Global Political Economy

Edited by V.
Upadhyay and Paramjit Singh

GLOBAL POLITICAL ECONOMY
GLOBAL POLITICAL
ECONOMY
A CRITIQUE OF CONTEMPORARY
CAPITALISM
Edited by
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V. Upadhyay and Paramjit Singh
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GLOBAL POLITICAL ECONOMY
A Critique of Contemporary Capitalism
Edited by
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Contents
Preface 5
Introduction 7
1. Introduction to Historical Materialism: A Theory
of Society and History 37
Anjan Chakrabarti
2. Essential Concepts in Marxian Political Economy 72
Surinder Kumar
3. Notes on Marx’s Critique of Classical Political Economy 93
Prabhat Patnaik
4. Capitalist Mode of Production: A Basic Interpretation 104
Paramjit Singh
5. Contemporary Capitalism 127
Greg Albo
6. Reserve Army of Labour 140
Deepankar Basu
7. Political Economy of Employment-Unemployment in
Capitalism 158
Satyaki Roy
8. Can Capitalism Survive the High Degree of Automation?
A Comparison with Thomas Piketty’s Argument 179
V. Upadhyay
9. The Agrarian Question a Century After 1917: Capitalism
in Agriculture and Agricultures in Capitalism 192
Samir Amin
4 Global Political Economy
10. ‘Big is Not Always Beautiful’: Family Farms

and Capitalism 222
Goran Djurfeldt
11. What is Monopoly Capital? 242
John Bellamy Foster
12. Late Marx, Luxemburg, and the Conception of
‘Accumulation of Capital’ 253
Paul Zarembka
13. Financialisation: There’s Something Happening Here 270
Gerald Epstein
14. Reflections on the Classical Theory of Imperialism:
Does History Repeat Itself? 294
Paramjit Singh and Balwinder Singh Tiwana
15. What is Imperialism? Situating Imperialism in
Relation to Capitalism and Colonialism 323
V. Upadhyay
16. Climate Crisis and the Idea of Degrowth 339
V. Upadhyay
17. Capitalism, Ecology and Eco-Socialism 353
Pritam Singh
18. Energy, Economic Growth, and Ecological Crisis 376
Erald Kolasi
List of Contributors 405
About the Editors 407
Preface
The present volume is an attempt to make students and researchers

familiar with contemporary issues in global political economy with
a focus on the working of global capitalism in the last four to five
decades. This volume will be useful for universities and colleges
which are already conducting political economy courses. They can
update their curriculum to cover the emergent global issues in detail
along with providing minimum necessary coverage of historical
issues/debates. As per our experience, students of political economy
often find it difficult to get a range of topics from a single book
as they generally get in case of other subjects. The Indian Political
Economy Association has been constantly getting demands from
students, researchers and teachers to publish a volume which can
cover new issues of global political economy relevant for students
and researchers.
Keeping all this in mind, the Indian Political Economy
Association has decided to publish a volume that attempts to cover
a wide range of topics of historical and contemporary relevance.
This project was undertaken by the association a year ago. Both of
us have had the privilege to accomplish this task. We held a few
meetings with scholars and professors of political economy from
various parts of the country to shortlist the topics. We also had a
workshop on contemporary questions of global political economy
in 2019. After all the discussions and debates, we have shortlisted
some important issues for this volume. We have contacted leading
political economists in India and abroad for contributions. We are
confident that this volume will play a pivotal role in enhancing the
understanding of the young political economists regarding issues of

global relevance.
Many scholars who are associated with the Indian Political
Economy Association have given their insightful suggestions for
the completion of this work. We would like to thank the journals
who gave us permission to reprint some papers for the benefit of
scholars of political economy. We wish to thank the editors of Social
Scientist, Monthly Review and Agrarian South: Journal of Political
Economy who permitted us to reprint their papers in this volume.
We would also like to extend our gratitude to the members of the
Indian Political Economy Association who reposed trust in us to
complete this task. At the end we would like to thank Aakar Books
for accepting our proposal and agreed to publish this volume. We
sincerely hope that this volume will open up many dimensions for
political economy researchers for further exploration.
Introduction
Political economy is a field of study that deals with the interaction

between political and economic forces. The issues of political
economy have transformed greatly after the ascendancy of neoliberal
capitalism during the 1970s. The modern phase of capitalism is
characterised as the phase of globalisation, liberalisation and
financialisation. Global political economy is a relatively new
discipline that aims at developing an understanding of patterns
of interaction and change in the globalised world by looking at
both international politics and economics in an integrated manner.
The purpose of this volume is to make students and researchers
familiar with theoretical concepts and recent developments in global
capitalism. It is an attempt to present an alternative paradigm on
contemporary issues in global political economy with a focus on the
working of global capitalism in the last four to five decades.
The present volume is an attempt to provide an integrated
understanding of subjects covering historical debates, conceptual
framework and contemporary challenges produced by neoliberal
capitalism. There are various approaches to global political economy
which elucidate the contemporary challenges posed by economic
globalisation. These approaches range from liberal mainstream
approaches to Marxist approaches. The mainstream approaches
have a serious drawback because of their ahistorical approach as they
take the capitalist system as given and do not consider the global
political economic problems as an outcome of the accumulation
logic of capitalism. On the other hand, the Marxian approach has
a merit that it understands the national and global economic and
political problems as structural to accumulation logic of capitalism.
The focus of Marxist analysis is, however, more on historical

subjects, such as early industrial development in Europe, and inter-
war colonial period, as a result of which new existential crises—
the environmental crisis, the growing threat of a nuclear war, and
threats of new dangerous technologies—are not given adequate and
urgent attention they deserve. The conventional wisdom that has
been developed by the neoliberal politicians and intellectuals of
the Global North about the advantages of neoliberal policies came
under severe criticism after the outbreak of the global financial
crisis in 2008. The ideology of neoliberlaism propagated by the
supporters of this ideology posits that the only hope for prosperity
for people in developing nations of the Global South lies in opening
all the markets (and even the social and cultural spaces that have
traditionally not been part of the market) for capital, domestic as
well as foreign. The deregulation of capital in the name of free
market and freedom for capital has given birth to multiple threats
in developed as well as developing countries that have not been the
subject matter of mainstream economics. The failure of neoliberal
capitalism and the growing economic and power imbalances in
world economy suggest that it is time for pro-people intellectuals
to build a consensus and rethink political economy of globalisation.
In the present volume, a historical perspective is adopted
to bridge the gap between theoretical advances and real world
problems produced by contemporary neoliberal capitalism. It has
been realised that in order to understand and analyse contemporary
capitalism, it is extremely important to understand its historical
nature and the interrelation between economics, politics and the
environment. Therefore, in response to the recent economic and
political developments, this volume will provide a historically-
grounded account to understand the current challenges posed by
global capitalism. It traces the evolution of the global political
economy on theoretical grounds which are rooted in Marxian
historical materialism and analysis of capitalism followed by the
investigation of current challenges. It explores in detail the dynamics
of global political economy in the 21st century, providing systematic
coverage of the key spheres of activity—such as production, finance,
Introduction 9
labour, imperialism, new forms of capitalist accumulation, and the

environment.
A detailed understanding of major recent challenges that have
brought the failures of world capitalism to the surface is necessary for
seeking mechanisms for addressing these challenges. In the following
sections we will try to cover some of the recent threats posed by
global capitalism and their implications for the world economy
and politics. The first part examines the long-term effects of the
COVID-19 pandemic. As the chapters in this volume were written
before the beginning of the global health crisis and, therefore, do
not take into account the effects of the crisis, it was felt necessary
to provide an overview of the possible long-term consequences of
the pandemic in the introduction section itself. The second part
examines the question of distribution—one of the central questions
of our time—through understanding the question of income and
wealth inequality. The third part discusses the persistence of hunger
and food insecurity in the Global South and the failure of capitalism
to counter these problems. The last part provides the summary of a
range of topics covered in the present volume.
PART I
The Long-Term Global Effects of the COVID-19 Crisis
Coronavirus (COVID-19) that started in China in early December
spread to the entire world within a span of a few months. This is
a reflection of how globalised the world is now. The main cause of
the fast transmission of this novel virus has been the high volume of
international travel. This virus has infected about 20 million people
around the world and there have been close to one million deaths
caused by the virus. The effects of the pandemic go much beyond
the world-wide health crisis created by it.
There have been many pandemics in the past. During the last
hundred years or so, the world has seen pandemics such as Spanish
flu, Asian flu, HIV SARS, Swine flu, MERS, and Ebola, that led to
millions of deaths worldwide. It is estimated that about 50 million
people died due to Spanish flu during 1918-19. But never before
has the world’s reaction to a pandemic been such as this time: The
worldwide panic reaction to COVID-19 has no parallel in history.

Every country has responded to this health crisis with measures
that have paralysed life continuously for many months. Many nations
imposed curfew-like lockdowns which completely constrained all
aspects of life bringing economic, social and political activities to a
virtual standstill.
In this section we will focus on the economic and political
effects of prolonged lockdowns and the methods to enforce them.
Fast Descent into Depression

Panic reaction to the health crisis led to governments almost
everywhere to impose restrictions on people’s movement. People
were asked not to venture out of houses for months and maintain
social distancing. In many countries, these restrictions were very
swift and draconian. As a result, economic activities there collapsed
completely within a space of a few days. In the US, for example,
a near full-employment economy in the early months of 2020,
ground to a halt in a matter of a few weeks rendering more than
40 million workers jobless. The rate of unemployment reached the
1930s Depression level of about 25 per cent. There are forecasts
of 10 to 15 per cent decline in GDP in 2020. Many countries in
Europe, Latin America, Asia and Africa face a similar situation of
massive unemployment and loss of income and livelihood.
The burden of the lockdown-induced economic downfall has
fallen mostly on the poorer sections of the society. It is mostly the
poor people, low-wage earners who have seen their jobs disappearing
and their lives shattered overnight. Millions of people across nations
have been pushed into extreme poverty due to lockdowns.
Uncertain Path of Recovery

The path of economic recovery1 depends on many factors. Even
after the lockdowns are lifted, the economy may take several years
to reach the pre-COVID levels. In some respects, the economic
effects of the health crisis are likely to continue over a very long
period. There are many sectors in the economy such as air travel,
tourism, hotels and restaurants, major entertainment and sports
Introduction 11
events, that may never see a full recovery. In that sense, some parts
of the economy might be lost permanently.
This health crisis combined with the unprecedented panic-
stricken reaction is also likely to alter people’s consumption and
saving behaviour. Excessive consumption on the part of people is
an essential requirement for the functioning of the present capitalist
system. But the psychological effects caused by the fearful experience
of the health crisis are certain to make people much more risk-
averse in the future. This is certain to dampen the pace of capital
accumulation, and in turn, reduce the capitalist economies’ growth
potential.
Impact of Stimulus Measures

Different countries have adopted varying measures to ameliorate
the downside effects of lockdowns on the economy. The US,
Canada, and many European countries have announced huge fiscal
stimulus packages with the aim to lessen the sufferings of people
and businesses hurt due to prolonged lockdowns. The purpose of
the rescue measures is also to put the economy back on a path of
revival and growth.
Many countries have made extensive use of expansive monetary
policies. Central banks in many countries have reduced key interest
rates to near zero and in some countries benchmark interest rates
have moved into negative zone. Implications of these easy money
policies go far beyond the immediate effects on the revival path of
the economies. The unprecedentedly liberal use of money expansion
puts a question mark on integrity and soundness of fiat money in
many Western capitalist countries. Excessive increase in money
supply can lead to inflationary outcomes in case the growth in
real economy remains very sluggish. This can erode the value of
money rapidly. But more importantly, it needs to be understood
that infusion of large quantities of money in the economy is hardly
ever distributionally neutral. The experience of Western economies
in recent decades clearly shows that large money infusion works
primarily to enhance wealth of the richer sections in the society.
The US government has launched $2 trillion worth stimulus
package and there are plans to borrow additional $3 trillion to

foot the bill for its economic rescue measures. The Federal Reserve
has taken its quantitative easing policies to new heights. It has
undertaken unprecedented measures to support the economy. The
Fed promises to buy any amount of treasury bonds issued by the US
government for the purpose of financing its stimulus plans. It is de
facto monetisation of fiscal deficit. This method, guided by insights
of the modern monetary theory, and referred to as ‘printing of
money’ is now being used on a large scale. The Federal Reserve has
extended its bond buying activity much beyond treasury bonds and
mortgage backed securities which have been its traditional areas of
operation. The Fed has shown willingness to buy corporate bonds,
including junk bonds.
The main beneficiaries of the US assistance programmes have
been large corporations, especially the blue chip companies. The
stimulus schemes have worked largely to prop up financial markets,
including the stock markets. The quantitative easing policies
pursued by the Federal Reserve have significantly increased wealth
inequalities in the US.
The poorer sections of the society across all nations have borne
the brunt of the lockdowns imposed by state order. According to
the ILO, 1.6 billion people in informal sector, which is nearly half
of the global workforce, were at risk of losing income due to the
lockdowns. The ILO also estimates that 305 million full-time jobs
were at risk of being lost. According to the report published by
UNU-WIDER, the economic fallout from lockdowns could plunge
about 400 million people worldwide into extreme poverty.
Legitimacy of Fiat Money

Is there a limit to the printing of money? What is the significance of
the soundness and integrity of money in the functioning of modern
capitalist system? It is quite likely that at some stage people will lose
faith in fiat money if money supply growth loses connection with
the pace of growth of real economy. This is a phenomenon that
occurs quite often in developing countries. The advanced capitalist
countries with hard currencies have so far been able to avoid this fate
Introduction 13
in the post-war period. But in the aftermath of depression caused

by COVID-19, even the advanced capitalist economies cannot be
immune from the dangers of stagflation, or of runaway inflation.
The loss of faith in fiat currencies in the advanced capitalist
countries will have both domestic as well as international
repercussions. As discussed above, the massive infusion of money in
the economy by large-scale printing of fiat money has distributional
consequences. In the US, the additional money so created has
largely gone to the rich. It obviously raises a question in the minds
of common people that if money can be created so easily and be
given to the rich, then why do they have to pay taxes, or why
can’t money created from thin air be given to them. The recent
‘Black Lives Matter’ (BLM) protests in the US and elsewhere have
witnessed unprecedented levels of intensity and anger. Certainly one
important factor behind it has been the realisation on the part of
the common people how unjust and iniquitous the ruling classes’
response to the COVID-19 crisis has been.
Impact on Dollar Hegemony

It is a subject of debate now that the current stance of the US
monetary policy of excessive quantitative easing may cause severe
damage to the dollar’s status as the world’s reserve currency.
For seventy-five years since the end of the Second World War,
the status of the US dollar as the primary global reserve currency has
continued virtually uncontested. About 60 per cent of the world’s
currency reserves are in dollars and the vast majority of global trade
and investment takes place in dollars. In comparison, about 20 per
cent of global currency reserves are in euros.
The US has been running consistent trade and current account
deficits with the rest of the world over the past four decades. The
dollar’s world reserve currency status allows the U.S. to borrow from
the rest of the world large sums of money. The United States has
the largest external debt in the world. In 2018, foreigners owned
$6.2 trillion of US debt. Excessive printing of money by the Federal
Reserve as a response to the COVID-19 crisis is likely to instil fear
among the United States’ foreign lenders. This is because excessive
increase in supply of money could lead to high inflation causing

a sharp decline in the value of the dollar. The US government’s
stimulus package running into trillions of dollars is largely being
financed from borrowings from the Federal Reserve. This is an
indication of the changes in foreign perceptions of the United
States’ strength which over time will cause erosion in the dollar’s
hegemonic status.
Of course, there are other geopolitical developments happening
at the same time that are also contributing to this phenomenon
of the declining power of the US dollar. The developing cold-war
between the US and China is a major factor among them.
In recent years, America has been very aggressive in using its
currency’s power to impose sanctions on countries with whom it
has any disagreement or dispute. It is forcing not only its rivals but
also its allies to explore other options. It is true that replacement
of the dollar by some other currency as the world reserve currency
does not appear likely in the near future. The TINA argument is not
without merit. But there are other ways in which the domination of
the dollar is coming under challenge.
In the past few years, many countries, including China and
Russia, are making attempts towards de-dollarisation2 of their
economies. These countries are diversifying their foreign exchange
reserves and conducting trade transactions in other reserve currencies
(such as euro) or in their own national currencies. This trend towards
de-dollarisation that has been underway for many years now is likely
to accelerate because of the large-scale use of quantitative easing
policies by the Federal Reserve in response to the COVID-19 crisis.
Compared to the US, the post-COVID economic recovery in China
is likely to be much stronger, leading to a significant reduction in the
GDP-gap between the two countries. The shift in balance in favour of
China is likely to hasten or accelerate the process of de-dollarisation.
These fast-pace changes will instil fear in the US, a declining
power fearing loss of hegemonic control over the world. As acts of
desperation, the US is likely to take urgent steps to check China’s rise.
These steps could include enhanced trade war, alliance formation,
and military moves.
Introduction 15
Implications of Decline in US Hegemony for the Emerging

Multipolariry in the World Order
There is a growing general consensus that the 200 years long period
of Western domination of the world is coming to an end and a
new world order is emerging. How does the COVID-19 crisis affect
the world order or the pace of change? The important question
today is: Will the pandemic push the world towards bipolarity3? Or,
will it strengthen the present trend the world is witnessing towards
emergence of a multipolar4 world order?
Bipolarity, in today’s context, means that the world gets divided
into two warring groups: One led by the US and the other by
China. This does not appear to be a realistic possibility in today’s
circumstances. Why this is so?
There are two major powers today: The US and China. But
there are also other powerful nations/blocks such as Russia, Europe,
Japan, and India, who stand to lose their independence if the world
turns bipolar.
Like the Soviet Union during the Cold War era, Russia today is
able to provide a counterbalance to the US and other Western powers
in military terms. Despite very close strategic alliance with China,
Russia is the main proponent of multipolarity in world relations.
Russia has acted very forcefully and decisively against Western
designs in many places, such as Syria. There are many countries,
such as Iran, Venezuela, and North Korea, who are victims of US
aggression in the forms of economic sanctions and even threat of
direct military action. These countries invariably turn to Russia for
support not only at the United Nations Security Council but also
in forms of direct material assistance.
Europe and Japan enjoy close economic relations with China
which are mutually beneficial to all of them. Europe and Japan will,
therefore, be wary of aligning too closely with the US in its attempt
at containing China. America’s alliance with Western Europe is no
longer as strong as it once was.
India’s prestige in the global community has somewhat
diminished in the past few years. The main reason for this has been
a significant decline in its economic strength. The government’s few

missteps—demonetisation and GST—led to considerable slowdown
in India’s GDP growth. But the panic reaction to the novel virus
in terms of severe lockdowns has created conditions of depression
pushing the economy back by several years. Despite these setbacks,
India continues to maintain a significant position on the world
stage. This is largely due to its potential to become a major global
player some day in the future.
India’s declared foreign policy position is of ‘strategic autonomy’.
India’s foreign policy stance has, however, undergone a discernible
change in recent years. Increasing military purchases from the US
and membership of the ‘Quad’ are an indication of a pro-US shift in
India’s foreign policy. There is a growing perception in many capitals
that India has not been able to maintain its independent status as it
is not able to stand up to US pressure.
India’s stand in geo-political affairs is of high significance. If
India moves very close to the US camp, it pushes the world towards
a dangerous situation of bipolarity. It is therefore very important to
pay close attention to India’s foreign policy moves.
Both the US and China may not be very enthusiastic about
being the poles. By being a pole, a country derives many benefits
by virtue of its dominant position. But it also has associated costs.
The Soviet Union could not bear the burden of being a pole for
very long and disintegrated due to internal pressures. The Trump
administration probably sees the costs of being a pole outweighing
the benefits. The situation, however, may change if Trump loses the
election and Joe Biden becomes the next President. China too is not
prepared to take on a leadership role. It still lacks strength to take
up its position as a second pole.
Rescue Measures Aim to Strengthen Capitalism

As discussed above, most of the benefits of the governments’
stimulus measures in the advanced capitalist countries are going to
the richer sections of the society. But, to an extent, the poor and
working people are also receiving assistance in the form of income
support, enhanced unemployment benefits, and increased access to
Introduction 17
healthcare. Some political thinkers argue that these governments’

interventions are heralding a new era of socialism in the advanced
capitalist countries. This interpretation of the recent policy changes
is, however, completely unwarranted. These measures should be
seen as desperate attempts by the ruling classes in these countries
to save capitalist structures from complete collapse. These are very
temporary in nature. Their basic purpose is to safeguard the long-
term interests of the ruling corporate and financial elite.
Totalitarian Surveillance
The response to the COVID-19 crisis has been in the form of
lockdowns across most countries. In many places, the state resorted to
prison-like restrictions on people’s freedom of movement, assembly
and expression that brought civil life, and political and economic
activities to a virtual standstill. The state used unprecedentedly
authoritarian methods to control and dictate people’s behaviour in
the name of securing health safety. But quite often, it was evident
that governments used the corona crisis as a cover to seize new
powers that had not much to do with the health emergency. New
dangerous surveillance technologies such as technologies to track
were pressed onto service to monitor people’s movements as well as
to manipulate their behaviour. The dictatorial tendencies developed
during the coronavirus crisis are likely to persist even after the health
crisis is over.5
Reduction in Ecological Footprints and Lessons for the Future

The panic reaction to the novel virus menace has led to devastating
social and economic consequences worldwide. The income and
employment losses have reached depression levels. The economic
downturns have, however, produced some positive outcomes as far
as the environmental dimension is concerned. The projected fall in
global economic output is certain to curtail greenhouse gas emissions
for at least a few years helping humanity in its fight against global
warming.
Even if it happened under duress, people refrained from
consumption of non-essentials for several months during the
prolonged lockdowns. Is it possible to adopt this mode of low

consumption if a climate crisis warrants it? Several categories of
consumption, such as international tourism, are of significance here.
As is widely predicted, several activities that are responsible for large
gas emissions, especially activities related to travel and tourism, may
not recover to pre-COVID levels for many years. This brings some
hope that the emission targets set in the Paris Agreement may be
possible to meet.
The coronavirus crisis has exposed profound flaws in the working
of the present socio-economic system. The modern capitalist system
driven by corporate monopoly and financial interests has proven
utterly dysfunctional in the face of the challenge posed by the new
virus. The whole system that appeared very robust and sound not
so long ago, turned out to be very fragile. If the capitalist structures
built over decades have proven incapable to deal with a health
emergency, how can these be expected to deal with larger existential
threats facing humanity today? As Chomsky points out:
The coronavirus is serious enough, but it is worth recalling that there
are two much greater threats approaching, far worse than anything that
is happening in human history: one is the growing threat of a nuclear
war and the other of course is the growing threat of global warming.
Coronavirus is horrible and can have terrifying consequences, but there
will be recovery. While the others won’t be recovered, it’s finished.6
We can hope for a better future, a more equitable and sustainable
world, if human society shows willingness to use lessons learnt in
the fight against the coronavirus crisis to deal with the existential
threats of our times.
PART II
Income and Wealth Inequality
From the beginning of the Industrial Revolution to the end of the
1840s, questions related to distribution were central in the political
economy discourse in the Western societies. During the early period,
the most important political economy issue related to distribution
of income, wealth and power between landowners and capitalists
Introduction 19
(the bourgeoisie). Adam Smith’s An Inquiry into the Nature and

Causes of the Wealth of Nations appeared during this period.
With growth of industrialisation, the working class emerged
as a new important social class and focus of debates (including
in economic theory) shifted to distribution of income between
rent, wages and profits as reflected in Ricardo’s work. By 1830,
the industrial bourgeoisie assumed power in England and France
with the help of the proletariat and their struggle with landowners
had abated. Therefore, the bourgeoisie’s class struggle with the
proletariat became more important. The 1830s and 1840s were
highly turbulent years across Europe. Popular uprisings and workers’
struggles (notably in France in 1848) came close to toppling the
existing social order. This was also the period that produced many
contending socialist theories with enormous influence on the civil
society.
By the end of the 1840s, most of it had calmed down. The
period after 1848 is referred to as the period of social peace (the
Age of Capital). (The peace, of course, did not last very long. The
struggle for colonies that ensued culminated in two world wars.)
With disappearance of dissent that at one time had become very
threatening, a period of social and political tranquillity followed
which emphasised social harmony and progress. Mainstream
ideology that advanced rationale in support of the existing social
order acquired dominance to the extent that did not leave much
space for the contending ideologies. This was especially true in the
field of economics. Mainstream economic theory’s focus almost
completely shifted towards understanding the working of the
market system. All numerous currents of socialist thought lost their
potency. From a position of challenging the capitalist system, they
shifted to a position content with modifications in the system, to
accommodate the concerns of the working class. Their efforts in
these directions led to establishment of the welfare state in European
nations.
With the decline of revolutionary left ideology in the West,
the questions related to distribution got extremely marginalised. In
mainstream economics, discussion of distribution was confined to the
new field of Welfare Economics. Utilitarianism had initially allowed

for redistributive measures if they had the effects of increasing total
utility (happiness or welfare) of the society as a whole. But later
when arguments that did not allow inter-personal comparison of
utilities had won the field, and when Pareto and Arrow criteria were
assigned supreme place in the theory, possibilities of redistributive
measures even when they increased society’s total welfare were not
permitted within the theoretical framework of Welfare Economics.
The subject was trivialised as it in essence became a field for futile
puzzle-solving by academicians. John Rawls’ contribution which
sought to provide justification for an egalitarian society failed to bring
the focus back on distribution as his argument rested on the premise
of an imaginary rather than real society. Critiquing Rawls’ theory
of justice, Sen states: ‘Indeed, the theory of justice, as formulated
under the current dominant transcendental institutionalism, reduces
many of the most relevant issues of justice into empty—even if
acknowledged to be “well-meaning”—rhetoric.’7
There is a great deal of new literature that deals with the
relationship of economic growth with income and wealth distribution
and poverty reduction. Some important questions raised in this
context are: What generally is the impact of economic growth on
distribution of income and wealth? Does economic growth worsen
distribution (make it more uneven) or improves it (i.e. it reduces
disparity)? Does the impact of economic growth on distribution
depend on initial conditions? Does it depend on the nature of
growth? What roles do balance of class power, nature of regime,
governance factor and policy framework play in this? We explore
these issues in the following section below.
After the Second World War, i.e. from the 1950s to the 1970s,
the dominant view, known as ‘the inverted-U hypothesis,’ held that
in the early period of economic growth, distribution tends to worsen;
and only after achieving a certain economic level, one can expect
improvement in distribution. This hypothesis was propounded
by Simon Kuznets in his 1955 paper that contained an empirical
investigation of the relationship between per capita income and
inequality in a cross section of countries.
Introduction 21
There was an earlier discernible similarity between Kuznets’

empirical results and prediction of Lewis’ 1954 labour supply
model. Lewis’ model focused on structural change in a dual
economy setting, in which labour was shifted from a labour surplus
traditional agricultural sector to a modern industrial sector. This
process of labour transfer continued till the labour supply was
exhausted. The Kuznets’ hypothesis suggested a trade-off between
equality and growth. For a short while, in the 1970s, a trend in
literature emerged that downplayed the trade-off arguments and
advocated that to alleviate poverty in many developing countries,
redistribution measures should be identified that do not hamper
growth.8
The enthusiasm for ‘growth with justice,’ however, did not last
long. The focus of literature shifted with the rise of neoliberalism and
market fundamentalism in the early 1980s. During this neoliberal
phase, questions related to distribution and poverty were set aside
in favour of growth. It was argued that growth itself would curtail
poverty through ‘trickle down’ mechanisms. There was, however,
not much discussion about the processes through which trickle-
down would work.
There are broadly two opposing strands found in the literature
on the subject of distribution. At one end of the spectrum are those
who argue that a free market-based system and liberal economic
policies raise incomes of all, the rich and poor, proportionately. This
‘growth is distribution-neutral’ stance translates into a stance that
‘growth is good for the poor.’ It is stated that as incomes of the poor
also rise with the incomes of the rest in society, there is a reduction
in poverty as measured by some fixed income levels.
At the other end of the spectrum is the argument that economic
growth, especially during the last four decades, has been associated
with an increase in inequality. This has prevented benefits of
economic growth reaching the poor.
During the last 40 years, income inequality has risen
considerably in all Western economies and more so in the USA.
Thomas Piketty’s magnum opus published in 2014 Capital in the
Twenty-First Century (referred to as C21) deals with the issues of
long-term trends in inequality of wealth and income in such great

details and so thoroughly as not seen for a long time. Piketty’s book
focuses in particular on the increasing disparity between the upper
centile of the income and wealth distribution and the rest. Before
the publication of C21 as well as Piketty’s earlier works with his co-
author, Emmanuel Saez, ‘most discussions of economic disparity
more or less ignored the very rich.’
For several decades after the Second World War, the dominant
mainstream view, known as the Kuznets’ fact was that ‘all or nearly
all economies had been through or would go through an industrial
age in which inequality rises and then a social-democratic mass-
consumption age in which inequality falls and then stabilises. It…..
turns out not to be a fact—-merely transient historical contingency.’9
As Krugman writes:
In America in particular the share of national income going to the top
one per cent has followed a great U-shaped arc. Before World War I,
the one per cent received around a fifth of total income in both Britain
and the United States. By 1950 that share had been cut by more than
half. But since 1980 the one per cent has seen its income share surge
again—and in the United States it’s back to what it was a century ago.10
Based on a systematic analysis of long-term statistics on inequality
and growth, Piketty shows that wealth concentration in the United
States and Europe has just now returned to the high levels observed
earlier about one hundred years ago. He also records that inequality
in capital income in the Western capitalist economies has been
rising rapidly since the beginning of the 21st century. According
to Krugman, ‘The big idea of Capital in the Twenty-First Century
is that we haven’t just gone back to 19th century levels of income
inequality, we’re also on a path back to “patrimonial capitalism,” in
which the commanding heights of the economy are controlled not
by talented individuals but by family dynasties.’11
One major contribution of Piketty’s work has been to show
clearly that the role of inheritance flows in the dynamics of
capital accumulation in the advanced capitalist economies is too
significant to be ignored. As translator of Piketty’s C21 book, Arthur
Introduction 23
Goldhammer puts it,

Piketty’s data on inheritance flows thus strengthen the notion that the
pattern of class domination tends to persist over lengthy periods—a
notion that had fallen into neglect with the ascendancy of neoliberal
ideology in the final decades of the twentieth century. Robert Lucas,
whom Paul Krugman calls “the most influential macroeconomist of his
generation,” declared in 2004, for instance, that “of the tendencies that
are harmful to sound economics, the most seductive, and in my opinion
the most poisonous, is to focus on the question of distribution.” By
making it once again respectable to raise distributional questions and to
question the efficacy of competition alone, Piketty earned the gratitude
of historians aware from their own work that economists like Lucas
were entirely too sanguine in their belief that the normal operation of
the market sufficed to ensure that wealth and its concomitant power
did not settle all too comfortably into the hands of a restricted and
(to a degree) self-reproducing class of capitalists.12
Piketty’s prediction about the future of ever-increasing inequality
are based on his fundamental inequality, r > g (where r stands for
average annual return on capital, g stands for the rate of growth of
economy). Piketty’s estimates of r and g are based on the analysis of
historical observations.
A higher value of r in comparison to g in Piketty’s model causes
‘a redistribution of income away from labour and towards holders of
capital.’ As explained by Krugman,
A rising share of capital, in turn, directly increases inequality, because
ownership of capital is always much more unequally distributed than
labour income. But the effects don’t stop there, because when the
rate of return on capital greatly exceeds the rate of economic growth,
“the past tends to devour the future”: society inexorably tends towards
dominance by inherited wealth.13
Grewal summarises Piketty’s contribution very succinctly as follows:
One of the prime virtues of C21 is that it returns us to these classical
debates on capitalism and inequality. Of course, it is neither Smith nor
Marx but rather the twentieth-century economist Simon Kuznets who
seems as Piketty’s main foil. Over the longer time-horizon that Piketty
studied, the Kuznets curve is revealed as a temporary aberration: the

post-war moderation of economic inequality turned out to have been
the exception rather than the trend. With Kuznets dispatched, as
Piketty recognizes, the study of economic inequality opens once again
to the consideration of the deeper theoretical issues that concerned
nineteenth-century classical political economy and the earlier discourse
of eighteenth-century moral philosophy. C21 shows us the way back to
these debates—indeed, to the necessity of reengaging them—via the
recognition that the decline in inequality during the mid-twentieth
century was an anomaly.14
From the foregoing analysis, it is quite evident that in the current
phase of advanced capitalism, particularly in the 21st century,
inequality has been on the rise in the period of growth as well as in
the period of stagnation or recession. Stiglitz is in broad agreement
with many analysts in economics and other social sciences when
he argues that ‘inequality is the result of political forces as much
as of economic ones.’15 The most significant remedial measure to
save capitalism that emerges from Piketty’s work is focused on a
‘progressive global tax on capital.’ In addition to a tax on capital,
Piketty also argues for a progressive tax on income as well as
progressive real estate tax.16 In prevailing political conditions, all
these remedies/suggestions are, however, just utopian ideas. These
can have practical significance only if there is a political change
in every nation such that the common people take control of the
situation in their own hands.
PART III
Hunger and Food Insecurity
The enormous growth of production in the modern world has
theoretically undermined the Malthusian population trap. The
growth of production of food has increased the possibilities of food
for all. But the real picture of the contemporary world shows that
millions of people are living in acute hunger and food insecurity.
Despite the enormous growth of production in the world, 2 billion
people are making less than $ 2 a day—most of them living in rural
areas of developing countries. One cannot study the widespread
Introduction 25
hunger, malnutrition and poverty in isolation by divorcing it from

the existing capitalist economic system.
Historically, hunger and food insecurity have been endemic to
capitalist development. The recent report of Food and Agricultural
Organisation (FAO) titled The State of Food Security and Nutrition
in the World (2017) has highlighted that in 2016, the number of
undernourished people in the world increased to an estimated 815
million up from 717 million in 2015, a hundred million added in
one year. Of the world’s hungry and undernourished people, 98 per
cent live in developing countries. The question of hunger and food
insecurity is not only an ethical and moral issue but also a political
and economic concern because hunger and food insecurity is not
persisting due to the shortage of production.
This clearly demands an explanation: why despite the world’s
food production continuously increasing, the incidence of hunger,
food insecurity and real poverty is not decreasing at the same
rate? The growth of GDP and per capital income that developing
countries have experienced after the introduction of neoliberal
policies is a false indicator which does not reflect the actual reality
of living standard of the common masses in these countries. The
increased income has only been experienced by a small fraction of
population whereas the vast majority of the population has remained
untouched by growth. Therefore, the distribution rather than
production becomes the more important issue in the present era of
global capitalism. The persistence of hunger in the contemporary
world is due to the increasing inequality between and within the
societies produced by the uncontrolled growth of capitalist market
network. The empirical evidences presented by the FAO show that
recently the food security situation has worsened in many part of
Sub-Saharan Africa and South Eastern and Western Asia.
FAO has tried to relate the dire situation in these economies
with the rising conflict, compounded by droughts and floods in
these regions. However, the integration of these economies with
the world capitalist system and violence caused by the plunder by
multinational corporations is not addressed by the FAO as a cause
of hunger and food insecurity. It is evident from the facts that food
availability has got deteriorated in those settings where governments

have introduced the neoliberal reforms under the guidelines of the
IMF, World Bank and WTO. In the name of fiscal discipline there
is continuous decline in subsidies in developing economies which
were a means to protect the poor households against rising food
prices. Since the early 1990s the volatility of food prices has become
much higher that has increased uncertainties and insecurities of food
and nutritional intake by the majority of population in developing
countries.
The increase in food prices in recent years has increased the
number of people around the globe that are undernourished. It
is not the shortage in production of food that has resulted in the
increase in food prices and therefore food insecurity. It is rather the
withdrawal of the state and increased involvement of the private
players in distributional chains. Speculation in the future market
and hoarding at the local level are certainly playing a part in the
increase in food prices that make food inaccessible. The increase in
speculative activities in food and creation of artificial shortage by the
big corporate players has resulted in increase in prices and therefore
the import bill of food deficit underdeveloped and developing
regions has soared. Dismantling of food stock by government
agencies, reduced state intervention in price control and purchase
and sale of food articles have also contributed to increase in food
price volatility. The increase in food prices has put a huge burden
on the net importer countries of food. Out of the total food import
bill of the world, the share of Africa and Asia is 40 per cent.
The replacement of the local traders by transnational
corporations that process agriculture products, manufacture various
food, and sell food to the public only benefit the latter (Magdoff
and Tokar, 2010). They create artificial shortage that results in price
increase leading to increase in their profit margin. But the price rise
causes grave hardship among the poor and is a major factor behind
the increase in hunger and food insecurity.
Extent of Hunger and Food Insecurity

According to FAO, in 2016, among the major regions of the world,
Introduction 27
Sub-Saharan Africa seemed to be in the worst situation with 22.7

per cent of undernourished people followed by the Caribbean
(17.7 per cent) and Southern Asia (14.4 per cent). Among the
Sub-Saharan African regions the situation is more alarming in
Eastern Africa where one-third of the population is estimated to be
undernourished.
FAO has also collected data in almost 150 countries on Food
Insecurity Experience Scale (FIES).17 According to FIES, nearly
one in ten (9.3 per cent) of the world’s population suffered from
severe food insecurity. According to FIES, the absolute number
of population under severe food insecurity increased from 645.1
million in 2015 to 688.5 million in 2016. Africa has highest level
of food insecurity with 27.4 per cent (333.2 million people) living
in severe food insecurity (almost four times higher than the other
regions). Food insecurity in Sub-Saharan Africa has increased 3
percentage points from 2014 to 2016. Near about half of the world’s
food insecure population is living in Africa. More than 615 million
out of 688.5 million population (89.32 per cent) under severe food
insecurity lives in two regions of the world (Africa and Asia). The
number of undernourished people in the world has increased from
775 million to 845 million from 2013 to 2016.
The data on various essential indicators of quality of life
highlights that Sub-Saharan Africa is the most deprived region of
the world. In 2014-16, 29.4 per cent of the total population was
under severe food insecurity and 33.6 per cent of the children under
the age of 5 are stunted. The prevalence of anaemia among women
between the age group of 15-49 was 39.2 per cent. The situation of
Asia in terms of prevalence of stunting among children and anaemia
among the women is also very severe. In Asia, South Asia is the
most deprived region. The situation in South Asia is the worst in
the world in case of three indicators of quality of life. According to
recent data of 2016, prevalence of wasting and stunting in children
less than 5 years of age is highest in the South Asian region. The
prevalence of anaemia among women in the age group of 15 to 49
was as high as 48.7 per cent (highest in the world).
Conflict, Food Insecurity and Nutrition

FAO argues that there is a correlation between hunger, food
insecurity and conflict. A vast majority of the severely food insecure
and malnourished population lives in countries affected by conflict.
It is estimated that out of 815 million undernourished people, 489
million live in conflict-prone regions. Hunger and undernourishment
are more significant where conflict are prolonged and compounded
by weak institutional capacity and/or adverse climate related
events. According to the United Nations’ Global Report on Food
Crisis (2017), the causes of food insecurity in conflict are diverse
but often coupled with disruption in food production and food
system, plundering of crops and livestock, loss of assets and income
or population displacement which all directly or indirectly impact
availability, access and utilization of food. The countries where
conflict or widespread insecurity has acutely impacted food security
are mainly in Africa (Burundi, Central African Republic, Congo,
Nigeria, Somalia, South Sudan and Sudan), Asia and the Middle
East (Afghanistan, Iraq, Syria and Yemen).
The increase in the number of conflicts and unrest in African and
Asian regions is, however, closely linked to the capitalist penetration
in these economies. This is not a natural outcome of the growth
process and transformation of these economies. It is rather dictated
by the imperialist interests of Western capitalism. Therefore, the
situation of disempowerment of vulnerable groups among the
developing economies, as far as access to food and other essential
commodities is concerned, is closely related with the introduction
of neoliberal policies.
In the name of efficiency and superiority of free market forces,
the IMF, and World Bank are promoting neoliberal polices among
the developing and underdeveloped countries of Asia and Africa. The
fundamental objective of these policies is to integrate the pre-capitalist
production and distributional system of the Third World economies
with the world capitalist system. According to the policies dictated
by the IMF in the form of the structural adjustment programme
(SAP), the Third World countries are forced to dismantle the
Introduction 29
elaborate system of public agencies that provide the farmers access

to land, credit, insurance, inputs and cooperative organisations.
This approach holds that the state should stop subsidising farmers,
stop being involved in the storage and transportation of food, and
stop subsidising food for poor people and leave all these to the
market (Magdoff, 2008). This has increased the threat of hunger
and food insecurity in the Third World economies. The increased
intervention of the big private foreign and domestic capital in the
production of primary commodities in these economies has resulted
in the dispossession of the common people from the commons.
The promotion of the corporate agriculture by the World Bank
and other institutions of the developed countries is forcing most of
the peasantry in Asian and African countries to give up the traditional
forms of agricultural activities in favour of commercialisation. This
process of imposed commercialisation and growth of free market
forces in the countryside after the withdrawal of the state has
seriously undermined the self-sustained food production system
of family farming. The involvement of big corporations in agro-
processing, agro-input and contract farming has resulted in the
displacement of family farming by the corporate capital. This
process has further accelerated the process of depeasantisation in
the Third World economies. This process of depeasantisation was
characterised by Eric Hobswbam (1994), an eminent historian, as
‘the death of peasantry’ that he referred to as the most dramatic and
far-reaching social change of the second half of the 20th century.
The widespread depeasantisation and dispossession caused by the
introduction of neoliberal policies has forced the peasant farmers
off the land and petty producers from their independent means of
production.
In the pre-capitalist economies of the Third World, agriculture
is not simply an economic activity but rather a way of life—an
integral part of their culture and social system. This is the reason
that the forced integration of this pre-capitalist agriculture with
the world capitalist system has produced disastrous effects on the
livelihood of the majority of countryside population. The increased
control of the corporate capital over the agriculture production
and distributional system has brought food into the commodity

market like any other commodity. This transformation has increased
the hunger and food insecurity for the displaced population that
is not absorbed by the organised urban labour market. The data
on agriculture production at the world level shows that hunger is
not due to the failure of production but rather due to a lack of
appropriate amount of resources to command the required amount
of food. The encroachment of the resources of the peasant farmers
and petty producers in the Third World countries by big corporate
capital has resulted in the decline in means of livelihood and real
incomes of the common masses in these countries. A small fraction
of population who benefited from the neoliberal policies have
experienced improvement in their economic position substantially,
thereby commanding a bigger share of the available food. This has
resulted in the decline in access to food on the part of less favourable
sections of the population who have lost their means of livelihood
in the competitive market.
So the increase in incidence of hunger and food insecurity
in Africa and Southern Asia is an integral part of the process of
globalisation of capitalism that has uprooted millions of people
from their ties to land and natural resources. The austerity measures
introduced by the African and Asian governments in the name of
fiscal discipline, have resulted in the squeezing, or in majority of
cases a decline, in real income of the masses. These developments
have also eroded the national food self-sufficiency and food security
in African and South Asian economies. The problem is further
being aggravated by the continuous process of commodification of
health and education services that have increased the cost of access
to these services and put an additional burden on the poor. The
solution to end hunger and food insecurity lies in transforming the
power structures and institutional framework of the Third World
economies that have become totally subordinate to the interests of
the imperialists. If Third World countries really want to end hunger
and poverty, the most important thing is to de-link their economies
from the imperialist accumulation network and offer (economic and
political) power to their own poor people.
Introduction 31
PART IV
The present volume covers a wide range of issues from conceptual
questions to empirical investigation of the major challenges posed
by contemporary capitalism. The sequence of the papers nowhere
reflects the importance of one paper over the other. All the papers
are equally important to understand the theoretical foundations and
major challenges posed by contemporary capitalism.
Anjan Chakrabarti’s paper is a methodological one which
presents historical materialism as a method of inquiry of economy
and society. In the present scenario, it is essential to understand
the concept of historical materialism and method to expose the
exploitative nature of capitalism and role of the superstructure in
shaping the economy and society as per the requirements of the
capitalist mode of production. Surinder Kumar’s paper explains the
basic concepts of Marxian political economy which are important
to set the foundation for detailed analysis. Prabhat Patnaik’s
contribution explains the Marxian critique of Classical Political
Economy. This paper highlights in the Marxist framework the misery
of classical political economy to understand the accumulation logic
of capitalism and nature of capitalist production. The contributions
by Paramjit Singh and Greg Albo explain the capitalist mode
of production and the nature of its contemporary phase. Both
contributions are important to understand the basic structural
principles of capitalism and how it has evolved in recent decades.
The next three contributions explain the questions of employment
and unemployment under capitalism. Deepankar Basu’s paper,
along with a theoretical exposition, has empirically tested Marx’s
conception of the reserve army of labour. The paper by Satyaki Roy
is rooted in Marxian political economy that traces the employment-
unemployment phenomenon under capitalism that is an outcome of
the nature of the capitalist production process. V. Upadhyay’s paper
examines the nature of technological progress under contemporary
capitalism and its implications for labour and employment growth.
The next two papers deal with the agrarian question that has
not been appropriately addressed by the Marxist political economists
of the Global North in general and has not been part of the global
political economy curriculum in particular. The paper by the late
Samir Amin is a detailed analysis of the agrarian question under
capitalism. It addresses one of the key dimensions confronting the
Russian and Chinese revolutions, that of the agrarian question for
the peasantry which constituted popular majorities in each of these
countries at the time of their revolutions. Amin argues that the new
agrarian question is the key issue to be addressed in the processes of
building socialism in the 21st century. The contribution by Goran
Durfeldt discusses capitalist and family farming, fetching illustrations
from India and China, Sub-Saharan Africa and occasionally also
South America. He has challenged the widely held view of ‘big is
beautiful.’ He has presented sound reasons why family farming is
still thriving in the age of global capitalism.
The next five contributions cover the major themes which
expose historical and contemporary dimensions of the exploitative
nature of capitalism. John Bellemy Foster’s contribution defines
monopoly capitalism as a special stage of capitalist accumulation. It
traces monopoly capitalism and its various dimensions covered by
the leading political economists since Hilferding. The explanation
followed by the rich sources would be of immense worth to those
students and researchers who want to explore various dimensions
of the monopoly phase of capitalism. Paul Zarembka’s contribution
challenges the conception of “accumulation of capital” that is
generally propagated by scholars based only on Marx’s work. He
argues that accumulation of capital requires an in-depth analysis.
He has argued that the complete understanding of accumulation of
capital requires for Marxist scholars to build upon Marx’s works and
understand the concept in a horizontal manner by incorporating the
contribution of Rosa Luxemburg. Gerald Epstein’s contribution is
important in the sense that it clarifies the much debated concept
of “financialisation”, the term that had been developed long before
the crisis of 2008 but, understandably, became even more popular
since the crisis. He discusses various theoretical contributions in
order to provide a comprehensive understanding of financialisation.
Along with this, he argues that there are still many conundrums and
Introduction 33
open questions about “financialisation” which means it will remain

a fruitful area for multi-disciplinary research and an important
arena for political battles and structural reforms for the foreseeable
future. The next two contributions by Paramjit Singh and V.
Upadhyay explore the other important debatable issue of Marxian
political economy that is imperialism. Paramjit’s contribution traces
imperialism historically whereas Upadhyay’s contribution challenges
the accepted conception of imperialism in order to understand its
contemporary significance.
The last three papers focus on the life-threatening crisis of climate
change. V. Upadhyay’s paper provides a brief outline of various
dimensions of global warming and discusses the debates around the
idea of degrowth. Pritam Singh’s paper is an attempt to contribute
to an eco-socialist critique of the widely prevailing theoretical
perspectives on capitalism, its crisis and the solutions offered to
this crisis. His contribution focuses on examining Keynesianism,
monetarism/neo-liberalism, traditional Marxist and the Green
perspectives. He concludes by arguing that a critical synthesis of
Marxian and Green perspectives best captures the complexity of the
current crisis of capitalism—the global environmental crisis—and
offers a creative way of dealing with this crisis. The last but no less
important Erald Kolasi’s paper examines the relationship between
energy, economic growth and the ecological crisis under capitalism.
He argues that even most political leaders and economists who
support the current capitalist order have begun talking about a series
of alternative narratives about the relationship between human
economies and the natural world.
NOTES
1. See Rouche (2020).
2. See Hudson (2020).
3. See Peng (2020).
4. See Upadhyay (2016).
5. See Harari (2020).
6. See Chomsky (2020).
7. See Sen (2010).
8. See Degdeviren et al. (2004).

9. See Delong et al. (2017).
10. See Krugman (2017), p. 61.
11. Ibid.
12. See Goldhammer (2017), pp. 43-4.
13. See Krugman (2017), p. 65.
14. See Grewal (2017), pp. 474-5.
15. See Stiglitz (2012).
16. See Piketty (2014).
17. FIES is an experience-based metric of the severity of food insecurity,
relaying on direct yes/no response to eight questions regarding access
to adequate food. For details about the indicators and methodology
of FIES, see report of FAO (2017), The State of Food Security and
Nutrition in the World.
REFERENCES
Boushey, H., J.B. Delong and M. Steinbaum (eds.) (2017), After Piketty,
Cambridge, Massachusetts: Harvard University Press.
Chomsky, N. (2020), Interview with Pressenza Athens, March 30, 2020,
Pressenza.com.
Dagdeviren, H., Rolph van der Hoeven and J. Weeks (2004), Redistribution
Does Matter: Growth and Redistribution for Poverty Reduction,
in Anthony Shorrocks and Rolph van der Hoeven (eds.), Growth,
Inequality and Poverty—Prospects for Pro-poor Economic Development,
London: Oxford University Press.
Delong, J.B., H. Boushey and M. Steinbaum (2017), Capital in the
Twenty-First Century: Three Years Later, in Boushey et al. (eds.), After
Piketty, Cambridge, Massachusetts: Harvard University Press.
FAO (2017), The State of Food Security and Nutrition in the World, Rome:
Food and Agriculture Organisation of United Nations.
Goldhammer, A. (2017), The Piketty Phenomenon, In Bosuhey et al.
(eds.), After Piketty, Cambridge, Massachusetts: Harvard University
Press.
Grewal, D.S. (2017), The Legal Constitution of Capitalism, in Boushey et
al. (eds.), After Piketty, Cambridge, Massachusetts: Harvard University
Press.
Introduction 35
Harari, Y.N. (2020), The World After Coronavirus, Financial Times,

March 20, 2020.
Hobsbawm, E. (1994), The Age of Extreme: A Short History of the Twentieth
Century (1914-1991), London: Abacus Books.
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Monetary Hegemony, YouTube. April 23, 2020.
Krugman, P. (2017), Why We’re in a New Gilded Age, in Boushey et al.
(eds.), After Piketty, Cambridge, Massachusetts: Harvard University
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(eds.). Agriculture and Food in Crisis: Conflict, Resistance, and Renewal,
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Massachusetts: The Belknap Press of Harvard University Press.
Rouche, Julia La (2020), Economist Roubini Expects “Anaemic US
Recovery” and a “Greater Depression” Looms, Yahoo Finance, June
30, 2020.
Sen, A. (2010), The Idea of Justice, London: Allen Lane.
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Society Endangers Our Future, New York: W.W. Norton and Co.
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Programme.
1
Introduction to Historical Materialism: A
Theory of Society and History1
Anjan Chakrabarti
Taking off from Marx’s insights, Marxism emerged as a broad

tradition sharing the common objective of pursuing a critique of
exploitative systems such as capitalism and seeking a transition
towards a post-exploitative, post-capitalist society.2 Nevertheless,
it will be an error to reduce any tradition to one theory. Like all
traditions, Marxism too comprises many, often clashing, theories,
each operating with diverse entry points, logics, modes of analysis,
techniques, claims, etc. While these pull and push Marxism in
different, often contesting directions it also makes for over 150 years
of lineage that is extraordinarily rich, complex and dynamic. If not
anything, it represents the space for the most rigorously developed
critique of capitalist system that we know of.
Expanding on some interpretation of Marx’s works particularly
with reference to his book Capital: Critique of Political Economy,
diverse theories of society and of its transition in the Marxian
tradition can be classified into, by no means exhaustive or
conclusive, three broad approaches: (i) historical materialist
approach of Orthodox/traditional Marxism of Kautsky-Plekhanov
which reached its highest sophistication through the logic of
functionalist explanation in the hands of G.A. Cohen who claimed
to defend stage-based, deterministic Marx’s theory of society and
history (1978, 1986a, 1986b, 1988), (ii) historical materialist
approach of broadly speaking Classical Marxism which reaches its
greatest sophistication through a developed philosophy of dialectical
materialism (DM) in the hands of Luxemburg-Gramsci-Althusser

and subsequent thinkers expanding on them (Althusser, [1969]
2010; Althusser and Balibar 1975; Hindess and Hirst 1977; Harvey
2010)3 and (iii) class focused approach that developed following
the pioneering theoretical intervention of Resnick and Wolff based
on defining class as process of surplus labour and understanding
dialectical materialism by using a post-Althusserian4 epistemology
of overdetermination and contradiction (Althusser, 1969; Resnick
and Wolff, 1987, 2006, 2012).5 The first two in their own specific
ways deploy a deterministic mode of explanation, i.e. reduces their
respective understandings of society and its transition to ultimately
some chosen essence (say, forces of production or relations of
production) or law of motion (say, of capital accumulation); the
third is a non-deterministic approach implying that explanation
of anything—individuals, institutions, society and its transition—
cannot be reduced to one or a set of pre-given elements (Chakrabarti
and Cullenberg, 2003; Chakrabarti and Dhar, 2017). A training in
Marxist tradition requires a knowledge of these broad approaches,
the theories therein, their critique of the ruling ideas of political
economy and their ideas of post-capitalism (which could be dissimilar
despite sharing the common problematic) and of the debates within
Marxian tradition as such.6
Given the above qualification, I will only focus on G.A. Cohen’s
rigorous presentation of historical materialism (henceforth HM).
Moreover, given space constraints, I organise some of the criticisms
and debates within the Marxian tradition around Cohen’s theory
of HM. (see Chakrabarti, 2016 for details) My focus here is to
introduce a prototype model of HM ala Cohen—its concepts,
modes of analysing causality, intersecting theories of society and
history it delivers and the derived politics that surface. In the
process, some propositions and suggestions that emerge will be so
organised as to alert the reader to their controversial nature. Indeed,
the optimistic view is that a detailed understanding of one theory
within the Marxian tradition may serve the important purpose of
clearly distilling out some debatable methodological and substantive
issues/problems; they can be used by the readers to further delve
Introduction to Historical Materialism 39
into other contending theories within the Marxian tradition which

take these issues/problems as their points of reference and departure.
Two crucial intersecting and reinforcing steps compose HM—
one, a theory of society and secondly, a theory of history. Cohen’s
seminal intervention came in the form of functional explanation
proposed as a deterministic causal mechanism of explaining the
connection between the various components of society and of
why societies rise and fall. Cohen used the explanatory device of
functionalist explanation to challenge the usage of dialectics in HM
as a sloppy explanation of rise and fall of societies—whether in its
mechanistic version of quantity-quality transformation in other
varieties of Orthodox Marxism or as ‘structure in dominance’ marked
by overdetermination and contradiction in Althusser. On the other
hand, he is silent on Resnick and Wolff ’s class-focused approach
that challenges (i) and (ii) version of HM with its own rigorous,
non-deterministic logic of overdetermination and contradiction.
Components and Definition of Society in Historical

Materialism
In the social production of their existence, men enter into definite,

necessary relations that are indispensable and independent of their
will, relations of production which correspond to a definite stage of
development of their material productive forces. The sum total of
these relations of production constitutes the economic structure of
society, the real basis, on which rises a legal and political superstructure,
and to which correspond definite forms of social consciousness. The
mode of production of material life conditions the social, political and
intellectual life-process in general. It is not the consciousness of men
that determines their being, but on the contrary their social being that
determines their consciousness. (Marx, 1977 [1857])
Cohen uses this quote in Karl Marx’s Preface to A Contribution to
the Critique of Political Economy to describe and defend his theory
of society and its history. Society or social totality is an articulation
of the components of forces of production, relations of production
(the economic structure) and superstructure, where the forces
of production is given a privileged status. The structure in turn

determines the social consciousness. In so far as this overarching
social totality is taken as the basic representation of reality, HM
adopts a frame of absolute realism (its claim through knowledge of
the world is taken as the world per se), implying that all essential
ingredients of society—as represented in the diagram below—are
present in its proposed depiction of society. And, because this theory
flags what is essential in society to know, the truth about society
can be unpacked by exploring the anatomy and dynamics offered
by the theory. Moreover, following its self-proclaimed scientific
basis, the truth of society (the character of the relation between
their components, and of the entire society) and its transition
(in which some societies fall and others rise) can be derived from
an underlying privileged determinant/essence and law of motion
respectively. Cohen is clear in what he seeks to do: defend such a
theory of society and of its history.
Forces of Production (FOP) consist of facilities and devices

used in the process of production; it is the sum total of productive
forces at the disposal of organisers of production in any society at
any point in time. It includes raw materials (directly connected to
nature), instruments of production, the brains, muscles, skills and
knowledge of the labour force and so forth. At times, for convenience
sake, the FOP is clubbed into labour power (mental and physical
capacity to labour and not labour per se, two conceptually different
things) and means of production (all material forces besides labour
power). Like the means of production, labour power is devoid of
any specific social content and is to be considered as a stock of
brains and muscles (inclusive of skills and knowledge they possess)
that can be deployed for production. Labour power is considered
more important than the means of production; even if the means
of production are destroyed, the retained knowledge to produce
enables the labourers to recreate the means of production. At times,
the technology (broadly here the technical ways and means of
producing goods and services which clearly embodies knowledge)
and its autonomous accumulation is taken as a rough index of FOP
and its development.
If FOP emphasise the material condition, the relations of
production (ROP) highlight (social) relations between people in
the process of producing goods and services with the help of a
given stock of FOP.7 More particularly, ROP takes a specific social
form, that of class relations which following Cohen is the basis/base/
foundation of society. More on ROP later. In HM, the Primacy
Thesis states that FOP is assumed to be exogenously given and
determines the ROP and everything that appears subsequently. The
primary relation in HM is thereby marked by FOP or technological
determinism.
One qualification before proceeding further. Scholars interpret
Marx as having used mode of production in different ways (Hindess
and Hirst, 1977; Cohen, 1978 and Harvey, 2010). For one, mode
of production is seen as the actual methods and techniques used
in production under the given forms of specialisation and division
of labour (material mode of production). Second, the mode of
production captures the social properties of production process in
the form of direct producer’s surplus labour and mode of exploitation
(social mode of production). Third, Marx would practically refer to
society (for example, in his work on ‘Grundrisse’), its entire technical
and social configuration, as a mode of production (the mixed mode
of production). Fourth, the mode of production is interpreted as
the specific articulation of FOP and ROP without incorporating
social superstructures and social being. We infer from Cohen that

deploying mode of production as the articulation of FOP and
ROP must guarantee the causal primacy of FOP over ROP in that
articulation, something that Althusser and Balibar (1975) tried to
argue against by highlighting the centrality of ROP. Because of its
multiple mode of deployment by Marx and Marxists, Cohen tends
to avoid using the term mode of production although, if any one
way is rigorously developed then there is no reason why it cannot
be used in an adopted theory.
Forces and Relations of Production: For Cohen, the ‘economic
structure/base’8 is the set of ROP; it is not to be confused with FOP
which are the facilities and devices—devoid of any social content—
used in the process of production. In production, through a labour
process, the material (which includes elements of natural world)
and social are combined to produce use values for the purpose of
consumption or to add new facilities and devices for further expansion
of production. If one chooses to deploy mode of production at all
then the centrality of primacy thesis—prior presence of FOP to that
of ROP in a cause and effect relation—must be guaranteed in it.
One fact that all major Marxist theories agree upon is that the
‘relations’ in ROP must be class relations. That is, ROP must be class
ROP. That is where the consensus ends. Marxist theories differ from
one another in terms of what they mean by class, the unit of defining
it and the contrasting logics (reductionist or non-reductionist) used
to explain the relation of class and non-class elements. Regarding
the ‘what’, class has been defined in various ways within the Marxian
tradition, predominantly as economic power, property and surplus
labour. Power theory of class (predicated upon power), property
theory of class (predicated upon property) and surplus labour
theory of class (predicated upon surplus labour) are irreducibly
different class theories; debates within Marxism can henceforth be
partly construed in terms of each theory’s focus on the importance
of a specific set of class effects and outcomes that they project
(Resnick and Wolff, 2006, 118-136; Chakrabarti and Cullenberg,
2003, Chapters 2 and 3). Moreover, theories differ in terms of the
‘unit of defining class i.e. whether class is to be considered a noun
(homogenous group of people) or an adjective to a verb (process);

classes as homogeneous groups of people and class as process, class
struggle as struggle between two or more homogeneous groups
or classes and class struggle as struggle over class process are very
different in terms of what class effects are underscored and how
their ramifications are understood. The final point concerns the
logic deployed to analyse the relation between class (no matter how
it is defined) and non-class aspects. Non-determinist approaches like
that of the class-focused theory of Resnick and Wolff contend that
class (no matter how it is defined) and non-class processes mutually
constitute one another; as cause and effect of one another, their
relation cannot be reduced exclusively to class effects. In contrast,
deterministic HM theories, one of whose varieties we are emphasising
here, tend to reduce the relation between non-class and class aspects
to the adopted class effects/character.
Defining class as a homogeneous group of people predicated
in terms of economic power over the FOP, Cohen (1978, 1986a,
1986b, 1988) adopts and delivers a reductionist class analysis.
Specifically, different kinds of class ROP can be distinguished by
the criterion of whether the direct producers have no, some or total
economic power over his/her own labour power and the means of
production. Following Cohen’s typology:
Amount of Economic His Labour Power The Means of
Power Over Production He Uses
Slave None None
Serf Some Some
Proletarian All None
Independent All All
How does Cohen relate the aspect of ownership/property to

power? He differentiates between legality and control with respect
to ownership of property. While accepting that ‘ownership is a legal
phenomenon’ (and arises at the level of superstructure) ownership of
property can also be seen in term of economic power as in effective
control over the property irrespective of whether that right is legally
conferred or not. Those who have economic powers over the means
of production and labour power are assumed to have real or imputed
(as if ) ownership rights over them as well.
What about surplus labour and exploitation? While property
relation is predicated on economic power as we saw, exploitation (and
for that matter, surplus labour, without which exploitation cannot
be located) too is reducible to power relations. A correspondence
emerges: the class which more or less exercise economic power
necessarily exploits the class (i.e. excludes the direct producers
from the appropriation of surplus) who do not have that power.9
By reducing exploitation to relations of power structure, Cohen
displaces the focus upon exploitation per se by rendering the effects
and mechanisms flowing directly from the processes of surplus
labour as passive, waiting to be derived from, or reflected by, other
categories (property, power, etc.).
Cohen defines ‘economic structure’ as the sum total of coexisting
ROP. However, typically in HM, one class ROP is considered to
be dominant, with the others subordinated to it. The economic
structure of a society thereby comes to be designated by the dominant
ROP. The explanation of what happens to that society, its function
and the transition it undergoes is reducible to the extant dominant
ROP and its effects to which the other ROPs are subordinated, and
consequently the society gets its designated name from the identified
dominant ROP.10 For example, a feudal/capitalist society is one in
which the feudal/capitalist ROP is predominant. Or, to say that
the Indian economy is capitalist is to say so by the same reasoning.
Superstructure: Superstructure consists of only those political,
legal and cultural aspects of society (institutions and apparatuses of
state, law, education, religion, etc.) that enable the reproduction of
ROP. While FOP provide the natural/material foundation of ROP,
in turn ROP is the (economic) foundation on which culture and
political rises. For example, law facilitates the capitalist ROP by
securing for “capitalists effective power over means of production.
What confers them that power on a given capitalist, say an owner
of a factory? On what can he rely if others attempt to take control
of the factory away from him? An important part of the answer is
this: he can rely on the law of the land, which is enforced by the
might of the state…The content of the legal system is explained by
its function, which is to help sustain an economy of a particular
kind” (Cohen, 1988, 9). However, to be careful, not everything is
part of the superstructure (such as singing among friends or art per
se if disconnected from a relation with ROP).
The significance, theoretical and practical, attached by Marxists
to the state has been extensively discussed. Whether wholly or
partially (with relative autonomy), the state is seen as an instrument
of political organisation of the ruling class, especially when it comes
to securing capitalist society. In many Marxian approaches it is at
times offered as a collective embodiment of all other elements of
superstructure. In those treatments, the objective of the state is
to create, regulate and control social institutions that will reflect,
justify, protect, serve and uphold the existing class relationship.
Lenin’s insistence on the centrality of the state in securing capitalist
ROP and the counter force of vanguard party needed to institute
a delinking between the two by capturing the state on behalf of
the working class was a benchmark moment in the history of the
20th century. However, without subsuming the entire superstructure
to the state, Cohen’s approach insists on maintaining the distinct
features and roles of each of the elements in the superstructure.
Nevertheless, the importance of the state in capitalist society is
flagged in his treatment.
Others such as, to name a few, Lukacs, Gramsci, Althusser,
Frankfurt school and Jameson have highlighted the importance of
cultural apparatuses pertaining to institutions of education, religion,
art and entertainment, advertisements, etc. These apparatuses create
a socialised system of production and dissemination of meanings,
symbols, rituals, morality, etc. that help rationalise and justify the
dominant ROP, say the capitalist ROP. The subjects are embodied
within these apparatuses, and their consciousness, history and
texture, constituted by their effects. Somewhat sidestepping Lenin’s
insistence on the centrality of the state, Gramsci in particular
insisted that it is these social apparatuses and their effects, and not
the state per se, that constitute the first and immediate firewall
in defence of capitalist ROP; his insistence on the effects of these

on consciousness and the production of common sense became a
benchmark for future analysis. Taking off from Gramsci, Althusser
sought to combine the state and social apparatuses as also the
intertwined system of meanings, signs, habits, morality and rituals
they help shape to explain the production of willing subjects for
the reproduction of capitalist ROP; it is this cultural production
that seek to produce the mentioned intertwined system as the social
norm (something socially specific taken as naturally/universally
true) that enable the reproduction of capitalist ROP.11 Both Gramsci
and Althusser insisted on the indispensability of counter apparatuses
and the role of ‘organic intellectuals’ to help create a current for
alternative cultural formation and subject formation in the struggle
against capitalism and for a post-capitalist society.12
Understandably, the domain of superstructure is the site
of stabilisation (of ROP) and conflict (over issues related to the
dominant ROP or to transit from it). Class struggle between
homogeneous social actors (derived from their structural class
positions) for winning economic control over the ROP materialize
at this level.
Social Consciousness and Subjects: Finally, there are forms of
social consciousness capturing the mindset/disposition of the subjects
in a manner that are broadly consistent with the superstructure and
ultimately the economic structure of a society. Cohen invokes Marx’s
Preface once again where he contends, “it is not the consciousness
of people that determines their being, but, on the contrary, their
social being that determines their consciousness”. He argues that
“what Marx meant by ‘social being’ was a particular one or set of a
person’s social roles, namely, his economic role(s).” Cohen sketches
the connection thus. “The foundation is an economic structure, a
set of production relations, whereas the social being of a person is
his position in it; and the superstructure is a set of non-economic
institutions (of law, politics, religion, education, etc.) in which
persons participate with a consciousness grounded in their being.”
(Cohen, 1988, 45-46) Superstructure being the site of stabilisation
and conflict, he contends that “none of this occurs except through
the agency of human beings, whose actions are inspired by their

ideas, but whose ideas are more or less determined by their economic
roles.” (Cohen, 1988, 45-46) From the slightly differently angle
of Gramsci-Althusser, the linkage of superstructure and economic
structure with the production of consciousness and subject formation
takes a more sophisticated route for understanding the dexterity of
social systems, particularly capitalism.
Determinism/Essentialism: We use these terms interchangeably,
focusing on its logic. Expressed simply, determinism/essentialism is
a mode of explanation based on a structure of causality in which one
aspect is explained or caused (being determined) by another aspect
(determinant) which is taken as given, self-constituted totality that
is intelligible, knowledgeable and rational on its own basis in need of
no further explanation in that order of relationship. Structured by a
strict separation of cause and effect, the determinant/cause to which
the determined/effect is being reduced to is called essence; such
kinds of reductionist explanation are called essentialist (Chakrabarti
and Cullenberg, 2003, 25-40). HM models such as that of Cohen’s
have tended to embrace variants of determinist logics (choosing this
or that essence of their theory) which in turn became a source of
tension and debate amongst Marxists for over a century now. Among
many others, one important source of friction with determinism has
been that it tends to render passive or secondary other dimensions
that could be equally important in explaining something; as a mode
of explanation, it has been considered incomplete and misleading
with possible destructive social consequences. The ensuing criticisms
have given rise to a search for non-deterministic logics and modes
of explanation to help produce alternative ways of constructing the
knowledge of society and history (Resnick and Wolff, Chapters 1
and 2).
Coming back to our model, superstructure and forms of
consciousness are included within the social totality but they do
not possess primary explanatory power so far as the reproduction,
crisis or development of society is concerned. According to HM, the
superstructure and forms of consciousness depend on and are caused/
explained by the class ROP. This is what we call class determinism.
Since class ROP comprise the economic structure which determines

the superstructure and consciousness, economic determinism and
class determinism coincide at that level. From another perspective,
the mode of production (combination of FOP and ROP) is posited
as causally prior to and determining all other aspects of society.
Notwithstanding how the ‘economic’ is situated, its deterministic
property is commonly held and known as economism or economic
essentialism/determinism. Moreover, as explained earlier, the
explanation of ROP by FOP can be seen as an instance of FOP or
technological determinism. Finally, the structure (consisting of FOP,
ROP and superstructure) determines the subject/consciousness
producing in turn structural determinism. Notwithstanding on the
kind of relations analysed in society implying variations in the types
of determinism (class, economic, technological, structural), what is
nevertheless true is that determinism as a logic uniformly inflects
and fastens all such relations between the components of society
into a totality. This complex social totality or whole has a centre
or essence (FOP) to which every other aspects of society owe their
existence, role and historical lifespan.
A final clarification on determinist logic might be helpful. It is
not always the case that the element that causes would determine
other elements on its own. As had been attempted in many Marxist
theories, a more sophisticated argument would be to say that any
element of the superstructure is determined by a combination of
forces of production, relations of production and other elements of
superstructures but that forces of production are not determined by
any of them. However, in this case, even though the superstructure
may not be solely determined by forces of production, its specific
form of existence crucially hinges on the stage of development of
the forces of production and this dependence takes precedence over
other forms of dependence.13 Not all elements of superstructures are
consistent with the prevailing stage of development of the forces of
production. Accordingly, even though many factors come together
to determine the existence of any element of the superstructure, one
factor—the forces of production—is accorded a privileged status of
being the most important factor.
Fundamental Puzzle of Historical Materialism

Recall Marx’s observation in the Preface stating: “In the social
reproduction of their life, men enter into definite, necessary relations
that are indispensable and independent of their will, namely relations
of production which correspond to a definite stage of development
of their material productive forces”. Cohen turned his attention
to the term correspondence. Does correspondence means that
the relation between FOP and ROP is symmetrical? “If relations
correspond to forces, forces must correspond to relations.” In that
case, the primacy thesis entailing that “the level of development of
productive power explains the nature of the economic structure”
get violated. According to Cohen, “correspondence is not always
symmetrical...‘correspond’ means, roughly, ‘are explained by’”
(Cohen, 1978, 137). Given this asymmetry inferred in the term
correspondence, one must accept that productive forces explain
ROP which he argues is clearly asserted in Marx.
‘Correspondence’ would also mean that ROP might have
influenced and through it advanced the development of the FOP.
Cohen argues that Marx gives enough indication to this effect in the
Preface: “No economic structure (set of production relations) ever
perishes before all the productive forces for which there is room in
it have developed…new higher relations of production never appear
before the material conditions of their existence have matured in
the womb of the old society itself ” (Cohen, 1978, 140-41). This
asserts that ROP have a role in developing FOP and does so till it
has exhausted its ability to do so.
The term ‘correspond’ accordingly harbours a puzzle. On the
one hand, it is claimed that FOP exist independently and is causally
prior to ROP; it explains the existence of relation of production.
That FOP causes ROP must hold true. On the other hand, it is
also claimed that ROP influence and control the FOP. How can
both be true?14 Here, Cohen argues that this type of correspondence
between the different levels of society can only be consistently
explained by functional explanation. In his elaborate defence of
this casual explanation from analytic philosophy for HM, Cohen
dismissed other modes of explanation including the philosophy of

DM as inadequate for resolving the fundamental puzzle.
Functional explanation refers to a logic of relationship in which
the cause is explained in terms of the effect; e is the cause and f
the effect holds true only under the circumstance: when e occurred
because the situation was such that an event like e would cause an
event like f. Putting the same in a different way, “something which
has a certain effect is explained by the fact that it has that effect.”
(Cohen, 1988, 8).15 Take the case of the relations between FOP and
ROP. The numbers indicate propositions.
1. The level of development of productive power explains why
certain relations and not others would advance productive
power,
2. Relations which advance productive power obtain because
they advance productive power,
It follows that:
3. The level of development of productive power explains the
nature of the productive relations.
Cohen designates 3 as the Primacy Thesis. Proposition 1 asserts
which ROP, say of k type, would be appropriate to develop the
FOP. It states the possibility that to develop the FOP which type
of relations (or, economic structure) is appropriate for selection and
which not. It says nothing about whether the ROP will actually
obtain or not. The role of functional explanation appears here.
Proposition 2 affirms that the feature that relations of type k facilitate
the development of FOP explains why that type of relations obtain.
This “production relations prevail because they are relations which
advance the development of the productive forces” (Cohen 1988,
10). The order of relationship—FOP first and then ROP—is fixed
by 1. Proposition 2 imply that, courtesy functional explanation,
only the ROP appropriate for selection by FOP will obtain by virtue
of its effects of developing the level of the FOP. Combining 1 and
2 gives proposition 3 which guarantees the primacy of the FOP
over ROP even as ROP facilitates the development of the FOP. The
fundamental puzzle is resolved.
Extending functionalist explanation into other levels of

society, the economic base of ROP at any historical time select
that superstructure (hence, ROP is the causal prior) which would
be suitable for its functioning (which in turn would advance the
development of the productive forces); the fact that a specific
superstructure can protect and regulate the class relations explain
why the superstructure of that kind obtains. Together, they give rise
to proposition 4.
4. The economic structure explains the nature of the
superstructure.
Cohen argues that (3) and (4) can only be explained by
functional explanations because that is the only way to reconcile
the following two theses:
5. The economic structure promotes the development of the
productive forces, and
6. The superstructure stabilises the economic structure.
As Cohen avers, “(5) and (6), in conjunction with (3) and
(4), do force us to treat historical materialist explanation as
functional… No other treatment preserves consistency between the
explanatory primacy of the productive forces over the economic
structure and the massive control of the latter over the former, or
between the explanatory primacy of the economic structure over the
superstructure and the latter’s regulation of the former” (1988, 13).
Similarly, social being and consciousness is explained by the
superstructure and ultimately by the economic structure. This gives
us the following.
7. Economic structure and superstructure determines the social
being (subject) and embedded consciousness.
Based on the primacy of FOP and the logic of functionalist
explanation that preserves the primacy, an internally coherent
theory of society emerges. Cohen further supplements this axiomatic
conception of society with the Development Thesis entailing an
axiom of history.
8. The productive forces tend to develop throughout history.
Not only is there a primacy of FOP in the conceptualisation
of society (the Primacy Thesis (3)), but it additionally enjoys a
privileged status in the transition of this society (the Developmental

