CHAPTER TWO
by competitors. Therefore, a liberal international economy cannot develop
unless it is supported by the dominant economic states whose
own interests are consistent with its preservation.
Whereas liberals stress the mutual benefits of international commerce,
nationalists as well as Marxists regard these relations as basically
conflictual. Although this docs not rule out international economic
cooperation and the pursuit of liberal policies, economic
interdependence is never symmetrical; indeed, it constitutes a source of
continuous conflict and insecurity. Nationalist writers from Alexander
Hamilton to contemporary dependency theorists thus emphasize national
self-sufficiency rather than economic interdependence.
Economic nationalism has taken several different forms in the modem
world. Responding to the Commercial Revolution and the expansion
of international trade throughout the early period, classical or financial
mercantilism emphasized the promotion of trade and a balance
of payments surplus. Following the Industrial Revolution, industrial
mcrcantilists like Hamilton and List stressed the supremacy of industry
and manufacturing over agriculture. Following the First and Second
WorldWarsthese earlier concerns have been joined by a powerful commitment
to the primacy of domestic welfare and the welfare state. In
the last decades of this century, the increasing imponance of advanced
technology, the desire for national control over the "'commanding
heights" of the modern economy, and the advent of what might best be
called "policy competitiveness" have become the distinctive features of
contemporary mercantilism. In all ages, however, the desire for power
and independence have been the overriding concern of economic na­
tionalists.
Whatever its relative strengths and weaknesses as an ideology or theory
of international political economy, the nationalist emphasis on the
geographic location and the distribution of economic aCtivities provide
it with powerful appeal. Throughout modern history, states have pursued
policies promoting the development of industry, advanced technology,
and those economic activities with the highest profitability and
generation ofemploymentwithin their own borders. As far as they can,
states try to create an international division of labor favorable to their
political and economic interests. Indeed, economic nationalism is likely
to be a significant iiifluence in international relations as long as the state
system exists.
THE MARXIST PERSPECTIVE
Like liberalism and nationalism, Marxism has evolved in significant
ways since its basic ideas were set fonh by Karl Marx and Friedrich En-
34
THREE I D E O L O G I E S OF POLITICAL ECONOMY
gels in the middle of the nineteenth century.s Marx's own thinking
changed during his lifetime, and his theories have always been subject
to conflicting interpretations. Although Marx viewed capitalism as a
global economy, he did not develop a systematic set of ideas on international
relations; this responsibility fell upon the succeeding generation
of Marxist writers. The SoViet Union and China, furthermore,
having adopted Marxism as their of6cial ideology, have reshaped it
when necessary to serve their own national interests.
As in liberalism and nationalism, two basic strands can be discerned
in modem Marxism. The 6rst is the evolutionary Marxism of social democracy
associated with Eduard Bernstein and Karl Kautsky; in the
contemporary world it has tapered off and is hardly distinguishable
from the egalitarian form of liberalism. At the other extreme is the revolutionary
Marxism of Lenin and, in theory at least, of the Soviet
Union. Because of its triumph as the ruling ideology in one of the
world's two superpowers, this variation is the more important and will
be stressed here.
As Robert Heilbroner ( 1 980) has argued, despite the existence of
these different Marxisms, four essential elements can be found in the
overall corpus of Marxist writings. The 6rst element is the dialectical
approach to knowledge and society that de6nes the nature of reality as
dynamic and conflictual; social disequilibria and consequent change
are due to the class struggle and the working out of contradictions inherent
in social and political phenomena.There is, accordingto Marxists,
no inherent social harmony or return to equilibrium as liberals believe.
The second element is a materialist approach to history; the
development of productive forces and economic activities is central to
historical change and operates through the class struggle over distribution
of the social product. The third is a general view of capitalist
development; the capitalist mode of production and its destiny arc governed
by a set of "economic laws of motion of modern society." The
fourth is a normative commitment to socialism; all Marxists believe
that a socialist society is both the necessary and desirable end of historical
development (Heilbroner, 1 980, pp. 10-2.1). It is only the third of
these beliefs that is of interest here.
Marxism characterizes capitalism as the private ownership of the
means of production and the existence of wage labor. It believes that
capitalism is driven by capitalists striving for pro6ts and capital accumulation
in a competitive market economy. Labor has been dispos'
Although there were imponant differences between the views of Engels and Mal'X, I
shall refer to Marx throughout this discussion as standing for the combined contribution
of both men.
3 5
CHAPTER TWO
sessed and has become a commodity that is subject to the price mechanism.
In Marx's view these two key characteristics of capitalism are
responsible for its dynamic nature and make it the most productive economic
mechanism yet. Although its historic mission is to develop and
unify the globe, the very success of capitalism will hasten its passing.
The origin, evolution, and eventual demise of the capitalist mode of
production are, according to Marx, governed by three inevitable economic
laws.
The first law, the law of disproponionality, entails a denial of Say's
law, which (in oversimplified terms) holds that supply creates its own
demand so that supply and demand will always be, except for brief moments,
in balance (see Sowell, I 972). Say's law maintains that an equilibrating
process makes overproduction impossible in a capitalist or
market economy. Marx, like john Maynard Keynes, denied that this
tendencytoward equilibrium existed and argued that capitalist economies
tend to overproduce panicular types of goods.There is, Marx argued,
an inherent contradiction in capitalism between its capacity to
produce goods and the capacity of consumers (wage earners) to purchase
those goods, so that the constantly recurring disproponionality
between production and consumption due to the ..anarchy" of the
market causes periodic depressions and economic fluctuations. He predicted
that these recurring economic crises would become increasingly
severe and in time would impel the suffering proletariat to rebel against
the system.
The second law propelling the development of a capitalist system, ac·
cording to Marxism, is the law of the concentration (or accumulation)
of capital. The motive force of capitalism is the drive forprofits and the
consequent necessity for the individual capitalist to accumulate and invest.
Competition forces the capitalists to increase their efficiency and
capital investment or risk extinction. As a result, the evolution of capitalism
is toward increasing concentrations of wealth in the hands of
the efficient few and the growing impoverishment of the many. With
the petite bourgeoisie being pushed down into the swelling ranks of the
impoverished proletariat, the reserve army of the unemployed increases,
labor's wages decline, and the capitalist society becomes ripe
for social revolution.
