By Francis Lee for the Saker Blog

When everybody talks of new eras – blissfully unaware of the fact that soon he will be talking of the hopeless failure of capitalism – an increasing volume of business is being done on the assumption that things will continue to boom. A superstructure of such transactions rises above what is substantially sound and comes down with a crash as soon as, under the impact of new products, or increased quantities of new products, recovery and readjustment set in – and the whole process begins anew … (Joseph Alois Schumpeter-1883-1950).

However, Schumpeter was adroit enough to know that nothing lasts forever and that the termites eventually get into the woodwork and carry out their destructive toil. He was also smart enough to recognize that all things which come into the world, have a life expectancy, and then pass on. So, to the question, ‘Will capitalism survive, he answered, ‘’No, I do not think it can.’’ (Capitalism, Socialism and Democracy first published in 1941)

It should be borne in mind that the cyclical nature of the capitalist system, boom-to-bust, has not just been a purely economic phenomenon, it has also been a political, social, and economic process of growth and expansion. Suffice it to say that this growth is both internal and external. The developmental organization does not run in a straight line. Its movement is subject to recurrent cycles of boom and bust combined with concomitant political and social crises which have been identified from the middle to late 19th century to the present day. Different capitalist states developed at a different rate. Thus, the United Kingdom was the first in the race to be followed by the United States and Germany in the late 19th century. During this late period both the US and Germany were playing catch-up with the UK which had established an early lead, not purely in economic terms, though these were important, but also, and this is crucial, in terms of a global empire, which is examined below.

Pure capitalism as such, probably emerged in England during the period of trade and mercantilism in the 16th and 17th centuries. From an historical point of view, economic doctrines and ideas can be seen to have been the most important and influential form of ideology. As with other forms of ideology, the evolution of ideas – and practices – depends on the development of economic forms and the class struggles of the time. Economic ideas do not form in a vacuum. They invariably arise out of the stir and strife of social and political conflict, and upon the battleground of different social classes. In these circumstances, economists have acted as arms-bearers for these classes, forging the ideological weapons needed to defend the interests of particular social (class) groups, who often no longer concern themselves with mere theoretical abstractions. This was the lot which befell the economists of the mercantilist period (16th and 17th centuries) who devoted countless topical pamphlets to the ardent defence of the interests of merchant capital.

It should be understood that the study of mercantilism, trade, and industry was never a merely fashionable academic notion, but rather a clash of economic interests by contending classes. This was seen to be manifest in the writings of Adam Smith, David Ricardo, John Stuart Mill, Karl Marx, and Friedrich Engels. (See below). These expansions gave rise to the later development of a more fully developed capitalism which emerged in the 18/19th century.

From Capitalism to Imperialism

India which was at that time the Jewell in the British crown of Empire, was administered firstly by Major-General Robert Clive, 1st Baron Clive and early overseer of India. Of course, this occupation of India by the British was carried out and managed by the India Office in London and supplemented by the East India Company – both were purely commercial undertakings. The East India Company, for example was an English, and later Britishjoint-stock company first founded in 1600. It was formed to trade in the Indian Ocean region, initially with the East Indies and later with East Asia. The company seized control of large parts of the Indian subcontinentcolonised parts of Southeast Asia and Hong Kong, and kept trading posts and colonies in the Persian Gulf residencies.

India was long controlled by the aforementioned East India Company but was finally granted full nationhood and freedom by the British as late as 1948. (1) But this process resulted in a breakup between the Muslim minority and Hindu majority with the bitter partition between what became India and Pakistan. Sometime later there came a further rift when Old East Pakistan broke with West Pakistan and established the separate state of Bangladesh. Other British states in the area were Burma, Singapore and Hong Kong So much for the British/Indian Eastern Empire.

Further British imperial expansions were concentrated in Africa being established by Cecil Rhodes and the British South Africa Chartered Company (BSACC) and the empire, formal and informal, which stretched from Cape Town to Cairo.