Thesis (8)).
Transition and Development: Cohen’s Defence of Karl Marx’s

Theory of History
That FOP tends to develop throughout history is a historical
exigency derived from the rationality saying that people “are disposed
to reflect on what they are doing and to discern superior ways of
doing it” in the face of material scarcity which does not allow them
to advance their wants. Given this rationality and material scarcity
(both derived from nature, human and material), people will when
the necessity arises exploit the opportunity to expand productive
forces to fulfil their wants.16 Not to do so is irrational which is ruled
out. People’s rationality works in another way. As a logical extension,
they reject or accept ROP depending upon its capacity to improve
or not improve the FOP. Again, not to do so is irrational and hence
ruled out. There is, in Cohen, two further implicit axioms: that
of material scarcity and that of embedded principle of rationality
amongst humans. Given material scarcity, there is an assumed
‘rational’ human agency impetus to go on developing the FOP.
Putting it in another way, naturalism (explanation being reduced to
some elements of nature) in the form of material nature (FOP) and
human nature (rationality) become a guiding force to rationalise
why history moves in a certain direction and not others.
The backdrop of the human agential rationality to develop
the FOP in the face of material scarcity is also the reason as to
why class divisions appear. This is because getting control over
the productive forces means that the cost of material scarcity will
not be shared equally amongst people. That is, those who enjoy
effective powers over means of production will have access to the
products and the surplus as compared to the rest of the population
who become dependent on them. It is also the case that “class
struggle is…a principal means whereby the forces assert themselves
over the relations.” (Cohen, 1986, 233). Clearly, the existence
and utility of classes and their struggles are reduced to FOP and
its development. Two kinds of struggles arise: one between the
mentioned two classes—ruling versus ruled—in any epoch and

second between the ruling classes versus those who want to take
control over the FOP. Note that in any era the ruled class (say, serf
under feudalism) and the class wanting to overthrow the existing
ruling class (say, capitalist class under feudalism) may not be the
same. Which struggle—between lord and self or between capitalist
and lord—will triumph? Referring to feudalism as an example,
Cohen’s answer is unambiguous. “Part of the answer is that there is
a general stake in stable and thriving production, so that the class
best placed to deliver it attracts allies from other strata in society.
Prospective ruling classes (capitalist class, emphasis ours) are often
able to raise support among the classes subjected to the ruling class
(feudal lord class, emphasis ours) they would displace. Contrariwise,
classes unsuited to the task of governing society (serfs; emphasis
ours) tend to lack the confidence political hegemony requires, and
if they do seize power, they tend not to hold it for long.” (Cohen,
1986, 233) Other contenders like some of the feudal lords or
merchants too will modify their operations on a capitalist basis and
undergo a change in class character. Therefore, “the class which rules
through a period, or emerges triumphant from epochal conflict does
so because it is best suited, most able and disposed, to preside over
the development of the productive forces at the given time” (Cohen,
1988, 15). Accordingly, the ROP which will procreate the economic
power of the class with the above property will appear. In short, the
rise and fall of classes are ultimately determined by the development
of the FOP.17
Given this Development Thesis, the society is stable if all
other aspects of society, notably class ROP, are such that they do
not impede the development of the FOP in any manner. If, at any
point, ROP do create barriers to the free development of the FOP, a
condition of social crisis arises which can be resolved only with the
advent of new ROP. Who creates the fetters of whom? Existing ROP
fetter productive forces signifying that they are no longer optimal in
providing scope for the latter’s development. In Marxist literature,
this incompatibility or non-optimality or disequilibrium between
forces and ROP is at times captured by the term contradiction.18
It is worth mentioning that the disequilibrium is not solvable since

at this stage the extant ROP has exhausted its potential to develop
the FOP; in fact, with time, the state of disequilibrium can only
worsen. Expressing it in another way, deepening of the contradiction
signals that the time for fundamental change in ROP as per the
Development Thesis has arrived.
This new ROP will be so selected by FOP that it will provide
maximum scope for the productive use and development of FOP.
Evidently, the drive form the presumed rationality of the people
trying to overcome material scarcity will ensure that such a kind
of ROP obtains. Anything else (that is, other ROP) again will
be irrational and hence rejected in the course of history. This
change in economic structure in turn brings about a change in the
superstructure, and the latter in turn brings about a change in the
forms of consciousness.
Does the stage of history follow a certain pattern that ties
together the optimal/progressive change from one epoch to another?
Here, Cohen draws upon a detailed correspondence between the
images of history in Hegel and Marx. (1978, 1-27, 175-215) It is
however the case, Cohen contends, that Marx’s materialism triumphs
over Hegel’s idealism. Unlike Hegel, his is not just a philosophy of
history but a theory of history of a materialist society containing a
logically sound explanation of the inner dynamics of society and
its transition. One does not need Hegel to theorise society and its
history as perceived by Marx.
Superimposing functionalist explanation driven Marx’s theory of
history over the imagery of Hegelian triad of affirmation, negation
and negation of negation, one can nevertheless conveniently picture
transition as already theorised by Marx. Undifferentiated unity
(primitive communism where there is no class division/conflict) is
the affirmation which is negated by differentiated disunity (slave,
feudal and capitalist society respectively, that is, societies divided
by optimality crisis and class division/conflict) which is in turn
negated (therefore, negation of negation) by differentiated unity
(communism or a materially abundant society with no optimality
crisis and consequently no class and class conflict). The contradiction
between the forces and ROP within each complex society leads,
via class struggle to a process of selection of another type of ROP
conducive to the development of the FOP and subsequently new
superstructure and social consciousness that arises on the basis of
it. That is, contradiction in each society is resolved to give rise to a
new complex society—a higher form of the society that assimilates
the previous society—and subsequently develops another round
of contradiction within it. This new complex totality is a higher
moment in the qualitative sense that the FOP are freer to develop
and hence achieve higher material prosperity as compared to the
previous stage.
Clearly, this way of looking at history is teleological meaning
that parts of the structure/whole, of their relationship to one another
and of their transition, have an underlying purpose. This teleological
conception of transition induces a historicist logic: a rational,
ordered, progressive movement of society from a preordained origin
to a predestined end. The rational element is the essence—here,
the FOP; its development signals progress which is coterminous
with a higher order of society and this progressive movement starts
from a given point—primitive communism—and moves with a
law like ordered motion to end where history is destined to reach,
finally—communism. Steered on by the iron logic of functionalist
explanation, the transitional process is guided by an underlying
purpose of the development of the FOP such that, prodded by
it, every turn, bend and shift in stages comes to be explained in
terms of the more general journey of the society towards its destined
end—communism; ‘progress’ is judged by the proximity of a stage
to communism. That class is deemed revolutionary which drive the
movement of society forward and the one named reactionary is by
virtue of its intention to retain the existing one.
Can stages be skipped (say, skip stage 2 to go straight from 1 to
3)? Cohen argues against that possibility by defending the rationale
of the following proposition in Marx’s Preface: “No social formation
ever perishes before all the productive forces for which there is room
in it have developed; and new, higher ROP never appear before the
material conditions of their existence have matured in the womb
of the old society itself.” Cohen’s argument can be used to claim,

as has been done by some Marxists, that the Russian, Chinese and
other ‘socialist’ revolutions in so-called ‘backward’ nations were
premature attempts to overthrow the still-nascent capitalist ROP
and were bound to fail; this is because the capitalist ROP has not
exhausted its full potential to facilitate the development of FOP.19
Equally forceful was the contrary argument of other Marxists who
defended the revolutions by stating that during the 20th century
history marked by monopoly/cartel, colonialism, imperialism and
wars/plunder/occupation for resources and markets the capitalist
ROP in advanced countries and elsewhere have turned into a
regressive force that impede rather than impel the development
of FOP (the underdevelopment, centre-periphery or articulation
of modes of production theories are some examples). Given that
capitalist ROP have shackled the development of FOP which they
were supposed to promote, the ‘socialist’ revolution telescoped into
its logic the blocked progressive content of capitalist ROP, namely
propel the development of FOP so as to unchain the forward
march of history. Rather than being seen as failures, these erstwhile
‘backward socialist’ countries, despite taking diverse strategies often
forced by circumstances, succeeded in achieving high growth through
modernisation, rapid poverty reduction and unprecedented levels of
social security in a short span of history. The point is that there is no
absolute winner in this long dragging debate since, despite valiant
efforts by both sides, there is no way to disprove one another.
We surmise that in HM if essentialism/determinism is the
undisputed logic of society then historicism is the undisputed logic
of transition; the two logics supplement one another. The essence
(FOP) serves as the rational element, the engine, in whose terms
history unfolds and the logic predicated on the telos in turn captures
the inexorable ascent of society in stages.
Under communism—the end of (class) history—the FOP reach
a state of development such that the ROP can no longer act as
fetters to technological development; the fundamental contradiction
responsible for transition disappears. This epoch signals a change
from material scarcity to material abundance such that human wants
are satisfied. Rather than being driven by the rationality of a perennial

conflict amongst classes to control the ROP, particularly the means
of production, so as to become the chief organiser, appropriator and
dispenser of income and wealth derived from surplus in society, the
rational organisation of society in a society of material abundance
comes to be based on: ‘from each according to his ability to each
according to his need”. As Cohen states, “Marxism sees history as
a protracted process of liberation–from the scarcity imposed on
humanity by nature, and from the oppression imposed by some
people on others. Members of the ruling and subject classes share
the cost of natural scarcity unequally, and Marxism predicts, and
fights for, the disappearance of society’s perennial class division.”
(1988, vii).
On the route to the establishment of communism, property
is socialised; the source to draw economic power for one group as
against another is taken away. Resultantly, the basis of class ROP
disappears and so does class struggle. To sum up: like the category
of surplus and property, the basis for the existence of classes and
consequently class struggle disappears from human history. Finally,
with the establishment of a classless society, the reason for the
existence of the state too is no longer there. Its superstructure role
as facilitator of class ROP becomes redundant and unwanted. Under
communism, we have statelessness accompanying classlessness. In
its place, different kinds of institutions aimed at reproducing a new
society appear.
This depicted blueprint of communist society must be followed
by a warning. Marx himself expressed scepticism about an ideal in
terms of which a blueprint for a communist society can be established.
An expression of this deep scepticism is present in A Critique of
Germany Ideology, “Communism is for us not a state of affairs which
is to be established, an ideal to which reality [will] have to adjust
itself. We call communism the real movement which abolishes the
present state of things. The conditions of this movement result from
the premises now in existence.” By this account, the make-up of the
final station of history presented by HM is not so certain, uniform
and frictionless. How do we think of a post-capitalist society then?
Perhaps it is not so out of order to pay more attention to what some

have and many more presently are trying to imagine and produce
through their actions from within this world: a pluriverse world (a
world where many worlds are possible) of a variety of post-capitalist
societies in the spirit expressed by Marx (Gibson-Graham, 2006,
Klein and Morrero, 2019).
Role of Class Struggle

Class struggle is secondary in the sense that it arises on the basis of the
‘fundamental explanation of the course of history and the structure
of society’. This is not to say that class struggle is unimportant but to
accept that it appears at the level of “main events of that course (of
history) and the surface relief of society” and not the “fundamental
explanation of the course of history and the structure of society”
(Cohen, 1988, 14). Let us explore this point somewhat further.
As an existing ROP fetter the development of the FOP, class
conflict intensifies. Since classes (defined in terms of property or
power) embody diverging groups’ location vis a vis the creation and
appropriation of surplus, the conflict expresses itself in the inability
of the ruling class to extract its desired surplus from within the
existing ROP. It also means that the fulfilment of wants of the mass
of people becomes increasingly difficult to attain. The scenario is
made murkier by the entry of a new class force that is attempting to
usurp the economic power from the hands of the old ruling class. As
we exemplified earlier, the sharpening of the conflict between lord
and serf during the crisis of feudalism saw the rise of the nascent
capitalist class intent on usurping power. The conflict erupts into
and disrupts the reproduction of the extant superstructure as well
making its institutionalised socio-political order (say, the feudal
political system, the central role of church in education, etc.)
difficult to sustain. Under the growing challenges, the ruling order
is no longer seen as capable of securing the existing class ROP;
it is resolved through a change in economic power that takes the
form of a new revolutionary class ultimately defeating the existing
ruling class. Therefore, the bourgeoisie appeared as revolutionary
class under feudalism to defeat the ruling class of lords putting in
place a new class ROP that will provide ample scope for the arrested
FOP to develop freely once again and thus allow the new ruling
capitalist class to achieve a desirable level of surplus extraction. As
the previous revolutionary capitalist class becomes the new ruling
class, its ROP secures the rise of a new revolutionary class, the
working class; conflict between the two classes emerges. Thus, as
FOP changes, so does the class relationships of production, so does
the new elements of superstructure conducive to the new class ROP
leading to newer forms of class struggle and conflict in the new
society born out of the womb of the old and so history moves on
till its final station.
Dual Definitions of Class and Class Formation: Politics of

Transition
The rest of the discussion is on the presented theory of class in HM
which brings into the forefront a bagful of issues and problems,
some of which are covered now. There are clearly two definitions
of class in HM. The first pertains to a given group of people
structurally positioned within the ROP. Because this definition
of class encapsulates the ROP or economic structure, this is often
referred to as an economic definition of class. Nevertheless, this
presence of class does not have any mechanism of explaining why
and how such a class will act. Sans class as social actor there cannot be
any class struggle and consequently the transition of society cannot
materialise. Therefore for change in the structurally given ROP to
transpire to remove the fetters on the development of FOP, class

must also be a designated social actor capable of decision-action.
There is then another definition of class—a political definition—
that refers to class as a homogeneous group of conscious people
who can act.
One of the enduring puzzles that has since emerged in Marxism
is how to reconcile the economic definition (i.e. the structural
definition) of class with the political definition (i.e. the subjective
definition) of class, that is, make consistent the two claims or
rather make the singular claim: those who occupy a structurally
given class position will also be ones who will form themselves
according to their position as a social actors in order to struggle
for or against progressive social change. While Cohen assumes
embodied rationality to achieve material prosperity in class subjects
which provides it with a reason for collective action for progressive
change in history this assumption is hardly a resolution to the class
problem of reconciling the two levels. Because of the importance of
class politics in Marxism, let us explore this issue of class dichotomy
somewhat more with the help of new concepts.
Class positions are those structurally defined (economic)
positions that individuals occupy in ROP. Roughly, a group
embodying a specific class position in ROP constitute class in itself.
Class formation refers to the transformation of class in itself to class
for itself, where class for itself is the social consciousness demanded
of a class to congeal into a social actor. The missing element in
this apparent gap between the economic and political concepts of
class is ‘interest’. Interest generally provides actors, individual and
social, with reasons for action. In HM, the concept of interest
provides therefore an explanatory link between structurally defined
class and class as social actor. Interest is taken as given, embodied
in the structurally located class positions; class position and class
interest are coterminous and in fact merge into one another. Once
so granted, class as social actor (a homogeneous group of people
who can act) is by default instilled with an objectively defined
intelligibility reflecting the structurally derived interest embodied
in class positions. For example, defining working class in capitalist
ROP is also laying down the working class interest that provides
it with the collective will for directing its specific course of action
along that line. Classes now become actors for class interests—
class-for-itself. In the historical plane, class actors with preformed
interest struggle with one another—clash of classes is a clash of class
interest—to fulfil their assigned goal and role in society and history.
The basic contour comprising the problem of class formation
in HM is then this linkage:
Structurally Given Class Position → Pre-Given Interest → Class
as Social Actors → Class Struggle.
From a different but related angle, the presence of working class
consciousness and actual consciousness of individual members of
working class signals a dichotomy that present a further complication.
Ideally, working class consciousness would automatically translate
into the consciousness of individuals holding that class position.
This is the concept of ‘imputed consciousness’ i.e. consciousness
reflecting the true (working class) interest that in turn is structurally
given. Since the working class is derived from a structural disposition,
the imputed consciousness reflects the intelligibility flowing from
the working class interest. Imputed consciousness is thus said to
have an objective basis. The problem is that while interest is said
to have an objective or structural basis it may not be necessarily
recognised by those whose interests they are presumed to be. The
actual consciousness may be in discord with the desirable true
interest personified in imputed consciousness. This difference is false
consciousness whose extent for any individual is a function of the
difference between true and false interest. The individuals holding
working class positions and hence belonging to the working class
may not recognise the “truth” of their class interest and consequently
of what their social and historical role ought to be.20 Class identity
as social actor with a collective will cannot be formed i.e. the class
formation problem from class in itself to class for itself cannot be
resolved in the presence of false consciousness.
Marxist practitioners working with some variant of HM model
with dual class dichotomy—starting from Lenin, Luxemburg,
Gramsci and Lukacs to many in contemporary times—have long
recognised the problem of class formation for working class politics

associated with this schism between true and false interest, between
imputed and actual consciousness. In flagging false consciousness as
a political problem, they however do not question the assumption
of pre-given true interest. Taking interest as objectively and
structurally given and hence as true, they then proceeded to analyse
the apparent problem of reconciling imputed consciousness with
actual consciousness. Putting it somewhat simply the individual is
not yet a political subject and false consciousness a measure of this
lack. In order to transcend false consciousness which the working
class (members) on their own are definitionally incapable (otherwise
you will not have this dual problem in the first place), it was argued
that one needs an external force for precisely this purpose. The
conception of a vanguard party of the working class—a party of
‘revolutionaries’—emerged whose purpose is to educate the members
about their true interest and historical role, and help to forge the
class identity with a collective will to initiate class struggle against
capitalism for its overthrow. In the erstwhile socialist countries,
vanguard parties embodied the very basis of so-called working
class domination.21 Forging class interests and class identity for the
purpose of revolution through the medium of re-education, trade
union activism, social movements such as general strike, insurgency,
vote politics, etc. become the said goal of the vanguard party. The
following diagram presents our arguments schematically.
Careful theoretical and political introspection pointed to the
two other controversial consequences of class determinism: one, by
reducing the relevant object of social struggle to that of changing
the structurally defined class relations pre-assigned as the most
essential structural component of society and two, by reducing the
relevant subject of social struggle to a unified, uniform and closed
class subject, both at the individual and social level. Consequently,
the individual and social subject as also the object of social struggle
which the subject addresses are presumed as subsumed by class.
Taken together, the class saturated social space fails to explain
why both the relevant object and subject of social struggle should
be considered as reducible to class per se when it can be neither
theoretically nor empirically defended; for one, it begs the question

of how can its claim of a class saturated space be taken as what that
space actually is. The fallout of class determinism has long been
acknowledged as a problem within Marxism.
Among other things, it has led to a renewed effort to rethink

the issue of subject/consciousness, class identity and struggle.22
Rather than emphasise upon false consciousness or the dual
existence of true/false interest/consciousness, other approaches have
tried to understand the subject—his disposition, consciousness,
practice, etc.—as a combined effects of cultural, political, natural
and economic aspects of society. Subjects need to be theorised
as a constitutive product of these aspects including the kind of
superstructures and economic structures within which the subject is
embodied. Social struggles too are likewise rethought as transpiring
in a contested plane. When the subject formation and social struggle
is in such a mired space, the role of the ruling order to impregnate
the subject’s psyche and common sense with the ruling ideas (which
is produced and disseminated at the level of superstructures) that
does not challenge the dominant class ROP becomes crucial.

Having learnt from and absorbed the historical lesson of the threat
of the working class movement to capitalists’ social position as a
class which is by no means omniscient or omnipotent, the ruling
order (much in the same way as Gramsci and Althusser argued) in
trying to shield the capitalism system may reorganise and recast, as
the need arises, the superstructure elements to secure the system
(through aspects of education, media, politics, law, religion, race,
ethnicity, ownership pattern, etc.). The uncited, unacknowledged
intent of this ever changing imperial architecture of shaping subjects
is to produce and transform subjects into ones who themselves, of
their own free will, reject any rejection of the capitalist system. This
phenomenon of accumulation of men to accompany accumulation
of capital as Foucault referred to in The History of Sexuality has
been the subject of much analysis in Marxism, from Gramsci (who
foregrounded the importance of cultural apparatuses in shaping
social beings) to Althusser (who theorised the ideological state
apparatuses by combining state and culture). Others, following
Gramsci, Althusser, Jameson, Resnick and Wolff have proceeded to
argue for a thorough transformation of both the understandings of
structure and subject and of their relation. They argue that defeating
the festering class determinism in Marxism can only be achieved by
recasting the definitions of class and epistemology. These tendencies
and the theories they produce inject into the contested Marxian
tradition a different trajectory and history of Marxism as also of its
politics.
Conclusion
As stated in the introduction, my expansion of Cohen’s work to
present a prototype deterministic model was to unpack carefully
some of the basic positions and modes of analysis of HM. Variants
of this prototype HM model, more or less similar to it, have
flourished in Marxism and we have also recorded some line of
extensions, deviations and debates. Another embodied purpose had
been to prepare the readers to self-identify the channel through
which they can start to make sense of how and why deterministic
HM models become a fertile ground for launching fundamental

challenges to its logics, descriptions, histories and actions from
within the tradition of Marxism. The history of Marxism, including
in many of its developed forms, have witnessed the rise of new
theories in the course of this challenge—flourishing with different
sets of logics, focuses, strategies, analysis and positions. Moreover,
responses to newer socio-economic development have in turn led
to production of new concepts and tools that are consistent with
whatever kind of Marxist theory is produced. Marxism is neither
a singular nor a dogmatic field, not to say static. Rather, it is a
sophisticated, changing, rich space of contesting and often clashing
theories which not only challenge the mainstream discourses but
also one another. In the process, it produces a deeper understanding
of what this tradition seeks to broadly highlight and pursue.
These internal clashes within Marxism transpired over
multiple aspects. We will end by mentioning a few, by no means
exhaustive, debates and disputes that have and continue to inflect
this tradition: over the concept of dialectics, over deterministic
versus non-deterministic epistemologies, between varieties of
determinism (structuralism versus theoretical humanism), between
teleological versus non-teleological understanding of history, over
class definitions whether to predicate it upon power, property or
surplus labour and whether the unit of class should be a group of
people or process, over whether the dual structure of class should be
retained or not, over whether false consciousness as an explanation
of consciousness should be abandoned, over understandings of
what constitute consciousness, subject and identity, over whether
the associated concept of vanguard party is flawed, over the
meaning and content of politics, over that of power whether it
should be accounted for in terms of the categories of HM that we
have described or whether we need a distinct theory of power in
the form of hegemony, whether the erstwhile ‘socialist’ countries
were/are exploitative or not and hence deserving to be critically
engaged with, over how to account for colonial and post-colonial
societies, histories and experiences along with the often-mentioned
problems of orientalism, ethnocentrism and modernism, etc. For
each question and many others not mentioned, different debates

and disputes have contributed to bolster existing and new theories
adding to the overall rich complexity of Marxism. The question of
the relation of Marxism to politics has accordingly been undergoing
serious rethinking and transformation (Gibson-Graham, 2006;
Wolff, 2012; Chakrabarti and Dhar, 2019; Dhar and Chakrabarti,
2019; Klein and Morrero, 2019; Chakrabarti, Dhar and Kayatekin,
2020), raising new discussions not only regarding what the objective
and scope of transformation should be but also on what the means
of doing politics ought to be.
NOTES
1. This is a shortened albeit reworked version of “Historical Materialism:
A Critical Assessment” in Contemporary Readings in Marxism: A
Critical Introduction (ed. Ravi Kumar). Aakar Books: Delhi, 2016. I
thank Ravi Kumar for his permission to use some parts of the chapter
in the book.
2. It tells us that, as Étinnie Balibar had noted, Marx and Marxism
are not the same. Just as in the instance of Marxism, socialism
and communism too are not the same nor can be readily reduced
or collapsed to one another; even what is meant by socialism is not
singular (see Wolff, 2019 for an introduction to their differences and
complex relations).
3. See Olsen (2009) for a good review.
4. Louis Althusser’s battle with determinisms of both Hegelian
structuralism and theoretical humanism in Marxist theory is well-
known and much dissected. At the same time, his conception of
overdetermination was criticised for holding onto a structural residue
of economic in the last instance in the determination of society. By
giving up on any such residue of determinism (economic or otherwise),
Resnick and Wolff develops overdetermination and contradiction
as a wholesale non-deterministic epistemology. The ‘post’ in ‘post-
Althusserian’ thus signifies a theoretical movement after Althusser but
in relation to him.
5. Sharp debates have transpired in India too, something that is well
documented in the Indian modes of production debate and that
over passive revolution of capital in the context of India’s economic
transition (Chakrabarti and Cullenberg, 2003, Chapters 2-5).
6. Absorbing lessons from all the three broad approaches, thinkers and
practitioners from the erstwhile colonial countries have combined
what they find relevant in them with critical indigenous literature
and experience to highlight the importance of outside (say, world of
the third) in the constitution of (global) capitalism (Cesaire, 2010,
Chaudhury, Dhar and Chakrabarti, 2000, Dhar and Chakrabarti,
2019, Chakraborty, Chakrabarti, Dasgupta and Sen, 2019). We can
call theories emphasising this constitutive connection as world of the
third Marxism. In this paper, we do not pursue this brand of Marxian
theoretical field.
7. Alternatively, how FOP and ROP combines captures a critical
dimension of human-nature relation that is central to the reproduction
of both human life and natural life; this has given rise to a rich eco-
socialist literature in recent times (Saito, 2018).
8. Economic base is not to be confused with the essence of society (to
which we will come later).
9. See Resnick and Wolff (2006) and Chakrabarti and Cullenberg (2003)
for why this correspondence would not be true in a non-reductionist
class theory.
10. One of the richest formulations and debates on the issue of transition
and subordination of one ROP by another in the early 20th century
and the role of the nation-state in it has come from Japan (Walker,
2016).
11. This is not to say that Althusser, undisputedly influenced by Gramsci,
did not differ from him; for one, he did not accept the idea of
hegemony that Gramsci proposed.
12. Organic intellectual is not the same as vanguardism (to be discussed
later).
13. See Althusser (1969), for instance.
14. Interestingly, this puzzle is also acknowledged at the level of mode of
production and superstructure by Althusser (1969, 1975) who tries to
resolve the primacy of the former and the important role of the latter
through concepts such as ‘determination in the last instance’ of the
economic, ‘effectivity’, ‘relative autonomy’ and ‘reciprocal action.’ His
detailing of the mode of production can be found in Althusser (2014).
15. An example given by Cohen might be helpful for a preliminary
understanding of functional explanation. ‘Birds have hollow bones
because hollow bones facilitate flight.’ The functional explanation is:
That birds having hollow bones facilitate flight is explained by the fact
that it has the effect of facilitating flight.
16. This emphasis on human rationality in the face of scarcity bears
an uncanny affinity with the liberal tradition, particularly in the
neoclassical economics.
17. Cohen’s reduction of class ROP and class struggle to FOP was
criticised by many scholars of HM. They insisted on the primacy
of class struggle to resolve which ROP will appear as central in the
Marxian theory of history (for example, Brenner, 1986).
18. It must be said though that Cohen does not have much use for the
category of contradiction. In him, the aspect of (sub)optimality is a
good enough way of depicting the social (in)stability. I still use it here,
without compromising on Cohen’s rendition, to make the readers
aware of the manner of usage of contradiction in the historical sense
in deterministic Marxian theory.
19. Cohen argues that the changes in ROP, when they come, would be
revolutionary although it is not clear why his version of orthodox
Marxian would not be consistent with the revisionist approach in
Marxism. From the late 1890s onwards, Eduard Bernstein, especially
in Evolutionary Socialism and The History and Theory of Socialism
forwarded his revisionist Marxist approach, directing another path
of socialism, a peaceful road, which has had a lasting influence in
many parts of the world (Laclau and Mouffe, 1985). Following
Bernstein, the politics of socialism, influenced by Marx or otherwise,
became split into two roads: the revolutionary and the reformist path.
Following Bernstein, (i) socialism does not follow from the collapse of
capitalism (rejects inevitability), (ii) history is not an objective process
but interaction between objective and subjective (will) factors and (iii)
socialism is achieved through party programmes that requires an ethical
and not entirely scientific decision. This requires the autonomy of
ethical subject. The ethical subject is a (transcendental) subject. How is
it possible then to have a unification of economic and political? Here,
Bernstein forwards his evolutionary thesis entailing that the ethical
subject is also transcendental subject guided by, and adapting to the
laws of evolution. Thus, revisionism collapses into gradualism, and a
peaceful parliamentary path towards socialism within the purview of
the nation-state follows. For a critique of Bernstein’s position, see Rosa
Luxemburg’s Reform or Revolution.
20. Misrecognition is not the same as non-recognition, a difference we do
not discuss any further except to say that the latter becomes important
in the literature on hegemony.
21. The vanguard party was assumed to uphold the pure interest of the
working class. As a result the interests of the working class and the
vanguard party became synonymous. Since the totality of the subject
directly translates the objective interest of the working class, the interest
of an individual holding a working class position should coincide with
that of the working class as a whole and the vanguard party. The
subject is represented by a working class that, in turn, is represented
by the vanguard party. Any dissent or revolt against the vanguard party
is considered a revolt against the working class and its true interests.
I leave it for the reader to count the effects and consequences of this
correspondence relation.
22. Lenin maintained historical subjects as personification of classes that
entails the presence of pure class identity. Luxemburg in “Mass Strike,
The Political Party and the Trade Unions” argued that one cannot
take, fix, a priori the meaning of the strike or party as moments in
the socialist transition; instead it is in the process of revolution—
through overdetermination of many struggles—that the unity of the
working class is achieved. Once the meaning of social events has
been unfixed, we get a unity—involving spontaneity—that cannot
be reduced to any necessity attributed to social and individual actions
derived from their structural position. Class identity cannot be taken
as given. However, Luxemburg still maintains that this composed
unity, achieved through overdetermination of many struggles, at
the political sphere is a class unity even though why it should be
referred to as so is not clear. This essentialism of class is also present in
Gramsci. Sharply distinguishing between the economic and political
sphere, he uses the conception of hegemonic articulation of non-class
and class relations in the formation of class subjects and politics. Yet,
he continues to maintain the reduction of this hegemony to the class
core in the economy (Laclau and Mouffe, 1985, Chapters 1 and 2). As
we understand, while both Luxemburg and Gramsci correctly identify
the problem and take the first basic step to break out of it (the same
is true for Althusser later on), the framework of historical materialism
within which they operate holds them back from resolving the
matter decisively. While the economy in the last instance haunted
their framework it is nevertheless true that the extraordinary phase
of political thought has in turn led to a fertile territory over which
theories, questions and debates continue to appear till today.
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Kristjanson-Gural, D.C. Mulder, and E. Olsen (eds.), Routledge
Handbook of Marxian Economics, New York and London: Routledge.
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Spiritual, New York and London: Routledge.
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‘Capital’ in the East: Reflections on Marx, Singapore: Springer Nature.
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2
Essential Concepts in
Marxian Political Economy
Surinder Kumar
We recognise a phenomenon in our minds through its attributes,

which are generalised in the form of ‘concepts’. Concepts facilitate
reflection of the world in our minds. Concept is abstraction from
reality and it is just a logical construct. It is through concepts that
we comprehend the reality. For example, shirt, school, commodity,
capitalist, landlord, and labourer are different concepts. A concept
should be defined as precisely as possible to avoid any confusion and
gap in our communications. Most of the misunderstandings emerge
because we may use a concept for communication through spoken
words or writing, which may not be precisely defined and may mean
different things to different people. Therefore, the first task in any
scientific communication or discussion is to clearly and precisely
define the ‘Concepts’ in terms of which we enter into dialogue with
others and communicate our ideas or views.
Most people find it difficult to comprehend Marx because they are
not familiar with the Marxian concepts. Marxian Political Economy
uses some terms/concepts, which were formed by British classical
economists, French political thinkers and German philosophers and
were further evolved, refined and precisely defined by Karl Marx
over time. We need to comprehend Marxian concepts as precisely
as possible so that there is no confusion in our comprehension of
the Marxian theoretical formulations.
1. Marxian Political Economy
Psychology deals with individual human behaviour. However,
Essential Concepts in Marxian Political Economy 73
society is more than a collection of individuals. Social behaviour

has its own dynamics. Individuals enter into certain definite and
somewhat enduring relations among themselves. The social sciences
comprise all those branches of knowledge, which aim at studying
and understanding these social relations and their changes over
time. Political Economy/Economics is a social science. Subject
matter of economics deals with production and distribution of
goods and services, which people need and want. Unfortunately,
the way economics has evolved over time, the social character of
economics as a discipline has got concealed under the high-sounding
technical economics, especially in the neoclassical economic theory.
The Classical Political Economy approach to the study of economic
problems is associated with Adam Smith, Ricardo and others. Karl
Marx developed it further and put it on a scientific basis. It has
had an enduring impact on the development of social sciences in
the world.
There was a long debate over which economics has been
reduced from the study of social relations to technical relations
of production with labour as one of the explanatory variables,
especially since Alfred Marshal (see Lionel Robbins and others).
Many motives have been attributed to this shift in the paradigm
and economic thinking. Some scholars have observed that Classical
Political Economy formulated social relations in terms of class
relations and class interests, and contradictions were exposed which
were not suited to the ruling classes. Therefore, the shift from class
conflict to class harmony as in formulations of the neoclassical
economics were encouraged and promoted by the ruling elite. In the
neoclassical paradigm, all factors of production join harmoniously
and contribute to production in the production process and it is
assumed that they are rewarded according to their contribution/
marginal productivity. Thus, there was no conflict and every
economic decision may be left to the market forces, which leads to
the most efficient allocation of resources and distribution of income.
The fact that different people own these factors of production and
rewards are distribution according to ownership, which is a social
process, is concealed in mainstream economics.
The depression of the 1930s sent alarm signals and the neo-
classical economic theory was called into question. Keynesian
economics emerged out of that economic crisis. However, since
the 1950s, the ruling classes again restored legitimacy of market
forces and neo-classical economic thinking. However, the economic
and financial crisis of 2008 has again forced economists to have a
close look at the mainstream macroeconomics (Wolff and Resnick,
2012). The political economy approach and Marxian approach to
economic analysis, which have an interdisciplinary framework of
analysis of socio-economic phenomena, are again gaining popularity
in social sciences. Therefore, the need of the hour is to reappraise the
Marxian Political Economy and its method of analysis and explore
its explanatory power of the socio-economic phenomena.
2. Marx’s Method
The methodology evolved by Marx is perhaps his greatest
contribution, along with his study of capitalism. Marx’s method
of analysis was the abstract-deductive method. Concrete cannot
be understood without first being analysed into the abstract
relationships, which make it up. However, our ‘a priori’ construct
must be validated by empirical reality. Further, Marx adopted what
modern theorists call the method of ‘successive approximation’
which consists in moving from more abstract to more concrete in a
step by step fashion removing simplifying assumptions at successive
stages of the investigation so that theory may take into account and
explain an ever-wider range of actual phenomena.
Marx’s objective of study was to discover the ‘economic laws of
motion of capitalist society’. Marx came to an early realisation that
human progress was rooted in the material conditions of life and
anatomy of the civil society is to be sought in political economy.
Marxian formulation of these laws is radically different from
that of non-Marxian schools of thought (it embodies a different
epistemology of human knowledge). Marx retained the elements
of Hegel’s thought, which emphasised dynamics of a process and
development through the conflict of opposed or contradictory
forces (dialectical process). He traced decisive historical conflicts to
roots of mode of production in economic relations, which underlie

and express themselves in the form of class conflict. These are the
essential elements, which must be isolated and analysed through the
method of abstraction.
Classical economists, especially Ricardo, identified class
conflicts in the ‘distribution of the produce of the earth’; but this
conflict was between industrial capitalists and landlords. But for
Marx, in capitalist society, primary economic relation are between
capitalists and workers. The relation between wage labour and
capital determines the entire character of the mode of production.
This relationship should be at the centre of investigation.
As a method, Marx’s method involves two fairly distinct steps:
(i) all social relations except those between capital and labour
must be assumed away, to be reintroduced, one at a time, only at
a later stage of the analysis, and (ii)capital-labour relations which
arise in the sphere of industrial production as the most significant
relationship in the capitalist system. Capitalists and workers alike
are reduced to certain standard types, from which all characteristics
irrelevant to the relation under examination are removed. They are
the personification of economic categories; represent certain class
relations and class interests. Nature of capital-labour relations is an
exchange relation in the production process and the capitalist buys
labour power from the worker and the worker gets wages from the
capitalist with which he acquires the necessities of life.
(Marx’s Capital Volume 1 remains on a high level of abstraction.
It may be taken as provisional as it undergoes extensive modifications
on the lower level of abstraction in Volumes 2 and 3.)
3. The Historical Character of Marx’s Thought

Marx’s method is historical. For Marx, social reality is a historically
dynamic process; a process that, in principle, knows no finality
and no stopping places. Marx premised that social systems, like
individuals, go through life cycles and pass from the scene (is
changed/transformed) when relations of production among people
change. The process of social change is not purely mechanical. It
is dialectical. It is rather a product of human action, but action is
definitely limited by the kind of society in which it has its roots.

Society is both changing and, within limits, can be changed. To a
Marxist, the specific historical forms are transitory in character.
4. Basic Premise of Karl Marx

The essence of Marx’s understanding of society and its dynamics is
laid down in his work, A Contribution to The Critique of Political
Economy (1859), which was published eight years before publication
of the first volume of Das Kapital (1867).
In the social production, which men carry on, they enter into
definite relations that are independent of their will; these relations
of production correspond to a definite stage of development of their
material powers of production. The sum total of these relations of
production constitutes the economic structure of society—the real
foundation on which rise legal and political superstructures and on
which correspond definite forms of social consciousness. The mode
of production of material life determines the general character of the
social, political, spiritual processes of life. It is not the consciousness
of men that determines their existence, but, on the contrary, their
social existence determines their consciousness. At a certain stage
of their development, the material forces of production in society
come in conflict with the existing relations of production, or—
what is but a legal expression for the same thing—as the property
relations within which they had been at work before. From forms
of development of the forces of production these relations turn into
their fetters. Then comes the period of social revolution. With the
change of the economic foundation the entire superstructure is
rapidly transformed (Sweezy, 2016).
5. Labour and Theory of Value

Theory of Value in Economics is a theory which was formulated
to explain why a ‘good’ has a value. What is the source of value?
If the producers exchange these goods, how is their exchange value
determined? If production and exchange of goods is generalised,
how are their prices determined in the market?
In every society, from the most primitive to the most advanced,
it is essential that labour is applied to produce goods, and that

goods are distributed among the members of society. What changes
in the course of history is the way in which these productive and
distributive activities are organised and carried out. Adam Smith
successfully assured the people that historically the economic fate
of people was in their own hands and was not predetermined by
the fate of natural resource endowments or control over gold and
silver deposits as argued by the Mercantilists. The essence of Smith’s
labour theory of value was that human activity was the source of
prosperity and wealth rather than God-given fertility of land or
natural resource endowment or hoards of treasure.
Goods produced for exchange with other producers are called
commodities. A commodity is anything that is produced for
exchange rather than for the own use of the producer. The study
of commodities is therefore the study of the economic relations of
exchange. For exchange, we need to develop a common measure of
value of various commodities. Preferably it should be quantitative,
and invariant (constant over time and space) like kilogram or litre.
Historically, the search for a common measure/denominator to be
used as a measure of value of different commodities has been a great
challenge. In barter exchange, people used to exchange goods on the
basis of some subjective notion of value of different commodities.
As the exchange process became more generalised, producers started
measuring value of commodities in terms of some scarce but divisible
commodity like silver and gold. The moot question was, what
is the source of value of various commodities? As production of
different goods needs different inputs, the only common element/
denominator among various goods was that they were all produced
by the labour of the producers. Classical economists took labour
used as the common measure of value of various commodities.
The labour theory of value has played a pivotal role in the
development of Political Economy as a science. Some scholars have
argued that the labour theory of value parallels the philosophical
and theoretical innovations of Galileo and Newton in the physical
sciences as the founding idea of a science (Foley, 2000). The labour
theory of value started taking shape during the second half of the 17th
century with increasing production and exchange of commodities.

Sir William Petty (1623-87) ‘came remarkably close to the idea that
the exchange value of a commodity is determined by the quantity
of labour needed to produce it’ (Meek 1973, 35). The labour theory
of value became the cornerstone of the classical political economy
in the 18th century.
Adam Smith, David Ricardo and Karl Marx each used the
labour theory of value in their own way and for their own purpose.
Each emphasised the facet of theory most relevant to their own
vision. For Adam Smith, labour embedded in production of a good
was the measure of its value and labour commanded as a measure of
its price. Ricardo’s main focus was on the use of the labour theory
of value to develop a logically consistent macroeconomic framework
for the analysis of the distribution of value of the produce between
wages, profit, and rent.
Marx believed in Historical Materialism, the idea central to his
thinking was that the ideas and societies organise themselves into
classes based on control of surplus production. He further argued
that the pattern of political and social power and their associated
cultural manifestations in religion, literature, and art, rested on the
appropriation of the share of output by a small ruling class in excess
of the basic reproduction requirements (subsistence wage). The key
to understanding basic evolution and change in human societies lay
in uncovering the exact mechanisms through which ruling classes
secure the control over surplus produce and the “contradictions” or
instabilities producing change (class struggle), that these mechanisms
implied (Foley 2000). Marx developed his labour theory of value to
explain how value of a commodity is determined as well as how
surplus value emerges in a capitalist economy and employed it in
his theory of exploitation.
6. Marxian Labour Theory of Value

Marx following the classical economists propounded his labour
theory of value. He begins his analysis with simple commodity
production. Simple Commodity Production is production of goods
in a society in which each producer owns his means of production
and satisfies his material needs by exchange with other similarly

situated producers. He stated that in this simplified world, a
producer uses his labour and with the help of instruments of
labour (tools, equipment etc.), acts on the object of labour (land/
raw materials) to produce goods, which have a use value as well as
exchange value. Labour theory of value states that exchange value
of two commodities is in proportion to the labour consumed in the
process of production of those commodities.
The device developed as a measure of ‘labour’ was the ‘time’
taken to produce that commodity. Now the time taken to produce
a good may differ from one producer to the other, depending on
their level of skills. The tools as well as technology embedded in
them also help to reduce time consumed in the production of a
good. Under these conditions search for an invariant measure of
value remained elusive. All the issues, which emerged in the use of
labour as a measure of value, are dealt with in the Labour Theory
of Value.
For Marx, commodity production is not a natural phenomenon
(something which is governed by laws of nature), it is a socio-
economic phenomenon and it becomes a valid subject of socio-
historical investigation. Therefore, along with quantitative relations
arising in commodity production, he directed his attention to the
character of social relations (qualitative relations) which underlie the
commodity production. The great originality of Marx’s value theory
lies in his analytical distinction and recognition of two elements or
aspects of the value problem: (i) the quantitative value problem, and
(ii) the qualitative value problem, and in his attempt to deal with
them simultaneously within a single conceptual framework. It has
been noted that to deal with these two aspects simultaneously has
been the major source of confusion and difficulty in understanding
Marx’s formulation of Labour Theory of Value. Following Paul
Sweezy (2016), we will deal with qualitative and quantitative aspects
of value theory separately.
A. The Qualitative Value Problem

The general dictionary meaning of term ‘Value’ is ‘worth’
‘importance’ or ‘usefulness’ of something. In political economy we

talk of two types of value: Use Value and Exchange Value.
(i) Use Value: We produce goods and services as they satisfy
various human needs. These goods have a need/want satisfying
power or have a utility. An object of human consumption always
possesses a ‘use value’. Use value is an expression of a certain relation
between the consumer and the object consumed by him. Therefore,
it is not a social relation.
However, Marx stated that political economy is a social science
of the relations among people in the process of production and
distribution of goods and services. It follows that ‘use value’ as
such lies outside the sphere of investigation of political economy,
as it does not directly embody a social relation (a relation among
producers or people). But it does not mean that use value plays
no role in Marxian Economics. Use value is a prerequisite to
consumption, and is in no sense excluded by Marx from the causal
chain of economic phenomena.
Marxian formulation is in sharp contrast to the practice of
all non-Marxian schools (in particular, the neo-classical value/
price theory), which regards the economic system as a series of,
interdependent but conceptually discrete relationships between men
and economic goods. Therefore, use value or utility takes a central
position among various categories of neoclassical economics.
(ii) Exchange Value: As stated before, commodities possess
exchange value as well as use value. Exchange is a regular method
of realising the purpose of social production (exchange makes
available goods produced by different producers to each other).
Exchange value appears to be a quantitative relation between things/
commodities themselves. The quantitative relation between things,
which we call exchange value, is in reality only outward form of
the social relation between the commodity owners, or (as in case of
simple commodity production) between the producers themselves.
The exchange relation as such is an expression of the fact that
individual producers, each working even in isolation, are in fact
working for each other. Thus, the exchange of commodities is an
exchange of products of the labour of individual producers. Thus,
production and exchange of commodities is a social process.
As stated before, a commodity is produced as it has a use value.

An individual commodity also has a ‘value’, because human labour
was consumed in its production. If it were a free good provided
abundantly by nature, it would not have exchange value. Value of a
commodity is assumed to be equal to the amount of labour consumed
in its production. Thus, a commodity has a ‘use value’ and a ‘value’.
Marx has stated that labour is the source and substance of ‘value of
a commodity’. Exchange value comes into existence when goods are
exchanged or sold in the market. Thus, exchange value is a derived
concept. Exchange value is an independent method of displaying
the value contained in the commodity.
(iii) Labour and Value: Human labour (physical and mental
capabilities of producer) is used on raw materials (natural resources)
to produce goods, which have use value. For example, a coat has
a use value. It is produced by labour: raw cotton into thread and
thread into cloth and cloth into a coat. This labour is concrete
labour (also called useful labour) of the producer. Thus, nature co-
operates actively and passively in the process of production of use
values. As William Petty puts it, ‘labour is the father and the earth
its mother’ in the creation of use values.
Concrete labour of every producer has his own, individual
specific, attributes and as such cannot be compared with concrete
labour of another producer. If we assume that value of a commodity
is determined by labour embodied into its production, we need
to evolve a common measure of labour. Marx evolved another
concept of labour called ‘abstract labour’ used in the production of
a commodity. He defined abstract labour as labour of an average
producer used in the process of production employing tools
embedded with average level of technology.
The requirement that all economic categories must represent
social relations led Marx directly to labour as ‘value’ that lies
hidden behind the exchange value. Commodities are the bearer and
expression of social relation as they are products of labour. If we
abstract from the use value of a commodity, it exists simply as a
value (we have stated that a commodity has ‘use value’ as well as
‘value’. If we ignore ‘use value’ for the time being in our analysis,
we are left with ‘value’ of a commodity). Productive activity, which

creates ‘value’, is the expenditure of human labour power. Value of a
commodity represents human labour in the abstract, the expenditure
of human labour in general.
Qualitative relation of ‘Value’ to ‘Labour’ can be summarised
as follows:
Marx makes a sharp analytical distinction between two aspects
of human labour used in the process of production of goods or
commodities: Concrete labour and Abstract labour. Concrete labour
is the labour of a producer used in the production of a good. This
labour is specific to each individual. Marx states that this concrete
labour creates ‘use value’ of a good. Concrete labour of one producer
cannot be compared with concrete labour of another producer as
concrete labour includes specific attributes of labour of each individual
producer. As labour is consumed in the production of a commodity, it
has a ‘value’. We need to measure this value when we want to exchange
this commodity with another produced by some other person. For
development a comparable measure of value, Marx evolved the concept
of ‘abstract labour’. Abstract labour expresses the social relation in
which labour is exchanged among people under the condition of
commodity production. This formulation provided foundation to the
quantitative labour theory of value.
On the one hand, all labour is, speaking physiologically, an
expenditure of human labour power, and in its character of
comparable form ‘abstract human labour’, it creates and forms
the values of commodities. On the other hand, all labour is the
expenditure of human labour power in a special form (production
of every commodity required different type of labour/skill) and with
a definite aim, and in this, it is character of concrete useful labour;
it produces use values. Concrete labour and abstract labour are not
two different forms of labour. They are merely two aspects of the
same labour. People must engage in various forms of concrete labour
in production of various use values for the satisfaction of various
needs. Concrete labour expresses the relationship between man and
nature/raw materials. On the other hand abstract labour provides a
unified measure to compare the labour expended on the production
of various commodities. Therefore, abstract labour expresses the

social relation in which labour is exchanged among people under
the condition of commodity production.
(iv) Abstract Labour: Abstract labour (which is represented in
the value of commodities) is a concept, which has an important
place in Marx’s thinking. Abstract labour is abstract in the sense
that ‘all special characteristics which differentiate one kind of labour
from another are ignored.’ Abstract labour is equivalent to ‘labour
in general’; it is what is common to all productive human activity.
Labour is the substance of the value of everything.
To sum up, reduction of all labour to abstract labour enables
us to see clearly, behind the special forms labour may assume at
any given time, an aggregate social labour force which is capable
of transference from one use to another in accordance with social
need, and on the magnitude and development of which society’s
wealth-producing capacity in the last resort depends. Marx defined
abstract labour as labour of an average producer using common/
average tools/technology, used in the process of production.
(v) The Relation of the Quantitative to the Qualitative Aspects
in Value Theory: Abstract labour is the substance of value. A
commodity absorbs a part of society’s total available labour force.
Production of Commodities uses available labour force (i.e. they
are all materialized abstract labour) and it is this characteristic of
commodities (which presumes use value and manifests itself in
exchange value) that makes of ‘commodities’ the starting point and
central category of the political economy of the modern period.
Main tasks of quantitative–value theory are determined by the
qualitative analysis.
From a formal point of view, it appears that quantitative-value
theory is concerned solely with discovering the laws, which regulate
the relative proportions in which commodities exchange for each
other. But for Marx, exchange value is merely the ‘phenomenal form’
behind which hides value itself. Critics of Marx have concentrated
on quantitative aspects of value and the exchange ratios to the
neglect of the character of the social relations, which lie hidden
beneath the surface.
Suppose there are two persons (producers), A & B in the

economy, person A produces qa amount of commodity X using
La amount of his labour. Similarly, person B produces qb amount
of commodity Y using Lb amount of his labour. Now these two
persons A&B exchange commodities X & Y produced by them.
Question is what principles determine the rate at which commodity
X will be exchanged for commodity Y? Quantitative theory of value
studies how much quantity of commodity X will be exchanged for
commodity Y? As we know these commodities X & Y are produced
by A & B using their labour La & Lb, when two producers exchange
X& Y, this exchange not only imply exchange of goods X & Y, it
also implies exchange of labour La & Lb of the two producers. Thus,
when these producers produce X& Y and exchange these goods, they
are in fact, working for each other and therefore, it implies a social
relationship. Study of this social relationship, Marx characterised as
qualitative value problem.
Marx argued that bourgeois economics studies only quantitative
relations and not qualitative relations that underlie exchange
relations of commodities. As these relations are social relations, they
are the proper subject matter of political economy/economics as
a social science. These social relations, which underlie commodity
exchange relations, take what Marx call Fetish character in bourgeois
economics.
B. Quantitative Labour Theory of Value

Now we propose to examine the initial and most simplified
formulation of the quantitative value theory and the conditions
under which it may need to the reformulated. In a commodity
producing society, exchange value of commodities is a quantitative
aspect of the value theory. Given market demand, market exchange
rate determines the allocation of productive activity in an economy.
As stated before, we need a stable measure of value of a commodity.
Labour was used as a ‘measure of value’, as labour was the common
denominator (factor) in the production of all commodities. How to
determine the exchange value of one commodity with another with
another commodity was the next issue to be sorted out. As a first
approximation, Marx assumes quantities of commodities exchange

in the same ratio in which labour time is consumed in the process
of production of these commodities. To determine exchange value,
labour time used to produce these commodities has to be quantified
and standardised. ‘Labour unit’ was defined as the number of hours
of labour used in the process of production of a commodity. As
discussed before, concrete labour of all the labourers is different and
cannot be compared; Marx evolved a concept of ‘Abstract Labour’.
To standardise unit of (abstract) labour, the ‘average number of
hours’ used by an ‘average producer’ under the existing (normal)
conditions of production, skill of workers and technology was
defined to be the labour consumed/embedded in a commodity.
The average labour time consumed in the production of one unit
of a commodity is also called socially necessary labour required to
produce one unit of that commodity. For Example: If ‘N’ workers
use 100 hours to produce 50 units of a commodity ‘X’ with normal
technology and production conditions, then we say that two units
of labour is required (socially necessary) to produce one unit of that
commodity.
Labourer who is more skilled than a simple labourer must have
a corresponding greater power of producing value. Skilled labour
counts only as simple labour intensified (a multiplied simple labour).
Skilled labour may be more proficient because of two reasons: (i)
superior natural ability, and (ii) superior training. If a person has a
natural superior ability, that person will be more efficient in most
of the labour activities. To make a comparison, both the producers
may be put in same line of production and quantitative relation
(ratio) in value creation of two persons can be determined. If
difference in skill is because of training, then it can be assumed
that a superior worker expends in production not only his own
labour but indirectly a part of the labour of his teachers who are
responsible for his superior productivity. In practice, difference in
skills is likely to be the result of a combination of difference in ability
and difference in training. Thus, there is a theoretical feasibility of
reducing skilled labour to simple labour. As a first approximation,
it can be stated that commodities exchange with one another in
proportion to the quantity of socially necessary labour embedded

in each of the commodity. This proposition may be modified in
further analysis of quantitative theory of value.
(Karl Marx (1992) in Chapter 1 of Volume I of Capital used this
simple formulation of Labour Theory of Value. This proposition is
reasonable for the purpose of initial analysis of commodity exchange.
It has been further extended for complex analysis.)
Let us inquire under what conditions exchange ratios may or
may not correspond exactly to labour-time ratios.
The Role of Competition

Let us assume an ancient society of hunters in which they did not
have accumulation of capital as well as ownership of land. For
hunting they use their labour only. How to determine the exchange
rate of objects of hunting by the hunters? In such a society, quantity
of labour required to prey the object (animal) was the only plausible
common denominator for determining the exchange rate. If a hunter
takes X hours to hunt an animal A and 2X hours to hunt the animal
B, i.e. time taken for production of B is twice of production of A,
then the plausible exchange rate between A & B will be 2:1, i.e. 2
units of A= 1 unit of B.
Adam Smith’s deer-beaver example, which was used by Ricardo,
provides the convenient starting point (an early economy of hunters
with simple tools): Deer and Beaver will exchange in proportion to
the quantity of time required to kill each. It is the competition among
hunters, which will determine the exchange ratio and finally the
equilibrium exchange ratio among values of different commodities.
Given this kind of competition in the society of simple
commodity production, supply and demand will be in equilibrium
only when the price of every commodity is proportional to the
labour time required to produce it. Thus, competitive supply-and-
demand theory of price determination is consistent with the labour
theory of value. Supply and demand are in fact, summary expression
of competitive forces at work in the market—a mechanism for
eliminating deviations between market prices and values. Supply
represents competition among suppliers and demand represents
competition among consumers to acquire that commodity. At the

moment when supply and demand equilibrate each other, and
therefore cease to act, the market price of a commodity coincides
with its real value (embedded labour).
Thus, in a perfectly competitive market, market prices are
consistent with the labour theory of value.
The Role of Demand

Marx is often accused of having ignored the role of demand in the
sense of consumer’s needs and desires, in determining quantitative–
value relations. Paul Sweezy has argued that Marx did not ignore
the significance of demand in quantitative value theory as is clear
from his analysis of the problem in Vol. III of Capital wherein he
grappled with the problem of transformation of values into market
prices repeatedly.
Marx was primarily interested in investigating the process of
social change and discovering the economic laws of motion of
the capitalist society. The relative price determination was given
a subordinate position in his analysis. For Marx, distribution of
income was more powerful determinant of market demand than
subjective valuation of consumers. Therefore, he extended his
analysis in the direction of the theory of Surplus Value, which is
the basis of more advanced form of commodity production in the
capitalist society. Even Schumpeter’s theory of trade cycles and
Keynes’ macroeconomic analysis, are dominated by distribution of
income rather than the subjective value problem.
(iii) Values and Price of Production: Price as Marx uses the
term in Vol. I of Capital is merely the money expression of value.
In Vol. III, however, there is the quite different concept of ‘price
of production’. Prices of production are modifications of value.
However, the differences in prices of production and values are
attributable to certain features of capitalism such as monopoly,
etc. The introduction of the monopoly element into the economy
interferes with the operation of the law of value as regulator
of the quantitative relations of production and exchange. The
monopolist’s control over supply enables him to take advantage
of demand conditions. In this case, therefore, demand acquires a

special significance, and both price and quantity produced (hence
also allocation of labour) are different from what they would be in
a regime of competition.
Quantitative-value relations are disturbed by monopoly.
However, qualitative–value relations are not disturbed. In other
words, the existence of monopoly does not in itself alter the basic
social relations of commodity production i.e. the organisation of
production through private exchange of the individual products of
labour. Under monopoly conditions, we can continue to measure
and compare commodities and aggregates of commodities in terms
of labour-time units in spite of the fact that the precise quantitative
relations implied in the law of value no longer hold. (Further
extensions in labour of theory require advanced treatment, which
is not discussed here. For that, students may refer to the specialised
literature.)
7. The Fetish Character of Commodities

Commodity fetishism is a very powerful doctrine formulated by
Marx in his critique of the classical political economy. Commodity
fetishism highlights the social character of commodity production
and exchange in the capitalist system. As various persons are involved
in the process of production and exchange, these relationships are
social relations of production and exchange. These relations may or
may not be exploitative. An exploitative relation is one in which
each individual is not rewarded according to his contribution to the
production of that commodity. Bourgeois economics in its theories
tries to conceal the true social character of production and exchange
relations as they are exploitative and it is objectively and morally
difficult to justify them.
Marx observed that commodity fetishism is the perception of
the social relationship in the process of production and exchange
of commodities not as relationship among people, but as economic
relationship between the money and commodities exchanged/
traded in the market. In preceding classical political economy, it
was assumed that commodities have ‘intrinsic value’ of their own.
Exchange value between two commodities was in proportion to their

intrinsic values. Thus, it was only an economic phenomenon and
its human contents were underplayed. Marx argued that it was only
a perception and not the reality. It is an illusion as it conceals their
true social character. Commodities are produced by the expenditure
of labour of their producers. When the commodities are exchanged
or sold to others in the marker, it is, in fact, an exchange of labour
embedded in one commodity with labour embedded in the other
commodity. Therefore, Marx argued that market exchange should
be visualised as a social process and not just as a pure economic
process in which exchange of one commodity for the other takes
place. Thus appearance, the form (economic relationship) takes
precedence over the substance (social relationship) in the commodity
exchange market process.
Thus, in commodities and commodity production, the way
classical political economy visualizes them, there is a gap between
‘form’ and ‘substance’. In commodities, if we see only the exchange
relationship (form) and not their true social relationship (substance),
Marx calls it ’Commodity Fetishism’. Form is not unimportant, as
reality is perceived in terms of the form but we must not lose sight
of the substance, which underlies the form. If we see beneath the
forms, we discover the substance of social relations in the social
organisation of production and exchange. Marx argued that in
economic analysis, the social character of production and exchange
process should be preserved. Political Economy/Economics should
continue to remain truly a social science.
In the pre-capitalist production of commodities or simple
commodity production, relations of production have direct personal
character; reification of social relations was not possible as producers
themselves enter into exchange market. But, in generalised
commodity production, i.e. capitalist commodity production,
phenomenon of reification of social relations acquires decisive
importance. In capitalist exchange relations, individual producers
deal with fellow producers only through ‘the market’, where prices
and amounts sold are the substantive realities and human beings
appear to be merely their actors/instruments. ‘These quantities
(prices and quantities sold) vary continuously, independently of the

will, foresight, and action of the producers.’ In such a situation, the
real character of the relations among producers themselves is both
obscured and distorted from the view.
Once the world of commodities has achieved its independence
and subjected the producers to its sway, as under capitalist production,
the producers come to look upon commodities in much the same
way as they regard that other external world to which they must learn
to adjust themselves. The existing social order becomes in the apt
expression of Lukcas, a ‘second nature’ (acquired habit or tendency
in one’s character that is so deeply ingrained as it appears automatic
as instinctive or genetic which is first nature). The consequences for
such a structure of thought are both extensive and profound. If we
start believing that men are born unequal, which is a social process,
then we will not see exploitation as a social phenomenon.
Historically, application of the ideas and method of natural
science to society is one of the most striking features of the
capitalist period. This changed the attitude towards society, which
was the reflex of the flowering of commodity production. In the
field of political economy, the results of transition are most clearly
observable in the 18th century economic doctrines of the physiocrats
(use of laws of nature) in France and classical school in England
(invisible hand, wisdom of laissez-faire as an economic policy).
All attest to a profound belief in the impersonal and automatic
character of the economic order i.e. economic laws like laws of
nature are independent of society. This bias against conscious
social action in economic affairs, which grew in the 18th century
and remained a very prominent feature of capitalist ideology until
emergence of monopoly and imperialism and the 1930s Depression
which exposed its weaknesses. Keynes exposed the myth of natural
economy and rejected the automatic optimality of the free market
economy. He argued that government/society needs to intervene to
ensure that economy behaves in a sustained fashion without trade
cycles.
Marx’s theory of fetishism has brilliantly illuminated the specific
roots in the characteristics of commodity production, as well as
its connection with associated doctrine of natural law and social

automatism. Marx showed that commodity production and exchange
process involved exploitation of workers by the capitalist and was
not a natural process and it was governed by social laws and not
automatic natural laws. Classical economists stated that equilibrium
of the economy will be automatically at full employment, Marx
proved them wrong.
Reification of social relations has exercised a profound influence
on traditional economic thinking in at least two further important
aspects. In the first place, the categories of the capitalist economy—
rent, wages, profit, interest, etc., which were being treated as though
they were the inevitable categories of economic life have been
questioned. These categories conceal their social character. Secondly,
it is the appearance that the commodity-producing form constitutes
the most effective veil over the true class character of the capitalist
society. Class relations are concealed as if all commodity owners
are standing on the equal footing, i.e., there is no master-servant
relations in the process of production and its distribution and all
human beings are equal. There is no dispossession of the labour
power.
The doctrine of fetishism has implications, which far transcend
the conventional limits of economics and economic thinking.
Doctrine of Commodity Fetishism is the first essential step in the
Marxian analysis of capitalism. He who has not understood this
has understood little of Marx’s critical method. Marx stated that
‘reification’ is at the heart of commodity fetishism in general and
economics in particular.
REFERENCES
Foley, D.K. (2000), Recent Developments in the Theory of Value, Review
of Radical Political Economy, Vol. 21, No. 1.
Marx, K. (1859), A Contribution to the Critique of Political Economy,
Marx, K. (1992 [1867]), Capital: A Critique of Political Economy, Vol. I,
London: Penguin Books.
Meek, Ronald L. (1973), Studies in the Labour Theory of Value, New York:
Monthly Review Press, Indian edition (2017), Delhi: Aakar Books.

Sweezy, Paul M. (2016 [1942]), The Theory of Capitalist Development,
Delhi: Aakar Books.
Wolff, Richard D. and Stephan A. Resnick (2012), Contending Economic
Theories: Neoclassical, Keynesian, and Marxian, Cambridge,
Massachusetts: The MIT Press.
3
Notes on Marx’s Critique of
Classical Political Economy1
Prabhat Patnaik
Marx summed up the essence of Classical Political Economy as the

belief that “there has been history but there is no longer any”. He
explained: “There has been history since there were the institutions
of feudalism, and in these institutions of feudalism we find quite
different relations of production from those of bourgeois society,
which the economists try to pass off as natural and as such, eternal.”
In other words, the movement of history ends with the coming into
being of bourgeois society whose relations is “in conformity with the
laws of nature.” We find here a remarkable parallel with Hegelian
philosophy which saw the movement of history as culminating in
the Prussian State.
Marx’s basic task regarding bourgeois economics therefore
was to “historicise” it, to go beyond it so that the present is
seen not as the end of history but as a part of history itself. But
“historicising” bourgeois economics did not consist simply in
adding on a “preferred” or “anticipated” denouement in the shape of
a socialist transformation to the development of bourgeois society.
It necessitated a theoretical revolution in the matter of studying
bourgeois society itself. Bourgeois society had to be studied from
a supra-bourgeois theoretical perspective, with the same objectivity
with which pre-bourgeois societies are studied, i.e. from the vantage
point of an observer who comprehends the “historical process as
a whole” and is capable, conceptually, of transcending bourgeois
society itself. If bourgeois society is to be studied objectively, on a par
with other pre-bourgeois societies, then the question to ask is: how
is the process of appropriation of surplus, which is so transparent in
pre-bourgeois societies, effected in a bourgeois society where there is
formal equality, voluntary exchange among “free” commodity owners,
and equivalent exchange under free competition? The answer clearly
cannot be found in the sphere of circulation, which precisely is
the sphere where exchange is carried out among commodity owners
on an equal footing. The answer must lie beneath the sphere of
circulation, in the sphere of production itself. Surplus, Marx argued,
takes the form of “surplus value” in a bourgeois society, which arises
in the sphere of production itself. This surplus value is already
present in the higher value of the commodity capital with which the
capitalist emerges from the sphere of production, compared to what
he had thrown into it; it is realised, i.e. converted into money form,
in the sphere of circulation, through the sale of the commodity
which the production process yields.
Marx’s calling this process of surplus appropriation “exploitation”
has misled many into thinking of Marxism as being based on some
Lockean “natural rights” doctrine. Marx’s theory is often believed
to have postulated that workers are “cheated” out of their “just
share”. Such an interpretation however is incorrect. Marx’s approach
was historical not moral. He held Proudhon’s dictum “property is
theft” to be absurd, since the term “property” referred merely to
the prevalent social rules governing the appropriation of the fruits
of production. There could never be social production without
such rules, i.e. without “property”. The transcendence of capitalism
meant not the abolition of property as Proudhon thought, but the
substitution of socialist property for capitalist property. Likewise
the proposition that society needed capital but could do without
capitalists, so that the latter constituted a bunch of parasites
appropriating a part of the product that “justly” belonged to the
workers, is not a Marxian proposition; it belongs to the theoretical
corpus of Ricardian socialists like Hodgskin. For Marx the concept
of “surplus value” is not based on any postulation of a “norm” or of
a notion of “fair share” relative to which the workers get less. It is a
part of a historical datum.
Notes on Marx’s Critique of Classical Political Economy 95
Since the secret of capitalist society was that surplus value

emerged in the sphere of production (a proposition of immense
importance as we shall see), any scientific analysis of this society
must focus on the sphere of production, if it is not to fall into the
trap of believing that the formal equality of the sphere of circulation
was substantially true, i.e. if it is not to degenerate into apologetics
(of taking bourgeois society’s claim about itself as the truth). It
follows that “historicising” Classical Political Economy necessarily
meant penetrating behind the veil of circulation, into the sphere
of production. But Marx at the same time drew a sharp distinction
between “classical political economy” and “vulgar economy”, the
latter exclusively caught up in the sphere of circulation, taking the
appearances of the sphere of circulation as the reality of capitalism,
a trait which the former did not share. In other words classical
political economy is “classical” precisely because it does analyse the
sphere of production. Indeed Marx called Ricardo the “economist
of production par excellence”. But then if the analysis of production
did not begin with Marx, if classical political economy had already
developed such an analysis, how can we argue that it was Marx
who ushered in the “historicisation” project with the analysis of
production at its core? In what sense can it be said that the pre-
Marxian analysis of production did not amount to a proper analysis
of production?
Marx himself has provided a succinct answer to this question.
Classical political economy did not distinguish clearly between
the spheres of production and of circulation. It telescoped the two
instead of keeping them conceptually separate and examining their
mutual relationship. In other words instead of an integrated and
structured analysis of the totality in which both spheres figured with
their specificities and inter-relationships, classical political economy
flattened out this structured relationship by putting the two on the
same level, and hence producing an eclectic mixture that obscured
the significance of some of its own insights. More generally, its failure
consisted in not distinguishing between “essence” and “form”. In
other words even while going beyond “appearances” (in which it
was much superior to “vulgar economy”) to “reality” it did not see
the two as a linked totality; and hence it could not even properly
pursue its journey beyond “appearances”.
There are three obvious ways that this failure manifested itself:
first, classical political economy could not see surplus value as a
single homogeneous category. Surplus value as such is never visible;
what is visible are the different forms in which it manifests itself,
viz. profit, rent, and interest. It took each of these manifestations as
separate and investigated the determination of each, but did not see
them as forms in which surplus value appears, and hence did not see
the category called surplus value. Secondly, “price” is what prevails
in the market, in the sphere of circulation. Underlying these “prices”
however are “values” which are not visible and which arise from the
fact that any commodity embodies a certain amount of homogeneous
social labour. Commodities do not exchange at their values because
if they did then the rates production would be different, because of
which prices represent a “modification” of values. Instead of seeing
the totality of this inter relationship, classical political economy in
the person of Ricardo (who represented its highest development)
talked eclectically of “two determinants” of prices: the total labour
embodied in a commodity and its time-distribution in the production
of that commodity. In the process therefore it obscured the origins
of value and surplus value, including whatever insights it had itself
developed. Thirdly, this mixing up of levels meant that it could not
locate the origin of surplus value in the sphere of production. In fact
it did not pursue the question of the origin of surplus value, which
prevented its seeing capitalism in the same historical light in which
it had seen pre-bourgeois societies.
If surplus value emerges in the sphere of production, then it
follows that capitalism must be characterised by a duality: on the
one hand like all modes of production it must be characterised
by “production in general” at the core of which is the man-
nature dialectic but in which, since men act socially, the general
needs of social production must be getting met. On the other
hand however there must be the specific capitalist stamp on the
production process, which must be highly sui generis because of the
very opaqueness of the mode of production. This duality which
characterises capitalism in a way that it does not characterise any

other mode of production imprints itself on every category of
capitalism: “products” are also “commodities”, the “labour process”
is also “the value-creating process”, “surplus” is also “surplus value”,
“means of production and subsistence” are also “capital”, “use
value” is also “exchange value”, “concrete labour” is also “abstract
labour”, and so on. Putting it differently, all specifically capitalist
categories, such as “commodities”, “capital”, “value” and “surplus
value”, etc. have a relational dimension to them. As Marx put it for
the category “capital”: “In themselves money and commodities are
no more capital than are the means of production and subsistence.
They want transforming into capital. But this transformation itself
can only take place under certain circumstances that centre in this,
viz. that two very different kinds of commodity possessors must
come face to face and into contact; on the one hand the owners
of money, means of production, means of subsistence, who are
eager to increase the sum of values they possess, by buying other
people’s labour-power; on the other hand free labourers, the sellers
of their own labour-power, and therefore the sellers of labour. Free
labourers in the double sense that neither they themselves form part
and parcel of the means of production, as in the case of slaves,
bondsmen, etc., nor do the means of production belong to them,
as in the case of peasant proprietors; they are, therefore, free from,
unencumbered by, any means of production of their own.” The
essence of “historicising” political economy therefore consists in
recognising the relational (and hence historically specific) nature of
capitalist categories.
The contrast with the approach of the Ricardian socialists (and
indeed of all socialists who base their argument on a moral-ethical
critique of capitalism) could not be sharper. Hodgskin had said:
society needed capital but not capitalists; Marx argued: there can be
no capital without capitalists, since capital is a relation between the
capitalists and the workers. On this basis, Marx not only provided a
precise definition of capitalism, “a system of generalised commodity
production where labour power itself has become a commodity”,
but explored the precise historical circumstances under which
capitalism came into being, i.e. “the two very different kinds of
commodity-possessors” were originally formed (the process of the
so-called “primitive accumulation of capital” which was based on a
concept of Adam Smith but acquired a precision because of Marx’s
relational approach). He unearthed the antagonistic character of
capitalism (the fact that surplus value accrued to a particular class
behind the facade of equality in the marketplace), and hence its
necessarily transient presence in history. Above all, however, Marx
drew attention to the spontaneous character of capitalism, and the
profound implications of that spontaneous character.
The idea of the bourgeois society being a “self-acting economic
order” (with the implicit inference that it did not interference from
kings and priests) was first advanced by the French Physiocrats
and was taken over by English Classical Political Economy. The
latter conceptualised this economic order differently: the myriads
of decisions taken by individuals, each motivated by self-interest,
produces not chaos but an order, and, what is more, a benevolent
order, which is governed by objective laws independent of human
will and consciousness and capable of being scientifically discovered.
The view that the aggregation of self-interest-based individual
actions yields something unintended by the individual participants,
had once again a clear parallel in Hegelian philosophy: “The
whole is not the sum of the parts.” And implicit in this view was
a recognition also of the spontaneous character of capitalism, its
“self-acting” property.
While Marx took over this basic perception of capitalism as a
spontaneous, law-governed system, his break from Classical Political
Economy made him comprehend the system not as benevolent,
but as anarchic, crisis-prone, and subject to a unique trajectory of
development. Any system of commodity production necessarily
produces differentiation among producers. This is true of capitalism
as well. “One capitalist kills many”. Typically that “one capitalist” is
the one controlling large capital. Large capital in other words drives
out small capitals because of which every capital wishes to become
large through accumulation. Marx, in other words, visualised a
Darwinian struggle among capitalists which makes accumulation an
externally-imposed coercive drive. To accumulate one must garner as

much surplus value as possible, and to do so, in a world where surplus
value originates in the sphere of production, each capitalist constantly
strives to revolutionise his production process through innovations.
Notwithstanding this striving however some capitalists continuously
go under, leaving fewer and fewer, and larger and larger, blocs of
capital in each branch, what Marx called “centralisation of capital”.
Accumulation, continuous increase in the scale of production, and
centralisation are the three chief moments in the accumulation
process, which result on the one hand in enormous increases in the
productive forces, and on the other in a progressive polarisation of
society between a few large capitalists and large masses of concentrated
workers forced to develop a spirit of collective action. The journey of
capitalism, from its beginnings in “primitive accumulation” of capital
is a continuous concentration of the control over mean of production
in fewer and fewer hands; its counterpart is a continuous increase
in the socialisation of labour which reaches both its climax and its
transcendence in socialism. This journey (though not obviously the
achievement of the climax) is a spontaneous one.
There are, it follows, two very different kinds of “laws” discussed
by Marx. On the one hand there are the “laws” referring to the
relational aspects of capitalism, such as centralisation of capital,
progressive socialisation of labour etc. These, even though their
operation may be temporarily checked, prevented, or shifted (in
terms of the universe where they apply), are inexorable. On the
other hand there are other “laws” mentioned by Marx, such as
the “law of the falling tendency of the rate of profit” which are
quantitative. Their purpose is to highlight the contradictions of the
system, its possible points of vulnerability to crises, and the manner
in which it might attempt to overcome such vulnerability. They do
not inexorably manifest themselves; their purpose is to lay bare the
constraints within which the system operates. Marx, it is interesting,
does not have a theory of crisis; he does not have a theory of growth;
he does not have a theory of how the system would quantitatively
evolve. Here he sees various possibilities which apparently mutually
contradict one another if we attribute to him one theory. But he
is not looking for one theory of this kind. His concern is not with
the quantitative trajectory of capitalism, but with its qualitative
trajectory, with changes in its relational aspects. When he is
discussing these, there are no apparent contradictions whatsoever.
Having two different kinds of “laws” is thus in conformity with
Marx’s overall approach.
While capitalism creates the condition for its own transcendence,
the precise manner of that transcendence requires revolutionary
political intervention in a particular conjuncture (when revolution
“comes on the agenda”). The first question that arises in this context
is: when does the revolutionary stage arrive? Marx does not give
a concrete answer to this question (though Lenin was to do so
later). From Marx’s remark that “No social order is ever destroyed
before all the productive forces for which it is sufficient have been
developed”, it might appear as if material circumstances alone
determine whether a revolutionary transformation has appeared
on the agenda; but this is not true. Marx also remarked: “Of all
the instruments of production, the greatest productive power is the
revolutionary class itself. The organisation of revolutionary elements
as a class supposes the existence of all the productive forces which
could be engendered in the bosom of the old society.” This suggests
that the working class’ organising itself into a revolutionary force, a
process intimately linked to the development of its consciousness,
is the true index of the revolution coming on the agenda, a much
more open-ended formulation.
The second question that arises is: how does the working class
acquire revolutionary consciousness? Again, Marx does not discuss
this issue concretely (which Lenin was to do later). But Marx
too drew a distinction between “trade union consciousness” and
“revolutionary class consciousness”. Lenin’s idea that the latter had
to be introduced “from outside” figures already in the Manifesto.
In addition there is the suggestion in The Poverty of Philosophy that
the working class, in the course of its own economic struggles, also
tends spontaneously to develop a political consciousness, in so far as
it is increasingly confronted by state power that comes to the aid of
the capitalists even in the course of economic struggles.
The third question that arises is: why should capitalism be,
according to Marx, the last antagonistic mode of production? If
arrival of capitalism, represented a flawed perspective, then why
should Marxism, which saw the end of capitalism as the end of
antagonism, not be accused of the same error? Putting it differently,
what is so specific about capitalism that its end, unlike the end of
earlier modes of production, signals the end of antagonism? Marx’s
answer to this was as follows: capitalism is the first antagonistic
mode of production where the most directly oppressed class is
simultaneously the most revolutionary class. This fact, which has
to do with the spontaneous nature of capitalism, discussed earlier,
creates a unique situation in human history.
Lenin, as already mentioned, gave concrete answers to many
of these very questions, and did so via his theory of imperialism.
Revolution comes on the agenda in the era of imperialism which is
punctuated by wars that give the working class in each country one
and only one choice: either to kill fellow workers across trenches or
to turn the gun against capitalism in one’s own country. Imperialism
moreover presupposes the completion of the partitioning of the
globe among a handful of imperialist powers; hence all these wars
entail the use of the colonial and oppressed people as “cannon-
fodder” even as they are trained as fighters. They too are given only
one choice: either kill fellow-oppressed people across trenches, or
train the guns on the colonial masters. Not only does the era of
imperialism then signify the beginning of social revolution, but it
generates and brings together two different, independent and inter-
linked revolutionary streams: a workers’ revolution in the metropolis
and an anti-colonial struggle in the periphery. (The recognition of
these two streams is already there in Marx and Engels though they
thought for most of their lives that a European revolution was on
the immediate agenda).
How, it may be asked, do we critique Marx’s critique of
Classical Political Economy today? Marx’s critique is incomplete
in one crucial respect, which, though it might not have appeared
important at the time (when all attention was in any case focused
on a European revolution), cannot be ignored today. And this is his
treatment of the capitalist system as a “closed system”. Though he is

acutely aware of the fact that capitalism rests on a particular pattern
of international economic relationships, his main opus discusses
capitalism entirely as if it consists of capitalists and workers and no
other dramatis personae.
It may be thought that his basic concept of a mode of
production is responsible for this incompleteness, since the concept
directs attention to the question of appropriation of surplus from
direct producers within a certain closed universe: masters and
slaves, feudal lords and serfs, capitalists and labourers constitute the
exclusive binary relations within particular modes of production.
There is no reason however why we should not recognise capitalism
as a very different kind of mode of production. It is universal
from its very inception in the sense that it acquires control over a
variety of labour processes apart from the one directly and visibly
under its supervision. From its very inception it is not a “closed
system”, with trade being only a secondary phenomenon, or a
phenomenon concerned only with the exchange of use-values but
not the acquisition of surplus value, i.e. a phenomenon that occurs
to promote the mutual advantage of the trading parties but does
not constitute an instrument of exploitation. This is what Ricardo
postulated. Marx, notwithstanding his recognition of the limitations
of such an approach in his writings on the colonial question, never
broke away from it in his theory. Lenin, to be sure, did, but in his
case imperialism is a feature of late capitalism. It is not just that
capitalism ceases to be a “closed system” in its old age; it was never
a “closed system” to start with.
To say this does not mean that the specific form in which
the labour process is carried on is of secondary importance, as
the world system theorists would have us believe. It does matter a
great deal through what mediations capitalism controls a particular
labour process; and it opens up complex patterns of class struggle
in a world that is under the overall hegemony of capitalism. World
revolution would have to proceed through these complex patterns.
A recognition of this fact via a critique of Marx’s critique constitutes
not a negation of Marx, but precisely the way of carrying forward
his theoretical agenda. Marx, in Althusser’s words, opened up a

continent; it is important for us to map it out properly instead of
remaining satisfied with his initial sketches.
NOTES
Reprinted with permission from the editor of Social Scientist and Author.
The earlier version was published in Social Scientist, Vol. 30, Nos. 3-4,
March-April 2002.
4
Capitalist Mode of Production:
A Basic Interpretation1
Paramjit Singh
Introduction
The financial crisis of 2008, followed by recession in the world
economy, has put a question mark on the stability and working
of capitalist economic system. The debate among the pro-people
intellectuals has once again intensified to expose the real character
of capitalism. There is no better work than Marx’s Capital to
meet this objective. Marx’s Capital is a comprehensive critique of
classical political economy that is primarily concerned with the
working of the capitalist mode of production. The best method
to understand capitalism is to examine what differentiate it from
pre-capitalist societies. Like the pre-capitalist modes (slavery and
feudalism), capitalism is also a class society. The fundamental
difference between capitalism and pre-capitalist societies is that the
method of exploitation in pre-capitalist societies rested upon the
direct domination by the owner of the means of production and
the method of exploitation was quite visible. For example, slaves
were the property of their master and the master exploited the
slaves directly. The relations of production in a slave society were
based on the master’s ownership of the means of production (the
land, instruments of labour, labourers- the slaves). Slaves were not
considered more than just an instrument of production. As Marx
(1970) argued “the slave did not sell his labour power to the master,
any more than ox its service to the peasant. The slave, together with
his labour power, has been sold once and for all to his owner.”
Capitalist Mode of Production: A Basic Interpretation 105
On the other hand, in the capitalist economic system the

method of exploitation is flexible as well as complex. Under capitalist
production relations, wage labourers are formally free and they can
sell their labour power to any capitalist, such freedom was absent
under slavery and feudalism. Another fundamental difference is
that pre-capitalist societies were ‘consumption dominant societies’.
The exploitation of the dominated class served primarily the
consumption of the dominant class. Contrary to this, the capitalist
society is a ‘production dominant society’. Under the capitalist
relation, the aim of production is to increase the capacity to produce
in order to generate an ever greater surplus. A large proportion of
the produce is used for sale in the market in order to enhance the
production base for the future. Contrary to pre-capitalist societies,
the comfortable life and luxurious consumption for the capitalist is
merely a by product of the production process, but not a principal
goal. Earnings under capitalism not only serve the consumption,
but also the continuous ‘valorisation of capital’, that is, the restless
movement of more-and-more accumulation (Heinrich, 2012). As
Marx and Engels (2002) said about the uniqueness of capitalist mode
of production, “the bourgeoisie cannot exist without constantly
revolutionizing the instruments of production, and thereby the
relations of production, and with them the whole relations of
society … Constant revolutionising of production, uninterrupted
disturbance of all social conditions, everlasting uncertainty and
agitation distinguish the bourgeois epoch from all earlier ones.”
The historical analysis of capitalism shows that there are various
ways to realise the surplus. In the case of the internal bearing of capital,
money is lent at interest. This interest thus constitutes surplus. In
the case of merchant capital, the purchase of product cheaply in
one place and sold dearly in another place generates surplus. In the
case of industrial capital, the production process is organised on
capitalist lines in which the selling price of final produce is greater
than the input and process cost. The base of production under
capitalism is not ‘need oriented’, in which exchange and money play
subordinate roles, but rather ‘profit oriented’, in which exchange
and money play primary roles. Capital is a driving force of capitalist
mode of production, always seeking out the best possibilities for

profit and leaving the less profitable options for the time being.
The domination of various forms of production and exchange in
the valorisation process (bank capital, merchant capital, industrial
capital, finance capital, etc.) presents this dichotomy.
In the light of these facts, the present chapter is an attempt
to develop an understanding of the capitalist mode of production.
The first part of the chapter defines major categories which Marx
has developed (or hired from classical political economy and
modified) to analyse the production, distribution and exchange
under capitalism. The second part explains the simple and capitalist
commodity production. The third part examines the capitalist
production process and means used by the capitalists to extract the
surplus value. The concluding part explains the factors that lead
to the capitalist crisis and possibilities of the alternative mode of
production.
Capitalist Mode of Production: Object and Categories of

