1.

Introduction

Today, the word ‘imperialism’ is generally used to refer to the political, military and
economic dominance of major developed countries over less developed ones. For the classical
Marxists writers, imperialism primarily meant ‘inter-imperialist rivalry’ which was expressed
in conflict over territory and tended ultimately to inter-imperialist war (Brewer, 1990: 89). In
other words, works of these writers, which are known as ‘the old theories of imperialism’ in
the Marxist literature, attempted to explain the new developments of capitalism, such as rapid
rise and spread of monopoly and its role in the militarization of industrial nations and in the
outbreak of the WW1. In this conception, hegemony of stronger countries over weaker ones
implicitly existed but because of the political realities of the times when they wrote, the focus
was on the ‘struggle’ for dominance (ibid.).

After the WW2, imperialism began to refer to the relations between developed and
underdeveloped countries following the contributions of ‘dependency school’ writers to the
imperialist theories (Stathakis, 2008: 102). More recently, ‘new theories of imperialism’,
which discusses globalization and militarization by focusing on American hegemony (and
undermining inter-imperialist rivalry) gained importance (ibid.). Although, the meaning of
‘imperialism’ has changed over time, what this word meant to old classical writers is still of
crucial importance. First of all, the capitalist system in which we live cannot be understood
without looking at the historical process by which it evolved on a world scale. In this respect,
it is important to understand the forces that led to the ending of prolonged period of peace in
Europe among the big powers (Polanyi, 1986). Secondly, although their theories have been
criticized on several grounds, old theories of imperialism have set the parameters that have
been followed by many scholars since then (Noonan, 2010: 9). It is for these reasons that this
paper aims at analyzing old theories of imperialism.

In their attempts to explain the rise of inter-imperialist rivalry, some conceptual,

theoretical and political differences emerged within the Marxist tradition. A group of authors,
particularly Hobson and Luxemburg, developed under-consumptionist arguments in which
(the lack of) demand played a crucial role. They followed a line of argument in which excess
saving (under-consumption) is said to lead to a chronic lack of demand, leading to foreign
investment and imperialist expansion (Brewer, 1990: 73). On the other hand, while drawing
on some of their ideas, Hilferding, Bukharin and Lenin developed a different set of
arguments, which will be referred as ‘excess capital theories’ throughout this paper. Among
these writers, Hilferding was interested in analyzing the internal developments in the major
1
capitalist countries and did not attempt to develop a theory of imperialism. In his major work,
Finance Capital, he discussed the concepts of finance capital, joint stock company (JSC), and
capital export in great detail. Later on, Bukharin, in Imperialism and World Economy,
transformed Hilferding’s analysis into a theory of imperialism. While mainly following
Hilferding’s arguments, he put more emphasis on dominance of banking and industrial capital
over the state and emphasized the role of ‘state capitalist trusts’. Following theories of
Hilferding and Bukharin and introducing some ideas from Hobson, Lenin, in his famous
pamphlet Imperialism, popularized and in a sense summarized these theories.

The aim of this essay is to compare under-consumptionist and excess capital

arguments with regard to their views on finance capital/ monopoly, reasons of capital export,
protectionism, their treatment of the state and their suggestions. In the second section, works
of two under-consumptionist writers, Hobson and Luxemburg, will be analyzed. In the third
section, analyses of Hilferding and Lenin will be discussed. Within each section, main
criticisms to these theories will be mentioned. In the forth section, the comparisons between
these two approaches will be made. The last section will conclude.

2. Under-consumptionist theories
2.1 Hobson

Hobson was not a Marxist but he provided the first systematic critique of imperialism
(Lenin, 1999: 7) and therefore had a great influence on later Marxists studies of imperialism,
especially that of Lenin. In his major work, Imperialism, he set out an under-consumptionist
theory and used it to explain the reasons for imperialist expansion. The main line of argument
in his theory is that under-consumption (excess saving) leads to growing export of capital and
imperialist expansion. Hobson argued that there is a chronic tendency to over-saving (Brewer,
1990: 82) According to Brewer (1990: 77), how Hobson explained the reasons for over-
saving had changed over time in his studies. In this early writings, Hobson argued that the rise
of monopoly results in concentration of a rising profit share in fewer hands. Since profit
earners save large parts of their income, this development tends to increase the level of
savings in general. In his later works, Hobson pointed out rising income inequality as the
main reason for excess saving1, with monopoly as one possible cause of the inequality (ibid.).