The third law of capitalism is that of the falling rate of profit. As capital
accumulates and becomes more abundant, the rate of return declines,
thereby decreasing the incentive to invest. Although classical liberal
economists had recognized this possibility, they believed that a
solution could be found through such countervailing devices as the expon
of capital and manufactured goods and the import of cheap food
3 6
THREE I D E O L O G I E S OF POLITICAL ECONOMY
(Mill, 1 970 [ 1 848], pp. 97-104). Marx, on the other hand, believed
that the tendency for profits to decline was inescapable. As the pressure
of competition forces capitalists to increase efficiency and productivity
through investment in new labor-saving and more productive technology,
the level of unemployment will increase and the rate of profit or
surplus value will decrease. Capitalists will thereby lose their incentive
to invest in productive ventures and to create employment. This will result
in economic stagnation, increasing unemployment, and the "immiserization"
of the proletariat. In time, the ever-increasing intensity
and depth of the business cycle will cause the workers to rebel and destroy
the capitalist economic system.
The core of the Marxist critique of capitalism is that although the individual
capitalist is rational (as liberals assume), the capitalist system
itself is irrational. The competitive market necessitates that the individual
capitalist must save, invest, and accumulate. If the desire for profits
is the fuel of capitalism, then investment is the motor and accumulation
is the result. In the aggregate, however, this accumulating capital of individual
capitalists leads to the periodic overproduction of goods, sur·
plus capital, and the disappearance of investment incentives. In time,
the increasing severity of the downturns in the business cycle and the
long-term trend toward economic stagnation will cause the proletariat
to overthrow the system through revolutionary violence. Thus, the inherent
contradiction of capitalism is that, with capital accumulation,
capitalism sows the seeds of its own destruction and is replaced by the
socialist economic system.'
Marx believed that in the mid-nineteenth century, the maturing of
capitalism in Europe and the drawing of the global periphery into the
market economy had set the stage for the proletarian revolution and
the end of the capitalist economy. When this did not happen, Marx's
followers, such as Rudolf Hilferding and Rosa Luxemburg, became
concerned over the continuing vitality of capitalism and its refusal to
disappear. The strength of nationalism, the economic successes of capitalism,
and the advent of imperialism led to a metamorphosis of Marxist
thought that culminated in Lenin's Imperialism (1939), first published
in 1 9 17. Written against the backdrop of the First World War
and drawing heavily upon the writings of other Marxists, Imperialism
was both a polemic against his ideological enemies and a synthesis of
6 In effect, the Marxists arc ao::using the defenders of capitalism with employing
the fallacy of composition. This is "a falla(:)' in which what is true of a pan is, on that
accountalone, alleged to be also nece§arily truc ofthe whole" (Samuelson, 1980, p. 1 1).
Similarly, Keynes argued that although individual saving is a virtue, if everyone saved it
would bc a calamiry.
37
CHAPTER TWO
Marxist critiques of a capitalist world economy. In staking out his own
position, Lenin in effect converted Marxism from essentially a theory
of domestic economy to a theory of international political relations
among capitalist states.
Lenin set himself the task of accounting for the fact that nationalism
had triumphed over proletarian internationalism at the outbreak of the
First World War and thereby sought to provide the intellectual foundations
for a reunification of the international communist movement under
his leadership. He wanted co show why the socialist parties of the
several European powers, especially the German Social Democrats under
Karl Kautsky, had supported their respective bourgeoisies. He also
tried to explain why the impoverishment of the proletariat had not
taken place as Marx had predicted, and instead wages were rising and
workerswere becomingtrade unionists.
In the years between Marx and Lenin, capitalism had experienced a
profound transformation. Marx had written about a capitalism largely
confined to western Europe, a dosed economy in which the growth impulse
would one day cease as ic collided with various constraints. Between
I 870 and I 914, however, capitalism had become a vibrant,technological,
and increasingly global and opensystem. In Marx's day, the
primary nexus of the slowly developing world economy was trade.
After I 870, however, the massive export of capital by Great Britain and
subsequendy by other developedeconomies had significantly changed
the world economy; foreign investment and international finance had
profoundly altered the economic and political relations among societies.
Furthermore, Marx's capitalism had been composed mainly of
small, competitive, industrial firms. By the time of Lenin, however, capitalist
economies were dominated by immense industrial combines that
in tum, according to Lenin, were controlled by the great banking
houses (haut finance). For Lenin, the control of capital by capital, that
is, of industrial capital by financial capital, represented the pristine and
higheststage of capitalist development.
Capitalism, he argued, had escaped its three laws of motion through
overseas imperialism. The acquisition of colonies had enabled the cap·
italist economies to dispose of their unconsumed goods, to acquire
cheap resources,.and to vent their surplus capital. The exploitation of
these colonies further provided an economic surplus with which the
capitalists could buy off the leadership (..labor aristocracy") of their
own proletariat. Colonial imperialism, he argued, had become a nee·
essary feature of advanced capitalism. As its productive forces developed
and matured, a capitalist economy had to expand abroad, capture
colonies, or else suffer economic stagnation and internal revolution.
THREE I D E O LO G I E S OF POLITICAL ECONOMY
Lenin identified this necessary expansion as the cause of the eventual
destruction of the international capitalist system.
The essence of Lenin's argument is that a capitalist international
economy does develop the world, but does not develop it evenly. Individual
capitalist economies grow at different rates and this differential
growth of national power is ultimately responsible for imperialism,
war, and international political change. Responding to Kautsky's argument
that capitalists were too rational to fight over colonies and
would ally themselves in the joint exploitation of colonial peoples (the
doctrine of "ultra-imperialism"), Lenin stated that this was impossible
because of what has become known as the "law of uneven develop­
ment":
This question [of the possibility of capitalist alliances to be more than temporary
and free from conflict] need only be stated dearly enough to make it impossible
for any other reply to be given than that in the negative; for there can
be no other conceivable basis under capitalism for the division of spheres of
influence . . . than a calculation of the strength of the participants in the division,
their general economic, financial, military strength, etc. And the strength
of these participants in the division does not change to an equal degree, for under
capitalism the development of different undertakings, trusts, branches of
industry, or countries cannot be even. Half a century ago, Germany was a miserable,
insignificant country, as far as its capitalist strength was concerned,
compared with the strength of England at that time. japan was similarly insignificant
compared with Russia. Is it "conceivable" that in ten or rwenty years'
time the relative strength of the imperialist powers will have remained unchanged?