Analysis
In order to unfold the working of the capitalist economic structure
and its real essence, Marx put emphasis on analysis of its various
forms- commodity-form, value-form, money-form, etc. In order
to study these economic forms, he realised the importance of the
‘power of abstraction’ in his analysis. Marx was concerned neither
with the history of capitalism nor with a specific historical phase
of capitalism, but rather with the concrete foundations of capitalist
system which remain the same regardless of all historical variations.
He was concerned with the foundational elements of capitalism,
universal categories to understand the working of capitalism as
an economic structure. The Marxian political economy approach
is different from bourgeois political economy because it analyses
capitalism and its working from the workers’ perspective. Unlike
bourgeois political economy, it does not view the capitalist order
as absolute and ultimate form of social production. As Marx
(1992) wrote in the postface of second edition of Capital Vol. I,
“in bourgeois political economy the impartial investigation was
absent or under the existing circumstance was not permitted. They

view the capitalist order as the absolute and ultimate form of social
production, instead of as a historical transient stage of development.”
However, Marx viewed capitalism (like other pre-capitalist socio-
economic formation) as being in a fluid state, in motion.
In order to understand the working of capitalism Marx has
applied the Hegelian dialectics not in a same manner as it was given
by Hegel but in just the opposite manner. Regarding the method of
analysis used by him, he himself wrote in the pre and postface of the
French edition that the method of analysis which he had employed
had not previously been applied to economic subject. In the first
part of Capital Vol. I, Marx has discussed the main categories of
classical political economy and developed some new categories
in order to explore and expose the real foundations and logic of
capitalist economic system. The first category that Marx deals with
in Capital Vol. I is the ‘commodity’. Regarding the importance of
commodity in capitalist economic systems, Marx wrote, ‘the wealth
of the society in which the capitalist mode of production prevails
appears “as immense collection of commodities”; the individual
commodity appears as its elementary form. Our investigation
therefore begins with the analysis of the commodity.’
From here, Marx starts unfolding the commodity. He starts
generalising it by explaining that its importance for human beings
may be as a consumable commodity or may be as a raw material.
Therefore, the common thing that he abstracts from the commodity
is its ‘usefulness’, i.e. use value. According to Marx (1992), the
use value of something is nothing other than its usefulness. “It is
conditioned by the physical properties of the commodity, and has
no existence apart from the latter. It is therefore the physical body
of the commodity itself, for instance iron, corn, a diamond, which
is the use value of useful thing. …use values are only realised in use
or in consumption.”
However, in society, which is the subject matter of Marx’s
Capital (capitalism), things are not only produced for their use value,
rather they are produced for the purpose of exchange. Therefore,
according to Marx, exchange value is a necessary precondition for
an object to be a commodity. Exchange value in addition to use

value is not a ‘natural’ property of things, but rather a ‘social’ one.
The natural form can be distinguished from the social form of a
commodity. For instance, the natural form of the chair is simply its
material composition, whereas its social form means that the chair
is a commodity, something that constitutes value and qualifies the
conditions of exchange for something else, therefore possess exchange
value. As Marx pointed out, exchange value appears first of all as the
quantitative relation, the proportion, in which use value of one kind
exchange for the use value of another kind. This relation changes
constantly with time and place. Commodities have a dual character,
i.e. as an object of utility and a bearer of value. Use value (utility) is
a qualitative form of value. It is a ‘transhistorical category’ applicable
within all modes of production. Use value does not present a social
relationship, rather it presents a direct relationship (for example, the
relationship between the consumer and the object of consumption).
The subject matter of political economy of capitalism is commodities
which possess exchange value rather the commodities which merely
contain use value. Hence, one important feature of capitalist mode
of production is production of those commodities which are subject
to exchange value.
The other category that constitutes as an important component
of capitalist mode of production is ‘value’. What constitutes value?
Long before Marx, this question was addressed by Adam Smith and
David Ricardo: they considered the quantity of labour necessary
to produce something constitutes its value. In other words, labour
embodied in commodity constitutes its value. However, Marx, in
his analysis of value, took the analysis further and specified the
quantity of labour that produces the value as ‘social necessary
labour time’. The social necessary labour time refers to the as ‘labour
time required to produce any use value under the conditions of
production normal for a given society and with the average degree
of skill and intensity of labour prevalent in that society.
Contrary to classical and neoclassical economists who begin
their analysis with isolated individuals, Marx’s aim was to uncover
the specific social structure through his analysis. For that purpose,
Marx presented individual exchange relations as an undivided part

of the social totality. The objective character of value is social—it
can only appear in relations between commodities. At this point,
Marx unfolds another category, i.e. ‘labour power’. As commodity
has two-fold character- use value and exchange value— commodity
producing labour must also have a twofold character—concrete
labour (producer of specific use value) and abstract labour (producer
of exchange value). The concrete labour constitutes the aspect of
labour activity that is a condition of human existence which is
independent of all forms of society: “It is an eternal natural necessity
which mediates the metabolism between man and nature and
therefore between human life itself (Marx, 1992).” Qualitatively
different concrete labour produces qualitative different use value.2
On the other hand, abstract labour constitutes an expenditure of
human labour power, human labour pure and simple, the expenditure
of human labour in general. In other words, abstract character of
labour unfolds in the process of exchange at immense scale, the
private concrete labour of various types is reduced to equal human
labour, i.e. the amount of labour contained in the commodity
regardless of its specific character. Marx argued that concrete labour
and abstract labour are not different activities rather they are the
same activity considered in different aspects. More specifically,
Marx (1992) summarised it as “on the one hand, all labour is an
expenditure of human labour power, in the psychological sense, and
it is this quality of being equal, or abstract, human labour that it
forms the value of commodities. On the other hand, all labour is an
expenditure of human labour power in a particular form and with
a definite aim, and it is this quality of being concrete useful labour
that it produces use value.” Marx argued, “A product of labour,
considered in isolation, is not value, nor is it a commodity. It only
becomes value in its unity with another product of labour. The
substance of value and thus value objectively, is something only
obtained by things when they are set into relation to one another
in exchange (Heinrich, 2012).”
Marx continued his analysis of value by analysing ‘value-form’
with the examination of the simple, isolated or accidental form of
value. This is the expression of a commodity’s value in another. The

simplistic value-form can be expressed as follows:
20 yards of linen = 1 coat
In the above representation, the value of the linen is expressed
and the coat serves as a means of expressing the value of linen. In
this way, the value of the linen is expressed as ‘relative value’ and
the coat serves as ‘equivalent’ for the value of linen and vice versa.
From here we can obtain the expanded form of value:
20 yards of linen are worth 1 coat
20 yards of linen are worth 10 lbs of tea
20 yards of linen are worth 40 lbs of coffee, etc.
In the above presentation, the value of linen stands in relation
to entire world of commodities. From this equivalent form we can
obtain the ‘general-form of value’ or general equivalent:
1 coat
10 Ibs. of tea
= Worth 20 yards of linen
40 Ibs. of coffee
1 quarter of corn
In the above scheme, 20 yards of linen serves as general
equivalent, an expression of value for all other commodities.
According to Marx (1992), “A commodity only acquires a general
expression of its value if, at the same time, all other commodities
express their value in the same equivalent.”
From this general equivalent-form, Marx reaches ‘money-form
of value’. The money-form of value is ultimately distinguished from
the general-form of value merely by the fact that the equivalent-
form has coalesced ‘by social customs’ with the specific natural-form
of particular commodity (historically this has been gold, and to a
lesser extent silver). As Marx (1992) wrote, “as soon as gold had
won a monopoly of this position in expression of value of world
of commodities, it became the money commodity and only then,
when it had already become the money commodity, … the general-
form of value came to be transformed into money-form.” This
commodity becomes the money commodity.
20 yards of linen
1 coat
10 lbs. of tea = Worth 2 ounces of gold
40 lbs of coffee
1 quarter of corn
The important point that one should note is that in the
above discussion of value, Marx reached the most modern form
of value, i.e. the money-form, through conceptual development of
relationships without discussing the historical facts and figures of its
evolution. In a commodity dominated economy, the money-form
appears because the commodity owner does not wish to exchange
his commodity for any arbitrary commodity, but rather for definite,
particular commodities. The overall scheme of the main categories
discussed by Marx in Part-I of Capital Vol. I unfolds as follows:
In the above discussion, Marx’s aim was to develop the labour

theory of value solely on conceptual grounds within which the
peculiarities of specifically capitalist production could be studied.
Capitalist production as a way of organising human labour socially
through exchange is a special form of commodity production, and
it depends on the emergence of the money-form of value. Money is
necessary to express the value of commodities, to comprehensively
relate commodities to one another as value. So money which came
into being to facilitate exchange among the different producers
of use value becomes a driving force of production and exchange

transactions under capitalism. The importance of money increases
more when it presents itself as a real source of surplus value and real
vehicle of production and exchange.
Simple and Capitalist Commodity Production

In a pre-capitalist system of economic transactions, simple circulation
dominates and money played only a role of medium of exchange. It
can be expressed through the following scheme:
C—M—CХ
In this presentation, a simple commodity producer produces
commodities C with a particular use value, and he takes this use value
to the market for money M and uses that money M to buy a different
bundle of commodities CХ with a different use value. The aim of the
whole process is the consumption of different commodity that the
producer cannot produce of his own. In this form of transactions,
money plays a subordinate role and commodities play the primary
role. In this type of economy, the labour power of an individual does
not take the form of commodity, i.e. the ability of the labour is not
bought or sold at the marketplace. Hence in a simple commodity
production (SCP), commodity product does not take the generalised
form because labour power has not been treated as a commodity. In
a society dominated by SCP no systematic process of ‘accumulation’
takes place which is the backbone of the capitalist production process.
The crucial feature of capitalist commodity production (CCP) that
distinguishes it from SCP is the commoditisation of labour power,
i.e. the purchase and sale of ability to produce. The other feature
of the capitalist mode of production is that money (M) becomes
generalised and independent representative of value.
M—C—M
The above M—C—M process contains the same elements,
M—C and C—M as the sequence C—M—C, only the order differs.
Now, money is the starting point and end point of the process. A
capitalist producer/investor only enters into the circulation process
with his money M if he holds the expectation that the amount
of money at the end of circuit will be greater than the amount of

money at the beginning of the circuit. This is what Marx calls the
‘general formula for capital’.
M—C—MХ
The capitalist begins with money M and converts M into
commodity C with an objective to get more M. The objective of
the circuit, unlike the circuit of SCP, is exchange value. In this
scheme MХ>M the aim of the process is quantitative increase of
original amount of money. The sum of value that is produced in
this process is the ‘capital’. The linking of the various processes with
the purpose of increasing the initial sum is what Marx calls ‘surplus
value’. According to Marx, in capitalist production process the only
aim of the movement of capital is to increase the sum of the value
that is initially advanced. Unlike the SCP process (where production
and exchange takes place for the satisfaction of one’s own needs), the
aim of the capitalist production process and circulation is surplus
value and not necessarily the satisfaction of own needs.
The next question is where surplus value comes from. According
to Marx, the owner of money M (initiator of production) must find
a commodity on the market whose use value processes the quality of
a source of value. In other words, the use value of this commodity
creates value more than the value of this commodity itself. Marx
called this special commodity ‘labour power’.3
There are two necessary conditions to use labour power as a
commodity to realise surplus value in the production process:
(1) There must be people who are legally free and voluntarily
ready to sell their labour power; and
(2) They must not own any of their own means of production.
Thus capitalist mode of production presents a specific social
relationship: on the one hand, there must exist a class of property
owners or owners of means of production, and on the other hand,
there must be a class of property less, but legally free workers. Marx
writes, ‘the value of labour power is determined as in case of every
other commodity, by labour time necessary for the production and
consequently also the reproduction, of this special article.’ In a
capital dominant society, the value of labour power is determined by

the value of the means of subsistence necessary for the maintenance
of its owners (Heinrich, 2012).
The capitalist ensures the value of labour power to be equal to
the cost of its reproduction. This is fundamentally necessary for
the capitalist to generate more and more surplus. The difference
between the value of labour power, which Marx refers to as equal to
the necessary labour time (the labour time required to reproduce the
value of the labour power) and the total value is the surplus value.
In this way, the newly created value can be firmly divided into two
parts—the value of labour power and surplus value. In this whole
process, the workers (real producers) receive a lesser value from the
capitalist than the value they produced. Marx calls this extra value
‘exploitation’.
The second volume of Marx’s Capital deals with the process of
circulation of capital.4 M—C—MХ is an abstract depiction of the
circuit of capital. The real circuit of capital can be written as follows:
MP
M—C—P—CХ—MХ
L
In the real circuit of capital, capital assumes three successive
forms:
(1) Money capital, M, which capitalists convert into a
commodities C, has a special material content, i.e. the
capitalist buys means of production (constant capital) and
labour power (variable capital). The combination of means
of production and labour power in the capitalist production
process is known as productive capital P.
(2) The result of the capitalist production process is a new
quantity of commodities. This quantity of commodities is
commodity capital CХ.
(3) The selling of commodities CХ in the market for MХmoney
capital, but MХ > M
MХ is the money capital increased in value by the amount of
surplus value. We can clarify above relation as follows:
M=C
CХ > C therefore CХ > M
CХ = MХ therefore MХ > M
The time spent by capital in the production process is the ‘time
of production’. The time spend by capital in the circulation process,
whether in the form of money capital seeking commodity sellers
or as commodity capital seeking buyers, is capital’s ‘turnover time’.
Capital that passes through the above three forms (money capital,
productive capital and commodity capital) is characterised by Marx
as industrial capital. In this sense, capital investment in services also
belongs to the category of industrial capital. The main difference
consists in the fact that the finished product is not a ‘material
object’ acting as independent commodity capital (Heinrich, 2012).
In Marxian scheme this can be written as follows:
MP
M—C—P—MХ
L
In the above process CХ is missing because a service is consumed
simultaneously with its production. Hence pure merchant capital
such as trading capital, commercial capital etc., and interest bearing
capital which includes banking and insurance services do not belong
to the category of industrial capital. These activities appropriate a
share of surplus value, but the production of surplus value does
not belong to their capital function (Heinrich, 2012). Thus, the
economy ruled by the capitalist commodity production, capital
enters into various levels of circuits in order to realise the surplus
value.
Capitalist Production Process and Surplus Extraction
The main objective of the capitalist production process is to extract
the surplus. Within the capitalist process of production, the labour
process exhibits two distinctive characteristics: first, it proceeds
under the control of the capitalist, and second the product of the
labour process is the property of the capitalist. As we explained in
the previous section, the general formula for capital is M—C—MХ
as the valorisation process. Valorisation is only possible because a

particular commodity (i.e. labour power) is purchased and consumed
in a production process of a new commodity. However, in order to
consume labour commodity, the means of production (machinery,
raw material and related equipment) are necessary condition. In the
capitalist production process, the capitalist advances capital both to
buy the non-labour means of production which Marx calls constant
capital c and labour power which he refers as variable capital v. The
value of produce can be explained as under:
c+v+s
c, the Constant capital, can be further subdivided into two
parts: fixed capital, such as machinery, instruments of labour,
buildings, labouring animals, etc., and circulating capital, such as
materials of production, raw and auxiliary materials, semi-finished
products, etc. v, the variable capital, is the value of social labour-
power employed in production. In other words, it is equal to the
sum of the wage paid to the workers whose labour power is hired
in production process. s, surplus value, is the value produced by the
labour over and above the value of their wages and appropriated by
the capitalist.
The capacity of capitalist production to produce surplus value
determines what Marx calls the ‘rate of surplus value s/vХ or in other
words ‘rate of exploitation.’ The capitalist’s measure of valorisation
is the ‘rate of profit’:
s/(c + v)
With s/v as a measure of rate of surplus value there arise two
basic possibilities for increasing the valorisation of capital, which
Marx refers to as the production of ‘absolute surplus value’ and
the production of ‘relative surplus value’. One way to increase the
surplus value is lengthening the workday, e.g. from 8 to 10 or 12
hours. However, the length of working day has absolute limits.
Marx calls this way of increasing surplus value the absolute surplus
value. The production of absolute surplus value refers the early
phase of development of capitalism. It constitutes the phase when
the techniques of production are relatively unchanged. The other
way to increase the surplus value is to decrease the necessary labour
time. Marx calls this way of enlarging of surplus value the relative
surplus value. The relative surplus value can be intensified by either
lowering the real wages or increasing the productivity of labour,
leading to a reduction of necessary labour time.
There are three visible ways for capitalist to increase the relative
surplus value:
(1) Cooperation among workers in the production process.
(2) Division of labour or specialisation of production activities
in order to enhance the efficiency; and
(3) Speeding up labour or mechanisation of production process.
The first two ways to increase the surplus value have natural
limits. The third way that is the mechanisation of production
process produces the fear of technological unemployment that was
also realised by Ricardo (2006) prior to Marx and Keynes (1933)
after him.5 The change in technical composition of capital, as
Marx (1992) argued, results in the growth in mass of the means
of production, as compared with the mass of labour power. It
changes the value composition of capital by increase of constant
constituent of capital at the expense of its variable constituent. This
process what is prevalent at different scale in different industries
and countries inevitably produces reserve army of labour hourly and
daily. In other words, owing to the introduction of machines in the
production process, demand for labour power declines, that results
in involuntary unemployment. The mass of workers who are willing
to sell their labour power at prevailing wages but are not able find
any work are referred by Marx as the ‘reserve army of labour’.
The labour displacing technology is an important feature of an
economy ruled by capital. In a capital-dominant society, in order
to valorise its produce, an individual producer interacts with other
producers in the market. The circuits of individual capitals intervene
and presuppose one another. The reproduction of an individual
capital does not take place in isolation. The total reproduction of
individual capital is part of the reproduction of total social capital.
The total social capital can be reproduced under the condition that
a certain amount of means of production is required by individual
capitals as a whole, and so as many means of subsistence have to
be produced as are consumed by capitalists and workers. For Marx,

the reproduction of capital is fundamentally the reproduction of
the class relations of capitalist production. If the reproduction
process in various segments of the economy is repeated in the same
manner (with the same capital labour composition), Marx calls
this process ‘simple reproduction’. Simple reproduction refers to
a capitalist system which preserves indefinitely the same size and
same proportion among its various parts. Every year, capitalist
replace all capital worn out or used up and spend all their surplus
value on consumption and workers must spend all their wages on
consumption (Sweezy, 1942).
In order to differentiate the simple and expanded reproduction
(ER), Marx, in Capital Vol. 2 has divided the economy into two broad
sectors: Department-I, which produces the means of production
and Department-II, which produces means of consumption. Simple
reproduction (SR) of two Departments can be presented as follows:
Department- I (Producer goods) = c1 + v1 + s1
Department-II (Consumption goods) = c2 + v2 + s2
SR means the output of producer goods must be equal to the
constant capital of both the sectors, i.e.
c1 + c2 = c1 + v1 + s1
In the same manner, the output of consumption goods sector
must be equal to consumption of capitalist and workers
v1 + s1+ v2 + s2 = c2 + v2 + s2
Simplification of the two equations gives the famous equation
of Marx showing balance between two departments in SR
c2 = v1 + s1
It states that the value of the constant capital used up in
consumption goods sector is equal to the value of commodities
consumed in by workers and capitalist engaged in production of
means of production (Sweezy, 1942).
However, if the reinvestment of surplus value was merely to
expand capital’s existing operations (for example building new
factories to expand the production) both constant and variable
capital would grow in the same proportions. If wages were to remain
constant, the total labour power purchased would grow at the same
rate. This situation Marx calls ‘expanded reproduction’. SR does not

reflect the picture of mature capitalist society. In other words, SR
is equivalent to Say’s law of market in which production process is
driven by the use value. However, the real aim of the capitalist is not
the use value but to expand his capital. It is achieved by converting
a proportion (often major proportion) of his surplus value into
additional capital that enables him to earn more and more surplus
value. If the capitalist uses the surplus value to buy additional means
of production, capital accumulation takes place. If the capitalist
does not consume the entire surplus value, then purchase of means
of production for the next period exceeds current use.
c1 + c2 < c1 + v1 + s1
c2 < v 1 + s 1
This inequality presents the expended scale of reproduction
(Fine and Saad-Filho, 2014). ER represents the real aim of the
capitalist that is to expand the value in the form of accumulation
of capital.
The third volume of Capital synthesises the process of production
and circulation, with an objective of discovering the concrete form
which grows out of the process of capital’s movement. In other
words, the third volume of Capital presents clarification of everyday
mystification of surplus value and profits. In capital-dominant
production relations, money is not only a medium of exchange but
becomes ‘potential capital’. As Marx pointed out, ‘in this capacity of
potential capital, as a means to the production of profit, it becomes
a commodity, but a commodity of a special kind or what comes to
the same thing, capital becomes commodity’ (Heinrich, 2012). As
money becomes a unique commodity, the price paid for this unique
commodity is ‘interest’. Interest is the reward for money because it
yields profits. It can be expressed with the following scheme:
M—M—C—MХ—MХХ
Money as interest-bearing capital is advanced twice: one by its
owner to the industrial capitalist, then by the industrial capitalist
to finance profit yielding commodity production. The first return
goes to the industrial capitalist (MХХ) and then from the industrial
capitalist to the lender (MХ). The return to the industrial capitalist
contains a profit, and the return to the lender contains interest,

which is paid from the industrial profit (Heinrich, 2012). Marx
refers to the capitalist who owns interest-bearing capital as the
‘money capitalist’, whereas the person who borrows funds from
them is the ‘functioning capitalist’.
What is peculiar to interest-bearing capital is not interest—
this is merely a particular expression of valorisation as expressed in
the equation M—MХ: money appears to multiply all by itself. The
money capitalist owns the abstract position in a capitalist economy,
but it is considered the primary force of surplus realisation. The
functional capitalist, who owns a concrete position in the working
of the capitalist economy, is largely ignored by bourgeois economics.
The theories of stabilisation and accumulation in the present phase
of capitalism largely address the abstract part in order to accelerate
the surplus extraction. Marx therefore referred to interest-bearing
capital or speculative capital as the ‘most superficial and fatishised
form’ (Marx, 1959).
The institutions that mediate the movement of interest-bearing
capital are banks and capital markets. The credit system—granting
of loans, trade in stocks and bonds—lives on expectations and
insecurity. The speculative nature of finance capital leads to ‘bubbles’
(excessive share prices) and the subsequent crash (a sudden fall in
prices). The financial crisis of 2008 is an important example of crisis
produced by the speculative nature of financial capital.
Capitalist Crisis and Society Beyond Capitalism

Marx had not given a systematic theory of crisis of capitalism. In
the third volume of Capital, Marx speaks of the barriers to the
capitalist mode of production, but not in the sense of its temporal
end. In Capital Vol. I, Marx highlighted the logical contradiction
of capital that can lead to capitalism’s collapse but in his analysis
of capitalism in three volumes of Capital he does not address the
question of collapse or crisis in particular. According to Marxian
tradition, capitalism is subject to two types of crises: general crisis
and partial crisis. General crisis refers to the widespread collapse of
economic and political relations of production and reproduction
under capitalism. Partial crisis or business cycles is a regular feature

of economic activities under capitalism. The tendency of rate of
profit to fall is a form of general crisis that is caused by the internal
factors (inherent to capitalist development).
The fall in surplus value produces the forces that could lead to
the general crisis of capitalism. The first contradiction of capitalism
that produces the general crisis can be explained as follows.
Rate of surplus value = s/v
This rate expresses the ‘degree of exploitation’ of labour by
capital. The rate of profit is related to the total capital advanced in
commodity production.
Rate of profit = s/(c + v)
The measure of valorisation for capitalist is not the rate of
surplus value (s/v) but the rate of profit (s/(c + v)). Marx showed
that the average rate of profit (s/(c + v)) falls owing to the increase
in productivity at the general level of capitalist production. This
argument of Marx of the tendency of the rate of profits to fall is
based on the rise in value of organic composition of capital c/v
along with condition that s/v remains constant. The fall in rate of
profit in Marxian explanation is caused by the increase in constant
proportion of capital in production process that results in increase
in ‘organic composition of capital’. It can be illustrated as follows.
Following equation expresses the total output for a capitalist
economy.
c+v+s
Organic composition of capital is expressed as
q = c/(c + v)
If at initial level c= 200, v = 50, s = 50, then total value of
output is 300. As per these numeric values, the rate of profit is
pХ = s/(c + v)
pХ = 50/ 250 = 20%
Here organic composition of capital is:
q = 200/250 = 80%
The increase in proportion of constant capital relative to
variable capital causes the increase in organic composition of capital,
therefore a fall in the rate of profit. It can be explained as under.
With the introduction of more machines in production process by

keeping the proportion of variable capital and surplus capital as
before, we reach the following results:
c = 400, v = 50, s = 50
pХ = 50/ 400 = 11%
q = 400/ 450 = 88.89%
The other form of general crisis of capitalism is under-
consumption or demand gap. Due to the mechanisation of the
production process two tendencies emerge under capitalism. Firstly
it makes workers redundant and weakens the bargaining power of
the active labour. Second, it enhances the productivity of labour
without corresponding increase in real wages. Since workers get
less wages, their consumption is never sufficient to buy back their
produce (Sheikh, 1991). On the other hand, capitalists consume
only a proportion of total profits and bulk of their profits remains
unconsumed that results in unsold produce in the economy. The
excess credit creation to fill the demand gap to avoid the general
capitalist crisis is not a permanent solution. It rather deepens the
roots of those forces that ensure the general structural crisis to be
more severe in future. The forces that lead to the general capitalist
crisis are internal and inherent to capitalism which exposes the
exploitative nature of the capitalist mode of production (such as
production structure and production relations).
In order to unfold the real character of capital, Marx outlines
the various fetish forms and mystifications in the three volumes
of Capital. In the forty-eighth chapter of Capital Vol. III, Marx
discussed the ‘trinity formula’. Marx presented this trinity formula
as ‘capital–profit (profit of enterprises plus interest), land–ground
rent, labour–wages’. According to him, this comprises all the secrets
of the social production process under capitalism. Marx (1959)
points out that “capital is not a thing, but rather a definite social
production relation, belonging to a definite historical formation of
society, which is manifested in things and lends this thing a special
social character. Capital is not the sum of the material and produced
means of production. Capital is rather the means of production
transformed into capital, which in themselves are no more capital

than gold or silver in itself is money.” So capital, for Marx is a social
relation and Marx’s project was to study specific social relations,
i.e. of bourgeois society and the main determinant factors which
move the wheels of this society. People in bourgeois society live in
an enchanted world, in which a personification of things occurs. In
bourgeois society, the subject of social progress is not people but
commodity, money and capital. All members of bourgeois society
are subordinate to fetishism of social relations which revolves around
capital. The fetish social relations of bourgeois society takes root as
an objective form of thought that structures the perception of all
the members of society.
In order to bring humanity out of crisis produced by the capital
driven fetish social relations, the critique of the capitalist mode of
production is a necessary condition. In the three volumes of Capital,
one could be disappointed that Marx did not write even a short
chapter on communist society.
There are two widespread conceptions regarding what constitutes
communism in Marx’s sense. One conception emerged from the early
writings of Marx, the ideal explanation of communist society based on
ethical reason. According to this explanation, in communist society
people should not exploit and oppose their fellows; they should not
seek to gain material advantage over them, but rather show solidarity
and helpfulness. In the Economic and Philosophical Manuscripts, Marx
said that communism as such is not the aim of human development
rather the aim of communism is to bring human welfare center to
production and social relations. It is to create a form of production
and an organisation of society in which man can overcome alienation
from his product, from his work, from his fellow man, from himself
and from nature, in which he can return to himself and grasp the
world with his own power, thus becoming one with the world.
Socialism for Marx is society beyond alienation, as he wrote in the
third volume of Capital, that ‘socialised man, the associate producers,
regulate their interchange with nature rationally, bring it under their
common control, instead of being ruled by it as by some blind power;
they accomplish their task with least expenditure of energy and under
conditions most adequate to their human nature and most worthy of
it.’ This is quite a humanistic and positive conception, which Marx
referred to as the aim of communist society.
The other conception which we have witnessed is communism
as the nationalisation of the means of production and centrally
planned economy. The Soviet Union’s attempt in the 20th century
is regarded as in accordance of this conception of communism. The
collapse of the Soviet Union is falsely propagated as a proof for
the failure of Marx’s idea of communism. However, that was one
attempt (but not the last attempt) towards socialism and can be
called as Soviet style socialism. In The Communist Manifesto of Marx
and Engels and Engels’s Anti-Duhring, one can clearly find that the
nationalisation of production is a first step and never the last to
build a communist society.
Marx’s project of communism was concerned with the
comprehensive emancipation of human beings from the social nexus
and fetish social order that takes on a life of its own and imposes
itself upon individuals as an anonymous compulsion. Not only
should the capital relations as a specific characteristic of exploitation
that generates bad and insecure working and living conditions for
the majority of population be overcome, but the fetishism that
attaches to the products of labour as soon as they are produced
as commodities should also be abolished. Social emancipation, the
liberation from self-produced and therefore gratuitous constraints, is
only possible when the social relations that generate the various forms
of fetishism have disappeared. The members of such a society would
have to regulate their social life, organise production in individual
workplace, coordinate between workplaces, harmonius interactions
as producers and consumers, have harmony with nature, find ways
of dealing with minority positions, different forms of discrimination
and inequality. The communist project which Marx and Engels have
visualised is an outcome of their concrete understanding of working
of capitalism. It is the responsibility of pro-people intellectuals
to explore the real foundation of capitalism and its exploitative
character and work towards and alternative social order.
NOTES
1. This paper is a revised and updated version of article published in
2017 in Critique: Journal of Socialist Theory, Vol. 43, No. 3, pp. 409-
26, titled ‘Understanding Marx’s Capital’.
2. The specific character of particular type of labour can be defined as,
for example, carpentry produces a chair; linen weaving produces a
linen sheet. Concrete labour is the basis on which we differentiate
products of different labour.
3. The term labour power refers to the ability of human beings to
perform labour. So labour is application of labour power.
4. This volume is further subdivided into three parts: The Metamorphoses
of Capital and Their Circuits; The Turnover of Capital; and The
Reproduction and Circulation of the Aggregate Social Capital.
5. It was first highlighted by Ricardo (2006 [1817]) with an argument
that due to the introduction of machinery in production process, no
doubt, the one fund, i.e. net income, from which the capitalist class
derives their revenue in the form of profits, may increase, but other
funds, i.e. gross income from which the labour class is employed,
may diminish. Capital formation or investment in the forms of
introduction of new machinery will reduce the funds to employ
labour. Ricardo’s fundamental proposition was that capitalists do not
employ the new machinery from their shares of profits, i.e. net income
but from the gross part of revenue. The introduction of machinery in
the production process has two effects- one, it reduces the availability
of funds for the employment of labour and second, it also reduces the
requirement of labour for given production unit. Thus, it has a positive
effect of saving labour for the capitalist class along with a negative
effect on working masses in the form of redundancy of labour from
production process. No doubt, the technological revolution during in
19th and beginning of 20th century had resulted in sustained increase
in the material standard of living but fears of adverse employment
consequences of technological advancement had also been aggravated
in the 20th century. This fear was also raised by Keynes during the
era of the Great Depression with a prediction that in the near future
we may be able to perform all the operations of agriculture, mining,
and manufacturing with a quarter of the human effort. But the rapid
change will bring a new disease, namely, technological unemployment
(Keynes, 1963 [1933]).
REFERENCES
Fine, B. and A. Saad-Filho (2014), Marx’s Capital, New Delhi: Viva Books.
Foley, D.K. (1986), Understanding Capital: Marx’s Economic Theory,
Cambridge, MA: Harvard University Press.
Heinrich, M. (2012), An Introduction to the Three Volumes of Karl Marx’s
Capital, New York: Monthly Review Press, Indian edition (2013),
Delhi: Aakar Books.
Keynes, J.M. (1963 [1933]), Economic Possibilities for Our Grand-
children, In Essays in Persuasion, pp. 358-76, London: W.W. Norton
& Co.
Marx, K. (1970), Wage, Labour and Capital, In Selected Works, Vol. I,
Marx, K. (1992), Capital: A Critique of Political Economy, Vol. I, London:
Penguin Books.
Marx, K. (1956), Capital: A Critique of Political Economy, Vol. II, Moscow:
Progress Publishers.
Marx, K. (1959), Capital: A Critique of Political Economy, Vol. III, Moscow:
Marx, K. (1961), The Economic and Philosophical Manuscripts, in
E. Fromm (eds.), Marx’s Concept of Man, London: Continuum
Publications.
Marx, K. and F. Engels (2002), The Communist Manifesto, London:
Penguin Books.
Ricardo, D. (2006 [1817]), On Principles of Political Economy and Taxation,
Third Edition, Canada: Ontario: Reprinted by Batoche Books.
Sheikh, A. (1991), Economic Crisis, pp. 160-64, In T. Bottomore et al.
(eds.), A Dictionary of Marxist Thought, London: Blackwell Publishers
Ltd.
Sweezy, P.M. (1942), Theory of Capitalist Development, New York: Monthly
Review Press, Indian edition (2016), Delhi: Aakar Books.
5
Contemporary Capitalism
Greg Albo
The study of capitalism has entailed both the interrogation of

the capitalist mode of production as an abstract-formal object
and investigation of the diverse historical forms that capitalism
has taken across time and place. From this duality, a distinction
in Marxist theory has often been drawn between the examination
of the capitalist mode of production as such—the ‘pure’ theory of
capitalism with its distinct ‘laws of motion’; and specific historical
periods of capitalist development—monopoly capitalism, post-war
capitalism, neoliberal capitalism as examples; and particular spatially
circumscribed cases—East Asian capitalism, German capitalism, or
capitalism in New York City. The notion ‘contemporary capitalism’
has been invoked in Marxist debates as a general term to speak to
the historical phasing and evolution of capitalism.
The term contemporary capitalism has, however, no particular
bounded conceptual foundation. It is a notion often intertwined
with the more sharply delimited theoretical debate within Marxism
about the ‘periodisation’ of capitalism. Periodisation can, in general
terms, be defined as “the effects of the development of the forces
and relations of production on the form of social relations within
a mode [of production] … such a periodisation will reveal itself
in the methods of appropriating and controlling surplus value.
These methods will assume increasingly socialised forms as the
socialisation of production proceeds” (Fine and Harris, 1979,
109). The notion of contemporary capitalism has often then
been appealed to in suggesting that a new phase of capitalism has
succeeded the historical features and class struggles of earlier ones.
Historical debates about contemporary capitalism have typically,

then, been about transformations in ‘patterns of social reproduction’
characteristic of different periods of capitalism that require
theoretical clarification, and the identification of emerging features,
sectors, regions or countries seen as typifying the most ‘advanced’
features of capitalism.
In terms of the patterns of social reproduction aspect, it is often
claimed that contemporary capitalism has fundamentally altered the
economic dynamics of accumulation and the form of the capitalist
state. All zones of capitalist society are being compelled to adjust
to new organisational and competitive imperatives and, as will be
seen, this leads to its being characterised abstractly in a number of
ways. For example, the shift from mass production technologies to
micro-electronic ones has often been interpreted as a transition from
Fordism to post-Fordism; and changing forms of macroeconomic
intervention as a shift from a Keynesian state to a neoliberal one. In
identifying particular ascendant features of capital accumulation are
taken to be the essence of contemporary capitalism. These features
might be, for example, the organisation of the labour process or
the internationalization of capital, or the organisational features
of a particular state with respect to the forms of coordination
and regulation of financial and industrial capital. Debates about
contemporary capitalism with Marxian political economy have,
therefore, attempted to explain current developments in light of
the ‘general laws’ of the capitalist mode of production; identify
new patterns and features of the production, appropriation and
distribution of value; and indicate other qualities of social relations
and class struggles that appear to be more conjunctural and spatially-
bounded. This is what Mandel has referred to as a “synthesis of
economic history and economic theory” (Mandel, 1968, 17).
This two-sidedness to the debates about contemporary capitalism
reflects the Marxist methodological commitment to the position
that capitalism is, in all times and places, a social system driven
by the encompassing accumulative imperatives of a world market;
yet capitalism is always differentiated by temporally and spatially
specific processes accumulation and statification and particular
Contemporary Capitalism 129
class relations necessary for the production of value. Marx made

the point that capitalism imposes “one specific kind of production
which predominates over the rest, whose relations thus assign rank
and influence to the others. It is a general illumination which
bathes all the other colours and modifies their particularity” (Marx,
1973, 106-07). And in the Communist Manifesto, Marx and Engels
contend that capitalism spreads through imitation and emulation—
the bourgeoisie fashioning a “world after its own image” (Marx and
Engels, 1998, 40). The appeal to developments in ‘contemporary
capitalism’ make the point that the remaking of capitalism never
stops, and competitive imperatives ensure that new developments
spread across the world market, although always in a process of
uneven development and thus varying in their social form according
to specific institutional contexts, places, and class struggles.
In this approach, it is important to distinguish Marxian
political economy from other theoretical frameworks. In neoclassical
economics, universal categories of economics and politics means that
debate about ‘contemporary capitalism’ is simply and always about
whether the essential human essence to ‘truck, barter and exchange’
is unfolding as it should with the expansion and intensification
of market relations, or if this essence is being thwarted by market
intervention (Friedman, 1953). There exists no methodological
precept or theoretical tools in neoclassical economics to distinguish
different historical epochs, let alone phases of capitalism, except on
such a singular market continuum that identifies social, political
and technological factors that allows the market to spread. In
contrast, institutional political economy conceives of all historical
economies as embedded in more general socio-economic logics,
such as forms of rationality, with capitalism dominated by, but
not reduced to, profit maximisation (Lazonick, 2008; Castells,
2000). In turn, each phase of capitalism is marked by a dominant
organisational and technical paradigm determined by its particular
forms of organisation. The policy challenge is to ensure that the
institutions of corporate governance and the administrative form
of the state match the socio-technical logics of production. This
evolution, for institutional political economy, can be understood
by certain universal categories although always with temporal and

spatial variations formed as ideal-types.
The essential difference in theorising contemporary capitalism,
and the underlying concern to periodise phases of capitalist
development, is located in Marx’s fundamental methodological
point of departure and his critique of bourgeois political economy
in its failure to ask: “Why this content has assumed that particular
form, that is to say, why labour is expressed in value, and why the
measurement of labour by its duration is expressed in the magnitude
of the value of the product” (Marx, 1976, 174).
Capitalist Development
Development in capitalist societies takes the general form of
accumulated money-capital being continually reinvested in
expanding means of production and the purchase of labour power
for the purpose of increasing the amount of value accumulated as
money. The unending search for profits leads to specific tendencies
of development, or ‘laws of motion’ of capitalism. This accumulation
implies a continual transformation of the commodities, social
relations and class struggles; and thus in the ‘social forms’ which
mediate the tendencies of the capitalist mode of production in
concrete history. A number of these tendencies have figured,
repeatedly, in debates about contemporary capitalism.
First, Marxian political economy identifies the labour process
as the location for the extraction of surplus value from workers, the
organisation of production, the changing form of the subsumption
of workers, the contestation over work-time and the development
of the forces of production. The history of capitalism is defined by
transformations internal to the labour process in terms of skills,
technology, work organisation and conflict over work control
(Braverman, 1974). Thus the development of the modern factory
system or the implementation of Taylorist work organisation and
Fordist assembly-line production have often been hailed as the central
features defining contemporary capitalism and its dominant mode
of capital accumulation. The changes in the labour process from the
adoption of new computer technologies in workplaces, for example,
is often seen having several new features: the intensification of

Taylorism to match the rhythms of new technologies for production
and service workers and a multi-skilling for a range of technicians and
production support workers; a recomposition of the form in which
the conception of work is undertaken by designers and developers
and the execution of the work by production workers; a relative
decline of individualised piece-work and increase in team-work; and
a shift from dedicated machinery to flexible manufacturing systems.
Second, the consumption of labour power in the labour process
is premised on the commodity labour power being available for sale.
There is a range of factors—skilling, unions, household relations,
education—that are necessary to transform workers into a properly
constituted supply of labour power available for exploitation. These
institutions form the wage-relation that underpins the reproduction
of workers. Further, the accumulation of capital tends to increase
the technical and social divisions of labour as the machines being
deployed increase in sophistication and new sectors develop. The
demand for labour power is, therefore, continually shifting. A
fundamental contradiction exists between a changing labour demand
and the need for a stable supply of labour power that is dependent
on the extra-market institutions that produce workers. This
contradiction can only be worked out historically in specific places
as it is explicitly embedded in class struggles and class formation.
It is common to identify the most contemporary of capitalism not
with the labour process, but with the conflicts, social compromises
and institutions which determine the historical form of the wage-
relation (Gordon, Edwards and Reich, 1982).
Third, the imperatives of competition lead to the concentration
and centralisation of capital into ever more complex and larger
firms. This entails larger units of capital in terms of the economies
of scale forming individual plants, but also more differentiated
units of capital and labour processes under the control of any given
ownership group. This raises a number of deep-seated problems
of control: the process controls over increasingly complex labour
processes; the operational controls over spatially dispersed labour
processes, particularly of the commodity chains of multinational
corporations; the strategic controls necessary to coordinate market

strategies across horizontally differentiated units of capital; and
the accounting and administrative controls to enforce competitive
imperatives on the individual units of capital internal to the firm
(Hymer, 1979). As well, the forms that legal ownership of firms
takes between different shareholder groupings, and the ways that
top managers exercise their power to make decisions to invest and
fund the expansion of the firm, also take on particular features.
The different forms of organisational controls has sparked heated
debate about contemporary capitalism as being characterised by
highly institutionalised distributional relations associated with large
bureaucratic firms, or more flexible distributional bargains and
‘networked’ firms.
Fourth, capital accumulation always occurs within the context
of a world market, and individual capitals confront competitive
imperatives to internationalise their production. The tendency
to the internationalisation of capital drives further innovations
in communications and transportation in the process building a
new foundation for the world market. The internationalisation
of commodity, productive and financial capital takes on varied
features and relations in different phases of capitalism. The form
internationalisation takes in different phases also transforms the
class alliances of the power bloc between the internal and imperialist
fractions of capital in national social formations. This, in turn, carries
implications for the specification of the autonomy and sovereignty
of the state, the allocation of state functions to international
agencies, and the coordination of the political-economic relations
between the hierarchy of states in the world market (Panitch and
Leys, 2004). The periodisation of the forms of the nation-state and
international competition figures prominently in all debates about
contemporary capitalism.
Fifth, extra-market institutions and political mediation are
always necessary to secure the socio-political conditions that
underpin accumulation. States provide both these capacities and
the requisite political coercion and legitimation. The tendency
towards the increasing socialisation of production within capitalism
is also entails stratification, that is, the increasing role of the state
in ensuring the reproduction of capital through infrastructure,
support for education and research and development and economic
coordination. The social forms of state economic intervention,
the technical organisation of state apparatuses and the relations
between branches of the state vary considerably. For example,
during the post-war phase of capitalism the wage-relation was often
directly inserted into the state via incomes policies and corporatist
institutions such that the nominal reference wage was formed via
political mediations as opposed to market mechanisms. But more
recently, state policies helped recompose the reserve army of labour
and market disciplines were reasserted in wage formation. The self-
expansion logic of capital remains, but the social form of the state
and its political mediations become indispensible in locating the
most contemporary features of capitalism.
Contesting Contemporary Capitalism

While Ernest Mandel (1975, 23) claimed that there was “no
satisfactory history as a function of the inner laws of capital … and
still less a satisfactory explanation of the new stage in the history
of capitalism”, there have been many signal contributions to the
understanding of modern capitalism. The classic text which began
to raise the question of emergent features of capitalism shifting the
form of capitalist development was Rudolf Hilferding’s Finance
Capital (1981), itself a response to Eduard Bernstein’s revisionist
argument that the socialisation of capitalism meant that the law
of value no longer held and capitalism was simply evolving into
socialism. Hilferding presented his book as a diagnosis of the most
recent developments in capitalism from the vantage of Marx’s
laws. But he extended the theoretical analysis to take into account
transformations in money, credit and banking to offer a unique
interpretation of modern capitalism as ‘finance capital’, a fusion of
industrial and bank capital into monopolies which were transforming
competition and extending it into the international arena. This
sparked additional responses from Luxemburg, Bauer, Grossman,
Lenin and Bukharin about the features of ‘monopoly capitalism’
and new tendencies towards economic crisis, nationalisation and

imperialism. But they all held in common with Hilferding, while
arguing within a value-theoretical approach, that a new stage of
capitalism had been arrived at, driven by the increasing socialisation
of production and the monopolistic concentration industry.
The Great Depression and the long boom of ‘post-war
capitalism’ suggested to many that the fundamental dynamics of
accumulation had changed as the concentration of economic power
altered competition and thus the specific way that the law of value
operated. The key statement setting the framework for much modern
debate, and certainly for US interpretations of postwar capitalism,
came from Paul Sweezy’s Theory of Capitalist Development (1942).
After surveying classical Marxism, Sweezy argued that monopoly
pricing power fundamentally altered the pattern of accumulation by
forming a tendency for the surplus produced by capitalists to rise, the
consumption of workers to be constrained, with military spending,
marketing and other factors deployed to counteract permanent
stagnation. This interpretation reflected a commonly asked question
in radical political economy circles with the emergence of the so-
called Keynesian welfare state: ‘Has capitalism changed?’ (Strachey,
1957; Tsuru, 1961).Theorists for the communist parties in particular
took the suspension of competition by monopolisation even further
and argued that contemporary capitalism had now taken the form
of ‘state monopoly capitalism’. This concept inferred a particular
‘fusion’ between the state and the monopolies which, at one and
the same time, represented the stabilisation of capitalist economies
and the possibility of coexistence of two rival systems, and yet the
inexorable decay of capitalism as it inevitably gave way to socialism.
But other theorists of state monopoly capitalism rejected the
notion that the fundamental accumulation dynamics of capitalism
had changed, but insisted that the socialisation of production had
altered the form, magnitude and substance of state intervention into
the economy.
Although explicitly rejecting the position that capitalism had
fundamentally changed its dynamic, Ernest Mandel (1968; 1975)
identified a new stage of capitalism, which he variously referred
to as ‘neo-capitalism’ or ‘late capitalism’. Mandel insisted that the

basic laws of motion still regulated capital accumulation, but what
had changed in ‘neo-capitalism’ was the character of the science
and technology deployed, market relations and class struggles that
mediate these abstract tendencies in concrete history and that allow
for long-term tendencies in the rate of profit and long waves of
economic growth. For Mandel, the uniqueness of ‘late capitalism’
lay in the third technological revolution driving up profit rates,
increased military spending, permanent inflation, the increased
role of the state and the spread of planning across all organisations.
This was a list of features of contemporary capitalism remarkably
similar to Sweezy’s and holding in common the view that capitalism
was moving into an epoch of decline, in opposition to the thesis
that the contradictions of capitalism had been superseded by state
management.
The economic crisis of world capitalism across the 1970s gave
special urgency to reexamining the laws of motion of capitalism
in light of current developments. A slew of new interpretations of
contemporary capitalism resulted with a relative focus on ‘intermediate
concepts’ needed to penetrate the various stages of capitalism and
their transition (Aglietta, 1979). The French regulation school,
for example, argued that abstract laws of motion were modified
into particular modes of regulation and regimes of accumulation.
Thus post-war assembly-line production dominated by semi-skilled
workers was governed by the monopolistic regulation of Fordism,
while the new flexible production systems have been regulated by
a mix of markets and associational governance institutions of post-
Fordism. In parallel, the ‘social structures of accumulation’ approach
of American Marxists interpreted contemporary capitalism in
terms of a ‘capital-labour accord’ institutionalised in economic and
state structures, while Japanese Marxists developed the ‘Unoist’
approach to interpret the transition to a new stage of capitalism
(Kotz, McDonough and Reich, 1994; Itoh, 1990). Distinctively,
Nicos Poulantzas located contemporary capitalism in the changing
form of the state. He linked the new forms of integrated production
to transformations in the relations of production and capitalist
ownership structures to new alliances in the power bloc and functions

in the state. In opposition to prevailing views, Poulantzas claimed
that American hegemony has “become stronger … what is taking
place at present, far from signalling as attempt by American capital
to ‘re-establish’ its hegemony, is rather an offensive on its part to
even undermine the place of a secondary imperialism” (1974, 86,
88).
The most recent assessments of contemporary capitalism have
continued many of these theses, particularly about the new forms of
the production and the restructuring of the state and classes. But new
concerns about the social form of neoliberal globalisation have also
arisen. One such debate has been in how to characterise neoliberalism
itself. For instance, Robert Brenner (2006) assesses neoliberal
policies as the economic and political response of the capitalist
classes’ inability to restore profits through creative destruction over
the ‘long downturn’ from the 1970s as firms try to preserve existing
investments and government policies block exit, while others have
sought to clarify the forms of neoliberalism as a specific phase of
capitalism (Saad-Filho and Johnston, 2005). Another has been
centred on financialisation, with Gerard Dumenil and Dominique
Levy (2004) seeing the emergence of a new form of financial capital
that also explains both neoliberalism and globalisation. Others,
following the earlier theses of Sweezy on monopoly capitalism have
contended that financialisation represents a further mechanism to
cope with capitalist stagnation. Finally, an overarching debate has
been how to characterise the contemporary features and competitive
form of the internationalisation of capital. David Harvey (2003), for
example, has defined the new imperialism as a search for a ‘spatial
fix’ to an economic crisis in core countries via ‘accumulation by
dispossession’ in peripheral countries. Still others have registered the
new imperialism as, on the one hand, a register of US economic
decline as surplus capital accumulates in East Asia and, on the other,
as a measure of US hegemony as it imposes neoliberal globalisation
on the world market and reinvigorates its capitalist classes in the
process (Arrighi, 1994; Panitch and Gindin, 2004). This includes
examining how the neoliberal state, for instance, constructs markets
politically by depoliticising economic management (a so-called

‘rules-based approach’ that aims at targeting inflation and increasing
and the international competitiveness of the national economy). In
doing so, primacy within the state apparatuses and policies is given
to the central bank and monetary and financial policies in order
to mediate conflicts between different fractions of capital and to
subordinate labour to the imperatives of competition intensified by
financial markets.
The changing dynamic and form of capitalism has given rise
to numerous attempts to identify and theorise its contemporary
features. Mainstream accounts put emphasis on empirical shifts
of a ‘new economy’ without any theoretical content that places
these developments within the structures of capitalism. In contrast,
institutional political economy has tended to analyse contemporary
capitalism within a new set of concepts—post-Fordism or
informational capitalism—as an entirely unique development
(Hollingsworth and Boyer, 1997). It has been characteristic of
Marxian political economy, however, to anchor its theorisation
of new developments within the abstract concepts—value,
exploitation, class, concentration and centralisation of capital,
state power—necessary to understand capitalist society in general.
This allows a focus on underlying determinations, specification of
their current forms and theorisation of its concrete and complex
processes. Following Marx’s methodological mandate, this is the
study of the form taken by the laws of motion of capitalism in their
contemporary phase.
REFERENCES
Aglietta, M. (1979), A Theory of Capitalist Regulation, London: New Left
Books.
Arrighi, G. (1994), The Long Twentieth Century, London: Verso Books.
Braverman, H. (1974), Labor and Monopoly Capital, New York: Monthly
Review Press.
Brenner, R. (2006), The Economics of Global Turbulence, London: Verso
Books.
Castells, M. (2000), The Rise of the Network Society, Oxford: Blackwell.
Duménil, G. and D. Levy (2004), Capital Resurgent: Roots of the Neoliberal

Revolution, Cambridge: Harvard University Press.
Fine, B. and L. Harris (1979), Rereading Capital, New York: Columbia
University Press.
Friedman, M. (1953), Essays in Positive Economics, Chicago: University of
Chicago Press.
Gordon, D., R. Edwards and M. Reich (1982), Segmented Work, Divided
Workers, Cambridge: Cambridge University Press.
Harvey, D. (2003), The New Imperialism, Oxford: Oxford University Press.
Hilferding, R. (1981), Finance Capital: A Study in the Latest Phase of
Capitalist Development, London: Routledge.
Hollingsworth, R. and R. Boyer (eds.), (1997), Contemporary Capitalism:
The Embeddedness of Institutions, Cambridge: Cambridge University
Press.
Hymer, S. (1979), The Multinational Corporation: A Radical Approach,
Cambridge: Cambridge University Press.
Itoh, M. (1990), The World Economic Crisis and Japanese Capitalism,
London: Macmillan.
Kotz, D., T. McDonough and M. Reich (eds.), (1994), Social Structures of
Accumulation, Cambridge: Cambridge University Press.
Lazonick, W. (2008), Contemporary Capitalism, In The New Palgrave
Dictionary of Economics, London: Palgrave Macmillan.
Mandel, E. (1968), Marxist Economic Theory, London: Merlin Press.
Mandel, E. (1975), Late Capitalism, London: Verso Books.
Marx, K. (1973), Grundrisse, Harmondsworth: Penguin Books.
Marx, K. (1976), Capital: A Critique of Political Economy, Vol. 1, London:
Penguin Books.
Marx, K. and F. Engels (1998), The Communist Manifesto, London: Verso
Books.
Panitch, L. and C. Leys (eds.), (2004), The New Imperial Challenge,
London: Merlin Press.
Panitch, L. and S. Gindin (2004), Global Capitalism and American
Empire, In Leo Panitch and Colin Leys (eds.), The New Imperial
Challenge, London: Merlin Press.
Poulantzas, N. (1974), Classes in Contemporary Capitalism, London: New
Left Books.
Saad-Filho, A. and D. Johnston (eds.) (2005), Neoliberalism: A Critical

Reader, London: Pluto Press.
Strachey, J. (1957), Contemporary Capitalism, London: Victor Gollancz.
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Monthly Review Press.
Tsuru, S. (ed.), (1961), Has Capitalism Changed? An International Symposium
on the Nature of Contemporary Capitalism, Tokyo: Iwanami Shoten.
6
Reserve Army of Labour
Deepankar Basu
Introduction
In any capitalist economy, the total labour force can be divided
into two parts—the active army of labour and the reserve army of
labour. The former consists of those that are currently employed in
capitalist enterprises; the latter, which Marx calls the ‘relative surplus
population’, consists of those that are not currently employed in
capitalist enterprises but are potentially available for employment,
if the need arises.
This dual division of the labour force into the active and reserve
armies of labour is a characteristic feature of capitalism. Other than in
exceptional situations, e.g. during and immediately after the Second
World War in the US and Europe, a significantly-sized reserve army
of labour is a permanent fixture of capitalist economies. In fact, the
reserve army is produced by the logic of capitalist production.
“But in fact it is capitalist accumulation itself that constantly
produces, and produces indeed in direct relation to its own energy
and extent, a relatively redundant working population, i.e. a
population which is superfluous to capital’s average requirements
for its own valorisation, and is therefore a superfluous population”
(Marx, 1992, 782).
The implication of the continued existence of the reserve
army of labour in capitalist economies is striking: these economies
typically do not employ all of its potential labour force. A portion
of the available labour force is almost always left unemployed, or
is marked by different degrees of attachment to the labour force,
Reserve Army of Labour 141
as we will see in detail below. Workers who are unemployed and

underemployed not only bear the direct loss of forgone income, but
also a much larger non-monetary loss of subjective well-being. At
the individual level the loss of subjective well-being increases with
the duration of unemployment (Ochsen and Welsch, 2011). At the
societal level, the indirect, non-monetary loss is several fold larger
than the direct, monetary loss (Helliwell and Huang, 2014).
No matter how it is distributed between its monetary and
non-monetary components, unemployment imposes a large
cost on individual workers and on society as a whole. Why can
capitalist economies not eliminate unemployment? Why must some
people always remain unemployed, or underemployed, or partially
employed, even when there is a large individual and social cost
of unemployment? In this chapter we will offer answers to these
questions from a Marxist perspective and illustrate the argument
with some evidence from the United States.
The Theoretical Question

The value of a commodity produced under capitalist conditions
is the sum of three components: constant capital (value of means
of production used up in the production process), variable capital
(value of labour power) and surplus value (value appropriated by
the capitalist firm). Capitalist firms are much less interested in the
specific commodity they produce and sell than in the surplus value
they appropriate. The central dynamic of capitalist economies arises
from the behaviour of capitalist firms as they try to generate, realise
and reinvest surplus value.
Surplus value comes from unpaid labour time of workers. It is
the difference between the value added by the use of labour power
and the value of labour power. The former is what the worker adds
to means of production in each hour of work; the latter is what the
capitalist pays to purchase each hour of labour power (the ability to
do useful work). If the difference between the two narrows, surplus
value falls. Without adequate magnitudes of surplus value, capitalism
would be under threat. And this brings us to an interesting question.
Reinvestment of surplus value is largely driven by the structural
imperatives of the perpetual competitive struggle between capitalist

firms. Without reinvesting surplus value and enlarging their capital
values, capitalist firms risk falling behind their competitors in the
race to generate and appropriate ever more surplus value. At the
aggregate level, the reinvestment of surplus value generates new
demand for means of production and labour power.
Elements of the means of production are largely produced by
capitalist firms. Hence, their aggregate investment decisions generate
demand for the output of capitalists who specialise in the production
of means of production. The mismatch of demand and supply of
means of production are dealt with by the market mechanism, by
the fluctuations in the pace of production.
It is a wholly different story with labour power. Labour power
is the ability to do useful work. This ability inheres in the body of
the worker. Labour power is not produced in any capitalist firms.
Labour power is produced and reproduced daily with the living
worker. At the aggregate level, the total supply of labour power
comes from the generational replenishment of the working class.
Thus, there is no market mechanism to deal with the mismatch of
demand for and supply of labour power.
If the demand for labour power increases with reinvestment of
surplus value, the price of labour power might increase to a point
where surplus value begins to fall. If this process continues for
extended periods of time, the whole capitalist system might be under
threat. After all, the central dynamic of capitalism will grind to a
halt if the aggregate surplus value falls to zero. What mechanism—
and this has to be a non-market mechanism—is available to the
capitalist system to avert this possibility? What mechanism keeps
the value of labour power from rising too much? What ensures
the stability of the value of labour power that is necessary to keep
generating adequate amounts of surplus value?
The Ricardian Answer

Borrowing from the writings of Thomas Malthus, the prominent
classical economist, David Ricardo, offered one answer to the above
question. For Ricardo, a theory of population offers an explanation
of why this does not come to pass. When capital accumulation picks
up and the demand for labour power rises, the result is an increase
in real wage rates. Rising incomes lead to increasing prosperity of
the working class, which, in turn, increases the fertility rate. As the
population rises, it gradually increases the supply of labour power.
This increase in the supply eventually overtakes the rising demand
for labour power. The excess supply of labour power then pulls
down the real wage rate (Sweezy, 1942).
Marx never accepted the validity of this theory of population,
and he certainly did not use it for answering the above question. With
the benefit of hindsight we can see that the Malthusian population
theory is grossly inadequate in addressing the above question. Over
long periods of time, increasing prosperity has been accompanied
by falling, and not rising, fertility rates. This is exactly the opposite
of the Malthusian claim. Resting on empirically dubious claims, the
Malthusian-Ricardian explanation just does not cut ice.
The Marxian Answer

In Volume I of Capital, Marx offered a powerful alternative answer
to the above question by developing the concept of the reserve army
of labour (Marx, 1992). Marx’s answer to the above question was
this: the key mechanism that keeps the value of labour power within
necessary bounds, i.e. necessary for the generation of surplus value,
is the fluctuation in the size of the reserve army of labour.
“The industrial reserve army, during the periods of stagnation
and average prosperity, weighs down the active army of workers;
during the periods of over-production and feverish activity, it puts
a curb on their pretensions. The relative surplus population is
therefore the background against which the law of the demand and
supply of labour does its work. It confines the field of action of this
law to the limits absolutely convenient to capital’s drive to exploit
and dominate the workers.” (Marx, 1992, 792).
Before we understand the reasons for the fluctuation in the size
of the reserve army of labour, let us look carefully at its construction
and its components. Figure 1 presents a schematic representation of
the labour market of a typical capitalist economy. The representation

of the labour market involves both stocks and flows.
Figure 1. A Schematic Representation of the Active and Reserve

Armies of Labour in a Typical Capitalist Economy.
Source: Adapted from Basu (2013).

The total labour force, a stock, is divided into two parts: the
active army of labour (workers employed in capitalist enterprises)
and the reserve army of labour (workers not employed in capitalist
enterprises but potentially available for employment). In Figure 1,
the two rectangular boxes represent these two components of the
labour force.
The two stock quantities are linked to the larger economy
and to each other through various types of flows. Starting at the
left end of Figure 1, we see the flow of new workers entering the
labour force. This flow gets divided into two parts. The first part,
labelled (A), represents the workers who find employment; of the
new entrants to the labour force, they join the active army of labour.
The second part, labelled (B), represents new workers who cannot
find a job and are forced to join the reserve army of labour—at the
very beginning of their working life.
The active and reserve armies of labour are connected to each

other through two flows: some currently employed workers lose
their job and move from the active to the the reserve army—this
is represented by flow (C); there is also movement in the other
direction, when some workers who are currently not employed find
employment in a capitalist enterprise—this is represented by the
flow (D).
At the right end is the flow of labour power out of the labour
market. Some of the workers who are currently in the reserve army
fall out of the labour force—represented by flow (E); and some
workers who are currently employed retire and leave the labour
force—represented by the flow (F).
Fluctuations in the Reserve Army of Labour

Fluctuations in the size of the reserve army of labour come from the
flows represented in Figure 1 as (C) and (D). What are the causes
of these flows? The flow labelled (C) represents workers losing their
employment. This flow increases the size of the reserve army and is
caused by three sets of factors.
The first, and most important, is labour saving technical
change. When there is a sustained increase in the demand for
labour power, it leads to an increase in the price of labour power.
Since wage costs are an important and significant component of
the total cost of production, capitalist firms have an incentive to
reduce wage costs—in the context of rising prices of labour power.
The search for methods to reduce wage costs often leads to the
search for and adoption of new techniques of production that
reduce the use of labour power relative to the means of production.
The new technique of production, thus, saves on labour—the costly
input—and replaces it with the relatively less costly input—means
of production. Such ‘labour saving technical change’ leads to job
loss for some currently employed workers. Hence, these workers
move from the active to the reserve army of labour.
The second source of fluctuation is the regular cyclical
movement of aggregate economic activity, what contemporary
economists call business cycles. The cyclical fluctuations of aggregate
activity is caused by fluctuations in various components of aggregate

demand. Investment expenditure by capitalist firms can fluctuate
due to movements in animal spirits; consumption expenditure by
worker and capitalist households can fluctuate because of changes
in consumer sentiments; government expenditure can fluctuate for
fiscal policy reasons; and net exports can bounce around because
of fluctuations in foreign economies. During the upswing phase of
business cycles, jobs are created on a net basis. More workers move
from the reserve to the active army than the other way round. During
the downswing phase of business cycles, the opposite movement, i.e.
from the active to the reserve army, dominates.
The third source of fluctuation in the size of the reserve army of
labour can be relocation of production across geographical regions.
The relocation can be within or across national boundaries. The
location that loses economic activity, the flow from the active to the
reserve army of labour is likely to be large; locations that manage
to attract new economic activity, the opposite flow is likely to be
bigger. In either case, geographical relocation of production, which
has become especially important since the last few decades of the
20th century, will lead to a fluctuation in the size of the reserve army
of labour.
Components of the Reserve Army of Labour

In Volume I of Capital, Marx distinguished between three
components of the reserve army of labour (Marx, 1992). The three
components—floating, latent and stagnant—of the reserve army of
labour are indicated at the bottom of Figure 1. Considering the
three components separately allows us to think carefully about the
short and long run forces governing the formation and reproduction
of the reserve army of labour.
The floating reserve army of labour is its part that fluctuates most
with the fluctuation of economic activity and capital accumulation.
It is composed of workers who have lost jobs due to labour saving
technical change, recessions or geographical relocation of production.
When the pace of economic activity picks up, some, or most, of
these workers will be rehired. Hence, they will move back into the
active army of labour—once the recession is over. Thus, the floating

reserve army of labour is the part whose formation is governed by
short run economic forces.
The latent component of the reserve army of labour directs our
attention to longer run forces responsible for its formation. It is the
part of the reserve army of labour that is gradually formed, over
many decades, with the evolution and expansion of capitalism. The
two important sub-components of the latent reserve army of labour
are household labour, and labour involved in peasant farming and
other forms of non-capitalist production.
Historically, the bulk of household labour, i.e. work involved in
raising children, caring for the elderly and sick, carrying out daily
activities of household labour like cooking, washing, and cleaning,
have been done by women. Because of this unequal division
of household labour between men and women, the latter have
historically been largely confined within the household. This does
not contradict the fact, highlighted by recent historical research,
that women’s labour was crucial during the Industrial Revolution
(Burnette, 2008). While individual branches of production relied
heavily on women’s labour, there was an overall decline in the
labour force participation of women in the 18th and 19th centuries in
England (Table 1, last column, Horrell and Humphries, 1995). The
declining labour force participation of women was driven largely by
changes in demand arising from structural and institutional changes
of an industrialising, capitalist economy. Thus, it seems fair to assert
that women’s labour gradually became a potential source of the
reserve army that was latent. Even though the capitalist system was
not using it, it could draw on this labour as and when needed.
This movement of women’s labour from the household and into
the labour force was seen most forcefully in Europe and the United
States in the decades after the end of the Second World War. For
instance, using data for the US from the Federal Reserve of St. Louis,
we see that only 33 per cent of women were in the labour force in
1948. For the next five decades, the labour force participation rates
of women increased secularly. In 2000, about 60 per cent of women
were in the labour force. The pattern of steady increase in the labour
force participation rates of women in the US has been halted since

the early 2000s—perhaps indicating exhaustion of an important
component of the latent reserve army of labour.
The second sub-component of the latent reserve army of
labour consists of workers involved in non-capitalist production.
The largest section of such workers have been involved in peasant
and artisanal petty production. In Western Europe, the process
of ‘primary accumulation of capital’ led to their destitution and
dispossession over a 300-year period. Peasant producers losing
access to land and petty non-agricultural producers ruined by
competition from big business swelled the ranks of the working
class that supported capitalist development. As the pace of capitalist
production increased and industrialisation proceeded, the second
sub-component of the latent reserve army was drawn into the
domain of capitalist production.
In much of what is today known as the developing world, the
‘primary accumulation of capital’ is incomplete. A large segment
of the working population in these countries work in what the
development economist W.A. Lewis called the ‘traditional sector’
(Lewis, 1954). Distinguished from the ‘modern sector’, which is
characterised by capitalist relations of production and the use of
reproducible capital, the ‘traditional sector’ is the domain of non-
capitalist relations, and labour intensive techniques, of production—
small-scale family farming in agriculture and petty non-agricultural
commodity production. These workers form a large latent reserve
army that is potentially available to capital, not only domestic capital
in these countries, but also global capital (Foster, McChesney and
Jonna, 2011).
The third, and final, component of the reserve army is the
stagnant component. This is composed of workers who live on the
margins of society, who have fallen out of the labour force due to
illness, loss of skills, or psychological reasons. There is neither a
stable short run nor a steady long run logic to its formation. The
formation of the stagnant component of the reserve army seems to
be related to the institutional setting of capitalism, to the existence,
or its lack, of a strong social safety net and a social environment that
can help workers come back to the labour force if they fall out of it.
Reserve Army of Labour in the United States

Drawing on, and extending, Basu (2013), I will now present
empirical estimates of the reserve army of labour in the postwar
US economy. The main source of the data that has been used to
construct these estimates is the Current Population Survey (CPS)
conducted every month by the US Bureau of Labour Statistics.
The Data
The starting point for estimating the reserve army of labour (RAL) is
the civilian non-institutional population (CIV). CIV is an estimate
of every person 16 years and above who is neither in an institution
(prison or mental health institution) nor on active duty in the US
Armed Forces. Based on detailed interviews, conducted on a sample
of roughly 60,000 households every month, the CPS assigns every
person in CIV to either of three pools:
The pool of employed workers (EMP): these are the persons
who reported doing any wage or salary work (either full-time or
part-time) at the time of the interview; or, they reported as having
done self employed work; or, they reported that they had a job but
were not at work currently due to vacation, illness, etc.; or, they
reported that they were doing unpaid family work;
The pool of unemployed workers (UNEMP): These are the
people who reported that they did not have a job currently and had
actively looked for a job in the previous 4 weeks (with reference to
the time of the interview).
The pool of those who are not in the labour force (NLF): These
are the persons who fall neither into the category of employed workers
(EMP), nor can be counted as being unemployed (UNEMP).
While it is obvious that all the unemployed workers would be
part of any measure of the RAL, the question as to which part of the
NLF should be included in the RAL requires some more analysis.
Based on answers to questions in the CPS, the NLF can be divided
into two broad groups: (a) those who reported that they want a job,
and (b) those who reported that they do not want a job. The second
category was by far the largest component of NLF, and was primarily
composed of: (i) those who were attending educational institutions,

and (ii) those who had retired. Among those who wanted a job,
the CPS allows us to distinguish two important groups: (i) those
workers who searched for jobs some time in the past 12 months (but
did not do so during the past 4 weeks), and (ii) those workers who
did not search for jobs anytime in the past 12 months.
Of those who had actively searched for work some time during the
past 12 months, the workers who report as being currently available
for work are referred to as the ‘marginally attached workers’. An
important subset of the marginally attached workers are those who
have stopped looking for jobs because of discouragement, with the
reason for discouragement varying across respondents. Some believe
that no work is available for them, or that they lack the necessary
schooling or training; some believe that their employer thinks them
either too young or too old; some are discouraged because of other
types of discrimination in the labour market. Together, they are all
referred to as the ‘discouraged workers’.
These finer distinctions among workers who are all grouped
together under the category of NLF will be useful in constructing
various measures of the RAL. But before we do so, we must also
look at another, often overlooked, category of workers: those
undergoing incarceration. According to the International Centre
for Prison Studies, the US has, by far, the largest prison population
in the world as a share of the total population. This forms a small
but significant part of the potential reserve army of labour because
this population is potentially available to capital; by removing them
from the labour market, pressure on wages is reduced. Hence, one
must include some measure of the population in prisons and jails
to get a more accurate measure of the RAL. The Bureau of Justice
Statistics (BJS) has made available annual data on the ‘correctional
population’ for the period 1980-2016. Though there are some issues
of comparability of the data over years, it gives us a usable number
for the population in prisons and jails.
Four Measures of the Reserve Army

Using data on the variables discussed above, we can construct four,
increasingly comprehensive, measures of the reserve army of labour

in the US economy over the postwar period. The first measure,
RAL1, is the total number of unemployed workers, i.e. RAL1 =
unemployed workers. This is the official measure of ‘unemployed’
workers, and for us, it is the most conservative estimate of the
reserve army of labour.
The second measure, RAL2, adds the marginally attached
and part-time workers to the unemployed workers, i.e. RAL2 =
unemployed workers + part-time workers + marginally attached
workers. This is more comprehensive than RAL1 because it includes
(a) workers who are not counted as unemployed because they did
not actively look for work anytime in the 4 weeks preceding the
CPS but did so over the previous 12 months, and (b) part-time
workers, who are counted as part of the employed pool (EMP) but
whose primary and secondary jobs are both part-time. These part-
time workers wish to switch to a full-time job but are unable to do
so because of economic reasons.
The third measure, RAL3, adds all workers who are not in the
labour force but wanted a job to the total number of unemployed
and part-time workers, i.e. RAL3 = unemployed workers + part-
time workers + workers not in the labour force but wanting a
job. This measure is more comprehensive than RAL2 because it
includes workers outside the labour force who are not even part of
the ‘marginally attached worker’ category.
The fourth and most comprehensive measure, RAL4, is the sum
of people in prison and jail and RAL3, i.e. RAL4 = RAL3 + persons
in prison and jail. Data on the number of persons in prison and
jail is available at an annual frequency from 1980 to 2016. Hence,
the RAL4 series starts in 1980 and runs up to 2016. Note that
even this measure, the most comprehensive so far, provides only a
lower bound for the ‘true’ reserve army of labour. This is because
the latent reserve army is almost certainly not properly estimated
in RAL4. In a sense, the latent reserve army can only be estimated
post facto, i.e. after the latent labour force has actually joined the
labour force. Hence, almost always, this portion of the reserve army
will be underestimated.
Estimates of the RAL

In Table 1 and in Figure 2 and 3, I present estimates of the four
measures of the reserve army of labour in the postwar US economy.
From the numbers in Table 1 and from the trends visible in Figure 2
and 3, we see that the reserve army of labour in the US economy has
steadily increased in size over the decades. If we use a comprehensive
measure like RAL3, the average size of the reserve army of labour
increased from 4.9 million in the 1950s to 13.9 million in the
1980s, and further to 17.7 million in the 2010s. As a proportion
of the labour force, the reserve army of labour (measured by RAL3)
increased from 7.68 per cent in the 1950s to 12.21 per cent in the
1980s. From the highs attained in the 1980s, RAL3 declined in the
next two decades, before rising to 11.35 per cent of the labour force
in the 2010s.
Table 1: Magnitude of the Reserve Army of Labour

(Decadal Averages)
Actual Number (in thousands) Proportion of Labour Force (%)
RAL1 RAL2 RAL3 RAL4 RAL1 RAL2 RAL3 RAL4
1950s 2946.79 3637.18 4945.79 4.58 5.65 7.68
1960s 3514.42 4337.78 5898.47 4.78 5.90 8.02
1970s 5822.47 7186.57 9772.22 6.22 7.67 10.44
1980s 8303.12 10248.40 13935.66 14680.69 7.27 8.98 12.21 12.85
1990s 7568.72 9413.88 13212.10 14733.08 5.76 7.17 10.05 11.20
2000s 8269.63 10075.59 13416.91 15569.49 5.54 6.75 9.00 10.45
2010s 11158.38 13680.83 17651.61 19872.42 7.18 8.81 11.35 12.78
Notes. RAL1 = unemployed workers; RAL2 = RAL1 + part-time workers +
marginally attached workers; RAL3 = RAL1 + part-time workers + workers not in
the labour force but wanting a job; RAL4 = RAL3 + prison and jail population.
Source: Author’s calculation from data available on the website of the US Bureau
of Labour Statistics.
Figure 2. Four Measures of the Reserve Army of Labour in the

US Economy, 1948-2016
Note: For Definitions See the Note to Table 1.
The rising magnitude of the reserve army of labour is also visible

in Figures 2 and 3. Starting from the left end of the graph, as we move
right, we see the magnitude of the reserve army of labour steadily
go up. This upward movement is true for all the four measures of
the reserve army of labour. The rising movement attains its peak in
the early 1980s, and then fluctuates around that value for the next
three decades. All the four measures begin another pronounced rise
from the end of the 2000s, and have now crossed the earlier peaks
reached in the 1980s (especially in terms of magnitudes, but not yet
in terms of the proportions of the labour force).
The fact that the size of the reserve army of labour was highest
in the early 1980s and in the late 2000s is not surprising. These
are periods of structural crises of capitalism (Basu, 2019). The late
1970s and early 1980s was a period of crisis of the regulated form of
post-war capitalism. In response to the crisis, capitalism changed its
institutional structure into a neoliberal form. The late 2000s marks
the crisis of neoliberal capitalism. During periods of structural crisis,
the circuit of capital is interrupted, which leads to production being
curtailed drastically. The result is an increase in the reserve army of
labour.
Figure 3. Four Measures of the Reserve Army of Labour, as

Percentage of the Labour Force, in the US Economy, 1948-
2016
Note: For Definitions See the Note to Table 1.
Apart from periods of structural crises, we can also see in Figures

2 and 3, the pronounced fluctuation of the reserve army of labour
at business cycle frequency. The reserve army of labour falls with
the upswing phase of the typical business cycle; it rises with the
downswing phase of the business cycle.
Conclusion
A characteristic feature of capitalist economies is the existence of a
part of the labour force as unemployed or precariously attached to
the labour force. The history of capitalism shows that, other than in
exceptional periods, e.g. immediately after the Second World War,
capitalist economies are unable to provide adequate employment,
in terms of quality and quantity, to all those in the labour force.
Mainstream economics tries to explain the existence of what it terms
‘structural’, i.e. long run, unemployment by taking recourse to
various types of ‘frictions’; Keynesian economics sees in inadequate
aggregate demand the reason for short run unemployment. The
Marxist tradition offers an alternative explanation that encompases
both short run and long run factors.
Marxist analysis highlights the division of the labour force in
any capitalist economy into two parts, the active army of labour
(those employed) and the reserve army of labour (those unemployed
and those attached to the labour force in various degrees but wishing
to be employed). The existence of the reserve army of labour is a
structural necessity of capitalism because this is the key mechanism
through which the system keeps the price of labour power within
bounds necessary for the generation and accumulation of surplus
value. While the reserve army of labour fluctuates with the pace of
capital accumulation, it can never disappear—without undermining
the whole capitalist structure of production and authority.
The continual existence and reproduction of the reserve army
of labour is a severe indictment of capitalism. Unemployment or
precarious attachment to the labour force imposes enormous costs on
individual workers and on the whole of society (Helliwell and Huang,
2014). The fact that even the most advanced capitalist economies
are unable to permanently solve the problem of unemployment
should be part of the arsenal of post-capitalist imaginaries. After
all, socialist economies, with all their problems, had completely
eliminated the problem of unemployment. For instance, there was
virtually no unemployment at the aggregate level in the USSR after
the 1930s (Kotz and Weir, 1997).
Of course, the problem of the reserve army of labour is of an
altogether different magnitude in the periphery of the global capitalist
system. The vast majority of these countries, in what is now referred
to as the developing world, have not even managed to absorb large
fractions of their labour force into the orbit of capitalist production.
The overwhelming majority of working people are ‘employed’ in
various ways in the ‘informal sector’. From a Marxist perspective, a
significant part of the informal sector represents the latent reserve
army of labour. For instance, small-scale peasant production and
petty commodity production outside agriculture, both important
components of the informal sector, represent a large pool of labour
engaged in commodity (or non-commodity) production under
non-capitalist relations of production. It can be drawn on if capital
accumulation picks up.
But various types of structural constraints, both internal and
external to these economies, prevent capital from even absorbing this

vast pool into stable, well-paying capitalist employment. This means
that, in the periphery of the global capitalist system, conditions of
existence of the vast majority of working people continue to be
marked by low productivity and low income work, lack of social
security, absence of job security, and most often lack of bargaining
power or rights. The key problem of economic development in
the periphery. i.e. generation of adequate employment for the vast
majority of the working people, remains unaddressed several decades
after the pioneers of development economics like W. A. Lewis, M.
Kalecki and N. Kaldor identified them in the 1950s. Whether it
can at all be addressed within the confines of capitalist economies
is an open question.
REFERENCES
Basu, D. (2013), The Reserve Army of Labour in the Post-War US
Economy, Science & Society, Vol. 77, No. 2, pp. 179-201.
Basu, D. (2019), Reproduction and Crisis in Capitalist Economies, In M.
Vidal, T. Smith, T. Rotta and P. Prew (eds.), The Oxford Handbook of
Karl Marx, Oxford, UK: Oxford University Press.
Burnette, J. (2008), Women Workers in the British Industrial Revolution.
EH. Net Encyclopedia, URL:http://eh.net/encyclopedia/women-
workers-in-the-british industrial-revolution/
Foster, J.B., R. McChesney and R.J. Jonna (2011), The Global Reserve
Army of Labour and the New Imperialism, Monthly Review, Vol. 63,
No. 6, November. URL: https://monthlyreview.org/2011/11/01/the-
global-reserve-army-of-labour-and-the-newimperialism/
Helliwell, J.F. and H. Huang (2014), New Measures of the Cost of
Unemployment: Evidence from the Subjective Well-Being of 3.3
Million Americans. Working Paper 16829, Cambridge, MA: National
Bureau of Economic Research.
Horrell, S. and J. Humphries (1995), Women’s Labour Force Participation
and the Transition to the Male-Breadwinner Family, 1790-1865, The
Economic History Review, New Series, Vol. 48, No. 1, pp. 89-117.
Kotz, D. and F. Weir (1997), Revolution from Above: The Demise of the
Soviet System, New York, NY: Routledge.
Lewis, W.A. (1954), Economic Development with Unlimited Supplies of
Labour, The Manchester School, Vol. 22, No. 2, pp. 139-91.