1
Since propensity to save out of profits is higher than propensity to save out of wages, distribution of
income towards profit earners would result in an increase in the level of overall savings.
2
The reasons for which saving tendencies were increasing did not play a crucial role in
Hobson’s theory. The main argument regarding excess saving was that it outturns investment
because of lack of domestic investment opportunities at home (which is the result of lack of
consumption, demand and hence low investment). Hobson argued that capital export provided
the outlet necessary for the elimination of excess saving and resulting demand deficiency.
Imperialist expansion was mainly the result of search for external markets for the products
that could not be sold in the imperialist countries because of demand deficiency. Additionally,
he argued that pressures for annexation of new territories emerged to safeguard existing
investments (Hobson, 1902: 41).

This line of argument gives a special role to consumption demand and attaches
subordinate role to investment. Brewer (1990: 31) states that for Hobson “...consumer demand
is somehow more fundamental than demand for means of production that the latter only exists
to provide for the former.” Brewer (ibid: 86) argues that this is a naive view of investment
since it does not take industries producing investment goods into account. Brewer (1990: 31)
notes that Marx tackled the same question of “how can capitalists sell all the goods that they
produce if workers cannot afford to buy the whole amount?”. Accordingly, Marx concluded
that capitalists consume the surplus among each other by means of production for new
investment since they produce different sets of products and are willing to exchange them
among themselves (ibid.) Therefore; Brewer rightly argues that Hobson had a simplistic view
of investment demand.

Hobson interpreted imperialism as the product of interest groups which had strong ties
with certain financial institutions (Harman, 2013). The financial groups preferred guaranteed
returns of interest on overseas loans to the taking the risks involved in industrial investment at
home and hence they welcomed the colonial expansion to guarantee their investments.
Hobson (1902, p.54) strongly argued that “… the business interests of the nation as a whole
are subordinated to those of certain sectional interests that usurp control of the national
resources and use them for their private gain.” In other words, one fraction of capital turned
the state to its own advantage without considering the harm it gives to the rest.

Although Hobson argued that capital export provides the necessary outlet for excess
saving, he argued against this undesirable policy and defined imperialism as a ‘bad business’
guided by ill-informed beliefs that it is needed to provide markets (Brewer, 1990: 75). He
suggested income distribution as the most convenient way for the removal of excess saving
and elimination of the need to invest abroad. Since his primary focus on social reform went
3
against Marxist case for socialist revolution, he was criticized among Marxist tradition of the
time.

2.2 Luxemburg

In her main work, The Accumulation of Capital (1913), Luxemburg, in line with Hobson,
argued that capitalist economies suffer a chronic problem of under-consumption. She went
one step further and claimed that there must be buyers outside capitalist relations for the
realization of selling of the goods produced in imperialist countries. In other words, for
Luxemburg, seeking markets abroad was the inevitable consequence of the problem of under-
consumption.

The Accumulation of Capital was criticized severely on many grounds that in 1915
Luxemburg wrote a reply, Anti-critique, where she followed similar lines of arguments with
more clear exposition of her main ideas (Brewer, 1990, 58).2 Among different critiques
against theoretical quality of her work, the ones regarding ‘the need for foreign markets’
relates the most to the topic of this essay. In line with Marx’s reproduction schemes,
Luxemburg argued that for the continuity of smooth reproduction, the entire product at the
end of each production period must be realized by means of selling them (ibid: 65). However,
similar to Hobson, she did not consider (even rejected) the possibility that capitalists are
potential buyers of the surplus products and therefore insisted that forcing the creation of new
markets in regions outside capitalist economies is the only way to overcome the crisis of
inadequate demand resulting from under-consumption (ibid: 62).