The same line of plunder which took place in India was replicated in Africa. Then began the descent of the Euro states into the plunder and pillage of Africa. These states included Britain (of course) Germany, Italy, France, Portugal, Spain, and even little Belgium who carved out its own little empire of the Belgian Congo, latterly known as Zaire. But this was no ordinary empire. On February 5, 1885, Belgian King Leopold II established the Congo Free State by brutally seizing the African landmass in the middle of tropical and mineral rich Africa as his personal possession. Rather than control the Congo as a colony, as other European powers did throughout Africa, Leopold privately owned the region. Colonizing other peoples, regardless of the justification, is of course an outrage. (2)

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Cecil Rhodes statue – Oriel College Oxford

Thus, individual, and national capitalist businesses, and nations themselves, competed with each other in order to sustain and expand profitability and an increase in the mass of profits and also unrestricted access to global markets. Moreover, the structures of contemporary capitalism/imperialism, which came into being in the late 19th century and which are still with us – a fortiori – and the competitive drive to increase profitability has not changed since the dawn of the system. The global capitalist/imperialist system has of necessity to expand beyond its national boundaries and relegate areas of expansion to subordinate status in order to extract value from these states.

Not to be left out of the generalized imperial scramble the United States for one, developed into a fully-fledged imperial power and through its acquisitions of vast swathes of territory which it won in the Mexican/American wars, included Nevada, California, Arizona, New Mexico, Texas and, that was just the American internal US buildup of its domestic real-estate. (3)

One of the seminal works on imperialism was written by J.A. Hobson, Imperialism: A Study first published in 1902. Hobson explored more comprehensively and systematically than any other writer of his time the political, economic, and social interconnections between capitalism and imperialism, the effects of imperialism on the conquered peoples, and its legitimating arguments. Indeed, imperialism was the first attempt to understand the politics of western capitalism as it entered the 20th century. Central to the book is the structural change of capitalism whereby both home and overseas markets developed into the imperialist structure of a global system with which to feed the homeland.

‘’In the last years of the 19th century the United States nearly trebled the value of manufacturing export trade, and it was to be expected that if the rate of progress for those rates to continue, it would be able to overtake the more slowly advancing export trade and stand first in the list of manufacture-exporting nations.

This was the avowed ambition, and no idle one of the keenest businessmen of America; and with the natural resources, the labour of administrative talents at their disposable it was quite likely that they would achieve their objective. The stronger and more direct control of politics exercised in America by businessmen enabled them to drive more quickly and more straightly along the line of their economic interests than in Great Britain. American Imperialism was the natural product of the economic pressure of a sudden advance of capitalism which could not find a significant population at home and needed foreign markets for goods and investment. The same needs existed in many European countries and as is admitted drove governments along the same path. Overproduction in the sense of an excess in manufacturing plant, and surplus capital which could not find sound investments within their respective countries, forced Great Britain, Holland, Germany, and France to place larger and larger portions of their economic resources outside of their present political domain, and then stimulate a policy of political expansion so as to take in the new areas. The economic sources of this movement were laid bare by periodic trade depressions due to the inability of producers to find adequate and profitable markets for what they could produce …

This process we are told, is inevitable, and so it seems of superficial inspection. Everywhere appears excessive powers of production, excess capital in the search for investment. It is admitted by all businessmen that the growth of the powers of production in their country exceeds the growth in consumption, that more goods can be produced than can be sold at a profit, and that more capital exists than can find a remunerative investment. It was this condition of affairs that forms the taproot of imperialism’’ (4)

The shifting shape of contemporary or ‘late’ capitalism.

Any attempt to identify the rise and fall of the global ‘system’ of capitalist development is fraught with difficulties. History is usually the best guide to what has gone before and might arise in the future – but it cannot say with any certainty that its prognostications will turn out to be correct. This being said I think that we can situate the breaks in the historical process since WW2.

Starting in 1945 there came the long period of post-war reconstruction and sustained high-level growth lasting into the 1950/60s until the first stutter started to occur around the late 60s and early 70s. This political/economic period was dominated by the United States and to a lesser extent Western Europe. The Soviet Union was the economic laggard, but it had sustained massive damage – in both manpower and infrastructure – during the war period 1941-45 and as a consequence lagged behind Europe’s more dynamic reconstruction. The United States of course was sheltered from the war having the two oceans which served as oceanic moats on either coast.