Marx, K. (1992 [1867]), Capital: A Critique of Political Economy, Volume I,
Translated from the third German edition by Ben Fowkes. New York,
NY: Penguin Publishers.
Ochsen, C., and H. Welsch (2011), The Social Cost of Unemployment:
Accounting for Unemployment Duration, Applied Economics, Vol. 43,
No. 27, pp. 3999-4005.
Sweezy, P.M. (1942), The Theory of Capitalist Development: Principles of
Marxian Political Economy, New York: Monthly Review Press.
7
Political Economy of Employment-
Unemployment in Capitalism
Satyaki Roy
The employment of labour force has never been the main concern
of capitalism despite the fact that labour used to be the only source
of value creation. Classical economists as well as Keynes and Marx
held the view that labour is the source of creative activity that adds
value to existing inputs. But a society which is primarily driven
by realisation of exchange value recognises work only when it
creates commodities. Capitalism is a world of commodities where
producers produce goods not for their own use but to sell their
produce in exchange of money that assumes the form of universal
exchange value. Labour is exchanged in the form of labour power
or the capacity to produce some goods or services for sale and that
is the only mode of work recognisable in the world of commodities.
Any work which is an expenditure of mind and energy but
primarily creates use value for the producer is not being counted as
productive value addition in capitalism. Capitalism therefore is not
only a system of producing and exchanging commodities but also
is typical of making labour power a commodity. Employment is the
engagement of labour power as commodity purchased by a typical
employer. In this process of selling labour power or the capacity to
work for a defined time or output based contract, the act of labour
is controlled by the employer and hence the autonomy of labour
as a creative human being seizes to exist. The worker is alienated
not only from the means of production which are owned by the
capitalist but also from the labour process which is controlled by
Political Economy of Employment-Unemployment in Capitalism 159
the command structure of production deployed by the capitalist

and finally from the fruits of labour which are produced goods and
services owned by the employer. Work as a result loses its joy of
creative engagement with the nature and society, it rather becomes
tyrannical to the worker and a field of contestation between
employer and employee that determines the outcomes of class
process. In this article we therefore try to locate the problem of
employment and unemployment through the Marxian lens of class
process which involves production, appropriation and distribution
of surplus value.
In the advent of capitalism unemployment had never been
a concern to be reckoned with. Instead considerable force and
coercion was applied to make people work in newly emerging
industries. Working for others in order to earn a living was preceded
by a social arrangement in which people could produce their bare
necessities on their own and if some surplus was being produced it
was exchanged within the community on the principles of reciprocal
relations. In that sense unemployment preceded employment and
working as wage labour was preceded by non-wage labour. In a
particular historical context labour power becomes a commodity
and that could be reproduced only in a society where exchange
values emerged to be the dominant form of societal engagement.
In today’s world we come across a situation where the use of direct
human labour in the process of capitalist accumulation is on the
decline. Capitalism does not require to employ the huge number
of unused labour at its disposal anymore to sustain the system with
a threshold rate of profit. Growth or value addition can happen
with far less use of labour compared to earlier phases of capitalist
development due to improved technology. At the same time if
labour happens to be the only source of value and if the current
system is not in a position to use human capacities, the question
of rising unemployment is no longer of a temporary nature neither
is it a concern to the individual who happens to be unemployed,
rather the problem is systemic and creates structural limits to the
progress of human civilisation.
Capitalism: Employment-Unemployment
Marx begins his magnum opus Capital with the discussion
on commodity as that is the primary unit of capitalist social
construction. Goods and services are produced for sale and exchange
value of the produce predominates and defines its use. A good has
to be useful to others not to the producer, only then it can assume
exchange value. But goods and services produced for the use of
the producer is outside the ambit of capital relations. Similarly, a
human being who is employed by someone else assumes exchange
value and paid wages while if someone works or produces for his
or her own satisfaction would not be considered as employed and
rightly so because the person would not be able to earn a living in
capitalism. Employment therefore refers to a state where a person’s
work is worth for the society and someone is prepared to buy that
work in exchange of money. But what actually motivates someone
to work for others to earn a living? The simple answer is when
the person has no other alternative means to survive. In a self-
sustained community there are relations of reciprocity where people
are dependent on each other where there may be division of labour
but the motivation for production was primarily of community use.
So peasants and artisans, craftsmen and priests all had their defined
roles which were asymmetric but no one was employed by others.
The social hierarchy was visible where the status of men and women
were defined by their position in the occupational structure. To
make people work for others, one should be ripped off from his or
her own way of living, from the community in which the individual
exists and, most importantly, the means of production which s/he
owns. Then only can one be forced to work for others so as to make
both ends meet. Therefore, this particular category of people who
sell their capacity to work to others or need employment to survive
is a historical construct defined by Marx as primitive accumulation
of capital (Marx, 1958). The act was a forcible separation of direct
producers from their means of production which created the
original accumulation of capital. But this process of creating labour
power to be used in capitalist enterprises can be sustained only
when the dominance of exchange value, the commodity-money

economy is well established. Against work, workers would be paid
wages by which they can buy their necessities for subsistence which
these workers may not be producing on their own. A world of
exchange value is a pre-condition for the sustenance of capital-wage
labour relationship. The means of production which is forcefully
separated from the direct producer becomes capital in the hands of
the capitalist which no longer is used to produce goods or services
for immediate consumption but as a means of creating surplus
value. But the separation of the direct producer from the means of
production and the transformation of alienated labour into wage
workers is not something automatic and immediate. Between these
two processes there was wide gap both in terms of time and space
and involved force and cultural imposition to create the norm of
the ‘worker’. The origin of employment therefore is associated
with a new social organisation where creating commodities is the
dominant form of production. Labour is forced to sell his or her
labour power or capacity to work and in that sense for the first
time in human history labour power becomes a commodity and the
process of production and consumption are separated and has to be
mediated by market. What is even more important that the process
of distribution of returns to various factors of production as wages,
profits, rents or interest get intrinsically linked to the realisation or
sale of the goods and services produced.
The creation of a commodity economy and that of labour power
as commodity involves a process of exchange and hence comparability
between diverse products, services and skills of different human
beings. It therefore demands a common measuring rod which can
compare goods of different use values and can also evaluate diverse
forms of labour that are deployed in producing different goods and
services. It involves a process of homogenisation of labour, where all
diverse types of labour are reduced to a simple quantitative measure
in terms of labour hours. This is ‘abstract labour’ which is separated
from its concrete forms and can be expressed in terms of labour
time. But Marx’s notion of abstract labour is not a conceptual
category but very much concrete as realised in day-to-day market
activities, where goods, services and human labour can be expressed

and exchanged in terms of quantities of money. Basically the
value of the goods and services or the labour power or any form
of commodity is determined by the socially necessary labour time
required to produce that particular commodity. It is important
to note that it is not the actual amount of labour congealed in a
particular commodity that determines its value rather the amount
that is considered to be socially necessary. And the determination
of what is ‘socially necessary’ is subject to the average technology
predominant at that particular point of time and also on what society
gives sanction to through the interaction in the market. Therefore, if
someone uses more labour time to produce a commodity than what
is socially sanctioned with a given level of technology, the value of
that product would not be determined by the actual use of labour
hours rather on the basis of labour hours that are considered to be
socially necessary to produce that particular commodity.
The value of labour power as a commodity is also determined in
the same way, that is, it is derived by the socially necessary labour time
required to produce the goods and services required to reproduce the
mental and physical energy or capacity of the worker as well as to
maintain the future stream of supply of labour power. Simply put, it
is derived from the values of goods and services which is required to
keep the worker and his or her future generations healthy and able
bodied to serve capital. But what is required for the worker and the
family is not objectively determined by any nutrition standard or
measure of well-being but simply on the basis of struggle by which
the working class can make the society accept some entitlements as
necessary. As the surplus value accumulated by the capitalist is the
total value created by the worker net of the value of labour power
paid as wages, the capitalists as a class always tend to push down or
lower the wages in order to create more surplus value. The ‘necessary
labour time’ in a working day represents the value of labour power
that is paid in monetary terms as wages. What is also important
that capitalism recognises only labour power that is employed and
‘necessary labour time’ only refers to the employed workforce that
are engaged in creating surplus value. People who are not employed
by the capitalist class, such as unemployed, self-employed or those

engaged in household work are not to be considered as productive
and would not be considered while measuring what is ‘necessary’ for
them to survive or reproduce.
The calculus of ‘socially necessary labour time’ also has a macro
implication reflected through a mismatch of demand and supply.
The value of goods and services produced has to be realised through
the act of sale, meaning those should be purchased or demanded
by others in exchange for money. If goods supplied are not being
demanded in the market, then the labour time spent to produce
unsold goods and services do not get realised as values. In some
sense society signals that the excess amount of labour spent in
producing those commodities does not have a social sanction and
hence indicates a need of revision of the allocation of social labour.
In capitalism, since the system of production and consumption are
not coordinated, fluctuations and mismatch of demand and supply
is not something exceptional. Rather the norm causes persistent
turbulence in the allocation of social labour. Apart from the conflict
between the capitalist class as a whole and the working class, the
other important dimension that critically influences the dynamics of
the system is the competition between capitals. As discussed earlier
that the ‘socially necessary labour time’ is measured in reference to
the average ongoing technology at a particular point in time. If an
individual capitalist introduces a new technology and can reduce per
unit expenditure of labour, while if the average technology remains
the same in a particular industry, the value of the product remains
the same and the particular individual capitalist who has deployed
a new technology can earn a premium over and above the average
rate of profit. This creates an inbuilt instinct of innovation in the
capitalist system where capitals compete with each other and the
technology once introduced by one individual capital becomes
the average technology of the industry over time. Once the new
technology becomes the social average, socially necessary labour time
as a measure of value also changes and the premium that once the
innovator was enjoying ceases to exist. But introduction and growth
of new technology if moves faster than the growth of labour force
and since these two growth rates are determined by factors that are
independent and separated, it is always possible that the emerging
production process would involve less and less direct labour. In
other words, the competitive instinct of capitalists to innovate and
the natural growth of labour force may diverge from each other
giving rise to a structural problem of unemployment.
On the other hand, accumulation in capitalism is driven by
increasing growth of investment often stimulated by growth of
potential markets that kindles the expectation of higher profits.
Capital is essentially a self-augmenting process and can continue as
capital when it expands its value. This creates the unending drive
to internalise non-capitalist space into its own ambit. But the same
process also brings a huge labour force as well as natural resources
which were earlier beyond the access of capital. Whether this labour
force would be employed or not or if employed in what differential
terms depends on diverse historical and conjectural factors. But what
seems to be certain in this erratic process that a huge number of
labour force is at the behest of capital and plays a significant function
in the dynamics of capitalism. Marx calls it relative overpopulation
constituting the industrial reserve army of labour. Expanding
capital with increasing scale of operation recruits more labour in
the process of production but with increasing use of machines and
new technology in the same process also ‘sets free’ existing labour.
Marx contradicts with Malthus that it is not the absolute number
of population that sets limits to production but more importantly
it is the relative overpopulation caused by the ‘inclusion-exclusion’
of the labour force that is crucial for the accumulation process of
capitalism. To quote Marx, “The production of a relative surplus
population, or the setting free of labourers, goes on therefore
yet more rapidly than the technical revolution of the process of
production that accompanies, and is accelerated by, the advance of
accumulation; and more rapidly than the corresponding diminution
of the variable part of capital as compared with the constant. If the
means of production, as they increase in extent and effective power,
become to a less extent means of employment of labourers, this
state of things is again modified by the fact that in proportion as
the productiveness of labour increases, capital increases its supply of

labour more quickly than its demand for labourers” (Marx, 1958,
635-36). He further suggests that this creation of relative over
population is the crux of demand-supply in the capitalist labour
market. It on the one hand makes a part of the active labour force
forcefully redundant while the same process allows the capitalist
to extract more labour from the existing workers. This relative
overpopulation helps capitalism to contain wages in periods of
expansion when there is more demand for labour and can get rid of
the burden of excess labour during downturn.
Marx (1958, 642-44) discussed three distinct layers of the
reserve army which are as follows. The first refers to those who are in
the cities and towns, temporarily thrown out of the active industrial
labour force and can be called again when industrial activity rises.
The second layer is a continuous flow of labour set free from the
country side due to increased capital relations and mechanisation
of agriculture and people released want to make their future in the
towns in industrial activity. They do not get immediately absorbed
in industrial activity and have to wait for long or may not be able
to make it at all. The third layer consists of those who are low
waged and heavily exploited in sweatshops, the lowest segment of
the domestic industry. The lowest segment also consists of paupers,
vagabonds, criminals, prostitutes, orphans and destitute who work
as a dead weight to the industrial reserve army. The industrial
reserve army however is not created by any grand design but it has
structural relations with the functioning of capitalism. It is crucial
for the accumulation process of capitalism to continue as the relative
oversupply of labour helps capitalism to contain the wages.
In the discussion so far capital-labour relation is largely seen as
wage labour, that is human beings are selling their creative capacity
involving mind and body for the production of goods and services
owned by someone else and receives wages or salary against their
work. The worker who is selling his labour power can be a factory
worker, an engineer or a doctor or a professor employed by a capitalist
enterprise. Depending on the goods and services or inputs required to
create and reproduce these various forms of labour, the value of their
labour power will be determined. At a level of analytical abstraction,

a particular skill can be conceived as a complex combination of
simpler tasks performed at one go. Hence conceptually the value of
a unit of skilled labour can be conceived as a product of several units
of simple labour and can be measured accordingly. But one should
not have the false impression that capitalism is only about wage
labour and cannot live with other forms of non-capitalist relations.
In fact, the contrary is true. Capitalism as a pure system existed
only in the level of conceptual abstraction and it has mingled with
various forms of non-capital relations and labour forms given the
concrete conditions of space and time. Capitalism always existed
with petty-producers, subcontracted devalued labour, labour by
chattel, slave labour, lumpen and various other forms of proletariat
and unemployed.
Globalisation and Employment

Global integration of markets of goods and services and free flow
of capital has been the hallmark of globalization. We had similar
phases of global integration but the current phase of globalisation
is the most interpenetrative of all the phases. Liberalising the flow
of capital and technology as well as reducing trade barriers have
virtually erased the difference between foreign and domestic market.
The larger implication of this fact is that even if the flow of labour
has been restricted across borders by stringent immigration laws,
movement of capital and flow of goods and services have made
labour implicitly accessible to global capital. In other words, huge
relative surplus population of the developing world is being accessed
by global capital while the wage differences between countries
continue to exist. According to the IMF the ‘export weighted
global workforce’ or the effective global workforce quadrupled
in size between 1980 to 2003 (IMF, 2007, 162). The massive
labour force, particularly located in China, India, Indonesia,
Thailand and ex-Soviet countries, are easily accessed by global
capital either through foreign direct investment or through arms-
length transactions in way of production networks. The general
assumption was that globalisation would facilitate specialisation on
the basis of factor intensities and developing countries with huge

labour force would be the destination of labour-intensive jobs and
hence create employment. In spite of the fact that there had been
relocation of production towards the developing world, it did not
increase gainful employment in the net. In fact, import intensities
of exports in global trade have increased over the years and hence
the difference between gross exports and domestic value added in
exports has increased over time. This simply implies that exporting
of jobs has not been limited to western countries alone rather jobs
gravitate to low wage segments of the world giving rise to a ‘race
to the bottom’. What is more important that in this process, the
bargaining power of workers vis-à-vis capital has declined across the
world. Labour lost their share in advanced countries as well as in
developing countries. Therefore, even if developing countries were
competing with each other to grab a larger part of jobs that are
relocated from the North, it came with a declining share of value
added which is also reflected in declining terms of trade between
exports and imports of developing countries. The crucial fact is
relocation was driven by the opportunity to take advantage of global
labour arbitrage where huge wage differences for similar kind of
work became the prime source of rising profit.
In the advanced countries unemployment was largely caused
by the introduction of new technology where repetitive jobs were
increasingly being replaced by machines. As finance became cheaper
with the free flow of capital, the relative cost of investment in
machines also declined. In sectors where elasticity of substitution is
high, employers preferred to replace workers and in sectors where
elasticities were low they sought for places where the labour cost
is relatively low. As a result of which jobs were destroyed in the
advanced countries which is primarily ‘technology unemployment’
and that reduced the bargaining power of existing workers as well.
This has caused a decline in labour’s share in the advanced countries.
Labour’s share declined for 19 advanced countries who account for
78 per cent of the aggregate GDP of advanced economies and for
32 developing countries accounting for 70 per cent of total GDP
of developing economies. The median labour share for OECD
countries declined from 66.1 per cent in the early 1990s to 61.7
per cent in the late 2000s (IMF, 2017, 127). In the developing
world because of this relocation not many new jobs were created
as expected. This is because the sectors which attracted new foreign
investments are labour-intensive according to Western standards
but not so according to developing country standards. As a result,
relocation in fact increased the average capital intensity of industries
in the developing world.
Moreover, the process of globalisation facilitated concentration
of capital through cross border mergers and acquisitions on the one
hand and fragmentation on the other. MNCs and TNCs control
the production networks in which developing country production
facilities are inserted as a result of which local monopolies are
destroyed and local capital lost control over the production structure
and became junior partners in actualising the imperatives of global
capital. Because of the global integration, technology choices are
hardly available for local industries. The tastes and preferences of
Western markets create hegemonies as a result of which technologies
available in the global shelf are largely incorporated in domestic
production structures to sustain competition. In this process, local
capital prefer to face competition only on the basis of pushing down
wages in order to reduce production costs. This gives rise to a labour
process which increasingly relies on casualisation and informalisation
of labour. In the case of India during the period March 2014 to
July 2015, there had been an addition of 0.32 million in organised
manufacturing. Notable is the fact that out of this total new
employment created in the organised manufacturing, 85 per cent has
been contracted workers. In the case of unorganised manufacturing,
the only segment that recorded growth in employment is the Own
Account Manufacturing Enterprises (OAMEs) which are basically
one person enterprises meaning self-employed who do not hire any
labour and mostly employ unpaid family labour. According to the
NSSO survey on Unincorporated Non-Agricultural Enterprises
(excluding construction), total employment in unregistered
manufacturing increased from 34.8 million in November 2010 to
36.04 million in 2015-16, an increase of 1.24 million in five years
(NSSO, 2017). The rise has been higher in OAMEs to the tune of
1.84 million, while employment declined in establishments that are
relatively larger in size within the unregistered segment that employ
one to ten hired workers, which have employed 0.67 million less
workers during the same period. Increased informalisation and
casualisation was facilitated by rising subcontracting in the domestic
production process which not only reduces the wage costs but also
transfers a part of wage cost to capitalist profits. Although it is not
true that pushing down wages is the only way to remain competitive
in the global market. Competition works rather on the basis of unit
labour cost which is a combined effect of labour productivity and
wages. If the productivity of the worker rises faster than the growth
of wages, unit labour costs tend to decline. In case of India the
return to labour has been squeezed in the organised sector even
though their productivity increased much faster. In fact, such a
trend of relying more on informal contracts reduces the average
productivity over time. In case of India, productivity of labour in
the informal sector is on an average one-seventh of those working
in the formal sector. Thus as informal work contracts increase, a
downward trend in productivity may also set in.
One of the distinctive features of the employment-unemployment
scenario in today’s world is the rising proportion of self-employed
within the workforce. In case of India, it remained consistently
more than half the workforce independent of growth fluctuations
(Roy, 2011). The general perception has been that during high
growth periods, the demand for labour increases and proportion of
wage employment rises within the workforce. On the other hand
slackening of growth reduces demand for labour and proportion
of self-employment rises as many existing workers lose their jobs
and opt for self-employment as a survival strategy. But during the
recent period the weakening of growth-employment linkage has
also disrupted the relation between growth and self-employment.
In other words, the high share of self-employment has become a
structural feature of contemporary capitalism and not only confined
to developing countries anymore. This raises a conceptual problem
as well which is the following. If capitalism accumulates on the
basis of surplus value and that is extracted from wage labour who
sells labour power as a commodity then how do we appreciate this
high share of self-employed even in situations of high growth? Self-
employment is also portrayed as a rise in entrepreneurship where the
producer has control over the means of production and the process
of production. In spite of the fact that even the self-employed
person apparently carries a sense of autonomy but in countries
such as India, most of the self-employed face greater uncertainty
and vulnerability than the wage employed. For the wage worker, at
least in the medium term payment of wages cannot depend on the
realisation of value or sale of produced goods or services. It is part
of a contract where the worker is supposed to get wages against
work for stipulated labour hours. In case of self-employed this is not
the case. The return of the self-employed can only be realised once
the value of produced goods and services are realised. Furthermore,
self-employment as a non-capital relation does not invoke exchange
based on equivalence of value as it is in the realm of capital relations.
But non-capital can realise its return only through exchanges in
the market. And the return to self-employed articulated through
the market is completely arbitrary and asymmetric vis-a-vis capital
relations.
The rise of self-employment and the informal sector at
large has sometimes been seen as a process of de-capitalisation
or a reunion of the labour to the means of production. Kalyan
Sanyal’s conceptualisation of post-colonial capitalism rests on the
division between accumulation economy and the need economy
(Sanyal, 2007). The accumulation economy is that part of the
economy which contributes to the production, appropriation and
distribution of surplus value. The other part of the vast majority
which constitutes the informal economy has no contribution to the
process of capitalist accumulation. They are the need economy who
survives on the basis of transfer of surplus from the accumulation
economy. Such a characterisation actually undermines the crucial
role of this vast unprotected labour in the process of capitalist
accumulation. There are various dimensions of value capture on
which the current neoliberal regime relies upon. Marx’s discussion
on surplus value primarily focuses on exploitation that assumes

workers are paid wages equivalent to the value of labour power.
Marx’s intention was to show that even if exchanges take place on
the basis of equivalence of value and if worker is paid the full value
of labour power then also exploitation takes place because the value
created by the expenditure of labour is much higher than the value
of labour power. Labour receives wages on the basis of what s/he
sells rather than what is being produced by the labour. But in the
real world there is no pure capitalism existing where wages are at
least paid as equivalent to the value of labour power. Rather in
most of the cases labour are paid wages that are below the value of
labour power. In other words more the fragmentation of production
takes place through subcontracting and outsourcing, undervaluing
labour has become the norm of competition. A vast majority of the
informal labour are engaged in productive activity in subhuman
conditions that feed into super profits of multinationals as well as
that of domestic capital. This regime of expropriation is intrinsic to
the current process of accumulation and rising self-employment and
tiny enterprises reflect capitalism’s incapacity to employ people on
conditions that it had to concede during the ‘Golden Age’.
Unemployment has also been caused by various dimensions
of dispossession. It is important to note that the current phase
of dispossession is markedly different from Marx’s narration of
primitive accumulation of capital. In Marx’s narrative, primitive
accumulation was characterised as a combination of three distinct
processes which may be separated by time and space. The first
process is of alienating direct producer from their means of
production; secondly, the appropriated means of production is
turned into capital and thirdly, dispossessed people are forcibly
turned into commodity, labour power. It is also not the case that
people displaced during the Industrial Revolution in the West were
absorbed entirely by emerging factories. Rather capitalism found the
solution by moving people from metropolitan areas to new white
settlements. In the current scenario people who were displaced and
dispossessed either because of ‘developmental projects’ or because of
facilitating corporate mining or ‘land acquisition’ are hardly being
absorbed as wage labourers (Roy, 2020). Instead the huge mass of

dispossessed people lose their livelihood and essentially earn their
living either by offering low waged work in the informal segment or
as beggars, rag pickers, hawkers, vegetable vendors, rickshaw pullers,
drug peddlers and prostitutes in urban areas which constitute the
dark underbelly of modern capitalism. This is the ‘wretched of
the earth’ which survives by negotiating with capitalism mostly by
accepting undervaluation of their labour or are simply excluded
from the realm of capital relations.
New Technology and Unemployment

The spurt of new technological innovation has been a major
impetus of growth, new investment, new productive activities,
demand and employment that saved capitalism from sinking into
perpetual stagnation. In fact technological innovation and state
intervention are the two most important social forces that triggers
necessary bouts of investments required to maintain the minimum
profit rate for capitalism to sustain. The processes that influence
innovation are largely being determined by the competition
between capitals as introducing new technology creates possibilities
of profit over and above the general rate of profit so long as the
new technology is not being diffused as the average technology of
the industry. The growth of labour force is mostly determined by
natural factors and there is no reason in capitalism as a system driven
by uncoordinated profit motives that the growth of innovation
and that of labour force would converge. Instead the growth of
innovation is likely to be faster than the growth of labour force and
as in capitalism the prime motive of innovation is to transfer and
internalise idiosyncratic human skills into standardised machines;
technological progress essentially means less use of ‘living’ labour.
However new technologies although reduce the use of labour in
the existing production process but it may create new jobs that are
employed to produce new machines and their components or allied
services. Only if the diffusion of technology is widely spread and
fast enough, then productivity may increase at all levels giving rise
to a real income effect and hence higher demand for goods and
services. In such a scenario employment can increase in the net even

if a particular technology may be labour displacing.
In fact technologies are meant to reduce human effort and
human civilisation is simply a progress featured by discoveries of
simple tools to complex machines that allow people to produce
similar things with much less effort. The important question
however is why such innovations bring in considerable anxiety
and pain to a vast section of employed mass who see the threat of
job loss. Reducing human effort to produce the necessaries of life
should provide enough disposable time to people who can use that
time into more creative activities. But responses on the contrary had
been rise in working time of existing employees together with large
number of people facing the threat of unemployment.
Introduction of new technology such as Artificial Intelligence,
Internet of Things and Robotics are posing new challenge to the
existing labour force. AI internalises processes that involve formal
reasoning and can replace human beings easily in repetitive jobs.
Machines can easily translate and create regular texts as newspaper
articles, can write legal petitions, make predictions on stock market
trading, can replace humans in a whole range of customer service
and business processes. We are entering the age of driverless cars,
assessing repayment capacity in banks can be done by a machine
and human resource management would be efficiently done by a
machine. Robots are used in the shop floors for material handling,
assembling of parts and so on. A drastic fall in computing cost,
digital storage and cloud computing allow firms to reduce their
fixed costs and real time management of resources. All these
developments are likely to make a large number of existing human
activities redundant in the coming decades.
In the earlier Industrial Revolutions, particularly in the 19th and
th
20 centuries rise in productivity growth in agriculture led to a
release of an enormous number of unskilled workers who were to
be employed in industrial activities. One of the important features
of early technological revolutions was that they could employ huge
number of unskilled workers because most of the technologies were
labour-intensive in nature. Apart from that, capitalism could find
new areas of investment and employment in new found lands as

well could generate huge profits by extracting wealth from colonies.
The current technological revolution is markedly different from
the earlier ones as new innovations and machines are primarily a
response to the huge supply of educated workforce that grew over
time both in advanced and developing countries. As a result of which
low skilled repetitive jobs which would be lost in the process would
not be absorbed anymore. According to a World Bank estimate that
35 per cent of workers in the United Kingdom and 47 per cent of
those in the USA are at the risk of being displaced in the next 20
years. Such estimates on developing countries done by the World
Bank suggest that 69 per cent in India, 72 per cent in Thailand,
77 per cent in China and 85 per cent in Ethiopia would be facing
technology-led displacement (ILO, 2015, 143). It is also argued that
as the use of robots increases and their costs decline, relocation of
labour-intensive jobs to developing countries in search of low wages
would no longer remain relevant.
Moreover studies suggest that the productivity growth triggered
by new technology has not been very significant to the level the
growth was impacted earlier by inventions of electricity and so
on (David, 1990). But in future this may not be the case as the
diffusion of technology takes time to emerge as a paradigmatic shift
in the production process. What is even more significant is the fact
that the diffusion of new technology in earlier phases of capitalism
was largely driven by the market. The current phase of technological
change depends on knowledge and knowledge being a non-rival
input, the market mechanism is not the appropriate mode to trigger
competition and diffusion of technology. In fact many information
and knowledge in today’s world is accessible through internet free
of cost. And unlike all other inputs the stock of knowledge does
not deplete through its uses rather increases through interaction and
exchange. In such a context internalising natural processes in new
machines that increases productivity is a result of social knowledge
to which assigning private property rights become detrimental to
the progress of knowledge itself. For instance, by the use of robots
the productivity of the supervisor in a shop floor increases manifold
but that cannot be appreciated as the result of rise in individual

efficiency or productivity of the particular supervisor. Rather it is
the outcome of social wisdom that evolved through various layers
of interaction. In other words, production is immensely socialised
while capital wants to establish property rights on this knowledge
which essentially restricts the flow of knowledge.
The other problem with the introduction of new technology
as discussed is the possibility of rising unemployment which finally
leads to chronic demand shortage. One of the distinctive features
of capitalism is that it only recognises labour power as commodity
and the only means of distribution of output is wage or salary
against employment. In other words, work which is not hired as
a commodity is beyond the radar of capitalism and hence there
is no rationale to share income or benefits for work which is not
being hired. Therefore the burgeoning army of unemployed should
not have any income according to capitalist logic. But capitalism
has to reconcile to the fact that such a large share of population
cannot be deported to new found land anymore and also cannot be
left without income because that becomes politically unsustainable
beyond a point. Therefore, there has to be a transfer of surplus
for those excluded in the form of credits, income transfer or even
an overarching scheme of universal basic income. In fact the
increasing debates and discussion on UBI basically reflect the fact
that capitalism is no longer able to employ the available labour force
and since it can only recognise labour power as a commodity, it
is not able to find a mechanism to reconcile the burgeoning gap
between production and consumption.
Conclusion
The current phase of capitalism is characterised by high concentration
of ownership together with increased fragmentation of the work
process. On the one hand there are waves of mergers and acquisitions
through which MNCs and TNCs give rise to the global edifice of
capital control, on the other hand it unleashes labour processes
that stretches from large factories to tiny homework integrated at
the global scale. The inclusion/exclusion dynamics of capitalism
is articulated through layers of exploitation, expropriation and

exclusion. Every bit of the human life process gets subordinated
to the imperatives of global capital. From formal wage contract to
various layers of subcontracting and outsourcing capital internalises
the large chunk of non-capital relations and self-employment into
its own ambit. Moreover there seems to be an explosion of the
working day which defined the boundaries of working time and
disposable labour time and actually the realm of production and
reproduction collapses into one. Capital establishes control over
the life process of human beings, colonises every bit of human
engagement and destroys existing norms of contract. Bare survival
and reproduction of life demands more working hours and gradual
erosion of protective institutions erases the differences between
formal and informal workers. Wage employment, self-employment,
bonded labour, slave labour and various other precarious forms of
labour with the most modern forms of platform labour collude into
one whole of the ‘social labour’. This objectivity extends capital-
labour conflict beyond the realm of factory and invokes a society
wide class struggle.
It is also important to note that measures of returns to
labour based on individual productivity is increasingly becoming
meaningless. Human civilisation has entered into a phase of
technological progress where individual capabilities are increasingly
embedded into social capabilities. Direct human labour has a limited
role in managing the functioning of social knowledge embodied in
machines. Production would require less and less direct human effort
with the use of new technology. The labour time saved in this process
should enable human beings to engage in more creative work rather
than being bogged down into producing bare necessities. But the
current system does not allow such development because it is based
on private property and tries to appropriate the gains of technology
in terms of profit accumulation. Technological development is not
the problem in itself rather the real evil is capitalism which restricts
the fruits of technology in terms of private appropriation. With
the use of machines people should get more free time, to think,
to create and enjoy labour at their will. But since in capitalism
machines, labour process and fruits of labour are appropriated by

a handful of capitalists, instead of free time new technology creates
unemployment on the one hand and hyper-work on the other.
The production of knowledge demands a space for cumulative
learning. And knowledge being non-rival in nature grows with
continuous interaction and dissemination. Capitalism on the
contrary reproduces a structure and facilitates property rights on
knowledge. If we are really heading towards more use of knowledge
inputs, a supportive environment of learning needs to be created.
Instead of repetitive and routine work, existing labour force
should get ample time to accumulate new knowledge, to think
and apply them in solving new challenges and a collabourative
milieu needs to be created that is far beyond the drudgery of wage
labour. Employment-unemployment is a social construct which
emerged in a particular juncture of history when human labour
is being turned into commodity labour power in capitalism.
Such a structure no longer seems to be appropriate regarding the
progress of human knowledge. New technology demands a new
collabourative environment that breaks the division of employment
and unemployment, reinstates labour as the most creative, free
and joyful act of human species and distributes the gains of social
knowledge according to the needs of social progress.
REFERENCES
David, P.A. (1990), The Dynamo and the Computer: A Historical
Perspective on the Modern Productivity Paradox, American Economic
Review Papers and Proceedings, pp. 355-61.
ILO (2015), World Employment Social Outlook 2015: The Changing Nature
of Jobs, Geneva: International Labour Organisation.
IMF (2007), World Economic Outlook, April 2007: Spillovers and Cycles in
the Global Economy, Washington, DC: International Monetary Fund.
IMF (2017), World Economic Outlook, April 2017: Gaining Momentum?
Washington, DC: International Monetary Fund.
Marx, K. (1958), Capital: A Critique of Political Economy, Vol. I, Moscow:
Foreign Languages Publishing House.
NSSO (2017), Key Indicators of Unincorporated Non-Agricultural
Enterprise (excluding construction) of the 73rd Round (2015-16) KI

(73/234).
Roy, Satyaki (2011), High Non-wage Employment in India: Revisiting
the Paradox in Capitalist Development, Indian Journal of Labour
Economics, Vol. 54, No. 2, pp. 251-67.
Roy, Satyaki (2020), Contours of Value Capture: India’s Neoliberal Path of
Industrial Development, UK: Cambridge University Press.
Sanyal, K. (2007), Rethinking Capitalist Development: Primitive
Accumulation, Governmentality and Post-Colonial Capitalism, London,
New York, Delhi: Routledge.
8
Can Capitalism Survive the High Degree of
Automation? A Comparison with Thomas
Piketty’s Argument1
V. Upadhyay
There is a growing recent debate in the West whether we are

witnessing the phenomenon of technological unemployment
caused by increasing automation in all spheres of economic activity,
unemployment that is distinct from cyclical unemployment, or
structural unemployment caused by trade and globalisation, or
even that existing in the form of the reserve army. Mainstream
economists reject outright this possibility. They point out that this
argument is not a new one.2 It has been made many times earlier
during the two-century long history of industrial growth and that
it especially springs up during the recessionary phases. When the
economy recovers from downturn, it is argued, employment also
grows with output and productivity.
If we look at the historical experience, this assertion generally
holds. There have been many recessionary episodes during this long
period in the industrially advanced countries of Europe and North
America, but these economies eventually recovered and resumed the
growth process. This is even true of the Great Depression during
the early 1930s. Here, however, one has to acknowledge the fact
that the Second World War played a decisive role in the process of
economic revival.
The main argument in support of the proposition of the
‘impossibility of technological unemployment’ runs as follows:
Labour-saving technological change reduces demand for labour.
However, at the same time, by reducing costs and prices of products,

it ‘frequently leads to increases in output demand; greater output
demand results in increased production, which requires more
labour, offsetting the employment effects of reduction in labour
requirements per unit of output stemming from technological
change.’3
According to this view, ‘automation and other forms of
technological progress, in aggregate, create more jobs than they
destroy.4, 5
This view, however, has been challenged by Jared Bernstein,
Erik Brynjolfsson, Andrew Mcafee and others6, who, through their
research, reveal decoupling of productivity and employment. As
Brynjolfsson and Mcafee (2014) point out,
While these two key economic statistics tracked each other for most
of the post-war period, they became decoupled in the late 1990s.
Productivity continued its upward path while employment sagged.
Today, the employment-population ratio is lower than any other time
in at least the last twenty years, and the real income of the median
worker is lower today than in the 1990s. Meanwhile, like productivity,
GDP, corporate investment and after-tax profits are also at record highs
(Brynjolfsson and Mcafee, 2014, 78).
As Summers (2014) puts it,
It is not always true that innovation creates more employment. There
is nothing in the logic of the market or human experience to suggest
that it must necessarily be so that there will be jobs for all at acceptable
wages, no matter how technology evolves.
Summers points out that, ‘In 1965, in the US, one in 20 men
between the ages of 25 and 54 were not working, now it is one in
six.’
Over the past century, agriculture has shed most of the
jobs it used to provide. Now very few people are employed in
agriculture, for example, between 1-2 per cent of the labour force
in the industrialised countries. With mechanisation, agricultural
productivity rose spectacularly, reducing the demand for agricultural
workers. What has happened in agriculture is now happening in
Can Capitalism Survive the High Degree of Automation? 181
manufacturing and services sectors. Like in agriculture earlier,

output per worker in these sectors is increasing rapidly. It means
that with the application of technology, far more output is being
produced with far fewer workers.7 In China, which is the global
manufacturing workshop, manufacturing employment is only
15 per cent of the workforce. Between 1995 and 2002, China
has suffered heavy loss in manufacturing jobs, about 16 million
according to some estimates. South Korea, which has experienced
one of the fastest rates of industrial growth during the later part
of the 20th century, had 28 per cent share of manufacturing jobs
in the total workforce in 1989, which since then, has declined
to by 10 percentage points.8 In all major industrialised countries
manufacturing sector is not creating any new jobs. The situation in
services sector is no different. Workers displaced by mechanisation
in agriculture could move to manufacturing or services. But when
all sectors in the economy are losing jobs, where can people find
jobs?
The effects of new technologies are now not limited to loss of
low-skill jobs only. Its effects have now reached the middle-level
segment. The new information and communication technologies,
by automating many routine tasks, are in fact eliminating clerical
and professional employment opportunities.
According to Autor and Dorn (2013), a process of “polarisation”
of the workforce has been taking place in most industrialised
countries for the last several decades. This process is leading to
“hollowing out” of the middle class: jobs that fall in the middle
part of the job hierarchy, jobs that provided middle-class pay, are
now increasingly being handled by computers.9 At the same time,
higher paying jobs that require sophisticated skills needed for the
development of new technologies are not under threat.
The rapid acceleration of technological progress is also
contributing to increasing income inequalities in the industrialised
countries. Large scale displacement of workers by automation is an
obvious causal factor. This is creating a large pool of people who are
being rendered jobless as well as without any source of purchasing
power. This will increase the gap between the rich and the poor,
which has already become unsustainable, both economically as well

as socially. There is, however, another factor that is also at work here.
As mentioned above, the higher-paying jobs are not affected that
much by the automation process. Not only that, digital technologies
are creating a world which favours “superstars”. These are the people
who actually occupy central positions in the technology development
arena and they are paid “super salaries”, salaries in millions or even
billions of dollars. This is the world where the winners take all;
and the losers get zero. The role of this phenomenon in increasing
income inequalities cannot be underestimated.
As pointed out by Marx in the middle of the 19th century, the
capitalist system knows no limits to the accumulation of capital. It
is within reason to imagine that the process of automation could
acquire such an accelerating pace that, in the coming decades,
production activities would mostly be performed by robots. In an
experiment that ‘reflects the reality that there is no ‘iron law’ that
technological progress must always be accompanied by broad job
creation’, Brynjolfsson and Mcafee (2014) write,
Imagine that tomorrow a company introduced androids that could do
absolutely everything a human worker could do, including building
more androids. There’s an endless supply of these robots, and they’re
extremely cheap to buy and virtually free to run over time. They work
all day, every day, without breaking down.
Clearly, the economic implications of such an advance would be
profound. First of all, productivity and output would skyrocket.
The androids would operate the farms and factories. Food and food
production will become much cheaper to produce. In a competitive
market, in fact, their prices would fall close to cost of their raw
materials. Around the world, we’d see an amazing increase in the
volume, variety and affordability of offerings. The androids, in
short, would bring great bounty.
They would also bring severe dislocations to the labour force.
Every economically rational employer would prefer androids, since
compared to the status quo they provide equal capability at lower
cost. So they would very quickly replace most, if not all, human
workers. Entrepreneurs would continue to develop novel products,

create new markets, and found companies, but they’d staff these
companies with androids instead of people (Brynjolfsson and
Mcafee, 2014, 84).
The historical experience of capitalism also reveals a tendency
of concentration of productive capital in ever fewer hands. In an
extreme case scenario, the ownership of all robots may be vested
in the hands of a few people. In such a situation, Brynjolfsson and
Mcafee (2014) predict that: ‘The owners of the androids and other
capital assets or natural resources would capture all the value in the
economy, and do all the consuming.’10 There is, however, a logical
fallacy in this proposition. In such an extreme situation, most people
are unemployed and thus have no income. There is thus no labour
income in the economy other than superstars’ incomes. As the
ownership of robots is highly concentrated, capital income accrues
to only a handful of people. Then the question who will do the
consuming acquires special importance. In a completely robotised
economy, production of commodities will necessarily be on a large
scale. But as general masses have no income or purchasing power,
they are not part of the demand for the produced items. Is it then
possible that a few multi-billionaire owners of robots will be able
to generate sufficient demand for the mass produced items even if
they have the purchasing power to do so? To put it differently, will
a robot owner with hundreds of billion dollars of capital income
purchase a fifty thousand cars? The answer is a clear no. He or she
might only purchase a few dozen highly expensive cars. But these
cars are not a product of a robotised system: the high value of cars
is solely due to branding.
This raises a serious question about the survivability of capitalism,
a system that works for profit motive. In a highly automated
system of mass production with highly concentrated ownership of
productive capital, profit realisation becomes impossible as demand
for items produced on a mass scale does not exist.
In the foregoing analysis, we have focused on income inequalities
generated in the production system. But there are huge income and
wealth inequalities whose sources lie beyond the production system.
Income and wealth inequalities are not only influenced by economic

forces but also by changes in political power relations.11 Workings
of markets, of assets (physical or financial) or of natural resources,
produce enormous inequalities. At the same time distribution of
income and wealth is impacted, crucially, by the balance of class
power and changes therein as it determines government policies and
laws related to taxation, finance, inheritance, gifts, etc., which have
a tremendous bearing on the final amounts received by individuals
in the forms of incomes from capital and labour, or wealth transfers.
Thomas Piketty’s recently published magnum opus Capital in the
Twenty-First Century deals with these issues in such great details and
so thoroughly as not seen for a long time.
Piketty’s basic proposition is that: ‘When the rate of return
on capital exceeds the rate of growth of output and income, as
it did in the 19th century, and seems quite likely to do again in
the 21st century, capitalism automatically generates arbitrary and
unsustainable inequalities….’12
In order to understand Piketty’s argument, it is necessary to
understand his use of the term ‘capital’. He uses the terms ‘capital’
and ‘wealth’ interchangeably, as if they were perfectly synonymous.
According to his definition, national wealth or national capital is:
(T)he total market value of everything owned by the residents and
government of a given country at a given point in time, provided
that it can be traded on some market. It consists of the sum of total
non-financial assets (land, dwellings, commercial inventory, other
buildings, machinery, infrastructure, patents and other directly owned
professional assets) and financial assets (bank accounts, mutual funds,
bonds, stocks, financial investments of all kinds, insurance policies,
pension funds, etc), less the total amount of financial liabilities (debt)
(Piketty, 2014, 48).
His definition of capital thus is much wider than the commonly
used definition of capital, productive capital to be precise: industrial
plants, official buildings, machinery, infrastructure, etc.
His fundamental inequality, r>g (where r stands for average
annual return on capital, and g stands for the rate of growth of
the economy), is not a law in the sense of being derived from any
theoretical framework or abstract model. It is basically an empirical
observation, spanning a very long period of more than two hundred
years.
Piketty estimates the average annual rates of return on capital
in the advanced industrial countries in the late 20th and early 21st
centuries to be around 4-5 per cent and takes this level as the level
likely to prevail in the future as well. His prediction for the long
term per capita growth in the wealthy countries is of 1.2 per cent
(which he calls the median scenario). This is slightly higher than
the prediction of growth made by Gordon (2012) for the advanced
countries including the United States.
According to Piketty’s estimates, the capital-income ratio in
Britain and France in 2010 is roughly 5-6 and is about 4 in the
United States. Based on the trend analysis of the data pertaining
to recent decades in the rich countries, he predicts that the capital-
income ratio is likely to rise in the future.
On the basis of the estimates of r, g and the capital-income
ratio and the current trends, Piketty predicts ‘a durable increase
in capital’s share of national income’ in the twenty-first century,
implying a secular fall in labour’s share of national income.13
One major criticism of Piketty’s approach is that he does not
explain ‘where the rate of return comes from.’ David Harvey points
out that the valuation of capital and calculation of rate of return
are difficult technical problems that have no agreed upon technical
solutions. According to Harvey, one major weakness of Piketty’s
framework is that it does not provide any theoretical explanation
for high rate of return on capital. Harvey’s own explanation for the
phenomenon is:
If the rate of return on capital that is being used is high then this is
because a part of capital is withdrawn from circulation and in effect
goes on strike. Restricting the supply of capital to new investment (a
phenomenon we are now witnessing) ensures a high rate of return
on that capital which is in circulation. This creation of such artificial
scarcity is not only what the oil companies do to ensure their high
rate of return: it is what all capital does when given the chance. This
is what underpins the tendency for the rate of return on capital (no
matter how it is defined and measured) to always exceed the rate of
growth of income.
Harvey’s criticism here, however, is not valid for two reasons. One,
Harvey’s focus is largely on productive capital whereas by capital
Piketty means wealth. Secondly, Harvey shows high rate of return
on ‘used’ capital, whereas Piketty talks about average rate of return
on total capital, used as well as unused.
As mentioned earlier, Piketty’s estimates of r, g and capital-income
ratio and the predictions about their future tendencies are based
on the analysis of historical observations. There is thus not much
consideration given to production and its linkages to distribution,
technology, productivity and employment and unemployment. The
question of technological unemployment, therefore, does not arise
in his framework. He, in fact, does not appear to be overly worried
about the prospect of unemployment caused by automation as is
clear from his following remarks:
We are free to imagine an ideal society in which all other tasks are
totally automated and each individual has as much freedom as possible
to pursue the goods of education, culture and health for the benefit
of herself and others. Everyone would be by turns teacher or student,
writer or reader, actor or spectator, doctor or patient (Piketty, 2014,
308).
Piketty’s main concern is about rising inequalities caused primarily
by rising share of capital income of total income. ‘The distribution
of capital ownership (and of income from capital) is always more
concentrated than the distribution of income from labour….the
bottom 50 per cent of the wealth distribution owns nothing at all,
or almost nothing (less than 10 per cent and generally less than 5 per
cent of total wealth, or one-tenth as much as the wealthiest 10 per
cent).’14 According to Oxfam, the richest 85 people on the planet
owned as much wealth as the poorest half of humanity. In Piketty’s
view, ‘the growth of a true patrimonial (or propertied) middle class
was the structural transformation of the distribution of wealth in the
developed countries in the 20th century.’15 If the present inequality
trends continue in the future along with worsening concentration

of wealth, the picture of the world that emerges is indeed very
frightening. To quote Piketty:
Will the world in 2050 or 2100 be owned by traders, top managers,
and the superrich , or will it belong to the oil producing countries or
the Bank of China? Or perhaps it will be owned by the tax havens in
which many of these actors will have sought refuge. It would be absurd
not to raise the question of who will own what and simply to assume
from the outset that growth is naturally “balanced” in the long run
(Piketty, 2014, 15-16).
It is interesting to compare the scenarios regarding the level of
inequalities in the future generated by the two clearly different
frameworks: One, that focuses on increasing automation of the
production process combined with high concentration of the
ownership of productive capital, and the other, that argues that the
rate of return on capital (wealth) is likely to remain higher than the
growth rate of income in future, leading to high concentration of
the ownership of capital (wealth). The similarity in the projected
outcomes is quite striking. Both viewpoints see inequalities taking
extreme forms in the coming decades to the extent that the vast
majority of people are left with no income or purchasing power. As
discussed above, this raised the question about the survivability of
capitalism in the long run. There are, however, important differences
between the two approaches and these have implications with respect
to the remedies suggested to save capitalism from demise.
Piketty’s massive book’s main focus turns out to be on the
capital (wealth) inequalities. The most significant remedial measure
to save capitalism that emerges from his work is therefore naturally
focused on “a progressive global tax on capital.” To quote Piketty:
Can we imagine a 21st century in which capitalism will be transcended
in a more peaceful and lasting way, or must we simply await the
next crisis or the next war (this time truly global)? On the basis of
the history, I have brought to light here, can we imagine political
institutions that might regulate today’s patrimonial capitalism just
as well as efficiently?..........the ideal policy for avoiding an endless
inegalitarian spiral and regaining control over the dynamics of

progressive accumulation would be a progressive global tax on capital
(Piketty, 2014, 471).
In addition to a tax on capital, Piketty also argues for a progressive
tax on income as well as progressive real estate tax. These three
progressive taxes, in his view, could play ‘distinct and complementary
roles.’
As we have discussed above, Piketty’s work lacks a serious analysis
of the production system. In that sense, no serious consideration
is given to the possibility of mass unemployment caused by
technological progress. Generally speaking, his system allows for
the possibility of near-full employment continuing prevailing in
the future. If that is the case, raising minimum wages could be an
effective way of lowering the rate of return on capital. As Galbraith
(2014) observes:
If the heart of the problem is a rate of return on private assets that is
too high, the better solution is to lower the rate of return. How? Raise
minimum wages! That lowers the rate of return on capital that relies
on low-wage labour.
In the framework that focuses on technological unemployment, mass
unemployment is the reality. Here, the minimum wages solution
would not work. If people are not working, how would they be paid
wages? The most appropriate solution in such a situation would be
‘sharing of work’: the work week could be reduced to 15 or even 10
hours.16 It could be argued that social control of productive capital
could prevent all capital income from going to only a few people.
But here we are talking about more than transcending capitalism ‘in
a more peaceful and lasting way.’ This is, in fact, a case for building
a socialist society.
In the prevailing political conditions, all these remedies/
suggestions are non-starter; they are just utopian ideas. These can
have practical significance only if there is a political change in every
nation such that the common people take control of things in their
own hands and there is cooperation between nations regarding
control over cross-border movements of capital.
NOTES
1. This paper was published in Upadhyay, V. (2016), (ed.), Essays on
Distribution, World Systems, Ecology, and Left Politics. New Delhi:
Daanish Books.
2. During the second decade of the 19th century, a group of textile
workers in England, led by Ned Ludd, attempted to destroy automated
looms as they feared that these machines would destroy their jobs. If
technological unemployment is becoming a reality now, then it can be
said that ‘the Luddite moment’ has arrived, even if two hundred years
late.
3. Brynjolfsson and Mcafee, 2014, p. 81.
4. Ibid.
5. This viewpoint is very succinctly expressed by the CEO of a major
Indian IT company in the following words: ‘I want to make a big
mention of automation. Artificial intelligence as a domain is not
very well understood. It is often associated with precipitating...the
irrelevance of humanity. Having studied at Stanford and other places at
the feet of the pioneers of this domain, I see the world fundamentally
differently. Technology has always been about the amplification of
the human being. About augmenting them with new capabilities, not
about making them irrelevant.’ (Infosys CEO, Vishal Sikka, quoted
in The Economic Times, October 17, 2014).
6. In his 1949 article “Why Socialism?” Albert Einstein commented,
“Technological progress frequently results in more unemployment
rather than in an easing of the burden of work for all.”
7. In the early 1980s, W. Leontif warned that ‘the role of humans as
the most important factor of production is bound to diminish in the
same way that the role of horses on agricultural production was first
diminished and then eliminated by the introduction of tractors.’ (W.
Leontif quoted in Brynjolfsson and Mcafee, 2014) However the US
economy’s performance in the area of growth and employment during
the last two decades of the 20th century made people ignore such fears.
8. Robots, automation and 3D printing pose a threat to human
involvement at the workplace not only in the industrialised countries
but also in the emerging economies. In India, for example, for about
two decades, the IT services industry has been a major job provider
to the college-educated. But now the big firms are planning to deploy
automation in a big way, especially in the areas such as software testing
and maintenance of infrastructure. This is certain to impact job

opportunities, especially at the middle level: the case of “hollowing”
of the middle class (see The Economic Times, September 30, 2014).
9. See Brynjolfsson and Mcafee, 2012.
10. Brynjolfsson and Mcafee, 2014, p. 84.
11. Stigtitz (2014) writes: ‘What we have been observing—wage stagnation
and rising inequality, even as wealth increases—does not reflect the
working of a normal market economy, but of what I call “ersatz
capitalism.” The problem may not be with how markets should or do
work, but with our political system, which has failed to ensure that
markets are competitive, and has designed rules that sustain distorted
markets in which corporations and the rich can (and unfortunately
do) exploit everyone else.’
12. Piketty, 2014, p. 1.
13. Economic Report of the President, Transmitted to the Congress,
March 2013, shows: ‘The labour share in the United States was
remarkably stable in the post-war period until the early 2000s. Since
then, it has dropped 5 percentage points.’ (p. 60).
14. Piketty, 2014, p. 244.
15. Ibid., p. 260.
16. The suggestion of ‘sharing of work’ also emerges from the Degrowth
perspective that stresses that, in order to avoid the irreversible damage
to our ecology that threatens life on earth, economic growth in
industrialised countries would need to be checked. The problems of
poverty and unemployment that arise due to lack of economic growth
could be tackled through distributional measures involving not only
sharing of income and wealth, but also work. As Onaran (2010) puts
it, full employment can only be achieved through shorter working
times.
REFERENCES
Autor, David H. and D. Dorn (2013), The Growth of Low-Skilled
Service Jobs and Polarisation of the US Labour Market, The American
Economic Review, Vol. 103, No. 5.
Brynjolfsson, E. and A. Mcafee (2012), Race Against the Machine,
Cambridge: The MIT Centre for Digital Business.
Brynjolfsson, E. and A. Mcafee (2014), The Second Machine Age, New
York: WW Norton and Company.
Economic Report of the President Transmitted to the Congress (2013),

United States Government Printing Office.
Galbraith, James K., Thomas Piketty’s Capital in the Twenty-First Century,
Alertnet (https://www.alertnet.com).
Gordon, R. (2012), Is US Economic Growth Over? Faltering Innovation
Confronts the Six Headwinds, NBER Working Paper, No. 18315,
August.
Harvey, D. (2014), Afterthoughts on Piketty’s Capital, Website: h t t p s : / /
davidharvey.org/2014/05/afterthoughts-pikettys-capital/
Onaran, O. (2010), The Crisis of Capitalism in Europe, West and East,
Analytical Monthly Review, Vol. 8, No. 7.
Piketty, T. (2014), Capital in the Twenty-First Century, Cambridge,
Massachusetts: The Belknap Press of Harvard University Press.
Stiglitz, Joseph E. (2014), Democracy in the Twenty-First Century, Project
Syndicate (https://www.project-syndicate.org/)
Summers, L. (2014), Robots are Already Taking Your Jobs, Interview
Published in Financial Times, August 11.
9
The Agrarian Question a Century After 1917:
Capitalism in Agriculture and
Agricultures in Capitalism1
Samir Amin
Introduction
Authored in commemoration of 1917, this article addresses one of
the key dimensions confronting the Russian and Chinese revolutions,
that of the agrarian question for the peasantry which constituted
popular majorities in each of these countries at the time of their
revolutions. These two great revolutions were confronted by three
other major challenges. The first challenge originated in the fact
that these revolutions with socialist goals had triumphed in ‘single
countries’—albeit the size of continents; two countries, moreover,
situated in the peripheries of the global system of capitalism. An
important issue concerned the question of how to progress towards
a perspective with a universal reach, under conditions of permanent
hostility and violence characterising the intrinsically imperialist
processes of capitalist globalisation.
The second challenge concerned the question of democracy. How
to construct practices capable of promoting the democratisation of
society? How to create institutions for a new participative democracy,
which would guarantee a role for all workers in the decision-making
processes at all levels of economic and social governance? How was
this to be achieved without sacrificing personal rights, but, instead,
integrating individual emancipation, through the deployment of
personal liberty and creativity, as a key dynamic in the development
of society?
The Agrarian Question a Century After 1917 193
The third challenge concerns the ecological dimension which

21st-century socialism must boldly address as a fundamental point
of departure in shaping a vision of a socialist future and the
concrete policies required to achieve it. Establishing a harmonious
relationship between society and nature demands a radical break
with the dominant logics of capitalism predicated on the essential
destruction of the material basis of society and the reproduction of
life on the planet.
My book entitled October 1917 Revolution, A Century Later
(Amin, 2017) proposes a comprehensive analysis of these challenges,
organised around the central theme of Soviet isolation imposed
by imperialist globalisation. This work places the focus on the
particular challenge posed by the peasant question. I emphasise the
examination of this issue primarily because contemporary and largely
urban social movements generally ignore it, thereby constraining the
formulation of a coherent strategy for socialism in the 21st century.
In this respect, this work is situated alongside publications inspired
by the works of Sam Moyo, whose authors recognise the importance
of the new agrarian question.
The first issue presented here concerns the manner through
which historical capitalism has ‘settled’ the (agrarian) question, in
favour of minorities comprising the populations of the developed
capitalist economies of the centre (about 15 per cent of the total
world population). Is the reproduction of this model of ‘development’
feasible or achievable for the populations of contemporary Asia, Africa
and South America? My response to this question is negative, and
as a result, the contemporary world is confronted with a challenge
which, I argue, can only be solved by a bold vision of socialism.
The second issue concerns the strategy of stages which I propose
as a longer-term process of constructing a socialist alternative for the
populations of these three continents. As it must, the new agrarian
question is the key issue to be addressed in the processes of building
socialism in the 21st century.
Historical capitalism provided its own types of solutions to the
agrarian problem in Europe and the USA. Theorists and ideologists
of capitalism all imagined that this same solution would result from
the transfer and application of organisational models derived from

large-scale industry to agriculture. History has proved them wrong.
The solution has actually operated in a very different manner;
notably, through the emergence of new strata of the bourgeoisie,
made up of ‘agriculturalists’ (who are no longer peasants). Today,
the capture of agriculture by large-scale corporate capital in the
financial monopolies places the future of family farming in jeopardy
while new strategies deployed by the agro-industrial complex aim to
substitute family farms with agri-business.
Soviet socialism inherited the dominant conception of the 19th
century, transmitted by Kautsky and inspired by the model of Soviet
collectivisation. In my book cited above, I articulate the reasons why
I consider this as the fundamental mistake underlying the rupture of
the worker-peasant alliance—which had itself assured the success of
the October Revolution. By avoiding this mistake, Maoism, on the
other hand, opened up to a different path for the resolution of the
peasant question founded on the principle of equal access to land
for all rural people. This continues to be relevant for the future of
the populations of Asia, Africa and South America. The distinction I
make between capitalist agriculture and agriculture under capitalism
constitutes, in my humble opinion, a new contribution which
historical Marxism and, a fortiori, bourgeois theories, have ignored
(Kautsky, [1899] 1988).
In the North: An Efficient Family Agriculture Perfectly

Integrated into Dominant Capitalism
Modern family agriculture, dominant in Western Europe and in
the USA, has clearly shown its superiority when compared to other
forms of agricultural production. Annual production per worker
(the equivalent of 1000–2000 tons of cereal) has no equal, and it has
enabled a minimum proportion of the active population (about 5
per cent) to supply the whole country abundantly and even produce
exportable surpluses. Modern family agriculture has also shown an
exceptional capacity for absorbing innovations and much flexibility
in adapting to demand.
This agriculture does not share the specific characteristic of
capitalism, its main mode of labour organisation. In the factory,

the number of workers enables an advanced division of labour,
which is at the origin of the leap in productivity. In the agricultural
family business, labour supply is reduced to one or two individuals
(the farming couple), sometimes helped by one, two, or three
associates or permanent labourers, but also, in certain cases, a larger
number of seasonal workers (particularly for the harvesting of fruit
and vegetables). Generally speaking, there is not a definitively fixed
division of labour, the tasks being polyvalent and variable. In this
sense, family agriculture is not capitalist.
However, this modern family agriculture constituted an
inseparable part of the capitalist economy into which it is totally
integrated. In this family agricultural business, its self-consumption
no longer counts. It depends entirely for its economic legitimacy on
its production for the market. Thus, the logic that commands the
production options is no longer the same as that of the agricultural
peasants of yesterday (analysed by Chayanov, 1966), or of today in
Third World countries.
The efficiency of the agricultural family business is due to its
modern equipment. They possess 90 per cent of the tractors and
other agricultural equipment in use in the world. These machines
are ‘bought’ (often on credit) by the farmers and are therefore their
‘property’. In the logic of capitalism, the farmer is both a worker
and a capitalist and the income earned should correspond to the
sum of the wages for the work and the profit from the ownership of
the capital being used. But it is not so. The net income of farmers
is comparable to the average wage earned in industry in the same
country. The state intervention and regulation policies in Europe
and in the USA, where this form of agriculture dominates, have
as their declared objective the aim of ensuring (through subsidies)
the equality of ‘peasant’ and ‘worker’ incomes. The profits from
the capital used by farmers are therefore collected by segments of
industrial and financial capital further up the food chain.
In the family agriculture of Europe and the USA, the component
of the land rent, itself meant to constitute, in conventional economics,
the remuneration of the productivity of the land, does not figure
in the remuneration of the farmer/owner, or the owner (when not

the farmer). The French model of ‘anaesthetising the owner’ is very
telling: in law, the rights of the farmer are given priority over those
of the owner. In the USA, where ‘respect for property’ always has
the absolute priority, the same result is obtained by forcing, de facto,
almost all the family businesses to be owners of the land that they
farm. The rent of ownership thus disappears from the remuneration
of the farmers.
The efficiency of this family agriculture is also due to the fact
that it farms (as owner or not) enough good land: neither too
small nor pointlessly large. The surface farmed corresponds, for
each stage of the development of mechanized equipment, to what
a farmer alone (or a small family unit) can work. It has gradually
expanded, as Marcel Mazoyer has extremely well demonstrated (by
the facts) and illustrated (as an efficiency requirement) (Mazoyer
and Roudard, 1997).
Control over agricultural production also operates down the
food chain by modern commerce, particularly the supermarkets. In
actual fact, the agricultural family unit, efficient as it is (and it is),
is only a sub-contractor, caught in the pincers between upstream
agribusiness (which imposes selected seeds today, Genetically
Modified Organisms (GMOs) tomorrow), industry (which supplies
the equipment and chemical products), finance (which provides
the necessary credits), and downstream in the commercialisation of
the supermarkets. The status of the farmer is more like that of the
artisan (individual producer) who used to work in the ‘putting out’
system (the weaver dominated by the merchant that supplied the
thread and sold the material produced).
It is true that this is not the only form of agriculture in the
modern capitalist world. There are also large agribusiness enterprises,
sometimes big owners who employ many waged labourers (when
these estates are not leased out to tenant family farmers). This was
generally the case with land in the colonies and still is the case in
South Africa (this form of latifundia having been abolished by the
agrarian reform of Zimbabwe). There are various forms in Latin
America, sometimes not very ‘modernised’ and sometimes very
‘modernised’ (i.e., mechanised), as in the Southern Cone. But family

agriculture remains dominant in Europe and the USA.
‘Really existing socialism’ carried out various experiences
in ‘industrial’ forms of agricultural production. The ‘Marxism’
underlying this option was that of Karl Kautsky who, at the end of
the nineteenth century, had ‘predicted’, not the modernisation of the
agricultural family business (its equipment and its specialisation), but
its disappearance altogether in favour of large production units, like
factories, believed to benefit from the advantages of a thoroughgoing
internal division of labour. This prediction did not materialise in
Europe and the USA. But the myth that it transmitted was believed
in the Soviet Union, in Eastern Europe (with some nuances), in
China, in Vietnam (in the modalities specific to that country) and,
at one time, in Cuba. Independently of the other reasons that led
to the failure of these experiences (bureaucratic management, bad
macroeconomic planning, reduction of responsibilities due to lack
of democracy, etc.), there were also errors of judgement about the
advantages of the division of labour and specialisation, extrapolated—
without justification—from certain forms of industry and applied
to other fields of production and social activity.
While if the reasons for this failure are now recognized,
this cannot be said for the forms of capitalist agriculture in the
regions of Latin America and Southern Africa mentioned above.
And yet, the failure is also obvious, despite the profitability and
the competitiveness of these modernized forms of latifundia. For
this, profitability is obtained through horrific ecological wastage
(irreversible destruction of productive potential and of arable land),
as well as social exploitation (miserable wages).
In the South: Poor Peasant Cultivators as Part of a Dominated

Peripheral Capitalism
Peasant cultivators in the South constitute almost half of
humanity— three billion human beings. The types of agriculture
vary, from those that have benefited from the green revolution
(fertilisers, pesticides and selected seeds)—although they are not
very mechanized, their production has risen to between 100 and
500 quintals per labourer—to those which are the same as before
this revolution whose production is only around 10 quintals per
labourer. The gap between the average production of a farmer in
the North and that of peasant agriculture, which was from 10 to
1 before 1940 is now from 100 to 1. In other words, the rate of
progress in agricultural productivity has largely outstripped that of
other activities, bringing about a lowering of the real price from 5 to
1. This peasant agriculture in the countries of the South is also well
and truly integrated into local and world capitalism. However, closer
study reveals immediately both the convergences and differences in
the two types of ‘family’ economy.
There are huge differences, which are visible and undeniable:
the importance of subsistence food in the peasant economies, the
only way of survival for those rural populations; the low efficiency
of this agriculture, not equipped with tractors or other materials
and often highly parcellised; the poverty of the rural world (three-
quarters of the victims of under-nutrition are rural); the growing
incapacity of these systems to ensure food supplies for their towns;
the sheer immensity of the problems, as the peasant economy affects
nearly half of humanity.
In spite of these differences, peasant agriculture is already
integrated into the dominant global capitalist system. To the extent
of its contribution to the market, it depends on purchased inputs
(at least chemical products and selected seeds) and is the victim of
the oligopolies that control the marketing of these products. For the
regions having ‘benefited’ from the ‘Green Revolution’ (half of the
peasantry of the South) upstream and downstream, the siphoning
off of profits on the products by dominant capital are very great. But
they are also, in relative terms, for the other half of the peasantry
of the South, taking into account the weakness of their production.
Is the Modernisation of the Agriculture of the South by

Capitalism Possible and Desirable?
Let us use the hypothesis of a strategy for the development of
agriculture that tries to reproduce systematically in the South the
course of modern family agriculture in the North. One could easily
imagine that some 50 million more modern farms, if given access to

the large areas of land which would be necessary (taking it from the
peasant economy and, of course, choosing the best soils) and access
to the capital markets enabling them to equip themselves, they could
produce the essential of what the creditworthy urban consumers still
currently obtain from peasant agriculture. But what would happen
to the billions of non-competitive peasant producers? They would
be inexorably eliminated in a short period of time, a few decades.
What would happen to these billions of human beings, most of
them already the poorest of the poor, but who feed themselves, for
better and/or for worse—and for a third of them, for worse? Within
a time horizon of 50 years, no industrial development, more or less
competitive, even in a far-fetched hypothesis of a continual annual
growth of 7 per cent for three-quarters of humanity, could absorb
even a third of this labour reserve. Capitalism, by its nature, cannot
resolve the peasant question: the only prospects it can offer are a
planet full of slums and billions of ‘too many’ human beings.
We have therefore reached the point where, to open up a new
field for the expansion of capital (‘the modernisation of agricultural
production’), it is necessary to destroy—in human terms—entire
societies. Fifty million new efficient producers (200 million human
beings with their families), on the one hand, and three billion of
excluded people, on the other. The creative aspect of the operation
would be only a drop of water in the ocean of destruction that it
requires. I thus conclude that capitalism has entered its phase of
declining senility: the logic of the system is no longer able to ensure
the simple survival of humanity. Capitalism is becoming barbaric
and leads directly to genocide. It is more than ever necessary to
replace it by other development logics which are more rational.
So, what is to be done?
It is necessary to accept the maintenance of peasant agriculture
for all the foreseeable future of the twenty-first century. Not for
reasons of romantic nostalgia for the past, but quite simply because
the solution of the problem is to overtake the logics that drive
capitalism and to participate in the long, secular transition to world
socialism. It is, therefore, necessary to work out regulation policies
for the relationships between the ‘market’ and peasant agriculture.