On this respect, Kalecki, the Polish economist whose work had great influence on
Neo-Marxist and Post Keynesian economics, provided an important set of critiques which are
summarized by Darity (1980). Kalecki questioned the necessity of acquisition of foreign
markets for aggregate demand stabilization where it is possible for government spending to
perform the identical role (ibid.). He argued that if all categories of aggregate demand3 are
perceived as perfect substitutes, government deficit spending can play the same role that
export of capital does and imperialist strategies would not have to necessarily follow from
effective demand crises (ibid.) Furthermore, he correctly considered the possibility of cases in
which capitalists oppose the synthetic boom that government could offer through deficit
spending (Kalecki, 1943). For instance, capitalists may be afraid of reduced dependence of

2
For detailed critics of Luxemburg’s work see Bukharin (1972), Brewer (1990)
3
Which are consumption, investment, government spending and net exports following Keynes
4
economic performance on private investment and possible real shift to public investment from
public spending. More broadly, Kalecki argues that capitalists would be opposed to full
employment since it may bring about social and political changes that may endanger their
position. Therefore, in the cases where categories of aggregate demand are not perfectly
substitutes, Kalecki did not argue strongly against Luxemburg but overall he considered other
possible explanations for imperialist expansion which are not covered by Luxemburg.

Although under-consumptionist explanations of Luxemburg to imperialist expansion

were criticized by many scholars, she contributed greatly to the studies of imperialism mainly
by paying attention to developments in the pre-capitalist economic systems which were
ignored by other Marxist writers of the time (who were for this reason generally accused of
Euro-centrism)

3. Excess capital theories

3.1 Hilferding

In his masterpiece, Finance Capital (1910), Hilferding described the internal developments in
the major capitalist centres in great depth and did not attempt to provide a theory of
imperialism.4 He generally did not even use the term imperialism and rather preferred phrases
like ‘external policy of finance capital’ (Brewer, 1990: 107). When he used the term, he
referred to militarist and expansionist tendencies in capitalism (ibid.)

For Hilferding, one of the main developments of capitalism after the erosion of the
competitive era was the formation of Joint Stock Company (JSC) as a new form of
organization for the capitalist firms (ibid.: 90). Hilferding explained how personal wealth
ownership concentration into a very small group of capitalists with wide range of business
interests spread in many sector, including banking (Panitch and Gindin, 2004). He argued that
development of JSC accelerated the process of concentration and monopoly.

As a next step, he described the emergence of ‘finance capital’ which he defined as the
amalgamation of banking, industrial and commercial capital (Brewer, 1990: 90). He argued
that the separation of industrial and financial capital, which characterized the era of
competitive capitalism, disappeared in the epoch of monopoly capitalism and gave way to

4
Later on, Bukharin, in his major work Imperialism and World Economy (1917), transformed
Hilferding’s insights into a coherent theory of imperialism. Keeping this very important contribution
in mind, because of space considerations of this essay, and because of the reason that Bukharin
followed theoretical explanations of Hilferding closely, this essay will only focus on the work of
Hilferding.
5
‘finance capital’ which was the product of fusion of ‘industrial’ and ‘financial’ capital
(Stathakis, 2008: 108). Hilferding described this development as follows:

“Finance capital signifies the unification of capital. The previously separate

spheres of industrial, commercial and bank capital are now brought under
the common direction of high finance, in which the masters of industry and
of the banks are united in a close personal association. The basis of this
association is the elimination of free competition among individual
capitalists by the large monopolistic combines. This naturally involves at
the same time a change in the relation of the capitalist class to state
power.” (Hilferding, 1981: 301)