Absolutely inconceivable (Lenin, 1939 ( 1 9 1 7], p. 1 19).
In effect, in this passage and in his overall attempt to prove that an
international capitalist system was inherently unstable, Lenin added a
fourth law to the original three Marxist laws of capitalism. The law is
that, as capitalist economies mature, as capital accumulates, and as
profit rates fall, the capitalist economies are compelled to seize colonies
and create dependencies to serve as markets, investment outlets, and
sources of food and raw materials. In competition with one another,
they divide up the colonial world in accordance with their relative
strengths. Thus, the most advanced capitalist economy, namely Great
Britain, had appropriated the largest share of colonies. As other capitalist
economies advanced, however, they sought a redivision of colonies.
This imperialist conflict inevitably led to armed conflict among the
rising and declining imperial powers. The First World War, according
to this analysis, was a war of territorial redivision between a declining
Great Britain and other rising capitalist powers. Such wars of colonial
division and redivision would continue, he argued, until the industrial-
39
CHAPTER TWO
izing colonies and the proletariat of the capitalist countries revolted
against the system.
In more general terms, Lenin reasoned that because capitalist economies
grow and accumulate capital at differential rates, a capitalist international
system can never be stable for longer than very short periods
of time. In opposition to Kautsky's doctrine of ultra-imperialism,
Lenin argued that all capitalist alliances were temporary and reflected
momentary balances of power among the capitalist states that would
inevitably be undermined by the process of uneven development. As
this occurred, it would lead to intracapitalist conflicts over colonial ter­
ritories.
The law of uneven development, with its fateful consequences, had
become operative in his own age because the world had suddenly become
finite; the globe itself had become a closed system. For decades
the European capitalist powers had expanded, gobbling up overseas
territory, but the imperialist powers increasingly came into contact and
therefore into conflict with one another as the lands suitable for colonization
diminished. He believed that the final drama would be the imperial
division of China and that, with the dosing of the global undeveloped
frontier, imperialist clashes would intensify. In time, conflicts
among the imperialist powers would produce revolts among their own
colonies and weaken Western capitalism's hold on �he colonialized
races of the globe.
Lenin's internationalization of Marxist theory represented a subtle
but significant reformulation. In Marx's critique of capitalism, the
causes of its downfall were economic; capitalism would fail for economic
reasons as the proletariat revolted against its impoverishment.
Furthermore, Marx had defined the actors in this drama as social
classes. Lenin, however, substituted a political critique of capitalism in
which the principal actors in effect became competing mercantilistic
nation-states driven by economic necessity. Although international
capitalism was economically successful, Lenin argued that it was politically
unstable and constituted a war-system. The workers or the labor
aristocracy in the developed capitalist countries temporarily shared in
the exploitation of colonial peoples but ultimately would pay for these
economic gains on the battlefield. Lenin believed that the inherent contradiction
of capitalism resided in the consequent struggle of nations
rather than in the class struggle. Capitalism would end due to a revolt
against its inherent bellicosity and political consequences.
In summary, Lenin argued that the inherent contradiction of capitalism
is that it develops the world and plants the political seeds of its own
destruction as it diffuses technology, industry, and military power. It
40
T H REE IDEOLO GIES OF POLITICAL ECONOMY
creates foreign competitors with lower wages and standards of living
who can outcompete the previously dominant economy on the battlefield
of world markets. Intensification of economic and political competition
between declining and rising capitalist powers leads to economic
conflicts, imperial rivalries, and eventually war. He asserted that
this had been the fate of the British-centered liberal world economy of
the nineteenth century. Today he would undoubtedly argue that, as the
U.S. economy declines, a similar fate threatens the twentieth-century
liberal world economy, centered in the United States.
With the triumph of Bolshevism in the Soviet Union, Lenin's theory
of capitalist imperialism became the orthodox Marxist theory of international
political economy; yet other heirs of the Marxist tradition
have continued to challenge this orthodoxy. It has also been modified
by subsequent changes in the nature of capitalism and other historical
developments. Welfare-state capitalism has carried out many of the reforms
that Lenin believed to be impossible, the political control of colonies
is no longer regarded by Marxists as a necessary feature of imperialism,
the finance capitalist of Lenin's era has been parrially
displaced by the multinational corporation of our own, the view that
capitalist imperialism develops the less developed countries has been
changed to the argument that it underdevelops them, and some Marxists
have been so bold as to apply Marxist theory to Lenin's own political
creation, the Soviet Union. Thus modified, at the end of the twentieth
century Marxism in its various manifestations continues to
exercise a powerful influence as one of the three dominant perspectives
on political economy.
A CRITIQ U E OF T H E PERSPECTIVES
As we have seen, liberalism, nationalism, and Marxism make different
assumptions and reach conflicting conclusions regarding the nature
and consequences of a world market economy or (as Marxists prefer)
aworld capitalist economy. The position of this book is that these contrasting
ideologies or perspectives constitute intellectual commitments
or acts of faith. Although particular ideas or theories associated with
oneposition or another may be shown to be false or questionable, these
perspectives can be neither proved nor disproved through logical argument
or the presentation of contrary empirical evidence. There are
several reasons for the persistence of these perspectives and their resistance
to scientific testing.
In the first place, they are based on assumptions about people or society
that cannot be subjected to empirical tests. For example, the lib-
41
CHAPTER TWO
leading concern of states. From the seventeenth century on states have
pursued conscious policies of industrial and technological development.
Both to achieve stable military power and in the belief that industry
provides a higher "value added" (sec Chapter Three, note 26)
than agriculture, the modern nation-state has had as one of its major
objectives the establishment and protection of industrial power. As
long as a conflictual international system exists, economic nationalism
will retain its strongattraction.
Critique ofMarxist Theory
Marxism correctly places the economic problem-the production and
distribution of material wealth-where it belongs, at or near the center
of political life. Whereas liberals tend to ignore the issue of distribution
and nationalists are concerned primarily with the international distribution
of wealth, Marxists focus on both the domestic and the international
effects of a market economy on the distribution of wealth.
