the periphery (production of which would require substantia] invest­ments and cheap means of transport), with the exception of the traditional precious metals. In proportion as new countries entered the industrial phase, their trade with Britain altered its character. At first they supplied agricultural products, receiving in return manu­factured goods “made in England,” just as the periphery did, or else exotic produce that came in via Britain. Since, however, though they were industrializing themselves, their level of indus­trialization was uneven — and also because they were endowed by nature with mineral wealth that was known and exploitable (coal and iron ore, for example) — relations of exchange of manufactured and mineral products for other manufactured and mineral products arose and developed between the countries of the center (e.g., France and Germany). The backward countries, such as Russia, remained exporters of agricultural products. Gradually world trade became split into two groups of exchanges with differing functions: exchanges between the center and the periphery, and internal exchanges within the center. ∙

In the age of competitive capitalism, then, extension of the market took place in the markets of the outside world in a context of competition between the enterprises of the metropolitan countries. Central capitalism nevertheless has some objective needs which result from (1) the inadequacy of the market, which is essentially agricultural in the first stages, restricted by the pace and scope of the progress of productivity in agriculture; and (2) the requirements for maximizing the rate of profit, which imply seeking abroad for cheaper goods for popular consumption (especially cereals), so that the cost of labor can be reduced, as well as for raw materials making it possible to reduce the value of the constant capital employed. Christian Palloix has thrown new light on the link between these objective needs and the stages in the formation of the theory of international trade, from Adam Smith to Marx. For Smith, coming at an early stage of capitalism: '^,(1) the external market serves as an outlet for surplus commodities, needed because of the narrowness of the internal market, in which the division of labor is limited during the phase of industrialization; (2) the external market, by itself, makes it possible to extend the division of labor within the nation, where, so long as only the internal market was available, this division was restricted.” It was the relation between external trade and the generation of the surplus that concerned Ricardo, too. By his time, however, “the industrial sector possessed a base sufficiently large, contrary to Smith’s expectations, to provide the enlargements of the respective markets needed for absorption of the industrial surplus; J.-B. Say’s law of markets, which Ricardo was to support, gives definition to this prospect; and so the internal agricultural market plays only a minor role in the consumption of industrial products.... Though the agricultural sector no longer figures as the market for the absorption of the surplus, it nevertheless plays a part in re­stricting generation of surplus, in so far as... it threatens the very potentialities for this surplus to grow, through blocking profit’s road to expansion by means of the law of diminishing returns, the cause of increasing wages.... The role of external trade... is to take the place of the internal agricultural market in furnishing the subsistence goods needed for labor power.” Later, “Marx carried out a synthesis of the theoretical contributions made by Adam Smith and David Ricardo, reconciling the ‘absorption’ approach (stressing the export of manufactures) with the ‘generation of surplus’ approach (stressing the import of primary products).” External trade, in this sense, is a way of checking the fall in the rate of profit: “Since foreign trade partly cheapens capital and partly the necessities of life for which the variable capital is exchanged, it tends to raise the rate of profit by increasing the rate of surplus value and lowering the value of constant capital” {Capital, Volume III, p. 232).

These objective needs of central capitalism in the age of com­petition account for the economic policy followed by the states concerned in that period: colonial conquest and the opening of protected markets, for the. benefit of the metropolitan country, destruction of the crafts in the colonies, with recourse to political means for this purpose (the example of India is illuminating in this connection), encouragement of emigration and the opening up of land for producing wheat and meat in the North American West and in South America, etc.

In this period, the export of capital was still unknown as a means of expanding markets. This is why the predominant form it assumed, in the exceptional cases when it appeared at all, was still investment in the public debt, collected at the center by the most powerful finance houses, as with the loans made to the Khedive of Egypt.

Quite different were the forms in which this inherent tendency to market expansion was expressed in the age of monopoly. Thence­forth, the export of commodities was accompanied by that of capital. International economic relations (both trade and the export of capital) continued to serve the same functions so far as central capital was concerned, namely, to offset the tendency of the rate of profit to fall: (1) by enlarging markets and exploiting new regions where the rate of surplus value was higher than at the center; and.(2) by reducing the cost of labor power and of constant capital.