Hilferding explained that banks, especially in Germany, promoted cartelization to

safeguard their loans (Noonan, 2010: 32). Through their pivotal role in industrial
development, banks had enormous power in the tendency towards monopoly. Another
important role in the formation of monopolies on a national basis was played by tariffs. Since
tariff rates determined the extent to which national monopolies could raise the prices above
the world market, they were used as economic weapons by states, serving the interests of
finance capital (Brewer, 1990: 96) For example, since Germany was a late industrialising
country, German state used tariffs extensively in order to compete with British manufacturers.
(Noonan, 2010: 31)

With the rapid development of monopolies on national scales, competitive pressures

among newly industrialising powers increased substantially. In order to bring maximum
returns for finance capital, to overcome rival countries’ protective tariffs and to establish large
economic territories for the exploitation of monopolistic combinations, industrialising
countries tried to incorporate new markets through colonial policies (Brewer, 1990: 100).

The description presented above shows that Hilferding held an instrumentalist view of
the state, which was commonly held by classical Marxists (Noonan, 2010: 35). He stressed
that the state pursued annexationist policies at the behest of finance capital (ibid.). All in all,
Hilferding saw imperialism as a policy of finance capital. Although he did not explicitly
construct a theory of imperialism, his description of finance capital and capital export was a
significant contribution that Bukharin and Lenin benefitted greatly from in their attempts to
constitute a theory of imperialism.

6
 3.2 Lenin

Closely following theoretical background that Hilferding provided and adding important
elements from Hobson; Lenin, in Imperialism, attempted to explain the economic essence of
imperialism and the reasons for which the great powers had gone to war.5 In the simplest
possible terms, Lenin (1999: 91) defined imperialism as “the monopoly stage of capitalism”.
So, imperialism, for Lenin, rather than being a policy of capitalist states (as opposed to
Hilferding’s definition) was “a special stage in the development of capitalism” (ibid.). Brewer
(1990: 52) states that by imperialism, Lenin did not specifically refer to the possession of
colonies since “the earlier stages of capitalism also involved colonial expansion but for
different reasons and [...] results”

As a methodology, Lenin defined five important tendencies that were prevalent in the
era of imperialism and elaborated on these tendencies throughout his text. These tendencies
were: (1) the rise of monopolies, (2) the formation of finance capital, (3) the export of capital
as distinct from the export of commodities, (4) the formation of international monopolistic
combines sharing the world and (5) the complete territorial division of the world (Lenin,
1999: 92)

In his description of the first two tendencies, Lenin closely followed Hilferding. He
described the development of monopolies, including in banking sector, and discussed the
dominance of bank capital over industrial one. He argued that banks did not only play a
crucial role in accelerating the process of cartelisation but also they were subjected to the
same process, they became bigger in size and smaller in number (Noonan, 2010: 71). His
main contribution on this regards was the empirical evidence of the extent of the
concentration of banks and the interconnections between them and industrial enterprises in the
US and Germany (Brewer, 1990) For Lenin, the third tendency, export of capital, arose from
the fact that in some countries capitalism has become “overripe” and (because of the
5
Note: 1. The other two important reasons in writing Imperialism were to counter Kautsky’s concept
of ‘ultra-imperialism’ and to explain the collapse of the 2nd international, caused by the support of
various social democratic parties for their national governments after the war (Noonan 2010, Brewer
1990)
2. Ultra imperialism is explained by Brewer as “the idea that the major powers would agree to
exploit the world jointly rather than fighting over the division of the world”. This implied for the
social-democratic circles that ruling class could support inter-imperialist cooperation who would
otherwise have an interest in supporting imperialist policies. Lenin described ultra-imperialism as
absurdity (Lenin, 1999), he directed important sections of Imperialism against Kautsky and argued
that “this idea helped to lull the working-class movement into a false sense of security on the eve of
the WW1 and contributed to the debacle of the 2nd international on the outbreak of war” (Brewer,
1990: 129)
7
backward stage of agriculture and the poverty of masses) capital could not find a field for
“profitable” investment at home (Lenin, 1999, p.70) Therefore, in order to increase profits,
capital was exported to the backward countries. In these countries, the capital was scarce;
therefore, profits were usually high. Additionally, lower prices of land, labour and cheap raw
material were another important reasons for capital export to these countries. According to
Brewer (1990, p.119), “the strongest motive cited by Lenin was the desire to gain control of
sources of raw materials, or at least to prevent others from gaining monopoly control of
them.” On this crucial matter of capital exports, Howard (1989: 251) argues that Lenin
referred to the surplus of capital but did not explain why domestic investment opportunities
were lacking. For instance, Howard explains that in both Hilferding and Bukharin, the theory
of falling rate of profit played a role but it did not appear in Lenin’s exposition. On the
contrary, Brewer (1990) argues that the reference to the poverty of the masses and the
backwardness of agriculture represent an under-consumptionist analysis in line with Hobson.
However, since Lenin’s other works6 directed against this argument, Brewer also abstains
from drawing a strong conclusion on this matter.