They call attention to the ways in which the rules or regimes governing
trade, investment, and other international economic relations affect the
distribution of wealth among groups and states (Cohen, 1977,p. 49).10
However, it is not necessary to subscribe to the materialist interpretation
of history or the primacy of class struggle in order to appreciate
that the ways in which individuals earn their liviri.g and distribute
wealth are a critical determinant of social structure and political behav­
ior.
Another contribution of Marxism is its emphasis on the nature and
structure of the division of labor at both the domestic and international
levels. As Marx and Engels correctly pointed out in The German Ideology,
every division of labor implies dependence and therefore a political
relationship (Marx and Engels, I 947 [ I 846]).In a market economy
the economic nexus among groups and states becomes of critical imponance
in determining their welfare and their political relations. The
Marxist analysis, however, is too limited, because economic interdependence
is not the only or even the most imponant set of interstate
relations. The political and strategic relations among political actors
are of equal or greater significance and cannot be reduced to merely
economic considerations, at least not as Marxists define economics.
The Marxist theory of international political economy is also valuable
in its focus on international political change. Whereas neither liberalism
nor nationalism has a comprehensive theory of social change,
•0The volume edited by Krasner (1�hc) contains a wide-ranging discussion of the
concept of international regimes.
50
THREE I D E O L O G I E S OF POLITICAL ECONOMY
Marxism emphasizes the role of economic and technological developments
in explaining the dynamics of the international system. As embodied
in Lenin's law of uneven development, the differential growth
of power among states constitutes an underlying cause of international
palitical change. Lenin was at least partially correct in attributing the
First World War to the uneven economic growth of power among industrial
states and to conflict over the division of territory. There can
be little doubt that the uneven growth of the several European powers
and the consequent effects on the balance of powercontributed to their
collective insecurity. Competition for markets and empires did aggravate
interstate relations. Furthermore, the average person's growing
awareness of the effects on personal welfare and security of the vicissirudes
of the world market and the economic behavior of other states
also became a significant element in the arousal of nationalistic antagonisms.
For nations and citizens alike, the growth of economic interdependence
brought with it a new sense of insecurity, vulnerability,
and resentment against foreign political and economic rivals.
Marxists are no doubt also correct in attributing to capitalist economies,
at least as we have known them historically, a powerful impulse
toexpand through trade and especially through the export of capital.
The classical liberal economists themselves observed that economic
growth and the accumulation of capital create a tendency for the rate
ofreturn (profit) on capital to decline. These economists, however, also
noted that the decline could be arrested through international trade,
foreign investment, and other means. Whereas trade absorbs surplus
capital in the manufacture of exports, foreign investment siphons off
capital. Thus, classical liberals join Marxists in asserting that capitalist
economies have an inherent tendency to exportgoods and surplus cap­
ital.
This tendency has led to the conclusion that the nature of capitalism
is international and that its internal dynamics encourage outward expansionism.
In a dosed capitalist economy and in the absence of technological
advance, underconsumption, surplus capital, and the resulting
decline in the rate of profit would eventually lead to what John
Stuart Mill called ..the stationary state" (Mill, 1 970 [ 1 848], p. I I I).
Yet, in an open world economy characterized by expanding capitalism,
population growth, and continuing improvement in productivity
through technological advance, there is no inherent economic reason
foreconomic stagnation to take place.
On the other hand, a communist or socialist economy has no inherent
economic tendency to expand internationally. In a communist
economy, investment and consumption are primarily determined by
S l
CHAPTER TWO
the national plan and, moreover, thestate has a monopoly of all foreign
exchange.'' A communist economy may of course have a political or
strategic motive for exporting capital, or it may need to invest abroad
in order to obtain vital sources of raw materials. A Marxist regime may
also find it profitable to invest abroad or to engage in other commercial
transactions. Certainly the Soviet Union has been rightly credited on
occasion with being a shrewd trader, and Ralph Hawtrcy's point that
the advent of a communist or socialist government does not eliminate
the profit motive but merely transfers it to the state has some merit
(Hawtrey, 19 s 2). Nevertheless, the incentive structure of a communist
society with its stress on prestige, power, and ideology is unlikely to encourage
the economy's expansion abroad. The tendency is rather for
economics to be subordinated to politics and the nationalistic goals of
the state (Viner, 1 9S 1 ).
Marxists are certainly correct that capitalism needs an open world
economy. Capitalists desire access to foreign economies for export of
goods and capital; exports have a Keynesian demand effect in stimulating
economic activity in capitalist economies, and capital exports
serve to raise the overall rate of profit. Closure of foreign markets and
capital outlets would be detrimental to capitalism, and a dosed capitalist
economy would probably result in a dramatic decline in economic
growth. There is reason to believe that the capitalist system (certainly
as we have known it) could not survive in the absence of an open world
economy. The essential character of capitalism, as Marx pointed out,
is cosmopolitan; the capitalist's ideology is international. Capitalism in
just one state would undoubtedly be an impossibility.
In the nineteenth and twentieth centuries the dominant capitalist
states, Great Britain and the United States, employed their power to
promote and maintain an open world economy. They used their influence
to removethe barriers to the free flow of goods and capital. Where
necessary, in the words of Simon Kuznets, "the greater power of the
developed nations imposed upon the reluctant partners the opportunities
of international trade and division of labor" (Kuznets, 1 966, p.
33 5). In pursuit of their own interests, they created international law to
protect the property rights of private traders and investors (Lipson,
198 5). And when the great trading nations became unable or unwilling
to enforce the rules of free trade, the liberal system began its steady retreat.
Up to this point, therefore, the Marxists are correct in their identification
of capitalism and modern imperialism.
" Wiles (1,68) presents a valuable analysis of rhe conrrasring behavior of capiralist
and communi5t cconomie5.
s•
THREE I D E O L O G I E S OF POLITICAL ECONOMY
The principal weakness of Marxism as a theory of international political
economy results from its failure to appreciate the role of political
and strategic factors in international relations. Although one can appreciate
the insights of Marxism, it is not necessary to accept the Marxist
theory that the dynamic of modern international relations is caused
by the needs of capitalist economies to export goods and surplus capital.
For example, to the extent that the unevengrowth of national economies
leads to war, this is due to national rivalries, which can occur regardless
of the nature of domestic economies-witness the conflict
between China and the Soviet Union. Although competition for markets
and for capital outlets can cenainly be a cause of tension and one
factor causing imperialism and war, this does not provide an adequate
explanation for the foreign policy behavior of capitalist states.