At the national and regional levels, these regulations, specific and
adapted to local conditions, must protect national production,
thus ensuring the indispensable food sovereignty of nations—in
other words, delinking the internal prices from those of the so-
called world market—as they must do. A gradual increase in the
productivity of peasant agriculture, which will doubtless be slow
but continuous, would make it possible to control the exodus of
the rural populations to the towns. At the level of what is called
the world market, the desirable regulation can probably be done
through interregional agreements that meet the requirements of a
development that integrates people rather than excludes them.
There is No Alternative to Food Sovereignty

At the world level, food consumption is assured, through
competition for 85 per cent of it, by local production. Nevertheless,
this production corresponds to very different levels of satisfaction
of food needs: excellent for North American and West and Central
Europe, acceptable in China, mediocre for the rest of Asia and Latin
America, disastrous for Africa. One can also see a strong correlation
between the quality and the levels of industrialisation of the various
regions: countries and regions that are more industrialised are able
to feed their populations well from their own agricultural produce.
The USA and Europe have understood the importance of
food sovereignty very well and have successfully implemented it
by systematic economic policies. But, apparently, what is good for
them is not so for the others. The World Bank, the OECD and
the European Union try to impose an alternative, which is ‘food
security’. According to them, Third World countries do not need
food sovereignty and should rely on international trade to cover
the deficit in their food requirements, however large. This may
seem easy for those countries which are large exporters of natural
resources (oil, uranium, etc.). For the others, the ‘advice’ of the
Western powers is to specialise their agriculture, as much as possible,
in the production of agricultural commodities for export (cotton,
tropical drinks and oils, agrofuels in the future). The defenders
of ‘food security’ (for others, not for themselves) do not consider

the fact that this specialisation, which has been practiced since
colonialism, has not made it possible to improve the miserable food
rations of the peoples concerned, especially the peasants. Nor is the
above-mentioned correlation taken into account.
Thus, the advice to peasants who have not yet entered the
industrial era (as in Africa) is not to engage in ‘insane’ industrialisation
projects. These are the very terms used by Sylvie Brunel, who goes
so far as attributing the failure of agricultural development in Africa
to this ‘insane’ option of their governments! It is precisely those
countries that have taken this option (Korea, Taiwan, China) that
have become ‘emerging countries’, as well as able to feed their
population better (or less badly). And it is precisely those who have
not done so (Africa) that are sunk into chronic malnutrition and
famine. This would not appear to embarrass the defenders of the so-
called principle of ‘food security’ (more accurately, ‘food insecurity’).
There is little doubt that, underneath this obstinacy against Africa
committing itself to paths inspired by the success of Asia, lies
more than a touch of contempt (if not racism) towards the peoples
concerned. It is regrettable that such nonsense is to be found in
many of Western circles and organisations with good intentions—
NGOs and even research centres.
Bruno Parmentier (2007) has clearly demonstrated the total
failure of the ‘food security’ option. Governments who thought
they could cover the need of their poor urban populations through
their exports (oil, among others) have found themselves trapped by
the food deficit that is growing at an alarming rate as a result of
these policies. For the other countries—particulary in Africa—the
situation is even more disastrous.
On top of this, the economic crisis initiated by the financial
collapse of 2008 is already aggravating the situation—and will
continue to do so. It is sadly amusing to note how, at the very
moment when the crisis underway illustrates the failure of the so-
called food security policies, the partners of the OECD (such as the
EU institutions) cling to them. It is not that the governments of the
Triad (the USA, Europe and Japan) do not ‘understand’ the problem.
This would be to deny them the intelligence that they certainly

possess. So can one dismiss the hypothesis that ‘food insecurity’ is
a consciously adopted objective? Has the ‘food weapon’ not already
been implemented? Thus, there is an extra reason for insisting that
without food sovereignty, no political sovereignty is possible.
But while there is no alternative to food sovereignty, its efficient
implementation does, in fact, require the commitment to the
construction of a diversified economy and, hence, industrialisation.
Land Tenure Reform is at the Heart of the Choices Concerning

the Future of Peasant Societies
The main issue of the debate on the future of peasant agricultures
concerns the question of the rules governing the access to land. The
necessary reforms of land tenure systems in Africa and Asia must be
made with the perspective of a development that benefits the whole
of society, in particular the working and popular classes, including,
of course, the peasants. It must be oriented towards reducing
inequalities and radically eliminating ‘poverty’. This development
paradigm involves a combination of a mixed macroeconomy
(associating private enterprise and public planning) based on the
double democratisation of the management of the market and of
the state and its interventions, and the option for a development of
an agricultural system based on peasant family cultivation.
Implementing this set of fundamental principles—the special
ways and means of each country and phase of development having
to be worked out—constitutes, in itself, the construction of the
‘alternative’ in its national dimensions. This must, of course, be
accompanied by evolutions that can support it, both at the required
regional levels and at the world level, through the construction of
an alternative globalisation, negotiated and no longer imposed
unilaterally by dominant transnational capital, the collective
imperialism of the Triad and the hegemony of the USA.
The regulations governing access to the use of agricultural
land must be conceived in a perspective that ‘integrates and does
not exclude’, that is to say, which enables cultivators as a whole to
have access to the land, a prior condition for the reproduction of a
‘peasant society’. This fundamental right is certainly not enough. It

has also to be accompanied by policies that help the peasant family
units to produce in conditions that help maintain the growth of
national production (guaranteeing, in turn, the food sovereignty
of the country) and a parallel improvement in the real income of
the peasants involved as a whole. A collection of macroeconomic
proposals and forms for appropriate policy in managing them has
to be implemented, and negotiations concerning the organisation of
international trade must be subordinated to them.
Access to land must be regulated by the status of its ownership.
The terminology used in this field is often imprecise, because of a
lack of conceptualisation. In English, the words ‘land tenure’ and
‘land system’ are often used interchangeably.
First of all, it is necessary to distinguish two families of land
tenure systems: those that are based on the private ownership of
land and those that are not.
Land Tenure Systems Based on the Private Ownership of Land

In this case, the owner disposes of, to use the terms of Roman law,
the usus (right to develop), the fructus (ownership of the products of
this exploitation) and the abusus (the right to transfer ownership).
This right is ‘absolute’ in that the owner can cultivate his/her own
land, rent it out, or even keep it out of cultivation. Ownership can
be given or sold, it is part of a collection of assets deriving from the
rights of inheritance.
This right is no doubt often less absolute than it appears. In
all cases, usage is subordinated to laws governing the public order
(prohibiting its illegal use for growing drug-producing crops, for
example) and increasing numbers of regulations concerned with
preserving the environment. In certain countries that have made an
agrarian reform, there is a fixed ceiling to the size of the property of
an individual or a family. The rights of tenant farmers (length and
guarantee of lease, the amount of land rent) limit the rights of the
owners in different degrees, to the point of giving the tenant farmer
the greater benefit of protection by the state and its agricultural
policies (as is the case for France). The freedom to choose crops is
not always the rule. In Egypt, the state agricultural services have
always imposed the size of the plots of land allocated to the different
crops in accordance with their irrigation requirements.
This land tenure system is modern in the sense that it is the
result of the constitution of ‘really existing’ capitalism, starting from
Western Europe (first in England) and from the colonies of European
extraction in America. It was set up through the destruction of the
‘customary’ systems of regulating access to the land in Europe itself.
The statutes of feudal Europe were founded on the superimposing
of rights on the same land: those of the peasant concerned and
other members of the village community (serfs or freedmen), those
of the feudal lord and those of the king. The assault on these rights
took the form of the Enclosures in England, imitated in various
ways in all the European countries during the 19th century. Marx
very soon denounced this radical transformation that excluded
most of the peasants from access to the use of land—and who were
destined to become emigrant proletarians in the town, or remain
where they were as agricultural labourers (or sharecroppers)—and
he classified these measures as primitive accumulation, dispossessing
the producers of the land and the use of the means of production.
Using the terms of Roman law to describe the statute of modern
bourgeois ownership imply that it dates from time immemorial,
that is, the ownership of the land in the Roman Empire, and more
precisely the slave-labour land ownership. In actual fact, these
particular forms of ownership, having disappeared in feudal Europe,
make it impossible to talk of the ‘continuity’ of a ‘Western’ concept
of ownership (itself associated with individualism and the values
that it represents) that has never existed.
The rhetoric of the capitalist discourse—the ‘liberal’ ideology—
has not only produced this myth of ‘Western continuity’. It has
produced another myth that is still more dangerous: that of
an ‘absolute and superior rationality’ of the management of an
economy based on the private and exclusive ownership of the
means of production, which include agricultural land. Conventional
economics does, in fact, claim that the ‘market’, that is, the
alienability of the ownership of capital and land, ensures the optimal
usage (the most efficient) of these ‘factors of production’. According

to this logic, therefore, land must be turned into ‘a commodity like
the others’, which can be alienated at the price of ‘the market’ to
guarantee that the best use is made of it for the owner concerned
and for the whole society. This is only a miserable piece of tautology,
but it is what the whole discourse on which the bourgeois economy
is based. This same rhetoric thinks it can legitimise the principle of
ownership of the land by the fact that it alone gives the cultivator
who invests to improve the yields per hectare and the productivity
of his work (and of those that he employs, if this is the case) the
guarantee that he will not suddenly be dispossessed of the fruits of
his labour and savings.
This is not true at all, for other forms of regulations on the right
of land use can produce the same results. Finally, this dominant
discourse extends the conclusions that it believes to draw from the
construction of Western modernity, to propose them as the only
‘rules’ necessary for the progress of all other peoples. Giving over
the land everywhere to private ownership in the current sense of the
term, such as that practised in the centres of capitalism, is to apply
to the whole world the policy of the Enclosures—in other words,
dispossessing the peasants. This is not a new process: it was initiated
and continued during the centuries preceding the world expansion
of capitalism, particularly in the colonial systems. Today, the World
Trade Organisation (WTO) actually proposes to accelerate the
movement, whereas the destructions that this capitalist option
involves are increasingly foreseeable and calculable. For this reason,
the resistance of the peasants and the peoples involved can make it
possible to build a real alternative, one that is genuinely human-
oriented.
Land Tenure Systems Not Based on the Private Ownership of

Land
This definition, being negative, cannot apply to a homogeneous
group. For, in all human societies, access to the land is regulated.
But this is done either through ‘customary communities’, ‘modern
local authorities’, or the state. Or, more precisely, and more often,
by a collection of institutions and practices that concern individuals,

local authorities and the state.
The ‘customary’ management (expressed in terms of customary
law or so-called customary law) has almost always excluded private
ownership (in the modern sense) and has always guaranteed access
to the land to all the families (rather than individuals) concerned—
that is, those who constitute a distinct ‘village community’ and
identify themselves as such. But it hardly gave ‘equal’ access to
the land. First, it usually excluded ‘foreigners’ (very often what
remained of the conquered people) and ‘slaves’ (of various status);
it also unequally distributed land according to membership of
clans, lineage and castes, or status (‘chiefs’, ‘freed-men’, etc.). So it
is inappropriate to indiscriminately praise these customary rights
as is done by numerous ideologues of anti-imperialist nationalism.
Progress will certainly require them to be questioned.
Customary management has almost never been that of
‘independent villages’, which were in fact nearly always integrated
into some sort of state, stable or shifting, solid or precarious, but
seldom absent. The usage rights of communities and of the families
that composed them have always been limited by those of the state
that received tribute (which is the reason why I described the vast
array of pre-modern production modes as ‘tributary’).
These complex kinds of ‘customary’ management, which differ
from one country and epoch to another, now only exist, at best, in
extremely degraded forms, having suffered from the attack by the
dominating logic of globalised capitalism for at least two centuries (in
Asia and Africa) and sometimes five centuries (in Latin America). The
example of India is probably the most striking in this regard. Before
British colonisation, access to land was administered by the ‘village
communities’ or, more exactly, their governing castes, excluding the
inferior castes—the Dalits—who were treated as a kind of collective
slave class, similar to the helots of Sparta. These communities, in
turn, were controlled and exploited by the imperial Mughal State
and its vassals (rajas and other kings), who levied the taxes. The
British raised the status of the zamindars (whose responsibility it
was to actually collect the taxes) to becoming ‘owners’, so that they
constituted a kind of allied large land-owning class, regardless of

tradition. On the other hand, they maintained the ‘tradition’ when
it suited them, for example excluding the Dalits from access to land.
Independent India did not challenge this heavy colonial inheritance,
which is the cause of the unbelievable destitution of most of the
peasantry and, thus, of its urban population (Amin, 2006, Chapter
4).
The solution to these problems and the building up of a viable
peasant economy of the majority thus requires an agrarian reform,
in the strict sense of the term. The European colonisation in South
East Asia and that of the USA in the Philippines have had similar
consequences. The regimes of the ‘enlightened’ despots of the East
(the Ottoman Empire, the Egypt of Mohamed Ali, the Shahs of
Iran) also mostly supported private ownership in the modern sense
of the term for the benefit of a new class (incorrectly described as
‘feudal’ by the main currents of historical Marxism), required from
the senior agents of their power systems.
As a result, the private ownership of land is now applicable
to most agricultural land—particularly the most fertile ones—
in all Asia, except for China, Vietnam and the former Soviet
republics of Central Asia. There remain only the vestiges of para-
customary systems, particularly in the poorest areas and those less
attractive to prevailing capitalist agriculture. This structure is highly
differentiated, juxtaposing large landowners (rural capitalists in my
terminology), rich peasants, middle peasants and poor peasants
without land. There is no peasant organisation or movement that
transcends these acute class conflicts.
In Arab Africa, in South Africa, Zimbabwe and Kenya (but
not in Egypt), the colonial authorities had granted their colonisers
‘modern’ private property, generally of a latifundia type. This
inheritance has certainly been eliminated in Algeria, but there the
peasantry had practically disappeared and been proletarianised or
reduced to vagrancy by the extension of the colonial properties, while
in Morocco and Tunisia the local bourgeoisie took over (which also
partially happened in Kenya). In Zimbabwe, the revolution underway
has challenged the colonial heritage on behalf partly of new owners
who are more urban than rural and partly of the ‘communities of
poor peasants’. South Africa, for the time being, has not taken part
in this movement. The strips of degenerated para-customary systems
which remain in the ‘poor’ regions of Morocco and Berber Algeria,
as in the Bantustans of South Africa, are suffering from the threat
of private appropriation, encouraged by elements inside and outside
the concerned communities.
In all these situations, the peasant struggles (and sometimes
the organisations that support them) should be identified more
precisely: do they constitute movements and represent claims by
‘rich peasants’ that are in conflict with some state policies (and the
influence of the dominant world system on them)? Or are they poor
and landless peasants? Could they both form an alliance against the
dominant (so-called ‘neoliberal’) system? On what conditions? To
what extent? Can the claims—whether they are expressed or not—
of the poor, landless peasants be ‘forgotten’?
In intertropical Africa, the apparent persistence of these
‘customary’ systems is certainly more visible. Because, here, the
colonisation model took off in a different direction known as the
économie de traite: the meaning of this concept, which has no
English translation, is that the management of access to land was
left to the so-called ‘customary’ authorities, nevertheless controlled
by the colonial state (though genuine traditional chiefs or false ones
fabricated by the administration). The objective of this control was
to force the peasants to produce, beyond their cotton, coffee, cacao.
The maintenance of a land tenure system that did not recognise
private property was convenient for the colonisers, as land rent did
not have to be taken into account in calculating the price of the
products. This resulted in the degradation of the soils, destroyed by
expanding crops, sometimes definitively (as, e.g. the desertification
of Senegal where groundnuts had been cultivated). Here, once again,
capitalism demonstrates that the ‘short-term rationality’ inherent in
its dominant logic is largely responsible for ecological disaster. The
juxtaposition of subsistence food crops and exports crops also made
it possible to pay the work of the peasants at levels close to zero.
For these reasons, to talk about the ‘customary land tenure system’
is grossly misleading: it is a new regime that conserves only the

appearance of ‘tradition’, often its least interesting aspects.
China and Vietnam provide a unique example of a system
for managing access to the land which is based neither on private
ownership, nor on ‘custom’, but on a new revolutionary right,
unknown elsewhere, which is that of all the peasants (described as
the inhabitants of a village) having equal access to land—and I stress
the ‘equal’. This is the most beautiful acquisition of the Chinese and
Vietnamese revolutions.
In China, and still more in Vietnam, which had a deeper
colonisation experience, the ‘old’ land tenure systems (those I have
described as ‘tributary’) were already fairly eroded by dominant
capitalism. The old governing classes of the imperial power system
had taken over agricultural land as owners, or almost as private
property, while capitalist development encouraged the creation of
new classes of rich peasants. Mao Zedong is the first—followed
by Chinese and Vietnamese communists—to have prescribed an
agrarian revolution strategy based on the mobilisation of most of
the poor peasants, without land or other assets. The victory of
this revolution made it possible to abolish the private ownership
of land right from the beginning—which was replaced by that of
the state—as well as the organisation of new forms of equal access
to land for all peasants. True, this procedure has passed through
several successive stages, including the Soviet-inspired model based
on production cooperatives. The limits of their achievements led
both countries to return to the idea of family peasant units. Are they
viable? Can they produce a continual improvement in production
without freeing up too much rural labour? On what conditions?
What kinds of support are required from the state? What forms of
political management can meet this challenge?
Ideally, the model involves the double affirmation of the rights
of the state (the only owner) and of the usufructuaries (the peasant
family). The state guarantees the equal division of the village lands
among all the families and it prohibits all other usage other than
family cultivation— for example, the renting of land. It guarantees
that the result of investments made by the usufructuaries is given
back to them immediately through their right of ownership of all the

produce of their land, which are marketed freely, although the state
guarantees purchase at a minimum price. On the longer term, the
children who remain on the land can inherit from the usufructuaries
(those who definitively leave the place lose their right to the land,
which reverts to the lands for future redistribution). This is the case,
of course, for fertile land, but also for the small, even dwarf-sized
plots, so that the system is only viable if there is vertical investment
(the green revolution without much mechanisation), which proves
as effective in increasing production through rural activities as
horizontal investment (extension of the holdings, supported by
intensified mechanisation).
Has this ‘ideal’ model ever been implemented? It was surely close
to it, for example, during the period of Deng Xiaoping in China.
Nevertheless, even if it has created a greater degree of equality within
a village, it has never been able to avoid the inequalities between one
community and another, which are created by the difference in the
quality of the soils, the density of population, or the proximity to
urban markets. No other system of redistribution (even through the
structures of cooperatives and state marketing monopolies during
the ‘Soviet’ stage) has managed to resolve this challenge.
What is certainly more serious is that the system itself is
subject to internal and external pressures that undermine its aims
and social impact. Access to credit and favourable conditions for
the supply of inputs are the object of bargaining and interventions
of all kinds, legal and illegal: ‘equal’ access to the land is not the
same as ‘equal’ access to the best conditions for production. The
increasing popularity of the ‘market’ ideology promotes this erosion:
the system tolerates tenant farming (if not re-legitimising it) and
the hiring of wage labour. The discourse of the right-encouraged
from the outside—repeats that it is necessary to give the peasants
‘ownership’ of the land and open up ‘the market in agricultural
land’. It is very clear that those supporting this are the rich peasants
(if not agribusiness), who want to increase their holdings.
The management of this system of access to land for the peasants
is ensured up till now by the state and the Party together. It may
well be that this is because of the village councils that have been
genuinely re-elected, and it has been necessary because there is no
other way to mobilise the opinion of the majority and reduce the
intrigues of the minorities of profiteers who would eventually benefit
from a more marked capitalist development. The ‘dictatorship of the
Party’ has shown that this has been largely solved through careerism
and opportunism, if not corruption. The social struggles underway
in the Chinese and Vietnamese countryside make their voices heard
in these countries, just as they do elsewhere in the world. But they
remain very much on the ‘defensive’, that is, attached to defending
the heritage of the revolution: the equal right of everyone to land.
Defence is necessary, because this heritage is more threatened
than would appear, in spite of repeated affirmations by the two
governments that ‘the ownership of land by the state will “never” be
abolished for the benefit of private ownership’. But now this defence
requires recognition of the right to do it through the organisation of
those concerned, the peasants.
Not Only One Formula for Peasant Alternatives

‘Agrarian reform’ should be understood as the redistribution of
private ownership when it is considered to be unequally distributed.
It is a land tenure system that is based on the principle of ownership.
This reform becomes necessary both to satisfy the demand (perfectly
legitimate) from poor and landless peasants and to reduce the
political and social power of the large landowners. But where it is
implemented, in Asia and Africa after the liberation of old forms
of imperialist and colonial domination, it has been carried out by
hegemonic non- revolutionary social blocs who were not governed
by the dominated and poor majority classes. The exceptions were in
China and Vietnam where, also for this reason, there had not been
an ‘agrarian reform’ in the strict sense of the term but, as I have
said, private ownership of land was suppressed, the principle of state
ownership was affirmed, and the ‘equal’ access to the use of land by
all the peasants was put into operation. Elsewhere, real reforms only
dispossessed the large landowners for the profit, ultimately, of the
middle and even rich (long-term) peasants, ignoring the interests of
the poor and those without land. That was the case in Egypt and
in other Arab countries. The reform underway in Zimbabwe risks
ending up in the same way. In other situations, reform is always on
the agenda of what should be done: in India, in South East Asia, in
South Africa and in Kenya.
The progress created by agrarian reform, even where it exists as
an immediate and essential requirement, is nevertheless ambiguous
for its more long-term implications. For it reinforces attachment
to ‘small property’, which becomes an obstacle to the questioning
of a land tenure system based on private ownership. Russia’s
history illustrates this drama. The developments that followed the
abolition of serfdom, in 1861, were accelerated by the revolution of
1905, because Stolypin’s policies had already produced a ‘claim for
ownership’ that was (finally) fulfilled in the radical agrarian reform
after the 1917 Revolution. And, as we know, the new small owners
did not enthusiastically renounce their rights for the benefit of the
unfortunate cooperatives, which were dreamt up at the time, in the
1930s.
‘Another path’ to development, based on the peasant family
economy of the generalised small owners, would have been possible.
But it was not attempted. And what about the regions (other than
China and Vietnam) where, in fact, the land tenure system had not
(yet) been based on private property? This was, of course, the case
of intertropical Africa.
Here we find the old debate. Towards the end of the 19th century,
Marx, in his correspondence with the Russian Narodniks (Vera
Zasulich, among others), dared to say that the absence of private
ownership could constitute an advantage for the socialist revolution,
enabling a leap forward towards a regime for managing the access to
land other than the one governed by private ownership. But he did
not specify what forms this new regime should take, the adjective
‘collective’, correct as it was, being insufficient. Twenty years later,
Lenin believed this possibility no longer existed, eliminated by the
penetration of capitalism and the spirit of private ownership that
accompanied it. Was this a correct assessment? I cannot say, as I do
not know enough about Russia. However, Lenin was hardly able
to give decisive importance to this question, having accepted the

viewpoint of Kautsky in The Agrarian Question.
Kautsky made generalisations about the extent of the model
in modern European capitalism and believed that the peasantry
was destined to ‘disappear’ because of the capitalist expansion
itself. In other words, that capitalism would be able to ‘resolve the
agrarian question’. While this was true (for 80 per cent) of the other
capitalist countries (the Triad: 20 per cent of the world population),
it is not the case for the ‘rest of the world’ (80 per cent of the
population). History has shown that not only has capitalism not
solved this question for the 80 per cent of the world population,
but that, as it pursues its expansion, it cannot resolve it, other than
by genocide—what a marvellous solution! It was necessary to await
Mao Zedong and the Communist Parties of China and Vietnam to
give an adequate response to this challenge.
The question came up again in the 1960s, when Africa attained
its independence. The national liberation movements of the
continents, the states and the State-Parties which it had produced
received, in different degrees, the support of the peasant majorities
of their people. Their natural tendency to populism was to imagine
a ‘specific (“African”) path to socialism’. This could be described
as very moderately radical in its relationships both with dominant
capitalism and with the local classes associated with its expansion.
Nevertheless, it posed the question of reconstruction of peasant
society in a humanist and universalist spirit. This spirit was often
very critical of ‘traditions’ that the foreign masters had, in fact, been
trying to mobilise for their own profit.
All the African countries—or almost all—adopted the same
principle, formulated in the ‘eminent ownership right of the state’
over all the land. I am not among those who consider this declaration
to have been ‘a mistake’, nor that it was motivated by extreme
‘statistim’. To grasp the extent of the challenge it is necessary to
study the way in which the current system controls the peasantry
and how it is integrated into the world capitalist system. This
control is ensured by a complex system that calls upon ‘custom’,
private (capitalist) ownership, and the state, all at the same time.
‘Custom’, as we have just seen, has degenerated and only serves as

decoration in the discourses of dictators appealing to what is known
as ‘authenticity’, the fig leaf to cover their appetite for pillage and
betrayal to imperialism. The tendency for private appropriation to
expand has not met with any serious obstacle, apart from some
resistance by the victims. In certain regions, which are more suitable
for profitable cultivation (irrigated areas, market gardens), land is
bought, sold and rented without any formal ownership titles.
The eminent state ownership of land, which I defend as a
principle, is itself promoting private appropriation. The state can
thus ‘give’ the land necessary for installing a tourist area, a local
or foreign agro-business enterprise, or a state farm. The title deeds
required for access to the areas to be developed are the object of
a distribution process that is rarely transparent. In all cases, the
peasant families that occupied the areas and are forced to clear off
are the victims of these practices that amount to abuse of power.
But to ‘abolish’ eminent state ownership of land to transfer it to
the occupiers is not, in fact, feasible (all the village territories would
have to be registered!), and if it were attempted it would enable the
rural and urban notables to make off with the best bits of land.
The right response to the challenges of a land tenure system
that is not based on private ownership (at least not dominated by it)
should be to reform the state and its active involvement in setting up
a management system of access to land that is modernised, efficient
(economically), and democratic (to avoid, or at least to reduce
inequalities). Above all, the solution is not to ‘return to custom’,
which is, anyway, impossible and which would only serve to increase
the inequalities and open up the way to unbridled capitalism.
However, it cannot be said that the African states have never
tried to take the path recommended here. In Mali, the Sudanese
Union, just after independence in September 1961, started on what
was very inaccurately called ‘collectivisation’. In fact, the cooperatives
that were established were not production cooperatives, which
remained the exclusive responsibility of the family farmers. They
constituted a form of modernised collective power, replacing the
so-called ‘custom’ which the colonial power used to support. The
party that took over this new modern power was also clearly aware
of the challenge and aimed at eliminating the customary forms of
power—which were judged to be ‘reactionary’, if not ‘feudal’. It is
true that this new peasant power, formally democratic (the leaders
were elected), was only as democratic as the state and the party.
However, it did exercise ‘modern’ responsibilities, seeing that access
to land was carried out ‘correctly’, that is, without ‘discrimination’.
It managed the credits, the distribution of the inputs (which were
partially supplied by state trading) and the marketing of produce
(also partially delivered for state commerce). Nepotism and
extortion were certainly not eliminated in these procedures. But the
only response to these abuses was the gradual democratisation of the
state, not its ‘withdrawal’, which was later imposed by liberalism,
through an extremely violent military dictatorship, for the benefit
of the traders (the dioulas).
Other experiences, like those in the liberated areas of Guinea
Bissau, inspired by the theories advanced by Amilcar Cabral, in
Burkina Faso during the Sankara era, have also openly confronted
these challenges and sometimes produced unquestionable advances.
There are now efforts to obliterate them from people’s minds. In
Senegal, the establishment of elected rural authorities constitutes a
response that I unhesitatingly defend in principle. Democracy is a
practice whose apprenticeship never ends, no less in Europe than
in Africa.
What the dominant discourse at the moment means by
‘reform of the land tenure system’ is the exact opposite of what
is required for the building of an authentic alternative based on a
prosperous peasant economy. What this discourse means by land
reform—conveyed by the propaganda instruments of collective
imperialism, the World Bank, many development institutions,
but also a number of NGOs that are richly endowed—is the
acceleration of the privatisation of land, and nothing more. The
aim is clear: to create the conditions that would enable some
‘modern’ islands of agribusiness (foreign and local) to take over
the land they require to expand. But the supplementary produce
that these ‘islands’ could supply (for export or for local ‘effective
demand’) could never meet the needs for building a prosperous

society for all, which would involve the development of the
peasant family economy as a whole.
Need to Define Role of the State in Land Reform

I do not exclude complex and mixed formulas, which can be specific
for each country. Private ownership of the land can be accepted—
at least where it is established and considered legitimate. Its
distribution can— or must—be reviewed where this is the case, by
agrarian reforms (for Sub-Saharan Africa, South Africa, Zimbabwe
and Kenya). I do not even necessarily exclude the opening up of
space—under control—of the setting up of agribusiness. But what
the essential question lies elsewhere: how to modernise peasant
family production and democratise its integration into the national
economy and globalisation. I have no readymade solutions to propose
in these fields. I shall just mention some of the great problems that
this reform raises.
The question of democracy is the indisputable issue to be tackled
in responding to this challenge. It is a complex and difficult issue
that cannot be reduced to the insipid discourse of good governance
and electoral multipartyism. It has, of course, a genuine cultural
aspect: democracy wants to abolish the ‘customs’ that are hostile to
it—prejudices about social hierarchies and, above all, the treatment
of women. It includes juridical and institutional aspects: the
construction of systems of administrative, commercial and personal
rights that are consistent with the aims of social construction and the
setting up of adequate institutions (elected, for the most part). But,
above all, the progression of democracy will depend on the social
power of its defenders. The organisation of peasant movements is,
in this sense, absolutely irreplaceable. It is only to the extent that the
peasantry can express itself that the advances towards what is called
‘participatory democracy’—in contrast to reducing it to the problem
of ‘representative democracy’—can clear the path (Amin, 2005).
The relationship between men and women is no less important
in the democracy challenge. Those who speak of ‘family cultivation’
(peasant) evidently refer to the family, which till now and almost
everywhere has structures that impose the submission of women and

the over-exploitation of their labour. The democratic transformation
will not take place if there are no organised movements of the
women concerned.
Attention should be given to the question of migrations.
‘Customary’ rights generally exclude ‘foreigners’—that is, all those
who do not belong to the clans, lineages, and families of which the
original village community is constituted—from right to the land,
or their access is conditioned. The migrations caused by colonial
and postcolonial development have sometimes taken on dimensions
that upset the ethnic ‘homogeneity’ of the regions concerned. The
emigrants who come from outside the country (like the Burkinabe
in Cote d’Ivoire), or those who are formally citizens of the same
country but of ‘ethnic’ origin that is foreign to the regions where
they settle (like the Hausa in the Plateau state of Nigeria), have faced
questioning of their rights to the land which they have cultivated
by narrow-minded and chauvinistic political movements, which
also benefit from foreign support. One of the most unavoidable
conditions for real democratic advance is to dismiss ideological and
political ‘communitarianisms’ and firmly denounce the paracultural
discourse that underlies them.
All these analyses and proposals which were the object of past
developments only concern the status of ownership and the rules
of access to land. These questions are, indeed, a major issue in
the debates about the future of agricultural and food production
of peasant societies and of the individuals who constitute them.
But they do not cover all dimensions of the challenge. Access to
land cannot be a potential transformer of the society if the peasants
who benefit are unable to get access to the indispensable means of
production on favourable conditions (credit, seeds, inputs, access to
the markets). National policies, like the international negotiations
that aim to define the framework in which the prices and incomes
are determined, are another dimension of the peasant question.
We refer the reader to the writings of Jacques Berthelot (2001)
on these questions. He is the best and most critical analyst of the
projects to integrate agricultural and food production into the
‘world’ markets. We shall just mention two of the conclusions and

most important proposals that we have reached.
First, it is not possible to accept that agricultural and food
production, as well as land, be treated as ordinary ‘goods’, and thus
allow them to be integrated into the project of globalised liberalisation
promoted by the dominant powers and transnationalized capital.
The WTO agenda must just be rejected, purely and simply.
Opinion in Asia and Africa must be convinced of this, and particularly
of the need for food sovereignty, beginning with the peasant
organisations, but also all the other social and political forces that
defend the interests of the popular classes and those of the nation.
All those who have not renounced a project for development that is
worthy of the name must realise that the negotiations underway in
the framework of the WTO agenda will only be catastrophic for the
peoples of Asia and Africa. Capitalism has reached the stage where
the pursuit of profit requires ‘enclosure’ policies at the world level,
like the enclosures that took place in England in the first stage of
its (modern) development. Now, however, the destruction of the
‘peasant reserves’ of cheap labour at the world level will result in
nothing less than the genocide of half of humanity.
Second, it is impossible to accept the behaviour of the main
imperialist powers, the USA and Europe, that are associated with
the assaults against the people of the South within the WTO. These
powers, that try to unilaterally impose the ‘liberalism’ proposals on
the countries of the South, have freed themselves from the same
restrictions by ways that can only be described as systematic trickery.
The Farm Bill of the USA and the agricultural policies of the
European Union violate the very principles which the WTO intends
to impose on other states. The ‘partnership’ projects proposed by the
European Union, following the Cotonou Convention, as from 2008,
are nothing less than ‘criminal’ to use the strong, but appropriate,
expression of Jacques Berthelot. These powers can and must be
accused in the very courts of the WTO set up for this purpose. A
group of countries from the South can do this—and they must.
The alternative consists of national policies to construct/
reconstruct national funds for stabilisation and support for production,
completed by the establishment of common international funds for

basic products, enabling an effective alternative reorganisation of the
international markets of agricultural products. Jean-Pierre Boris has
elaborated such proposals in detail.
The peasants of Asia and Africa organised themselves during the
stage prior to the liberation struggles of their peoples. They found
their place in the strong historical blocs which made it possible
to win victory over the imperialism of the time. These blocs were
sometimes revolutionary (China and Vietnam), and they then had
their main rural bases in the majority classes of middle peasants and
poor, landless peasants. Or, elsewhere, they were led by the national
bourgeoisie or sectors who aspired to become so, among the rich
and middle peasants, thus isolating the large landowners in some
places and the ‘customary’ chieftaincies in the pay of the colonisers.
That page of history having been turned, the challenge of the
new collective imperialism of the Triad will only be got rid of if
historical blocs are constituted in Asia and Africa. But this cannot
be a remake of the preceding blocs. The challenge faced by the so-
called alternative world movement and its constitutive components
of social forums is to identify, in the new conditions, the nature of
these blocs, their strategies and immediate and long-term objectives.
This is a far more serious challenge than is realised by many of the
movements committed to the struggles.
A Complex and Multidimensional Challenge

Is the capitalist modernisation path as ‘effective’ as the conventional
economists claim? Let us imagine that, in this way, we can double
production (from an index of 100 to one of 200), but that this
is obtained by the elimination of 80 per cent of the surplus rural
population (the index of the number of active cultivators falling
from 100 to 20). The apparent gain, measured by the growth of
production per active producer is considerable: it is multiplied by
10. But, if it is seen in terms of the rural population as a whole,
it is only multiplied by two. Therefore, it is necessary to distribute
freely all this growth in production in order simply to keep alive
the peasants who have been eliminated and cannot find alternative
work in the towns. This was what Marx wrote concerning the
pauperisation associated with the accumulation of capital.
The challenge, which is to base development on renewing
peasant societies, has many dimensions. I will just call attention here
to the conditions for constructing the necessary and possible political
alliances that will enable progress to be made towards solutions (in
the interests of the worker peasants, of course) to all the problems
that are posed: access to the land and to the means to develop it
properly; reasonable wages for peasant work; improvement of wages
parallel to the productivity of this work; and appropriate regulation
of the markets at the national, regional and world levels.
New peasant organisations exist in Asia and Africa that are visibly
activating the struggles underway. Often, when political systems
make it impossible for them to constitute formal organisations, the
social struggles in the rural world take the form of ‘movements’
with no apparent direction. These actions and programmes, where
they exist, should be analysed more carefully. Which peasant social
forces do they represent and whose interests are they defending?
The majority mass of the peasants? Or the minorities which aspire
to participating in the expansion of dominant globalised capitalism?
We should mistrust quick answers to these questions that are
complex and difficult. We should be careful not to ‘condemn’ a
number of organisations and movements on the pretext that they
are not mobilising the peasant majorities on radical programmes.
This would be to ignore the need to formulate broad alliances and
strategies by stages. But we should also be careful not to support the
discourse of the ‘naïve alternative world people’ who often set the
tone in the forums and fuel the illusion that the world is on the right
path only because of the existence of the social movements. This
is a discourse that belongs more to the many NGOs—with good
intentions, perhaps—than to the peasant and worker organisations.
I myself am not so naïve as to think that all the interests that
these alliances represent can naturally converge. In all peasant
societies, there are the rich and the poor, who are often without
land. The conditions of access to land result from different
historical experiences which, in some cases, have rooted aspirations
to ownership in people’s minds, while in others, it is to protect

the access to land of the greatest number. The relationships of the
peasantries to state power are also the result of different political
paths, particularly as concerns the national liberation movements of
Asia and Africa: populisms, peasant democracies, state anti-peasant
autocracies show the diversity of peoples’ heritages. The way in
which international markets are run favour some, penalise others.
These divergences of interest are sometimes echoed in many of the
peasant movements and often in the divergences of the political
strategies adopted.
NOTE
1. Originally published in Agrarian South: Journal of Political Economy,
Vol. 6, No. 2, Copyright 2017 © Centre for Agrarian Research and
Education for South (CARES), New Delhi. All rights reserved. The
paper is reproduced with the permission of the copyright holders and
the publishers, Sage Publications India Pvt. Ltd., New Delhi.
REFERENCES
Amin, S. (2005), Les Luttes Paysannes et Ouvières Face Aux Défis du Xxe
Siècle, Paris: Les Indes Savantes.
———. (2006), Beyond US Hegemony, New York: Zed Books.
———. (2017), October 1917 Revolution, A Century Later, Nairobi: Darja
Press.
Berthelot, J. (2001), L’agriculture, Talon d’Achille de l’OMC, Paris:
L’Harmattan.
Chayanov, A.V. (1966), On The Theory of Non-Capitalist Economic Systems,
In D. Thorner, B. Kerblay and R.E.F. Smithy (eds.), The Theory of
Peasant Economy, pp. 1–28, Homewood, IL: Irwin.
Kautsky, K. (1988 [1899]), The Agrarian Question, Winchester, MA: Zwan
Publications.
Mazoyer, M. and L. Roudard (1997), Histoire des Agricultures du Monde,
Paris: Seuil.
Parmentier, B. (2007), Nourrir l’humanité, Paris: La Découverte.
10
‘Big is Not Always Beautiful’:
Family Farms and Capitalism
Goran Djurfeldt
According to the counting by the FAO, there were 600 million

farms globally in 2009 (FAO, 2014). An overwhelming majority
of all these farms, or 570 out of 600 million (95 per cent) were
family farms. The remaining 5 per cent were under diverse forms
of ownership and management: governments, cooperative and
institutional like for example religious institutions. Very few were
owned by private corporations.
One of the great paradoxes in social science is why there is
so little theoretical interest in the livelihoods of family farmers in
contrast to the loosely defined category of smallholders. Family
farmers continue to be a more than marginal part of the global
population and responsible for much of world food production.
There is much more tumult about capitalist farming, although,
in terms of numbers, it remains a minor part of world agriculture.
Deininger and Byerlee in 2012 tried to estimate the number of
capitalist farms worldwide, but found only one good example of
such a farm: Black Earth AB, that bought or rented large tracts
of land in the black earth areas of Ukraine, cultivating them with
so-called precision agriculture, in which tractors and combine
harvesters are steered by Global Positioning Systems (GPS) and
in which fertilisation regimes are worked out by means of satellite
imagery (Deininger and Byerlee, 2012).
Furthermore, and looking at the US, the authors cited found
only two agri-business companies listed on the Nasdaq. They were
‘Big is Not Always Beautiful’: Family Farms and Capitalism 223
Farmland Partners, which used to be a cooperative union, figuring

in Forbes’ list of the biggest companies in the world. Founded in
1929, it was privatised in 2003 to 2006 and continues to be active,
but not in farming as such. The same is true of the Nasdaq-listed
Gladstone Land Corporation which is a real estate investment trust.
Returning to the Black Earth AB, it is, or rather was a public
limited corporation, listed on the Stockholm Stock Exchange. The
corporation fulfilled a rigorous definition of an ideal type capitalist
farm, dependent for its long-term survival on generating profit on
the capital invested, including the land. But it did not survive, went
bust and was delisted in Stockholm in 2017.
What a paradox! After more than 200 years of global capitalist
development inside and outside agriculture, observers at or close to
the World Bank, like the authors cited, found only one capitalist
farm in the whole world—and that firm did not survive for more
than a decade. Given that we have been fed with prognoses of the
imminent take-over of world agriculture by capitalism, at least
since Lenin’s The Development of Capitalism in Russia (Lenin, 1960
[1899]), this paradox calls for an explanation.
I define a capitalist farm as an agricultural production unit
in which all factors of production (land, labour, capital and
management) are procured on the market. Moreover, a capitalist farm
is: (i) worked by labourers hired for wages (rather than recruited by
non-market means); (ii) managed by professional managers (rather
by family members); (iii) owned by a corporation investing capital
into the farm, including the land, whether owned or leased. Black
Earth AB fulfilled these three criteria, but it did not succeed in
giving its owners the required return on capital. Obviously, it is not
easy for a farm to satisfy these criteria. Why?
In the following I will discuss capitalist and family farming
(to be defined below), drawing on examples from all over, fetching
illustrations from India and China, Sub-Saharan Africa and
occasionally also South America. In the process we will learn why it
is not true that ‘big is beautiful’, especially not when talking about
capitalist farms. There are sound reasons why family farming is still
thriving, many having to do with what I call Chayanov’s principle,

after the great Russian economist, A.V. Chayanov.
Land
The first reason for the paucity of capitalist farms is the common
but erroneous inference that capitalist farms are identical to large
landed estates. Such units are seldom constrained to making a profit
on the (imputed) value of the land, either because the land is not
mortgaged at market value and therefore not liable to pay interest,
or because the owners, whether corporate or individual, may have
acquired the land cheaply or free of cost, like inheritance.
Large landed estates often have an interesting history, worth
digging into. Take the Indian case: Simply put, what still remains of
large landed estates after land reforms and other developments since
Independence, either have a colonial background, for example tea
plantations, or a feudal one, like the zamindari and other types of
estates created by the Mughals, by the East India Company, or other
pre-colonial rulers.1 Such estates were often referred to as ‘tax farms’,
because they were created by rulers to facilitate tax collection from
the tillers of the land, by ‘farming it out’ to people with the means,
that is the arms and the men needed to collect taxes on the part of
the ruler. In the process, taxable land was converted, more or less
formally, into private property. Thus, large estates were not created
because they were superior in terms of productivity, or because of
economies of scale.
In fact, outside the plantation sector, economies of scale seldom
obtain in agriculture, which is one reason why capitalist farms,
unlike large estates are rare and a main reason why the Leninist
expectation of the form that capitalism would take in agriculture
was off the mark, both in Europe and in the US.
Labour
Another presumption underlying the expectation that capitalist farms
would prevail in agriculture is that such farms rely on hired labour,
whose wages are formed in a process of free negotiation between the
labourer and the employer. Labour hiring is usually regarded as the
capitalist relation of production. Marx himself spent much space in

the first chapters of the first volume of Capital to show what goes
on behind the backs of the ‘free’ agents in labour hiring. Our point
is that hired labourers in agriculture are seldom ‘free’ to negotiate
their wages; on the contrary they are constrained by gender, race,
citizenship and other institutional factors to negotiate wages which
are not equivalent to the ones obtained by labourers who are not
discriminated against by non-market factors.
Instead of being ‘free’, agricultural labour markets tend to be
segmented along the lines mentioned. Three examples will illustrate,
one from the US, one from India and from today’s Scandinavia.
A classic study from the 1980s (Thomas, 1985) of salad farms in
California, USA, showed that farm workers were recruited from
highly segmented niches in the labour market, with illegal immigrants
at the lower rungs doing the most tedious jobs at the lowest wages.
Green Card holders occupied a higher and somewhat better niche,
as overseers, quality controllers, etc. Wages at competitive rates were
only paid to US citizens, typically as managers, security staff and
the like.
Or take the Indian case: the majority of those working as
hired labour in Indian agriculture either are so-called Scheduled or
Backward Castes. Moreover, many of them are women. When we
studied agrarian labour relations in what was then Tiruchy District
in Tamil Nadu (Athreya, Djurfeldt, and Lindberg, 1990), we found
that in the ‘wet’, canal-irrigated villages, both male and female
labourers were organised in caste-based gangs, under male or female
mistries who negotiated piece rates in highly competitive markets.
Outside these ‘wet’villages however, wages did not fluctuate much
and were set by village and season by the elders with women usually
getting half of that paid to men. The high percentage of Scheduled
Castes (SC) in these villages contributed both to the low wage levels
and to the high rates of poverty in the SC colonies.
Taking finally the example of Sweden and the Scandinavian
countries, before Sweden’s entry to the EU in 1995, hired labour had
more or less disappeared in the family farm sector and farmers were
working round the clock and the year to manage with only their
own machinery and family labour (Djurfeldt and Waldenström,

1996). They managed thanks to mechanisation and to swapping of
services with neighbours. This resembled what Bailey once dubbed
the one-man mechanised farm (Bailey, 1973). We have to remember
though that farmers who were married had wives who tended to
work off-farm, and whose incomes were often a hidden subsidy to
the farm.
Since the expansion of the EU and the entry of the ex-
communist countries, the tendency has been reversed and currently
goes towards low wage, ethnically segmented labour markets all over
Western Europe, especially in horticulture and vegetables, while one-
man mechanised farms persist in grain and other arable cropping.
Labour unions are absent in these markets and unionised labour
tends to be found working mainly in golf courses, urban parks and
other non-farming sectors.
As industrialisation proceeds and the service sectors grow in
middle income countries like India, competition for labour is likely
to lead to further emancipation of agricultural labour from gender,
caste and other discrimination. As I will argue, this will boost the
resilience of the family farm sector.
Management
In Andalusia in Spain, as well as in latifundist areas in South
America and also currently in India, there are farm management
firms, taking on large landholdings on the part of their owner
families, proffering professional management of the farms, using
up to date methods, much machinery and recruiting specialised
workers and small ‘armies’ of casual labour. Another variety of this
is firms owning combine harvesters, negotiating directly with farm
owners and moving along a harvest frontier, like South to North on
the Gangetic plain, or in the Yangtse River valley in China.
These arrangements presuppose everyday management by
owner families, or by salaried managers in the case of larger estates;
they do not in any way threaten the family ownership characteristic
of all the mentioned cases. Corporate ownership of machinery, yes,
but corporate land ownership, in no way!
The Dismantling of Landed Estates in Europe

According to our definition, a capitalist farm tills land procured on
the market, that is, land rented rather than owned. This was true of
the English case on which Marx built his analysis; he presumed that
it was the first case of its kind, but it was unique and, as we will see,
it turned out to be short-lived.
Starting a telescoped historiography in the 16th century, the
majority of the rural population in the UK lacked property and were
compelled to seek their subsistence in the commons, till the early
17th century when the Enclosure Acts privatised many commons
and deprived the peasantry also of this source of sustenance. From
the 18th century onwards the poverty of the rural population drove
the poor and property-less to seek work as agricultural labourers,
industrial workers, domestic servants or, alternatively to seek poverty
relief (Polanyi, 2001 [1944]).
Besides the property-less and the landlords, the most important
group, although small in terms of numbers, was the estate tenants.
The landowners generally did not cultivate their land themselves,
but leased it out. Property-owning peasants, in England called
yeoman farmers became a small minority in the countryside. Britain
had a distribution of land reminding us of some Latin American
countries before the land reforms of the 1960s.
The British agrarian structure before 1870 lay quite close to
the ideal typical capitalist farming described earlier: It had a small
group of aristocratic landowners, renting out their land to capitalist
tenants and with a mass of agricultural labourers slogging in fields
and stables. The system fulfilled one of the definitional requirements
of capitalist agriculture, viz. capitalisation of the land. The nobility
lived from their rents, and their tenants had to run an enterprise,
which could finance not only the wages and the inputs of capital,
but also the capitalised value of the land, in the form of rent. It is
a historical irony that this system was at its high 150 years ago and
that since then it decayed.
The agrarian crisis from the 1870s onwards and what we today
describe as the first period of hyper-globalisation brought about
the downfall of the British system of capitalist tenants. Falling food
prices are a deadly threat to landlordism, since they decrease the

rental value of land. Landlord incomes tumble; the nobility cannot
maintain their castles, their extravagant style of living or pay their
servants. This was the destiny that befell many British landowners.
The agrarian crisis can be seen as a delayed effect of the Corn
Laws, adopted in the 1840s by the British Parliament in opposition
to the landlords (Perry, 1972, 14). The Corn Laws opened Britain
to imports of farm products, but their impact was delayed by about
30 years, due to high transport costs that curbed international trade
in bulky products like cereals. Freight prices came down after 1870
and allowed American and Argentinian cereals to compete with
European ones, which set the bells tolling for British landlordism:
The dismantling of the landed estates—the aristocratic diaspora
from the land—although usually dated from the period immediately
following the First World War… began much earlier. Nevertheless a
deluge of land sales began in 1919, on a scale unprecedented since the
dissolution of monasteries in the sixteenth century. Within three years,
it has been estimated, one-quarter of the land surface of the United
Kingdom changed hands. (Newby, Bell, Rose and Saunders, 1978,
36-37), cited in (Djurfeldt and Sircar, 2017).
The agrarian crisis thus brought a land reform, not by the state,
but by the market. British estates were divided and taken over
by smaller landowners. They were often ex-tenants, but land was
also sold in smaller portions to family farmers (Harrison, 1975).
Although Britain still has a higher concentration of landownership
than Western Europe, its structure is similar to that found in the
rest of Europe (Gasson, 1987).
The British case is a good illustration, of the role of agricultural
labourers in the structural transformation. As prices of output fell,
wages increased in real terms: This forced landlords to divest in land
and made it possible for family farms to invest in it. The development
in the rest of Europe was parallel (Dovring, 1965 [1955]).
Farm Size and Productivity
One might think that this story would have brought an end to the
ever-ongoing debate on economies of scale in agriculture; but it has
a tendency to periodically upsurge. It thrives on the myth about

‘big is beautiful’: This myth says that if we organise production on
scientific, factory-like principles, it certainly will be superior to the
small and scattered plots tilled by ‘peasants’ or smallholders working
on ‘unscientific’ principles, as handed down by tradition. This myth
informed political decision-making all over. It was the rationale for
the collectivisation of small-scale agriculture in the Soviet Union in
the 20s and 30s; in China after the land reforms carried through
in the late 40s and early 50s, and it was a guiding principle for
forming People’s Communes in the late 50s. The same myth
informed political decision-making in Ethiopia during the military
regime in the 1970s; and the villagisation policy in Tanzania about
a decade earlier. We will not continue the enumeration of what
turned out to be grandiose failures, but also point to the numerous
cases where the myth of ‘big is beautiful’ has been the rationale for
reneging on promises of small-scale land reform, instead keeping
large landed properties intact and handing them out to cronies,
like in Zimbabwe to mention just one example. Thus, innovations
have been adapted to farming systems in which family farming has
been prominent, which in principle means all over, not only in
Japan, but all over Asia, in Europe and the US (a classic source is
Hayami and Ruttan, 1971). Low-yield small holder systems can
be found in Asia, prominently in India, in large parts of Central
and South America and in Africa south of the Sahara. In few if
any of these cases, low-yield smallholder or family farms systems
exclusively depend on farming, but on non-farm income in various
forms, including remittances, both international and domestic (see
below on pluriactivity).
Chayanov’s Principle3
A.V. Chayanov (1888-1937) was a Russian economist, statistician
and sociologist belonging to the so-called zemstvo school who
worked for the decentralised local governments set up as part of
the 1861 reforms under Tsar Alexander II in Russia. Chayanov was
shot 20 years after the Revolution, as part of the Stalinist purges.
Rehabilitated in 1987 during glasnost, Chayanov was introduced to
an English-reading audience by scholars like Basile Kerblay, Daniel

Thorner and Teodor Shanin. The English translation of his book on
The Theory of Peasant Economy (Chayanov, 1986 [1966]) had a great
influence on peasant studies as these developed in the West from the
late 1960s and onwards.
What I call Chayanov’s principle was formulated by Chayanov
in various ways, from Marxist to marginalist inspired. As I see it, the
principle works on the contrast between capitalist farming, as earlier
defined, and family farming:
(i) Although from time to time making a financial surplus,
unlike capitalist farming, family farming requires no such
surplus to reproduce, at least short-to mid-term.
(ii) Family farming depends on family labour that does not
require payment of wages according to market rates
Within the Marxist tradition since Marx himself,4 family farms
have been seen as a class facing extinction. For Lenin, the peasantry
was doomed to disappear and split into two parts, a minority that
would develop into an agrarian capitalist class, and a majority that
would lose their land and be forced either to join the ranks of the
agricultural proletariat, or its counterparts in the cities (Lenin,
1960 [1899]; Djurfeldt, 1981). Underpinning this vision is a
presumption of superior productivity within capitalist agriculture:
When compared to family farms, capitalist agriculture, or factories
in the field would be like industry compared to crafts.
The difficulties for craft production to compete with industrial
organisation are evidence of the superiority of what Marx called
the capitalist mode of production (1977 [1887]). Like Adam Smith
before him (Smith, 1904 [1776]), he argued that this superiority
stemmed, not only from mechanisation, but also from the advanced
division of labour within the factory, with labourers specialising in
different parts of the production process rather than producing the
whole product, as the artisan would. This type of specialisation of
labour holds only to a limited extent on really existing large estates.
Such farms depend on masses of workers to perform repetitive tasks
that are not easy to mechanise, like picking of strawberries, grapes
or tomatoes.
Capitalist farms have difficulties in competing with family

farms, precisely because they are not factories in the field, as this
discussion clearly illustrates. Historically, as well as currently, large
estates access few technologies, which are not also available to family
farms. Both in Europe and the US, there are small differences in
technology between the two sectors. The main difference between
them lies in the armies of labour, often from segmented or unfree
labour markets, absorbed by farms dependent on such labour. This
is in contrast to a much greater dependence of family farms on own
labour.
While theoretically it is plausible that their mode of organisation
gives a competitive edge to farms dependent on hired labour,
historically as well as currently, this is seldom the case. By contrast,
given the access to the same technologies the ‘staffing’ of farms
under family management provides their competitive advantage.
Hired (non-family) labour is less motivated to work, and more
prone to foot dragging than family labour (Scott, 1985; Chayanov,
1986 [1966]; Eswaran, Kotwal, Ramaswami and Wadhwa, 2009).
Family members, on the other hand, work for themselves or for
their families, including for their children and future generations.
This is a potent motivating force. During farm crises family labour
is often prepared to work for minimal or no remuneration, which
is the fundamental reason for the resilience of family farms. This is
in contrast to farms dependent on hired labour, for which the wage
bill is largely inelastic.
There is an ongoing debate within agricultural and development
economics on economies of scale within farming (for overviews see,
Eastwood, Lipton and Newell, 2010; Chand, Prasanna, Lakshmi
and Singh, 2011). With few exceptions, scale in many studies is
proxied by area, either of farm or of area under specific crops. There
are evident problems with this operationalisation, however. Area is
not a homogeneous variable. Whether we speak of farm or plot size,
the productivity differences between different farms or plots are vast
and depend not only on soil fertility, but also on irrigation, drainage
and other factors. Models regressing productivity on farm or plot
size, as a result, get large residuals, not easy to minimise and not
prone to be normally distributed, as is required of a good-fit model.

In our view, this is the fundamental reason why many studies on
farm size have yielded little in terms of generalisable results. Thus,
we would argue that farm (or even plot) size is not the relevant
operationalisation, while farm type is. We know of only one study,
which has used this insight, a World Bank study of the profitability
of a selection of crops, comparing family farms and large estates in
Sub-Saharan Africa (World Bank, 2009). The study concluded that
in most crops, family farmers are competitive with the estate sector.
Eastwood and Lipton argue that the competitive advantage
of family farms over capitalist ones will gradually disappear and
Deininger and Byerlee would seem to agree (Eastwood et al.,
2010), (Deininger and Byerlee, 2012). The authors cited mention
precision agriculture and geo-sensing, which at the prices then
prevailing required large farm areas to motivate the investment.
But the authors seem to neglect Moore’s law, which implies that
technology that currently is large-scale is likely soon to be available
to smaller-scale farmers. Be that as it may be, our sketchy overview
seems to indicate that we are far from the point of time when
capitalist farms will replace family farms because of their superior
productivity.
This argument can be put in economic terms by referring
to Coase’s theory of the firm (Coase, 1937) and the concept of
transaction costs (Williamson, 1979). Coase’s article became a
classic because he pointed out that neoclassical economics could
not explain the emergence or existence of the firm. This is where
Williamson and his terminological innovation enter: the firm is a
way of minimising transaction costs by internalising them into an
organisational unit. One can argue along the same lines about family
farming, and family business in general. By internalising labour
costs into the farm (or firm), one reduces transaction costs. Using
family instead of hired labour, lowers transactions costs because
the need for supervision is nearly eliminated and shrinkage or foot
dragging avoided. This is not necessarily a disadvantage to family
workers and thus does not necessarily imply self- exploitation, as has
sometimes been alleged. On the contrary, by increasing the quality
of the labour input, the remuneration of family labourers may be

higher than it would have been for the hired labour it replaced.
The remuneration of family labour is crucial. While hired labour
is paid a sum of money, family labour is remunerated with a bundle
of utilities, food, shelter, affection and love, not easy to evaluate in
economic terms. The economic parts of the remuneration can be
regarded as the correspondence of a wage, or what Eastwood, Lipton
and Newell call a reservation utility (Eastwood et al., 2010). Thus,
one can say that as long as the reservation utility of family labour is
higher than prevailing agricultural wages, one can expect a tendency
for hired labour to be replaced by family labour (Schmitt, 1991). An
upward pressure on wages, for example due to competition with the
industrial and service sectors, would have similar effects. But family
labour is not bound to the farm; it can be pluriactive.
Pluriactivity
Family farmers are not always specialised in arable farming,
horticulture and animal husbandry, but more often combine these
activities with others, outside the farm and often outside agriculture.
We refer to this as ‘pluriactivity’, which is a mongrel of a word: with
the prefix ‘pluri’ from Greek and ‘activity’ from Latin. Pluriactivity
refers to a family or household, often spanning more than a
generation; and reliant upon the activities of their members. Thus
the term refers to the reproduction of the whole. Had it not been
for pluriactivity then, the resilience of family farming would have
been much less.
It lies near at hand to think of pluriactive families these
days, when individual members of rural and agrarian families are
migrating all over, nationally and internationally, looking for income
opportunities and for money to send to their families back home.
Internationally, remittances sent home by migrants supersede both
foreign investments and aid received by the migrants’ countries of
origin, or at least they did so till the current crisis (Ratha, 2016).
Think of the giant movements of internal migrants in huge countries
like India and China. When India imposed the Covid-19 lockdown
in the summer of 2020, millions of migrants were caught between
the cogs of the bureaucratic machine. Many of them walked

over enormous distances from Mumbai, Chennai and Bengaluru,
scorched by the sun, caned by the police. Daily news made the point
that these people fell between categories and into multiple traps.
When they reached their villages, authorities did not welcome them:
with empty pockets and potential bearers of a killer virus, they were
often forced to stay outside village borders, receiving food from their
families whom they were prevented from meeting at home.
The Aftermath of 2008-09 Scramble for Land

After the financial crisis in 2008 and the following increases in
food prices, investors on Wall Street, hedge fund managers and risk
capitalists in general, re-valued prospects of investments in land;
and a boom followed. Taking a quick stock of the situation a decade
later, some of the main points made above get reinforced: Decision-
makers all over are still taken in by the ‘big is beautiful’ and expect
quick returns to large-scale investment in land. Deals often fail for
various reasons, a common one being that large is not as superiour
as imagined.
During the boom, giant contracts were signed between
investors, bureaucrats and politicians in a set of semi-failed states:
In Madagascar in 2009 a long-term lease of 1 million hectares was
granted to the South Korean Daewoo company. The deal involved
the sitting president, over the heads of the present occupants of the
land. Scandal was created in both countries, which led to the fall of
the President and the liquidation of the deal. Another example is
Congo, former Zaire, where a similar deal covered more than one
million hectares leased to foreign interests; the apparent presumption
being that the land was vacant; nobody in Kinshasa nor in Western
capitals seemed to bother about its present users, agriculturalists,
herders and hunters. This murky deal never materialised. In
Tanzania local interests ganged up with an Emirate sheik and hunter
and transferred an entire nature reserve, to be converted to hunting
grounds, completely nonchalant of the people inhabiting the park,
an ethnic minority described as untouched by ‘civilisation’. NGOs
and local protests succeeded to kill the deal.
These cases are misleading if they are taken as representative,

because the deals are apparently abandoned while most similar deals
still survive at least on paper if nothing more. The following case
recently reported in The Economist may be more representative:
The plan was to transform farming in southern Ethiopia. Twelve
years ago Fri-El, an Italian conglomerate, signed a lease with the state
government for 30,000 hectares of farmland in South Omo to make
palm oil. But the palms needed more water than the copper-coloured
Omo river could supply and production was so disappointing that
in 2011 its lease was cut by a third in size. Even a switch to cotton
production did not help. Many bolls are left unpicked owing to labour
shortages. A ginnery lies idle for want of electricity.
The Economist offered an explanation as follows:
In Ethiopia, where the government offered tax breaks, low rents and
vast tracts of allegedly empty farmland, more was leased than almost
anywhere else. One study calculated that around 1m hectares were
allocated between 2005 and 2012; others suggested two or even
three times that. The idea was that poor, remote places like South
Omo, near Ethiopia’s south-western border, would become paragons
of development. Mechanised cotton estates would feed Ethiopia’s
burgeoning textile factories. Nomads would ditch their cattle for jobs
as labourers on commercial farms. (Economist, Why big farms flopped
in Ethiopia, April 8, 2020)
The general and global situation seem to be well captured in Land
Matrix Database.5 When accessed for this paper, the database covered
1822 land deals globally, entered since 2000 and over 200 hectares
in size; of these only 8 per cent were concluded and another 7 per
cent were failed. The highest number of deals (585 deals), or 30 per
cent of cases were from the Africa region with a huge majority from
Sub-Sahara. Africa had the highest percentage of failures followed
by Eastern Europe and Asia with much fewer failures reported from
Latin America.
That so many land deals failed and that so few were concluded
especially in Sub-Saharan Africa would seem to illustrate the general
point that political decision-makers are easily taken in by the myth
of ‘big is beautiful’. Even if this is true, it may be milder but not

eliminate the threat that land grabbing undoubtedly is.
Supermarketisation and Vertical Integration

Many perceive the spread of supermarkets in middle- and low-
income countries as the new threat to the world’s family farms.
The basic argument is that the giant supermarket chains, WalMart,
Carrefour and the others prefer to deal with a few big suppliers
rather than a whole lot of small-scale producers. As supermarkets
invest in building procurement chains for fresh fruit and vegetables,
with the quality demands of discerning middle-class consumers in
view, supermarkets tend to prefer large estates for production and
delivery. Thus supermarkets deprive family famers of many of their
markets. So goes the argument.
While supermarket chains are undoubtedly becoming an
immense part of all food retailing and procurement, we believe
that its consequences for family farming worldwide may not be as
apocalyptic as could be feared. Even in markets controlled by huge
corporations, family farms enjoy advantages that serve them well.
In his mostly unspoken criticism of Lenin and the Bolsheviks,
Chayanov proffered an alternative scenario to Lenin’s horizontal
concentration, which he styled vertical integration. Chayanov
studied how urban-based merchants contracted with family farmers
to produce cotton and other cash crops and offered credit to facilitate
farmers’ investments. He also studied the European cooperative
movement during travels in Europe and wrote about his vision for
the future of family farming (Chayanov, 1977):
If to this we add in the most developed capitalist countries, such
as those in in North America, widely developed mortgage credit,
the financing of farm circulating capital, and the dominating part
played by capital invested in transport, elevator, irrigation, and other
undertakings, then we have before us the new ways in which capitalism
penetrates agriculture. These ways convert the farmers into a labor
force working with other people’s means of production. They convert
agriculture, despite the evident scattered and independent nature of the
small commodity producers, into an economic system concentrated
in a series of larger undertakings and, through them, entering the

sphere controlled by the most advanced forms of finance capitalism.”
(Chayanov, 1986 [1966], 262)
It is important to stress the enormous speed with which the process
has enveloped the developing world, including the poorest parts
of Sub-Saharan Africa. It is worth noting however that, with its
restrictions on foreign direct investment in retailing, India has
hitherto been less drawn into the process than many other countries
(see for example, Reardon, Timmer, Barrett and Berdegué, 2003).
Reardon et al. summarise studies on sub-contracting to farmers as
follows:
Companies in general tend to source from larger farmers and eschew
smaller farmers in scale-dualistic contexts. However, there are various
exceptions to this pattern, where companies source from small farmers
even when large farmers operate in the same sector… Companies
source from small farmers in contexts where small farmers dominate
the agrarian structure… When companies source from small farmers,
they tend to source from the subset with the requisite non-land assets
(such as irrigation, farmers’ associations, farm equipment, and access to
paved roads). However, where companies need or want to source from
small farmers but the farmers lack needed credit, inputs, or extension,
companies sometimes use “resource-provision contracts” to address
those constraints.... [Studies] tend to show positive effects on small
farmers of inclusion in modern channels, including on incomes and
assets of farmers, and positive externalities to the local labor markets.
(Reardon, Barrett, Berdegué and Swinnen, 2009)
We can only conclude from the above that alarm bells must be
prematurely ringing to announce the pending demise of the world’s
family farmers. Apocalyptic messages are too rash. In the longer
run, neither supermarketisation, nor precision farming need be as
deleterious to family farming as is often imagined.
Conclusions
In sum, big is not always beautiful, especially not when talking
about capitalist farms. There are sound reasons why family farming
is still numerically predominant in world agriculture. Many of these

has to do with what I call Chayanov’s principle. Thus I contend that
together with small-scale mechanisation, family labour accounts for
the resilience of family farming. Chayanov was right in believing
about a hundred years ago that family farming will continue to
predominate in world agriculture. His principle will hold for some
time still.
The ongoing pandemic threatens to halt if not reverse the
continued transition of poor countries in Asia, Latin America and
Africa from low to middle income levels. If the process resumes, it
implies that real wages for agricultural labour will rise in countries
like India, due both to competition with industry and services and
continued emancipation of labour from discrimination by gender,
caste, race and citizenship. Will the post-pandemic future create new
space for family labour as well as for mechanisation? Will output
markets imply more vertical integration, creating niches for farmers
specialising in horticulture and fruit and deliveries to supermarkets
(whether cooperative or private)? If so, we might expect further
atrophy for many large landed estates and for capitalist farming
because large is not beautiful.
NOTES
1. The classical source is (Habib, 1963). The Agrarian System of Mughal
India, 1556-1707, Asia Publishing House, Bombay. On company
rule, see Dalrymple, W. (2019). The Anarchy: The Relentless Rise of the
East India Company, Bloomsbury Publishing.
2. Other examples in Europe, Latin America or Africa are given in
(Djurfeldt and Sircar, 2017, chapter 1).
3. The following draws heavily on (Djurfeldt and Sircar, 2017).
4. Shanin argues that the late Marx revised the evolutionism in his earlier
views and, among other things, he realised that the development in
Russia, with the peasant communes, was pointing in another direction
than the English case. This view is largely supported by Stedman Jones
in his Marx biography (Shanin, 1984); (Stedman Jones, 2016).
5. The Land Matrix is an independent global land monitoring initiative
of large-scale land acquisitions in low- and middle-income countries
across the world (See Land Matrix, 2020).
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11
What is Monopoly Capital?1
John Bellamy Foster
“Monopoly capital” is the term often used in Marxian political

economy and by some non-Marxist analysts to designate the new
form of capital, embodied in the modern giant corporation, that,
beginning in the last quarter of the 19th century, displaced the
small family firm as the dominant economic unit of the system,
marking the end of the freely competitive stage of capitalism and
the beginning of monopoly capitalism.
Marx’s Capital, the first volume of which was published in 1867,
was designed to uncover the laws of motion of the 19th century
era of free competition, and was based in part on the assumption
that production was carried out by numerous individual capitals (or
firms) (Marx, 1976). Each of these capitals accounted for a negligible
portion of society’s total value added, and thus had little control over
their own price and output levels, which were dictated by impersonal
market forces. Yet, unlike the other classical economists, Marx
recognised that such an environment of atomistic competition was
a transitory historical phenomenon. “The battle of competition,” he
wrote, “is fought by the cheapening of commodities. The cheapness
of commodities depends, ceteris paribus, on the productiveness of
labour, and this again on the scale of production. Therefore, the
larger capitals beat the smaller…. [C]ompetition rages in direct
portion to the number and in inverse proportion to the magnitude
of the rival capitals.” Hence, capital accumulation presupposed
both a growth in the size of individual capitals (concentration, or
accumulation proper) and the fusion together of many capitals into
“a huge mass in a single hand” (centralisation). Moreover, the credit
What is Monopoly Capital? 243
system, which begins as a “humble assistant of accumulation,” soon

“becomes a new and terrible weapon in the battle of competition,
and is finally transformed into an enormous social mechanism for
the centralisation of capitals (Marx, 1976).
As Engels observed decades later, the rise of the joint stock
company or modern corporation heralded the fact that: “the old
boasted freedom of competition has reached the end of its tether
and must itself announce its obvious, scandalous bankruptcy”
(Marx, 1981).
Thus, there can be no doubt that Marx and particularly
Engels recognised that a historical turning point had been reached.
Nevertheless, they saw the demise of free competition as marking
not a new stage of capitalism, but as a harbinger of socialism to
come. It was not till some years later, in the work of subsequent
theorists, that studies of monopoly capitalism as a distinct phase in
the evolution of the system arose.
The first major theorist of monopoly capitalism was Thorstein
Veblen, a rebel economist of the North American left, deeply
influenced by Marx, but not himself a Marxist. In The Theory of
Business Enterprise (1904) and Absentee Ownership and Business
Enterprise in Modern Times (1923), Veblen emphasised such
characteristic themes of monopoly capital theory as the rise of
corporate finance; the tendency for monopolistic profit margins
to widen at the expense of less powerful firms and workers; the
systematic promotion of excess capacity; and the interpenetration
of sales and manufactures (Veblen, 1904; Veblen, 1923). However,
Veblen’s more powerful insights were largely ignored by his followers
within institutionalist economics in the United States. Consequently,
it was only in the Marxist tradition—where Veblen’s work was not
known—that a continuing stream of work on monopoly capitalism
emerged.
Here the landmark study was Finance Capital (1910) by the
Austrian Marxist Rudolf Hilferding, which attempted to integrate
into the core of Marx’s theory such increasingly important phenomena
as the developing market for industrial securities, the growing
role of banks in the concentration and centralisation of capital,
and the system-wide consequences of expanding monopolisation.

Aside from the emphasis that he placed on bank capital in this
whole development, Hilferding’s analysis is chiefly remembered
for a conclusion reached in Chapter 15: “The ultimate outcome
of this process [of monopolisation] would be the formation of a
general cartel. The whole of capitalist reproduction would then
be consciously regulated by a single body which would determine
the volume of production in all branches of industry (Hilferding,
1981).”
In historical retrospect, it is clear that this picture was overdrawn.
Powerful counter- tendencies such as the breakup of old firms and
the founding of new ones made concentration and centralisation
a more uneven process than Hilferding expected. Moreover,
Hilferding’s concern with this abstract notion of a “general cartel”
kept him from developing a concrete theory that would explain the
modifications in accumulation associated with a monopolistically
competitive market, dominated by a handful of giant, “corespective”
firms (Schumpeter, 1942).
Hilferding’s analysis had pointed to the growth of capital export
and of transnational rivalry between mammoth corporate trusts.
Out of this arose Lenin’s Imperialism, the Highest Stage of Capitalism,
written in 1916, and his observation that, “If it were necessary to
give the briefest possible definition of imperialism we should have
to say that imperialism is the monopoly stage of capitalism (Lenin,
1939).” However, while basing his theory on the predominance
of monopoly, neither Lenin nor any of his early followers in
the 1920s and 30s—with the exception of E.A. Preobrazhensky,
whose work, The Decline of Capitalism (1931) was suppressed in
the USSR—examined the implications of this for the underlying
theory of accumulation (Preobrazhensky, 1985). Further progress
in the formation of a theory of monopoly capitalism had to await
the integration of the analysis of concentration and centralisation,
with the understanding of economic crisis that had evolved out
of the famous debate over Marx’s reproduction schemes. As with
mainstream theory—which in the 1930s had produced a theory of
imperfect competition in the work of Joan Robinson and Edward
Chamberlain, followed by a theory of crisis in John Maynard

Keynes’s General Theory that was still based on the assumption
of free competition—these two strands of a complete theory of
accumulation under modern capitalism were cut off from each other
(Robinson, 1933; Chamberlain, 1933). The first to unite them was
the Polish Marxist economist Michał Kalecki—often credited with
having discovered in the early 1930s all the essentials of Keynes’s
General Theory before Keynes himself. In such later works as Essays in
the Theory of Economic Fluctuations and Theory of Economic Dynamics,
Kalecki fused the class-based analysis of realisation crisis derived from
Marx and Rosa Luxemburg, with what he called a rising “degree of
monopoly” (related to Marx’s surplus value concept), developing a
unified theory of accumulation under monopoly capitalism Kalecki,
1939; Kalecki, 1954). As Kalecki (1990) wrote: “Monopoly appears
to be deeply rooted in the nature of the capitalist system: free
competition, as an assumption, may be useful in the first stage of
certain investigations, but as a description of the normal stage of
capitalist economy it is merely a myth.” This argument was carried
forward by Josef Steindl, a young Austrian economist who was one
of Kalecki’s colleagues at the Oxford Institute of Statistics during the
Second World War. Steindl’s Maturity and Stagnation in American
Capitalism, first published in 1952, explored the causes of the Great
Depression of the 1930s, contending that growing monopolisation
raised profit margins (or the rate of surplus value) in core industries
(Steindl, 1976).
This led to excess capacity as large firms protected their higher
margins in the face of weaknesses in demand by reducing capacity
utilisation rather than prices. Excess capacity dampened the rate
of growth of investment. Hence, stagnation, or slow growth and
widening unemployment and underemployment and idle capacity,
represented the general economic trend.
Monopoly Capital by Paul Baran and Paul Sweezy, published
in 1966, originated with the dissatisfaction of these thinkers with
their earlier major contributions in Sweezy’s The Theory of Capitalist
Development (1942) and Baran’s The Political Economy of Growth
(1957) (Sweezy, 1942; Baran, 1957; Baran and Sweezy, 1966).
Sweezy was a former professor of economics at Harvard and editor

of Monthly Review, and Baran was a professor of economics at
Stanford. Monopoly Capital took the Kalecki-Steindl framework as
its initial point of departure, seeking to draw out the wider societal
implications. In this view, Marx’s law of the tendency of the rate
of profit to fall, associated with the stage of free competition, had
been replaced, in the monopoly capitalist stage, by a law of the
tendency of the surplus to rise. The economic surplus was defined as
the difference between total social output and the socially necessary
labour costs of producing it. The surplus concept was employed as
a complementary category to the classical concept of surplus value,
facilitating the exploration of contradictions specific to monopoly
capitalism such as the growing role of waste in production, which
were not easily addressed using the surplus value category.
The argument of Monopoly Capital focused on the critical
problem of surplus absorption as the chief contradiction at this stage
of accumulation. Surplus could be absorbed in one of three ways:
(1) it could be consumed, (2) it could be invested, or (3) it could
be wasted. Capitalist consumption accounted for a decreasing share
of demand as income grew, while investment took the form of new
productive capacity, which served to inhibit new net investment.
Although there was always the possibility that altogether new “epoch-
making innovations”—resembling the steam engine, the railroad,
and the automobile in their overall scale and effect—could emerge,
allowing the system to break free from the stagnation tendency, such
massive, capital-absorbing innovations were by definition few and
far between. Hence, the system of private accumulation, if left to
itself, exhibited a powerful tendency towards stagnation. If periods of
rapid growth nonetheless occurred—Baran and Sweezy were writing
at the high point of the post-Second World War expansion—this was
due to such countervailing factors to stagnation as the sales effort,
military spending, and financial expansion (the last addressed at
the end of their chapter on the sales effort). All such countervailing
factors were, however, of a self- limiting character and could be
expected to lead to bigger contradictions in the future.
A more comprehensive theory of monopoly capital, Baran and
Sweezy noted, would have to consider the labour process, which had
occupied such a central place in Marx’s analysis—something that
they did not attempt in what they called their “essay-sketch.” Here
Harry Braverman stepped in with his path-breaking Labour and
Monopoly Capital (1974), making it clear that the degradation of
work brought on by the division of labour, as Marx had described it
in Capital, was in many ways heightened under monopoly capitalism,
with the rise of scientific management (Braverman, 1974). Other
works in this general tradition in the 1960s and 70s included Harry
Magdoff ’s The Age of Imperialism, James O’Connor’s The Fiscal Crisis
of the State, and Stephen Hymer’s The Multinational Corporation.
The Union for Radical Political Economists, organised in 1968,
brought out its first economic crisis reader in 1975, entitled Radical
Perspectives on the Economic Crisis of Monopoly Capital (Magdoff,
1969; O’Connor, 1973; Hymer; 1979, URPE, 1975).
The concept of monopoly capital also had an enormous
influence in the global south. Che Guevara, who met both Sweezy
and Magdoff, and who identified closely with Baran’s argument on
monopoly capital and economic surplus in The Political Economy
of Growth, declared in 1965: “Ever since monopoly capital took
over the world, it has kept the greater part of humanity in poverty,
dividing all of the profits among the group of most powerful
countries (Guevera, 1965).”
Although the notion of the monopoly stage of capitalism played
a key role in the work of most Marxian economists till the 1970s—e.g.
Maurice Dobb in Studies in the Development of Capitalism (1947),
Ernest Mandel in Marxist Economic Theory (1962), and Samir
Amin in Accumulation on a World Scale (1970)—by the late 1970s
the notion of monopoly capital had begun to wane (Dobb, 1947;
Mandel, 1968; Amin, 1974). During what became known as the
“back to Marx” movement, or the growth of fundamentalist Marxian
political economy, it became increasingly common to assume the
ascendancy of free competition throughout the history of capitalism,
and to reject the notion of historical stages of capitalist development
altogether. Along with this came the abandonment (or at least the
downplaying) of notions of concentration and centralisation of
production and monopoly profits. Economist John Weeks wrote in

his Capital and Exploitation in 1981 that “the monopolies that stalk
the pages of the writings of Baran and Sweezy have no existence
beyond the work of those authors (Weeks, 1981).” Numerous critics
of monopoly capital theory claimed that the internationalisation of
capital—by breaking down US hegemony and making the advanced
capitalist countries as a whole more vulnerable to foreign trade and
capital movements—had demolished the structure of monopolistic
accumulation.2
In contrast, a number of radical and Marxian theorists—
including Keith Cowling in Monopoly Capitalism (1982) and John
Bellamy Foster in The Theory of Monopoly Capitalism (1986) and
(with Robert W. McChesney) The Endless Crisis (2012)—argued
with increasing force that the reality was one of continuing
concentration and centralisation of capital on a world scale, or
the internationalisation of monopoly capital, with fewer and fewer
firms controlling larger parts of both national and international
economies (Cowling, 1982; Foster, 1986; Foster and McChesney,
2012). This was coupled with the institution of a system of “divide
and rule” in relation to global labour. In an influential empirical
study (carried out with the help of R. Jamil Jonna), Foster and
McChesney demonstrated that at the time of the Great Financial
Crisis of 2007–09, the top 200 corporations in the United States
accounted for about 30 per cent of gross profits in the economy (up
from about 13 per cent in 1950), while at the world level the top
500 global corporations received about 40 per cent of total global
revenue (up from around 20 per cent in 1960) (Foster, McChesney
and Jonna, 2011).
Nevertheless, the main focus of monopoly capital theorists from
the 1980s onwards was directed not so much at debates about the
status of monopoly capital, but at explaining the onset of economic
stagnation, beginning in the mid-1970s, and how financialisation
emerged as a countervailing factor, thereby lifting the economy. Key
works in this regard were Magdoff and Sweezy’s Stagnation and the
Financial Explosion in 1987, followed by The Irreversible Crisis in
1988 (Magdoff and Sweezy, 1987, 1988). In 1997, Sweezy argued
that monopolisation and stagnation had led to the emergence of a

new layer of contradictions in the system, which he summed up as
“the financialisation of the capital accumulation process (Sweezy,
1997).”
Beginning around 2000, theorists in the monopoly capital
tradition therefore began to develop the notion of a new phase
of monopoly capitalism, or monopoly-finance capital, in which
monopolisation, stagnation, and financialisation operated as
simultaneous and mutually reinforcing trends. Foster and Fred
Magdoff explored this thesis in The Great Financial Crisis, published
in 2009, shortly after the housing bubble burst. In The Endless Crisis
in 2012, Foster and McChesney were among the first to argue that
with the weakening of financialisation as a result of the crisis of
2007–09, secular stagnation was likely to persist for the indefinite
future. Meanwhile, Amin, writing in The Law of Worldwide Value
in 2011, declared we are living in “the late capitalism of generalised,
financialised, and globalised oligopolies (Amin, 2010).” The result
of these developments has been a growing interest in the theory of
monopoly capital and the insights it provides into the structural
crisis of capital in our time. This renewed interest was reflected
in the publication in 2016 of a special issue of Monthly Review
on “Monopoly Capital a Half-Century On,” with a host of major
economic thinkers, including Amin, Kent Klitgaard, Costas
Lapavitsas, Michael Meeropol, Ivan Mendieta-Muñoz, Prabhat
Patnaik, Jan Toporowski, Mary V. Wrenn, and others.
The growing interest in monopoly capital theory has been
further heightened in recent years by the publication in Monthly
Review in 2012 and 2013 of the two missing chapters of Baran and
Sweezy’s Monopoly Capital; the publication in 2017 of The Age of
Monopoly Capital: Selected Correspondence of Paul A. Baran and Paul
M. Sweezy; and the release of the first volume of Toporowski’s long-
awaited intellectual biography of Kalecki (Baran and Sweezy, 2012;
2013; Baran and Foster, 2017; Toporowski, 2013).
Concluding an analysis in 2016, Patnaik observed: “Unless some
new ‘bubble’ arises, of which there are no signs, and which too would
inevitably collapse, precipitating a new crisis, the world economy
will continue to be mired in stagnation. The basic framework of

Monopoly Capital helps us to understand this predicament better
than any other book written since” (Patnaik, 2016).
NOTES
1. This article was initially published in Monthly Review 2018. Permission
is taken from Monthly Review Press for reprint.
2. On the notion, especially prevalent in the late 1980s and 1990s,
that international competition had effectively eliminated monopoly
capital, see Brenner (2006), p. 54 and Robert J.S. Ross and Kent C.
Trachte, (1990), pp. 38–50.
REFERENCES
Amin, S. (1974), Accumulation on a World Scale, New York: Monthly
Review Press.
Amin, S. (2010), The Law of World Wide Value, New York: Monthly
Review Press.
Baran Paul A. (1957), The Political Economy of Growth, New York: Monthly
Review Press.
Baran Paul A. and Paul M. Sweezy (1966), Monopoly Capital, New York:
Baran Paul A. and Paul M. Sweezy (2012), Some Theoretical Implications,
Monthly Review, Vol. 64, No. 3, pp. 24–59.
Baran Paul A. and Paul M. Sweezy (2013), The Quality of Monopoly
Capitalist Society: Culture and Communications, Monthly Review,
Vol. 65, No. 3, pp. 43-64.
Braran Paul. A. and Paul. M. Sweezy (2013), The Age of Monopoly Capital:
Selected Correspondence of Paul A. Baran and Paul M. Sweezy, 1949–
1969, Nicholas Baran and John Bellamy Foster (eds.), New York:
Braverman, H. (1974), Labor and Monopoly Capital, New York: Monthly
Review Press.
Brenner, R. (2006), The Economics of Global Turbulence, London: Verso.
Cowling, K. (1982), Monopoly Capitalism, New York: John Wiley and Sons.
Cowling K. and R. Sugden (1987), Transnational Monopoly Capitalism,
New York: St. Martin’s Press.
Chamberlain, E.H. (1933), The Theory of Monopolistic Competition,
Cambridge, MA: Harvard University Press.

