April 13, 2021

Rosa Luxemburg’s Heterodox View of the Global South

Michael R. Krätke

The Accumulation of Capital and the origins of colonialism

“The Plumb-pudding in danger, or, State epicures taking un petit souper”, an 1805 caricature by James Gillray, lampoons French and British imperialisms as they carve up the world. Photo: Wikimedia Commons

Rosa Luxemburg regarded her book The Accumulation of Capital, published in 1913, as her major contribution to the field of political economy. Luxemburg wanted to advance Marxist political economy and provide a convincing explanation for the then-urgent problem of imperialism.

Luxemburg’s book was meant to be a theoretical study, following all established academic and scientific standards. Academic rigour was of great importance to Luxemburg because in this book she endeavoured to criticize Marx and, in particular, his solution to the problem of accumulation as presented in Capital, Volume II. This analysis, according to Luxemburg, was not only incomplete but also deeply flawed. It had to be corrected and supplemented by something else—some concepts and analysis that could not be found in Marx’s writings.

Her book is in three parts. It begins with the presentation of Marx’s analysis of the accumulation process on the macrolevel, as it is found in Engels’s 1885 edition of Marx’s manuscripts for Capital, Volume II. That Luxemburg did not know the full scale and scope of Marx’s dealings with this matter, the analysis of the reproduction of capital as a totality, was not her fault.

The second part of The Accumulation of Capital was devoted to a lengthy presentation of the historical debates around the problem that Luxemburg had identified as an unsettled issue in Marx’s Capital. Traditionally, political economists used to dub this the “third parties” problem. Luxemburg’s exposition of different historical controversies around this problem did not add to the controversy. In addition, Luxemburg’s inclusion of third-party opinions only demonstrates her eagerness to present her argument in terms of a serious academic study, according to the standards of her time. It shows that the problem she saw in Marx’s analysis was closely linked to the theoretical explanation of the phenomenon of cyclical crises in capitalism and furthermore, that any solution hinged upon the identification of sources of additional “effective demand” that could keep up with the ever-increasing volumes of commodities produced and reproduced in capitalist economies.

Only in the third part of her book does she touch on the topic of imperialism. Without clarifying the term or concept, she uses it in a very conventional sense, meaning more or less the same as colonialism. What is striking, however, is the total lack of engagement with the many debates on imperialism and colonialism that had raged among socialist and Marxist economists within the ranks of the German Social Democracy for many years. Instead, and again without any serious engagement with the literature at hand, Luxemburg gives a short sketch of the main economic problems of imperialism as she saw them. In total, only six out of 32 chapters in her book and about a fourth of the total text of the book is devoted to what should have been its central theme.

Luxemburg’s Explanation of Imperialism and Why It Is Flawed

Rosa Luxemburg argued as follows: no capitalism can occur without accumulation, but accumulation is not possible within the realm of capitalism. Capitalist economies, when expanding through capital accumulation, do produce a surplus of commodities, for which there is no sufficient amount of additional effective demand from whatever source. Hence, capitalist economies can only grow, capital accumulation is only possible and sustainable as long as there are non-capitalist territories, areas, or people who can provide such additional effective demand. In order to survive, capitalism has to find, explore, occupy, and expand into non-capitalist territories and areas.

As many participants in the Luxemburg debate, which raged for many years and even long after her death, have shown again and again, this basic argument is wrong. The most probable explanation for the mistake Luxemburg made in the first part of her magnum opus is this: she misunderstood the shift from the analysis of a hypothetical simple reproduction to the analysis of the case of expanded reproduction (or accumulation), for a stylized historical sequence which it was never intended to be read as.

Nevertheless, the mistake Luxemburg made remains of interest. Not only because of the long debate it triggered, but in particular because of the clear insight into the problems of imperialism and colonialism she communicated, regardless of her false starting point. Furthermore, if, just for argument’s sake, we follow Luxemburg’s line of argument and accept her thesis on the surplus of commodities that cannot be sold within the confines of a growing capitalist economy as correct, then we encounter an astounding insight of hers. This insight is quite at odds with contemporary conventional wisdom about imperialism and colonialism among Marxists, and Leninists in particular.

Rosa Luxemburg saw very clearly that the non-capitalist spaces or societies which should provide a clue for the imperialist solution to the capitalist accumulation problem could not possibly provide such a solution, because in non-capitalist societies there are no ready-made sources for additional effective demand. These non-capitalist societies and areas, being non-capitalist, lack the economic (and the societal) structures that would allow them to buy and absorb large amounts of commodities from the developed capitalist world on a regular basis.