The historical evidence, for example, does not support Lenin's attribution
of the First World War to the logic of capitalism and the market
system. The most important territorial disputes among the European
powers, which precipitated the war, were not those about overseas colonies,
as Lenin argued, but lay within Europe itself. The principal confljct
leading to the war involved redistribution of the Balkan territories
of the decaying Ottoman Empire. And insofar as the source of this conOia
was economic, it lay in the desire of the Russian state for access to
the Mediterranean (Hawtrey, I 95 2., pp. 1 1 7-1 8). Marxism cannot explain
the fact that the three major imperial rivals-Great Britain,
France, and Russia-were in fact on the same side in the ensuing conflict
and that they fought against a Germany that had few foreign policy
interests outside Europe itself.
In addition, Lenin was wrong in tracing the basic motive force of imperialism
to the internal workings of the capitalist system. As Benjamin
J. Cohen has pointed out in his analysis of the Marxist theory of imperialism,
the political and strategic conflicts of the European powers
were more important; it was at least in pan the stalemate on the Continent
among the Great Powers that forced their interstate competition
into the colonial world (Cohen, 1973). Every one of these colonial conflim
(if one excludes the Boer War) was in fact settled through diplomatic
means. And, finally, the overseas colonies of the European powers
were simply of little economic consequence. As Lenin's own data
show, almost all European overseas investment was directed to the
"lands of recent settlement" (the United States, Canada, Australia,
South Africa, Argentina, etc.) rather than to the dependent colonies in
what today we call the Third World (Lenin, 1939 [1917], p. 64). In
fact, contrary to Lenin's view that politics follows investment, international
finance during this period was largely a servant of foreign pol-
S3
CHAPTER TWO
icy, as was also the case with French loans to Czarist Russia." Thus,
despite its proper focus on political change, Marxism is seriously
flawed as a theory of political economy.
THREE C H ALLENGES TO A WORLD MARKET ECONOMY
Despite its serious limitations as a theory of the market or the capitalist
world economy, Marxism does raise three issues that cannot be easily
dismissed and thar arc crucial to understanding the dynamics of international
relations in the contemporary era. The first is the economic
and political implications of the process of uneven growth. The second
is the relationship of a market economy and foreign policy. The third is
the capacity of a market economy to reform and moderate its less desirable
features.
The Process ofUneven Growth
There arc two fundamentally opposed explanations for the fact that
uneven economic growth tends to lead to political conflict. Marxism,
especially Lenin's law of uneven development, locates the sources of
the conflict in the advanced capitalist economies' need to export surplus
goods and capital and to engage in imperialistic conquest. Political
realism holds that conflict among states over economic resources and
political superiority is endemic in a system of international anarchy.
From the realist perspective, the process of uneven growth generates
conflict between rising and declining states as they seek to improve or
maintain their relative position in the international political hierarchy.
As already argued, there appears to be no reliable method to resolve
this controversy and choose one theory over the other. Both Marxism
and political realism can account for the tendency of uneven growth to
cause political conflict among states. Awkward facts and contrary evidence
can easily be "explained away" by the use of ad hoc hypotheses.
As neither of these theories appears capable of meeting the test of fa).
si6ability, scholars of international political economy arc forced to
identify with one or another depending on their assumptions about the
relationship of inrernational economics and international politics.
My positiori on this issue is that of political realism; the process of
uneven growth stimulates political conflict because it undermines the
international political status quo. Shifts in the location of economic activities
change the distribution of wealth and power among the states
" Herbert fei5 (1964 [1930]) and Eugene Staley (1915) have effeaively made this ar­
gumenr.
l4
THREE I D EOLOGIES OF POLITICAL ECONOMY
in the system. This redistribution ofpower and its effecton the standing
and welfare of individual states accentuate the conflict between rising
and declining states. If this conflict is not resolved it can lead to what I
have elsewhere called a "hegemonic war" whose ultimate result is to
determine which state or states will be dominant in the new international
hierarchy (Gilpin, 1981). A realist interpretation, I believe, is far
superior to that of Marxism in explaining the relationship of uneven
growth and political conflict.
Thus, in contrast to Lenin's use of the "law of uneven development"
to explain the First World War, one can counterpose Simon Kuznets'
essentially realist explanation. In his Modern Economic Growth, Kuznets
interrupts his detailed analysis of economic growth to inquire
whether a connection existed between the phenomenon of economic
growth and the first great war of this century (Kuznets, 1 966).
Kuznets first emphasizes the great growth in power that preceded the
outbreak of the war. "The growing productive power of developed nations,
derived from the science-oriented technology that played an increasing
role in modern economic growth, has meant also greater
power in armed conflict and greater capacity for protracted struggle"
(Kuznets, 1 966, p. 344). Together, continuing capital accumulation
and modern technology had enabled nations to conduct wars of unprecedented
magnitude.
Second, Kuznets regards such great wars as the "ultimate tests of
changes in relativepower among nations, tests to resolve disagreements
as to whether such shifts have indeed occurred and whether the political
adjustments pressed for are really warranted" (Kuznets, 1 966, p.
345). ln otherwords, the role of war is to test whether the redistribution
of power in the system wrought by economic growth has operated
tochange the fundamental balance of power in the system, and if the
balance has shifted, then consequent political and territorial adjustments
reflecting the new distribution are to be expected. In an age of
rapid and continuous economicgrowth there will be frequent and sig·
nificant shifts of relative economic, and hence of military, power. "If
wars are needed to confirm or deny such shifts, the rapidity and frequency
with which shifts occur may be the reason for the frequent conflicts
that serve as tests" (ibid.). Thus a great war is caused by the uneven
growth of state power.
And, finally, Kuznets argues that "major wars are associated with
the emergence in the course of modern economic growth of several
large and developed nations" (Kuznets, 1 966, p. 345). A century of uneasy
peace had been possible because, during much of the period, there
wasonly one large advanced country generating economic growth. The
5 5
CHAPTER TWO
emergence of other industrialized and growing societies, especially
Germany after 1 870, eventually led to hegemonic war. The emergence
of several large economically developed countries is the necessary, iJ
not sufficient, condition for the occurrence of world wars. "In this
sense it was a century of Pax Britannica that ended when the leading
country could no longer lead and impose its peace on such a large part
of the world" (ibid.). It seems impossible to say more than this about
the connection between economic growth and military conflict.