Before that time there had been hardly any exporting of capital. The formation of monopolies made this possible on a huge scale from 1870-1890 onward. In this case, too, we must distinguish between foreign investments in the periphery and those destined for the young countries of the central type that were in process of formation (the United States and Canada, Russia and Austria- Hungary, Japan, Australia, South Africa). Neither in function nor in dynamic were these investments to be identical. The export of I capital did not replace the export of goods; on the contrary, it ; gave the latter a fillip. It was to make possible changes in the way ; the periphery specialized. The periphery ceased to export agricultural i products only and became an exporter of goods produced by (modem capitalist enterprises with a very high productivity. Oil and crude minerals today make up more than 40 percent of the periphery’s exports, while products resulting from initial processing of these materials (together with a few manufactured articles of importance chiefly for trade between peripheral countries at different levels of industrialization) account for more than 15 percent. Agricultural products — two-thirds of which are foodstuffs, but also including industrial raw materials such as cotton, rubber, etc., which.make up the remaining third — constitute 40 percent

so*tlfat the periphery does nearly 80 percent of its trade with the ' center, whereas the internal changes at the center proceeding parallel with this process have developed at a faster pace, with the consequence that 80 percent of the foreign trade of the central countries is carried on among themselves. These internal changes within the center are of a different type — mainly, industrial products being exchanged for other industrial products.

Between the Industrial Revolution and the complete conquest of the world (in 1880-1900), a century elapsed that was in the nature of a pause: the old forms (slave trade, plundering of the New World) gradually faded away; the new forms (the economic

de traite and the exploitation of mineral wealth) took shape only slowly. We get the impression that Europe and the United States withdrew into themselves in this period, in order to accomplish the transition from the prehistoric forms of capitalism to its finished industrial form. During this period, products were ex­changed at their value (or more precisely, at their price of production, in the Marxist sense); the rewards of labor at the center were very low, tending to be kept down to subsistence level; the terms of trade (of overseas produce in exchange for British manufactures) evolved in the direction conforming to the rule of equal exchange. It was this temporary situation that was responsible for Marx’s assumption that India would become a capitalist country like Britain and, in general, for his neglect of the colonial question.

Imperialism, in Lenin’s sense of the word, made its appearance when the possibilities of capitalist development on the old basis had been exhausted, through the completion of the first Industrial Revolution in Europe and North America. A fresh geographical extension of capitalism’s domain then became necessary. The periphery as we know it today was created by way of colonial conquest. This conquest brought different social formations again into mutual contact, but in new forms; those of central capitalism and those of peripheral capitalism in process of constitution. The mechanism of primitive accumulation for the benefit of the center reappeared in a new form. The characteristic feature of primitive accumulation, in contrast to normal expanded reproduction, is unequal exchange, that is, the exchange of products whose prices of production, in the Marxist sense, are unequal. From that time onward the rewarding of labor became, in its turn, unequal. This new international specialization was to provide the basis for both the exchange of commodities (“basic products against manufac­tures,” to give what is only a superficial description) and the move­ment of capital, since exhaustion of the possibilities of the first Industrial Revolution coincided with the formation of monopolies, which made this export of capital possible.

At every stage in the development of the world capitalist system the commercial and financial relations between the center and periphery thus serve the same twofold function: on the one hand, to facilitate, by extending the capitalist market at the expense of the pre­capitalist systems, the absorption of the surplus, and, on the other, to increase the average rate of profit. In the age of competition it was the first of these two functions that was vital, because keeping wages at the center at relatively low and stagnant levels (down to about 1860, at any rate) came into conflict with the objective requirement, in the model of autocentric accumulation, of a parallel growth of the reward of labor and the level of development of the productive forces. External extension of the capitalist market was therefore of prime importance as a means for realizing surplus value. After 1880 the monopolies created the conditions needed, first, for wages at the center to rise with the rise in productivity, as required for autocentric accumulation, with competition between firms no longer proceeding by way of price cuts, and, second, for the export of capital on a large scale to the periphery to become possible. The first of these changes reduced the role of the periphery in the mechanism of absorption. At the same time, however, it reinforced the second function, that of raising the level of the rate of profit, which was tending to decline faster at the center. This became possible through export of capital, which enabled forms of production to be established in the periphery which, although modern, nevertheless enjoyed the advantage of low wage-costs. It was then that unequal exchange appeared.