Firstly, they would not need them, either because they are self-sufficient subsistence economies or because they are highly sophisticated civilizations (like China, Japan, and Korea) which would have no desire for the industrial goods that advanced capitalist economies have to offer. There would be no consumers around in the non-capitalist world for the goods coming from the capitalist world. Secondly, even if people in the non-capitalist world had the need and the desire (and would not, like the Indians, prefer their own home-made fabrics), they would lack the money to buy them from the capitalist countries. Trading goods—for instance raw materials—against the products of capitalist industries in barter-style would be an outcome, although a rather clumsy one. The history of the trading empires (not a European invention at all) tells us another story: if foreigners desired the goods manufactured in the heartlands of a still largely non-capitalist world, they had to pay in cash—usually silver—for them, because the inhabitants of the highly civilized and highly developed parts of the non-capitalist world were not inclined to accept the products of capitalist industries in exchange.

In fact, not any form but most of the forms of non-capitalist production wouldn’t or couldn’t serve capitalism’s ends. Most of them would not be able to absorb a surplus of capitalist commodities. However, this is not the end but the beginning of enquiry for Luxemburg. Luxemburg’s analysis became more and more unsystematic and sketchy in the final chapters of her book. The last chapter of The Accumulation of Capital deviates from the logic of those that came before it, analysing the possibility to produce and reproduce arms and ammunition for military purposes only, that is to say for the needs of state-run armies within the framework of capitalist economies.

Luxemburg’s Heterodox View

Luxemburg’s basic argument in chapters 27 to 31 of her book is as follows: in order to serve the capitalist accumulation process, non-capitalist economies and societies have to be thoroughly transformed. Natural economies have to be transformed into commodity-producing, monetary, or market economies. That is done on a large scale by the invasion of capitalist powers who use a large array of means to undermine and destroy natural economies. Wherever they encounter peasant economies with some element of markets and a low degree of monetization, they try everything they can to speed up the process of transformation, changing these peasant economies and societies into fully-fledged market economies and societies. The foreign markets for the commodity surplus produced by capitalist colonial powers first have to be produced.

Although it does not save the overall structure of Luxemburg’s theoretical construct, this argument makes sense. It provides the starting point for an analysis of colonialism and imperialism, a highly contradictory process because, as Luxemburg emphasizes, the efforts to start, promote, and speed up a large-scale transformation of natural and peasant economies and societies in the non-capitalist world is highly costly. In order to make capitalist exploitation of people and resources in the non-capitalist world possible, the capitalists, capitalist colonial companies, and/or their states have to invest in their colonies on a large scale and for quite a long period of time.

This argument, the high cost of colonizing and/or empire-building, was well-known to eighteenth- and nineteenth-century political economists. Even Marx himself dealt with arguments about the costs and benefits of a colonial empire for 1850s Britain, finding the matter dubious and the evidence highly inconclusive. The majority of serious economic historians today agree that colonies and colonial empires were not very profitable, more a burden than an asset for most colonial powers, although many individuals and companies made huge profits from them. Colonial trade was only possible by establishing and maintaining long-distance trade networks. Those networks, as a rule, only paid off when the colonial trading companies could establish and protect a specific kind of commodity production, such as large-scale plantation economies producing exotic luxury goods in non-capitalist areas of the world. The costs of acquiring, maintaining, and protecting those commodity producing colonies were quite considerable.

That is why some states and governments in the capitalist world were reluctant to join the others in the race for colonies. Chancellor Bismarck famously said: “We are not rich enough to afford colonies!” Bismarck’s sustained resistance to any plans to plunge the German Empire into the race for more and more colonies all over the globe serves as an example of the reticence of some states. For economic reasons, the search for new and larger markets abroad was always a present and crucial concern for all commercial enterprises, but for real colonizing they were and proved again and again to be insufficient.

Unfortunately, Rosa Luxemburg did not provide any systematic or detailed analysis of the issues of colonization in her rather rudimentary chapters on the subject. Those chapters seem to have been written in a hurry. However, she does provide some rather conventional insights: for instance, she emphasized the high cost of infrastructural investment, the building of ports, markets, staple places, roads, canals, and their maintenance. In the colonies, the colonizers started with a few infrastructure projects, mostly ports. The easiest but not the cheapest way of making a profit for the state and the colonial entrepreneurs—although not necessarily for the capitalists back home in the motherlands—was to acquire and monopolize valuable resources. However, such “accumulation by dispossession” of the indigenous population did not pay off without large-scale investments.