Market Economies and Foreign Policy
Another Marxist criticism of a market or capital society is that it tends
to pursue an aggressive foreign policy. Liberals, of course, take the opposite
position that capitalist economics are fundamentally pacific. For
example, Joseph Schumpeter in his essay on imperialism argued that
capitalists are antibellicose and modern wars are due to the holdover of
precapitalist "vestigial" social structures (Schumpeter, 195 1 ). In a truly
capitalist society, he maintained, the foreign policy would be pacifist. ' J
Marxists, liberals, and nationalists have long debated the issue of
whether economic interdependence is a source of peaceful relations or
a source of conflict among nation-states. Liberals believe that the mutual
benefits of trade and the expanding web of interd�pcndence among
national economies tend to foster cooperative relations. They believe,
as Norman Angell tried to demonstrate in his famous The Great Illusion
(19 10), written four years prior to the First World War, that war
has become unthinkable because it is antithetical to modern industrial
society and does not pay. But for nationalists, trade is merely another
arena for international competition, because economic interdependence
increases the insecurity of states and their vulnerability to external
economic and political forces.
From Montesquieu's statement that "peace is the natural effect of
trade," through the writings of john Bight and Richard Cobden in the
nineteenth century, to contemporary theorists of functionalism and
economic interdependence, liberals have viewed international economics
as separable from politics and as a force for peace. Whereas politics
tends to divide, economics tends to unite peoples. Trade and economic
interdependenCe create bonds of mutual interest and a vested interest
in international peace and thus have a moderating inOuence on inter·
national relations.
The basic nsumption of Marxists and economic nationalists, on the
'' Michael Doyle (1983) has argued in an excellent two·pan article that liberal econ·
omies, which he-in contrast to Schumperer-distinguishcs from capitalist ones, do in
faa have a low prope115ity to war in comparison with other liberal societies.
THREE I D E O L O G I E S OF PO LITICAL ECONOMY
other hand, is that international interdependence is not only a cause of
conflict and insecurity, but it creates dependency relations among
states. Because interdependence is never symmetrical, trade becomes a
source for increasing the political power of the strong over the weak.
therefore Marxists and economicnationalistsadvocatepolicies ofeco·
nomic autarky.
The historical record does not lend much support to either position;
the patterns of economic and political relations are highly contradictory.
Political antagonists may be major trading parmers, as was the
case with Great Britain and Germany in the First World War; or, as
was the case with the United States and the Soviet Union after the Second
World War, they may have negligibleeconomic intercourse. What
the evidence suggests is that whether trade aggravates or moderates
conflicts is dependent upon the political circumstances. Attention,
therefore, should be given to interrelated factors that appear to influence
the ways in which trade affects international political relations.
The first factor affecting the political consequences of trade is the existence
or absence of a dominant or hegemonic liberal power that can
establish and manage the international trading system. The great eras
of economic interdependence have been identified with the unchallenged
supremacy of hegemonic trading power such as Great Britain in
the nineteenth century and the United States after the Second World
War. When the domination of these powers waned and they were challenged
by rising powers, trade conflicts increased.
The second factor determining the political effects of trade is the rate
of economic growth in the system. Although it is true that the decline
of protectionism and the enlargement of world markets stimulates economic
growth, the corollary is also true; a rapid rate of economic
growth leads to increasing trade and economic interdependence. By the
same token, a slowdown in the rate of economic growth makes adjust·
ment difficult, intensifies international trade competition, and exacerbates
international political relations.
The third factor affecting the political results of trading relations is
the degree of homogeneity or heterogeneity of industrial structure,
which in turn determines the composition of imports and exports (Akamatsu,
1961). Although it is true that industrial nations trade more
with one another than with nonindustrial countries, when nations have
highly homogeneous or even similar industrial structures and exports,
competitive trading relations and commercial conflict frequently result
in periods of economic stagnation (Hicks, 1 969, pp. 56-57). By the
same token, heterogeneity of industrial structure tends to produce
complementary trading relations. Thus, the heterogeneity of the indus·
trial structures of Great Britain and other nations in the early and mid-
57
CHAPTER TWO
nineteenth century resulted in generally harmonious trading relations.
As other nations industrialized by the end of the century, commercial
conflict became intense. The same phenomenon may be observed in the
contemporary era, as rising industrial powers such as japan and the
newly industrializing countries (NICs) overtake and surpass the United
States.
The major point to be made in these matters is that trade and other
economic relations are not in themselves critical to the establishment of
either cooperative or conflictual international relations. No generalizations
on the relationship of economic interdependence and political
behavior appear possible. At times economic intercourse can moderate
and at others aggravate these relations. What can be said with some
justification is that trade is not a guarantor of peace. On the other hand,
the collapse of trade has frequently led to the outbreak of international
conflict (Condliffe, 1950, p. 52.7). In general, the character of international
relations and the question of peace or war are determined primarily
by the larger configurations of power and strategic interest
among both the great and small powers in the system.
The Significance ofWelfare Capitalism
The third problem raised by the the Marxist critique of a market or
capitalist economy is its capacity to reform itself. A\: the heart of the
debate between Lenin and Kautsky on the future of capitalism was the
possibility that capitalism could eliminate its worst features. For Kautsky
and the social democrats, the peaceful transition of capitalism into
socialism was possible as a result of the growth of workers' strength in
the Western democracies. To Lenin this seemed impossible and in fact
absurd because of the very nature of a capitalist economy:
Itgoes without saying that if capitalism could develop agriculture, which today
lags far behind industry everywhere, if it could raise the standard of living of
the masses, who are everywhere still poverty-stricken and underfed, in spite of
the amazing advance in technical knowledge, there could be no talk of a superabundance
of capital. This "argument" the petty-bourgeois critics of capital·
ism [read Kautsky] advance on every occasion. But if capitalism did these
things it would not be capitalism; for uneven development and wretched conditions
of the masses are fundamental and inevitable conditions and premises
of this mode of production (Lenin, 1939 (1917], pp. 62-63).