As for the economic division of the world among capitalist combines, Lenin (1999,
p.75) argued that as the spheres of influence of big monopolistic associations expanded,
things “naturally” bend towards international agreements among these associations and hence
towards the formation of international cartels. While cartels, trusts and monopolists divided
up the world economically, the Great powers had divided up the world among them;
geopolitically (Lenin, 1999, p.82f). Since the world had been parcelled out between the Great
powers by 1900, for Lenin, the conflicts arising during repartitioning was the inevitable
consequence (Noonan, 2010).

4. Comparison
In their definition of imperialism, all authors referred to the inter-imperialist rivalry among
economic powers of the time. While Hobson and Hilferding interpreted imperialism as a
policy that the bourgeoisie tends to adopt as finance capital becomes dominant (Callinicos,
2009), Luxemburg and Lenin referred to it as a necessary consequence of capitalist
development (Brewer, 1990 and Noonan, 2010). However, all authors7 recognized the axiom

6
The example given by Brewer (1990) is The Development of Capitalism in Russia
7
Based on the literature reviewed for this paper, this argument was more present in Hobson,
Hilferding and Lenin than Luxemburg.
8
in Marxist theory that the state acts to defend the interests of the ruling class. In other words,
they all held an instrumentalist view of the state (Brewer, 1990).

According to the under-consumptionist theorists, the main reason behind the

imperialist expansion was to seek markets abroad for products that cannot be sold at home
because of lack of demand. The acquiring of new markets in regions outside capitalist
economies was necessary (for Luxemburg, it was the only way) to overcome the crisis of
inadequate demand. Therefore, excess savings led to growing export of capital and imperialist
expansion.

On this crucial matter of reasons for capital export, Hilferding and Lenin shared a
different account. Their main emphasis was on the rise of monopoly and investment of excess
capital. They argued that since domestic investment opportunities were lacking, capitalists
seek for the continual reinvestment of their surplus. Both authors pointed out the rise of
monopoly and the industrial progress to explain the rise and concentration of profits. Contrary
to these authors, Hobson argued that it was not industrial progress that resulted in the opening
up new areas of investment but the mal-distribution of income and consuming power (Kruger,
1955: 255). Although to different degrees, all authors recognized that attaining cheap raw
materials and safeguarding of existing investments were also important motives for
imperialist expansion.

On the issue of how Lenin explained the lack of investment opportunities at home,
different interpretations among scholars exist. For instance, according to Howard (1989: 251)
Lenin did not explain why domestic investment opportunities were lacking. Callinicos (2009:
47) argues that Lenin took over Hobson’s under-consumptionist explanation of foreign
investment. He indicates the quote by Lenin8 as an indication of taking over Hobson’s
argument. Similarly, Brewer (1990: 119) argues that the reference to the poverty of the
masses and the backwardness of agriculture represent an under-consumptionist analysis in
line with Hobson. However, as stated previously, since Lenin’s other writings directed against
under-consumptionist argument, this discussion remains inconclusive.

As stated previously, Lenin benefitted greatly from Hobson’s analysis of imperialism.