One of the simplest examples to consider (unfortunately, Rosa Luxemburg did not) is gold or silver mining. Gold and silver were in use as both currency as well as commodities in most capitalist economies. Transferring gold and silver in large amounts from the non-capitalist to the capitalist world, like in Latin America, was an easy way to pay or repay the state for its support of the colonizing effort, and to pay for any commodities exported from the capitalist countries to the colonized non-capitalist areas. However, this was only beneficial under the precondition that the colonizing state, company, or both in tandem were willing and able to finance the building, running, and maintaining of gold and silver mines, and, furthermore, the building and maintaining of an international transport network for trading the gold and silver that was mined. As we know from the history of capitalism, mining was among the most capital-intensive industries and required sustained investments over long periods of time.

Luxemburg misses the contradictions inherent in some of the methods used for colonization. She rightly emphasized the importance of tax, that is taxation in monetary, not natural terms. Taxation was a widely used device, first in establishing capitalism in the European heartlands, forcing peasants to produce crops as commodities for the markets in order to earn the money they needed to pay their taxes. The proceeds of colonial taxation very seldom, if ever, sufficed as payment for the pure cost of colonial administration and government, including the considerable costs of maintaining colonial armed forces. Hence, it remains very doubtful whether all the efforts made to force non-capitalist societies and economies to adapt to and assume a capitalist mode of commodity production were ever enough to allow the colonies to absorb at least parts of the ever-growing amounts of commodities produced in the capitalist heartlands.

The sheer destruction of a peasant home industry, like weaving in India, by a mixture of cheap prices for industrial mass-produced products and pressure exerted upon the colonized people to buy British made goods, produced an horrendous amount of misery and a not very profitable trade relationship for the British textile industry. British exports of the products of British factories to India only flourished because of the rather large and growing population of expats in India, who were sustained by the British state.

Rosa Luxemburg went even further in chapter 30 of The Accumulation of Capital, emphasizing the role of international loans: the engagement of banks and financial institutions in the colonial enterprises of capitalist countries. More often than not, this kind of credit financing of colonizing efforts was supported and even subsidized by the state. Contrary to what Luxemburg assumes in her chapter, foreign loans were much older than the actual imperialist era she was trying to come to grips with. They were in use during the profitable era of the earliest sea-born trading empires and belonged to the age of merchant capitalism. In Luxemburg’s time, all large projects in the colonies, for instance all railway building and all telegraph building, were financed by means of international loans, more often than not organized by international banking consortia. The question is whether they were profitable—as a rule, they were not, swindles aside.

Luxemburg sees international finance as becoming crucial at a much later stage. Once the former non-capitalist societies and economies have been transformed into commodity-producing market economies and societies, they can develop further into capitalist economies and societies. In the end, as Luxemburg sees it, all former colonies will become integral parts of a fully capitalist world economy. This final stage of their transformation was financed and supported by large loans from banks in their motherlands—whether they had already gained their independence like the Latin American countries and Persia, or had not like India, or whether they had never lost it, like China and Japan.

The rationale for this is quite clear: in this stage, the building of new industries in those countries provided large additional markets for the export of investment goods (means of production) from the industrialized part of the capitalist world to the still-developing parts of the capitalist world economy. Hence, it is only in the very last stage of the long process of colonization of the non-capitalist world that Luxemburg’s argument makes some sense. However, in terms of trade relations, it does not fit this very late stage either. The bulk of world trade occurred and still occurs today between the most developed and highly industrialized parts of the capitalist world.

In Luxemburg’s very unsystematic account of colonialism and imperialism, protective tariffs and trade monopolies come nearly last, in just one short chapter. While these practices were quite old and preceded the peak of imperialism by centuries, protective tariffs and monopoly prizes were applied by colonial powers to colonial territories long before any transformation of the non-capitalist economies to commodity-producing economies could have occurred, in order to keep other aspiring colonial powers out and to make the long-distance foreign trade of colonial commodities (that was an official denomination still in use in the twentieth century) as profitable as possible. In order to avoid being exploited by successful colonial powers trading the resources and exotic products from non-capitalist regions of the world, the capitalist powers that existed had to acquire non-capitalist territories of their own with similar resources and products.

What about the Explanation of Colonialism and Imperialism?