Leaving aside the tautological nature of Lenin's argument, what he
described as an impossibility under capitalism now exists in the welfare
states of the mid-twentieth century. Even if one admits that the welfare
state was forced on the capitalist class by the working class, the crucial
point is that it has largely addressed all three of the Marxist laws of cap-
5 8
THREE I D E O L O G I E S OF POLITICAL ECONOMY
TABU 1. Nullification of Marxist Laws by Welfare States
M11rxist lAw
fi) LawofDisproporriona\ity
(z.) Law of Accumulation
()) Law of the falling Rate of Profit
Welfare State
Demand management through fiscal and
monerary policy
Income redistribution through progressive
income tax and uansfer paymenrs
Support for trade unions
Regional and small businesspolicies
Government suppon of education and research
to inaease the efficiency of all factors
of production
italism and has satisfied most of Lenin's requirements for a reformed
capitalism, that is, a capitalism that guarantees full employment and
the economic welfare of the masses. The productivity of agriculture has
been vastly increased through government suppon of research programs,
the progressive income tax and other programs involving transferpayments
have significantly redistribuced income, and the advent of
Keynesian economics and demand management through fiscal and
monetary policy have moderated the operation of the "law of disproportionality"
and dampened cyclical fluctuations through the stimulation
of consumer demand.
In addition, government regulations and antitrust policies decrease
the concentration of capital while government suppon of mass education
and industrial research and development increases the efficiency
and profitability of both labor and capital. As Joseph Schumpeter has
written, capitalism is the first economic system to benefit the lower
rungs of society (Schumpeter, 1950). Indeed, one can argue that capitalism
has done all those things that Lenin predicted it could not do and
hasdone so even though the reforms of capitalism embodied in the welfare
state were initially strongly resisted by the capitalist class.• 4 (See
Table I .) In fact, the expansion of capitalism following the Second
World War produced the greatest era of general economic prosperity
in the history of the world.
•• Contemporary Mai:xisrs themselves have attempted to explain this anomaly in
Marxist theory by arguing thatthe capitalist state is semiautonomous and can take ac·
rions that, though contrary to the interesrs of individual capitalisrs, are in the interest of
the preservation ofcapitalism as a system. Such arguments among Marxisrsover the the·
ory of the state have become highly scholastic (Camoy, 198�). These theories are not
convincing and, like Lenin's theory of imperialism, are best regarded as ad hoc hy·
potheses that seek to explain away the predictive failures of Marxist theory rather than
asextensions of rhe rheory.
59
CHAPTER TWO
However, the Marxist critique of a capitalist or global market economy
still cannot be easily dismissed; it raises an important question regarding
the future of the market system. Although capitalism by itself
cannot be held accountable for imperialism and war and although it
has survived numerous crises and has proved that it could be highly
flexible and reform itself, its continued existence is still problematic.
Therefore let us turn directly to the question of the capacity of welfare
capitalism to survive in the rapidly changing world of nation-states in
the final years of this century.
WELFARE CAPITALISM IN A NON-WELFARE
INTERNATIONALIST CAPITALIST WORLD
Despite capitalism's successes and domestic reforms, one can reasonably
argue that Lenin's fourth law of uneven development remains in
force, and that this will eventually doom capitalism and the liberal market
economy. It is possible that, with the advent of the welfare state, the
inherent contradictions of capitalism have simply been transferred
from the domestic level of the nation-state to the international level. At
this level there is no welfare state; there is no world government to apply
Keynesian policies of demand management, to coordinate conflicting
national policies, or to counter tendencies toward economic dise·
quilibrium. In contrast to domestic society, there is no state to
compensate the losers, as is exemplified in the dismissal by wealthy
countries of the demands of the less developed countries for a New International
Economic Order (NIEO); nor is there an effective international
government response to cheating and market failures.
In the anarchy of international relations, the law of uneven development
and the possibility of intracapitalist dashes still applies. One
could even argue that the advent of national welfare states has accentuated
the economic conflicts among capitalist societies (Krauss, I 978).
The new commitment of the capitalist welfare state to full employment
and domestic economic well-being causes it to substitute interventionist
policies for the free play of market forces and thereby brings it into
conflict with the policies of other states pursuing a similar set of economic
goals.
Welfare states are potentially highly nationalistic because governments
have become accountable to their citizenry for the elimination of
economic suffering; sometimes the best way to achieve this goal is to
pass on economic difficulties to other societies. In times of economic
crisis public pressures encourage national governments to shift the burdens
of unemployment and economic adjustment to other societies;
60
THREE I D E O L O G I E S OF PO LITICAL ECONOMY
thus, economic and interstate competition through the market mechanism
subtly shifts to interstate conOict for economic and political advantage.
This nationalistic struggle to gain economic advantage and to
shift the costs of economic distress to others again threatens the future
of international capitalism.
The issue of the future of capitalist society in the era of the welfare
state is central to the question of the applicability of the core of Marx's
general theory of historical development to the world of the late twencieth
century. One proposition of Marx's theory was that "no social order
ever perishes before all the productive forces for which there is
room in it have developed; and new, higher relations of production
never appear before the material conditions of their existence have matured
in the womb of the old society itself" (Marx, 1 977 [1859), p.
190), that is, one mode of production is not transcended by the next
until it has exhausted its inherent productive potential. Each phase of
human experience, according to Marxism, has its own historical mission
to fulfill in elevating human productive capacities and thereby setting
the stage for the phase to follow. Each mode advances until further
progress is no longer possible; then historical necessity dictates that the
fetters holding back society are removed by the class chosen to carry it
to the next level of material achievement and human liberation.
The implications of this formulation are intriguing for the future of
capitalism envisioned by Marxist theory. According to Marx, the historical
function of capitalism was to develop the world and its productive
potential and then to bequeath to its heir, socialism, a fully developed
and industrialized world economy. Although Marx provided no
timetable for this cataclysmicevent to take place, he lived out his life in
the expectation that the revolution was imminent.
A5 Albert Hirschman has shown, Marx failed to recognize (or more
likely suppressed) the significance of these ideas for his analysis of the
eventual demise of capitalism, that is, if no mode of production comes
to an end until it plays out its historical role and if the assigned task of
capitalism is to develop the world, then the capitalist mode of production
has many decades, perhaps centuries or even millennia, yet to run
(Hirschman, 1981, ch. 7). If one further discounts, as Marxists do, the
"limits to growth" argument, capitalism's assigned task of the economic
development of the planet, including its oceans and nearby
space, will require a very long time indeed.