Dobb, M. (1947), Studies in the Development of Capitalism, New York:
International Publishers.
Foster, J.B. (1986), The Theory of Monopoly Capitalism, New York: Monthly
Review Press.
Foster, J.B. and R.W. McChesney and R. Jamil Jonna (2011), Monopoly
and Competition in the Twenty-First Century, Monthly Review, Vol.
62, No. 11.
Foster, J.B. and R.W. McChesney, (2012), The Endless Crisis, New York:
Guevara, C. (1965), Speech at the Afro-Asian Conference in Algeria,
February 24, Available at: http://marxists.org.
Hilferding, R. (1981), Finance Capital, London: Routledge and Kegan
Paul.
Hymer, S. (1979), The Multinational Corporation, Cambridge: Cambridge
University Press.
Kalecki, M. (1939), Essays in the Theory of Economic Fluctuations, New
York: Russell and Russell.
Kalecki, M. (1954), Theory of Economic Dynamics, London: George Allen
and Unwin.
Kalecki, M. (1990), Collected Works, Vol. 1, Oxford: Oxford University
Press.
Lenin, V.I. (1939), Imperialism, the Highest Stage of Capitalism, New York:
International Publishers.
Magdoff, H. (1969), The Age of Imperialism, New York: Monthly Review
Press.
Magdoff, H. and Paul M. Sweezy (1987), Stagnation and the Financial
Explosion, New York: Monthly Review Press.
Magdoff, H. and Paul M. Sweezy (1988), The Irreversible Crisis, New York:
Mandel, E. (1968), Marxist Economic Theory, New York: Monthly Review
Press.
Marx, K. (1976), Capital, Vol. 1, London: Penguin Books.
Marx, K. (1981), Capital, Vol. 3, London: Penguin Books.
O’Connor, J. (1973), The Fiscal Crisis of the State, New York: St. Martin’s
Press.
Patnaik, P. (2016), Monopoly Capital: Then and Now, Monthly Review,
Vol. 68, No. 3.

Preobrazhensky, E.A. (1985), The Decline of Capitalism, Armonk, NY:
M.E. Sharpe.
Robinson, J. (1933), The Economics of Imperfect Competition, London:
Macmillian.
Ross, Robert J.S. and Kent C. Trachte (1990), Global Capitalism, Albany:
State University of New York Press.
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Harper.
Steindl, J. (1976), Maturity and Stagnation in American Capitalism, New
York: Monthly Review Press.
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Sweezy, Paul M. (1997), More (or Less) on Globalization, Monthly Review,
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Rendezvous in Cambridge, 1899–1939, London: Palgrave Macmillan.
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Economic Crisis of Monopoly Capital, New York: URPE.
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Times, New York: Huebsch.
Weeks, J. (1981), Capital and Exploitation, Princeton: Princeton University
Press.
12
Late Marx, Luxemburg, and the Conception
of ‘Accumulation of Capital’1
Paul Zarembka
Introduction
Marxist political economy very often refers to the “accumulation of
capital” as if it were a transparent concept, one easily understood
from Marx’s work. Commonly, citing accumulation of capital in
a theoretical or empirical analysis suggests a depth of analysis by
an author that does not need further explication. It can read with
a confidence that “gravity” has in a work of physics. The problem
is that, as a concept, it is not clear what accumulation of capital
is to mean. In fact, capital is so often referred to as a means of
production that, following the classical economists, Marxist political
economists do not seem to have broken from Marx’s predecessors
when mentioning the accumulation of capital. I include Lenin in
this characterisation (see Zarembka, 2003).
Marx’s multiple-volume work was not called Capital in order
to refer to means of production. Constant capital, rather, is used
to refer to the means of production, measured in value units. The
entire work of Capital is fundamentally offered to comprehend the
social relations of production in capitalism. Class is the fundamental
issue. Therefore, his accumulation of capital must be understood
with class in mind, not means of production, not constant capital.
Marx himself was a theorist who was constantly evolving, not
a person stuck with his earlier thinking. We can recall how late he
arrived at “labour power” as an important concept, namely around
1865 (Zarembka, 2020, Chapter II). In this spirit, we can interrogate

the concept of accumulation of capital as he used it.
Marx had assumed in Capital that he was offering an
understanding of a world that was fully capitalist. This continued
to be the context for his discussions of accumulation of capital that
took place in Volume I and in Volume II. And these discussions
suggest, in major part, that more wage-labourers would be involved,
in addition to more constant capital. However, when we read his
discussions carefully, contradictions emerge. These are discussed in
the first two sections of this chapter.
Rosa Luxemburg published her book on the topic in 1913, thirty
years after Marx’s death. While she did not explicitly interrogate the
wording “accumulation of capital”, she clearly argued that expansion
of wage-labour employment was fundamentally involved. Her main
points are elaborated in the following section and then responses by
her critics are mentioned subsequently.
Resulting from the preceding discussion, value as a concept may
be called into question, or we need to consider how value works
in a theoretical environment in which non-capitalist environments
are being penetrated by capitalism. After a reflection on Louis
Althusser’s work, this chapter briefly concludes that Marxist political
economy may need some re-examination.
Contradictions within Marx’s Conception of Accumulation of

Capital
Marx centred his theoretical work in Capital within a fully
capitalist world. He said that in order to examine the object of
our investigation in its integrity, free from all disturbing subsidiary
circumstances, we must treat the whole world as one nation, and
assume that capitalist production is established everywhere and has
possessed itself of every branch of industry. (Marx, 1867, 545, fn. 1)
He wrote this while discussing accumulation of capital, a
subject perhaps least expected for such presumption. Several other
statements by Marx were made in this regard, notably in Volume
II. As a simplifying assumption, who could fault Marx, particularly
when we know full well that he knew that the world was much more
Late Marx, Luxemburg, and the Conception... 255
complex? Still, the presumption is problematic within the internal

logic of his work.
Marx’s concept of accumulation of capital conflicts with the
presumption of a fully capitalist world. His accumulation of capital
must be understood to mean an increase in the number of wage
labourers and the required means of production. Thus, in a draft of
Capital, we read ‘The process of accumulation is itself an intrinsic
feature of the capitalist process of production. It entails the new
creation of wage-labourers...’ (Marx, 1933, 1061).2 Then, in Volume
I as published, we read:
A part of the annual surplus-labor must have been applied to the
production of additional means of production and subsistence ... Now
in order to allow of these elements actually functioning as capital, the
capitalist class requires additional labor ... Accumulation of capital
is, therefore, increase of the proletariat (Marx, 1867, 544–45, 576).
This requirement, although inadequately appreciated, should be
clear enough (for elaboration, see Zarembka 2020, Chapter VI).
Where does the increased supply of labour power come from?
In Marx’s draft, the answer reads:
It does this either by extending its rule to sections of the population
not previously subject to itself, such as women or children; or else it
subjugates a section of the laboring masses that has accrued through
the natural growth of population. (Marx, 1933, 1061)
In Volume I, the solution for additional labour power was narrowed
as follows: ‘the mechanism of capitalist production provides
beforehand, by converting the working-class into a class dependent
on wages, a class whose ordinary wages suffice, not only for its
maintenance, but for its increase’ (Marx, 1867, 544). In other words,
capital had previously created wage labourers, and now these wage
labourers get a bit more than enough for their own subsistence. This
may be suggestive of a Malthusian base for population increase. In
any case, the incorporation of women and children into the labour
force, mentioned in the draft, is neglected in the published work.
Population increase continues to be mentioned by Marx as a
major source of additional labour power. In the 19th century, the
global population growth rate was only around 0.5 per cent per
year. If Marx was considering a country, rather than the whole
world, the rate of increase in England was higher, one per cent in
the 19th century, but still not enough to rely on for accumulation of
capital. Marx’s own numerical illustrations of accumulation assume
annual population increases of 10 per cent. Another possibility? The
increased labour power supply for accumulation of capital could
come from continuing penetration of non-capitalist modes, and
not merely a creation of wage labourers within population increase.
While presumption of a fully capitalist world in Capital contradicts
such an understanding, proletarianisation of the world was then and
is still, in fact, proceeding apace. Thus, Pagine Marxiste (November
2004, Year 1, Number 5, p. 5) makes an attempt to record progress,
indicating that the global non-agricultural labour force more than
quadrupled from 1950 to 2000, representing a 2.9 per cent annual
rate of growth, due in part to population growth (about 1.7 per cent
annually) and in part to the ‘process of proletarianisation, linked to
the disintegration of the peasant social framework and to the shift
from the rural to the urban areas’.
Perhaps Marx became quite aware of continuing proletarianisation
(not only the proletarianisation resulting from original transition
from feudalism to capitalism, i.e. ‘primitive accumulation’). Thus,
consider somewhat more deeply the unpublished ‘Results’ section,
which was to have been the conclusion of Volume I. The most
important theoretical concept in ‘Results’ was formal and real
subsumption of labour to capital, following usage beginning in the
Grundrisse. By the concept of subsumption, it can be argued that
Marx ‘clearly wished to imply that as economic relations increasingly
took on a capitalist character, their scale increased and this brought
them even closer to the world market and their point of culmination’
(White, 1996, 191). Yet, by leaving ‘Results’ out entirely as Volume
I went to the publisher, any focus on subsumption was lost. Even
references elsewhere within Volume I to subsumption were almost
completely stricken by Marx, including references to cooperation,
division of labour, and use of machinery as stages of subsumption
(White, 1996, 200; one remaining definitional passage for
‘subsumption’ was eliminated in the French edition). The published

Volume I shows that “very little remained of the argument that in
its cycle of reproduction capital created its own preconditions on an
ever increasing scale” (201).3
Marx spent many years after the publication of Volume I
studying pre-capitalist societies. His motivation could well be the
following:
Just as Marx was about to publish the first volume of Das Kapital he had
run into serious problems with the section of his projected work which
would deal with the circulation of capital. He had hitherto assumed
that capital would spread throughout the world carrying all before it,
but he had overlooked the fact that even in his own native Hunsruecken
despite the development of capitalism, the older, collective, social
and economic system still survived. Capitalism, apparently, did not
necessarily erode traditional peasant society, but coexisted with it. Marx
removed much of the philosophical underpinnings for his earlier view
of capitalist development from the published version of Das Kapital,
continuing the excisions in the second and French editions, and he
embarked on a lengthy empirical investigation of how capital actually
began to circulate. He had an excellent example to hand in Russia,
which had just embarked on the capitalist road, having abolished
serfdom a few years earlier. In 1870 Marx learnt Russian and got
down to the serious job of collecting materials on Russian economic
development. (White, 2001, 12–13, summarizing a major result of
his own 1996 book).
It is mostly forgotten that Marx wrote to Engels in 1870 that the
most important work published since Engels’ own Condition of the
Working Class in England was Flerovsky’s Condition of the Working
[Peasant] Class in Russia (published in 1869). Flerovsky’s book, like,
for example, van Onselen’s (1976) a hundred years later, focused
on the proletarianisation process, including the role of taxation
therein: ‘The main reason which compels the [peasant] to resort
to the capitalist is to pay his taxes’ (translation by White, 1996,
249, who also explains that a ‘worker’ for Flerovsky is a ‘peasant’
in our usage; see also Forstater, 2005). It is fair to say that Marx
was trying to understand the forms of, and limitations, to capital’s
penetration. This became a continuing study of his to the end of

his life, including extensive correspondence with Russians, which
in turn has extensive implications for the manner in which we
understand Marx and those after him (see White, 2018).
Marx’s Late Theoretical Work: Schemes of Reproduction

We could suspect that the question of penetration of non-capitalist
modes of production would become integrated into Marx’s late
theoretical work. It is not to be so, however, and was left to posterity
in Rosa Luxemburg’s (1913) work. From Engels’ ‘Preface’ to Volume
II we know that Marx was working on the schemes of reproduction as
the last of his theoretical work. And from Engels’ footnoting within
Volume II concerning whether he is drawing upon earlier or later
manuscripts of Volume II for his own editing, we can understand
where individual passages are drawn from. For Section II of ‘Simple
Reproduction’, for example, we can read Engels’ note: ‘Mainly from
Manuscript II [1870], the Schemes from Manuscript VIII [1878]’
(Marx, 1885, 399, fn. 44). For the entire chapter on ‘Accumulation’,
we can read that it is from that last Manuscript VIII. We can thus
infer that the schemes themselves date from 1878, i.e. long after
Marx’s studies of Russia began.
Even in 1878, however, Marx was still considering, from a
theoretical point of view, the capitalist world to be complete.
Immediately before Part III of Volume II, which includes the
schemes, we read, ‘Apart from [the capitalist] class, according to
our assumption—the general and exclusive domination of capitalist
production—there is no other class at all except the working-class’
(Marx, 1885, 352, apparently also written in 1878, judging from
Engels’ ‘Preface’, p. 5). Also, in the chapter ‘Simple Reproduction’, we
read: ‘there are here only two classes: the working-class disposing only
of its labour power, and the capitalist class’ (p. 425, from the 1878
Manuscript VIII). In other words, the process of proletarianisation
remains excluded from Marx’s last theoretical work on Capital, even
after studying Russia.
In beginning his discussion concerning accumulation of
additional constant capital for department I, Marx says that ‘in
order that the transition from simple to extended reproduction

may take place, production in department I must be in a position
to fabricate fewer elements of constant capital for II and so many
the more for I’ (500–01). That is, in transition to accumulation,
production for workers’ consumption (department II) is scaled back
as production of means of production (department I) is increased.
Total employed labour power is seemingly constant. When he turns
to additional variable capital needed for the expanding department
I, Marx writes:
We have explained at great length in Book [Volume] 1 that labor-power
is always available under the capitalist system of production, and that
more labor can be rendered fluent, if necessary, without increasing the
number of laborers or the quantity of labor-power employed. We therefore
need not go into this any further, but shall rather assume that the
portion of the newly created money-capital capable of being converted
into variable capitals will always find at hand the labor-power into
which it is to transform itself. (Marx, 1885, 505)
Marx seems to be referring here to production of relative surplus
value, leading to workers being expelled from production as
technology develops. Again, total labour power employed seems
rather constant. Logically, Marx is almost forced to make such a
statement as long as he presumes a fully capitalist world, as simple
population increase would be his only other possibility.
Nevertheless, when Marx develops his full schemes of production
as accumulation of capital proceeds, both departments I and II are
increasing substantially, with the composition of capital in each
department being held constant. It reads as if Marx, working out
his calculations of schemes of reproduction under accumulation of
capital, has come face to face with the fact that, unlike his earlier
statement regarding Volume I (cited above with italics), more wage
labourers are required, after all.
Marx, in the schemes of accumulation, offers two illustrations,
with his second having higher compositions of capital in both
departments. The latter, he claims, “presupposes a considerable
development of capitalist production and accordingly of the
productivity of social labour, a considerable previous increase
in the scale of production, and finally a development of all the

circumstances which produce a relative surplus-population among
the working-class” (Marx, 1885, 518). This could be a lead into
incorporating the production of relative surplus value as the engine
for sustaining a renewed supply of labour power. However, Marx
never pursued this in drafts being prepared for Volume II and does
not suggest that as his purpose.
The schemes of reproduction in Marx are a remarkable attempt
at posing a new problem for investigation. They sustain the
political economy of economists such as Kalecki, whom Kowalik
(1990) argues is the main continuity from Marx and Luxemburg.
They have even influenced ‘mainstream’ economics. But they do
not help much, at least in Marx’s own formulation, in addressing
a fundamental problem, the possibility of realising surplus value
within a fully capitalist system. Nor do they suggest that Marx was
incorporating within his last theoretical work the issue of penetration
of capitalism into non-capitalist modes of production.
White, whom we have already introduced, considers Marx’s
problem in drafting Volume II. He argues that the first draft, begun
by Marx in 1865, failed ‘to establish any necessary connection
between expanded reproduction of capital and the extension of
capitalist relations’. Accumulation of capital for Marx was to be “a
process which would reproduce its presuppositions, the capitalists
and workers on an extended scale.” “To be unable to show that
capital created its own presuppositions, that it created Civil Society,
was a serious difficulty for Marx’s overall scheme of capitalist
development” (White, 1996, 196).
Marx never came close to resolving this problem. And he could
not resolve it as long as he separated theoretical questions regarding
accumulation of capital from penetration of non-capitalist forms of
production (‘primitive accumulation of capital’ is another matter
altogether; see Zarembka, 2002a and 2020, Chapter V).
Luxemburg on Accumulation
Marx’s study of the history of capital’s penetration, including its
difficulties, had a successor in Luxemburg’s interest in the question
of penetration of non-capitalist forms of production. Luxemburg’s

interest is evidenced particularly in her Introduction to Political
Economy, published posthumously (only half of it found after her
murder). In fact, her work used many of the same sources Marx
had studied. But she also integrated these questions into her own
theoretical work.
Marx’s Capital and Luxemburg’s Introduction to Political
Economy have distinct beginning points. Marx begins with
‘Commodities’. Luxemburg does not get to that till her sixth
chapter after ‘What is Political Economy?’, ‘Social Labour’, and
then three chapters on economic history, including primitive
communism, the feudal system, and the medieval city and guilds.
In other words, for Luxemburg, the capitalist mode of production
arises in an historical context. Luxemburg’s conclusions concerning
primitive communism’s longevity are indicative. While the last form
of primitive communism—the Russian commune—had survived
because of its adaptability, there is ‘only one contact that it cannot
tolerate or overcome—contact with European civilisation, i.e. with
capitalism. This encounter …accomplishes what millennia and the
most savage Oriental conquerors could not: the dissolution of the
whole social structure from this inside’ (Luxemburg, 1925, 226). To
determine the comparative power of capital to rip these people from
all means of production and to thrust these societies into value-
producing ones, we cannot just look at capital. We also have to look
at the weaknesses of the primitive societies, including, as she does,
developments in their specific practices of warfare.4
The capitalist mode arising in an historical context indicates
that theoretical categories are not only socially conditioned, but
socially conditioned within the developing historical setting.
Suggestive of a rethinking of fundamental aspects of Marxist
theory, we turn to this issue later. Here, we discuss our preliminary,
Luxemburg’s fundamentally important The Accumulation of Capital
and subsequent Anti-Critique, and their dismissal by very many
critics, which has constrained development of Marxist theory.
Confronting the problem of realisation is the deepest contribution
which Luxemburg’s The Accumulation of Capital makes to Marxist
political economy: under extended reproduction of capital, what

is surplus value used for? It cannot be merely luxury consumption
of capitalists as that would be simple reproduction. It cannot be
increasing workers’ consumption as this is no part of surplus value.
The possibility that it could be used for increasing constant capital is
more complicated. If the composition of capital stays constant, as in
Marx’s own reproduction schemes in Volume II, then any increase
of constant capital is exactly associated with an increase in variable
capital (more workers selling their labour power to capitalists).
Could not the composition of capital be continually rising, and
could not the increasing constant capital then completely absorb
surplus value not used for capitalist consumption, with no extension
of the capital–wage labour relation? Yet, a rising composition does
not mean more machinery being used per work hour, but rather
more value (labour hours) in the production of the machinery used
by workers in their work hours. The latter increase is not obvious as
there is technological change in the production of machinery, even
as we have a common sense that workers are working with more
advanced technology today than earlier. Magaline (1975) offers an
excellent starting point for analysing the difficulties of this question
and should help undermine dogma about the composition rising,
thereby realising surplus value. Furthermore, if the composition is
characterised as the “materialised” composition of capital C/(v+s)
rather than the frequent C/v, the result could be even a stability
rather than a rise (see Zarembka, 2015 and 2020, Chapter VIII).
Surplus value can, however, overcome the problem of insufficient
markets when used for extending capitalist domination of the world,
i.e. having more wage labourers attached to means of production
controlled/owned by capitalists. Then surplus value can be realised,
albeit outside the circuit of capital.
Critics
There are several factors underlying the dismissal of Luxemburg’s
work, the upshot of which has been to limit the development of
Marxist theory. First, Lenin had said, point blank, that Luxemburg
was wrong on the accumulation of capital. While Lenin’s own

economics had not been carefully criticised by anyone, the success
of the Bolshevik Revolution with Lenin as leader provided a
imprimatur for his opinions not only on political matters, but also
on economics. In fact, Lenin’s economics is not all that deep and
reflects a Ricardianism that went unnoticed. For example, in 1897
Lenin roundly criticised Sismondi before Marx’s own comments
on Sismondi appeared in Theories of Surplus Value. It turned out
that Marx was clearly more appreciative of Sismondi than would be
expected by Lenin’s judgment (see Zarembka, 2003).
Second, Luxemburg’s work received no sympathy from Kautsky,
even though Kautsky himself used similar arguments as Luxemburg’s
when in 1902 he criticised extensively a book by Tugan-Baranowsky.
Lack of honest evaluation from Kautsky, or even any evaluation
at all, was more damaging, at the time, than the fact of Lenin’s
dismissal. As editor of Theories of Surplus Value, Kautsky could know
quite well Marx’s thoughts on Sismondi. Furthermore, regarding
the editorial board of her party’s publication Vorwaerts, Luxemburg
herself commented:
With regard to my purely theoretical work about a complicated issue
involving abstract scientific analysis, the entire Editorial Board of a
political daily paper came forward—although two members, at the
most, might have read the book—and as an official body handed down
a collective judgment against it. In the process they denied that men
like Franz Mehring and S. Karski [Julian Marchlewski] possessed any
expertise on questions of political economy. Only those who had torn
my book apart were to be designated as ‘experts’.
Such a fate has befallen no other party publication as far as I know,
and over the decades Social Democratic publishers have certainly
not produced all gold and pearls (Luxemburg, 1921, 348).
Note that, according to Froelich (1939, 159), Mehring and
Marchlewski greeted her book with ‘great enthusiasm’.
Third, the undermining of Luxemburg’s work was accelerated
by Bukharin’s (1924) long discussion, offered five years after her
murder. Bukharin’s critique played a major role in a process that has
led a much later survey of the history of Marxist economics to feel

comfortable in concluding of Rosa Luxemburg: ‘almost no one has
been convinced by her attempt to demonstrate that accumulation
is impossible in a closed capitalist system’; ‘her theory was wrong’
(Howard and King, 1989, 112 and 317). Bukharin’s commentary is
reviewed in detail in Zarembka (2002b, 11-13).
For example, Bukharin quotes but ignores her when she says
that money is something between two other things: ‘Between the
accumulation of surplus value in commodities and the use of this
surplus value to expand production5 there always lies a decisive
leap, the salto mortale of commodity production, as Marx calls
it: selling for money’ (Bukharin, 1924, 192, italics in original).
Instead, in a section entitled ‘Definition of Accumulation’, he refers
to her defining ‘accumulation as accumulation of money capital’
(194, italics in original). Would it not be more correct to interpret
Luxemburg to say that ‘an amassing of money capital’ is a result of
a necessity within the accumulation process?
After Bukharin, critiques of Luxemburg’s work continued,
in one manner or another, in works by Grossmann, Pannekoek,
Mattick, Sr., Sweezy, Rosdolsky, Tarbuck, Kuehne, Howard and
King, and Dunayevskaya, among others, each of whom is discussed
in Zarembka (2002b). Often the critiques are inconsistent, one with
another, yet a cult of objection was created which includes those of
many political stripes.
Finally, the connection between Luxemburg’s work, particularly
the third part of The Accumulation of Capital and Introduction to
Political Economy, and Marx’s late research into Russian society has
gone unnoticed. This neglect has been largely due to extremely
tardy publication of Marx’s late notes.
Value, When the Context is Wider than Capitalism

Value is, of course, the foundation for Marx’s theoretical
understanding of the capitalist mode of production. Since his 1847
Poverty of Philosophy (Marx, 1847), Marx’s economic categories
are to be understood as socially conditioned. Having re-examined
‘accumulation of capital’ in light of Luxemburg, what then is to
be the appropriate object of analysis leading to this concept of

value: the capital–wage labour relation alone or that relation as
well as the penetration of non-capitalist modes of production
corresponding to accumulation of capital? The former has been
universally presumed, based upon Marx’s simplifying assumption
that ‘capitalist production is everywhere established’. Marx already
made this presumption a decade before Volume I, i.e. in 1858 Marx
wrote Engels an outline of what he was preparing and included a
significant comment concerning value, suggesting his focus to be on
post-proletarianisation:
Value. This is reduced entirely to the quantity of labour; time as a
measure of value ...Value as such has no other ‘material’ than labour
itself... It already presupposes 1. the destruction of natural communism
(in India, etc.); 2. the destruction of all undeveloped, pre-bourgeois
modes of production which are not governed in their totality by
exchange. Although it is an abstraction, it is an abstraction which can
only be assumed on the basis of a particular economic development
of society ... (Marx and Engels, 1948, 58).
In the Grundrisse, we find: ‘The economic concept of value does
not occur in antiquity ... [It] is entirely peculiar to the most modern
economy, since it is the most abstract expression of capital itself and
of the production resting on it’ (Marx, 1939-41, 776).
This topic of the conception of value is addressed in Zarembka
(2020, Chapter II), while beyond the scope of this chapter.
A Possible Reconsideration of Marxist Political Economy

The deeper issue being raised in this chapter may be epistemological.
Althusser’s (1965) work, for example, opens up this space for
discussion, opens up the question of the theoretical object of Capital.
Marx, says Althusser, did not undertake to ‘historicise’ the categories
of classical political economy, categories such as value. Rather, Marx
produced new concepts appropriate to his own theoretical object, in
circumstances in which he had no philosophical concepts available
‘to think the determination of the elements of a whole by the
structure of the whole’ (Althusser, 1965, 187).
Marx was stating this point in order to explain that economic

categories need not follow each other in the same manner as history,
but rather should be determined, in capitalism, by the structure of
bourgeois society. For Althusser, Darstellung (representation, mise
en scene) should be recognised as ‘the key epistemological concept
of the whole Marxist theory of value, the concept whose object
is precisely to designate the mode of presence of the structure in
its effects, and therefore to designate structural causality itself ’
(Althusser, 1965, 188).
Althusser, however, seems completely unaware of any difficulty
with the concept of ‘accumulation of capital’, completely unaware of
the problematic character of presuming full capitalism, completely
unaware that penetration of non-capitalist modes of production
may need to be part of the object of theoretical investigation. While
a concept such as ‘value’ is not to be an historisation of classical
political economy’s conception, neither is it, according to Althusser,
to have the same theoretical object as classical political economy’s
theoretical object. Yet, does not a clarified understanding of
accumulation of capital suggest that we cannot discuss penetration
of non-capitalist society by capital without examining what it is that
is being penetrated. We cannot examine what is being penetrated
without the context, a context which must be historical.
NOTES
1. This chapter appeared, in the main part, in Confronting Capitalism
in the 21st Century: Lessons from Marx’s Capital, edited by Marc
Silver, Palgrave Macmillan, 2019, pp. 47-65, copyright retained by
the author. However, some modifications have been made, and the
argument condensed.
2. This passage is from the draft ‘Results of the Immediate Process of
Production,’ which Marx deleted from Volume I before publication.
‘Results’ can be considered part of the third, next to last, draft of
Volume I. No other material from this third draft has survived, perhaps
because the remainder was rolled into the final draft. Why third draft?
Consider the Grundrisse as a first draft of Marx’s life work. Then the
second draft can be considered to have been drafted between 1861
and 1863, and includes his work on the history of theories of surplus
value. The third, not yet final, draft was begun in 1863 and completed
in 1865, including the only draft ever made of what became Volume
3 under Engels’ editorship.
3. After pulling ‘Results’ from Volume I, there is also no record that
Marx later returned to the issue of ‘subsumption’.
4. Marx, judging by a number of his interventions on this issue, seemed
to think that primitive communism resisted capital more than
Luxemburg argued. Examining this disparity is unnecessary for our
purposes.
5. We are at a loss how Bukharin could so distort Luxemburg’s position
by skipping over the sentence reproduced here. He even plays with
the words salto mortale in his own text, getting into the reader’s
subconscious that he, Bukharin, has read her: the reader is expected to
take his word for the fact that, yes, she really does define accumulation
as the amassing of money capital
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London: Verso Books, pp. 1-342.
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gonen aus der Marxschen Theorie gemacht haben. Eine Antikritik,
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Hudis (ed.), London: Verso Books, pp. 343-449.
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forthcoming.
13
Financialisation: There’s Something
Happening Here1
Gerald Epstein
“There’s something happening here…But what it is ain’t exactly

clear…” —“For What It’s Worth,” Buffalo Springfield, 1966
I. Introduction
For anyone who did not know already, the Great Financial Crisis of
2008 made it completely obvious that finance has become a powerful
force in our economy. Unfortunately, among those largely in the dark
on the eve of the crisis were most of the mainstream macroeconomics
profession as well as many regulators and practitioners operating in
the financial market itself. This is because, in the post-war period,
the thrust of the mainstream analysis was designed to demonstrate
that financial markets were either irrelevant to macroeconomic
outcomes, or, by facilitating the efficient allocation of resources, a
potent force for efficiency and growth (Taylor, 2010; Crotty, 2009).
The idea that finance could cause the virtual meltdown of the global
economy was foreign to their theories and far from their minds.2
For heterodox economists, by contrast, at least since the work
of the late Hyman Minsky, this fact had been well known. In the
1970s, Hyman Minsky introduced the role of financial instability in
the inherent dynamics of the economy and by 1992 had introduced
the term “financial instability hypothesis” to refer to the inherently
contradictory role of borrowing and lending in the course of the
business cycle and on economic crises.3 Over the course of the next
several decades, heterodox economists expanded their analyses of
Financialisation: There’s Something Happening Here 271
finance further. By the 1980s and 1990s, they were acutely aware that
the size, nature and scope of finance had begun to grow enormously
and that it was having much broader impacts on the economy than
simply on the business cycle and economic crises: finance seemed
to be changing the whole character of the economy and possibly
even society itself. Minsky started writing about the rise of “money
manager capitalism” suggesting a whole new phase of capitalism that
was characterised, in particular, by the type of financial relationships
that dominated the economy. Others also began to identify the very
nature of the current form of capitalism with the type of financial
relations that were dominant in them. Some went as so far as to
argue that these financial relations not only structure our economy,
but our very language and culture as well. Gerald F. Davis referred
to a “portfolio society”, “in which the investment idiom becomes
a dominant way of understanding the individual’s place in society.
Personality and talent become “human capital”, homes, families
and communities become “social capital” and the guiding principle
of financial investment spread by analogy far beyond their original
application” (Davis, 2009, 6).
Financialisation” is the latest, and probably most widely used
term by analysts trying to “name” and understand this contemporary
rise of finance and its powerful role. The term had been developed
long before the crisis of 2008 but, understandably, since the
crisis hit, it has become even more popular. This vast and rapidly
expanding literature on financialisation has a number of important
strands. Some of the literature focuses on clarifying the definition
of financialisation, and assessing whether it is a dominant cause of
the ills confronting capitalism or is just a symptom of other, deeper
causes; some ask whether financialisation is a new “phase” of capitalist
development, perhaps a new “mode of accumulation”, or considers
whether it is just one among a number of important developments
along with “neo-liberalism”, “digitisation” and “globalisation” that
are arising in the contemporary world; other literature is focused
on less theoretical and more empirical matters, trying to measure
the nature and extent of financialisation, however defined, and
to describe its institutional and economic dimensions; and still
other work is focused on attempting to analyse theoretically and

empirically the impact of financialisation on important phenomena
such as financial crises, productive investment, productivity growth,
wages and income distribution; and finally, other parts of the
literature are more policy-oriented, trying to grapple with policies
and structural changes than can improve the role that finance plays
in the economy.
In the rest of this chapter I present the most widely used
definitions of financialisation and introduce the main ideas and
debates associated with the concept. In Section III, I discuss the
dimensions of financialisation with primary reference to the US
but add occasional discussions of financialisation in other countries.
Section IV is devoted to discussing the impacts of financialisation
on various important aspects of the economy including investment,
employment and income distribution. Section V concludes.
To anticipate our main conclusion, it is this: as the famous line
from Buffalo Springfield says, with financialisation we know that
something important is happening here. We just do not know yet
exactly what it is.
II. Financialisation: Definitions and Brief History of the

Concept
As discussed by Malcolm Sawyer (2013), the term financialisation
goes back at least to the 1990s and probably was originated by
Republican political operative and iconoclastic writer Kevin Phillips,
who first used the term in his book Boiling Point (New York:
Random House, 1993) and, a year later, used the term extensively
in his Arrogant Capital in a chapter entitled the “Financialisation
of America”. Phillips defined financialisation as “a prolonged split
between the divergent real and financial economies” (Sawyer, 2013,
5-6).
Scholars have adopted the term, but have proposed numerous
other definitions. Sociologist, Greta Krippner, for one, gives an
excellent discussion of the history of the term and the pros and cons
of various definitions.(Krippner, 2005, 2012) As she summarises the
discussion, some writers use the term “financialisation” to mean the
ascendancy of “shareholder value” as a mode of corporate governance;

some use it to refer to the growing dominance of capital market
financial systems over bank-based financial systems; some follow
Hilferding’s lead and use the term financialisation to refer to the
increasing political and economic power of a particular class segment,
the rentier class; for some financialisation represents the explosion of
financial trading with myriad new financial instruments; finally, for
Krippner herself, the term refers to a “pattern of accumulation in
which profit-making occurs increasingly through financial channels
rather than through trade and commodity production”. (Krippner,
2005, 14).4
I have defined the term quite broadly and generally as: “the
increasing role of financial motives, financial markets, financial
actors and financial institutions in the operation of the domestic
and international economies.” (Epstein, 2005, Introduction). This
definition focuses on financialisation as a process, and is quite agnostic
on the issue of whether it constitutes a new mode of accumulation
or broadly characterises an entire new phase of capitalism. Broad
definitions like mine have the advantage of incorporating many
features, but have the disadvantage, perhaps, of lacking specificity.
Other analysts have used variations on the term financialisation
to refer to more or less the same set of phenomena. Tom Palley
has used the term “neoliberal financialisaton” in his writings to
emphasise the importance of neoliberalism as part and parcel of the
rise of financialisation (Palley, 2013a, 8) Some have not referred to
financialisation but to “finance-dominated capitalism” (Hein, 2012;
Sen, 2014; Palley, 2013a).
The use of the term “neoliberalism” signals a topic of much
discussion and debate in this literature: what is the relationship
between financialisation, globalisation and neo-liberalism three
forces that virtually all analysts in this area agree have had profound
impacts on the evolution of our economy (see Kotz, 2014, Dumenil
and Levy, 2005, Lapavitsas, 2013)? The main issue is determining
the key driving force in contemporary capitalism, and and
distinguishing it from the subsidiary, or less important, forces. This
literature, though interesting, is ultimately unresolved: in fact, since
these phenomena have all arisen more or less together since the
1980s , it might be impossible, to settle this debate.
Another important debate is on the periodisation of
“financialisation”. Is it only a recent phenomenon, say, important
since the 1980s? Or does it go back at least 5000 years, as Malcolm
Sawyer has suggested? (Sawyer, 2013, 6).5 If it goes back a long
time, does it come in waves, perhaps linked with broader waves of
production, commerce and technology or is it a relatively independent
process driven by government policy such as the degree of financial
regulation or liberalisation (see Vercelli, 2013; Arrighi, 1994;
Krippner, 2012 and Orhangazi, 2008a, 2008b). Arrighi famously
argued that over the course of capitalist history, financialisation
tends to become a dominant force when the productive economy
is in decline, and when the dominant global power (or “hegemon”)
is in retreat. Think, for example of the early 20th century when
Great Britain was losing power relative to Germany and the US, and
the UK economy was stagnating. This was a period also of a great
increase in financial speculation and instability. (See also Orhangazi,
2008a and Pollin, 1996).
This historical discussion has also melded into a more
contemporary discussion of the causes of financialisation. There is
a big debate about whether the current wave of financialisation is
due to the liberalisation of financial markets starting in the 1980s,
or whether it reflects the reduced profitability and stagnation in the
non-financial (the so-called “real”) economy. In the latter case, it is
argued, financiers are forced to find other ways to make profits, and
they turn primarily to dangerous speculation in the financial sphere.
In short, the question is whether financialisation is due to changes
in the nature and regulation of the financial sphere or is it primarily
due to profound structural problems in the non-financial economy,
including foreign trade and relative global power.6
A related argument is whether the current phase of financialisation
is due to the massive increases in income and wealth inequality
which has led to the need for massive household borrowing and
provided the wealth for rich people to invest.
One policy implication of this debate is that if financialisation
is a purely financial problem, it might be easier to “fix” “simply”

through financial regulation and financial restructuring; if the
problems stem from the “real” economy, wealth distribution and the
global distribution of power, then “fixes” might not be so easy, and
in particular, might require dramatic changes in the very structure
of contemporary capitalism and global political economy.
The final set of debates mentioned here concern the impact
of “financialisation” on the economy and on those who inhabit it.
Those heterodox economists and sociologists who have analysed
“financialisation” have generally taken a quite critical view of the
impact of financialisation on the economy. Prior to the GFC, some
suggested that finacialisation might provide a viable system of
regulation and growth (Boyer, 2000). But most analysts identified
a number of key problems associated with financialisation: among
these problems cited by these analysts are increases in economic
instability, increased short-term orientation, reduced long-term
investment in equipment, innovation, infrastructure and human
capital and an increase in income and wealth inequality. Still, there
is no consensus on the precise dimensions of these problems and to
what extent they should be attributed to financialisation or other
factors such as neoliberalism, digitisation or globalisation.
These broad issues and debates are fascinating and provide
frameworks and agendas for investigating key questions with respect
to the dynamics and impacts of financialisation. But, in my view,
among the most important contributions made in this literature
are in the empirical realm, that is, empirical and historical studies
that have looked at the dimensions of financialisation, its key
institutional embodiments and dynamics, and at its impacts on key
economic, political and social outcomes.
III. Dimensions of Financialisation

If one takes a broad perspective on financialisation, then one can
identify many dimensions of it. One is the sheer size and scale of
financial markets and can be seen quite clearly in the large growth
in the size of the financial sector relative to the rest of the economy
over the last several decades. This growth in finance has been a
quite general phenomenon in many parts of the world. For the

most part, we will focus here on data from the US. The growth of
finance relative to the size of the economy since 1980 or so has been
nothing short of spectacular. A few pieces of data illustrate this point
well. Start with profits of financial institutions. In the United States,
financial profits as a share of GDP were around 10 per cent in the
1950s. By the early 2000s, financial profits constituted about 40 per
cent of total profits in the US, a historical high. After a sharp decline
during the Great Financial Crisis of 2008, financial profits have
recovered to above 30 per cent of profits, well above the average for
the post-war period.
Naturally, with profits having grown so significantly, the size of
the financial sector is likely to have been growing as well. Financial
sector assets relative to GDP was less than 200 per cent from 1950
to 1985. By 2008, they had more than doubled to well over 4
times the size of the economy. After a short dip following the GFC,
financial sector assets had grown to be almost 500 per cent of GDP
by 2015 (Epstein and Montecino, 2015).
Trends in the UK are similar to those in the US, with both the
size and the profitability of the financial sector and its profitability
growing substantially in the post-war period till the great financial
crisis, and resumed growth since that time. Indeed, since the crisis,
growth of financial assets in the UK have outpaced those in the
US, Germany and Japan, relative to GDP (Lapavitsas, 2013, 205).
More generally, the size of the financial sector and financial profits
relative to the size of the economy has grown substantially in most
European countries over this period. (FESSUD, various).
Another dimension that characterises financialisation in
many countries has been an increase in the financial activities and
financial orientation of non-financial corporations. De Souza and
Epstein (2014) present data on the financial activities of non-
financial corporations in six financial centres, the US, UK, France,
the Netherlands, Germany and Switzerland. They show that in all
the six countries—with the possible exception of France—non-
financial corporations significantly reduced their dependence of
external borrowing for capital investment. And, indeed, in three of
the countries—the UK, Germany and Switzerland—non-financial

corporations became net lenders, rather than net borrowers,
indicating an increasing role for financial lending as a profit centre
for non-financial corporations in these countries. Lapavitsas (2013)
showed similar trends for the US, UK, Germany and Japan.
A prime aspect of financialisation that analysts agree has been
particularly pernicious has been the vast increase of debt levels in
many countries and many sectors (Admati and Hellwig, 2013;
Taylor, 2012; Turner, 2013). Debt, or leverage, is an accelerator
that enables the financial system to generate a credit bubble, that
allows some actors, such as private equity and hedge funds to extract
wealth from companies, and that can quicken the pace of economic
activity more generally, and it is the accelerator on the way down
after the bubble bursts, leading to distress, deflation and bankruptcy.
(Minsky, 2008; Fisher, 1933; Jarsulic, 2013)
Playing a key role in the development of financialisation is the
role of financial innovation; in fact some authors argue that financial
innovation itself is financialisation (Vercelli, 2013). To be sure,
financial innovation has played a pivotal role in the development of
recent financial practices that contributed significantly to the massive
growth in financial activities and that ultimately contributed to the
financial crisis (Vercelli, 2013; Jarsulic, 2013; Greenberger, 2013;
Stout, 2011; FCIC, 2011). Among these seminal financial innova-
tions have been securitisation and structured financial products such
as Asset Backed Securities (ABS); Collateralised Debt Obligations
(CD)s); the growth of credit derivatives, such as Credit Default
Swaps (CDS) that both facilitated and then became embedded in
these structured products themselves; and innovation in wholesale
funding such as REPO’s and REVERSE REPOs all facilitated
by complex utilisation of collateral that greased the wheels of the
whole system. These financial innovations have implications that are
global in scope. The Bank for International Settlements in Basel,
Switzerland reports that the global use and level of trading in these
instruments has grown spectacularly over the last several decades
(BIS, 2013). This process of financial innovation has clearly helped
to drive financialisation, both within countries and globally as well.
Financialisation and Non-Financial Corporations

There are other important dimensions of the increased financial
activities related to non-financial corporations. Among the
most important are the increased role of financial activities as a
determinant of the pay packages of top management of non-
financial corporations, including, most importantly, the corporate
CEO. Perhaps most important are stock options and other stock-
related pay for non-financial corporate management. In the US,
where this is especially prevelant, CEOs on average receive 72 per
cent of their compensation in the form of stock options and other
stock-related pay (Galston and Kamarck, 2015; Lazonick, 2015a,
2015b).
This focus on stock price leads non-financial corporations to use
their revenue to buy back stocks in order to raise the stock prices and
increase their compensation (Cheng, et al., 2015). Regarding the use
of funds, Lazonick refers to the pressure as leading to management
policies of “downsize and distribute”, a dramatic shift from an
earlier strategy or retain and reinvest, by which management would
retain profits and re-invest back into the human and technological
capital of the firm. (see, e.g. Lazonick 2012, 2015a; Almeida, et al.,
2016). The numbers in the case of the US are staggering. Using a
sample of 248 companies that have been listed on the S&P 500
since 1981, Lazonick reports that: in 1981, firms used 2 per cent
of net income for stock buybacks. Between 1984 and 1993, such
purchases averaged 25 per cent of net income, from 1994-2003,
37 per cent; from 2004—2013, they used a full 47 per cent of net
income for stock buybacks. (Lazonick, 2015a, 2015b). Particular
large, well-known corporations used even a higher percent of their
income for buybacks.
This focus on stock price is often seen as a prime example of
“share-holder value” ideology, a perspective seen by some as the very
essence of “financialisation”. (Froud, et al., 2006; Aglietta and Bretton,
2001). Shareholder value ideology, promoted in the mainstream of
the economics profession by Michael Jensen, among others, argues
that since shareholders own the corporations (are the risk-bearing
residual claimants”), that the goal of the corporation management

should be to maximise the corporate value for shareholders. Since,
they argue, shareholders bear all the risk in the corporation, then
this maximisation is the most efficient corporate outcome. Lazonick
shows that other stakeholders, like workers and taxpayers, bear as
much if not more risk than shareholders (Lazonick, 2013). And
Stout shows that shareholders do not really own the corporations,
nor do they all share the same values as embodied in the Jensen
ideal. (Stout, 2012). Hence, “maximising shareholder value” does
not mean maximising share price. But it does often lead to short-
term, destructive orientation by management.
This is one of the most discussed examples of the role of
modern financial markets in creating more “short-termism”, as a
major component of “financialisation”. By ‘short-termism” is meant
a short time horizon by economic leaders in making production,
investment and financing decisions. This short-termism might
lead to under-investment in long gestation but highly productive
and profitable (in the long-run) investments, under-investment in
labour development, under-investment in research and development
activities, and over-investment in activities that generate short
run profits but that might generate long-run risks and/or losses.
(Graham, et al., 2005; Dallas, 2012). The same kinds of pressures
face portfolio managers for pension funds and other institutional
investors, leading to a similar focus on short-term returns, sometimes
at the risk of longer term investments (Parenteau, 2005)
Evidence of short-termism include the reduced holding period
of equities in financial markets, survey evidence that managers will
cut profitable long-term investments to reach short-term profit
goals, and that investors have higher rates of required returns for
longer term investments than is necessary (see Haldane and Davis,
2011).
This short–term oriented behaviour is alleged to affect non-
financial corporation management not simply because of the direct
incentives facing corporate CEOs, but also because of the pressure
from outside investors and financial institutions. These include
pension funds and related institutional investors (Parenteau, 2005)
and also private equity firms (Appelbaum and Batt, 2014) and hedge
funds (Dallas, 2012). These financial institutions use access to debt
and financial engineering to extract value in the short run from
non-financial corporations, possibly at the expense of investment,
tax payers and labour.
In short, this strand of literature suggests that “financialisation”
not only affects behaviour in the financial sector itself, but also has
profound effects on non-financial corporations as well.
Financialisation and Households

As the Great Financial Crisis of 2008 clearly demonstrated, the
process of financialisation has not only caught financial and non-
financial institutions into its orbit, but also households as well.
After all, the epi-centre of the financial crisis in the United Sates
was in the home mortgage market and to some extent one segment
of that market, the so-called “sub-prime mortgage market”. Costas
Lapavitsas (2013) and others have argued that the process of financial
incorporation of households led to the “financial expropriation” of
these households by financial businesses, and expropriation most
clearly and obviously expressed by the massive loss in housing
wealth experienced by poor people and minorities in the US as a
result of the crisis. (See Taub, 2013 and Engel and McCoy, 2011).
The incorporation of households into the “circuits” of
financialisation goes beyond the intensive use of mortgages to
buy homes, sometimes, as we saw in 2008, with catastrophic
consequences. The use of credit cards and other forms of consumer
credit, and the widespread indebtedness of students through student
loans, also comprise the webs of connections that households have
come to have with the financial markets (Kuttner, 2013; Warren,
2014).
Conclusion
As this section has shown, financialisation has numerous dimensions,
and has moved in some countries way beyond the “financial sector”
itself. Financial returns, financial motives, widespread use of debt
and short-termism, among other aspects, have become crucial, if not
dominant, for financial firms, non-financial firms, and households.

This growth in finance, which accelerated around 1980 in a number
of countries, has taken on significant global dimensions as well.
The question naturally arises, what is the impact of
financialisation on the economy and on society?
IV. Impacts of Financialisation

Much of the macroeconomic literature on financialisation concerns,
of course, the impact of financialisation on crucial macroeconomic
outcomes such as economic growth, investment, productivity
growth, employment, stability and income distribution. The massive
literature on the great financial crisis has made it pretty clear, that
aspects of financialisation, including the huge increase in private
debt, the use of securitisation and complex financial products, the
widespread use of complex over the counter (OTC) derivatives, and
the pernicious fraud and corruption, all contributed to the financial
crisis and therefore, quite obviously, undermined stability.
But the impacts of financialisation on other macro-outcomes
are less obvious, and less studied. Before discussing particular
impacts, it will be helpful to present some broad frameworks that
have been proposed to understand the impact of financialisation on
macroeconomics. (see Palley, 2013a, 2013b; Hein and Van Treeck,
2010; Skott and Ryoo, 2009).
Macroeconomic Models and Financialisation

Space prevents me from giving a thorough overview of the rapidly
expanding heterodox literature on models of financialisation, so I
will very briefly discuss one framework here, that of Eckhard Hein.
Hein uses a Kaleckian model, in which aggregate demand plays
a pivotal role in determining investment and output and income
distribution of income between profits, wages and “rentier” or
“financial incomes” have a big impact on aggregate demand. Eckhard
and van Treeck, for example, identify three prime channels through
which financialisation can affect macro variables and outcomes:
1. The objectives of firms and the restrictions that finance places
on firm behaviour 2. New opportunities for households’ wealth-
based and debt-financed consumption, and 3. The distribution of

income and wealth between capital and labour, on the one hand,
and between management and workers on the other hand.
Hein and van Treeck show that within the Kaleckian framework,
that expansive effects may arise under certain conditions, in particular
when there are strong wealth effects in firms’ investment decisions
and in households’ consumption decisions. However, they show
that even an expansive finance-led economy may build up major
financial imbalances, i.e. increasing debt-capital or debt-income
ratios, which make such economies prone to financial instability.
Financialisation and Investment

Stockhammer (2004) pioneered the theoretical analysis of the
impact of financialised manager motives on investment. He showed
that finance oriented management might choose to undertake lower
investment levels than managers with less financialised orientations.
He presented macro- level econometric investment equations that
were consistent with this impact in several OECD countries.
Orhangazi (2008b) uses firm level data to study the impact of
financialisation on real capital accumulation in the United States. He
used data from a sample of non-financial corporations from 1973
to 2003, and finds a negative relationship between real investment
and financialisation. Orhangazi explained his results by exploring
two channels of influence of financialisation on real investment:
first, increased financial investment and increased financial profit
opportunities may have crowded out real investment by changing
the incentives of firm managers and directing funds away from real
investment. Second, increased payments to the financial markets
may have impeded real investment by decreasing available internal
funds, shortening the planning horizons of the firm management
and increasing uncertainty.
Davis (2013) provided further evidence of the negative impact
of financialisation on real investment. She also studied a sample
of non-financial firms, showing a significant difference between
large and smaller firms in the degree to which they receive financial
income as a share of total income. Larger firms appear to be more
financialised in this sense. Using a firm-level panel, she investigated

econometrically the relationship between financialisation and
investment, exploring focusing on the implications of changes in
financing behaviour, increasingly entrenched shareholder value
norms, and rising firm-level demand volatility for investment by
NFCs in the US between 1971 and 2011. Importantly, Davis
found that shareholder value norms were associated with lower
investment, though this relationship tended to be true primarily of
large firms.
These results are consistent with the concerns expressed by
heterodox analysts and others that financialisation will tend to
reduce real investment.
Employment, Human Capital, R&D and Wages

An increasing chorus of analysts among heterodox economists
including William Lazonick (2009, 2013, 2014), Eileen Appelbaum
and Rosemary Batt (2014) and iconoclast Andrew Haldane (2011),
as well as more mainstream economists (e.g. Galston and Kamarck,
2015) and even political figures such as Hillary Clinton have expressed
concern that “short-termism” associated with financialisation may
be coming at the expense of investments in human capital, research
and development, employment and productivity growth. There is
some empirical work that is supportive of these fears. In a set of
surveys of corporate managers, Graham, et al (2005) show that
many chief financial officers are willing to sacrifice longer term
investments in research and development and hold on to value
employees in order to meet short-term earnings per share targets.
In a panel econometric study, Almeida, et al. (2014) similarly
find using firm level data that managers are willing to trade-off
investments and employment for stock repurchases that allow them
to meet earnings per share forecasts. Appelbaum and Batt (2014)
in a survey of econometric studies of private equity firms find that
especially large firms that use financial engineering to extract value
from target companies, have a negative impact on investment,
employment research and development in these companies. In
short, there is significant empirical evidence that “short-termism”
and other aspects of financial orientation have negative impacts on

workers’ well-being, productivity and longer-term growth.
And, as many of these studies emphasise, these activities do
not maximise shareholder value, but often increase incomes for
some managers and shareholders, partly at the expense of other
shareholders of the firms not to mention stakeholders, such as
workers and taxpayers.
Income Distribution
This raises the issue of the overall impact of financialisation on
income distribution. An important issue in this area is where do
financial profits come from? (Pollin, 1996). Are they the result of
provision of services by finance to the rest of the economy, as is
asserted by most mainstream economic theory? Or does much of it
come in this era of financialisation from the extraction of income
and wealth by finance from workers, tax-payers, debtors and other
creditors? Iren Levina proposes that much of financial income comes
from access to capital gains in financialised markets and therefore
does not necessarily reflect a zero-sum game, as is implied by some
who argue that financial returns are extracted rather than result
from increased wealth. (Levina, 2014). This issue of the source of
financial income is extremely difficult to sort out theoretically and
there is no consensus on this topic (see Lapavitsas, 2013).
There has been some empirical work to look at the impact of
financialisation on income and wealth distribution. Descriptive
analysis in the US indicates that the top earners, the 1 per cent
or even .01 per cent of the income distribution get the bulk of
their incomes from CEO pay or from finance (Bakija, et al.
2012). Econometric work looking at the relationship between
financialisation and inequality is also growing. Tomaskovic-Devey
and Lin (2011) present an econometric model indicating that since
the 1970s, between 5.8 and 6.6 trillion dollars were transferred to
the finance sector from other sectors in the economy, including
labour and taxpayers.
Lin and Tomaskovic-Devey (2013), using a sectoral econometric
analysis for the US, find that in time-series cross-section data at the
industry level, an increasing dependence on financial income, in
the long run, is associated with reducing labour’s share of income,

increasing top executives’ share of compensation, and increasing
earnings dispersion among workers. They do a counterfactual
analysis that suggests that financialisation could account for more
than half the decline in labour’s share of income, 9.6 per cent of the
growth in officers’ share of compensation, and 10.2 per cent of the
growth in earnings dispersion between 1970 and 2008.
Dunhaupt (2013) finds a negative relationship between
financialisation and labour share in a larger set of countries. She
uses a time-series cross-section data set of 13 countries over the time
period from 1986 till 2007. The results suggest that there is indeed
a relationship between increasing dividend and interest payments
of non-financial corporations and the decline of the share of wages
in national income. Other factors that can be accounted for the
decline relate to globalisation and a decrease in the bargaining power
of labour.
Financialisation and Economic Growth

As the massive recession stemming from the great financial crisis
makes clear, there is no linear relationship between the size and
complexity of financial markets and economic growth. Several
econometric studies have suggested an inverted U-shaped
relationship between the size of the financial sector and economic
growth. A larger financial sector raises the rate of economic growth
up to a point, but when the financial sector gets too large relative
to the size of the economy, economic growth begins to decline (see
for example, Cecchetti, et al., 2012; Tomaskovic-Devey, 2015). To
the extent that this relationship is true, economists are still searching
for the explanation. One argument is that as the financial sector
increases in size, because of its relatively high pay levels, it pulls
talented and highly educated employees away from other sectors
that might contribute more to economic growth and productivity.
As a University Professor teaching economics since the 1980s, I can
verify that many of my undergraduate students had the dream of
going to work on Wall Street. Perhaps some of them could have
contributed more elsewhere.
V. Conclusion
There is little doubt that the size and reach of financial activities,
markets, motives and institutions has grown enormously in the last
thirty years, relative to other aspects of the economy. There is a great
deal of historical and empirical evidence that, at least to some extent,
this growth has contributed to economic instability, an increase in
inequality, and in some cases, to a decline in productive investment
and employment relative to what might have occurred otherwise.
There is less consensus on whether this constitutes a new epoch,
phase, or mode of accumulation or what exactly is causing this shift:
is it underlying problems in the “productive core” of the economy,
a reaction to broader shifts in the global economy associated with
globalisation, technological changes associated with digitisation, or
primarily due to financial de-regulation as being part and parcel of
neoliberalism?
To some extent, policies or programes aimed at reducing
the deleterious consequences of financialisation depend, to some
extent at least, on the underlying causes of the negative aspects
of financialisation. If the problem primarily stems from issues
of financial regulation, then adopting strict financial regulations
as suggested by many (see, for example, some of the chapters in
Wolfson and Epstein, 2013; or Epstein and Crotty, 2013), imposing
a financial transactions tax to reduce short term trading, prohibiting
destructive stock buy-backs (Lazonick, 2015a), breaking up the large
banks (Johnson and Kwack, 2010), change corporate governance so
that corporations take into account the preferences of stake holders,
and a host of other reforms could well go a long way to taming
financialisation. If, the problems stem largely from the vast and
growing inequality of income and wealth and the political power
that this inequality buys, then deeper reforms of taxation, wages,
and ownership as well as money in politics must be implemented.
If the problem goes deeper to the underlying capitalist dynamics
that lead to financialisation, then we are looking at even more
fundamental reforms. The state of our knowledge does not allow
us to clearly sort out these issues. But, it would not hurt to start
someplace, start anyplace. Because, we do know: there is something

happening here.
NOTES
1. The earlier version of this paper was published in August 2015 as
Working Paper of PERI number 394. The permission is taken from
author for reprint. The author thanks Jim Crotty and Bob Pollin for
many edifying discussions of these issues and Leila Davis, Iren Levina,
Juan Montecino and Joao Paolo de Souza for excellent research
assistance and collaboration.
2. Mainstream macroeconomics was not always so ignorant of the
important role of finance. In the 1920s and 1930s, economists from
many traditions, including Hayek, Fisher, and, of course Keynes, were
trying to understand the role of financial institutions and markets in
financial booms and busts; and others, including Joseph Schumpeter,
were trying to analyse the role of finance in long-run economic
growth.
3. Harry Magdoff and Paul Sweezy, sometimes called by short-hand,
The Monthly Review School, in reference to the Marxist journal they
founded and edited for many years, were among the first post-war
scholars writing in depth about the important role of dominant
finance in the structure of the macroeonomy.
4. See also Costas Lapavitsas (2013) and Ozghur Orhangazi (2008) for
important contributions.
5. Sawyer was apparently inspired in this statement by David Graeber’s
monumental book, Debt: The First 5000 Years. London: Melville
Press, 2011.
6. Paul Sweezy and Harry Magdoff and the so-called Monthly
Review School, were important contributors to this perspective on
financialisation.
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14
Reflections on the Classical Theory of
Imperialism: Does History Repeat Itself?
Paramjit Singh
Balwinder Singh Tiwana
Introduction
History shows that the major economic crises give way to
fundamental transformation in the working of capitalist economic
system. However, all capitalist crises are the outcome of some
fundamental contradictions. The contradiction between capital
and labour is the basic contradiction of capitalism that is inherent
within the production process. The other contradiction arises with
the competition among the free capitalist producers of the same
industry to defeat each other at the marketplace to maximise sale. It
ruins the small and less competitive players. The third contradiction
is between the national capitalist producers producing different
products to expand its size to other spheres of production that
results in the concentration and centralisation of capital at national
level. The last contradiction takes capitalism into a qualitative new
age. It constitutes the contradiction between the national capitalists
of one region or a country with the capitalists of another region or
a country to grab the world market. This last contradiction is the
subject matter of what we call classical theories of imperialism.
The original Marxian theory of imperialism is not given by Marx
rather it had been developed between 1902 and 1917. The publication
of Hobson’s populist version of the critique of imperialism in 1902
led Marxist thinkers to understand the contradictions of industrial
capitalism that had developed among major centres of the capitalist
Reflections on the Classical Theory of Imperialism 295
world after 1870. It gave rise to the Marxian theory of Imperialism.

The original Marxist theory of imperialism comprises writings which
include (chronologically) Hilferding (1981) first published in 1910,
Luxemburg (2003) in 1913, Bukharin (2010) in 1915 and Lenin
(2010) in 1917. However, Kautsky’s Ultra-imperialism, that was
criticised by Bukharin and Lenin and was declared irrelevant around
the First World War period owing to its pessimistic approach, became
relevant to some extent to understand the imperialistic nature of
capitalism in the post-Second World War era.
Classical theories of imperialism are valued as an epochal
reflection that have meticulously investigated the logic of capitalist
accumulation during the beginning of the 20th century. It has
taken Marx’s analysis from a closed capitalist economics system
into the world economic system. The key features of classical
theories of imperialism are principally directed by the course
of territorial expansions in search of new economic spheres of
influence. Therefore, sometimes the end of colonial rule is seen to
be the end of imperialism as well. However, reality is beyond such
myopic conclusions. Historical understanding of the development
of capitalism reveals that imperialism is a necessary condition for
the sustainability of capitalism and accumulation therein. Therefore,
the end of colonialism calls for the Marxist scholars to revisit the
classical theories with an objective to understand the current
conjecture. Undoubtedly, the classical theories of imperialism which
were formulated in the first and second decade of the 20th century
are no longer directly applicable to understand the imperialist
nature of capitalist accumulation in the 21st century. However, it
does not mean that classical work altogether became redundant to
understand the imperialistic nature of contemporary capitalism. As
Boron (2005, 3-4) remarked that “the fundamental parameters of
imperialism delineated in the classical works remain central, even
though the ‘phenomenology’ of imperialism has changed.” Now,
the challenge for the Marxist theorists of the imperialist world
system is to assimilate the profundity of classical account and in its
light, address the changes in the mode of surplus extraction in the
contemporary phase of imperialism.
In the light of these facts, the present chapter is an attempt

to synthesise the classical theories of imperialism in order to
build a comprehensive understanding of old and contemporary
characteristics of imperialism. For that purpose the chapter is divided
into four parts. The first part highlights the misery of classical and
post-classical bourgeois economics to understand the real nature and
working of capitalism. The second part conceptualises imperialism
as the monopoly stage of capitalism. The third part unfolds the
relationship between economics and politics that played an important
role in strengthening the foundations of imperialism. The fourth
part highlights export of capital and colonialisation as an essential
character of the late 19th and early 20th century imperialism. The
concluding part presents the changing nature of capitalism and its
imperialistic characteristics.
Capitalism Beyond Say’s Law

Bourgeois economic theory is concerned with commodity
production and market system where surplus value is produced
and distributed. It presents capitalist accumulation purely as an
economic process driven by liberal democratic values, harmony of
interests and peace. The peaceful development of production forces
and relations results in equitable distribution of total produce
and the economy’s progress on liberal lines. However, Luxemburg
(2003, 432-33) emphasised the other aspect of capitalist economy
which is beyond the realm of peaceful competition, the marvels
of technology and pure commodity exchange. It is the realm of
capital’s blustering violence which bourgeois economics regarded
more or less incidental to foreign policy and quite independent of
the economic sphere of capital. This is the sphere which classical
theorists characterise as imperialism.
The fundamental problem with classical and developed classical
system presented by the post-classical economics through Walras’
general equilibrium approach is that it favours some automatic
adjustment mechanism which keeps the capitalist economic system
in an equilibrium. In this realm of automatic adjustment, all the
markets—product, labour and money—are considered to be
mechanically interrelated with each other and always achieve balance

between demand and supply forces (in other words, they always
remain ‘clear’). The classical notion of market clearing is based on
the Say’s law of market. The central theme of classical economics is
distribution of output produced by the employed resources based
on the marginal productivity theory of distribution. The driving
force of all the markets is aggregate supply and whatever is supplied
in each market, creates its own demand. The Ricardian explanation
of Say’s law states:
No man produces but with a view to consume or sell and he never
sells but with an intention to purchase other commodities, which may
be useful for him, or which may contribute to future production.
By producing then, he necessarily becomes either the consumer of
his own goods or the purchaser or consumer of the goods of some
other person… Productions are always brought by productions, or
by services; money is the only medium by which exchange is effected
(Ricardo, 2006, 201-02).
According to Ricardo’s explanation of Say’s law, exchange of
commodities is transformed into mere barter of products. This is a
return not only to the time before capitalist production, but even to
the time before simple commodity production. Say’s law can hold
in pre-capitalist consumption dominant societies, where the barter
system dominates or if money exists, it plays only the medium
of exchange function. As explained by J.B. Say in Catechism of
Political Economy, “every producer ask for money in exchange for
his product, only for the purpose of employing that money again
immediately in the purchase of another product; for we do not
consume money, and it is not sought after in an ordinary case to
conceal it: thus, when a producer desires to exchange his product for
money, he may be considered as already asking for the merchandise
which he proposes to buy with this money. It is thus the producers,
though they have all of them the air of demanding money for their
goods, do in reality demand merchandise for their merchandise”
(Say, 1817, 105). This process was presented by Marx through the
following two equations.
C—C or C—M—C
The process, presented by Say’s law or Ricardo’s explanation of
it, highlights that in the first circuit the commodity undergoes the
process of metamorphosis into money and in the next circuit the
process of metamorphosis of money into commodity. It is quite
consistent that money is then regarded merely as an intermediary in
the exchange of products. This interpretation of capitalist economic
system has denied the first condition of capitalist production. The
sole purpose of production under capitalism is accumulation of
more and more capital in money form. The capitalist production
process starts with money with a principal objective of valorisation
of capital invested in the form of more money as shown by the
following equation.
M—C—MХ
The logic of capital accumulation which drives the capitalist
economic system depends on realisation of surplus value, the value
over and above the value of labour power. In a closed capitalist
system, production of surplus value is based on conditions that the
wages of workers should be less than the total value produced by
them. This extra value above the ‘necessary labour time’ requires
the market for its realisation. One part of this demand is fulfilled
by the workers as consumers and the other part is fulfilled by the
producers as consumers. It is an established fact that the marginal
propensity to consume of the workers is near to one which means
they consume whatever they earn. However, marginal propensity
of the capitalists is less than one which means they consume less
than their income because they keep a part of their income for
investment. This reinvestment is based on the condition that all
the surplus value extracted during the production process should be
realised in the market. The circuit of capital accumulation cannot be
complete without the realisation of surplus value. Hence, in a closed
economic system the realisation of surplus value is blocked by the
problem of the narrow base of consumption. The capitalist crisis
due to narrow base of domestic consumption can be postponed
through intensification of the domestic market by developing new
production units and employing new workers. But wages which
in a capital-driven economy always remain less than the marginal

productivity again pose a serious barrier to accumulation within
the boundaries of a national economy. It gives birth to the problem
of overproduction/underconsumption that undermines the classical
notion of Say’s law (that supply creates its own demand) and
therefore falsifies the notion of capitalism as a self-sufficient system.
During the 1870s, in advanced machine-driven capitalist
economies, consumption failed to keep pace with production due
to distributional changes caused by stagnation of real wages and
continuous increase in share of profits. The other qualitative change
that undermined the Say’s law of market was concentration and
centralisation of capital, causing further widening of the gap between
consumption and production. Concentration and centralisation of
capital displaced the perfect competition driven price mechanism
with monopolistic price set up, i.e. prices became downward sticky.
Hence, the time period of the 1870s can be characterised as a
turning point in the economic history of capitalism due to structural
changes in the working of the system. It undermined the logic of
capitalist equilibrium based on Say’s law. The growth of large-scale
production units on the graveyard of smaller ones intensified the
concentration and centralisation of capital. Bukharin (2010, 64)
argued,
The destruction, from top to bottom, of old, conservative, economic
forms that was begun with the initial stages of capitalism, has triumphed
all along the line. At the same time, however, this ‘organic’ elimination
of weak competitors inside the framework of ‘national economies
(the ruin of artisanship, the disappearance of intermediary forms, the
growth of large-scale production, etc.) is now being superseded by the
crucial period of a sharpening struggle among stupendous opponents
on the world market.
This gave rise to growth of monopolies at national level: the
formation of cartels, syndicates, trusts, etc. This phenomenon
took capitalism to a phase that was beyond the scope of classical
economics. The new phase of capitalism was driven by the collusion
between industrial and bank capital with an objective to tighten the
control over the national market and state apparatuses at the first
stage and the world market at the final stage.
Imperialism as an Outcome of Monopoly Capital

According to Lenin (2010), “imperialism emerged as the development
and direct continuation of the fundamental characteristics of
capitalism in general.”....“Economically, the main thing in this
process is the displacement of capitalist free competition by capitalist
monopoly” (p. 87). For Lenin, imperialism is the monopoly stage of
capitalism that is an outcome of certain changes in the characteristics
of capitalism. Lenin’s definition of imperialism includes five basic
features:
(i) the concentration of production and capital has developed to such a
high degree that it has created monopolies which play a decisive role in
economic life; (ii) the merging of bank capital with industrial capital,
and the creation, on the basis of this “finance capital” of a financial
oligarchy; (iii) the export of capital as distinguished from the export
of commodities acquires exceptional importance; (iv) the formation
of international monopolist capitalist combines which share the whole
world among themselves, and (v) the territorial division of the whole
world among the biggest capitalist powers is completed (p. 88).
Hence, the essence of imperialism is monopoly capital. Imperialism
can be defined as a stage in the development of capitalism in which
several capitalist countries stand against each other to provide the
world market to their industrial produce and surplus capital.
Marx’s analysis of capitalism systematically deals with three
fractions of accumulation of capital: commercial capital which is
also known as merchant capital (M—C—MХ), industrial capital
(M—C (MoP + LP)—P—CХ—MХ) and bank capital (M—MХ). He
did not systematically discuss the capitalist accumulation beyond
these stages. Hilferding’s contribution to the theory of capitalist
development is considered as a valuable supplement to the three
volumes of Marx’s Capital for logical understanding of the latest
phase of capitalism after the 1870s. Hilferding’s analysis deals with
next form of capital accumulation that he named finance capital.
The concentration and centralisation process that was well

underway in Britain, other European countries and USA resulted in
the cut-throat competition, followed by rapid process of amalgamation
and combines. This process resulted in concentration of national
wealth in a few hands. The displacement of free competition driven
capitalism by monopolies in various spheres of production was a
turning point in the history of development of capitalism. The
process of concentration and centralisation that worked to eliminate
free competition through the formation of cartels and trusts
brought bank and industrial capital closer. As Hilferding (1981,
121-127) argued, combined enterprises (cartels) accumulated more
competitive strength than their pure counterparts (non-combined
enterprises). With the growth of combined enterprises during the
late 19th century, pure enterprises perished, as they were “crushed
between the high price of raw material and competitive price of final
produce.” Lenin argued, cartels, far from dissipating in thin air as
some transitory phenomenon, had become a fairly permanent nerve
centre of economic activities, sweeping one industry after another.
Lenin conceived this phenomenon as the principal stage in the
history of monopolies and characterised it as follows:
(i) 1860-70, the highest stage, the apex of development of free
competition; monopoly is in the barely discernible, embryonic stage.
(ii) After the crisis of 1873, a lengthy period of development of cartels;
but there is still the exception. They are not yet durable. They are still
a transitory phenomenon. (iii) The boom at the end of the 19thcentury
and the crisis of 1900-03. Cartels become one of the foundations of
the whole of economic life. Capitalism has been transformed into
imperialism (Lenin, 2010, 25).
Cartels were not the only sole catalysts of economic change. During
the period in question, along with cartels, the growth of joint stock
companies (JSCs) also modified the form of economic control and
organisation of industrial production. The operation of JSCs in the
stock market, that of issuing shares and raising equity on the stock
exchange, divorced ownership from control. This became the perfect
breeding ground for bank capital which could bring firms under its
control by buying shares (Hilferding 1981, 121-127). Regarding the

importance of bank capital in the emerged form of JSCs production,
Lenin (2010, 33) rightly remarked, “we shall have a very insufficient,
incomplete and poor notion of the real power and significance of
modern monopolies if we do not take into consideration the part
played by the banks.” As industrial capital entered the confines of
concentration, bank capital followed suit: proliferation of banking
activities subsequently resulted in the concentration of bank capital.
As Lenin (2010, 35) points out,
the big enterprises and the banks in particular, not only completely
absorb the small ones, but also ‘annex’ them, subordinate them, bring
them into their ‘own’ group or ‘concern’ (to use a technical term) by
acquiring ‘holding’ in capital, by purchasing or exchanging shares, by
a system of credit etc., etc.
This was an important distinguishing feature of the banking capital.
The collusion between big banks and industries consolidated
the process of monopolisation. Investment credit deepened this
association even further. Banks, thus, fastened their grip on JSCs.
This became the turning point in the accumulation history of
capitalism. The dominance of capital in general translated into
dominance of finance capital. Hiferding (1981, 121-127) has
defined “finance capital as the capital controlled by banks and
employed by industrialists.” Lenin (2010, 49) defined this process
as “the concentration of production; the monopolies arising there
from; the merging or coalescence of the bank with industry.” Hence,
finance capital that became the dominant form of accumulation was
considered to be the turning point in the accumulation history of
capitalism. There are two significant features of finance capital that
differentiated it from the other forms of capital.
First, finance capital relied on the coalescence of financial
capital and industrial capital. During that time, the dominant form
of valorisation of capital was not through financial activities but
through channels of industrial production. Bukharin (2010, 71-72)
pointed out, how bank capital assumed the role of an organiser of
industry by various forms of credit, by owning stocks and bonds,
and by directly promoting enterprises. The valorisation of capital

under the domination of finance capital is presented as below:
LP
M—C—P—CХ—MХ
MP
MХ= i + p + r
or
Distribution of MХ
↓
↓ ↓ ↓
Share of bank Share of industrial Share of stock and
capital (interest) capital (profit) shareholders (rent)
According to the classical analysis of imperialism, the initial
M in the above figure illustrating the industrial production process
is largely financed by the bank capital for extended reproduction.
After the completion of production, the MХ so generated constitutes
the share of bank capital, of industrial capital and of rentier class
of stock and shareholders. A major part of this MХ is reinvested
to expand the sphere of production through the purchase of raw
material and employment of new labourers.
Secondly, finance capital of that time was national in character
and closely tied to the performance of domestic industry. Major
capitalist economies firmly believed that the expansion of national
territory was imperative to extend the size of the market for
industrial produce. Even under the Keynesian policy regime of
apparent restrictions on speculation, financial expansion was allowed
more or less in tandem with the production within the national
boundaries. Hence, during the beginning of the 20th century,
capitalism (particularly industrial and bank capital in metropolises)
entered the phase of big monopolies. Since the exploitation of the
domestic market was complete, its limited size became an obstacle
for capitalist accumulation. The way out was the export of capital
from metropolitan to the new territories. However, it does not mean
that there were no possibilities for production and employment of
capital in metropolitan countries. The export of capital was necessary
to explore the possibilities of higher profits. As Marx (1965, 256)

writes,
if capital is sent aboard, 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.
Export of capital requires political support. The capitalist class (big
business, financial elites and aristocrats interested in professional
services etc.) had influenced the political class in a manner that the
stability of domestic economy is only possible through imperialism.
In this manner political bodies were used as a means to impose the
imperialism on colonies.
Politics as Concentrated Economics