In spite of some intriguing insights and in spite of the original idea to redesign the concept of the end of capitalist development, Luxemburg did not succeed in her explanation of colonialism/imperialism, which is incomplete, to say the least.

Although a failure, her book has the great advantage of taking issue with most of the conventional wisdoms of contemporary theories on imperialism. According to Luxemburg’s main argument in the last chapters of her book, it is at least questionable whether capitalist powers were ever able to make large profits from their colonial enterprises or sustain them for a longer period of time. Some trades, some productions, and some exploitations were profitable, albeit only for rather small groups of colonial entrepreneurs. The investment and cost necessary for running larger colonial enterprises for the states and governments involved outweighed the gains for some individuals. Thus, any form of colonial expansion into the non-capitalist world suffers from an inner contradiction between the burdens and costs of these risky enterprises—which the colonial entrepreneurs shun and try to shift to their respective governments—and the possible gains—which remain unsure and uncertain but will be reaped by the colonial pioneers. That is why European powers more often than not did leave colonial adventures to the initiative of private companies of merchant adventurers.

The exception to this is the cases of real settler colonies, like the North American colonies in New England and in Australia, and the Latin American colonies. In those cases, capitalist structures were transplanted together with people, technology, and capital from the capitalist heartlands to the new colonies. Once the colonial economies, based upon commodity trade, manufacture, and appropriation of land and resources started to thrive, these economies and societies—which were by no means non-capitalist—entered into conflicts with their respective motherlands about the distribution of costs and benefits of the colonial enterprise. As already-developed capitalist societies and economies, these countries and their people wanted to sever ties with the greater colonial powers who, like Great Britain, tried their best to use them as mere outlet markets for their surplus goods—something the inhabitants of the settler colonies did not appreciate in the longer run.

In order to keep or reap the benefits of colonialism for the first time, they sought to break their bonds with the motherlands. In addition, the motherlands became ever more reluctant and parsimonious with respect to covering the continuing cost of the colonial enterprise and shifted from exploitation by taxation to exploitation by credit. Here, Luxemburg added some remarkable insights about colonial finance—the export of capital by means of loans (public credit in various forms) which submitted the colonists, in fact the whole population of the colonies to one form or another of debt slavery to the bankers and financiers of the motherlands.

At any rate, even if Luxemburg’s analysis of the macroeconomic reasons for imperialism inherent in modern capitalism had been flawless, a purely economic explanation remains insufficient. Rosa Luxemburg (re)discovered the problems of the high costs and high risks of any colonial enterprise, which entails a thorough transformation of the social and economic institutions of the colonized territories and people. However, this adds to an argument against the hazards of colonialism and imperialism that was subscribed to by many political economists from the time of the mercantilists onwards. As a matter of fact, Luxemburg’s non-Marxist critics, like Joseph Schumpeter, were largely right: in order to explain the phenomenon of imperialism in the late nineteenth century, in particular the “scramble for Africa”, we have to take into account the rivalries between the great powers of the time. Regarding those very rivalries, we have to acknowledge that most of these were rather old and involved colonial powers with centuries-old traditions of colonizing, like Great Britain, France, and Russia. Germany was a newcomer, and Spain, Portugal, and the Netherlands were the powers of the past. Rosa Luxemburg was not unaware of this—she actually mentioned the rival great powers and their interactions—but this ongoing conflict, the extension and continuation of long-lasting “imperial” conflicts between the great powers in Europe over European territories, did not play any significant role in her argument.

Any theory of colonialism and imperialism has to situate these historical phenomena within the long history of modern capitalism and the states which drove the development of capitalism. The very first capitalist powers, the city states like Venice, Genoa, and Barcelona, were already colonizers. Territorial states under absolutist rule entered the fray and created a very different kind of colonialism: they invented a new form of a transnational hybrid empire and nation state, which prevailed until World War II.

Michael R. Krätke was professor of (international)  political economy at the universities of Berlin, Bielefeld, Amsterdam,  Lancaster, and Sendai, and is professor of philosophy and political  economy at the University of Wuhan. He is the author of many books and  articles on political economy and political sociology, including Friedrich Engels, oder: Wie ein Cottonlord den Marxismus erfand  (Dietz 2020). This article is based on his presentation at “Rosa  Luxemburg at 150: Revisiting Her Life and Legacy”, a conference hosted  by the Rosa-Luxemburg-Stiftung and the International Rosa Luxemburg  Society on 4–5 March 2021