For some scholars, the similarities between their accounts of imperialism were so similar that
they shared ‘Hobson-Lenin thesis’ (for instance, Eckstein 1991). However, based on the

8
“The need to export capital arises from the fact that in a few countries capitalism has become
“overripe” and (owing to the backward state of agriculture and the poverty of masses) capital cannot
find a field for “profitable investment.” (Lenin, 1999: 71)
9
literature reviewed for this paper, it can be argued that there were actually fundamental
differences between them. Although they both regarded the growing concentration of capital
as the foundation of imperialist expansion, they share different views about Imperialism’s
growth.

Whilst some consensus about the reasons or effects of imperialist expansion existed
among these authors, the most striking difference was about how to correct the imperialist
policies. On one side, Hobson argued that income distribution remains as the most convenient
way for the removal of excess saving and elimination of the need to invest abroad. He argued
that governmental action to expand the domestic economy was needed and the state should
defend the interests of industry against finance (Harman, 2003). On the other side,
Luxemburg, Hilferding and Lenin were proponents of revolution and argued that imperialism
was not amenable to reform as it was determined by the dynamics of capitalism (Noonan,
2010).

5. Conclusion
In this paper, under-consumptionist and excess-capitalists theories in terms of their attempts
to explain imperialist expansion of the late 19th early 20th century are compared. Firstly,
under-consumptionist theories of Hobson and Luxemburg, which explains imperialist
expansion in relation to lack of domestic demand, were explained. Then, excess capitalist
theories, which pointed out rise of monopoly/accumulation of surplus value, lack of profitable
investment opportunities at home and concomitant desire for investment of excess capital, are
discussed.

The main difference between these two theories is that while under-consumptionist
theories explained imperialist expansion primarily with lack of domestic demand at home,
excess capitalist theories did not share this explanation. Rather, they argued that the rise of
monopoly and realization of monopoly profits caused huge accumulation of surplus value in
capitalist class. Since domestic investment opportunities were missing, capitalism needed
investment of this excess capital abroad.

The literature review of this paper indicates the importance of under-consumptionist

theories in explaining the search for external markets to make up for the deficiency of demand
at home. However, contributions by Hilferding and Lenin demonstrate that imperialist
expansion can be explained by factors outside under-consumptionist theories such as lack of
investment opportunities at home.

10
Word Count: 4264 (including all in-text references and footnotes)

References
Brewer, A. (1990). Marxist Theories of Imperialism, A Critical Survey (2. Baskı b.). London
and New York: Routledge.

Bukhharin, N. I. (1917). Imperialism and World Economy. London: M. Lawrance .

Callinicos, A. (2009). Imperialism and Global Political Economy. Cambridge: Polity Press.

Darity, W. A. (1979-80). Kalecki, Luxemburg, and imperialism. Journal of Post Keynesian

Economics, 223-230.

Eckstein, A. M. (1991). Is there a 'Hobson-Lenin Thesis' on late nineteenth-century colonial

expansion? The Economic History Review .

Harman, C. (2003). Analysing Imperialism. International Socialism.

Hilferding, R. (1981). Finance Capital. London: Routledge & Kegan Paul.

Hobson, J. A. (1902). Imperialism: A Study. New York: James Pott & Co.

Kalecki, M. (1943). Political Aspects of Full Employment. Political Quarterly.

King, M. H. (1989). A History of Marxian Economics (Cilt 1). New Jersey : Princeton
University Press .

Kruger, D. H. (1955). Hobson, Lenin, and Schumpeter on Imperialism. Journal of the History
of Ideas , 252-259.

Lenin, V. I. (1999). Imperialism, The Highest Stage of Capitalism. Sydney: Resistance Books.

Noonan, M. (2010). Marxist theories of imperialism: evolution of a concept . Victoria

University .

Panitch, L., & Gindin, S. (2004). Global Capitalism and American Empire .

Polanyi, K. (1986). Büyük Dönüşüm. İstanbul: İletişim.

Stathakis, G. (2008). Imperialism: Old and New Theories. International Journal of Economic
Sciences and Applied Research, 100-124.

11