Capitalism as an economic system is not self-sufficient. It always
requires politics and politics of capitalism is ruled by the economically
dominant classes. Hence, “political power is nothing but a vehicle for
the economic progress. The conditions for the reproduction of capital
provide the organic link between two aspects of the accumulation
of capital” (Luxemburg, 2003, 433). Regarding the interrelation
between economics and politics, Lenin (1965) argued “politics is
the most concentrated expression of economics, its generalisation
and its culmination.” The imperialist project was the product of
high economics of that time. As Hobson pointed out, imperialism
was the product of private interests and certainly not beneficial for
the commonwealth. Imperialism was imposed by privileged groups
on the national as a vice policy. The leading British politician saw
imperialism as a vice policy. Chamberlin advocated imperialism as
a “true, wise and economic policy”… Cecil Rhodes… expressed his
imperialist views in 1895 in the following terms:
I was in the East End of London (working-class quarter) yesterday and
attended a meeting of the unemployed. I listened to the wild speeches,
which were just a cry for ‘bread,’ ‘bread!’ and on my way home I
pondered over the scene and I became more than ever convinced of
the importance of imperialism….My cherished idea is a solution for
the social problem, i.e. in order to save the 40,000,000 inhabitants of
the United Kingdom from a bloody civil war, we colonial statesmen

must acquire new lands to settle the surplus population, to provide
new markets for the goods produced in the factories and mines. The
Empire, as I have always said, is a bread and butter question, if you
want to avoid civil war, you must become imperialists (Quoted by
Lenin, 2010, 79).
Hence, imperialism is a political expression of a facilitator for
accumulation of capital.
Due to the immense accumulation of capital in old capitalist
countries1 and increased difficulties of surplus extraction/ realisation,
imperialism emerged as a wise public policy. The development of
capitalism in old capitalist countries during the 1850s and 1860s
undermined the classical economics’ doctrine of free trade as a means
of accumulation. Therefore, the theory of peaceful development
of accumulation though free trade lost its relevance with the
intensification of the machine economy. As Luxemburg (2003,
430) argued, the very inception of an international system of free
trade showed it to be just a passing phase in the history of capitalist
accumulation, simply because of a defensive reaction against English
free trade by continental European countries and USA.
If we deeply examine the free trade doctrine of classical economics
that Britain favoured during the 1850s and 1860s there were reasons
for its validity as well as invalidity. Free trade as a doctrine is valid for
capitalist countries if it is between capitalist and pre-capitalist nations
due to two reasons: (i) It is reasonable to convert the natural or peasant
economies into exchange and commercial economies because it ensures
capitalist producers to extract surplus. (ii) It is beneficial because it
is inherently unequal due to faulty theorisation of specialisation in
which pre-capitalist countries should specialise in raw material and
capitalist countries in manufacturing goods. The exchange relations
in this context are always favourable to the manufacturing producers.
It is not beneficial between machine economies due to the equal
competitive capacity. The equal competitive capacity inevitably leads
towards monopolies and growth of monopolies in this context means
international monopolies that will become established at the cost of
national industries of some nations.
Hence, the policy of protective tariffs during the last decades

of the 19th century became an important tool for equally strong
capitalist countries against each other’s products that were harmful
for their domestic industry. The sentiments of internationalism
and universalism which were the outcome of the philosophy
of the French Revolution withered away with a powerful revival
of capitalist nationalism. Nationalism was used by the growing
capitalist nations as an ideological slogan to undermine the free
trade doctrine. In order to ensure the profitability of the domestic
industry, the political leaders instead of inclining towards liberalism
were more interested in protection of the national market. During
the late 1870s, protective tariffs became an integral part of the
economic policies of young capitalist nations and the old also joined
the same (except Britain). The basic building blocks of the pure
theory of economic liberalism which were the irreducible atoms of
enterprise, the individual or the firm, melt into the air with the rise
of bourgeois nationalism and international protectionism.
Table 1: Average Level of Tariff in Europe 1914

Countries Tariff (per Countries Tariff (per
cent) cent)
United Kingdom 0 Austria-Hungary, Italy 18
Netherlands 4 France, Sweden 20
Germany 9 Spain 41
Denmark 13 USA (1913) 30
Source: Hobsbawm (1994), 39.
Economic protectionism and competition among the growing
industrialised economies turned them into rival economies in
which gains were visualised by one nation at the cost of others.
It contributed to the higher growth of production and trade
between 1880 and 1914 than it had during the free trade decades.
Protectionism developed a tendency towards the concentration and
centralisation of production at the national level. Along with this, the
scientific management of production, technological advancement
and transportation revolution transformed the structure of large

enterprises.
There was fusion of political and economic interest of the
state and national capitalist class as far as international policy was
concerned. Political actions were bent to defend the economic
interests of certain groups which were economically powerful.
“Political rivalries between states and the economic competition
between national groups of entrepreneurs fused, thus contributing-
as we shall see- both to the phenomenon of imperialism and to the
genesis of the First World War. They also led, incidentally, to the
growth of industries such as armaments in which the role of the
government was decisive” (Hobsbawm, 1994, 54).
Along with protectionism, the other phenomenon that was
an integral part of the politics of imperialism was militarism.
Nationalism and militarism are not only important in the formation
of capitalist society but also important for its maintenance and
expansion. History shows that nationalism and militarism play
an indispensable role in accumulation history of capitalism. “In
the advanced countries, nationalism and militarism cease to serve
the purpose of realisation internal unification and freedom on a
capitalist foundation”…. (Sweezy, 1942, 308). In the advanced
stage of capitalism, militarism attains a permanent and important
position in society. The outgrowth of old capitalist countries towards
imperialist ones required growth of armaments for two reasons: (i)
To protect the boarders and strengthen its image as a strong nation
within the psychology of countrymen. (ii) As a part of expansionist
policy, to grab more non-capitalist territory to secure the capitalist
accumulation and surplus realisation through arm power.
Hence, in the age of imperialism that was an outcome of an
advanced form of capitalism, the so-called liberal and laissez-faire
ideology of the early capitalist state disappeared and its hidden and
real character came to the surface. Military state apparatuses which
were hidden behind the veil of liberalism appeared on the scene
most directly with the intensification of international competition
among big finance capitals of advanced capitalist nations. It was
visible in many advanced countries of that time. The arms race that
began in a modest way in the later part of the 1870s, accelerated in

the next decades. British military expenses remained almost stable
during the 1870s and 1880s. But these rose from £23.8 million
in 1881 to £72.5 million in 1913. The per capita average military
expenditure also increased from £0.76 to £1.57 between 1870-79
and 1900-13. All the great powers (see Tables 2 and 3) experienced
a many fold increase in military expenditure.
Table 2: Military Expenditure of Great Powers (£ million)

Average
Countries 1871 1881 1891 1901 1913
1870-1913
Britain 22.8 23.8 33.4 121.0 72.5 45.0
Italy 8.50 10.1 15.8 14.8 39.6 14.5
Germany - 21.8 35.5 49.3 93.4 38.4
Russia 49.2 64.8 78.9 45.2 101.7 68.8
USA 16.3 11.5 15.4 42.1 68.9 27.7
Japan 0.50 2.3 4.0 11.0 22.0 12.0
France 23.9 33.0 37.2 42.5 72.0 37.0
Austria 6.30 7.0 8.9 12.0 25.0 10.0
Source: Hobson (1993), 464-65
The growth of military organisations, the army and the navy

was striking during the last decades of the 19th century and the
beginning of the 20th century. There was an immense growth of
state budget devoted to defence purposes. Tables 2 and 3 illustrate
the growth of military expenditure in major countries as percentage
of state budgets.
Table 3: Per Capital Military Expenditure in Sterling Equivalent

Countries 1870-79 1880-89 1890-99 1900-13 1870-1913
Britain 0.76 0.83 0.93 1.57 1.18
Italy 0.32 0.47 0.47 0.60 0.47
Germany 0.44 0.51 0.70 0.99 0.74
Russia 0.66 0.55 0.58 0.54 0.57
USA 0.28 0.21 0.31 0.62 0.42

Japan 0.07 0.08 0.19 0.57 0.29
France 0.70 0.85 0.94 1.25 0.97
Austria 0.35 0.36 0.40 0.58 0.45
Source: Same as Table 2, 466
Hence, militarism was an inevitable outcome of the industrial-

military complex of new capitalism. As Bukharin (2010, 127) put
it, “armaments are an indispensable attribute of state power, an
attribute that has a very definite function in the struggle among
state capitalist trusts. Capitalist society is unthinkable without
armaments, as it is unthinkable without wars.” This is a peculiar
feature of capitalist society that when economic conflict among the
nations reaches an unusual degree of intensity, it gives birth to a
mad orgy of armaments. Thus, the rule of finance capital implies the
simultaneous rule of imperialism and militarism. The economic life
under the rule of finance capital was driven by the aggressive politics
and militarisation of social life. The peace time regimes that are the
realm of mainstream economics lose their importance to study the
logic of capital accumulation on a global scale. War, nationalism and
militarism which are treated as unnatural elements in the neoclassical
equilibrium economics and therefore not considered as subjects for
study, became real and natural in the imperialistic age of capitalism.
Contrary to the mainstream doctrine, one distinguishing feature
of Marxian political economy “is the conviction that economic
processes must be understood as part of a social organism in which
war is at least as typical as peace” (Magdoff, 1970, 237).
“In short, politics and economics cannot be separated in a
capitalist society, any more than religion and society in an Islamic
one…” (Hobsbawm, 1994, 69). Owing to protection within the
European continent and USA during the 1880s along with an
objective to monopolise the non-capitalist areas at home and abroad,
territorial expansion became the war-cry of capital. The peculiar
helplessness of non-capitalist countries can be visualised in the face
of competing international capital which aimed to acquire partial or
total of these areas as colonies or sphere of interest of metropolitan
capital. The immense possession of non-capitalist areas as a basis for

operations emerged as a cause as well as ultimate opportunity for
imperialist rivalries.
Export of Capital and Colonisation

Growth of production and trade due to economic protectionism
between 1880 and 1914 was higher than it had been during the free
trade decades. “In 1870 the four main industrial states had produced
almost 80 per cent of the total world manufacturing output, but in
1913 they produced 72 per cent of an output which was five times
as great” (Hobsbawm, 1994, 43). If we add together the industrial,
mining and construction production of four leading nations, in 1913
the USA provided 46 per cent of this total, Germany 23.5 per cent,
Britain 19.5 per cent and France 11 per cent (Lewis, 1978, 275).
Hence the worry was not depression in production for economists
or industrialists; rather it was depression of prices, interest and
profits. The most crucial economic factor for imperialism of that
time was the influence relating to investment. During the late 19th
or beginning of the 20th century, every advanced capitalist nation
was trying to export a larger share of its capital outside its own
territory to earn higher profits. The actual income earned from
the foreign and colonial investment was relatively higher than the
income earned by the industrial capital at home. The industrial
class which was interested to invest abroad or was not able to find
profitable opportunities at home pushed the government to help
them to find profitable and secure investment abroad. They used
the resources of government to minimise risk on their investment
abroad (Hobson, 2017, 52-53).
The expansion of territories during the 1870s had three
objectives: (i) to expand the market for the industrial produce, (ii)
to export the capital for more profitable employment, and (iii) to
export the unemployed workforce from metropolitan countries to
the colonies. Therefore, imperialism’s rise in the capitalist countries
was dictated first by their internal conditions and secondly by the
competition to capture the world market.
According to Luxemburg, some important dimensions of
imperialism were to absorb the surplus and maintain the pace

of the accumulation process under capitalism. She argued that
“the imperialist phase of capitalist accumulation which implies
universal competition comprises the industrialisation and capitalist
emancipation of the hinterland where capital formerly realised its
surplus value. Characteristics of this phase are: lending abroad,
railroad constructions, revolutions, and wars.” (Luxemburg, 2003,
399). During that time, the flow of trade, capital and labour
had two streams: between advanced and emerging countries and
between advanced countries and colonies. During the 19th century,
all developed regions’ trade was around 80 per cent (imports as well
as exports). This had meant that trade with colonies was relatively
marginal, i.e. about 20 per cent of Europe’s trade in the 19th century
(Bairoch, 1974). A key aspect of this relationship was highlighted by
Hobsbawm. He argued that the relationship between the metropolis
and its dependencies was highly asymmetrical. Take for instance,
the palpably skewed trade relations between Europe and the
underdeveloped regions of Asia, Sub-Saharan Africa and Oceania
which were and continued to be highly exploitative. On the other
side, trade relations between Europe and young capitalist countries
where settlers of European descent thrived—Canada, Australia,
South Africa, Argentina, etc—as well as, of course, the USA was
equal and development-oriented (Hobsbawm 1994, 73-74).
This gulf between the metropolis and the dependencies was
created and widened to accommodate the European emigrants
who, according to Lewis (1978, 181), emigrated from Europe in
large numbers. Between 1871 and 1915 some 36 million people
had emigrated from Europe. It was the biggest mass migration
in recorded history, predominatly to the USA, Canada and other
temperate regions. This migration in turn was supported by the
enormous flow of capital from Europe in the form of public loans
for infrastructure and investment. One aspect of the export of
capital was visible in terms of public loans for railroad building. As
Luxemburg (2003, 401) said,
....in the imperialist era, the foreign loan played an outstanding part
as a means for young capitalist states to acquire independence.” The
young capitalist states develop under the shadow of old capitalist

states. However, old capitalist states “maintain their influence, exercise
financial control and exert pressure on the customs, foreign and
commercial policy of young capitalist states.”
Foreign loans widened the scope for the accumulation of capital
by old capitalist countries and at the same time produced the
competitive powers or allies for struggle for more non-capitalist
territories. Railway building and the loans necessary for it mainly
served an important purpose to disintegrate the natural economy,
and to spread commodity economy. For instance American
railways was largely built with European capital. However, railway
construction in Africa and Asia exclusively served the purpose of
an imperialist policy, of economic monopolisation and economic
subjugation of the backward communities (Luxemburg, 2003, 402).
Imperialist policy of rising industrial capitalism used the colonial
surplus to fulfil the above objective. As Bagchi (2002, 2229) argued,
in the era of the rise of industrial capitalism and its development
in Western Europe and the USA, income from colonies played a
critical role in boosting investment in Western Europe and allowed
enormous amounts of investment to be directed towards sustenance
of mass migration of Europeans to the USA, Canada, Australia,
New Zealand or South Africa.
The other form of export of capital occurred in terms of foreign
direct investment (FDI). Hobsbawm pointed out the asymmetrical
relationship in the context of trade between developed capitalism
and underdeveloped countries. The same was the case with foreign
capital investment. FDI flow from some advanced to other advanced
countries was qualitatively different from the FDI flow from
advanced to less developed countries. Lenin (2010, 64) argued that
“the necessity for exporting capital arises from the fact that in a few
countries capitalism has become ‘overripe’ and capital cannot find
a field for profitable investment.” The export of capital becomes a
means for encouraging the export of commodities. During 1914
the combined share of foreign investment of three great imperial
powers (England, France and Germany) was 74.4 per cent of the
total foreign investment in the world.
Table 4: Foreign Investment by England, France and Germany

Years England France Germany
Foreign
Foreign Foreign
Saving/ invest- Foreign in-
invest- invest-
GDP ment/ vestment as
ment as ment as
(Per GDP percentage
percentage percentage
cent) (Per of savings
of savings of savings
cent)
1870-79 12.3 4.0 32.5 23.9 10.2
1880-89 12.2 4.7 38.5 5.1 18.8
1890-99 11.0 3.4 30.9 16.5 12.1
1900-04 12.6 3.7 29.4 19.1 8.3
1904-14 13.1 6.5 49.6 17.3 7.5
Net national
wealth head
32.1
overseas in 1914
Share of
global foreign
41.8 19.8 12.8
investment
Source: Daudin, Morys and O’Rourke (2010), 10.
The racial character of imperialism became visible in FDI
outflow from imperialist countries. The investment from old
capitalist countries was skewed towards Europe and young capitalist
countries. As Fei’s (1930) calculations highlighted, out of the total
publicly issued British capital investment in 1913, the combined
share of the USA, Canada and Newfoundland, Australia and New
Zealand, Argentina, Brazil and South Africa was 67.77 per cent,
whereas the share of non-white colonies, for instance, India and
Ceylon, constituted only 11.06 per cent of the total investment.
The imperialist racial character of France and Germany is also
visible in case of long-term foreign investment. During 1914, out
of the total long-term foreign investment of France, 4.89 per cent
was in Asia. In case of Germany it was 12.76 per cent in Asia and
Africa (including Germany’s Asian and African colonies).
Therefore, during 1870-1914, old imperialist countries used

the dual policy. Trade, public loans and investment remained biased
towards the young capitalist countries to support the mass migration
from Europe to new settlements. The non-white geographical
locations were considered as an important part of imperialism for
extraction of surplus by the imperialist industrial capital due to
monopolised foreign trade with these colonies. Along with this,
the surplus generated from the non-white colonies, as Bagchi
(2002) argued, through invisible earnings which included (but not
limited to) home charges, political tribute, monopoly rent, etc., had
facilitated European foreign investment to white settlements and
helped to improve the wages and standard of living both in the
home and the host countries.
Hence, the non-white colonialisation was used as a vice policy
by advanced capitalist countries. The use of violent methods which
were inevitable in the advanced age of capitalism emerged as the
driving force of export of capital. Regarding the violent nature of
capitalism, Hilferding (1981, 319) argued,
When capital first encounters conditions which contradict its need
for valorisation, and could only be overcome much too slowly and
gradually by purely economic means, it has recourse to the power of
the state and uses it for forcible exploitation in order to create the
required free wage proletariat. In the early days of capitalism this was
the fate of the European peasants and of the Indians of Mexico and
Peru, and today the same is happening to the Negroes of Africa. These
violent methods are of the essence of colonial policy, without which
it would lose its capitalist rationale… The idea of pursuing a colonial
policy without having to resort to its violent method is an illusion to
be taken no more seriously than that of abolishing the proletariat while
maintaining capitalism in existence.
The export of capital in one or the other form, along with
internationalisation of cartels was characterised by Lenin as the final
partition of the globe—final not in the sense that a repartition is
impossible; on the contrary, repartitions are possible and inevitable—
but in the sense that the colonial policy of the capitalist countries
completed the seizure of unoccupied territories on the planet. Lenin
further argued, for the first time the world is completely divided
up, so that in the future only redivision is possible i.e. territories
can only be passed from one ‘owner’ to another, instead of passing
as ownerless territory to an ‘owner’ (Lenin, 2010). The passing
of territory from one owner to another inevitably resulted in war
among the capitalist powers.
Table 5: Colonial Possession of Major Capitalist Countries

During 1914 (Area in Million Square Kilometres and
Population in Million Inhabitants)
Countries Colonies Metropolitan Countries
Area Population Area Population
Great Britain 33.5 (25.02) 393.5 (23.75) 0.3 (0.22) 46.5 (2.81)
Russia 17.4 (13.00) 33.2 (2.00) 5.4 (4.03) 136.2 (8.22)
France 10.6 (7.92) 55.5 (3.35) 0.5 (0.37) 39.6 (2.39)
Germany 2.9 (2.17) 12.3 (0.74) 0.5 (0.37) 64.9 (3.92)
USA 0.3 (0.22) 9.7 (0.58) 9.4 (7.02) 97.0 (5.85)
Japan 0.3 (0.22) 19.2 (1.16) 0.4 ((0.30) 53.0 (3.20)
Total 65.0 (48.54) 522.9 (31.56) 16.5 (12.32) 437.2 (26.38)
Source: Calculated from Lenin (2010), 80
Note: Figures in brackets show percentage.
Hobsbawm (1994, 59) pointed out that

Between 1876 and 1915 about one-quarter of the globe’s land surface
was distributed or redistributed as colonies among a half-dozen states.
Britain increased its territories by some 4 million square miles, France
by some 3.5 millions, Germany acquired more than 1 million… The
USA acquired some 100,000, mainly from Spain, Japan and something
like the same amount from China, Russia and Korea. Portugal’s ancient
African colonies expanded by about 300,000 square miles...
Hence, the increased competition at international level to find new
outlets for produce and surplus capital gave rise to imperialism. The
colonial division of the globe through militarist policies became
inevitable during 1914 that led to the First World War.
Concluding Remarks: Does History Repeat Itself?

During the early decades of the 20th century, imperialism had posed
a threat to world peace, the outcome of which was the First World
War and the conflict had not settled even after. Keynes (1991[1919])
argued that the dreadful material evils that war had produced in
Europe were not over, rather they would further extend if we did
not seek their proper remedy. After the end of the First World War,
the rise of Fascism and Nazism threatened the world peace further.
The alliance of these forces with the capitalist class of that time had
further intensified the arms race during the inter-war period. The
economic consequences of uncontrolled capitalism were visible in
the form of the great depression and inter-war anarchy. The anarchy
created by the imperialist policy of big capitalist powers led to the
Second World War but it also produced decolonialisation. The
concept of imperialism, the essence of which was inter-imperialist
rivalry, was no longer directly applicable to the post-Second World
War capitalism. Kautsky’s ultra-imperialism is more suitable to
characterise the post-war expansionism of metropolis capitalism.
Kautsky (1970, 42) argued that the violent exploitation through
force had been replaced by the holly alliance of imperialism where
these imperial forces joined hands to exploit the world and hence
the character of exploitation had undergone a sea change. Hobson
(2017, 278) also had a view parallel to Kautsky’s ultra-imperialism.
He argued that rapid growth of effective internationalism in the
finance and great industrial magnates were destined to control more
and more national politics and mute the inter-imperialist rivalry.
The era of the Cold War was the era of imperialist alliance run by
the international institutions and the USA. During this phase the
ideological rivalry between the USA and the Soviet Union was the
driving force and instead of direct war between these two powers,
proxy wars were fought. During the Cold War period, capitalist
countries of the centre avoided the direct means of economic
exploitation of Third World countries. This period saw the evolution
of indirect means which were exposed by the dependency school led
by Paul Sweezy, Paul Baran and Samir Amin. The circuit of capital
accumulation shifted from the production sphere to the financial

sphere.
The over accumulation of capital by the metropolis capitalists
has once again generated the need for new destinations of surplus
capital utilisation. Baran and Sweezy (1966) have highlighted new
ways of absorption of surplus evolved by capitalism in their work
Monopoly Capital. Two of the four chapters on absorption of surplus,
namely, Capitalism’s Consumption and Investment and The Sales
Efforts examine surplus exhaustion within the firm. The latter two,
Civilian Government and Militarism and Imperialism explore how
governments help firms exhaust their surplus. However, during the
1970s, capitalism once again faced the crisis of surplus absorption.
In order to tackle the situation, the metropolitan capital employed
a twofold strategy. First, it deregulated the financial spheres in
the home country in order to channelise the surplus produced by
the monopoly capital (by both bank and industrial capital) from
spheres of production to circulation. Second, it exported surplus
capital to pre-capitalist Third World countries. The movement
of global capital towards global south has extended the chains of
production and value creation across national borders; profoundly
transforming the picture of industrial capital in the process. This
process has resulted in the emergence of a new phenomenon in
the production process known as sub-contracting or arm’s length
production. Arm’s length outsourcing as Smith (2016, 68) defined
it “refers to a process where firms outsource part or the entire
production process to an independent supplier; independent in the
sense that the lead firm owns none of it even though it may control
its activities in many ways”…. “The outsourcing firm externalises
not only commercial risk and low value-added production processes
but also externalises direct responsibility for environment pollution,
wages and supervision of trade unions… Further, arm’s length
relationships allow TNCs to offload many of the costs and risks
associated with cyclical fluctuations in demand and with much
larger disruption in the world market. In the end it is the working
masses that pay the higher price in the form of low wages, long
hours of work, poor social, employment security and a failure to

implement labour standards” (Smith, 2016, 82).
As Amin (2013, 31) pointed out, modern capitalism is not only
driven by the monopolistic control over the selected production
activities but rather “monopolies now tightly control all the systems
of production.” Small and medium enterprises of the peripheries
are locked into “a network of control and contracts put in place by
the international monopolies. Their degree of autonomy has shrunk
to the point that they are nothing more than subcontractors of the
monopolies” (Amin, 2013, 32). The realisation of centralisation
throughout the global north during the last two decades of the 20th
century has generalised the control of monopolies over the production
system of the whole planet, from Africa to Latin America and Asia.
The world today bears witness to a new imperialism—imperialism of
rent-seekers, finance capital and monopolies. The rent-seeking class
of the global north is financed by the super exploitation of labour
in the global south. This new system of imperialist exploitation is
driven by two forces: (i) direct and indirect control of monopolies
over the southern production system, and (ii) uncontrolled financial
speculation on the world scale. This new network of imperialism has
brought agriculture and industrial activities of peripheries under the
control of international monopoly capital.
The consequences of the crisis of new imperialism became
visible after the failure of neoliberal capitalism that can symbolically
be understood as the financial crisis of 2008 and widespread unrest
around the major centres of global capitalism in the form of the
occupy movement of 2011, a reaction against the spectacular rise
in inequality. The trend that has developed in world politics after
the financial crisis is a symptom of coming anarchy. In order to
divert the attention from the catastrophic conditions created by
new imperialism, the capitalist class has financed or sponsored a
new type of political bodies around the globe—that is of right-wing
extremists. On the surface it seems that the new political leadership
wants to establish a cultural hegemony. But in reality, the cultural
hegemony is a mere tool to create false consciousness in order to
divert the attention away from the real contradictions of capitalism.
However, the alliance between right-wing extremism and neoliberal

capital has failed to bring the economy back on track. In fact, it has
weakened it further. It has taken the world to a situation similar to
what it was during the 1870s. Regarding the current conjecture in
the history of capitalism it is worth quoting Marx here. Marx made
a correction of Hegel’s idea that history necessarily repeats itself.
Marx argued (2008, 19), “Hegel remarks somewhere that all great
events and characters of world history occur, so to speak, twice. He
forgot to add: the first time as tragedy, the second time as farce.”
The re-emergence of nationalism, militarism, protectionism, etc. are
symptoms that history is repeating itself and this time not as tragedy
but as farce.
The re-emergence of nationalism is seen everywhere. From
the election of Donald Trump to Brexit, the nationalist policies of
the Japanese Prime Minister Shinzō Abe, Narendra Modi and the
Turkish President Recep Tayyip Erdoğan, the success of far-right
parties in Italian, German and Austrian elections in 2017 and 2018,
nationalism appears to be on the rise globally. Along with this there
is a rise of militarism. The world economy’s performance remains
quite weak since the beginning of the 21st century but the armament
industry is flourishing. The total arms sale of the top 100 armament
producing companies has increased from $ 286 billion (on constant
prices) to $ 420 billion between 2002 and 2018 with the growth
of 47 per cent. The total expenditure on armaments in the top 10
countries—USA, China, Saudi Arabia, India, France, Russia, UK,
Germany, Japan and South Korea, arranged in descending order—
accounted for $ 841 billion in 1991 and increased to $ 1347 billion
in 2018. In 2018 military expenditure of these countries accounted
for 74 per cent of the world’s total. Although there was no direct war
between the major imperial powers due to the presence of nuclear
weapons, it however, does not mean that there was peace in the
recent past and will remain in the near future. During 1946 to
2016, 8.64 million people died in war related conflicts in the world.
After the 2008 financial crisis (from 2008 to 2016), the deaths due
to war-related conflicts in various parts of the globe were recorded
as 549,393.2
The growth of protectionism, trade wars and anti-immigrant

attitude around the world are outcomes of the widespread economic
crisis of new imperialism. Like the First World War that Friedrich
Engels had predicted during the 1880s based on his understanding of
the developing trends in world politics and military affairs, the crisis
driven contemporary capitalism is pushing the state apparatuses,
both repressive and ideological, against the working population of
the world. The First and Second World War gave the workers of the
advanced countries only one choice: that is, to kill fellow workers
across the tranches. Once again, the crisis of capitalism has opened
the opportunity for fascism to take the centre stage in world politics
with the support of big business to divide the working people.
However, the contemporary alliance, unlike the alliance between
national fascists and national capitalists in earlier times, is operating
under the hegemony of global finance capital. This alliance cannot
tackle the problem of national unemployment and national crisis
as it has happened in the past when strong fascist states had used
the capitalist finances to reduce widespread unemployment and
underemployment through enhanced military expenditures and
government borrowing to build war-related infrastructure. This has
opened space for new revolutionary perspectives for Marxists against
international finance capital driven imperialism and fascism. This
has widened the possibilities for the left on the world scale to think
about an international alliance because it is only the left that can
lead the people to overcome the existential crises produced by new
imperialism.
NOTES
1. The major old capitalist countries of that time were Great Britain,
Germany, and France and young capitalist countries included USA,
Russia, Australia, Canada, and New Zealand.
2. For data on military and armament expenditure see Stockholm
International Peace Research Institute. Available at: https://www.sipri.
org/databases/milex
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of Capitalist Development, London: Routledge and Kagan Paul.
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15
What is Imperialism? Situating Imperialism in
Relation to Capitalism and Colonialism
V. Upadhyay
Introduction
What is imperialism, specifically in today’s context? This issue is
discussed here in the framework of Marxist political economy.
Imperialism is also an important subject in other areas such as
cultural and literary studies. Those are, however, outside the scope
of this chapter.
A recent book by Utsa Patnaik and Prabhat Patnaik, A Theory of
Imperialism (2017), published by Columbia University Press, claims
to formulate a theory of imperialism that has relevance not only
for the past, but also in the present era. The authors attempt to
refute those Marxist and other writers who today, explicitly ‘reject
the term “imperialism” insofar as it is taken to mean any systemic
tendency for metropolitan capital to dominate the outlying regions
in particular.’
The Patnaiks identify ‘increasing supply price,’ ‘the value
of money’ and ‘income deflation’ as the three central features of
imperialism:
Imperialism …….. is a coercive relationship exercised by the capitalist
sector on the “outside” world to ensure, first, that it obtains the products
that it needs from the “outside” world and second, that it does so at
non-increasing prices………
…….obtaining goods at non-increasing prices from petty producers
located on the tropical landmass, whose products are not producible
within the capitalist sector that has grown up in the temperate regions
of the world…….
The curtailment of local absorption within the periphery of goods
produced on the tropical landmass is one way of ensuring that the
problem of increasing supply price does not come into play and there
is no threat to the value of the currency in the metropolis as capital
accumulation occurs there……….
Growing demand for the products of the tropical landmass under
these circumstances—in the absence of income deflation imposed on
the users of such products to curtail their demand, and above all on the
populations of the periphery where such products are produced—will
necessarily cause a rise in prices …………and this rise will pose a
threat to the value of money.
This book contains a commentary from David Harvey (2017) which
is extremely critical of the authors’ central argument of ‘increasing
supply price.’ Harvey argues that agricultural products from
tropical and subtropical regions are of minimal significance as far
as metropolitan capitalism’s survival in this age of highly developed
and diversified industrial structure is concerned. According to him,
a theory of imperialism cannot be sustained on the basis of the
dependency of metropolitan capitalism on products from tropical
areas.
To quote Harvey:
The idea that metropolitan capitalism will collapse because of
price inflation in the strawberries and blackberries that come from
Guatemala in winter and the cut flowers that come from Ecuador
or Colombia or that the lack of haricot vert from Kenya in Paris
markets will bring the French economy to its knees is farfetched. Some
seemingly crucial tropical and subtropical products, such as sugar, are
substitutable……….
The dependency of metropolitan capitalism on products from
tropical and subtropical regions produced by petty commodity
producers is nowhere near as significant as the Patnaiks claim. I
cannot imagine that the Indian peasantry is producing much for the
metropolitan market, for example……..
What is Imperialism? Situating Imperialism in Relation... 325
Depriving the metropolis of coffee, tea, bananas, cacao, peppers,

and spices might provoke revolutionary thoughts in metropolitan
populations who are used to such products, but this is hardly a
convincing basis for a theory of imperialism. The claim that the
agrarian use values extracted from tropical regions are physically critical
to metropolitan capitalism does not wash. And the energy and mineral
resources taken from tropical regions are not specific to those regions
and cannot be analysed in this way.
Unfortunately, the Patnaiks largely ignore the industrialisation
occurring on the tropical landmass in favour of their obsession with
agricultural production. (pp. 159-61)
One can sense the severity of the criticism. To this, I further add
my own criticisms which are related to the two other central themes
of the book:
(1) The Value of Money: In discussing this issue, the Patnaiks
in their book mostly talk about the British pound during the
colonial period. There is no reference to the current period, to the
dollar. The processes that were relevant in earlier days are of no
significance now. If one wants to talk about the rate of inflation
in the US today, one would have to talk about factors such as ‘the
quantitative easing’(where the Fed has bought about $4 trillion
worth of securities), imports of cheap Chinese goods, declining
prices of IT products, oil prices, fiscal deficit, etc. But the book has
none of these.
(2) Income Deflation: The book talks about the low incomes or
purchasing power of petty producers of agricultural commodities
in the tropical areas. In case of India, for example, we blame the
policies of the Congress–BJP governments for this situation. Should
we shift the blame to some entity called “imperialism”? At one place
in the book, they talk about ‘austerity measures’. But, here, the
reference is to Greece.
So, overall, I argue that it is a weak thesis on imperialism. But
the purpose of this chapter is not to produce a book review. Rather,
this paper looks at what has caused the production of such a limited
analysis.
We look at some other important Marxist works on this theme.
In that context, we look at one paragraph in David Harvey’s comment

which has invited severe criticism from left/ Marxist writers who
accuse him of being an ‘imperialism denier’.
According to David Harvey,
Those of us who think the old categories of imperialism do not work
too well in these times do not deny at all the complex flows of value
that expand the accumulation of wealth and power in one part of
the world at the expense of another. We simply think the flows are
more complicated and constantly changing direction. The historical
draining of wealth from East to West for more than two centuries has,
for example, been largely reversed over the last thirty years. (p. 169)
John Smith (author of the Monthly Review Press book, Imperialism
in the Twenty-First Century, 2015) is highly critical of Harvey’s
suggestion that Western countries are now being exploited by some
Eastern countries.1 He says,
David Harvey, author of the New Imperialism …is an imperialism
denier who uses his considerable prestige as a prominent Marxist
theoretician to miseducate his readers on the single-most important
issue confronting Marxist political economy: the huge drain of value
and surplus-value from the global south (in which I include low-wage
countries in East Asia) to the imperialist centres, a flow which has
greatly increased in scale and importance during the neoliberal era.
…....Harvey’s suggestion that the “East” now exploits the “West”
repeats almost word for word what he said in his 2014 work, 17
Contradictions and the End of Capitalism…..
Harvey’s refusal to acknowledge that production outsourcing to
low-wage countries signifies a major expansion of direct and indirect
super-exploitation of Southern labour by US, European and Japanese
multinationals, and his notion that this transformation marks the
passing of imperialism not its apogee, has been and remains perhaps
the dominant view among those in imperialist countries who call
themselves Marxists……
There have been many works on the subject of imperialism in recent
years. One major influential work Empire is by Hardt and Negri,
published in 2000.
Hardt and Negri write,

……after the Soviet barriers to the capitalist world market finally
collapsed, we have witnessed an irresistible and irreversible globalisation
of economic and cultural exchanges. Along with the global market
and global order, a new logic and structure of rule—in short, a new
form of sovereignty. Empire is the political subject that effectively
regulates these global exchanges, the sovereign power that governs the
world…….
By “Empire”, however, we understand something altogether different
from “imperialism”. The boundaries defined by the modern system of
nation-states were fundamental to European colonialism and economic
expansion…. Imperialism was really an extension of the sovereignty of
the European nation-states beyond their own boundaries…..In contrast
to imperialism, Empire establishes no territorial centre of power and
does not rely on fixed boundaries or barriers. It …… incorporates the
entire global realm within its open, expanding frontiers……
Many locate the ultimate authority that rules over the processes of
globalisation and the new world order in the United States. ———
Our basic hypothesis——The United States does not, and indeed
no nation-state can today, form the centre of an imperialist project.
Imperialism is over. No nation will be the world leader in the way
modern European nations were. (pp. xii-xiv)
This book is referred to as ‘Neo-Marxist’ or ‘postmodernist.’ But
this book is similar to The End of History by Fukuyama, published
in 1992. It looks like a Left version of the same thesis. Look at the
authors’ own words:
….the concept of Empire presents itself not as a historical regime
originating in conquest, but rather as an order that effectively suspends
history and thereby fixes the existing state of affairs for eternity. From
the perspective of Empire, this is the way things will always be and the
way they were always meant to be. In other words, Empire presents
its rule not as a transitory moment in the movement of history, but
as a regime with no temporal boundaries and in this sense outside of
history or at the end of history. ….although the practice of Empire is
continually bathed in blood, the concept of Empire is always dedicated
to peace, a perpetual and universal peace outside history. (pp. xiv-xv)
Such ideas had some relevance during the last decade of the 20th
century, but in the early years of the 21st century, these are of no
significance. The thesis of The End of History has been completely
discarded now. The End of History phase ended around the middle
of the first decade of the 21st century with the onset of the most
serious economic financial crisis since the Great Depression.
What is the Marxist Theory of Imperialism? Callinicos (2005)
defines imperialism in the following way:
The Marxist theory of Imperialism is distinctive in that it does not
treat empire simply as a transhistorical form of political domination
…… but rather sets modern imperialism in the context of the historical
development of the capitalist mode of production. (p.1)
‘The Marxist Theory of Imperialism’ does not have much to do
with Marx.2 It is largely due to Lenin.3 In this respect, Lenin’s book
Imperialism: the Highest Stage of Capitalism (1916) has been the
most influential work in this field. The book has the following two
central themes:
1. Imperialism is the monopoly stage of capitalism.
2. Imperialism became associated with the development of
monopolies.
Lenin writes,
If it were necessary to give the briefest possible definition of imperialism,
we should have to say that imperialism is the monopoly stage of
capitalism.
….that capitalism’s transition to the stage of monopoly capitalism,
to finance capital, is connected with the intensification of the struggle
for the partitioning of the world.
Many writers have pointed out the limitations of this analysis—
arguing that historical capitalism has always been imperialist. And
that, colonialism/imperialism has existed even before capitalism
Lenin did not analyse the impact colonisation had on the
colonies. In that sense, it was not a work on colonialism per se.
But any evaluation of Lenin’s work has to take into account the
historical developments taking place in the early part of the 20th
century.4,5,6,7 The task before us right now, however, is to develop an
understanding of imperialism in the present context.

To summarise the discussion so far, let us look at the predominant
leftist/Marxist framework for the analysis of imperialism:
Imperialism = Capitalism + Territorial
Quid pro quo gratis (one-way transfer)
(Two-way exchange,
mostly unequal)
→
→
Imperialism/No →
Globalisation/Global capitalism/ IGNORED
Imperialism/ Unequal Exchange/Monopoly capitalism/
Empire/ Monopoly Financial capitalism/
Direction Reversed Neoliberalism/Multinationals/
Transnationals
As this framework shows, most left/Marxist thinkers associate

imperialism with capitalism. The territorial (i.e. gratis) aspects are
generally missing/ ignored in their analysis.
Samir Amin has been writing on this subject for several decades.
He defines imperialism in the present context as having two
components—economic and political8—as given below:
Imperialism of the Triad (US, Europe, Japan)
Economic Political
Generalised Interventions
Monopoly Capitalism Pre-emptive wars
Although Amin includes political dimension in his framework,

the focus of his analysis, however, remains on the economic aspects.
His characterisation of the present imperialism as ‘imperialism of
the Triad’ puts Japan in the same category as the US and Europe in
the post Second World War period. This implies his emphasis on
the economic aspects as, unlike the US and Europe, Japan has not
displayed much militaristic aggression in dealing with the countries
in the periphery. It is quite evident from his following formulation:
Another important consequence of this qualitative transformation of
contemporary capitalism is the emergence of the collective imperialism
of the triad, which takes the place of the historical national imperialisms
(of the United States, Great Britain, Japan, Germany, France and a few
others). (Amin 2015, pp. 30-31)
The foregoing analysis shows that the linking of imperialism with
capitalism is the main source of the problematic analysis. This
framework may have served a good purpose in the past but it is
not capable of understanding the horrifying reality of today where
the aggression of the Western powers poses a threat to life itself on
the planet. In my opinion, there is thus a need to rescue the term
‘imperialism’ from the above framework. How that is to be done?
Before I talk about my suggestions, let us look at the Patnaiks’ book
again. The Patnaiks opine that:
———Marxist authors in the advanced capitalist countries have
produced very little analysis of colonialism. And thus it is not surprising
that there is a readiness among them to treat imperialism as no longer
relevant……..
[About Harvey]—it is clear that he is unfamiliar with the concept of
“drain.” Indeed the whole of northern academia and even the present
day Marxists, with very few exceptions [Paul A. Barran and Andre
Gunder Frank and Angus Maddison], have systematically ignored
the large literature on the drain available from the South. It refers
not just to the direction of capital flows but to the phenomenon of
sucking out the surplus of an economy without any quid pro quo……
this “drain” occurred in the form of commodities taken out of these
colonies gratis…..
Are there any major continuities between the colonial period and
now, continuities that are rooted in the nature of capital….? (pp. 196)
There are three important points here:
1. The authors are looking for some continuity over the period
of the last 200 years. As we have seen above, the common
thread they discover turns out to be very weak. In fact, too
weak to hold the weight of the mighty phenomenon of
imperialism.
2. Even the common thread that they discover is not continuous.
It has a break of 3-4 decades in the years immediately after
the Second World War.
3. Why focus on continuities rooted in the nature of capital?

Rather, look at aspects that are beyond the nature of capital,
i.e. on gratis. And, here we need to analyse the powerful
manifestations, forms or expressions of the phenomenon.
And, if forms change, then that change should be analysed.
Therefore, we need to redefine ‘imperialism’ for the present
context.
Imperialism Today
Imperialism is not dead: It has yet not been dislodged from the
position of captain of the earth ship. Although it is true that Western
imperialism faces new unprecedented challenges in the form of
emerging multipolarity in world affairs, it however still remains a
threat to world peace as ever. The fears posed by Western powers
are the reason why the vast majority of global population is unable
to choose paths of living of their own choice.
A new definition of imperialism is required in today’s context.
Most importantly, imperialism needs to be delinked from capitalism.
Imperialism today needs to be conceptualised in terms of gratis plus
the threats that Western countries pose to the rest of the world
or even to the planet itself. The dimensions in which imperialism
today manifests itself are: colonial, climate change, dangerous
technologies, and economic.
Colonial
After the Second World War, most of the colonies gained
independence from direct Western occupation. In South East Asia,
colonial occupation, however, continued till the mid-1970s; and in
case of Africa, till the mid-1980s. With the dissolution of the Soviet
bloc around 1990, the phase of Western hegemony (unipolarity)
started with the US becoming the ‘sole’ superpower. During the early
phase of unipolarity, the Western imperialist powers (particularly
the USA) generally refrained from pursuing colonial conquests in
the Third World countries.
At the beginning of the 21st century, however, Western
colonial conquests restarted. The West did not want the window of
opportunity provided by the sudden collapse of the Soviet Union

to pass. In the early years of the new century, the West resorted to
war in Afghanistan and Iraq as a means to maintain its control over
global resources (especially petroleum resources). Later, Libya and
Syria became the target of Western aggression. Most countries in
West Asia, the Middle East and North Africa are facing full-scale
was that are interlinked. In all these wars, there is a direct and heavy
involvement of Western powers.
Although due to the presence of nuclear weapons, a direct war
between the major powers has been prevented, thus far at least. But
the absence of direct war between major powers does not imply that
there is lack of intention to wage war in these countries. Iran and
North Korea are under constant threat of war.
Fear of (imminent) war is gripping all nations, small and large.
War fears create a situation where war-preparedness efforts are
seeing acceleration everywhere. There is a renewed arms race based
on technological sophistication. Prospects for the continuation of
arms reduction talks—in any meaningful sense—now appear very
bleak, at least in the medium term.
The US is always fighting concurrent wars in many countries.
The size of the United States’ defence budget is more than $700
billion. The US spends more on defence than China, Russia, Saudi
Arabia, India, France, United Kingdom and Japan combined.
Millions of people have been killed or displaced due to war in
West Asia, Middle East and North Africa. According to the estimates
by UNHCR, the UN Refugee Agency, at the end of 2016 there
were 65.6 million people forcibly displaced worldwide. Of these,
22.5 million were classified as refugees.
Climate Change
The climate change phenomenon has acquired life-threating
dimensions. Excessive consumption of natural resources, especially
of fossil fuels, over a very long period in the West is the major source
of our environmental ills. The United States and the European
countries have historically been the world’s largest emitters of
greenhouse gases.
Scientists say that global average temperature must not increase

more than 2 degrees Celsius compared to pre- industrial levels. But
global average temperature has already recorded increase of more
than 1 degree Celsius. 17 of the 18 warmest years since modern
record keeping began in the late 19th century have occurred in the
21st century.
The Paris Agreement, signed by 194 states and the European
Union, aims at keeping the increase in global average temperature
to well below 20 C above pre-industrial levels. This agreement has
however been dealt a severe blow by US President Donald Trump’s
announcement in June 2017 to withdraw his country from the
agreement. If this action on the part of the United States leads to
dissolution of the agreement, it will have serious adverse implications
for the future of humanity as well as for the planet. This threat to
the global society is a manifestation of the United States’ imperialist
power.
Dangerous Technologies
New developments in the areas of warfare technology, biotechnology,
artificial intelligence (AI) and surveillance technology, governed by
laws of capitalism accumulation with link to high S&T and pursuit
of economic growth, threaten the very survival of human life on the
planet. These are thus imperialist in character.
Major nuclear powers are now engaged in efforts to modernise
their arsenals. New anti-missile technologies and the plans to build
low yield nuclear weapons are disturbing the equilibrium that has
existed in the post-Second World War period. The United States’
new national security strategy displays a “cold war mentality” with
an “imperialist character” as it refuses to renounce a unipolar world.
The prospects for the continuation of arms reduction talks after
the expiry of the treaties that are presently in force appear quite
bleak.
There is now increasing use of artificial intelligence (AI) in
development of harmful technologies such as advance weapons/
warfare technology and surveillance technology. In the long run,
AI poses an existential threat to the human race. Unregulated
and uncontrolled progress in IA could in future result in human

extinction. If AI develops into “super-intelligent,” surpassing
humanity in intelligence, then it is quite possible that it will eventually
acquire control over human destiny. In a future scenario, if there is a
conflict between humans and super-intelligent AI, the latter can use
its enormously superior powers to eliminate the former.
Biotechnology produces genetic modification of existing
organism or leads to creation of new ones. Genetically engineered
biological agents pose a serious existential risk to the human race.
Advancement in biotechnology could lead to modification of
humans, altering the very meaning of humanity. Intentional or
unintentional release of engineered virus or use of biological weapons
could cause damage to existing ecosystems in unforeseen ways.
Economic
One major pillar of America’s imperial power is its currency, the
dollar. The dollar’s present strength is a legacy of the colonial era.
Displacing the British pound, the US dollar has been the world’s
most dominant reserve currency since the Second World War. Most
governments and institutions hold their foreign exchange reserves
largely in dollars (in the form of US Treasury bills). In international
trade transactions/payments and international investments, the US
dollar is the most used currency. This makes America a great financial
super power. Due to near-universal acceptability of its currency,
America continues to exercise enormous control on global economic
matters without much challenge from any quarter, at least, yet.
Given that it has a huge influence over the world economy, the
United States increasingly resorts to the use of economic sanctions
against the targeted countries as a powerful weapon in furtherance
of its strategic interests9. Recently, the United States has enacted
a law, Countering America’s Adversaries Through Sanctions Act
(CAATSAA) that imposed sanctions on Iran, North Korea and
Russia. This law mandates the US administration to punish entities
engaging in significant transactions with certain sectors of these
countries.
The dollar’s continuing dominance in global trade and financial

transactions gives the United States tremendous power to hurt its
adversaries, as well as those countries that refuse to follow its dictates,
through actions such as economic sanctions.
Excluded: Trade and Migration Issues

The world is witnessing a trade war in recent months which is
intensifying each passing day. The United States is engaged in a
multi-front trade confrontation not only with its traditional allies
(Canada, the European Union and Japan) but also its other major
trading partners like Mexico and China. The US has imposed tariffs
on steel and aluminium imports from Canada, Mexico and the
European Union. The main target of US protectionist measures is,
however, China whose economic rise the US desperately wants to
stop. The US has imposed tariffs on almost all Chinese imports.
Not only that, the US government is planning to put restrictions on
Chinese investments in ‘sensitive’ US industries. But protectionist
policies, particularly tariffs, hurt not only the targeted countries
but also the countries that impose them. Tariff imposition by one
country leads to retaliation by its trading partners. Once a country
adopts protectionist policies, it soon turns into a ‘war of each against
all.’ As a reaction to US unilateralism, the European Union, Canada,
Mexico, China and India have all announced retaliatory measures
against American imports. The anti-trade policies/measures are
subjects that can be suitably analysed under the heads such as
globalisation, global capitalism, and sovereign national policies.
These are thus not subjects to be covered under imperialism.
The political landscape in the US and Europe is now witnessing
increasing domination of xenophobic ideology. There are now
widespread anti-immigration/immigrants sentiments openly
espoused not only by extreme right populist fringe groups but
also most mainstream, traditional political parties. Anti-immigrant
sentiment now cuts across the old left-right political divide. The
United States and European Union are taking steps that seek to
severely restrict/control immigration. The migration issues, like
tariffs and other anti-trade measures, can however, be suitably
analysed under the heads such as globalisation, and sovereign

national policies. The case of war refugees, as discussed above, is,
however, different as it has colonial/imperialist dimensions.
The sketch given below summarises the above discussion on the
meaning of imperialism today.
Imperialism Today
Imperialism = Gratis +Threats
Colonial: War (the Middle East, Afghanistan)
Threat of War (Iran, North Korea)
War Preparation (Expenditure)
War Refugees
Climate Change: US withdrawal from the Paris Treaty
Dangerous Technologies
Weapon’s Technology (Nuclear, Chemical,
Bio, Space)
Bio-technology (GM Technology, Cloning, etc.)
Artificial Intelligence, Mind Control
Surveillance Technology
Economic: Dollar as Reserve Currency
International Payment System
Economic Sanctions
Excluded: Trade, Protectionism, Trade War,
Financialisation, Neoliberalism, Globalisation,
Foreign Investment, Capital Movement,
Government’s Fiscal and Monetary Policies,
Migration
NOTES
1. See Smith (2017).
2. Marx had written extensively on colonial exploitation with reference
to India, Ireland and China. But most of his writings were in the form
of comments in response to contemporary events and thus were not
part of the core of his theoretical analysis focused on the historical
development of capitalism.
3. Lenin’s thinking was greatly influenced by Nikolai Bukharin’s
Imperialism and World Economy (1915). Lenin had written an

introduction for it in December 1915 supporting its main analysis.
4. Rudolf Hilferdig’s Finance Capital (1910) also had a significant
influence on Lenin’s work. Hilferdig analysed in details the various
forms of concentration and cartelisation of capital. He showed that
the banks’ increasing influence over industry was the main explanatory
factor for economic imperialism and war.
5. Lenin’s writings during that period should be seen in the context of the
politics of the Second International, an organisation of socialist and
labour parties. Most national parties that composed the international
supported their respective nations’ role in the First World War. Lenin’s
Bolshevik faction was the only major centre of opposition to the war.
6. Lenin’s book is basically a critique of Karl Kautsky’s proposition
of “ultra- imperialism”. Kautsky, regarded as the leading Marxist
theoretician at that time, argued that monopolies of various countries
could unite to peacefully divide the world. He held out the prospect
of “joint exploitation of the world by internationally united finance
capital.” Lenin argued that the only way of ending imperialist war
was the overthrow of the capitalist system through capture of the state
power.
7. Lenin had differences with Rosa Luxemberg also on this subject. Rosa
Luxemberg in her book The Accumulation of Capital (1913), argued
that capitalists could not realise profits without having domination
over weaker economies. Capitalism’s control over non-capitalist areas
was necessary in order to access raw materials, markets and cheap
labour. Imperialism was thus essential for the dynamics of capitalism.
She predicted that encroachment by the capitalist sector would lead to
destruction of non-capitalist economies as a result of their absorption
into the capitalist sector. Once the process of assimilation of the non-
capitalist sector was complete, there will now be no more periphery
left to exploit and, as a result, the capitalist system would collapse.
Lenin did not agree with such a mechanical notion of history. [See
Patnaik, 2008, p. 230].
8. See Amin (2015).
9. With reference to sanctions against Iran, Rudy Giuliani, Trump’s
personal lawyer, said: “We are the strongest economy in the world…
and if we cut you off then you collapse.” (see The Economic Times, July
2, 2018).
REFERENCES
Amin, S. (2015), Contemporary Imperialism, Monthly Review, Vol. 13.
Nos. 4 & 5.
Bukharin, N. (1973 [1915]), Imperialism and the World Economy, New
York: Monthly Review Press.
Callinicos, A. (2005), Imperialism and Global Political Economy,
International Socialism, Vol. 2, No. 108.
Hardt, M and A. Negri (2000), Empire, Cambridge: Harvard University
Press.
Harvey, D. (2017), A Commentary on A Theory of Imperialism,’ In U.
Patnaik and P. Patnaik, A Theory of Imperialism, New York: Columbia
University Press.
Hilferding, R. (1981 [1910]), Finance Capital, London: Routledge and
Kegan Paul.
Lenin, V. (2010 [1916]), Imperialism the Highest State of Capitalism, New
Delhi: People’s Publishing House.
Luxemburg, R. (1963 [1913]), The Accumulation of Capital, London:
Routledge.
Patnaik, P. (2008), The Value of Money, New Delhi: Tulika Books.
Patnaik, U. and P. Patnaik. (2017), A Theory of Imperialism, New York:
Columbia University Press.
Smith, J. (2017), A Critique of David Harvey’s Analysis of Imperialism,
MR Online, August 26.
16
Climate Crisis and the Idea of Degrowth1
V. Upadhyay
Global Warming
Global warming is one of the defining issues of our time. The
six warmest years in recorded history have been the past six years
from 2014 to 2019 and 2010-2019 was the hottest decade ever
recorded. Since the mid-20th century, the average temperature of
the earth’s climate systems has been rising at an unprecedented rate.
The climate change crisis caused by rising earth temperature poses
an existential threat to life on the planet. In order to safeguard the
future of human civilisation as well as the existence of other species,
there is an urgent need to find effective ways to deal with the climate
crisis.
The major consequences of global warming include, among
many others, melting of glaciers and artic ice, thawing of permafrost,
extreme weather conditions, extinction of many species, expansion
of deserts, and other catastrophic events such as extended draughts
and floods. There is a large body of literature that analyses the life-
threating consequences of climate change in detail.
The Paris Agreement, negotiated by representatives of 196 state
parties and signed in 2016, requires each country to undertake steps
to mitigate global warming. Climate scientists warn of disastrous
consequences due to climate change if global warming is not kept
below 20 centigrades compared to pre-industrial levels. According
to the Intergovernmental Panel on Climate Change (IPCC), it is
imperative to keep global warming below 1.50 centigrades compared
to pre-industrial levels in order to avoid some irreversible impacts.
But if there is no discernible change in current policies and

practices, global warming by the end of the century is certain to
be much higher than the 20 centigrade level. In fact, as per the
predictions of climatologists, ‘at current greenhouse gas emission
rate, the carbon budget for staying below 1.50 centigrades would be
exhausted by 2028.’ The implementation of the Paris Agreement
pledges by countries has lacked a sense of urgency needed to tackle
this existential threat.
Conveying his disappointment with the results of the 2019
United Nations Climate Change Conference (COP25), UN
Secretary General Antonio Guterres said that “the international
community lost an opportunity to show increased ambition on
mitigation, adaptation and finance to tackle the climate crisis.”
The Paris Agreement has been dealt a severe blow by US President
Donald Trump’s announcement in June 2017 to withdraw the
United States from the agreement.
It is now widely recognised that “human influence on climate
has been the dominant cause of observed warming since the mid-20th
century.” The emissions of carbon dioxide largely due to burning of
fossil fuels are the main cause of global warming. Other greenhouse
gases, such as methane, also contribute to global warming.
High production and consumption levels in the West are the
major source of our environment ills. Excessive consumption of
natural resources, especially of fossil fuels, in the West (and by
rich sections of population in developing countries) now poses
grave threats to survival of life on our planet and these threats are
immediate rather than distant. As production and consumption levels
in the overdeveloped countries are at levels that are environmentally
unsustainable, further growth in these countries can only come at
enormous cost to the environment.
The Idea of Degrowth

In order to avoid the irreversible damage to our ecology that threatens
life on earth, economic growth in industrialised countries would need
to be checked. In recent years, a forceful articulation of these ideas
has emerged under various names, such as sustainable development,
Climate Crisis and the Idea of Degrowth 341
degrowth, anti-developmentalism, alternative development or post-

development in Europe and elsewhere. Whereas, there are some who
argue that sustainable development requires that long-term growth
must be zero or low—equal to the growth rate of ‘environmental
productivity’.2 In the industrialised countries, there are others who
argue that the ecological crisis that has acquired highly dangerous
proportions demands an urgent reduction in production levels
in industrialised countries—thus, implying a negative economic
growth (degrowth) in these countries.
The declaration of the Second International Conference on
Economic Degrowth for Ecological Sustainability and Social Equity
held in Barcelona in March 2010, known as ‘Degrowth Declaration
Barcelona 2010’ states that:
An international elite and a “global middle class” are causing havoc to
the environment through conspicuous consumption and the excessive
appropriation of human and natural resources. Their consumption
patterns lead to further environmental and social damage when
imitated by the rest of the society in a vicious circle of status-seeking
through the accumulation of material possessions.
During the conference, many new ideas and proposals which are
generally absent from mainstream discussions were debated. These
include: population and resource consumption; moratoria on
infrastructure and resource sanctuaries; promotion of small-scale,
self-managed not-for-profit companies; expansion of local commons
and establishment of new jurisdictions for global commons; reduction
of working hours (work-sharing); introduction of basic income;
income ceilings; taxation; discouragement of overconsumption of
non-durable goods and under-use of durables by regulation; and
abandonment of large-scale infrastructure, such as nuclear plants,
dams, incinerators, high speed transportation.
The declaration while advocating degrowth of the world
economy also warns of the challenges that the degrowth movement
will face in the process of achieving the degrowth objectives:
A process of degrowth of the world economy is inevitable and will
ultimately benefit the environment, but the challenge is how to manage
the process so that it is socially equitable at national and global scales.

This is the challenge of the Degrowth movement, originating in rich
countries in Europe and elsewhere, where the change must start from.
This statement of the Degrowth movement cited above makes clear
that degrowth is necessary for achieving environmental sustainability.
But can degrowth or environmental sustainability be achieved in
an iniquitious world? Is degrowth feasible in capitalist society? Can
capitalism be made to accommodate ecological concerns? If not,
then what has the degrowth movement to say about the alternative
social and economic system and about the ways to achieving it?
Degrowth theorists have debated these issues for quite some
time now, but they appear to lack a clear vision on these matters as is
evident from the works of Serge Latouche, a leading proponent of the
degrowth concept. In his 2006 article, “The Globe Downshifted,”
he writes:
Eco-compatible capitalism is conceivable in theory, but unrealistic in
practice. Capitalism would require a high level of regulation to bring
about the reduction of our ecological footprint. The market system,
dominated by huge multinational corporations, will never set off down
the virtuous path of eco-capitalism of its own accord. It is a system
made of anonymous, utilitarian machines for generating dividends.
These will not give up their rapacious consumption of resources unless
they are forced to do so…….
A society based on economic contraction cannot exist under
capitalism. But capitalism is a deceptively simple word for a long,
complex history. Getting rid of the capitalists and banning wage
labour, currency and private ownership of the means of production
would plunge society into chaos. It would bring large-scale terrorism.
It would still not be enough to destroy the market mentality. We need
to find another way out of development, economism (a belief in the
primacy of economic causes or factors) and growth: one that does not
mean forsaking the social institutions that have been annexed by the
economy (currency, markets, even wages) but reframes them according
to different principles. (p. 2)
Latouche does not see the possibility of destruction of capitalism or
replacement of capitalist relations with alternative modes of living.

Whereas, on the one hand he maintains that capitalism compatible
with ecological sustainability can be theoretically imagined but
cannot be realised in practice but, on the other hand, he argues for
continuation of capitalist relations including wage labour and private
ownership of the means of production. He warns that banning of
capitalist relations would lead to chaos and possibly large-scale state
or social persecution and argues that the politics of class struggle
as advocated by Marxists has now lost its potency as a tool of
social transformation. His arguments are based on the premise that
capitalist institutions and relations are so pervasive and have become
so ingrained that these cannot be got rid of. It is, however, difficult
to reconcile these arguments with his understanding that capitalism
would prove destructive to the planet as it has already proved in
relation to society:
Mechanism for countering power with power, as existed under the
Keynes-Fordist regulations of the Social Democratic era, are conceivable
and desirable. But the class struggle seems to have broken down. The
problem is: capital won. We looked on, powerless if not indifferent, as it
swept away everything in its path, including the Western working class.
We are currently witnessing the steady commercialisation of everything
in the world. Applied to every domain in this way, capitalism cannot
help but destroy the planet much as it destroys society, since the very
idea of the market depends on unlimited excess and domination. (p. 3)
Socialist theorists find Latouche’s views of capitalism full of
contradictions. As Foster (2011) puts it:
….Latouche’s work, which can be viewed as exemplary of the European
degrowth project, is beset with contradictions, resulting not from the
concept of degrowth per se, but from his attempt to skirt the question
of capitalism…..
The ecological struggle, understood in these terms, must aim
not merely for degrowth in the abstract but more concretely for
deaccumulation—a transition away from a system geared to the
accumulation of capital without end…..
As valuable as the degrowth concept is in an ecological sense, it can
only take genuine meaning as part of a critique of capital accumulation

and part of the transition to a sustainable, egalitarian, communal order;
one in which the associated producers govern the metabolic relation
between nature and society in the interest of successive generations and
the earth itself (socialism/communism as Marx defined it). 3, 4 (p. 26)
Capitalism is incompatible with an ecological civilisation for another
important reason also. Capitalism by its very nature produces a
highly iniquitous society. In such a society with sharp class divisions,
the upper class (capitalists) enjoy a very highly disproportionate
share of income and wealth generated in the economy which allows
them to set their own consumption standards at very high levels.
The consumption levels enjoyed by the upper class always remain
beyond the reach of the lower classes (the working people): the
latter are never able to attain them. This fact notwithstanding,
the system succeeds in spreading illusions among the lower classes
about the possibility of them catching up with the upper class.
This, however, never happens. Even when the lower classes make
substantial advances in terms of consumption, as it has happened in
the Western world, the gap never narrows as the upper class keeps
moving up further ahead. The race goes on, without an end and
without any relation with genuine human needs and without any
regard to the environment. Magdoff and Yates (2009) explain this
logic of the capitalist system in the following words:
The logic of the system is that we must be perpetually unsatisfied,
always wanting more. In a system that guarantees considerable inequity,
we are bound to be envious of the consumption of those richer than
we are. But every time we think we have reached a higher level of
consumption, we see that there are still many richer people above us.
And if those below catch up with us, we have to consume more to
stay ahead. It could be argued that a consumption-based society would
be more acceptable if there were a rough equality of spending power.
And this is—and cannot be—the case; capital accumulation will not
allow it. We are not and cannot be “slouching towards utopia,” to use
the inapt phrase of economist J. Bradford DeLong—referring to a
utopia of a worldwide majority “middle class” of happy consumers, all
buying big-screen televisions and nice automobiles. And does DeLong
imagine that the world could ecologically support billions of human

beings consuming a pace on par with middle class US households? It
is estimated that it would take the resources of four worlds like ours
to provide the equivalent to what is considered a modestly upscale US
consumption pattern for all of the planet’s 6.5 billon people. Now, we
are certainly not arguing that everyone should be poor or that those
currently at the bottom don’t need an adequate level of consumption,
especially food, clothing, and shelter. But we are saying that the so-
called consumer culture that characterises the United States and a
few other rich countries is not a model worth fighting for, nor is it
ecologically sustainable. (pp. 24-5)
Socialist theorists argue that socialism alone is the answer to
the ecological crisis. It is, however, important to note here that
socialism, as it has existed historically, has not always been in
support of ecology. The relationship between socialism and ecology
has seen many twists and turns over time, ranging from integration
of ecological concerns in the socialist critique of capitalism during
the early phase of Marxist theorisation to a clear state of antagonism
between them in the societies that claimed to be socialist, such as
the USSR and Eastern Europe before their transition around 1990
and in China today. As Levins (2011) puts it:
Marxism, since its origin, took a global approach to the position of our
species in the world. The plundering of nature by early industrialisation,
the metabolic rift between city and countryside, the pollution of the
cities and the whole earth, were already known, denounced, and
incorporated into the critique of capitalism. The inseparability of
humanity and nature was implicit in a dialectical view of life and
society.
But socialist movements also resisted ecology. Especially those
movements that had abandoned the socialist goal saw jobs as the
overwhelming urgency of the male working class, and any notions
that might slow down job creation were viewed with hostility…….
In the USSR and its allies, an early constitutional commitment to
the preservation of nature was undermined by the frantic urgency to
expand production under a progressivist notion of modernisation that
did not criticise capitalist technology but only its use. With the later
debasing of Marxism, Soviet pioneering in soil science, evolutionary

ecology, and ecosystem, research languished. Brezhnev’s touting of
‘the scientific-technical revolution’ as the solution for the economic
stagnation of the USSR also accepted the notion of a single pathway
of development of production, which was especially disastrous for
agriculture. (p. 32)
Levins argues for infusion of ecology with Marxism, calling it Marxist
ecology, which looks out for the species as a whole. Identifying
ecology as one of the contemporary sources of enrichment of
Marxism, he writes:
Ecology’s contribution to modern Marxism is as a guide to practice and
as criticism of the opportunistic sacrifice of the future for immediate
urgency....It focuses resistance to capitalist destruction… (p. 33)
Referring to David Harvey’s concept of “co-revolutionary
movement,” Foster (2011) also talks about bringing together various
mass movements working towards alternatives to present destructive
tendencies. These include: the traditional working-class critique of
capital, the critique of imperialism and the critique of ecologically
destructive growth.
If capitalism as a mode of production is here to stay in the
foreseeable future, as many people believe, could it be reformed
to accommodate ecological concerns? Latouche (2006) makes
a case in favour of measures suggested by Orthodox economics:
internalisation of external diseconomies:
It would place the costs of our social and environmental problems on
the books of the companies responsible for them. Imagine the impact
that it would have: if businesses had to accept the costs of the transport,
security, unemployment and education that their functioning requires
(not to mention the costs of their environmental impact), then our
societies would start to function differently. These reformist measures,
whose principles were outlined in the early 20th century by the liberal
economist Arthur Pigou, would bring about a revolution. (p. 4)
This is nothing, but a stance taken by the environmental economists
who adhere to mainstream neoclassical economics. Radical
ecologists summarily reject this notion that environmental costs can
be internalized in a meaningful way within a capitalist economy

framework.
The possibility of use of green technology in critical areas or
substitution of green energy sources for fossil fuels to ameliorate
ecological dangers is also discounted by radical ecologists. They
point out to historical experience that greater efficiency in the use
of energy and resources has hardly ever led to conservation. On the
contrary, it becomes a push factor for economic growth, causing
even greater pressure on the environment. This phenomenon is
known as the Jevons Paradox (See Foster, et al., 2010).
The present global economic crisis that started in the West in
2008 has brought miseries to the common people there in the form
of high unemployment, poverty and homelessness. It is a usual
argument that to overcome these problems, these countries need fast
economic growth: Concern for the environment should not acquire
primacy in these circumstances.5 Does this experience of downturn
then make the concept of degrowth irrelevant? It should not. If
unhindered growth in the West over the past several decades is seen
as the source of most of our environmental ills, then a downturn
spanning over a period of a few years cannot be viewed as a bad
thing. The industrialised countries are already in a state of ecological
overshoot, more production in these countries will only cause more
environmental destruction.6 If the aim of degrowth movement is to
achieve substantial reduction (up to 30 per cent of current levels,
as seen necessary by some to attain environmental sustainability) in
the size of economy of Western nations, then a downturn negatively
impacting the size of these economies marginally should be seen as
an opportunity to experiment the ideas promulgated by degrowth
economics. The problems, such as unemployment, poverty and
homelessness, in the industrialised countries can be and need to be
tackled through distributional measures. Not only equitable sharing
of income and wealth, but also of work7 is the need of the hour.
Sharing of work requires shortening of work-time (in parallel with
the growth of labour productivity).
As Onaran (2010) puts it, full employment can only be achieved
through shorter working times. Ideas such as introduction of basic
income, income ceiling and taxation of high incomes at high rates

(and of absolutely high incomes at punitive rates and of incomes
and wealth of speculators beyond a point at 100 per cent rate) need
to be put into practice to protect the working masses from the ill
economic effects of the economic crisis. Levels of production in the
West are so high that, with equitable distribution, everyone there
can easily enjoy a decent level of living. Providing a decent living to
everyone in the industrialised world is not the problem: the problem
in fact lies somewhere else. As Magdoff and Foster (2010) put it,
‘The primary problem is an ancient one and lies not with those who
do not have enough for a decent standard of living, but rather with
those for whom enough does not exist….A global system organised
on the basis of “enough is little” is bound to destroy all around it
and itself as well.’
In case of developing countries, especially those with very
low per capita incomes, the ideas of degrowth economics cannot
be applied mechanically. Condition of most developing countries
is far different from the industrialised countries. Most developing
countries have been victim of exploitation by Western powers
during the long colonial period of over 200 years. These countries
suffered almost complete stagnation of their economies due to the
impact of Western colonialism. Although some countries have seen
a rapid rise in their income levels, at least in aggregate terms (GDP
or per capita income) after gaining independence from colonial rule
during the post-Second World War period, the condition of most
people in developing countries remains as stark as before. Most
people in these countries, over three billion (approximately half of
humanity), subsisting on less than $2.50 a day (in purchasing power
parity terms), lack basic necessities of life, face chronic hunger and
grave deprivation. To achieve improvement in the lives of their
people, these countries would require economic growth sustained
over a fairly long period. This is because the economic problems
these people face are too enormous to be tackled by redistributive
measures alone.
This, however, does not mean that developing countries have
to imitate their Western counterparts as far as the pattern and
content of economic growth is concerned, because that would only

lead them to the same ruinous path that has been travelled by the
industrialised countries.8 The focus in these countries should not
be on economic growth per se, but rather on fulfilment of basic
needs of common people, such as access to food, water, healthcare
and education as well as providing basic housing amenities and
transportation facilities through public transport.9 This, of course,
would require a radical transformation in the social and political
structure in these countries.
For centuries now, growth has been the main objective of
the world capitalist economy (or, at least, world economy under
hegemony of capitalism). ‘No-growth capitalism is an oxymoron:
when growth ceases, the system is in a state of crisis’ (See Magdoff and
Foster, 2010).10, 11 To reorient the world economy towards degrowth
would require a phenomenal social and political transformation. It
is certainly not a task that can be accomplished easily. As Magdoff
(2011) sees it:
It is inconceivable that capitalism itself will lead directly to an
ecological civilisation that provides the basic needs for all people.
However, building an ecological civilisation that is socially just will
not automatically happen in post-capitalist societies. It will occur only
through the concerted action and constant vigilance of an engaged
population. (p. 22)
Transition to an ecological society may prove far more problematic
than transition to socialism. As per the traditional Marxist theory,
the transition to socialism occurs through class-struggle where the
working class appropriates the means of production from the control
of the capitalist class. In this transition, it is the capitalist class that
suffers loss of power. The degrowth transition, on the other hand,
demands sacrifice from all, i.e. not only from the capitalist class,
but also from the middle classes (and even from the working class
in the overdeveloped world). This transition, thus, requires far
greater consensus in the society, cutting across the boundaries of
class divisions.
NOTES
1. The earlier version of this paper was published in Upadhyay, V. (2016),
(ed.), Essays on Distribution, World Systems, Ecology, and Left Politics.
New Delhi: Daanish Books. This is an extended and revised version.
2. See Onaran (2010).
3. Capitalism is incompatible with a truly ecological civilization because
it is a system that must continually expand, promoting consumption
beyond human needs, while ignoring the limits of non-renewable
resources (the tap) and the earth’s waste assimilation capacity (the
sink), (Magdoff, 2011).
4. We have now reached a situation where the global capitalist system
poses a serious threat to the very survival of human civilisation. As
Li (2011) puts it, ‘(T)he current historical context is fundamentally
different from any previous movement in capitalist history. After
centuries of relentless capitalist accumulation, the global ecological
system is on the verge of collapse and the developing global ecological
crisis threatens to destroy human civilisation within the twenty-first
century.’
5. ‘…in terms of the immediate crisis our time that began in 2006, the
question of natural limits cannot, on the surface at least, be accorded
primacy of place…’ (Harvey, 2011, p. 78).
6. With reference to the US economy, Magdoff and Yates (2009)
explain this aspect in the following manner: …let us ask ourselves an
important question. Is, the roller-coaster ride that capitalism is, what
we want? Suppose that, in a few years, somehow things got back to
“normal,” with the GDP growing at between 2.5 and 3 per cent, with
official unemployment between 4 and 5 per cent, with wages growing
only enough to keep up with inflation. Suppose even, that we have a
better healthcare system than we have now. What then? The “health”
of US economy now depends on increasing exploitation at work,
supposedly compensated through ever-rising private consumption.
What have been the consequences of this? Longer, harder hours have
compromised the health and quality of life of workers, reducing their
best hours to meaningless drudgery. Rising consumption of more
meaningless “stuff ” has polluted our planet; it has filled our house
with junk we never use; it has forced us to think we need bigger
and bigger houses, which in turn has compelled us to move into the
suburbs and exurbs, wasting power and water, creating vast expanses
of ugly developments and destroying much of our natural habitat….