Hirschman suggests that this must have been an uncomfortable
thought for Marx, who until his dying day was so frequently disappointed
in his longing to see the coming of the revolution. In Hirschman's
view, this explains why Marx focused on European capitalism
6 1
CHAPTER TWO
as a closed rather than an open economy and why he failed to develop
a theory of imperialism even though one would have expected this of
him as an assiduous student of Hegel. As Hirschman points out, Hegel
anticipaced all subsequent theories of capitalist imperialism.
Hirschman concludes that Marx, in his own writings, suppressed
Hegel's theory of capitalist imperialism because of its disturbing implications
for Marx's predictions concerning the survivability of capitalism.
If no social system is displaced by another until it exhausts the productive
potential inherent in it, then an imperialistic capitalism as it
expands beyond Europe into Asia, Africa, and elsewhere will add new
life to the capitalist mode of production. Through the mechanisms of
overseas trade and foreign investment, the inevitable collapse of capitalism
may thus be postponed for centuries. Indeed, if such a collapse
must await the elevation of the developing world to the economic and
technological levels of the most advanced economy, then in a world of
continuing technological advance, the requisite full development of the
productive capacities of capitalism may never be reached.
Rosa Luxemburg appears to have been the first major Marxist theorist
to appreciate the historic significance of this reasoning; she argued
that as long as capitalism remains an open system and there are underdeveloped
lands into which the capitalist mode of production can expand,
Marx's prediction of economic stagnation and political revolution
will remain unfulfilled.'s In response to this troubling (at least for
Marxists) prospect, Lenin's Imperialism, as noted earlier, transformed
the Marxist critique of international capitalism. He argued that although
capitalism does develop the world and is an economic success,
the closing-in of political space through capitalist imperialism and the
territorial division of the globe among rising and declining capitalist
powers leads to international conflict. Thus, Lenin argued that the
masses would revolt against capitalism as a war-prone political system
rather than as a failed economic system.
Whether or not one accepts these several formulations and reformulations
of Marxist thought, they do raise a fundamental issue. As
Marx himself pointed out, the logic of the dynamics of a market or capitalist
economy is expansive and international. The forces of the market
reach out and bring the whole world within their confines, and they are
destructive of tr3.ditional ways. The basic anarchy of the market mechanism
produces instabilities in the lives of individuals and whole soci­
eties.
The modem welfare state and protectionism have developed to cush"
Roussc:as h!n'l is an excellent discussion of her views.
••
THREE I D E O L O G I E S OF POLITICAL ECONOMY
ion these deleterious effects, and herein lies the most serious problem
for the capitalist system and its survival. As Keynes appreciated, the
logic of the welfare state is to dose the economy, because the government
must be able to isolate the economy from external restraints and
disturbances in order to control and manage it. The international flow
of trade, money, and 6nance undermines the Keynesian management of
an economy by decreasingdomestic policy autonomy. Goods, Keynes
wrote at the height of the Great Depression, should be "homespun"
(Keynes, I 93 3), and capital should stay at home where it can bene6t the
nation and the nation's working class.
Thus, the logic of the market economy as an inherently expanding
global system collides with the logic of the modem welfare state. While
solving the problem of a dosed economy, the welfare state has only
transferred the fundamental problem of the market economy and its
survivability to the international level. The problem of reconciling welfare
capitalism at the domestic level with the nature of the international
capitalist system has become of increasing importance.
The resolution of rhis basic dilemma berween domestic autonomy
and international norms is essential to the future viabiliry of the market
or capitalist economy. How can one reconcile these two opposed
means of organizing economic affairs? Which will prevail-national
economic interventionism or the rules of rhe international market
economy? What are the conditions that promote peace and cooperation
among market economies? Is a dominant or hegemonic power required
to resolve the conflict? A look at the past successes and failures
of international capitalism reveals that temporary resolutions of this
dilemma or failures to resolve it have been crucial in recent history. In
the 1 980s the future of the world market economy and the continuing
survival of the capitalist mode of production are dependent upon solutions
developed or not developed by the United States and its major
economic partners.
In another guise this was the problem posed by Richard Cooper in
his inffuential book, The Economics ofInterdependence (1968). An in·
creasingly interdependent world economy requires either an international
agreement to formulate and enforce the rules of an open world
market economy and to facilitate the adjustment of differences or a
high degree of policy coordination among capitalist states. Without
one or the other, a market economy will tend to disintegrate into intense
nationalist conflicts over trade, monetary arrangements, and do·
mestic policies. With the relative decline of American power and its
ability or willingness to manage the world economy, this issue has become
preeminent in the world economy. If there is no increase in policy
63
C HAPTER TWO
coordination or decrease in economic interdependence among the leading
capitalist economies, the system could indeed break into warring
states, just as Lenin predicted.
The long-term survivability of a capitalist or international market
system, at least as we have known it since the end of the Second World
War, continues to be problematic. Although the welfare state "solved"
the problem of domestic capitalism identified by Marx, continuing
conflicts among capitalist societies over trade, foreign investment, and
international monetary affairs in the contemporary world remind us
that the debate between Lenin and Kautsky over the international nature
of capitalism is still relevant. As American power and leadership
decline due to the operation of the "law of uneven development," will
confrontation mount and the system collapse as one nation after another
pursues "beggar-my-neighbor" policies, as Lenin would expect?
Or, will Kautsky prove to be correct that capitalists are too rational to
permit this type of internecine economic slaughter to take place?
CONCLUSION
The foregoing analysis of economic ideologies leads to three general
propositions. The first is that the global or territorial distribution of
economic activities, especially of industry and technolQgy, is a central
concern of modem statecraft; behind the technicaldiscussions oftrade,
foreign investment, and monetary affairs are conflicting national ambitions
and the fundamental question of "who is to produce what and
where." The second point is that the international division of labor is a
product of both national policies and relative efficiency; although
states can and do ignore the market as they seek to influence the location
of economic activities, this entails economic costs; the price mechanism
operates to transform national efficiencies and international economic
relations over the long run. And third, due to these changes and
the uneven growth of national economies, the inherent stability of the
international market or capitalist system is highly problematic; it is the
nature of the dynamics of this system that it erodes the political foundations
upon which it must ultimately rest and thereby raises the crucial
question of finding a new political leadership to ensure the survival
of a liberal international economic order.