The imperialist epoch itself falls into two periods: from 1880 to 1945, and since 1945. Until the Second World War the colonial sys­tem imposed classical forms upon the international division of labor. The colonies provided the products of the economic de traite (“tropical" agricultural produce); European capital was invested in mining and in the tertiary sectors linked with this colonial exploitation (banking and trade, railways and ports, the public debt, etc.); the advanced centers supplied manufactured consumer

goods. That such a system had a particularly impoverishing effect on the periphery and was bound to lead to a primary type of “blocked development” is obvious. Moreover, after an initial period that was euphoric but brief,’between 1880 and 1914, capitalism was to experience one of its most stagnant periods, that between the two world wars. War preparation and war soon appeared as the only solution to the problem.

After the war of 1939-1945 a new period of dazzling growth began for capitalism in the center, based on the thorough moderns ■ization of Western Europe, which had lagged still further behind the United States during the war. At the same time, colonial subjection'' was shaken. Outside of Europe, establishment of groups of light industries was characteristic of this period: this expressed a policy of producing locally goods that had previously been imported. But everything continued to function within the framework of the world market, only the forms of international specialization being changed. In this case, too, a blocking of growth was inevitable. The present period is marked by three important structural changes in the capitalist system, namely: (1) the constitution of giant trans-¾ national firms that operate on the world scale, their activities! being carried on through a large number of scattered establish-; ments; (2) the impact of a technological revolution that transfers! the center of gravity of the industries of the future toward new⅛ branches (atomic power, space research, electronics), and renders; obsolete the classical modes of accumulation, characterized by⅛ increasing organic composition of capital; the "residual factor” —s “gray matter” — becomes the principal factor in growth, and the⅛ ultra-modern industries are distinguished by an “organic composition^ of labor” that accords a much bigger place to highly skilled labor;! and (3) the concentration of technological knowledge in these? giant transnational firms.

This new form of monopoly entails important consequences for the periphery. Henceforth, the investment of physical capital loses its importance as a means of obtaining extra surplus value in order to increase the monopolies’ rate of profit. Technological domination is increasingly adequate to accomplish this task. Accord­ingly, ⅛e return flow of profits from the periphery to the center is going to increase, and the underdeveloped countries are going to become sources of capital for the center. At the same time, technological revolution is going to make it possible for a new type of unequal international specialization to take shape.

This group of changes is what lies behind the dynamism of the capitalist system during the last twenty-five years. However, this dynamism is not synonymous with harmony. It has manifested itself in an increasingly wide gap between the center and the periphery and in a renewal of the antagonisms between national formations at the center. The hierarchy organized on the morrow of the Second World War, with the United States at the top, is being challenged now that Europe and Japan have succeeded, thanks to this long period of prosperity, in catching up. The world monetary crisis reflects this new development.

Is the period of great prosperity coming to an end? It seems so. In the countries of the periphery the possibilities of “import­substitution” are being exhausted, and this finds expression in-a marked slowing down of industrialization and growth. In the Western countries of the center, the deflationary tensions of.a semipermanent kind that are reappearing, together with the “inter­national liquidity crisis,” would seem to indicate a pause. But the world capitalist system can doubtless overcome this situation: it is looking for a solution in two directions, which will probably determine the future forms of international specialization.

The first of these directions is the integration of Eastern Europe into the internal exchange-network of the center, and its modern­ization, either under Soviet control or else through “independent” state policies (on the model of Yugoslavia, for instance). The second possible direction is the specializing of the Third World in industrial production of the classical type (including production of capital goods), while the center reserves for itself the ultra-modern branches of activity (automation, electronics, the conquest of space, atomic power). In other words, the periphery would accept a new form of unequal specialization, thus enabling the. uneven develop­ment of the world system to get its second wind.

These are the different forms — past, present, and perhaps to come — of an unequal international specialization that always constitutes a mechanism of primitive accumulation to the advantage of the center. It is this mechanism that, finding expression in an increasing divergence in the rewards of labor, perpetuates and accentuates the underdevelopment of the periphery. At the same time, this “development of underdevelopment” expresses itself in aggrava­tion of the internal contradictions characteristic of the peripheral formations: an increasing divergence between sectoral productivities within the economies of the periphery, which has to be reckoned with when analyzing the social formations of underdevelopment. At each of these stages capitalism reveals its expansionist tendency: the commercial expansionism of the first phase, then imperialism (in Lenin’s sense of the word), and now po⅛timperialism.