The entire system becomes one of making things, throwing them
away and making new ones. Waste begetting waste, begetting still
more waste.
7. In his 1949 article “Why Socialism?”, Albert Einstein had commented:
‘Technological progress frequently results in more unemployment
rather than in an easing of the burden of work for all.’
8. The current pattern of growth in China is not sustainable over a long
horizon. The spectacular growth achieved by China during the last
three decades is certain to become unsustainable in the near future. Li
(2011) writes: ‘The Chinese model of capital accumulation has relied
on a set of particular historical factors: the ruthless exploitation of a
large cheap labour force; the massive exploitation of natural resources
and its consequent degradation of the environment; and a growth
model that depends on expanding exports to the markets of core
capitalist countries. None of the factors are sustainable beyond the
medium term…. As the world’s largest energy consumer and carbon
dioxide emitter, China is now at the very centre of global ecological
contradictions.
9. Wallerstein (2011) calls for categorical rejection of the goal of economic
growth and advocates to ‘replace it with the goal of maximum
decommodification—what the movements of indigenous nations
in the Americas are calling buen vivir. This means not only resisting
the increased drive to commodification of the last thirty years—of
education, of health structures, of the body, of water and air—but
decommodifying as well as agricultural and industrial production.’ He,
however, admits that ‘How this is done is not immediately obvious and
what it entails we shall only know by experimenting widely with it.’
10. Magdoff and Foster further add: Capitalism’s basic driving force and
its whole reason for existence is the amassing of profits and wealth
through the accumulation (savings and investment) process. It
recognises no limits to its own self-expansion—not in the economy
as a whole; not in the profits desired by the wealthy; and not in the
increasing consumption that people are cajoled into desiring in order to
generate greater profits for corporations. The environment exists, not
as a place with inherent boundaries within which human beings must
live together with earth’s other species, but as a realm to be exploited
in a process of growing economic expansion….There is no alternative
under capitalism to the endless expansion of the “real economy” (i.e.
production), irrespective of actual human needs, consumption, or the

environment (pp.7–8).
11. People’s Agreement on Climate Change and the Rights of Mother
Earth, Cochbamba, Bolivia, April 22, 2010, stated: ‘The capitalist
system has imposed on us a logic of competition, progress, and
limitless growth. The regime of production and consumption seeks
profit without limits, separating human beings from nature and
imposing a logic of domination upon nature, transforming everything
into commodities: water, earth, the human genome, ancestral cultures,
biodiversity, justice, ethics, the rights of peoples, and life itself….
Capitalism requires a powerful military industry for its processes of
accumulation and imposition of control over territories and natural
resources, suppressing the resistance of the peoples. It is an imperialist
system of colonisation of the planet.’
REFERENCES
Harvey, D. (2011), The Enigma of Capital: And the Crises of Capitalism.
UK: Profile Books.
Foster, J.B. (2011), Capitalism and Degrowth—An Impossibility Theorem,
Foster, J.B., C. Brett and R. York. (2010), Capitalism and the Curse of
Energy Efficiency: The Return of the Jevons Paradox, Analytical
Monthly Review, Vol. 8, No. 10.
Latouche, S. (2006), The Globe Downshifted, Le Monde Diplomatique
(English Edition).
Levins, R. (2011), Continuing Sources of Marxism: Looking for the
Movement as a Whole, Analytical Monthly Review, Vol. 8, No. 10.
Li. M. (2011), The Rise of the Working Class and the Future of the
Chinese Revolution, Analytical Monthly Review, Vol. 9, No. 3.
Magdoff, F. (2011), Ecological Civilization, Analytical Monthly Review,
Vol. 8, No. 10.
Magdoff, F and J.B. Foster (2010), What Every Environmentalist Needs to
Know About Capitalism, Analytical Monthly Review, Vol. 7, No. 12.
Magdoff, F. and Michael D. Yates (2009), What Needs to be Done: A
Socialist View, Analytical Monthly Review, Vol. 7, No. 8.
Onaran, O. (2010), The Crisis of Capitalism in Europe, West and East,
Wallerstein, I. (2011), Structural Crisis in the World System: Where Do
We Go from Here?, Monthly Review, Vol. 62, No. 10.
17
Capitalism, Ecology and Eco-Socialism
Pritam Singh
Introduction
This paper is an attempt to contribute to an eco-socialist critique of
the widely prevailing theoretical perspectives on capitalism, its crisis
and the solutions offered to this crisis. We will focus on examining
Keynesianism, monetarism/neo-liberalism, traditional Marxism
and the Green perspective. We conclude by arguing that a critical
synthesis of Marxian and Green perspectives best captures the most
dominant form of the current crisis—the global environmental
crisis—of capitalism and offers the most creative way of dealing
with this crisis.
Neo-Classical Perspective
From the 1870s till the Great Depression of 1929-33, the neo-classical
economic theory had held an almost unquestioned hegemony as an
economic doctrine (Bharadwaj 1986). This doctrine preached that
a market-based capitalist economy had an inbuilt mechanism to
keep the economy in equilibrium. This equilibrium, it was argued,
ensured among other things, full employment. Any deviations from
this equilibrium, it was argued, got corrected by the forces of supply
and demand in the market. This comforting belief or world outlook
was rudely shaken by the Great Depression that witnessed major
disequilibrium in the labour and product markets. This led to a
fundamental crisis of the neo-classical economic doctrine that had
for nearly six decades preached the infallibility of the markets.
Neoclassical theorists emphasised scarcity of resources as an
important dimension in their theoretical framework, e.g. Jevons

writings on the Coal Question highlighting what he thought was
the imminent end of coal reserves, but their notion of scarcity
was linked to the maximisation objective. It failed to embed the
ecological dimension in their analysis of the market economy.
Keynesianism
The crisis of neoclassical economic theory saw the emergence of
an alternative economic paradigm of Keynesianism. John Maynard
Keynes (1883-1946) developed a critique of neo-classical economic
doctrine by arguing that in a situation of economic recession, the
state needs to take an active part in giving a stimulus to the economy
(Keynes, 1936). A part of this stimulus effort, Keynes believed, was
to redistribute income and raise the level of aggregate demand in
the economy. His idea that redistribution of income would raise
the level of aggregate demand in the economy was based on his
insight that low income individuals and groups were more likely
to spend any additional rise in their income than what the high
income groups were likely to do. Conceptually, this is expressed as:
the marginal propensity to consume of low-income groups is higher
than that of the high-income groups. The rise of Keynesianism
justifying the role of state intervention in a free-market oriented
capitalist economy was a significant development in providing
theoretical foundations for the desirability of a welfare state. The
moral dimension of the welfare state as a protector of the weak and
vulnerable had a long history in the British political, religious and
social traditions (Fraser, 2009; Thane, 1996; Hennock, 2007; Lowe,
2005) but Keynesianism provided an economic dimension. In the
Keynesian framework, the redistributive role of the welfare state was
necessary for economic reasons, i.e. for giving an economic stimulus
to a depressed economy to move towards economic growth. This
economic necessity of the welfare state for economic growth was
what propelled Keynesian ideas to widespread acceptance among
political leaders and economic policy makers. Keynes’s influence on
the move towards welfare state policy approach was most dramatic
in the UK although he influenced, in varying degrees, the policy
Capitalism, Ecology and Eco-Socialism 355
paradigms of many other countries especially in the developed

capitalist world. Keynes became the godfather of economics in the
post war period in developed capitalist economies. The acceptance
and wide popularity of Keynesian economics was co-terminus with
the acceptance of the desirability of welfare state policies. The need
for healthy and educated men for recruitment into the labour
force for the expanding industry and that into military during the
interwar years were other compelling reasons for expanding the
welfare provisions especially relating to health and education (Fraser,
2009, 9-10). According to Derek Fraser,
“...at a particular stage of capitalist development welfare served
industry’s needs...businessmen at times could conceive of welfare as
sound economic sense” (Fraser, 2009, 9). The National Health Service
certainly emerged out of these needs of industry and the military.1
Another important politico-economic development after the First
World War that had an indirect impact on the strengthening
the argument for the Keynesian welfare state was the Bolshevik
Revolution in Russia in 1917. The Bolshevik Revolution signalled
the first systemic break with capitalism. It gave a tremendous
push to the idea that another system that was different from
capitalism was possible. The speed with which the Soviet Union
was industrialised in the 1930s through central planning frightened
political leadership in the developed capitalist economies. Though
the Stalinist method of industrialisation was based on forced
collectivisation of agriculture, suppression of trade unions and the
brutal terror campaign within the Bolshevik party against the critics
of Stalinism, the ruling classes in the developed capitalist economies
feared that despite the serious flaws of Stalinism, the Soviet success
in industrialisation could lead to increasing the popularity of
socialism as an alternative to capitalism as an economic system. This
fear of attractiveness of socialism seemed even more real especially
in the economic circumstance of the early 1930s when the advanced
capitalist economies were in the throes of the Great Depression.
The Great Depression had created mass unemployment in the
industrial working class and the fears of the political leadership in
the advanced capitalist countries that socialism as an ideology might

become attractive to the working class were not without foundations.
The welfare state based on the Keynesian paradigm providing
social security to the unemployed and the poor seemed like a way
of preventing the unemployed working class from becoming too
desperate and militant. Ian Gough (1979, 60, 1997) has argued
that the broadening of democracy through universal suffrage and
other liberal rights helped to raise working class aspirations and the
achievements of welfare improvements were concessions won by
the working class. In the context of rising working-class activism,
the welfare state perspective inspired by Keynesianism seemed
politically necessary too. Perhaps the most notable theoretical and
ideological consequence of the multi-fold crises of global capitalism
in general and British capitalism in particular during the period of
the Great Depression was the undermining of the hegemonic sway
of neoclassical economic theory (Foldvary, 1996).
Despite the contribution of the Keynesian framework in
bringing to light the structural weakness of neo-classical paradigm’s
reliance upon market as an automatic stabiliser especially in relation
to dealing with recession, this framework too did not have economy-
nature relationship centrally embedded into understanding the
working of a capitalist economy.
The Decline of the Keynesian Welfare State and Rise of

Neoliberal Austerity Paradigm
In the late 1960s/early 1970s and especially after the oil price
rise in 1973, the developed capitalist economies were faced with
stagflation, i.e. simultaneous existence of inflation accompanied
by high degree of unemployment. This phenomenon did not fit
in with the Keynesian economic theory which has as one of its
central tenets that a certain degree of unemployment keeps wages
and hence inflation low, and that it is only with full employment
that a high level of inflation can be expected. Monetarist theorists
attacked Keynesian theory for its failure to explain this simultaneous
existence of high inflation with high degree of unemployment.
Monetarist theorists had always been critical of the fiscal policy
orientation of Keynesianism but had not succeeded earlier in posing

a serious challenge to the theoretical framework of Keynesianism
because during the so-called Golden Age of advanced capitalism
in the post-war decades, inflation had remained relatively low in
spite of high growth rate. The phenomenon of stagflation opened a
new and fertile opportunity to the monetarist school of thought to
launch a potentially damaging attack on Keynesianism and through
that on the idea of the welfare state. Monetarists argued that inflation
was due to the excessive level of aggregate money supply which, in
turn according to them, was due to the state incurring excessive
expenditure. They blamed the fiscal policy inspired by Keynesianism
for expanding the role of welfare state intervention that had led to
increasing the state expenditure and state indebtedness.
The monetarist attack on the welfare state in particular and
the role of state intervention in general implied a support for a
free market-oriented model of capitalist economy (Konzelmann,
2014). The monetarists argued that if the role of the state in the
economy is decreased to the minimum possible, the free market
would automatically make adjustments in the money market and
the labour market to bring about a wage rate, level of employment
and inflation rate that was necessary for attaining equilibrium in
the economy. This mode of argument also implied a criticism
of the role of trade unions in exercising the bargaining power of
labour in negotiating the level of wages. The trade unions as a social
force had been an important part of the architecture of the post-
war welfare state. The monetarist attack on trade unions, therefore,
tended to undermine an important pillar of support for the welfare
state. However, from the viewpoint of the capitalist class as a whole,
the role of trade unions in bargaining for social security welfare
payments is contradictory in character. On one hand, the welfare
payments create a demand for goods and services produced by
capital but, on the other, these payments are a deduction from the
surplus appropriated by capital. The capitalist class as a whole can,
therefore, view trade union struggles for improvements in wages and
social security payments positively from one angle (the expansion of
market) and negatively from another (reduction of profits).
The free market ideology inherent in the monetarist framework

came to be known as neoliberalism. David Harvey has argued that
the rise of neoliberalism was not simply due to the perceived failure
of Keynesianism in explaining the stagflation crisis of advanced
capitalism. He argues that the neoliberal project had been in the
making right from the period of the early rise of Keynesianism
in the post-war period and that the project had been funded and
supported by various US institutions to spread the tentacles of
neoliberal ideology (Harvey, 2007). Harvey shows that the main
target of neoliberalism was not Keynesianism but, in fact, socialism.
The chief theorist of neoliberalism, Fredrick Hayek, was no doubt
a rival of Keynes but more than being opposed to Keynes, he was
opposed to socialism as a world view and as an alternative economic
system to capitalism (Hayek, 1944/1997). Hayek was the most
prominent founder of what later came to be known as neoliberalism
in the late 1970s and early 1980s (Jones, 2012).
The decline of Keynesianism and the rise of neo-liberalism
reached its peak during the regime of Margaret Thatcher as the
Prime Minister of a Conservative government that came to power
in 1979 in the UK and that of Ronald Reagan as the President of
the Republican government that came to power in USA in 1980
(Skidelsky, 1989; Niskanen, 1988; Radice, 2014). Both Thatcher
and Reagan were strong critics of the welfare state and ardent
supporters of free market capitalism. Piketty (2014) in his much
discussed book Capital in the Twenty-First Century characterises
their rise to power as ‘a conservative revolution’: ‘The growth of
capital’s share [in national income] accelerated with the victories
of Margaret Thatcher in England in 1979 and Ronald Reagan in
the United States in 1980, marking the beginning of a conservative
revolution” (p. 42).
Marxian Tradition on Global Capitalism, North-South

Inequality and Sustainability
Marx and Engels (2002 [1848]) had paid glowing tributes to
capitalism in the Communist Manifesto for unifying the world market
and creating conditions for unlimited progress in technological
development and labour productivity. For Marx, capitalism

was creating the material foundations for communism: one, by
unleashing productive potentialities that could end scarcity and
lead to an era of abundance, and two, by creating an international
working class which will be the agency to usher in the era of
communism, an era of fulfilment of human needs. In visualising
communism as an era of fulfilment of human needs, Marx’s work
did not show critical awareness of the ecological limits to the goal
of fulfilment of human needs. Undoubtedly, Marx had brilliant
insights on capital-nature relationship in his Grundrisse and Capital
in his remarks on capitalism’s use of chemistry in agriculture and
consequent destruction of soil fertility which he conceptualised as
a metabolic rift. However, Marx’s analytical framework had capital-
labour relation and not capital-nature relationship as centrally
embedded into the framework.
Lenin (1930) in Imperialism: The Latest/Highest Stage of
Capitalism was less enthusiastic than Marx about the positive
implications of expanding capitalism. He viewed export of capital
from the advanced industrialised economies to the less industrialised
ones as driven by the falling rate of profit in the rich economies
and the expected higher rate of profit in the colonies. He saw this
search for external markets for capital as the root cause of destructive
military conflicts and considered this as the main reason behind the
First World War. He looked upon expanding global capitalism as
creating permanent conditions for global wars and, therefore, argued
for socialist revolution as the solution to this dangerous scenario of
wars. Though he was more critical of expanding capitalism than
Marx was, he also did not examine the ecological dimensions of the
militarist capitalism.
Rosa Luxemburg’s (1951) analytical framework which accorded
a key importance to consumption in the analysis of the functioning
of a capitalist economy had the potential to incorporate ecology.
But it merely remained a potential. Ecology did not become integral
to Luxemburg’s analysis. She argued that capitalist expansion was
dependent on creating markets for its products and, therefore,
imperialism was an extension of markets beyond the saturated
markets of advanced capitalist countries.2 If for Lenin, the essence

of the imperialist stage of capitalism was search by surplus capital
in the advanced economies to find investment outlets abroad, for
Luxemburg it was search for markets abroad to unload surplus
commodities. Luxemburg attributed this incessant search for markets
for commodities as the driving force behind imperialist competition
and rivalry leading to wars. Her slogan ‘barbarism or socialism’ was
meant to highlight that unless the socialist revolution overthrew
capitalism, there was a danger of imperialist wars bringing humanity
to a barbaric end. Joan Robinson in an extension of Luxemburg’s
work theorised military expenditure as an extension of the capitalist
market and looked upon this expenditure as essential for the
continuous growth of capitalism. Neither Luxemburg nor Robinson
looked upon the ecological limits to the expansion of capitalist
markets. It is not necessarily wars which could lead humanity to a
barbaric end; it could simply be global heating which could lead to
an end of the planet earth.3
In the post-Second World War period, Paul Baran (1968)
and Andre Gunder Frank (1966) produced some of the most
influential analysis of global capitalism in which Third World
underdevelopment and ‘development’ of the developed capitalist
economies were inter-linked but both had no place for ecology in
their theoretical frameworks. For Baran, the process of colonisation
led to drain of surplus from the colonies to the metropolitan
economies and it was this drain of surplus which had left the
colonies in an underdeveloped state and ensured the continuous
advancement of capitalism in the developed world. Baran’s analysis
provided justification for and hopes in the national governments in
the Third World. According to this analysis, national governments
by using the economic apparatus of planning could stop the drain
of their economic surplus to the advanced economies. By using
this surplus within their own economies, national governments
of the ex-colonies could initiate domestic industrialisation and
the process of economic development. Baran’s neat analysis gave
birth to a whole tradition of radical political economy which
abandoned the dominant internalist explanations of Third World
underdevelopment and highlighted the externalist dimension to this

underdevelopment. However, Baran’s diagnosis of the phenomenon
of underdevelopment and the prescription for development strategies
was not accompanied by an analysis of the implications of these
possible developments in the Third World for capitalism as a global
system. Nor did his analysis look at the environmental implications
of Third World development and underdevelopment.
Andre Gunder Frank’s dependency analysis attributed Third
World underdevelopment to the integration of the Third World
economies into the global capitalist economy. He advocated that
Third World countries should delink from the global economy in
order to initiate the development process. His emphasis on delinking
the underdeveloped economies from the global capitalist economy
had the potential to open up new investigations into decentralisation,
local economy and local control. These in turn could have opened up
new ways of looking at control and utilisation of resources, including
natural resources. That potentiality still exists. Frank’s work, along
with that of Baran, Amin (1976) and Wallerstein (1979), have
contributed enormously to highlighting the externalist dimension to
Third World development and have provided a powerful critique of
internalist schools of thought on underdevelopment, e.g. Rostow’s
(1960) ‘stages of growth’ model. However, all of them look upon
problems of capitalist underdevelopment and development without
bringing into their analysis the dimension of complex interaction
between the development process and environment resources.
Bill Warren (1973, 1980) reverted to classical Marxism when he
looked upon the imperialist stage of capitalism not as an impediment
to Third World development but as the harbinger of development
albeit of the capitalist variety. His was the most challenging critique
of the neo-Marxist dependency schools of underdevelopment. His
analysis was inspired by the success of East Asian capitalism in
overcoming underdevelopment through closer integration with the
global capitalist economy rather than by delinking from the world
economy as had been proposed by Frank. Warren’s untimely death
prevented the fuller development of his argument which would
have brought into sharper focus both the richness of the classical
Marxist treatment of Third World underdevelopment as well as its

limitations. The most important limitation of Warren’s work as it
exists is the complete absence of the examination of the aspects of
natural resource constraint and environmental degradation in the
process of imperialist expansion of the global economy.
What is worth highlighting from this rather quick overview of
the Marxist and neo-Marxist treatments of global capitalism and
Third World underdevelopment is that irrespective of whether
global capitalism was seen as the engine of progress or retrogression
in the Third World, its relationship with nature remained outside
this framework.
Green Perspectives on Global Capitalism

Bringing nature into an analysis of the functioning of the economy
is the greatest contribution of the Green philosophical, political and
economic tradition. Green economic thought views the economic
system as a thermo-dynamic system where the economy is a part
of nature and nature is a part of the economy (Jacobs, 1993). The
thermo-dynamic model of the economy views the economy as a
circular flow of matter and money in contrast with the orthodox
models (classical, neo-classical, Marxist and Keynesian) which view
the economic system as a circular flow merely of money between
firms and households in a two-sector model of the economy
(government and international sectors can be added to make it a
four-sector model without affecting the central argument). The
thermo dynamic model is then able to analyse the impact of money
flows upon matter (nature) and the consequences of this impact
on nature (resource depletion, waste generation and pollution)
for the money flows in return. The concept of entropy captures
the impact of human economic activities of production, exchange
and consumption upon matter (nature). Entropy is the measure of
disorderliness and all human economic activities lead to increase in
entropy. The increase in entropy is kept in check by nature through
the process of reconverting wastes into resources. Sun, earth, land,
air, water and space all contribute to this process of absorption of
waste generated by human economic activity and to the reconversion
of some of this waste into usable resources. Nature’s capacity to

absorb waste is not unlimited. When the level of waste generation
created by human activities exceeds the absorption capacity of
nature, it results in pollution. This pollution takes various forms—
air pollution, water pollution and land pollution. Pollution, in turn,
damages the resources provided by nature for human activities.
The incorporation of nature as embedded into economic
analysis enables Green economic analysis to capture the nature-
economy relationship in a much deeper way than that done by
any orthodox model of economic analysis. This richness of Green
economic thought also creates a problem for Green thinking and
practice. Because the Greens are ever conscious of the human
economic activity upon nature, there is an inherent tendency
among the Greens to view economic activities with suspicion. The
neoclassical tradition of attempting to price environmental goods,
apparently with the aim of reducing their use, is deeply opposed
by the Greens in general but deep Greens in particular who view
nature as sacred. For the deep Greens, pricing of nature amounts to
sacrilege. Many Greens would advocate zero growth partly because
of this suspicion of the very method of attempting to price the
environment and partly because of the enormous environmental
damage that has already taken place. More moderate Greens would
subscribe to the perspective of sustainable development, i.e. neither
zero growth of the deep Greens nor maximum growth advocated
by some neo-classicals. The concept of sustainable development
recognises the need for some development and growth but only the
kind of growth which is environmentally informed and does not
compromise the interests of the future generations. The concept
of intergenerational equity is, therefore, central to the concept of
sustainable development. Most Greens would also argue that inter-
generational equity cannot be achieved without intra-generational
equity, i.e. equity between the rich and poor countries.
There is, however, a great deal of ambiguity in the Green
economic thought about how to reduce intra-generational equity.
There could be two possible routes to reducing intra-generational
equity. One route could be by reducing poverty in the Third World
either by faster development in the Third World than that in the

developed world. The other route could be massive transfer of
resources, e.g. by foreign aid from the developed countries to the poor
Third World countries. This could also involve major restructuring
of the rules and structures of global trade to the advantage of poor
economies. The challenge Green economics faces is that once the
structures of global flows of labour, commodities, money and
capital are brought into the analysis, it requires understanding of
the laws of motion of global modes of production and exchange.
Most Greens, not all, are reluctant to blame the capitalist nature of
the global economy because they fear that blaming capitalism for
environmental degradation can be an escape route for those who can
pin their hopes on to socialism as a solution to the exploitation of
nature. Most Greens are unwilling to accept that merely replacing
capitalism by socialism is a solution to the problem of impending
environmental disaster facing humanity today. Their unwillingness
to accept socialism as a viable alternative is based partly on the
experience of countries—USSR, Eastern Europe—which went
through a historical phase claimed to be socialist. These countries
were as ruthless, perhaps even more, in neglecting/exploiting nature
in their quest for faster economic development than capitalist
economies are. Greens, therefore, argue that the environmentally
damaging implications of economic activities follow from the logic
of large-scale production, irrespective of whether these structures
of large-scale production are situated in a capitalist economy or
a socialist economy. Most Greens are, therefore, supporters of
small scale and localised systems of production, exchange and
consumption.4
Dilemmas of Third World Poverty for Green Economic

Perspective on Global Capitalism
Third World poverty generated by global capitalism poses a seemingly
irresolvable dilemma for Green economic perspective. Greens in
the Western world, like socialists and most liberals, are appalled by
Third World poverty from an egalitarian and social justice point
of view. They would like to think of ways to reduce or remove
poverty. However, most Greens do not recognise the contradictions

in their perspective on poverty. Some Western Greens, appalled
by mass consumerism in the West, tend to glamorise the Third
World poor as close to nature in their low levels of consumption.
Some Third World activists like Shiva (1989) also pander to these
Western views of the Third World poor. Third World poverty in
such accounts becomes a site of Green celebration. It would not
be wrong to characterise such celebration as vulgar because this
celebration ignores the fact that this poverty means children are
either illiterate or studying in schools without any blackboards or
even without roofs. This poverty means homelessness and even
when they have a roof over their heads, these roofs are so miserable
that they get blown away by even a mildly harsh rainstorm or dust
storm. Poverty then forces these people to bear the harshness of
nature. This poverty also means that children, or even adults, are
under-nourished or mal-nourished and when they fall ill, there are
inadequate or non-existent medical facilities like doctors, nurses and
hospitals. Many more examples of degradation of life that follow
from poverty can be provided. Further, glamorisation of poverty
amounts to abandoning any egalitarian perspective of reducing or
removing poverty.
Some Greens also do not recognise the environmentally damaging
consequences of poverty. Poor people in their desperation to survive
and reproduce themselves are forced to encroach upon nature in a
way that is damaging to nature. Deforestation for clearing land for
cultivation and the killing of animals for food and self-survival are
just two of the most obvious examples of environmentally damaging
consequences of poverty. A study of poor farming communities
in Ethiopia, Rwanda and Malawi pointed out that low levels of
income and livelihood forced these poor farmers to resort to
intensive utilisation of land that resulted in land exhaustion and
degradation.5 Poverty contributes also to high population growth
which, in turn, leads to increase in global consumption of natural
resources. Increase in consumption of natural resources results in
increase in waste, pollution and the consequent impact of pollution
on the availability of natural resources.6
The Green dilemma regarding poverty gets further confounded

if we envision reduction of Third World poverty. If poverty gets
reduced in the Third World, it will lead to unprecedented increase
in levels of global consumption of natural resources. Even a mild
increase in levels of income of the poorest people in just two countries
in the Third World , China and India, would result in massive
increases in the levels of global consumption of natural resources.7
Unprecedented levels of generation of waste and emissions of
greenhouse gases will follow. This prospect means that either the
persistence of Third World poverty which keeps environmental
consumption in check is accepted or it is argued that levels of income
and consumption in the West are massively reduced. Is it possible
to affect a massive reduction in incomes and consumption levels
in the rich countries without questioning the logic of the capitalist
economic system of production and consumption? It cannot be
seriously argued that without a significant regulation of the market
mechanism, there is ever any possibility of regulation of the levels
and contents of production and consumption. Greens cannot afford
to dodge the link between the capitalist nature of the present global
economic system and global environmental degradation.
This brings us to the Marxist dilemma about poverty and
North-South inequality.
Marxist Dilemma About Global Capitalism, Third World

Poverty and Ecological Sustainability
Third World poverty associated with petty commodity production
in the informal economy, according to Harriss-White and Harriss
(2007), enables global capital to police the ecological limits to its
further expansion. Putting it in other words, it could be said that
poverty by limiting consumption reduces the ecological limits to
capitalist expansion. This view needs to be further probed.
The relationship between Third World poverty caused by global
capitalism and environmental degradation is contradictory and
poses a dilemma. Poverty may reduce consumption, but poverty
also forces poor people to encroach ruthlessly upon nature in order
to secure food, survive and reproduce themselves. The dilemma
poverty poses vis-à-vis environmental sustainability might be better

understood if we pose this question in terms of compatibility
versus incompatibility between inter-generational equity and intra-
generational equity.
The most commonly accepted definition of sustainability
or sustainable development highlights the dimension of inter-
generational equity, namely that sustainable development is
development that does not compromise the access of future
generations to environmental resources at a level—in quality and
quantity—that is available to the existing generation. It might be
argued, as pointed out earlier, that inter-generational equity, i.e.
equity over time cannot be achieved without intra-generational
equity, i.e. spatial equity.
Spatial inequality, i.e. inequality between North and South,
between advanced capitalist economies and backward capitalist
economies, leads to high mass consumption in advanced capitalist
economies and to mass poverty in backward capitalist economies.
Both lead to environmental degradation and, therefore, impair the
possibility of achieving inter-generational equity or sustainability.
We are faced with a further dilemma if we were to argue
that intra-generational inequality should be reduced in order to
achieve inter-generational equity. Reduction of intra-generational
inequality, by whatever means, would lead to reduction in poverty
and rise in incomes in backward capitalist economies. Since the
marginal propensity to consume of lower income groups is higher,
the reduction of poverty will sharply raise the aggregate level of
consumption in backward capitalist economies. This will obviously
have adverse consequences for the environment both in the present
as well as in the future.
The dilemma we are faced thus is that both the persistence
of poverty and the reduction of poverty are environmentally
damaging though for different reasons. Persistence of poverty causes
environmental degradation by forcing poor people to encroach upon
natural resources, and reduction of poverty causes environmental
degradation by raising levels of consumption.
Resolving the Marxian and Green Dilemmas on Global

Capitalism and Poverty
We have discussed the dilemmas Marxian and Green perspectives
face regarding the functioning of global capitalism, generation
of Third World poverty and the consequences for sustainability.
Though these dilemmas originate from different perspectives, yet
there are overlapping and common features in both. Faced with
these dilemmas, our suggestion is that if a choice has to be made,
it should be made in favour of reduction of poverty in backward
capitalist economies. This is for two reasons. Firstly, it is for reasons
of social and class justice. And the second reason is that reduction
of poverty and the rise of consumption in backward capitalist
economies creates higher environmental risks for the sustainability
of capitalism in advanced capitalist economies. This higher risk may
impel the managers of advanced capitalist economies to speed up
the search for renewable energy. The increasing realisation in some
of the advanced capitalist economies especially in Europe but also in
the US about the urgent need to face the challenge of global climate
change despite Trump’s denial of the challenge could be construed
as indicative of this trend. Research and investment into renewable
energy is the corner stone of the march towards sustainable future.
In the immediate future, embedding sustainability into capitalism
might make capitalism more flexible and adaptable. In the long
term, capitalism’s ever-increasing need for continuously rising
levels of higher consumption to keep the engine of accumulation
of capital running would erode the compatibility of capitalism
with environmental sustainability. However, the embedding of
environmentally friendly technologies and processes of production
would be conducive to the creation of material foundations for
environmentally sustainable alternative to capitalism. An alternative
is always shaped by what it is trying to be alternative for. An
ecologically oriented capitalism is better than an ecologically
destructive capitalism as a precursor to an ecologically oriented
alternative to capitalism. The weakness of some Green visions of
the future is that they are based on the imagining of compatibility
between ecology and capitalism. Marxian perspective has this
strength that it does acknowledge the possibility of compatibility

between ecology and capitalism in the short or medium term, but
it highlights the long-term incompatibility between ecology and
capitalism.
To conclude, the development of capitalism in backward
capitalist economies has a historically progressive role to play in a
way different from the way it was conceived in classical Marxism.
The classical Marxism attributed historically progressive role
to capitalism in backward capitalist economies because it was
believed that increasing penetration of capitalism in these backward
economies would break the feudal remnants. This would result, it
was believed, in the creation of industrial proletariat—the expected
agent of socialist revolution. From the angle of sustainability, the
development of capitalism in backward capitalist economies can be
considered historically progressive from a different viewpoint than
the creation of the industrial working class. The development of
capitalism in backward capitalist economies is historically progressive
because this will sharpen the ecological limits to global capitalism.
This sharpening ecological crisis of global capitalism will necessitate
the search for alternatives to capitalism. The dangers of global
capitalism for the survival of humanity would contribute to the
emergence of global consciousness and solidarity for replacement
of capitalism by a system which is ecologically sustainable and
socially just—globally and nationally. In one sense, it is immaterial
what name is given to this ecologically sustainable and socially just
alternative to capitalism. It can be simply called socialism or eco-
socialism. More imaginative nomenclature might emerge but what
is crucially important is that this scenario creates a meeting ground
for Marxian and Green perspectives.
Neither Marxism without incorporating ecology into its
perspective nor Green ideology without economic critique of
capitalism can provide an answer to the problems of global
inequality, poverty and environmental degradation as we face today
in 21st century capitalism.
Before we finally conclude, it may be fruitful for further
elaboration of the perspective of eco-socialism.
Eco-Socialist Perspective
One major challenge to the reinstatement of expansionary fiscal
policy that is being advocated globally to deal with the recession
emerging from the Covid-19 crisis is that we are simultaneously
faced with a huge and unprecedented ecological crisis. The world
economy has reached a stage where to stop global heating and
climate change, the goal of accelerated economic growth must be
replaced by a more sustainable approach to development (Singh,
2008, 2008a, 2020; Castree, 2010). When the 1929-33 crisis was
resolved by the expansionary fiscal policy inspired by Keynesian
economic policy, there was neither the theoretical knowledge of the
environmental consequences of economic policy nor the material
reality of the scale of climate change which is being witnessed
now. One line of thought that recognises the enormity of global
climate change suggests that instead of the traditional expansionary
policy, our present era needs a green expansionary policy or Green
Keynesianism. Such a green expansionary or a Green Keynesian
policy would entail a drastically changed transport system, energy
policy, housing policy and creation of what are called green jobs.
Undoubtedly, many of these green policies have positive elements
because one could say that green capitalism is better than ungreen
and dirty capitalism, but this approach is evasive on the mode of
production-environmental destruction link (Singh, 2020). It does
not recognise that capitalism is essentially a profit-driven economic
system and is therefore inherently destructive of the environment.
This profit-driven system is based on exploitation of natural
resources (O’Connor, 1998) and continuously needs multiplication
of consumer wants to generate the market for the commodities
produced by the use of natural resources (Panayotakis, 2011).
A fundamental alternative to environmentally destructive
capitalism is the vision of ecological socialism (Singh, 2010, 2010a,
2014, 2020). That vision, on one hand, does not entail the need for
a welfare state because the necessity for the welfare state arises out
of inequalities in capitalism where the poor and the disadvantaged
need to be cared for in some way but, on the other hand, implies
welfare for all because there would not be a division between the
privileged few and the underprivileged many in the eco-socialist
society. However, that goal is a long term one or a medium term
one, and in the journey towards that goal, the strengthening of
the welfare state is desirable because the idea of the welfare state
recognises the institution of community and the collective effort
required in responding to some needs of the community. Dearlove
and Saunders (1984, 319) have rightly pointed out that “The Welfare
State represents a “Trojan horse” within the citadels of capitalism
in that it rests firmly on a set of values which are fundamentally
opposed to those of capitalism”.
Both neoliberal austerity and Keynesian welfare/stimulus
stratagems are two different forms of governance of capitalism in
response to different phases/cycles of capitalism. The competition
between them is only on which one is more efficient, i.e. which one
generates higher and maximum possible economic growth. Both
are, therefore, anti-ecological. However, from a social equity point
of view, the neoliberal austerity paradigm is far more inegalitarian
than the Keynesian welfare/stimulus one. Eco-socialism is, therefore,
sharply critical of neo-liberal austerity paradigm but has some
degrees of affinity with the ecologically modified Keynesian welfare
paradigm as a basis for building egalitarian future (Singh, 2020).
Eco-socialism is emerging as a new historically necessary response
to the challenges of environmentally destructive growth and increase
in poverty both in the developing capitalism economies as well as in
the developed capitalist economies. The programme of the Green
New Deal is the transitional path to eco-socialism (Singh, 2020).
NOTES
1. I wish to acknowledge that a very fruitful discussion with Liz Perez
was helpful on this point.
2. A good articulation of the external market dimension of Luxemburg’s
theory of imperialism is Patnaik (1972).
3. I have used the word ‘global heating’ instead of the often used word
‘global warming’ because global warming seems to suggest a slower and
less intense process of rise in global temperature than what is conveyed
by ‘global heating’. A consensus has emerged among international

climate scientists that if the rise in average global temperature is not
kept below 1.5 degrees centigrade by 2030 compared with the average
global temperature in the pre-industrial era i.e. before 1850, this will
have irreversible changes in the global climate leading to climate
catastrophe (See Singh, 2020).
4. For a more nuanced discussion on centralisation versus decentralisation
and large-scale production versus small-scale production, see Singh
2010a.
5. Ian Scoones and Camilla Toulmin, Policies for Soil Fertility Management
in Africa, DFID, London, 1999 cited by Bernstein and Woodhouse
(2007), pp. 168-69.
6. Bernstein and Woodhouse (2007, pp. 153-54) refer to a study by
Tiffen, Mortimore and Gichuki (1994) which argues apparently in
a counter-Malthusian strain that population growth can contribute
to environmental recovery. I have not looked at this study, but I am
sceptical of such a claim though it is plausible to argue a different point
that population increase can lead to increase in land productivity.
7. According to the Chinese State Bureau of Statistics, China’s population
grew by 8.1 million or 0.6 per cent in 2005 to a total of 1.307
billion (Financial Times, March 17, 2006, p. 6). Though the Chinese
population size is huge, its rate of population growth is low partly
because of the one-child policy imposed by the Chinese state since the
1970s and partly because of the reduction in poverty of some sections
of the population as a result of fast economic growth experienced by
China in the last few years. The practice of female infanticide has
resulted in severe gender imbalance. ‘There were 106.3 men for every
100 women’, according to the State Bureau of Statistics (FT, ibid.).
The practice of female infanticide might have also contributed to
the low rate of population growth. This low growth in population
might be considered a positive development from the viewpoint of
its implications for increase in total level of global consumption.
However, due to the absolute level of Chinese population, even a very
small increase in the income level of this population implies a massive
increase in global consumption. One can argue from a contrary point
of view that a low level of absolute population with a very high per
capita income and consumption level as in some of the rich capitalist
economies may contribute more to total global consumption than a big
population with a relatively low per capita income and consumption
level as in some Third World economies. See Singh (2008, 2008a) for
further development of the argument on environmental implications
of the rising economic powers of BRICS economies.
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18
Energy, Economic Growth,
and Ecological Crisis1
Erald Kolasi
Can economic growth continue forever? This relatively simple

question has posed some intellectual headaches for modern
capitalism. In the Grundrisse, Karl Marx argued that capital cannot
tolerate any limits, by which he meant that the drive for growth and
the search for new markets are both necessary for the political and
economic survival of capitalism (Marx, 1973).2 Viewed in this light,
the implications of the question present something of an existential
challenge to the current order. Capitalism cannot acknowledge
any natural limits to economic growth, for that would mean
acknowledging its ultimate demise. To keep up the pretence that
capitalism represents a quasi-eternal and invincible system, most
political leaders and economists who support the current order have
begun reciting a series of elaborate narratives about the relationship
between human economies and the natural world.
These narratives all revolve around the central idea that
we can decouple economic growth from the material needs of
human civilisation. Till the late 20th century, economists generally
understood that more economic growth required the use of more
energy and materials. But as the postwar compromises between
labour and capital began collapsing in the 1970s and 80s, economic
theories started to shift in emphasis and direction. Inspired by
neoclassical theories, a new generation of economists began to argue
that economic growth could continue without the consumption of
additional resources from the environment (Solow, 1974). They
Energy, Economic Growth, and Ecological Crisis 377
claimed that we could reach this economic nirvana by doing more

with less, investing in clean energy, and developing energy-efficient
technologies. In short, they were arguing for nothing less than the
long-term sustainability of capitalism, ignoring all the science and
evidence piling up along the way.
Source: US Primary energy consumption by source and sector, 2017. Energy

Information Administration, Annual Energy Outlook for 2018.
At a basic level, pundits and economists generally define

decoupling as a process in which the size of the economy expands
while resource impacts, usually either carbon emissions or primary
energy consumption, decline (Obama, 2017).3 More specifically,
relative decoupling occurs when resource impacts are rising at a
slower rate than economic growth. Absolute decoupling occurs
when resource impacts are declining in absolute terms, even as
the economy keeps expanding (Jackson, 2011). Macroeconomic
theories supportive of capitalism measure economic size and activity
by calculating the gross domestic product (GDP), which stands
for the annual market value of goods and services produced in an
economy by adding together gross private investment, consumer
spending, government spending, and the trade balance. It should
be noted that, although widely accepted by governments and most

economists around the world, there are some fundamental scientific
problems with using this measure as an accurate barometer of
aggregate economic activity.4
Divergence between growth in carbon emissions and economic
growth, and between economic growth and primary energy
consumption, are often conflated in both public and academic
discourse about the issue of decoupling, creating all sorts of
confusions.5
Some economists have also looked at how aggregate demand
relates to the consumption of raw materials. Other ideas and
concepts related to decoupling regularly circulate in the literature,
reflecting the general ambiguity surrounding the issue.
This chapter aims to synthesise and understand these disparate
ideas and to offer a comprehensive overview of the relationships
between energy, economic growth, and social development. On a
practical level, this debate has become fluid and chaotic because
wealth and power are at stake. Intellectually, however, many of the
arguments amplify confusion by resorting to inaccurate theories
and misleading phrases. People often equate the concept of energy
consumption with the term energy use, suggesting that they are
unaware of important distinctions in how energy accounting
works, or even what energy actually means. Many economists think
about concepts like energy and efficiency in vastly different ways
than physicists, creating ample opportunity for interdisciplinary
confusion. This web of definitions and conceptions cries out for some
attempt at clarification. Here I explore the nature of the relationship
between energy and economic growth, highlighting areas where it
makes sense to talk about decoupling while also emphasising some
of the fundamental limits and problems of invoking the concept in
relation to economics.
The Critical Role of Energetic Conversions

Energy consumption is a complex topic that touches on many
different issues about the nature of civilisation. When most
governments and organisations talk about energy consumption, they
are typically referring to a metric called primary energy consumption,

which represents the direct use of energy sources without any prior
conversions or transformations.6 Primary consumption includes
burning coal at a power plant and distilling crude oil at a refinery.
Primary forms of energy are not useful on their own, so they are
converted and transformed into secondary forms of energy. For
example, we burn coal so we can turn the resulting steam energy
into electricity, and we distill crude oil so we can produce gasoline.
Coal and crude oil are primary forms of energy while electricity and
gasoline are considered secondary forms. The secondary sources can
also be converted into other tasks and end uses, collectively known
as tertiary sources. However, it must be emphasised that all primary
energy sources are themselves the result of earlier conversions and
transformations in nature, so they are not so primary after all. For
example, the hydrocarbons of the dead plants and animals that
make up petroleum are a secondary product of photosynthesis,
which requires solar energy and water molecules. This fact hints at
an important challenge for the usual methods of energy accounting:
the concept of a primary form of energy is theoretically suspect.
There are two common methods of measuring primary energy:
the partial-substitution method and the physical-energy content
method.7 Let me explain them with some examples. When a power
plant burns through coal, the primary energy simply equals the energy
of the coal that goes up in flames. In the case of fossil fuels then,
things are pretty easy: just record the amount of stuff that we burn
and call that primary energy. But the situation is more complicated
for renewable energy sources, such as wind, solar, and hydropower,
because nothing was burning while these energy sources generated
electricity. Enter the two methods above. In the physical-energy
content method, we simply count the electrical energy produced by
these sources as primary energy, even though electricity obviously
qualifies as a converted form of energy. This is the method used by
the International Energy Agency to measure energy consumption
for renewables. In the partial-substitution method, we pretend
that the produced electricity came from a hypothetical thermal
power plant, and then we assume some efficiency for this plant.
For example, if the plant has an efficiency of 20 per cent, then

we would multiply the electricity generated by a factor of five. In
this case, the primary energy required to produce that electricity is
five times larger. The company British Petroleum has adopted this
partial-substitution method in its popular global energy reports.8
The main reason why these differences matter is because they can
lead to diverging estimates of energy consumption, especially for
nations that rely heavily on renewables.
We can always argue and wonder about which method is
more correct, but this line of thinking entirely misses the central
theme of the conversation. In reality, beyond the world of statistical
accounting, only energetic conversions truly matter. The electrical
energy produced by renewables came from dynamical flows in
nature, such as sunlight hitting the earth and rivers roaring through
dams. The concentration of fossil fuels at their points of processing
and refinement required energetic conversions from machines and
human labour, which first extracted these fuels and then transported
them to a particular location. All this happened before anything
was burned and recorded on some logs and charts. Thinking in
terms of primary energy consumption obscures the energetic flows
and conversions that make all economic activities possible. It also
establishes ample opportunities for confusion and misguided results
in public discourse. When economists and media outlets show
plots of GDP growth diverging from energy consumption, they
are actually showing GDP growth diverging from primary energy
consumption.9 They then assume that this alone somehow proves
that economic growth has become detached from energy use.
This assumption is highly misleading. To understand why,
it helps to review the significance of energy in a broader context
beyond economics. We can generally define energy as constrained
states of motion that can be exchanged among different physical
systems. It can come in many different forms, such as chemical,
thermal, kinetic, and potential, to name just a few. The following
arguments do not even depend on any particular definition of
energy; they just depend on the basic fact that certain forms of
energy can be converted into other forms. For example, chemical
energy can be transformed into mechanical energy, which is what

happens when our car engines burn through fuel and convert the
resulting heat energy into the mechanical motion of the wheels.
Heat and mechanical energy can also be transformed into electrical
energy, like when power plants burn through coal and use the
resulting steam energy to drive a generator that produces electricity.
Focusing exclusively on primary energy consumption completely
ignores and marginalizes these energetic conversions, which should
be the central elements of the story.
All conceivable economic transactions, from the exchange
of money to the production of commodities, require energetic
conversions from various sources. Energy is embedded in all human
actions. It does not simply stop counting after we burn through
natural resources at some power plant. The flow of energy through
the various parts of civilisation facilitates all possible human actions,
such as driving to the grocery store, surfing the web, playing video
games, watching television shows, and reading romance novels at
the beach. In this fundamental sense, economic activities cannot be
decoupled from energy use, for that would be like asking economics
to step completely outside the laws of physics—a clear absurdity.
But this clear absurdity is exactly what certain economic theories
imply can actually happen: they artificially detach capital and labour
from energetic constraints and effectively sever any and all links
between physics and economics (Stern, 2004). Many economists
use primary energy consumption as a crutch for how energy impacts
economic processes, and in so doing they make it seem like our
lives are unfolding in some entirely separate realm from energetic
constraints. Instead of focusing exclusively on primary consumption,
we should emphasise the importance of what I call aggregate flow,
defined as the total sum of all the energy converted through our
economic activities. In other words, aggregate flow focuses on the
energetic flows and transformations that make civilisation possible.
A related quantity of interest is the aggregate flow rate, or AFR,
which measures the aggregate flow per unit of time. In general,
richer societies have a higher AFR than poorer societies. This means
that they can produce and circulate larger amounts of real surplus
wealth, in the form of use values. However, an enormous portion of

this wealth also takes the form of social, economic, and ecological
waste.
In addition to the critical role of conversions, we must
emphasise the related importance of energy quality. Not all primary
sources of energy are made equal. Some are more efficient than
others. Some yield more mechanical work. Others produce more
electricity. For example, producing one kilowatt hour of electricity
in 2017 required, on average, 7,812 British thermal units (BTUs)
of natural gas and 10,465 BTUs of coal.10 By this measure, natural
gas is roughly 25 per cent more efficient than coal at generating
the same quantity of electricity. The energy thinker Vaclav Smil
identified the power density of an energy source as an important
feature for the economic growth and development of civilisation.11
He defined power density as the energy flux per unit area that could
be released in the conversion process of an energy source. Smil
has argued that fossil fuels are uniquely important for capitalism
because they have higher power densities than other energy sources,
such as wind and solar. Larger power densities help generate more
production, leading to higher profits by extension. Other measures
of energy quality are conceivable, but the basic point is that natural
energy sources can have very different uses and attributes. The only
way to understand these differences is by looking at the conversions
and transformations that follow primary consumption. Failing to
take this critical but routinely ignored step makes it seem like all
energy sources should be treated equally, as if they all have the same
capacities in the process of economic production and consumption.
The Central Flaws in the Neoclassical Theory of Growth

The intellectual foundations of the decoupling narrative derive from
neoclassical economic theory, the prevailing paradigm of explanation
among orthodox economists that support capitalism. The neoclassical
theory is generally plagued by unrealistic assumptions about society,
numerous mathematical inconsistencies, and has no predictive
power at all.12 In this piece, however, we focus on the cardinal
sin of this intellectual train wreck: its rejection of physics and its
ignorance of the natural order. In the 1950s, the economist Robert

Solow developed one of the first major models to describe how
economic growth happens.13 In these versions of neoclassical theory,
the production inputs of capital and labour combine to produce
outputs, or finished goods, that are traded in the economy. Growth
in capital leads to more output, but depreciation in capital assets
also drags down a portion of that output. The economy eventually
reaches a stationary state where growth and depreciation balance
each other out and there is no more growth. In order to produce
continuous growth, neoclassical theory argues that the economy
needs a steady stream of technological progress, defined as a gain
in total productivity. This gain implies that productive output can
increase while productive inputs are held constant. Solow came
up with a mathematical scheme for detecting the impact of this
technological growth on changes in GDP. Although his work earned
widespread acclaim from other neoclassical thinkers, much of it was
based on dubious mathematical results that did not actually validate
his claim.14
In extensions of Solow’s original theory, the productive inputs
have typically included capital, labour, and technology. Energy is
sometimes subsumed under the three traditional inputs, or it may be
treated as a separate input in and of itself. Critically, the production
inputs are viewed as largely independent from one another, meaning
that they can be substituted as necessary in order to maintain or to
boost the maximum level of production. If societies are running short
on natural resources, neoclassical theory argues that these shortages
can be overcome through technological innovation, efficiency gains,
or other forms of substitution. Indeed, neoclassical economists
tend to assume that the long-run sustainability of capitalism is
materially possible and all we need to do is figure out the social
and institutional arrangements that can ensure that sustainability.15
Solow entertained the idea that the natural world does not provide
limits to economic growth on the following grounds: “If it is very
easy to substitute other factors for natural resources, then there is in
principle no ‘problem.’ The world can, in effect, get along without
natural resources, so exhaustion is just an event, not a catastrophe.”16
Although his model also showed that competition would eventually

result in the exhaustion of natural resources, his statement nicely
describes the general attitude that many economists hold about the
inevitability of growth under capitalism.
For a highly simplified toy model of what this all means,
consider your local pizza store. According to neoclassical theory, the
pizza store can maintain or boost current levels of pizza production
in the face of any shortfall. A shortage of workers can be overcome
by adding more ovens. A shortage of cheese can be overcome
through technical improvements that yield more efficient methods
of making cheese. A shortage of electricity can be overcome by
increasing labour productivity, perhaps by training the workers to
make the pizzas faster under the new time constraints. Everything
can be replaced. Everything can be substituted, seemingly without
end. The ideas and principles just described represent fundamental
assumptions in neoclassical economics and they are often used to
explain the relationship between energy consumption and economic
growth. If there were no hard limits to substitution, then it would
be possible for our economies to keep growing even in an ecosphere
with declining quantities of natural resources and with highly
chaotic, nonlinear ecological consequences that result from the
enormous energy losses of capitalist societies. In other words, better
technologies and higher efficiencies would always be available to
boost production, regardless of any depletions or instabilities in the
wider natural world caused by those productivity gains.
To chip away at this elaborate fantasy, it helps to begin with
some basic physics. The most fundamental limits to substitution
come from thermodynamics, the branch of physics that studies
quantities like heat, work, and energy. Thermodynamic limits impose
constraints on the maximum efficiency of energy flows through
technological systems.17 Car engines, power plants, and photovoltaic
cells are all limited in their capacities to convert one type of energy
into another. Technological progress cannot overcome these limits;
no car engine can ever be more efficient than an engine running
on the Carnot cycle (Jewett and Serway, 2008). In an earlier article
for this magazine, I defined the aggregate efficiency of an economic
system as the fraction of all primary energy consumption that

produces mechanical work and electricity (Kolasi, 2018). I argued
that aggregate efficiencies are highly inertial over time because
improving them substantially requires enormous investments that
would disrupt the reigning economic order.
Once a society has settled into a particular energy structure,
changing it much further becomes a daunting task because of elite
classes and groups that rely heavily on that structure for their wealth
and influence. We can look to the recent experience of Germany
for a prominent case study. In 2000, the German government
launched its ambitious Energiewende, a comprehensive plan to
reduce greenhouse gas emissions by shifting energy production
towards renewable sources, such as wind and solar (Reed, 2017). For
time, the program made some notable achievements. Compared to
1990, greenhouse gas emissions had declined 28 per cent by 2017.
That same year, renewables reached a 13 per cent share of primary
energy consumption. Although these numbers are impressive,
progress has recently come to a standstill. It has become increasingly
clear that Germany will not reach the climate targets that it set
for 2020. And once we dig into the numbers a bit deeper, even
those that look impressive come with huge caveats. For example,
the large reduction of carbon emissions since 1990 can be largely
attributed to the collapse of heavy industry in East Germany after
reunification (Buck, 2018). Over the past eight years, greenhouse
gas emissions from Germany have hardly changed. The variabilities
associated with wind and solar power have opened up problems
related to electricity storage. Prices fluctuate dramatically depending
on weather conditions. To compensate for these and other issues,
Germany began sabotaging its energy program by constructing a
series of new coal power plants when the coal industry pressured
Chancellor Angela Merkel’s government to relax its policies.
The German example offers an important lesson: the necessary
substitution of fossil fuels with renewables will never come fast
enough under the market logic of capitalism.
Another major limit to substitution comes from the ecological
instabilities associated with excessive levels of economic growth.
These instabilities can combine to pump and amplify existing natural

phenomena. The amplifier effect works as follows. Economies
absorb energy from the natural world and then exploit that energy
for cycles of production and consumption. For highly energy-
intensive economies, these cycles necessarily yield extensive levels
of waste and dissipation, or energy losses that are dumped back out
to the environment. These energy losses are not “useless” from the
standpoint of physics or ecology. Under the right circumstances,
they can power the formation of other natural dynamical systems,
including everything from viruses and bacteria to wildfires and
hurricanes.18 These highly chaotic effects associated with energy-
intensive economies are largely ignored and dismissed by the
neoclassical theory, even though they have often played a central
role in the evolution of human history (Bentley, 2013) As a highly
dissipative system, capitalism regularly produces very powerful
amplifier effects. Collectively, these amplifiers are now creating what
Marx called a “metabolic rift” between nature and society, which
means that the ecological basis of civilisation is steadily eroding
under profit-seeking and energy-intensive development that does
not care about replacing what it extracts.19 The natural world
has major tipping points that we should not cross, but indefinite
economic growth through substitution virtually guarantees that
some of those critical thresholds will be breached, threatening the
broader ecosphere that supports human civilisation (Rockström et
al., 2009).
Consider another problem. Substitution can occur quite
frequently on small and restricted scales of economic activity. A
pizza store can always substitute certain ingredients for others. A
homeowner can substitute heating fuel for insulation. A company
can replace older light bulbs for more efficient lighting in its offices.
And even some countries can substitute various forms of wealth
for others, at least temporarily. The Pacific island nation of Nauru
provides a classic example that highlights the central themes of
the debate. In the 20th century, Nauru possessed vast deposits of
phosphate, which is highly prized as an agricultural fertiliser. These
deposits were extensively mined, depleted, and then traded in global
markets, allowing Nauru to reach a sky-high standard of living by

1990 (Kesler, Simon and Simon, 2015). Nauru converted a portion
of its earnings from the phosphate trade into a public trust fund,
which invested in manufactured capital through financial markets.
However, its impressive standard of living collapsed sharply after
the phosphate vanished, along with most of the money in the trust
fund (Davies and Doherty, 2018). Nauru offers a cautionary tale
for the world as a whole. If global civilisation runs out of natural
resources, we cannot replace them by investing in commodities
through financial markets. People cannot eat money. Substitution
in the long run may be possible at the micro level of economic
activity, but long-term macro level substitution is downright wishful
thinking.
We can better understand the limits to substitution on a
global, macroscopic level by considering a specific example: a global
economy meeting its electricity needs through the consumption of
solar power. There are fundamental limits to the amount of solar
energy absorbed by solar panels that can be converted into useful
electrical energy. Most commercial photovoltaics convert less than
30 per cent of the solar energy they absorb into electricity; the
remaining energy balance is lost as heat and infrared radiation.20
The theoretical efficiency limits for the most advanced photovoltaic
designs are just under 90 per cent, a number that not even the
latest labouratory experiments have come close to matching (Vos,
De, 1980). But suppose neoclassical theory is right about its eternal
commitment to technological progress and that eventually we do
manage to produce photovoltaics that are 90 per cent efficient at
converting solar energy. Once all theoretical efficiency limits are
actually realised, boosting electricity production even further would
require the construction of new solar panels, which takes up more
land. As the earth has a finite surface area, indefinite growth would
not be possible even with the proliferation of renewables. This
argument underscores the central point that renewable technologies
are important, but they cannot solve the global ecological crisis under
the economic regime of capitalism, which is completely reliant on
the false promise of eternal growth in production and consumption.
Substituting fossil fuels for renewables while pushing for more

growth would still lead to the total ruin of global civilisation in a
few centuries.
Economists love to pretend that technological innovation
can yield greater “qualitative growth” without any corresponding
“quantitative growth” (Worstall, 2014). On the basis of improving
knowledge and technological growth, they believe that the monetary
value of stuff can keep increasing even as the quantity of stuff itself
remains stable. But what they fail to grasp is that technological
innovations do not happen magically—they also require energetic
conversions. Changes to the production cycle are dependent on the
stock of electrical, chemical, and mechanical energy available for
research and training. A coder sitting in front of a computer writing
a new program needs energy to think and type. The computer itself
needs electricity to continue operating. No possible improvement
can be made to computer programs without a continuous stream
of energetic conversions. Expansions in productivity require
energy flows, meaning that all forms of technological change are
intertwined with the energetic transformations that facilitate human
existence. Technological changes are physically embedded in greater
knowledge among people and the development of more productive
assets, both of which need energy and material flows to continue
operating. Thermodynamic limits also constrain the extent to which
these flows can be reduced while sustaining labour and capital. In
short, technological changes themselves are subject to hard physical
limits, along with the qualitative growth that can be derived from
them. Power plants provide one of the most well-known examples
of the limits to technological growth. They have been hovering near
their peak efficiency ratings for decades and getting them to go much
further has proven to be extremely difficult.21 The failure of breeder
reactors for nuclear power plants highlights another prominent
technological bust, and plenty of other exotic technologies, like
fusion reactors, will inevitably end up in the same category. The
bloated profit margins of capitalism depend critically on the energy-
intensive basis of its entire existence. Take away that basis and there
is no more capitalism.
How Energy and Growth Relate to Emissions

All economic activities, as we have seen, require energy. To better
understand what this means, we examine the relationships between
energy, growth, and emissions more concretely by looking at the
economy of the United States. In recent decades, US economic
growth has continued, albeit at a declining rate, even though per-
capita primary energy consumption has gone down.22 In addition,
costs associated with primary energy consumption increasingly
represent a declining share of US aggregate demand. From these
observations, many economists and pundits have concluded that
energy use and economic growth have decoupled from one another.23
But even a quick analysis of the underlying energy shifts in the
US economy reveals the falsehood of this narrative. An economy
that starts using natural resources with higher energy efficiencies
and larger power densities can experience growth even as primary
energy consumption declines. Understanding this process would
be difficult, perhaps even impossible, if we only looked at primary
consumption, which totally ignores conversions. But once we
consider that burning a smaller quantity of natural gas, for example,
can still yield more electricity than burning a larger amount of
coal, then the significance of conversions becomes immediately
apparent. Resources with larger power densities can convert more
useful energy for economic activities, some of which constitute the
basic elements measured by GDP. Economists like David Stern and
Robert Kaufmann, among others, have clearly shown that growth in
US energy consumption is tightly coupled with growth in aggregate
demand once differences in energy quality are factored into the
analysis.24
The energy crisis of the 1970s motivated the United States
to reduce per-capita oil consumption and to focus on efficiency
gains by using other natural resources. These efforts resulted in a
trajectory of increased natural-gas consumption, which is much
cleaner and more efficient as an energy source than coal. Both the
switch to natural gas and the increasing proliferation of renewables
helped substantially reduce carbon emissions. After peaking in 2005,
greenhouse gas emissions in the United States had fallen 14 per cent
by 2016 (Hausfather, 2017). But the declines gradually stalled and
emissions in 2018 actually increased by more than 3 per cent, the
largest rise in 8 years (Plumer, 2019). A hyperactive transportation
sector, always critical to economic growth, was the leading culprit
behind the latest surge. Recent US experience further reinforces
the notion that large-scale reductions in emissions are virtually
impossible under an economic system that prioritizes growth above
anything else. The unlimited pressure to increase consumption and
production can lead to rising emissions even in the context of macro
level efficiency gains and technological innovations.
For the world as a whole, a strong positive relationship exists
between primary energy consumption and economic growth, and
numerous studies on various countries and regions indicate that this
relationship is fundamentally causal.25 Over the last few decades, the
rate of global economic growth has started to slow down, mirroring
the declining rate of growth in global energy consumption. Some
major economies, like those of Japan and the European Union,
have already entered periods of stagnation associated with very low
growth rates and aging populations. Because these economies are
currently dominated by corrupt financial sectors, they are generating
uneven growth patterns that mostly enrich wealthy capitalists. By
contrast, ordinary people are increasingly drowning in debt so they
can finance the cycles and crises of capitalism (Dickler, 2019).
Economic progress for the vast majority of society has come to a
screeching halt (Desilver, 2018). The global economy may continue
to grow at modest rates for the rest of this century, but the signs are
already evident that our potential for future growth is limited and
constrained by what kinds of energy sources we can collect from the
natural world, as well as by the economic irrationalities of today’s
financialised capitalism.
Capitalism is running out of steam, but not quickly enough to
substantially reduce aggregate emissions. Global carbon emissions
over the last century have closely followed changes in primary energy
consumption. At the start of the decade, optimism about global
warming was high. Greenhouse gas emissions flatlined for several
years and the upper echelons of the global economy started to believe
that economic growth could actually be decoupled from harmful
emissions. In 2016, the International Energy Agency triumphantly
declared: “Decoupling of global emissions and economic growth
confirmed.”26 What a difference two years can make. In 2017,
greenhouse gas emissions worldwide saw a sharp spike (Hausfather,
2017). Against a backdrop of increasingly alarming scientific reports
about the dangers of global warming, emissions rose again for 2018,
at a faster pace than the previous year (Carrington, 2018). Even some
advanced economies that had supposedly decoupled growth from
pollution witnessed higher carbon emissions in 2018. Detaching
emissions from economic growth has turned out to be a vastly more
complicated problem than global elites originally believed.
A persistent albatross on this issue is the way that most elites
talk about carbon emissions. When governments and organisations
measure greenhouse gas emissions, they often do so at the point of
manufacture and production. If a US company sets up a factory in
India to produce commodities that are then sold to US consumers,
the emissions coming from that factory are credited to India, not the
United States. This basic process of what is referred to as geographic
substitution, where corporations from the capitalist core transfer
ecologically destructive manufacturing to developing nations with
large pools of cheap labour, has been an important source of the
observed divergence between carbon emissions and economic
growth in the Western world.27 In other words, measuring emissions
from the point of consumption hardly reveals any decoupling at
all. In any case, multinational corporations can only keep shifting
production around so much before they run out of places to go.
There are limits to geographic substitution as well.
Besides comparing aggregate demand to emissions, another
approach for understanding the material foundations of economic
growth focuses on the flow of raw materials on their way to the
final point of consumption. In a landmark 2012 paper, a group of
Australian researchers analysed the aggregate raw materials exchanged
among countries through international trade and introduced the
concept of the material footprint, defined as the global allocation
of used raw material extraction to the final demand of an economy.

They concluded that “with every 10 per cent increase in gross
domestic product, the average national [material footprint] increases
by 6 per cent” (Wiedmann et al., 2013). In their view, “achievements
in decoupling in advanced economies are smaller than reported or
even nonexistent.” They also estimated that roughly 40 per cent
of all global raw materials are extracted to facilitate the export of
goods and services to other nations, which indicates that reducing
the international flows of global capital could be a critical strategy
in addressing our intensifying ecological crisis.
For another perspective on why claims about decoupling
are premature, consider the following fact: life expectancy in the
United States has declined for three consecutive years, the first such
sustained decline in a century (Bernstein, 2018). The US economy
grew in every one of those years. But the press did not blare the
sirens declaring that life expectancy has decoupled from economic
growth. Such an admission would raise an unthinkable prospect
for the reigning plutocracy: that the lives of common people might
actually be getting worse while some billionaires become even richer
by selling the rest of us more stuff that does not actually improve our
lives. However, when two or three years of mixed and uncertain data
suggest that the rise in harmful global emissions has slowed down, the
story gets blown out of proportion and becomes a masterful causal
narrative about how capitalism can be ecologically sustainable. The
collapse of the decoupling delusion offers an important lesson—we
should resist the temptation to make grand conclusions about the
world when we notice marginal trends over just a few years.
The Accelerating Crisis and the Social Dimension

The early phases of the ecological crisis have already arrived. In
2017, Puerto Rico was struck and heavily damaged by a powerful
hurricane lurking over unusually warm waters. That same year,
a historic drought in Argentina crippled agricultural exports and
triggered a massive recession, which eventually coupled with a
currency crisis and forced the country to borrow billions from the
International Monetary Fund for the second time in less than two
decades (Misculin and Burin, 2018). Severe and unusual droughts

in Central America are also disrupting agricultural production
and playing a major role in convincing hundreds of thousands of
migrants to head north (Wernick, 2019). Major droughts and water
shortages in Afghanistan have fuelled widespread resentment against
the central government in Kabul and have incited tensions between
the country and its neighbours (Jain, 2018). These and thousands
of other simultaneous developments are only the opening lines in
a multiact play that human civilization will nervously witness and
experience over the next few centuries.
Ecological and other left-wing economists have long criticised
the dangerous fantasies of neoclassical thinkers. But there is evidence
that some elites are also beginning to change their minds on the
issue. In 2016, the International Resource Panel concluded that the
global consumption of materials since 2000 had grown at a faster
rate than global GDP, adding that “global material efficiency, for the
first time in a century, has started to decline” (Schandl et al., 2016).
In 2017, the chief economist of Norway’s Equinor, Eric Waerness,
wrote that decoupling economic growth from energy consumption
“might be impossible” (Simon, 2017). In 2018, a major report from
the International Panel on Climate Change stated that preventing
catastrophic levels of global warming would require “rapid, far-
reaching, and unprecedented changes in all aspects of society.”28
Antonio Guterres, the Secretary General of the United Nations,
told a climate conference in early December 2018 that “we are in
deep trouble with climate change” (Dennis and Mooney, 2018).
Optimism has finally given way to realism, even if many of these
individuals and organisations fail to notice the next required step:
a full-blown social, political, and economic confrontation against
capitalism.
An analysis of class and society remains critical to understanding
the horizon of crisis spearheaded by capitalism. In large part,
the ecological crisis is a product of very rich people using and
consuming vast amounts of energy. Any proposed solutions to our
current existential ills must thoroughly address the class differences
responsible for creating them in the first place. Specifically, we must
ensure that the transition to an ecological order ends up helping

the poor and the working classes while hurting the capitalists, who
are mostly responsible for global warming and the planet’s other
ecological disasters. Western plutocracies have rolled out various
market-based taxing and pricing schemes designed to reduce the
consumption of fossil fuels, but have been largely oblivious to the
fact that these proposals would hurt the livelihood of common
people. The proper way to shield the masses during this transition
is to establish stronger social control over the production and
distribution cycles around fossil fuels and then to impose temporary
price controls at the point of consumption. The capitalists lose out
on their profits, as they should after having trashed our ecosphere,
and the masses do not have to face any sudden sticker shocks.
Under modern capitalism, the class structure of our societies
can be broadly divided into three categories: employees, managers,
and capitalists. We define capitalists as individuals who earn such
large incomes from their assets and companies that they can avoid
wage work altogether, if they so choose. In the context of the United
States, a rough approximation of a (small) capitalist would be
anyone with a net worth greater than $10 million in liquid financial
assets—which is not to deny the issue of scale here, with some
capitalists having incomes of more than $100 million a year. Of
course, plenty of capitalists do engage in wage work, such as CEOs
of large multinational corporations. But the point is that, for the
lucky capitalists, work is not a necessity; they could maintain their
current standard of living without a formal salary. They could easily
retire to the Bahamas next week and just live off the income flowing
from their assets, such as stocks, equities, real-estate properties, and
any companies they may own. However, this option is not available
for the vast majority of people in society. Managers and employees
both need salaries to survive and to purchase the commodities
that enrich the capitalists. In addition, most workers increasingly
live a life of debt servitude, in which they owe capitalists lots of
money for going to school, buying a home, and using a credit card,
among other things. The financial control that capital has over the
rest of society also makes it very difficult for workers to demand
higher wages and better living conditions. The result is a plutocracy

in which a small group of rich people have completely hijacked
the political process and thumbed their noses at any demands for
democratic change (Formisiano, 2015).
Despite these challenges, the social and ecological imperatives
for a new direction are growing rapidly every year. A democratic,
ecological, and socialist civilization would substantially limit the
commodification of natural resources while also linking the fate
of the richest to that of the poorest. It would guarantee these
six universals to all people: food, jobs, housing, healthcare, child
care, and education. It would restrict and constrain the accretion
of wealth. It could do so by imposing wealth taxes on capital and
by socializing large parts of the economy, allowing a limited and
tightly regulated market to survive. Capitalists all over the world
are hoarding vast amounts of financial wealth, which they refuse to
invest in the real economy because of low growth rates that offer
few opportunities for excessive profits. Governments should seize
the vast majority of this wealth and invest it in the improvement
of social services, the rebuilding of infrastructure, and the delivery
of affordable healthcare. To substantially reduce and permanently
control income disparities, society could mandate that the highest
salary in any company or organisation be restricted to no more than
ten times the lowest salary.
By providing greater resources to the masses, a democratic
society would also rescue our families from an escalating list of crises.
Capitalism has torn apart the social fabric and crippled modern
families by treating workers like cogs in the corporate machinery.
More and more families are stressed, depressed, and increasingly
feeling alienated from a ruling class that no longer seems to care. An
economic system that works for common people would empower
families, strengthen relationships, and help children grow into
responsible adults. Part of helping families means that society should
also invest in rural communities that have been destroyed as jobs
and assets flow to wealthy cities. These public investments should
include the creation of well-paying jobs, the construction of new
clinics and hospitals for easier access to medical services, the delivery
of regular cash payments to low-income households, the installation

of fiber-optic cables for faster Internet, and infrastructure spending
on roads, schools, and homes. Only by providing a critical balance
of economic and political concessions to rural areas can we prevent
the urban plutocracies from dictating terms to the rest of society. An
ecological society would strive to make the allocation of resources
between cities and the countryside far more equitable than the one-
sided relationship that currently predominates under capitalism.
Our political and business leaders, indoctrinated by capitalist
propaganda throughout their lives, have come to believe that
economic growth is like a magical elixir capable of curing all evils. For
most people in the modern world, it does not seem like an alternative
to economic growth, as currently calculated under capitalism,
is even conceivable. But imagining and realising these important
alternatives may be the only way to spare human civilisation from a
looming disaster. Instead of organising our societies and economies
around the principle of growth, we should organize them around
the principle of sustainable human development, which requires the
metabolic stability of the wider ecosphere. By tightly constraining
the levels of production and consumption around some dynamic
equilibrium and emphasising qualitative human-social relations, as
opposed to the cash nexus, we can avoid the periodic bubbles and
crises of capitalism while also prolonging the duration of human
civilisation. And by distributing more wealth and resources to
workers and common people, we can build a fair society untroubled
by recurring spasms of political and economic instability. The social
and the ecological are inseparable, and together they represent
the intensifying political battleground of this millennium. Future
generations will judge us harshly if we fail to seize this exceptional
moment in history. The impending convergence of crises, from the
economic to the ecological, demands nothing less than a new vision
for our social order.
NOTES
1. The paper is reprinted with the permission of Monthly Review magazine.
It was published in Monthly Review, Vol. 71, No. 2 [June 2019].
2. Marx writes that “The tendency to create the world market is directly
given in the concept of capital itself. Every limit appears as a barrier
to be overcome.” See Karl Marx (1973).
3. For a prominent example of this line of thinking, see Obama, (2017).
Obama writes: “This ‘decoupling’ of energy sector emissions and
economic growth should put to rest the argument that combatting
climate change requires accepting lower growth or a lower standard
of living.”
4. A major issue is the aggregation problem, one of the central weak
points in all of macroeconomics. For an excellent, nontechnical
introduction to the aggregation problem, see Fix (2019). For a more
technical treatment, see J. Felipe and F.M. Fisher (2003): 208–62. The
essence of the aggregation problem is the following question: Under
what conditions can you add up a bunch of stuff and be certain that
you have the right total value? The basic answer is that you can add
things up when you have a stable unit of measurement, like mass or
energy. In a natural science, like physics, unit stability is a critical
requirement for measurement and aggregation. See Gibney (2018)
contrast, aggregation is a meaningless concept with unstable units of
measurement, such as commodity prices in economics. One cannot
define or determine a “real,” inflation- adjusted aggregate through
unstable units. Many economists find supposedly clever ways to get
around this problem. In his famous 1956 paper, Robert Solow flatly
declared: “There is only one commodity, output as a whole.… Thus
we can speak unambiguously of the community’s real income.” In
other words, he brushed aside the aggregation problem by creating an
abstract economy with only one commodity. The flagrant absurdity of
this move is par for the course in neoclassical theory, where ridiculous
assumptions about the world are more common than breathing
oxygen. See Solow (1956).There are other critical concerns with using
GDP as a measure of economic value, such as the fact that it does not
take into account ecological degradation and vital social services. For
more on this line of criticism, see Ward et al., (2017).
5. For a recent example of this conflation, see Moreau (2018) right away
by saying: “Decoupling economic growth from energy consumption is
a widespread attempt to decarbonise economic activities and increase
energy security.”
6. See OECD (2001). For a list of things that are included under
primary consumption in the United States, see the entry “Primary
Energy Consumption” in the Glossary of the US Energy Information

Administration.
7. For an explanation of these methods, see “Statistical Resources” by the
International Energy Agency.
8. BP assumes an efficiency rating of 38 per cent for the hypothetical
power plant. See British Petroleum (2018), 52.
9. As a quick example, see the charts in Plumer (2014).
10. A BTU is equal to 1,055 joules, the standard unit of energy. A joule
is roughly the amount of energy it takes to lift an apple up to your
mouth. See Table 8.1, “Average Operating Heat Rate for Selected
Energy Sources,” S. Energy Information Administration, October 22,
2018.
11. For his primary work on the subject, see Smil (2015).
12. The silly assumptions that form the core of neoclassical theory are
almost too numerous to recount. One can begin with utility, revealed
preferences, and marginal productivity, for just a few metaphysical
concepts that must be indirectly inferred from things like prices and
wages. The economist Joan Robinson was one of the most brilliant
critics of neoclassical economics. For her classic text on the subject,
see Robinson (1964). On the mathematical front, neoclassical theory
has severe problems related to aggregation and general equilibrium.
Refer to endnote 5 for an explanation of the aggregation problem.
For the issues surrounding general equilibrium, see Ackerman (2002).
Regarding its lack of predictive power, refer to every single dynamic
stochastic model that somehow missed the Great Recession back in
2008.
13. See Solow (1956).
14. Solow’s conclusions relied on a function known as the Cobb-Douglas
production function, which was widely used in economics back
then and remains popular to this very day. However, Anwar Shaikh
brilliantly tore apart Solow’s results in 1974, when he showed that the
Cobb-Douglas production function could accurately model data sets
for which a production function should not exist. See Shaikh (1974).
It turns out that there is a kind of trivial and profound reason for this
behaviour. In 2005, Jesus Felipe and J.S.L. McCombie convincingly
proved what had been widely suspected by Shaikh and others: that the
Cobb-Douglas production function is nothing more than an identity
equation, a different way of writing the additive equation capital plus
labor, and reveals absolutely nothing about the neoclassical theory of

distribution. See Felipe and McCombie (2005). The Cobb-Douglas
function was picking up the factor shares inherent in the empirical
data sets, most of which had roughly constant factor shares, because
its exponents are the exact same as the factor shares from the identity
equation. In sum, the Cobb-Douglas production function is an
elaborate way of saying that one equals one.
15. Stern (2004), 40.
16. Solow (1974), 11.
17. Stern (2004), 42.
18. For a comprehensive guide to some recent research on hurricanes and
climate change, see Collins and Walsh, eds., (2017). For a review of
the role climate change plays in the spread of infectious diseases, see
Wu et al. (2016).
19. For more on Marx and his theory of the metabolic rift, see Foster
(2000).
20. For an excellent introduction to how photovoltaics work, see “Solar
Cell Efficiency,” Energy Education, June 25, 2018.
21. Stern (2004), 42.
22. See Table 1.7, “Primary Energy Consumption, Energy Expenditures,
and Carbon Dioxide Emissions Indicators,” S. Energy Information
Administration, March 26, 2019.
23. For some relatively recent flavours of elite opinion on this topic, see
Seitz and Hite (2012), 126. Also look at Saha and Muro (2016).
24. See Stern, “Economic Growth and Energy,” 35–51. In an important
paper, Kaufmann also documented the structural shifts that occurred
within the US energy sector and analysed their impact on economic
growth. See Kaufmann (2004).
25. For one of the most influential studies in this field, see Stern (2011).
For a review of the statistical relationship between energy use and
GDP growth worldwide, see Hannesson, (2009). For a major study
on the link between energy and income in certain Asian countries, see
Asafu-Adjaye (2000). For a general overview of how energy use has
shaped human history, Smil (2017).
26. See “Decoupling of Global Emissions and Economic Growth
Confirmed, International Energy Agency, March 16, 2016.
27. See Ward et al. (2017).
28. Summary for Policymakers of the IPCC Special Report on Global

Warming,” Intergovernmental Panel on Climate Change, October 8,
2018.
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List of Contributors
Anjan Kumar Chakrabarti, Professor, Department of Economics,

University of Calcutta, Kolkata, India.
Balwinder Singh Tiwana, Former Professor, Department of
Economics, Punjabi University, Patiala, India.
Deepankar Basu, Associate Professor, Department of Economics,
University of Massachusetts, Amherst, USA.
Erald Kolasi, PhD in Physics from George Mason University, USA.
Gerald Epstein, Professor and Co-Director, Political Economy
Research Institute, Department of Economics, University of
Massachusetts, Amherst, USA.
Göran Djurfeldt, Professor, Department of Human Geography,
Lund University, Sweden.
Greg Albo, Associate Professor, Department of Political Science,
York University, Toronto, Canada.
John B. Foster, Professor, Department of Sociology, University of
Oregon, USA and Editor of Monthly Review.
Paul Zarembka, Professor, Department of Economics, State
University of New York at Buffalo, USA.
Prabhat Patnaik, Professor Emeritus, Centre for Economic Studies
and Planning Jawaharlal Nehru University, New Delhi, India.
Pritam Singh, Visiting Scholar, Wolfson College, University of
Oxford, Oxford, UK.
Paramjit Singh, Assistant Professor, Department of Economics,
Panjab University, Chandigarh, India.
Samir Amin (late), Former Director, Third World Forum, Dakar,
Senegal, West Africa and Co-founder, World Forum for

Alternatives, Dakar, Senegal.
Satyaki Roy, Associate Professor, Institute for Studies in Industrial
Development, New Delhi, India.
Surinder Kumar, Former Professor of Economics and Former
Director, Giri Institute of Development Studies, Lucknow,
India.
V. Upadhyay, Adjunct Professor and former Head, Department of
Humanities and Social Sciences, Indian Institute of Technology
Delhi, India.
About the Editors
V. Upadhyay is Adjunct Professor and former Head, Department

of Humanities and Social Sciences, IIT Delhi. He has earlier
taught at IIT Kanpur, India; University of New Brunswick,
Canada; University of PEI, Canada; McMaster University,
Canada; and University of Rajasthan, India. His research
interests are in the areas of development economics and political
economy. He has published about a hundred research papers
in reputed Indian and international journals. He has authored/
co-edited several books on the subjects of Indian economy and
political economy including From Statism to Neo-Liberalism:
The Development Process in India; Essays on Distribution, World
Systems, Ecology, and Left Politics; and Plutocracy, Cronyism and
Populism: Facets of Neoliberalism in India. He is an authorised
signatory of the Indian Political Economy Association and a
member of the Steering Council of the World Association of
Political Economy.
Paramjit Singh is an Assistant Professor, Department of Economics,
Panjab University, Chandigarh. His research interests are in
macroeconomic theory and Marxian political economy. He
has more than thirty research publications in reputed national
and international journals of political economy to his credit.
Dr. Singh is a coordinator of the Indian Political Economy
Association.

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Edited by V.

Upadhyay and Paramjit Singh

Routledge titles are available as eBook editions in a range of

10. ‘Big is Not Always Beautiful’: Family Farms

The present volume is an attempt to make students and researchers

understanding of the young political economists regarding issues of

Political economy is a field of study that deals with the interaction

The focus of Marxist analysis is, however, more on historical

labour, imperialism, new forms of capitalist accumulation, and the

worldwide panic reaction to COVID-19 has no parallel in history.

Fast Descent into Depression

Uncertain Path of Recovery

Impact of Stimulus Measures

package and there are plans to borrow additional $3 trillion to

Legitimacy of Fiat Money

in the post-war period. But in the aftermath of depression caused

Impact on Dollar Hegemony

increase in supply of money could lead to high inflation causing

Implications of Decline in US Hegemony for the Emerging

a significant decline in its economic strength. The government’s few

Rescue Measures Aim to Strengthen Capitalism

healthcare. Some political thinkers argue that these governments’

Reduction in Ecological Footprints and Lessons for the Future

prolonged lockdowns. Is it possible to adopt this mode of low

(the bourgeoisie). Adam Smith’s An Inquiry into the Nature and

new field of Welfare Economics. Utilitarianism had initially allowed

There was an earlier discernible similarity between Kuznets’

long-term trends in inequality of wealth and income in such great

Goldhammer puts it,

studied, the Kuznets curve is revealed as a temporary aberration: the

hunger, malnutrition and poverty in isolation by divorcing it from

availability has got deteriorated in those settings where governments

Extent of Hunger and Food Insecurity

Sub-Saharan Africa seemed to be in the worst situation with 22.7

Conflict, Food Insecurity and Nutrition

elaborate system of public agencies that provide the farmers access

and distributional system has brought food into the commodity

open questions about “financialisation” which means it will remain

8. See Degdeviren et al. (2004).

Harari, Y.N. (2020), The World After Coronavirus, Financial Times,

Taking off from Marx’s insights, Marxism emerged as a broad

materialism (DM) in the hands of Luxemburg-Gramsci-Althusser

into other contending theories within the Marxian tradition which

Components and Definition of Society in Historical

In the social production of their existence, men enter into definite,

of production is given a privileged status. The structure in turn

Forces of Production (FOP) consist of facilities and devices

social superstructures and social being. We infer from Cohen that

(homogenous group of people) or an adjective to a verb (process);

How does Cohen relate the aspect of ownership/property to

in defence of capitalist ROP; his insistence on the effects of these

the agency of human beings, whose actions are inspired by their

Since class ROP comprise the economic structure which determines

Fundamental Puzzle of Historical Materialism

dismissed other modes of explanation including the philosophy of

Extending functionalist explanation into other levels of

privileged status in the transition of this society (the Developmental

Transition and Development: Cohen’s Defence of Karl Marx’s

mentioned two classes—ruling versus ruled—in any epoch and

It is worth mentioning that the disequilibrium is not solvable since