After the immediate post-war reconstruction 1945-50 and the peace dividend of the 50s and 60s the accumulation process began to slow and started to lose economic impetus. This was to give rise to an inexorable decline of the dollar standard. The fixed rate of the US$ was abandoned and the other currencies were allowed to float against the $. This situation was brought about by the $s negative trade deficits with the euro currencies who simply cashed in their surplus $s which led to an outflow of gold from the US and in inflow of surplus $s back, in the purchase of US Treasury Bills. The entire bloated edifice of the dollar standard resulted from the early 1960s with US government’s excessive spending on the wars in Indochina and President Johnson’s ‘Great Society’ social programme. Something had to give – and it did. Johnson, the Democrat resigned, Nixon, the Republican took over. With inflation on the rise and a gold run looming, President Richard Nixon’s team enacted a plan that ended dollar convertibility to gold and implemented wage and price controls, which soon brought an end to the Bretton Woods System.

In a televised statement Nixon solemnly informed the American public that the US$ was, to all intents and purposes, no longer the lynchpin of global Bretton Woods system. ­President Richard Nixon, 1971.

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­President Richard Nixon, 1971.

The New Era.

The Indo-China wars petered out in the mid to late 1970s. The epoch of controlled capitalism, starting with the wartime coalitions and the Bretton Woods system was effectively over. Now a new social and economic paradigm began to establish itself. Keynesianism was now regarded as being hopelessly passe and Monetarism was all the rage. Mrs Thatcher in the UK and Ronald Regan in the US were now calling the shots. The system of free-market capitalism was in the ascendant. It was thought that Markets should be given maximum free rein to make investment decisions without any government interference. This would maximise output and growth – or so it was argued by economic gurus such as Milton Friedman the one-time famous American economist and standard bearer of monetarism.

However, since the end of the Bretton Woods system the putative outcomes of the new theory has not quite delivered the goods promised. Indeed, the years since the early 1970s have been unprecedented in terms of the volatility in the prices of commodities, currencies, real estate, and stocks and bonds. There have been at least 4 waves of financial crises – does Schumpeter come to mind? – a large number of banks in three, four or more countries collapsed at about the same time. Each wave was followed by a recession, and economic slowdowns that began first in the period from 1980s to 2008, to be followed by the covid-debacle in 2020.

It seems an open question as to whether the Covid episode was either cause or effect of the latest financial/economic blowout. Be that as it may, in large part the number of financial market crashes in the last 30 years or so reflects that there are more independent countries, and, despite the fact of perfect compatibility across time-periods, the conclusion is unmistakable that financial failure has been more extensive and pervasive in the early part of the 20th century. More and more the present economic dispensation is becoming a recognisable Ponzi Scheme.

‘’Ultimately excessive debt’’ … which we have in abundance … ‘’resembles a Ponzi Scheme. Nations, businesses, and individuals need to borrow ever increasing amounts of money in order to pay existing borrowings and maintain economic growth. In the half-century leading up to 2008 and now 2020 – the amount of debt needed to create was US$1-2 to US$4-5. This rapid rise is unsustainable, given an ageing population, declining female fertility rates, and unstoppable population decline, slower growth, and low inflation.’’ (Satyajit Das – ‘The Age Of Stagnation’ – p.37).

Yep, sounds about right. It might be a good idea to get yourself an uninhabited atoll somewhere in the Pacific.


(1) Prior to what in fact was an outright massacre such events in Britain’s overseas possessions were often routine. Frederick Engels wrote the following.

‘‘The fact is that there is no army in either Europe or America with so much brutality as the British. Plundering, Violence, Massacre – things that everywhere else are strictly and completely banished – are a time-honored privilege, a vested right of the British soldier … The sack of Lucknow (India) in 1858 will remain an everlasting disgrace to the British military service.’’

Written on 8 May 1858, first published in the New York Daily Tribune, 5333 May 25, 1858

(2) The Rape of Africa. Item 1. Zimbabwe: The British South Africa Chartered Company operated by borrowing monies from investments for whom they had to earn by selling or letting to Europeans. Unfortunately for the native population these new settlers expected ‘’to be allowed to run the country’. Neither the Colonial Office nor the Governors had expressly admitted this claim on their part, but the colonial government economic policy consistently favored the economic interests of the Europeans as immigrants and the British Government has not exercised in Southern Rhodesia (Zimbabwe) its nominally reserved right of control over the local executive government and the interests of the natives.

(3) The United States had always regarded itself as being in a sense superior to the European states. This, however, was a rather extravagant belief. Its various conquests were plain to see (above) for anyone who had eyes. Moreover, its military involvement in which might have once been sovereign were simply taken apart piece by piece.

(4) Imperialism: A Study. J.A.Hobson. 1902.

Chapter VI – ‘The Economic Taproot of Imperialism.’ pp.71-93.

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